Stock Analysis on Net
Stock Analysis on Net
Stock Analysis on Net without ads!

Caterpillar Inc. (NYSE:CAT)

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

Microsoft Excel

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)

Caterpillar Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 22.35%
01 FCFF0 9,561
1 FCFF1 10,551 = 9,561 × (1 + 10.35%) 8,623
2 FCFF2 11,888 = 10,551 × (1 + 12.68%) 7,941
3 FCFF3 13,672 = 11,888 × (1 + 15.01%) 7,464
4 FCFF4 16,043 = 13,672 × (1 + 17.34%) 7,158
5 FCFF5 19,197 = 16,043 × (1 + 19.66%) 7,001
5 Terminal value (TV5) 854,205 = 19,197 × (1 + 19.66%) ÷ (22.35% – 19.66%) 311,509
Intrinsic value of Caterpillar Inc. capital 349,696
Less: Short-term borrowings and long-term debt (fair value) 43,081
Intrinsic value of Caterpillar Inc. common stock 306,615
 
Intrinsic value of Caterpillar Inc. common stock (per share) $665.63
Current share price $830.03

Based on: 10-K (reporting date: 2025-12-31).

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.

Weighted Average Cost of Capital (WACC)

Caterpillar Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 382,343 0.90 24.48%
Short-term borrowings and long-term debt (fair value) 43,081 0.10 3.51% = 4.50% × (1 – 21.96%)

Based on: 10-K (reporting date: 2025-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 460,637,026 × $830.03
= $382,342,550,690.78

   Short-term borrowings and long-term 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
= (24.00% + 19.70% + 21.30% + 23.60% + 21.20%) ÷ 5
= 21.96%

WACC = 22.35%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Caterpillar Inc., PRAT model

Microsoft Excel
Average Dec 31, 2025 Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021
Selected Financial Data (US$ in millions)
Interest expense excluding Financial Products 502 512 511 443 488
Profit attributable to common stockholders 8,884 10,792 10,335 6,705 6,489
 
Effective income tax rate (EITR)1 24.00% 19.70% 21.30% 23.60% 21.20%
 
Interest expense excluding Financial Products, after tax2 382 411 402 338 385
Add: Dividends declared 2,788 2,690 2,599 2,473 2,374
Interest expense (after tax) and dividends 3,170 3,101 3,001 2,811 2,759
 
EBIT(1 – EITR)3 9,266 11,203 10,737 7,043 6,874
 
Short-term borrowings 5,514 4,393 4,643 5,957 5,404
Long-term debt due within one year 7,120 6,665 8,763 5,322 6,352
Long-term debt due after one year 30,696 27,351 24,472 25,714 26,033
Equity attributable to common shareholders 21,318 19,491 19,494 15,869 16,484
Total capital 64,648 57,900 57,372 52,862 54,273
Financial Ratios
Retention rate (RR)4 0.66 0.72 0.72 0.60 0.60
Return on invested capital (ROIC)5 14.33% 19.35% 18.71% 13.32% 12.66%
Averages
RR 0.66
ROIC 15.68%
 
FCFF growth rate (g)6 10.35%

Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).

1 See details »

2025 Calculations

2 Interest expense excluding Financial Products, after tax = Interest expense excluding Financial Products × (1 – EITR)
= 502 × (1 – 24.00%)
= 382

3 EBIT(1 – EITR) = Profit attributable to common stockholders + Interest expense excluding Financial Products, after tax
= 8,884 + 382
= 9,266

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [9,266 – 3,170] ÷ 9,266
= 0.66

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 9,266 ÷ 64,648
= 14.33%

6 g = RR × ROIC
= 0.66 × 15.68%
= 10.35%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (425,424 × 22.35% – 9,561) ÷ (425,424 + 9,561)
= 19.66%

where:

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

FCFF growth rate (g) forecast

Caterpillar Inc., H-model

Microsoft Excel
Year Value gt
1 g1 10.35%
2 g2 12.68%
3 g3 15.01%
4 g4 17.34%
5 and thereafter g5 19.66%

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

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 10.35% + (19.66% – 10.35%) × (2 – 1) ÷ (5 – 1)
= 12.68%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 10.35% + (19.66% – 10.35%) × (3 – 1) ÷ (5 – 1)
= 15.01%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 10.35% + (19.66% – 10.35%) × (4 – 1) ÷ (5 – 1)
= 17.34%