Stock Analysis on Net
Stock Analysis on Net

Ecolab Inc. (NYSE:ECL)

This company has been moved to the archive! The financial data has not been updated since February 25, 2022.

Present Value of Free Cash Flow to Equity (FCFE)

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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 asset base.

Intrinsic Stock Value (Valuation Summary)

Ecolab Inc., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 13.57%
01 FCFE0 3,540,200
1 FCFE1 3,947,050 = 3,540,200 × (1 + 11.49%) 3,475,350
2 FCFE2 4,349,365 = 3,947,050 × (1 + 10.19%) 3,371,924
3 FCFE3 4,736,168 = 4,349,365 × (1 + 8.89%) 3,232,994
4 FCFE4 5,095,823 = 4,736,168 × (1 + 7.59%) 3,062,797
5 FCFE5 5,416,571 = 5,095,823 × (1 + 6.29%) 2,866,515
5 Terminal value (TV5) 79,103,934 = 5,416,571 × (1 + 6.29%) ÷ (13.57% – 6.29%) 41,862,759
Intrinsic value of Ecolab Inc. common stock 57,872,340
 
Intrinsic value of Ecolab Inc. common stock (per share) $201.82
Current share price $180.30

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

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.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.81%
Expected rate of return on market portfolio2 E(RM) 13.54%
Systematic risk of Ecolab Inc. common stock βECL 1.00
 
Required rate of return on Ecolab Inc. common stock3 rECL 13.57%

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).

2 See details »

3 rECL = RF + βECL [E(RM) – RF]
= 4.81% + 1.00 [13.54% – 4.81%]
= 13.57%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Ecolab Inc., PRAT model

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Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in thousands)
Cash dividends declared 558,400 541,300 533,100 487,600 439,900
Net income (loss) attributable to Ecolab 1,129,900 (1,205,100) 1,558,900 1,429,100 1,508,400
Net sales 12,733,100 11,790,200 14,906,300 14,668,200 13,838,300
Total assets 21,206,400 18,126,000 20,869,100 20,074,500 19,962,400
Total Ecolab shareholders’ equity 7,224,200 6,166,500 8,685,300 8,003,200 7,618,500
Financial Ratios
Retention rate1 0.51 — 0.66 0.66 0.71
Profit margin2 8.87% -10.22% 10.46% 9.74% 10.90%
Asset turnover3 0.60 0.65 0.71 0.73 0.69
Financial leverage4 2.94 2.94 2.40 2.51 2.62
Averages
Retention rate 0.63
Profit margin 9.99%
Asset turnover 0.68
Financial leverage 2.68
 
FCFE growth rate (g)5 11.49%

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

1 Retention rate = (Net income (loss) attributable to Ecolab – Cash dividends declared) ÷ Net income (loss) attributable to Ecolab
= (1,129,900 – 558,400) ÷ 1,129,900
= 0.51

2 Profit margin = 100 × Net income (loss) attributable to Ecolab ÷ Net sales
= 100 × 1,129,900 ÷ 12,733,100
= 8.87%

3 Asset turnover = Net sales ÷ Total assets
= 12,733,100 ÷ 21,206,400
= 0.60

4 Financial leverage = Total assets ÷ Total Ecolab shareholders’ equity
= 21,206,400 ÷ 7,224,200
= 2.94

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.63 × 9.99% × 0.68 × 2.68
= 11.49%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (51,701,301 × 13.57% – 3,540,200) ÷ (51,701,301 + 3,540,200)
= 6.29%

where:
Equity market value0 = current market value of Ecolab Inc. common stock (US$ in thousands)
FCFE0 = the last year Ecolab Inc. free cash flow to equity (US$ in thousands)
r = required rate of return on Ecolab Inc. common stock

FCFE growth rate (g) forecast

Ecolab Inc., H-model

Microsoft Excel
Year Value gt
1 g1 11.49%
2 g2 10.19%
3 g3 8.89%
4 g4 7.59%
5 and thereafter g5 6.29%

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 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 11.49% + (6.29% – 11.49%) × (2 – 1) ÷ (5 – 1)
= 10.19%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 11.49% + (6.29% – 11.49%) × (3 – 1) ÷ (5 – 1)
= 8.89%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 11.49% + (6.29% – 11.49%) × (4 – 1) ÷ (5 – 1)
= 7.59%