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

Difficulty: Intermediate


Intrinsic Stock Value (Valuation Summary)

Allergan PLC, free cash flow to the firm (FCFF) forecast

USD $ in thousands, except per share data

 
Year Value FCFFt or Terminal value (TVt) Calculation Present value at %
01 FCFF0
1 FCFF1 = × (1 + %)
2 FCFF2 = × (1 + %)
3 FCFF3 = × (1 + %)
4 FCFF4 = × (1 + %)
5 FCFF5 = × (1 + %)
5 Terminal value (TV5) = × (1 + %) ÷ (% – %)
Intrinsic value of Allergan's capital
Less: Preferred shares, $0.0001 par value per share (book value)
Less: Long-term debt and capital leases, including current portion (fair value)
Intrinsic value of Allergan's common stock
Intrinsic value of Allergan's common stock (per share) $
Current share price $

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.

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Weighted Average Cost of Capital (WACC)

Allergan PLC, cost of capital

 
Value1 Weight Required rate of return2 Calculation
Equity (fair value) %
Preferred shares, $0.0001 par value per share (book value) %
Long-term debt and capital leases, including current portion (fair value) % = % × (1 – %)

1 USD $ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= × $ = $

   Long-term debt and capital leases, including current portion (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
= (% + % + % + % + %) ÷ 5 = %

WACC = %

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FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Allergan PLC, PRAT model

 
Average Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (USD $ in thousands)
Interest expense
Income (loss) from discontinued operations, net of tax
Net income (loss) attributable to shareholders
Effective income tax rate (EITR)1 % % % % %
Interest expense, after tax2
Add: Dividends declared
Interest expense (after tax) and dividends
EBIT(1 – EITR)3
Current portion of long-term debt and capital leases
Long-term debt and capital leases, excluding current portion
Shareholders' equity
Total capital
Ratios
Retention rate (RR)4
Return on invested capital (ROIC)5 % % % % %
Averages
RR
ROIC %
Growth rate of FCFF (g)6 %

2017 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= × (1 – %) =

3 EBIT(1 – EITR) = Net income (loss) attributable to shareholders – Income (loss) from discontinued operations, net of tax + Interest expense, after tax
= + =

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [] ÷ =

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × ÷ = %

6 g = RR × ROIC
= × % = %

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × ( × % – ) ÷ ( + ) = %

where:
Total capital, fair value0 = current fair value of Allergan's debt and equity (USD $ in thousands)
FCFF0 = last year Allergan's free cash flow to the firm (USD $ in thousands)
WACC = weighted average cost of Allergan's capital

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FCFF growth rate (g) forecast

Allergan PLC, H-model

 
Year Value gt
1 g1 %
2 g2 %
3 g3 %
4 g4 %
5 and thereafter g5 %

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 + (g5g1) × (2 – 1) ÷ (5 – 1)
= % + (% – %) × (2 – 1) ÷ (5 – 1) = %

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= % + (% – %) × (3 – 1) ÷ (5 – 1) = %

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= % + (% – %) × (4 – 1) ÷ (5 – 1) = %

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