Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Baxter International Inc., FCFF calculation
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
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A comprehensive review of the cash flow metrics from 2011 to 2015 reveals a period of operational growth followed by a significant contraction in liquidity. While cash flows from operations exhibited a gradual upward trajectory for the first four years, the free cash flow to the firm displayed a divergent pattern of decline starting in 2013, culminating in a sharp reduction by the end of 2015.
- Cash Flows from Operations Trends
- Cash flows from operations grew steadily from 2,817 million US$ in 2011 to a peak of 3,215 million US$ in 2014. This four-year period indicates a consistent capacity to generate cash from core business activities. However, a precipitous decline occurred in 2015, where values fell to 1,129 million US$, representing a reduction of approximately 65% compared to the prior year.
- Free Cash Flow to the Firm (FCFF) Performance
- FCFF peaked at 2,095 million US$ in 2012. Following this peak, a sustained downward trend is observed, with values falling to 1,886 million US$ in 2013 and 1,539 million US$ in 2014. This contraction accelerated sharply in 2015, with FCFF dropping to 428 million US$, a decrease of approximately 72% from 2014 levels.
- Operational and Investment Divergence
- A notable divergence occurred between 2012 and 2014, during which operational cash flows continued to rise while FCFF consistently declined. This pattern suggests an increase in capital expenditures or investment outflows that outpaced the growth in operating cash. The subsequent simultaneous collapse of both metrics in 2015 indicates a severe impact on the overall cash-generating ability of the firm.
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Interest Paid, Net of Tax
Baxter International Inc., interest paid, net of tax calculation
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
2 2015 Calculation
Interest paid, net of portion capitalized, tax = Interest paid, net of portion capitalized × EITR
= 178 × 8.20% = 15
3 2015 Calculation
Interest costs capitalized, tax = Interest costs capitalized × EITR
= 51 × 8.20% = 4
The financial data from 2011 to 2015 reveals a significant upward trajectory in interest expenditures, accompanied by a sharp decline in the effective income tax rate during the final year of the period.
- Interest Paid, Net of Capitalized Portion and Tax
- Interest payments experienced substantial growth between 2011 and 2014, rising from 49 million US dollars to 166 million US dollars. This represents a more than threefold increase over four years, indicating a significant expansion in debt obligations or an increase in the cost of borrowing. A stabilization is noted in 2015, with the figure slightly decreasing to 163 million US dollars.
- Interest Costs Capitalized, Net of Tax
- Capitalized interest followed a similar growth pattern to overall interest payments, increasing from 32 million US dollars in 2011 to a peak of 56 million US dollars in 2014. This trend suggests a period of intensified investment in qualifying long-term assets. A reversal occurred in 2015, where capitalized costs decreased to 47 million US dollars, potentially signaling a reduction in major capital expenditure projects.
- Effective Income Tax Rate (EITR) Dynamics
- The effective income tax rate remained relatively constant, fluctuating narrowly between 20% and 21% from 2011 through 2014. A significant contraction occurred in 2015, with the rate dropping to 8.2%. Because interest expenses are reported net of tax, this lower rate reduces the tax shield benefit normally associated with interest payments, thereby increasing the net after-tax cost of debt for the organization during that period.
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Enterprise Value to FCFF Ratio, Current
Baxter International Inc., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 25,328) |
| Free cash flow to the firm (FCFF) | 428) |
| Valuation Ratio | |
| EV/FCFF | 59.15 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Abbott Laboratories | 25.75 |
| Elevance Health Inc. | 20.49 |
| Intuitive Surgical Inc. | 62.87 |
| Medtronic PLC | 25.42 |
| UnitedHealth Group Inc. | 20.98 |
Based on: 10-K (reporting date: 2015-12-31).
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
Baxter International Inc., historical EV/FCFF calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Enterprise value (EV)1 | 20,781) | 43,675) | 44,093) | 38,961) | 34,243) | |
| Free cash flow to the firm (FCFF)2 | 428) | 1,539) | 1,886) | 2,095) | 1,938) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 48.53 | 28.38 | 23.38 | 18.60 | 17.67 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Abbott Laboratories | — | — | — | — | — | |
| Elevance Health Inc. | — | — | — | — | — | |
| Intuitive Surgical Inc. | — | — | — | — | — | |
| Medtronic PLC | — | — | — | — | — | |
| UnitedHealth Group Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
3 2015 Calculation
EV/FCFF = EV ÷ FCFF
= 20,781 ÷ 428 = 48.53
4 Click competitor name to see calculations.
Analysis of the financial metrics from 2011 to 2015 reveals a significant divergence between enterprise value and free cash flow to the firm, resulting in a sharp expansion of the EV/FCFF multiple.
- Enterprise Value Trends
- Enterprise value exhibited an upward trajectory from 2011 to 2013, rising from 34,243 million to a peak of 44,093 million. This growth plateaued in 2014 before experiencing a substantial contraction in 2015, falling to 20,781 million.
- Free Cash Flow to the Firm (FCFF) Trends
- FCFF reached its highest point in 2012 at 2,095 million. Subsequently, a consistent downward trend occurred, with cash flows declining to 1,886 million in 2013 and 1,539 million in 2014. A precipitous decline was recorded in 2015, where FCFF dropped to 428 million.
- EV/FCFF Ratio Interpretation
- The EV/FCFF ratio increased steadily over the five-year period, moving from 17.67 in 2011 to 48.53 in 2015. This acceleration indicates that the firm's valuation became increasingly disconnected from its actual cash flow generation. The dramatic spike in the ratio during 2015 was primarily driven by the collapse in FCFF, which decreased far more aggressively than the corresponding decline in enterprise value.
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