Enterprise Value to FCFF (EV/FCFF)
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General Dynamics Corp. pages available for free this week:
- Statement of Comprehensive Income
- Analysis of Liquidity Ratios
- Analysis of Solvency Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Analysis of Reportable Segments
- Common Stock Valuation Ratios
- Price to FCFE (P/FCFE)
- Present Value of Free Cash Flow to Equity (FCFE)
- Net Profit Margin since 2005
- Price to Operating Profit (P/OP) since 2005
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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).
- Operating Cash Flow
- The net cash provided by operating activities exhibits a fluctuating trend over the analyzed period. Starting at $2,499 million in 2015, there is a decline to $2,198 million in 2016. This is followed by a significant increase in 2017, reaching $3,879 million, which marks the highest value in the period. Subsequently, the cash flow decreases again, reaching $3,148 million in 2018 and further declining to $2,981 million in 2019. Despite the variations, the values for the last three years remain above the initial 2015 figure, indicating a general upward movement with some volatility.
- Free Cash Flow to the Firm (FCFF)
- Free cash flow to the firm follows a pattern broadly consistent with that of operating cash flow, though with slightly different magnitudes. It starts at $1,995 million in 2015, decreases to $1,866 million in 2016, then sharply increases to $3,520 million in 2017. After peaking in 2017, there is a decline to $2,714 million in 2018, continuing down to $2,354 million in 2019. The overall trend reflects a considerable improvement from the 2015 and 2016 levels, highlighting an enhanced capacity to generate free cash flow, albeit with some volatility in the most recent years.
- Overall Insights
- Both key cash flow metrics demonstrate significant variability throughout the period analyzed, with a notable peak in 2017 followed by a moderate decline in subsequent years. The increase in both operating cash flow and FCFF in 2017 suggests a year of strong operational performance and cash generation. The subsequent downward trend should be monitored to understand underlying causes, although the values remain generally higher than initial levels, indicating an overall improvement in cash flow generation capacity compared to the start of the period.
Interest Paid, Net of Tax
General Dynamics Corp., interest paid, net of tax calculation
US$ 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
= × =
The analysis of the financial data reveals several notable trends over the five-year period ending in 2019.
- Effective Income Tax Rate (EITR)
- The effective income tax rate exhibited a declining trend over the period. Starting at 27.7% in 2015, there was a marginal decrease to 27.6% in 2016 followed by a more pronounced decline to 25.7% in 2017. This downward trend accelerated significantly in the subsequent years, falling sharply to 17.8% in 2018 and then to 17.1% in 2019. The substantial reduction in the tax rate during the final two years indicates either changes in tax legislation, improved tax planning strategies, or shifts in the company's income composition resulting in a lower tax burden.
- Interest Payments, Net of Tax
- Interest payments, net of tax, showed relative stability from 2015 through 2017, fluctuating slightly between US$60 million and US$69 million. However, in 2018, there was a significant increase to US$256 million, followed by a further increase to US$360 million in 2019. This dramatic rise suggests a marked increase in the company's interest-bearing liabilities or changes in interest rates affecting debt servicing costs. The sharp escalation in interest payments may have implications for the company's leverage and financial risk profile.
Overall, the data indicates that while the company benefited from a considerable reduction in its effective income tax rate, its financial expenses related to interest payments increased substantially in the last two years. These opposing trends could impact net profitability and cash flow differently and warrant further investigation into the underlying drivers.
Enterprise Value to FCFF Ratio, Current
General Dynamics Corp., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | |
| 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: 2019-12-31).
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 | ||||||
| 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: 2019-12-31), 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
= ÷ =
4 Click competitor name to see calculations.
- Enterprise Value (EV)
- The enterprise value exhibited an overall upward trend throughout the analyzed period, rising from 41,768 million US dollars in 2015 to 64,971 million US dollars in 2019. There was a notable increase from 2015 to 2016, followed by continued growth albeit at a moderated pace through 2017 to 2019, with a slight dip observed in 2018.
- Free Cash Flow to the Firm (FCFF)
- Free cash flow to the firm displayed a fluctuating pattern over the years. Starting at 1,995 million US dollars in 2015, it decreased marginally in 2016. A significant surge occurred in 2017 reaching a peak of 3,520 million US dollars, followed by a decline in 2018 and 2019, though the values in these latter years remained above those recorded in 2015 and 2016.
- EV/FCFF Ratio
- The EV to FCFF ratio showed considerable variability. Beginning at 20.94 in 2015, it increased sharply to 30.53 in 2016, indicating a higher valuation relative to free cash flow at that time. The ratio then declined substantially to 17.96 in 2017, aligning with the peak in FCFF. Afterwards, the ratio rose again in 2018 and 2019, reaching 27.6, suggesting rising enterprise value or relatively lower free cash flow in those years.
- Summary of Insights
- Overall, the enterprise value increased significantly across the five-year span, while free cash flow showed volatility with a distinct peak in the middle of the period. The valuation multiple (EV/FCFF) mirrored these fluctuations, implying periods where the company's valuation was more sensitive to changes in free cash flow. The ratio’s spike in 2016 and again toward 2019 highlights phases where the firm’s market value outpaced its cash flow generation, which may warrant further investigation in the context of market conditions or strategic shifts.