In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)
Weighted Average Cost of Capital (WACC)
FCFF Growth Rate (g)

Air Products & Chemicals Inc., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 11.17%
0¹	FCFF₀	822,429
1	FCFF₁	856,530	= 822,429 × (1 + 4.15%)	770,478
2	FCFF₂	904,290	= 856,530 × (1 + 5.58%)	731,718
3	FCFF₃	967,643	= 904,290 × (1 + 7.01%)	704,318
4	FCFF₄	1,049,269	= 967,643 × (1 + 8.44%)	687,003
5	FCFF₅	1,152,782	= 1,049,269 × (1 + 9.87%)	678,948
5	Terminal value (TV₅)	97,174,743	= 1,152,782 × (1 + 9.87%) ÷ (11.17% – 9.87%)	57,232,562
Intrinsic value of Air Products & Chemicals Inc. capital				60,805,028
Less: Debt (fair value)				8,286,100
Intrinsic value of Air Products & Chemicals Inc. common stock				52,518,928

Intrinsic value of Air Products & Chemicals Inc. common stock (per share)				$237.25
Current share price				$275.75

Based on: 10-K (reporting date: 2020-09-30).

¹ See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Air Products & Chemicals Inc., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	61,041,305	0.88	12.47%
Debt (fair value)	8,286,100	0.12	1.56%	= 1.98% × (1 – 21.05%)

Based on: 10-K (reporting date: 2020-09-30).

¹ US$ in thousands

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 221,364,660 × $275.75
= $61,041,304,995.00

Debt (fair value). See details »

² Required rate of return on equity is estimated by using CAPM. See details »

Required rate of return on debt. See details »

Required rate of return on debt is after tax.

Estimated (average) effective income tax rate
= (19.70% + 19.10% + 17.60% + 18.40% + 27.50% + 24.00%) ÷ 6
= 21.05%

WACC = 11.17%

FCFF growth rate (g) implied by PRAT model

Air Products & Chemicals Inc., PRAT model

	Average	Sep 30, 2020	Sep 30, 2019	Sep 30, 2018	Sep 30, 2017	Sep 30, 2016	Sep 30, 2015
Selected Financial Data (US$ in thousands)
Interest expense		109,300)	137,000)	130,500)	120,600)	115,500)	103,500)
Income (loss) from discontinued operations, net of tax		(14,300)	—)	42,200)	1,866,000)	(884,200)	—)
Net income attributable to Air Products		1,886,700)	1,760,000)	1,497,800)	3,000,400)	631,100)	1,277,900)

Effective income tax rate (EITR)¹		19.70%	19.10%	17.60%	18.40%	27.50%	24.00%

Interest expense, after tax²		87,768)	110,833)	107,532)	98,410)	83,738)	78,660)
Add: Dividends on common stock		1,144,100)	1,008,300)	931,800)	808,500)	733,700)	687,900)
Interest expense (after tax) and dividends		1,231,868)	1,119,133)	1,039,332)	906,910)	817,438)	766,560)

EBIT(1 – EITR)³		1,988,768)	1,870,833)	1,563,132)	1,232,810)	1,599,038)	1,356,560)

Short-term borrowings		7,700)	58,200)	54,300)	144,000)	935,800)	1,494,300)
Current portion of long-term debt		470,000)	40,400)	406,600)	416,400)	371,300)	435,600)
Long-term debt, excluding current portion		7,132,900)	2,907,300)	2,967,400)	3,402,400)	4,918,100)	3,949,100)
Long-term debt, related party		297,200)	320,100)	384,300)	—)	—)	—)
Total Air Products shareholders’ equity		12,079,800)	11,053,600)	10,857,500)	10,086,200)	7,079,600)	7,249,000)
Total capital		19,987,600)	14,379,600)	14,670,100)	14,049,000)	13,304,800)	13,128,000)
Financial Ratios
Retention rate (RR)⁴		0.38	0.40	0.34	0.26	0.49	0.43
Return on invested capital (ROIC)⁵		9.95%	13.01%	10.66%	8.78%	12.02%	10.33%
Averages
RR	0.38
ROIC	10.79%

FCFF growth rate (g)⁶	4.15%

Based on: 10-K (reporting date: 2020-09-30), 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30).

¹ See details »

2020 Calculations

² Interest expense, after tax = Interest expense × (1 – EITR)
= 109,300 × (1 – 19.70%)
= 87,768

³ EBIT(1 – EITR) = Net income attributable to Air Products – Income (loss) from discontinued operations, net of tax + Interest expense, after tax
= 1,886,700 – -14,300 + 87,768
= 1,988,768

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,988,768 – 1,231,868] ÷ 1,988,768
= 0.38

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,988,768 ÷ 19,987,600
= 9.95%

⁶ g = RR × ROIC
= 0.38 × 10.79%
= 4.15%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (69,327,405 × 11.17% – 822,429) ÷ (69,327,405 + 822,429)
= 9.87%

where:

Total capital, fair value₀ = current fair value of Air Products & Chemicals Inc. debt and equity (US$ in thousands)
FCFF₀ = the last year Air Products & Chemicals Inc. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of Air Products & Chemicals Inc. capital

FCFF growth rate (g) forecast

Air Products & Chemicals Inc., H-model

Year	Value	g_t
1	g₁	4.15%
2	g₂	5.58%
3	g₃	7.01%
4	g₄	8.44%
5 and thereafter	g₅	9.87%

where:
g₁ is implied by PRAT model
g₅ is implied by single-stage model
g₂, g₃ and g₄ are calculated using linear interpoltion between g₁ and g₅

Calculations

g₂ = g₁ + (g₅ – g₁) × (2 – 1) ÷ (5 – 1)
= 4.15% + (9.87% – 4.15%) × (2 – 1) ÷ (5 – 1)
= 5.58%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 4.15% + (9.87% – 4.15%) × (3 – 1) ÷ (5 – 1)
= 7.01%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 4.15% + (9.87% – 4.15%) × (4 – 1) ÷ (5 – 1)
= 8.44%

Air Products & Chemicals Inc. (NYSE:APD)

Present Value of Free Cash Flow to the Firm (FCFF)

Intrinsic Stock Value (Valuation Summary)

Weighted Average Cost of Capital (WACC)

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

FCFF growth rate (g) implied by single-stage model

FCFF growth rate (g) forecast