# Coca-Cola Co. (NYSE:KO)

## 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.

### Intrinsic Stock Value (Valuation Summary)

Coca-Cola Co., 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 8.92%
01 FCFF0 10,304
1 FCFF1 10,525 = 10,304 × (1 + 2.15%) 9,663
2 FCFF2 10,825 = 10,525 × (1 + 2.85%) 9,125
3 FCFF3 11,210 = 10,825 × (1 + 3.55%) 8,675
4 FCFF4 11,686 = 11,210 × (1 + 4.25%) 8,303
5 FCFF5 12,265 = 11,686 × (1 + 4.95%) 8,000
5 Terminal value (TV5) 324,239 = 12,265 × (1 + 4.95%) ÷ (8.92%4.95%) 211,498
Intrinsic value of Coca-Cola Co. capital 255,263
Less: Debt (fair value) 35,071
Intrinsic value of Coca-Cola Co. common stock 220,192

Intrinsic value of Coca-Cola Co. common stock (per share) \$50.92
Current share price \$54.88

Based on: 10-K (reporting date: 2022-12-31).

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)

Coca-Cola Co., cost of capital

Value1 Weight Required rate of return2 Calculation
Equity (fair value) 237,320 0.87 9.95%
Debt (fair value) 35,071 0.13 1.94% = 2.40% × (1 – 19.10%)

Based on: 10-K (reporting date: 2022-12-31).

1 US\$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 4,324,344,812 × \$54.88
= \$237,320,043,282.56

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
= (18.10% + 21.10% + 20.30% + 16.70% + 19.30%) ÷ 5
= 19.10%

WACC = 8.92%

### FCFF Growth Rate (g)

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

Coca-Cola Co., PRAT model

Average Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US\$ in millions)
Interest expense 882 1,597 1,437 946 919
Loss from discontinued operations, net of income taxes (251)
Net income attributable to shareowners of The Coca-Cola Company 9,542 9,771 7,747 8,920 6,434

Effective income tax rate (EITR)1 18.10% 21.10% 20.30% 16.70% 19.30%

Interest expense, after tax2 722 1,260 1,145 788 742
Add: Dividends 7,617 7,251 7,047 6,845 6,644
Interest expense (after tax) and dividends 8,339 8,511 8,192 7,633 7,386

EBIT(1 – EITR)3 10,264 11,031 8,892 9,708 7,427

Loans and notes payable 2,373 3,307 2,183 10,994 13,194
Current maturities of long-term debt 399 1,338 485 4,253 4,997
Long-term debt, excluding current maturities 36,377 38,116 40,125 27,516 25,364
Equity attributable to shareowners of The Coca-Cola Company 24,105 22,999 19,299 18,981 16,981
Total capital 63,254 65,760 62,092 61,744 60,536
Financial Ratios
Retention rate (RR)4 0.19 0.23 0.08 0.21 0.01
Return on invested capital (ROIC)5 16.23% 16.77% 14.32% 15.72% 12.27%
Averages
RR 0.14
ROIC 15.06%

FCFF growth rate (g)6 2.15%

Based on: 10-K (reporting date: 2022-12-31), 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).

2022 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 882 × (1 – 18.10%)
= 722

3 EBIT(1 – EITR) = Net income attributable to shareowners of The Coca-Cola Company – Loss from discontinued operations, net of income taxes + Interest expense, after tax
= 9,5420 + 722
= 10,264

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [10,2648,339] ÷ 10,264
= 0.19

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 10,264 ÷ 63,254
= 16.23%

6 g = RR × ROIC
= 0.14 × 15.06%
= 2.15%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (272,391 × 8.92%10,304) ÷ (272,391 + 10,304)
= 4.95%

where:

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

#### FCFF growth rate (g) forecast

Coca-Cola Co., H-model

Year Value gt
1 g1 2.15%
2 g2 2.85%
3 g3 3.55%
4 g4 4.25%
5 and thereafter g5 4.95%

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)
= 2.15% + (4.95%2.15%) × (2 – 1) ÷ (5 – 1)
= 2.85%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 2.15% + (4.95%2.15%) × (3 – 1) ÷ (5 – 1)
= 3.55%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 2.15% + (4.95%2.15%) × (4 – 1) ÷ (5 – 1)
= 4.25%