Stock Analysis on Net

Coca-Cola Co. (NYSE:KO)

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)

Coca-Cola Co., 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 8.76%
01 FCFF0 11,948
1 FCFF1 11,228 = 11,948 × (1 + -6.03%) 10,324
2 FCFF2 10,856 = 11,228 × (1 + -3.32%) 9,177
3 FCFF3 10,790 = 10,856 × (1 + -0.60%) 8,387
4 FCFF4 11,018 = 10,790 × (1 + 2.11%) 7,874
5 FCFF5 11,549 = 11,018 × (1 + 4.82%) 7,589
5 Terminal value (TV5) 307,476 = 11,549 × (1 + 4.82%) ÷ (8.76%4.82%) 202,046
Intrinsic value of Coca-Cola Co. capital 245,397
Less: Debt (fair value) 43,618
Intrinsic value of Coca-Cola Co. common stock 201,779
 
Intrinsic value of Coca-Cola Co. common stock (per share) $46.66
Current share price $63.47

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)

Coca-Cola Co., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 274,477 0.86 9.95%
Debt (fair value) 43,618 0.14 1.27% = 1.61% × (1 – 21.28%)

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
= 4,324,513,264 × $63.47
= $274,476,856,866.08

   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
= (21.10% + 20.30% + 16.70% + 19.30% + 29.00%) ÷ 5
= 21.28%

WACC = 8.76%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Coca-Cola Co., PRAT model

Microsoft Excel
Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Interest expense 1,597 1,437 946 919 841
Income (loss) from discontinued operations, net of income taxes (251) 101
Net income attributable to shareowners of The Coca-Cola Company 9,771 7,747 8,920 6,434 1,248
 
Effective income tax rate (EITR)1 21.10% 20.30% 16.70% 19.30% 29.00%
 
Interest expense, after tax2 1,260 1,145 788 742 597
Add: Dividends 7,251 7,047 6,845 6,644 6,320
Interest expense (after tax) and dividends 8,511 8,192 7,633 7,386 6,917
 
EBIT(1 – EITR)3 11,031 8,892 9,708 7,427 1,744
 
Loans and notes payable 3,307 2,183 10,994 13,194 13,205
Current maturities of long-term debt 1,338 485 4,253 4,997 3,298
Long-term debt, excluding current maturities 38,116 40,125 27,516 25,364 31,182
Equity attributable to shareowners of The Coca-Cola Company 22,999 19,299 18,981 16,981 17,072
Total capital 65,760 62,092 61,744 60,536 64,757
Financial Ratios
Retention rate (RR)4 0.23 0.08 0.21 0.01 -2.97
Return on invested capital (ROIC)5 16.77% 14.32% 15.72% 12.27% 2.69%
Averages
RR -0.49
ROIC 12.36%
 
FCFF growth rate (g)6 -6.03%

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).

1 See details »

2021 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,597 × (1 – 21.10%)
= 1,260

3 EBIT(1 – EITR) = Net income attributable to shareowners of The Coca-Cola Company – Income (loss) from discontinued operations, net of income taxes + Interest expense, after tax
= 9,7710 + 1,260
= 11,031

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [11,0318,511] ÷ 11,031
= 0.23

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 11,031 ÷ 65,760
= 16.77%

6 g = RR × ROIC
= -0.49 × 12.36%
= -6.03%


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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (318,095 × 8.76%11,948) ÷ (318,095 + 11,948)
= 4.82%

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

Microsoft Excel
Year Value gt
1 g1 -6.03%
2 g2 -3.32%
3 g3 -0.60%
4 g4 2.11%
5 and thereafter g5 4.82%

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)
= -6.03% + (4.82%-6.03%) × (2 – 1) ÷ (5 – 1)
= -3.32%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= -6.03% + (4.82%-6.03%) × (3 – 1) ÷ (5 – 1)
= -0.60%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= -6.03% + (4.82%-6.03%) × (4 – 1) ÷ (5 – 1)
= 2.11%