Enterprise Value to FCFF (EV/FCFF)
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Emerson Electric Co. pages available for free this week:
- Income Statement
- Statement of Comprehensive Income
- Common-Size Income Statement
- Analysis of Liquidity Ratios
- Analysis of Short-term (Operating) Activity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Enterprise Value (EV)
- Present Value of Free Cash Flow to Equity (FCFE)
- Total Asset Turnover since 2005
- Price to Sales (P/S) since 2005
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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 data reveals a general trend in cash flow activities from 2014 through 2019. Analysis focuses on two key metrics: cash provided by operating activities and free cash flow to the firm (FCFF).
- Cash Provided by Operating Activities
- The cash generated from operating activities shows a decline from 2014 to 2016, decreasing from approximately $3.7 billion to about $2.5 billion. After hitting this lower point in 2015 and 2016, the cash flows began to gradually improve from 2017 onward, rising to about $3.0 billion by 2019. This suggests a temporary reduction in operating cash generation that was subsequently recovered over the last three years observed.
- Free Cash Flow to the Firm (FCFF)
- Similarly, FCFF experienced a notable decrease between 2014 and 2015, dropping from approximately $3.1 billion to just under $2.0 billion. However, unlike the cash from operating activities, FCFF showed a more consistent upward trend starting in 2016 through 2019, steadily increasing and reaching approximately $2.6 billion by 2019. This improvement indicates effective management of capital expenditures and working capital following the initial decline, leading to stronger free cash flow generation in later years.
Overall, both operating cash flow and FCFF experienced a significant dip during the middle of the period analyzed but demonstrated recovery and steady improvement through 2019. The recovery in free cash flow to the firm suggests an enhanced ability to generate cash that is available for distribution among all capital providers after accounting for reinvestment needs. This pattern may reflect strategic operational adjustments or capital management efforts that helped restore and improve financial flexibility over time.
Interest Paid, Net of Tax
Emerson Electric Co., interest paid, net of tax calculation
US$ 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
= × =
The effective income tax rate (EITR) for the company has demonstrated a consistent downward trend over the six-year period from September 30, 2014, to September 30, 2019. Starting at 34.8% in 2014, the rate gradually decreased year over year to reach 18.6% by 2019. This marks a significant reduction of 16.2 percentage points, indicating improved tax efficiency or changes in tax planning and regulations influencing the company's tax obligations.
Regarding the interest paid on all debt, net of tax, the figures show some variability but an overall increasing trend. In 2014, the interest expense was $137 million, which experienced a slight decrease to $129 million in 2015. Following this, the expense rose to $146 million in 2016, slightly decreased to $138 million in 2017, then increased again to $147 million in 2018, and finally reached the highest value of $159 million in 2019. This upward movement suggests either an increase in debt levels, higher interest rates, or changes in the debt structure resulting in increased interest expenses over time.
In summary, the tax burden on the company has eased considerably, while the cost associated with debt financing has tended to increase, which could influence the company's net profitability and capital structure considerations.
Enterprise Value to FCFF Ratio, Current
Emerson Electric Co., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | |
| Free cash flow to the firm (FCFF) | |
| Valuation Ratio | |
| EV/FCFF | |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| 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).
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 | |||||||
| Free cash flow to the firm (FCFF)2 | |||||||
| Valuation Ratio | |||||||
| EV/FCFF3 | |||||||
| 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
= ÷ =
4 Click competitor name to see calculations.
The financial data exhibits several notable trends over the six-year period from 2014 to 2019. The enterprise value (EV) displays fluctuations with an overall upward trajectory, starting at 47,420 million US dollars in 2014, decreasing significantly to 36,569 million in 2015, then gradually increasing year over year to reach 48,778 million in 2019.
Free cash flow to the firm (FCFF) follows a somewhat different pattern. It decreases sharply from 3,062 million US dollars in 2014 to 1,973 million in 2015. After this decline, FCFF shows a steady recovery and continuous growth each year, rising to 2,571 million in 2019. This consistent increase after 2015 suggests improving operational cash-generating capability and possibly enhanced efficiency or profitability.
Examining the EV to FCFF ratio reveals changes in valuation relative to cash flow. The ratio increases from 15.49 in 2014 to a peak of 19.23 in 2018, indicating a higher enterprise value per unit of cash flow and potentially reflecting market expectations of growth or a premium valuation. This trend peaks in 2018 and slightly declines to 18.97 in 2019, suggesting a modest correction or stabilization in valuation multiples.
- Enterprise Value (EV)
- Initial decline in 2015 followed by consistent growth through 2019, culminating in a higher enterprise value than the starting point in 2014.
- Free Cash Flow to the Firm (FCFF)
- Sharp drop in 2015, subsequent steady annual increases, indicating recovery and growth in cash flow generation capability over time.
- EV/FCFF Ratio
- Rising trend from 2014 to 2018, peaking in 2018, then a slight decline in 2019, signaling changing market valuation relative to cash flows with the highest premium noted in 2018.
Overall, the data suggest that although the company experienced a dip in both enterprise value and cash flow in 2015, the subsequent years reflect recovery and growth in cash flow accompanied by increasing valuation multiples. The EV/FCFF ratio’s peak followed by a reduction may indicate market adjustments in expectations or the impact of improved cash flow performance aligning closer with enterprise value growth.