Stock Analysis on Net

General Electric Co. (NYSE:GE)

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

General Electric Co., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 15.29%
01 FCFE0 660
1 FCFE1 671 = 660 × (1 + 1.64%) 582
2 FCFE2 704 = 671 × (1 + 4.96%) 530
3 FCFE3 762 = 704 × (1 + 8.27%) 498
4 FCFE4 851 = 762 × (1 + 11.59%) 482
5 FCFE5 977 = 851 × (1 + 14.90%) 480
5 Terminal value (TV5) 290,316 = 977 × (1 + 14.90%) ÷ (15.29%14.90%) 142,548
Intrinsic value of General Electric Co. common stock 145,119
 
Intrinsic value of General Electric Co. common stock (per share) $133.34
Current share price $180.12

Based on: 10-K (reporting date: 2023-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.43%
Expected rate of return on market portfolio2 E(RM) 13.60%
Systematic risk of General Electric Co. common stock βGE 1.18
 
Required rate of return on General Electric Co. common stock3 rGE 15.29%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rGE = RF + βGE [E(RM) – RF]
= 4.43% + 1.18 [13.60%4.43%]
= 15.29%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

General Electric Co., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends and other transactions with shareholders, excluded preferred stock dividends 5,642 353 380 540 306
Preferred stock dividends 295 289 237 474 460
Net earnings (loss) attributable to the Company 9,481 225 (6,520) 5,704 (4,979)
Sales of equipment and services 64,565 73,602 71,090 73,022 87,487
Total assets 163,045 187,788 198,874 253,452 266,048
Total GE shareholders’ equity 27,378 36,366 40,310 35,552 28,316
Financial Ratios
Retention rate1 0.39 0.90
Profit margin2 14.23% -0.09% -9.50% 7.16% -6.22%
Asset turnover3 0.40 0.39 0.36 0.29 0.33
Financial leverage4 5.96 5.16 4.93 7.13 9.40
Averages
Retention rate 0.64
Profit margin 1.12%
Asset turnover 0.35
Financial leverage 6.52
 
FCFE growth rate (g)5 1.64%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net earnings (loss) attributable to the Company – Dividends and other transactions with shareholders, excluded preferred stock dividends – Preferred stock dividends) ÷ (Net earnings (loss) attributable to the Company – Preferred stock dividends)
= (9,4815,642295) ÷ (9,481295)
= 0.39

2 Profit margin = 100 × (Net earnings (loss) attributable to the Company – Preferred stock dividends) ÷ Sales of equipment and services
= 100 × (9,481295) ÷ 64,565
= 14.23%

3 Asset turnover = Sales of equipment and services ÷ Total assets
= 64,565 ÷ 163,045
= 0.40

4 Financial leverage = Total assets ÷ Total GE shareholders’ equity
= 163,045 ÷ 27,378
= 5.96

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.64 × 1.12% × 0.35 × 6.52
= 1.64%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (196,031 × 15.29%660) ÷ (196,031 + 660)
= 14.90%

where:
Equity market value0 = current market value of General Electric Co. common stock (US$ in millions)
FCFE0 = the last year General Electric Co. free cash flow to equity (US$ in millions)
r = required rate of return on General Electric Co. common stock


FCFE growth rate (g) forecast

General Electric Co., H-model

Microsoft Excel
Year Value gt
1 g1 1.64%
2 g2 4.96%
3 g3 8.27%
4 g4 11.59%
5 and thereafter g5 14.90%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 1.64% + (14.90%1.64%) × (2 – 1) ÷ (5 – 1)
= 4.96%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 1.64% + (14.90%1.64%) × (3 – 1) ÷ (5 – 1)
= 8.27%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 1.64% + (14.90%1.64%) × (4 – 1) ÷ (5 – 1)
= 11.59%