Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
3M Co., FCFF calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
The financial performance from 2017 to 2021 reflects a period of expansion in cash generation followed by a moderate contraction in the final year. Both net cash provided by operating activities and free cash flow to the firm (FCFF) exhibited a consistent upward trajectory through 2020 before experiencing a decline in 2021.
- Operating Cash Flow Trends
- Net cash provided by operating activities grew from 6,240 million US$ in 2017 to a peak of 8,113 million US$ in 2020. This represents a cumulative increase of approximately 30% over the first four years of the period, indicating a strengthening of operational cash generation. However, this growth trend reversed in 2021, as cash provided by operating activities decreased to 7,454 million US$.
- Free Cash Flow to the Firm (FCFF) Analysis
- FCFF mirrored the operational trend, increasing from 5,027 million US$ in 2017 to a high of 7,033 million US$ in 2020. The most significant year-over-year growth occurred between 2019 and 2020, where FCFF increased by approximately 23.9%. This growth was followed by a contraction in 2021, with FCFF falling to 6,239 million US$, a decline of roughly 11.3% from the previous year's peak.
- Cash Flow Conversion and Capital Allocation
- An analysis of the relationship between operating cash flow and FCFF reveals fluctuations in capital expenditures. From 2017 to 2019, FCFF remained relatively stable as a percentage of operating cash flow, hovering around 80%. In 2020, the conversion rate improved significantly, with FCFF representing approximately 86.7% of operating cash flow, suggesting a reduction in capital outflows relative to cash generation. By 2021, this conversion rate adjusted to approximately 83.7%.
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Interest Paid, Net of Tax
3M Co., interest paid, net of tax calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
2 2021 Calculation
Cash interest payments, tax = Cash interest payments × EITR
= 472 × 17.80% = 84
An analysis of the financial figures from 2017 to 2021 reveals a general increase in net cash interest payments occurring simultaneously with a steady decline in the effective income tax rate.
- Effective Income Tax Rate Trends
- The effective income tax rate experienced a consistent downward trajectory over the five-year period. Starting at 25.40% in 2017, the rate decreased annually, reaching 17.80% by December 31, 2021. This represents a total reduction of 760 basis points, indicating a lower tax burden on taxable income over time.
- Net Cash Interest Payment Trends
- Cash interest payments, net of tax, exhibited a significant upward trend for the majority of the period. Payments rose from 160 million USD in 2017 to a peak of 421 million USD in 2020. A slight reversal was observed in 2021, where the figure declined to 388 million USD, though this remained substantially higher than the 2017 baseline.
- Combined Financial Impact
- Between 2017 and 2020, net cash interest payments increased by approximately 163%. Because interest payments are typically tax-deductible, the "net of tax" value is influenced by the effective tax rate. The simultaneous decline in the effective income tax rate suggests that the tax shield provided by interest expenses became less valuable per dollar spent. Consequently, the sharp rise in net cash outflows suggests a substantial increase in the underlying gross interest obligations during this timeframe.
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Enterprise Value to FCFF Ratio, Current
3M Co., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 78,269) |
| Free cash flow to the firm (FCFF) | 6,239) |
| Valuation Ratio | |
| EV/FCFF | 12.55 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Boeing Co. | 297.78 |
| Caterpillar Inc. | 41.92 |
| Eaton Corp. plc | 44.63 |
| GE Aerospace | 40.31 |
| Honeywell International Inc. | 14.43 |
| Lockheed Martin Corp. | 17.50 |
| RTX Corp. | 30.06 |
| EV/FCFF, Sector | |
| Capital Goods | 56.25 |
| EV/FCFF, Industry | |
| Industrials | 41.93 |
Based on: 10-K (reporting date: 2021-12-31).
1 Click competitor name to see calculations.
If the company EV/FCFF is lower then the EV/FCFF of benchmark then company is relatively undervalued.
Otherwise, if the company EV/FCFF is higher then the EV/FCFF of benchmark then company is relatively overvalued.
Enterprise Value to FCFF Ratio, Historical
3M Co., historical EV/FCFF calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Enterprise value (EV)1 | 106,224) | 116,495) | 111,816) | 126,601) | 142,683) | |
| Free cash flow to the firm (FCFF)2 | 6,239) | 7,033) | 5,668) | 5,121) | 5,027) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 17.03 | 16.56 | 19.73 | 24.72 | 28.39 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 20.50 | — | — | — | — | |
| Eaton Corp. plc | 38.16 | — | — | — | — | |
| GE Aerospace | 56.53 | — | — | — | — | |
| Honeywell International Inc. | 25.22 | — | — | — | — | |
| Lockheed Martin Corp. | 13.92 | — | — | — | — | |
| RTX Corp. | 27.29 | — | — | — | — | |
| EV/FCFF, Sector | ||||||
| Capital Goods | 32.16 | — | — | — | — | |
| EV/FCFF, Industry | ||||||
| Industrials | 28.81 | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
3 2021 Calculation
EV/FCFF = EV ÷ FCFF
= 106,224 ÷ 6,239 = 17.03
4 Click competitor name to see calculations.
Between 2017 and 2021, a consistent downward trajectory in the Enterprise Value to Free Cash Flow to the Firm (EV/FCFF) ratio is observed. This trend is driven by a concurrent decline in the total enterprise value and a general improvement in cash flow generation, suggesting a compression in the valuation multiple applied to the firm's cash flows.
- Enterprise Value (EV)
- The enterprise value exhibited a general decline over the five-year period, falling from 142,683 million US$ in 2017 to 106,224 million US$ in 2021. Aside from a marginal increase in 2020, the valuation of the entity decreased steadily, representing a total reduction of approximately 25.5% by the end of the period.
- Free Cash Flow to the Firm (FCFF)
- Cash flow generation showed a positive growth trend for the majority of the period. FCFF rose from 5,027 million US$ in 2017 to a peak of 7,033 million US$ in 2020, before moderating to 6,239 million US$ in 2021. This overall upward movement indicates an improved capacity to generate cash available to all capital providers.
- EV/FCFF Ratio
- The EV/FCFF ratio experienced a significant contraction, decreasing from 28.39 in 2017 to 17.03 in 2021. The most pronounced decline occurred between 2017 and 2020, during which the ratio fell to 16.56. The convergence of a shrinking enterprise value and expanding cash flows resulted in a lower valuation multiple, which remained relatively stable in the final year of the period.
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