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Eli Lilly & Co. (NYSE:LLY)

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)

Eli Lilly & 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 9.63%
01 FCFF0 9,480
1 FCFF1 10,454 = 9,480 × (1 + 10.28%) 9,536
2 FCFF2 11,490 = 10,454 × (1 + 9.90%) 9,560
3 FCFF3 12,584 = 11,490 × (1 + 9.52%) 9,551
4 FCFF4 13,734 = 12,584 × (1 + 9.14%) 9,509
5 FCFF5 14,937 = 13,734 × (1 + 8.76%) 9,433
5 Terminal value (TV5) 1,872,757 = 14,937 × (1 + 8.76%) ÷ (9.63% – 8.76%) 1,182,706
Intrinsic value of Eli Lilly & Co. capital 1,230,295
Less: Debt (fair value) 39,799
Intrinsic value of Eli Lilly & Co. common stock 1,190,496
 
Intrinsic value of Eli Lilly & Co. common stock (per share) $1,264.66
Current share price $1,220.28

Based on: 10-K (reporting date: 2025-12-31).

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.

Weighted Average Cost of Capital (WACC)

Eli Lilly & Co., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 1,148,719 0.97 9.80%
Debt (fair value) 39,799 0.03 4.76% = 5.58% × (1 – 14.78%)

Based on: 10-K (reporting date: 2025-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 941,357,065 × $1,220.28
= $1,148,719,199,278.20

   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
= (19.80% + 16.49% + 20.05% + 8.25% + 9.32%) ÷ 5
= 14.78%

WACC = 9.63%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Eli Lilly & Co., PRAT model

Microsoft Excel
Average Dec 31, 2025 Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021
Selected Financial Data (US$ in millions)
Interest expense on borrowings 895 781 486 332 340
Net income 20,640 10,590 5,240 6,245 5,582
 
Effective income tax rate (EITR)1 19.80% 16.49% 20.05% 8.25% 9.32%
 
Interest expense on borrowings, after tax2 718 652 388 304 308
Add: Cash dividends declared 5,586 4,858 4,221 3,668 3,202
Interest expense (after tax) and dividends 6,304 5,509 4,610 3,972 3,510
 
EBIT(1 – EITR)3 21,358 11,242 5,629 6,549 5,890
 
Short-term borrowings and current maturities of long-term debt 1,635 5,117 6,905 1,501 1,538
Long-term debt, excluding current maturities 40,868 28,527 18,321 14,738 15,346
Total Eli Lilly and Company shareholders’ equity 26,535 14,192 10,772 10,650 8,979
Total capital 69,038 47,836 35,997 26,888 25,864
Financial Ratios
Retention rate (RR)4 0.70 0.51 0.18 0.39 0.40
Return on invested capital (ROIC)5 30.94% 23.50% 15.64% 24.36% 22.77%
Averages
RR 0.44
ROIC 23.44%
 
FCFF growth rate (g)6 10.28%

Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).

1 See details »

2025 Calculations

2 Interest expense on borrowings, after tax = Interest expense on borrowings × (1 – EITR)
= 895 × (1 – 19.80%)
= 718

3 EBIT(1 – EITR) = Net income + Interest expense on borrowings, after tax
= 20,640 + 718
= 21,358

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [21,358 – 6,304] ÷ 21,358
= 0.70

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 21,358 ÷ 69,038
= 30.94%

6 g = RR × ROIC
= 0.44 × 23.44%
= 10.28%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (1,188,518 × 9.63% – 9,480) ÷ (1,188,518 + 9,480)
= 8.76%

where:

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

FCFF growth rate (g) forecast

Eli Lilly & Co., H-model

Microsoft Excel
Year Value gt
1 g1 10.28%
2 g2 9.90%
3 g3 9.52%
4 g4 9.14%
5 and thereafter g5 8.76%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 10.28% + (8.76% – 10.28%) × (2 – 1) ÷ (5 – 1)
= 9.90%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 10.28% + (8.76% – 10.28%) × (3 – 1) ÷ (5 – 1)
= 9.52%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 10.28% + (8.76% – 10.28%) × (4 – 1) ÷ (5 – 1)
= 9.14%