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Microsoft Excel LibreOffice Calc


Present Value of Free Cash Flow to Equity (FCFE)

Difficulty: Intermediate

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 equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company's asset base.


Intrinsic Stock Value (Valuation Summary)

Caterpillar Inc., free cash flow to equity (FCFE) forecast

USD $ in millions, except per share data

Microsoft Excel LibreOffice Calc
Year Value FCFEt or Terminal value (TVt) Calculation Present value at hidden
01 FCFE0 hidden
1 FCFE1 hidden = hidden × (1 + hidden) hidden
2 FCFE2 hidden = hidden × (1 + hidden) hidden
3 FCFE3 hidden = hidden × (1 + hidden) hidden
4 FCFE4 hidden = hidden × (1 + hidden) hidden
5 FCFE5 hidden = hidden × (1 + hidden) hidden
5 Terminal value (TV5) hidden = hidden × (1 + hidden) ÷ (hiddenhidden) hidden
Intrinsic value of Caterpillar's common stock hidden
Intrinsic value of Caterpillar's common stock (per share) $hidden
Current share price $hidden

Based on: 10-K (filing date: 2018-02-15).

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.


Required Rate of Return (r)

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF hidden
Expected rate of return on market portfolio2 E(RM) hidden
Systematic risk (β) of Caterpillar's common stock βCAT hidden
Required rate of return on Caterpillar's common stock3 rCAT hidden

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

Calculations

2 See Details »

3 rCAT = RF + βCAT [E(RM) – RF]
= hidden + hidden [hiddenhidden]
= hidden


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Caterpillar Inc., PRAT model

Microsoft Excel LibreOffice Calc
Average Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Selected Financial Data (USD $ in millions)
Dividends declared hidden hidden hidden hidden hidden
Profit (loss) attributable to common stockholders hidden hidden hidden hidden hidden
Sales of Machinery, Energy & Transportation hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden
Equity attributable to common stockholders hidden hidden hidden hidden hidden
Ratios
Retention rate1 hidden hidden hidden hidden hidden
Profit margin2 hidden hidden hidden hidden hidden
Asset turnover3 hidden hidden hidden hidden hidden
Financial leverage4 hidden hidden hidden hidden hidden
Averages
Retention rate hidden
Profit margin hidden
Asset turnover hidden
Financial leverage hidden
Growth rate of FCFE (g)5 hidden

Based on: 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-16), 10-K (filing date: 2015-02-17), 10-K (filing date: 2014-02-18).

2017 Calculations

1 Retention rate = (Profit (loss) attributable to common stockholders – Dividends declared) ÷ Profit (loss) attributable to common stockholders
= (hiddenhidden) ÷ hidden = hidden

2 Profit margin = 100 × Profit (loss) attributable to common stockholders ÷ Sales of Machinery, Energy & Transportation
= 100 × hidden ÷ hidden = hidden

3 Asset turnover = Sales of Machinery, Energy & Transportation ÷ Total assets
= hidden ÷ hidden = hidden

4 Financial leverage = Total assets ÷ Equity attributable to common stockholders
= hidden ÷ hidden = hidden

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= hidden × hidden × hidden × hidden = hidden


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (hidden × hiddenhidden) ÷ (hidden + hidden) = hidden

where:
Equity market value0 = current market value of Caterpillar's common stock (USD $ in millions)
FCFE0 = last year Caterpillar's free cash flow to equity (USD $ in millions)
r = required rate of return on Caterpillar's common stock


FCFE growth rate (g) forecast

Caterpillar Inc., H-model

Microsoft Excel LibreOffice Calc
Year Value gt
1 g1 hidden
2 g2 hidden
3 g3 hidden
4 g4 hidden
5 and thereafter g5 hidden

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)
= hidden + (hiddenhidden) × (2 – 1) ÷ (5 – 1) = hidden

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

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