General Electric Co. (GE)

Enterprise Value to FCFF (EV/FCFF)

Difficulty: Intermediate

General Electric Co., FCFF calculation

USD $ in millions

12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
Net earnings (loss) attributable to the Company	(22,355)	(5,786)	8,831	(6,126)	15,233
Net (earnings) loss attributable to noncontrolling interests	(88)	(270)	(291)	331	112
Net noncash charges	26,832	14,165	(5,600)	19,554	15,165
(Increase) decrease in operating capital	273	3,285	3,159	(1,903)	(2,995)
Cash from operating activities	4,662	11,394	6,099	11,856	27,515
Cash paid during the year for interest, net of tax¹	4,528	1,394	6,074	1,988	8,575
Additions to property, plant and equipment	(7,695)	(7,371)	(7,199)	(7,309)	(13,727)
Dispositions of property, plant and equipment	4,519	5,746	4,424	3,020	6,262
Additions to internal-use software	(361)	(549)	(749)	(778)	—
Free cash flow to the firm (FCFF)	5,653	10,614	8,649	8,777	28,625

Item	Description	The company
FCFF	Free cash flow to the firm is the cash flow available to the General Electric Co.’s suppliers of capital after all operating expenses have been paid and necessary investments in working and fixed capital have been made.	General Electric Co.’s FCFF increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

General Electric Co., interest paid, net of tax calculation

USD $ in millions

12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
Effective Income Tax Rate (EITR)
EITR¹	-2.70%	72.40%	-5.10%	79.20%	10.30%
Interest Paid, Net of Tax
Cash paid during the year for interest, before tax	4,409	5,049	5,779	9,558	9,560
Less: Cash paid during the year for interest, tax²	(119)	3,655	(295)	7,570	985
Cash paid during the year for interest, net of tax	4,528	1,394	6,074	1,988	8,575

2018 Calculations

² Cash paid during the year for interest, tax = Cash paid during the year for interest × EITR
= 4,409 × -2.70% = -119

General Electric Co., current EV/FCFF calculation, comparison to benchmarks

Selected Financial Data (USD $ in millions)
Enterprise value (EV)	151,259
Free cash flow to the firm (FCFF)	5,653
Ratio
EV/FCFF	26.76
Benchmarks
EV/FCFF, Competitors
3M Co.	21.80
Danaher Corp.	31.77
Honeywell International Inc.	22.38
EV/FCFF, Sector
General Industrials	18.05
EV/FCFF, Industry
Industrials	23.34

If company EV/FCFF is lower then the EV/FCFF of benchmark then company is relatively undervalued.

Otherwise, if company EV/FCFF is higher then the EV/FCFF of benchmark then company is relatively overvalued.

General Electric Co., historical EV/FCFF calculation, comparison to benchmarks

	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
Selected Financial Data (USD $ in millions)
Enterprise value (EV)¹	154,405	196,136	308,838	372,010	497,126
Free cash flow to the firm (FCFF)²	5,653	10,614	8,649	8,777	28,625
Ratio
EV/FCFF³	27.31	18.48	35.71	42.38	17.37
Benchmarks
EV/FCFF, Competitors
3M Co.	24.76	28.46	21.40	19.78	20.82
Danaher Corp.	25.21	25.94	26.16	21.88	19.11
Honeywell International Inc.	19.22	22.51	21.27	18.68	19.99
EV/FCFF, Sector
General Industrials	17.22	22.13	29.18	25.19	18.53
EV/FCFF, Industry
Industrials	22.69	24.75	23.33	19.95	19.32

2018 Calculations

³ EV/FCFF = EV ÷ FCFF
= 154,405 ÷ 5,653 = 27.31

Ratio	Description	The company
EV/FCFF	Enterprise value to free cash flow to the firm is whole company valuation indicator.	General Electric Co.’s EV/FCFF ratio declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.