Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
General Dynamics Corp., FCFF calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
The financial data reveals a period of volatility in cash generation between 2015 and 2019, characterized by a significant peak in 2017 followed by a steady decline. Both net cash provided by operating activities and free cash flow to the firm (FCFF) exhibit highly correlated movement, suggesting that operational performance is the primary driver of the firm's available cash.
- Operating Cash Flow Trends
- Net cash provided by operating activities experienced a contraction in 2016, dropping to 2,198 million US dollars from 2,499 million US dollars in 2015. This was followed by a substantial increase to a five-year peak of 3,879 million US dollars in 2017. However, this growth was not sustained, as figures retreated to 3,148 million US dollars in 2018 and further decreased to 2,981 million US dollars by the end of 2019.
- Free Cash Flow to the Firm (FCFF) Analysis
- FCFF mirrored the trajectory of operating cash flows, reaching its zenith in 2017 at 3,520 million US dollars. A downward trend emerged post-2017, with FCFF falling to 2,714 million US dollars in 2018 and continuing its descent to 2,354 million US dollars in 2019. The 2019 value represents a decrease of approximately 11.7% relative to the 2015 baseline.
- Cash Flow Conversion and Capital Investment
- The variance between operating cash flow and FCFF indicates fluctuations in capital expenditures. While the gap remained relatively stable between 2016 and 2017, a noticeable increase in the divergence occurred toward the end of the period. In 2019, the difference widened to 627 million US dollars, the highest among the observed years, suggesting an increase in capital investment relative to the cash generated from operations.
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Interest Paid, Net of Tax
General Dynamics Corp., interest paid, net of tax calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
2 2019 Calculation
Interest payments, tax = Interest payments × EITR
= 434 × 17.10% = 74
An analysis of the financial metrics from 2015 to 2019 reveals a significant shift in both tax obligations and financing costs. While the initial three years of the period showed relative stability, the final two years are characterized by a marked increase in net interest outflows and a simultaneous decrease in the effective tax rate.
- Effective Income Tax Rate Trend
- A consistent downward trajectory is observed in the effective income tax rate. The rate remained relatively stable between 2015 and 2016 at approximately 27.6% to 27.7%, followed by a moderate decrease to 25.7% in 2017. A substantial decline occurred in 2018, where the rate dropped to 17.8%, reaching a period low of 17.1% by the end of 2019.
- Net Interest Payment Volatility
- Interest payments, net of tax, exhibited minimal variance between 2015 and 2017, fluctuating within a narrow range of 60 million to 69 million USD. However, a sharp escalation is evident starting in 2018, with payments rising to 256 million USD, and further increasing to 360 million USD in 2019. This represents a more than five-fold increase compared to the 2017 levels.
- Synthesis of Tax and Interest Dynamics
- The significant increase in net interest payments coincides with the period of lower effective tax rates. While a lower tax rate typically reduces the net cost of interest expenses, the magnitude of the increase from 69 million USD to 360 million USD indicates a substantial rise in gross interest expenses. This suggests a significant increase in debt obligations or a restructuring of liabilities during the 2018 and 2019 fiscal years.
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Enterprise Value to FCFF Ratio, Current
General Dynamics Corp., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 49,032) |
| Free cash flow to the firm (FCFF) | 2,354) |
| Valuation Ratio | |
| EV/FCFF | 20.83 |
| 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 |
Based on: 10-K (reporting date: 2019-12-31).
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
General Dynamics Corp., historical EV/FCFF calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Enterprise value (EV)1 | 64,971) | 61,457) | 63,216) | 56,968) | 41,768) | |
| Free cash flow to the firm (FCFF)2 | 2,354) | 2,714) | 3,520) | 1,866) | 1,995) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 27.60 | 22.64 | 17.96 | 30.53 | 20.94 | |
| 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: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
3 2019 Calculation
EV/FCFF = EV ÷ FCFF
= 64,971 ÷ 2,354 = 27.60
4 Click competitor name to see calculations.
The financial trajectory between 2015 and 2019 is characterized by a general expansion in enterprise value contrasted with volatile free cash flow to the firm. While the overall valuation of the company grew consistently, the cash flow generation did not follow a linear path, resulting in significant fluctuations in the valuation multiple.
- Enterprise Value (EV)
- A sustained upward trend is observed, with the value increasing from 41,768 million in 2015 to 64,971 million by 2019. The most substantial increase occurred between 2015 and 2016, establishing a higher baseline for the company's total market value throughout the remainder of the period.
- Free Cash Flow to the Firm (FCFF)
- Cash flow generation exhibited notable volatility. After remaining relatively stable between 2015 and 2016, FCFF peaked significantly in 2017 at 3,520 million. This peak was followed by a sequential decline in 2018 and 2019, ending the period at 2,354 million.
- EV/FCFF Ratio
- The valuation multiple fluctuated in inverse correlation with FCFF performance. The ratio peaked at 30.53 in 2016 and reached its lowest point of 17.96 in 2017, driven by the surge in cash flow. In the final two years, the ratio trended upward to 27.60, suggesting that the enterprise value grew at a faster rate than the firm's ability to generate free cash flow toward the end of the analyzed period.
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