# Caterpillar Inc. (NYSE:CAT)

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

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.

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### Intrinsic Stock Value (Valuation Summary)

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

US\$ in millions, 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 Caterpillar Inc. capital
Less: Short-term borrowings and long-term debt (fair value)
Intrinsic value of Caterpillar Inc. common stock

Intrinsic value of Caterpillar Inc. common stock (per share)
Current share price

Based on: 10-K (reporting date: 2021-12-31).

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

Value1 Weight Required rate of return2 Calculation
Equity (fair value)
Short-term borrowings and long-term debt (fair value) = × (1 – )

Based on: 10-K (reporting date: 2021-12-31).

1 US\$ in millions

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

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
= ( + + + + ) ÷ 5
=

WACC =

### FCFF Growth Rate (g)

#### FCFF growth rate (g) implied by PRAT model

Caterpillar Inc., PRAT model

Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US\$ in millions)
Interest expense excluding Financial Products
Profit attributable to common stockholders

Effective income tax rate (EITR)1

Interest expense excluding Financial Products, after tax2
Interest expense (after tax) and dividends

EBIT(1 – EITR)3

Short-term borrowings
Long-term debt due within one year
Long-term debt due after one year
Equity attributable to common shareholders
Total capital
Financial Ratios
Retention rate (RR)4
Return on invested capital (ROIC)5
Averages
RR
ROIC

FCFF growth rate (g)6

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

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

3 EBIT(1 – EITR) = Profit attributable to common stockholders + Interest expense excluding Financial Products, 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
= ×
=

#### 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 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

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)
=