Stock Analysis on Net
Stock Analysis on Net

GlaxoSmithKline PLC (NYSE:GSK)

This company has been moved to the archive! The financial data has not been updated since February 27, 2015.

Present Value of Free Cash Flow to the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

GlaxoSmithKline PLC, free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 8.65%
01 FCFF0 6,467
1 FCFF1 6,391 = 6,467 × (1 + -1.18%) 5,883
2 FCFF2 6,406 = 6,391 × (1 + 0.24%) 5,427
3 FCFF3 6,513 = 6,406 × (1 + 1.66%) 5,078
4 FCFF4 6,713 = 6,513 × (1 + 3.08%) 4,818
5 FCFF5 7,015 = 6,713 × (1 + 4.49%) 4,634
5 Terminal value (TV5) 176,506 = 7,015 × (1 + 4.49%) ÷ (8.65% – 4.49%) 116,593
Intrinsic value of GlaxoSmithKline PLC capital 142,432
Less: Borrowings (fair value) 35,763
Intrinsic value of GlaxoSmithKline PLC common stock 106,669
 
Intrinsic value of GlaxoSmithKline PLC common stock (per share) $39.84
Current share price $47.42

Based on: 20-F (reporting date: 2014-12-31).

1 See details »

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.

Weighted Average Cost of Capital (WACC)

GlaxoSmithKline PLC, cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 126,974 0.78 10.29%
Borrowings (fair value) 35,763 0.22 2.80% = 3.68% × (1 – 23.89%)

Based on: 20-F (reporting date: 2014-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 2,677,648,616 × $47.42
= $126,974,097,370.72

   Borrowings (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (4.62% + 15.33% + 29.11% + 29.10% + 41.31%) ÷ 5
= 23.89%

WACC = 8.65%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

GlaxoSmithKline PLC, PRAT model

Microsoft Excel
Average Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Selected Financial Data (US$ in millions, translated from GBP £)
Interest expense 1,162 1,203 1,212 1,156 1,181
Profit attributable to shareholders 4,655 9,009 7,424 8,174 2,515
Add: Net income attributable to noncontrolling interest 127 318 291 306 337
Add: Income tax expense 231 1,689 3,168 3,480 2,007
Earnings before tax (EBT) 5,013 11,016 10,883 11,961 4,859
 
Effective income tax rate (EITR)1 4.62% 15.33% 29.11% 29.10% 41.31%
 
Interest expense, after tax2 1,108 1,019 859 820 693
Add: Dividends to shareholders 6,490 6,099 6,203 5,292 4,933
Interest expense (after tax) and dividends 7,599 7,118 7,062 6,112 5,626
 
EBIT(1 – EITR)3 5,763 10,028 8,283 8,994 3,208
 
Short-term borrowings 4,970 4,622 5,905 4,192 448
Long-term borrowings 26,754 25,615 23,859 18,961 22,794
Shareholders’ equity 7,200 11,596 9,449 12,480 13,679
Total capital 38,924 41,833 39,213 35,632 36,920
Financial Ratios
Retention rate (RR)4 -0.32 0.29 0.15 0.32 -0.75
Return on invested capital (ROIC)5 14.81% 23.97% 21.12% 25.24% 8.69%
Averages
RR -0.06
ROIC 18.77%
 
FCFF growth rate (g)6 -1.18%

Based on: 20-F (reporting date: 2014-12-31), 20-F (reporting date: 2013-12-31), 20-F (reporting date: 2012-12-31), 20-F (reporting date: 2011-12-31), 20-F (reporting date: 2010-12-31).

2014 Calculations

1 EITR = 100 × Income tax expense ÷ EBT
= 100 × 231 ÷ 5,013
= 4.62%

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,162 × (1 – 4.62%)
= 1,108

3 EBIT(1 – EITR) = Profit attributable to shareholders + Interest expense, after tax
= 4,655 + 1,108
= 5,763

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [5,763 – 7,599] ÷ 5,763
= -0.32

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 5,763 ÷ 38,924
= 14.81%

6 g = RR × ROIC
= -0.06 × 18.77%
= -1.18%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (162,737 × 8.65% – 6,467) ÷ (162,737 + 6,467)
= 4.49%

where:

Total capital, fair value0 = current fair value of GlaxoSmithKline PLC debt and equity (US$ in millions)
FCFF0 = the last year GlaxoSmithKline PLC free cash flow to the firm (US$ in millions)
WACC = weighted average cost of GlaxoSmithKline PLC capital

FCFF growth rate (g) forecast

GlaxoSmithKline PLC, H-model

Microsoft Excel
Year Value gt
1 g1 -1.18%
2 g2 0.24%
3 g3 1.66%
4 g4 3.08%
5 and thereafter g5 4.49%

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 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= -1.18% + (4.49% – -1.18%) × (2 – 1) ÷ (5 – 1)
= 0.24%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -1.18% + (4.49% – -1.18%) × (3 – 1) ÷ (5 – 1)
= 1.66%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -1.18% + (4.49% – -1.18%) × (4 – 1) ÷ (5 – 1)
= 3.08%