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Present Value of Free Cash Flow to Equity (FCFE)
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)
Chevron Corp., free cash flow to equity (FCFE) forecast
Stock valuation by this method is not possible because prior year FCFE is less than zero.
USD $ in millions, except per share data
|Year||Value||FCFEt or Terminal value (TVt)||Calculation||Present value at|
|1||FCFE1||= × (1 + )|
|2||FCFE2||= × (1 + )|
|3||FCFE3||= × (1 + )|
|4||FCFE4||= × (1 + )|
|5||FCFE5||= × (1 + )|
|5||Terminal value (TV5)||= × (1 + ) ÷ ( – )|
|Intrinsic value of Chevron's common stock|
|Intrinsic value of Chevron's common stock (per share)||$|
|Current share price||$|
Based on: 10-K (filing date: 2018-02-22).
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)
|Rate of return on LT Treasury Composite1||RF|
|Expected rate of return on market portfolio2||E(RM)|
|Systematic risk (β) of Chevron's common stock||βCVX|
|Required rate of return on Chevron's common stock3||rCVX|
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).
3 rCVX = RF + βCVX [E(RM) – RF]
= + [ – ]
FCFE Growth Rate (g)
FCFE growth rate (g) implied by PRAT model
Chevron Corp., PRAT model
1 Retention rate = (Net income (loss) attributable to Chevron Corporation – Cash dividends on common stock) ÷ Net income (loss) attributable to Chevron Corporation
= ( – ) ÷ =
2 Profit margin = 100 × Net income (loss) attributable to Chevron Corporation ÷ Sales and other operating revenues
= 100 × ÷ =
3 Asset turnover = Sales and other operating revenues ÷ Total assets
= ÷ =
4 Financial leverage = Total assets ÷ Total Chevron Corporation stockholders' equity
= ÷ =
5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= × × × =
FCFE growth rate (g) forecast
Chevron Corp., H-model
|5 and thereafter||g5|
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
g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= + ( – ) × (2 – 1) ÷ (5 – 1) =
g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= + ( – ) × (3 – 1) ÷ (5 – 1) =
g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= + ( – ) × (4 – 1) ÷ (5 – 1) =