Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Emerson Electric Co., FCFF calculation
US$ in millions
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
The financial performance from 2014 to 2019 is characterized by an initial sharp contraction in cash generation followed by a sustained period of recovery. Both cash provided by operating activities and free cash flow to the firm experienced a significant decline between 2014 and 2015, subsequently establishing a consistent upward trajectory through 2019.
- Operating Cash Flow Trends
- A substantial reduction in cash provided by operating activities occurred between September 30, 2014, and September 30, 2015, falling from 3,692 million to 2,529 million. Following a period of stability in 2016, a steady recovery trend was observed, with annual increases leading to a closing value of 3,006 million by September 30, 2019.
- Free Cash Flow to the Firm (FCFF) Analysis
- FCFF mirrored the volatility observed in operating cash flows, declining from 3,062 million in 2014 to a low of 1,973 million in 2015. From 2016 onward, FCFF exhibited uninterrupted annual growth, rising to 2,198 million in 2016 and continuing to climb to 2,571 million by September 30, 2019.
- Capital Expenditure and Cash Conversion
- The differential between operating cash flow and FCFF indicates a period of higher capital expenditure in 2014 and 2015. A notable narrowing of this gap is observed in 2016 and 2017, suggesting a reduction in capital investment that allowed FCFF to grow more rapidly than operating cash flow during those specific years. By 2018 and 2019, the gap widened slightly again, though FCFF remained on a positive growth path.
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Interest Paid, Net of Tax
Emerson Electric Co., interest paid, net of tax calculation
US$ in millions
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
2 2019 Calculation
Interest paid on all debt, tax = Interest paid on all debt × EITR
= 195 × 18.60% = 36
A comprehensive review of the financial metrics from 2014 to 2019 reveals a significant reduction in the effective income tax rate alongside a general increase in interest payments net of tax. The interplay between these two variables indicates a shift in the cost of debt servicing relative to tax benefits.
- Effective Income Tax Rate (EITR) Trend
- A consistent downward trajectory is observed in the effective income tax rate, which declined from 34.80% in 2014 to 18.60% by September 30, 2019. This represents a substantial and steady reduction of approximately 16.2 percentage points over the six-year period.
- Net Interest Payment Patterns
- Interest paid on all debt, net of tax, exhibited moderate volatility in the early part of the period, dipping to 129 million US dollars in 2015 before recovering. From 2017 onward, a sustained increase is evident, with the net amount rising from 138 million US dollars to a period high of 159 million US dollars in 2019.
- Analysis of Tax Shield Impact
- The increase in net interest payments occurred simultaneously with a sharply declining effective tax rate. Since the tax shield benefit of interest is calculated as the gross interest expense multiplied by the tax rate, a lower EITR reduces the amount of tax saved per dollar of interest paid. Consequently, the rise in net interest costs suggests a significant increase in gross interest obligations, as the diminishing tax shield provided less relief to the bottom line over time.
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Enterprise Value to FCFF Ratio, Current
Emerson Electric Co., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 36,423) |
| Free cash flow to the firm (FCFF) | 2,571) |
| Valuation Ratio | |
| EV/FCFF | 14.17 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Boeing Co. | 298.74 |
| Caterpillar Inc. | 38.62 |
| Eaton Corp. plc | 41.12 |
| GE Aerospace | 40.97 |
| Honeywell International Inc. | 14.53 |
| Lockheed Martin Corp. | 18.70 |
| RTX Corp. | 31.10 |
Based on: 10-K (reporting date: 2019-09-30).
1 Click competitor name to see calculations.
If the company EV/FCFF is lower then the EV/FCFF of benchmark then company is relatively undervalued.
Otherwise, if the company EV/FCFF is higher then the EV/FCFF of benchmark then company is relatively overvalued.
Enterprise Value to FCFF Ratio, Historical
Emerson Electric Co., historical EV/FCFF calculation, comparison to benchmarks
| Sep 30, 2019 | Sep 30, 2018 | Sep 30, 2017 | Sep 30, 2016 | Sep 30, 2015 | Sep 30, 2014 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Enterprise value (EV)1 | 48,778) | 46,577) | 40,322) | 38,847) | 36,569) | 47,420) | |
| Free cash flow to the firm (FCFF)2 | 2,571) | 2,422) | 2,352) | 2,198) | 1,973) | 3,062) | |
| Valuation Ratio | |||||||
| EV/FCFF3 | 18.97 | 19.23 | 17.15 | 17.67 | 18.54 | 15.49 | |
| Benchmarks | |||||||
| EV/FCFF, Competitors4 | |||||||
| Boeing Co. | — | — | — | — | — | — | |
| Caterpillar Inc. | — | — | — | — | — | — | |
| Eaton Corp. plc | — | — | — | — | — | — | |
| GE Aerospace | — | — | — | — | — | — | |
| Honeywell International Inc. | — | — | — | — | — | — | |
| Lockheed Martin Corp. | — | — | — | — | — | — | |
| RTX Corp. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-09-30), 10-K (reporting date: 2018-09-30), 10-K (reporting date: 2017-09-30), 10-K (reporting date: 2016-09-30), 10-K (reporting date: 2015-09-30), 10-K (reporting date: 2014-09-30).
3 2019 Calculation
EV/FCFF = EV ÷ FCFF
= 48,778 ÷ 2,571 = 18.97
4 Click competitor name to see calculations.
The analysis of the valuation metrics between 2014 and 2019 reveals a period of volatility followed by a steady expansion in both enterprise value and free cash flow, though the valuation multiple remained elevated compared to the 2014 baseline.
- Enterprise Value (EV) Trends
- A significant contraction occurred in 2015, where the value dropped from 47,420 million to 36,569 million. Following this decline, a consistent upward trajectory was observed over the subsequent four years, culminating in a peak of 48,778 million by September 30, 2019.
- Free Cash Flow to the Firm (FCFF) Trends
- FCFF experienced a sharp decline in 2015, falling from 3,062 million to 1,973 million. From 2016 through 2019, the firm demonstrated a consistent recovery pattern, with annual increases leading to a closing value of 2,571 million. Despite this growth, the FCFF did not return to the levels recorded in 2014.
- EV/FCFF Ratio Analysis
- The ratio exhibited a notable increase from 15.49 in 2014 to 18.54 in 2015, indicating that the decline in free cash flow was more pronounced than the decrease in enterprise value. A brief period of compression followed, with the ratio dipping to 17.15 by 2017. However, a secondary expansion occurred in 2018, reaching a period high of 19.23, before stabilizing at 18.97 in 2019.
Overall, the data indicates that while the company recovered its enterprise value and grew its cash flow after 2015, the market attributed a higher valuation multiple to the firm's cash flows in the latter half of the period than it did at the start of the analysis.
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