Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Generac Holdings Inc., FCFF calculation
US$ in thousands
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).
An analysis of the cash flow metrics from 2017 to 2021 reveals a period of volatility characterized by a significant expansion peaking in 2020, followed by a moderate contraction in 2021.
- Operating Cash Flow Trends
- Net cash provided by operating activities exhibited a slight decline in 2018 before entering a period of accelerated growth. A substantial peak was reached in 2020, with cash from operations climbing to US$ 486.5 million, representing an increase of approximately 57% from 2019. This momentum reversed in 2021, as the figure decreased to US$ 411.2 million.
- Free Cash Flow to the Firm (FCFF) Performance
- FCFF mirrored the trajectory of operating cash flows throughout the five-year period. After hitting a low of US$ 231.5 million in 2018, FCFF grew to a peak of US$ 443.2 million in 2020. However, 2021 saw a significant correction, with FCFF falling to US$ 319.8 million, a decline of approximately 28% from the preceding year.
- Analysis of the FCFF-OCF Gap
- The divergence between net cash provided by operating activities and FCFF indicates a progressive increase in capital outflows. In 2017, the difference was minimal at US$ 6.5 million; however, this gap widened consistently over the period, reaching US$ 91.3 million by 2021. This widening trend suggests a strategic increase in capital expenditures or investment in long-term assets, particularly in the final year of the analyzed period.
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Interest Paid, Net of Tax
Generac Holdings Inc., interest paid, net of tax calculation
US$ in thousands
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).
2 2021 Calculation
Cash paid during the period, interest, tax = Cash paid during the period, interest × EITR
= 27,842 × 19.50% = 5,429
An analysis of the net cash outflows for interest from 2017 through 2021 indicates a period of initial growth followed by a sustained decline and eventual stabilization.
- Net Interest Cash Outflow Patterns
- Cash paid for interest, net of tax, increased from $26.6 million in 2017 to a peak of $31.7 million in 2018. Following this peak, a downward trajectory was observed, with payments decreasing to $28.0 million in 2019 and further dropping to $22.4 million in 2020. The value remained virtually stagnant in 2021 at $22.4 million, representing a total decrease of approximately 29% from the 2018 peak.
- Effective Income Tax Rate (EITR) Trends
- The effective income tax rate experienced a significant reduction over the five-year period. A sharp decline occurred between 2017 and 2018, where the rate fell from 35.2% to 22.7%. This downward trend continued with minor fluctuations, ultimately reaching a period low of 19.5% by December 31, 2021.
- Analysis of Tax Shield Impact
- The net cash paid for interest is sensitive to the EITR, as a lower tax rate reduces the tax shield benefit associated with interest expenses. Despite the reduction in the tax shield—which typically increases the net cost of interest—the actual cash paid net of tax declined significantly after 2018. This indicates that the reduction in gross interest obligations or a decrease in total debt outweighed the impact of the declining effective tax rate.
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Enterprise Value to FCFF Ratio, Current
Generac Holdings Inc., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in thousands) | |
| Enterprise value (EV) | 16,922,251) |
| Free cash flow to the firm (FCFF) | 319,810) |
| Valuation Ratio | |
| EV/FCFF | 52.91 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Boeing Co. | 281.55 |
| Caterpillar Inc. | 31.92 |
| Eaton Corp. plc | 37.34 |
| GE Aerospace | 42.79 |
| Honeywell International Inc. | 15.42 |
| Lockheed Martin Corp. | 19.99 |
| RTX Corp. | 31.78 |
| EV/FCFF, Sector | |
| Capital Goods | 53.67 |
| EV/FCFF, Industry | |
| Industrials | 41.33 |
Based on: 10-K (reporting date: 2021-12-31).
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
Generac Holdings Inc., historical EV/FCFF calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Enterprise value (EV)1 | 18,849,998) | 21,165,351) | 7,290,571) | 3,929,062) | 3,669,977) | |
| Free cash flow to the firm (FCFF)2 | 319,810) | 443,226) | 267,365) | 231,538) | 254,573) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 58.94 | 47.75 | 27.27 | 16.97 | 14.42 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 20.50 | — | — | — | — | |
| Eaton Corp. plc | 38.16 | — | — | — | — | |
| GE Aerospace | 56.53 | — | — | — | — | |
| Honeywell International Inc. | 25.22 | — | — | — | — | |
| Lockheed Martin Corp. | 13.92 | — | — | — | — | |
| RTX Corp. | 27.29 | — | — | — | — | |
| EV/FCFF, Sector | ||||||
| Capital Goods | 32.16 | — | — | — | — | |
| EV/FCFF, Industry | ||||||
| Industrials | 28.81 | — | — | — | — | |
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).
3 2021 Calculation
EV/FCFF = EV ÷ FCFF
= 18,849,998 ÷ 319,810 = 58.94
4 Click competitor name to see calculations.
A consistent and significant upward trend in the Enterprise Value to Free Cash Flow to the Firm (EV/FCFF) ratio is observed from 2017 through 2021. The ratio expanded from 14.42 to 58.94, indicating that the market valuation grew at a pace far exceeding the growth in operational cash flow generation.
- Enterprise Value Trends
- The enterprise value experienced a dramatic increase, rising from 3,669,977 thousand US dollars in 2017 to a peak of 21,165,351 thousand US dollars in 2020. Although a contraction occurred in 2021, with the value decreasing to 18,849,998 thousand US dollars, the overall valuation remained substantially higher than the levels recorded between 2017 and 2019.
- Free Cash Flow to the Firm (FCFF) Performance
- Cash flow generation exhibited moderate growth and volatility over the period. FCFF increased from 254,573 thousand US dollars in 2017 to a peak of 443,226 thousand US dollars in 2020, before declining to 319,810 thousand US dollars in 2021. The growth in cash flow was insufficient to offset the rapid increase in enterprise value.
- Valuation Multiple Expansion
- The EV/FCFF ratio intensified steadily, moving from 14.42 in 2017 to 58.94 in 2021. The most pronounced acceleration occurred between 2019 and 2021, during which the ratio more than doubled. This trend suggests a significant expansion in valuation multiples, reflecting either heightened market expectations for future growth or a substantial increase in the premium attributed to the firm's cash-generating capacity.
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