Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
HP Inc., FCFF calculation
US$ in millions
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
The financial performance between 2013 and 2018 is characterized by a period of significant volatility in cash generation, featuring an initial peak followed by a sharp contraction and a subsequent gradual recovery phase.
- Net Cash Provided by Operating Activities
- Operating cash flows peaked in 2014 at 12,333 million USD. This was followed by a substantial decline over the subsequent two years, reaching a trough of 3,230 million USD in 2016. A steady recovery trend emerged thereafter, with values increasing to 3,677 million USD in 2017 and 4,528 million USD in 2018.
- Free Cash Flow to the Firm (FCFF)
- The FCFF trajectory closely mirrors the patterns observed in operating cash flows. After remaining stable between 2013 and 2014 at approximately 9,700 million USD, FCFF experienced a precipitous drop to 3,753 million USD in 2015 and reached a minimum of 2,843 million USD in 2016. A gradual upward trend was established in the final two years of the period, concluding at 4,148 million USD in 2018.
- Analysis of Capital Expenditure Trends
- The variance between net cash provided by operating activities and FCFF indicates significant shifts in capital allocation. The gap widened between 2014 and 2015, suggesting a period of increased capital expenditure. From 2016 through 2018, this gap narrowed considerably, indicating a transition toward more conservative capital spending relative to operating cash inflows.
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Interest Paid, Net of Tax
HP Inc., interest paid, net of tax calculation
US$ in millions
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
2 2018 Calculation
Interest expense paid, tax = Interest expense paid × EITR
= 329 × 23.30% = 77
A comprehensive analysis of the financial data reveals a significant downward trend in interest expenses paid, net of tax, punctuated by a period of stabilization in the latter years of the observed timeframe. The most notable characteristic is the substantial reduction in costs between 2013 and 2016, followed by a plateau from 2016 through 2018.
- Interest Expense Trajectory
- Net interest expenditures declined from 657 million USD in 2013 to 225 million USD in 2016. This represents a total reduction of approximately 65.8% over four years. The most aggressive decline occurred between 2015 and 2016, where the expenditure dropped from 512 million USD to 225 million USD. Following this sharp decrease, the figures remained relatively stable, recording 248 million USD in 2017 and 252 million USD in 2018.
- Effective Income Tax Rate (EITR) Volatility
- The effective income tax rate demonstrated relative stability between 21.50% and 29.10% for most of the period. However, a significant anomaly is observed in 2015, where the EITR fell to 3.80%. Despite this sharp decrease in the tax shield available to offset interest costs, the interest expense paid, net of tax, remained nearly flat between 2014 and 2015, falling only slightly from 519 million USD to 512 million USD. This indicates a substantial reduction in gross interest obligations during 2015 that offset the diminished tax benefit.
- Correlation Between Tax Rates and Net Interest
- The stabilization of the EITR between 22.90% and 23.30% during 2017 and 2018 coincides with the stabilization of net interest payments. The consistency in these figures suggests a period of financial equilibrium regarding debt servicing and tax planning toward the end of the analyzed period.
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Enterprise Value to FCFF Ratio, Current
HP Inc., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 27,629) |
| Free cash flow to the firm (FCFF) | 4,148) |
| Valuation Ratio | |
| EV/FCFF | 6.66 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Apple Inc. | 51.84 |
| Arista Networks Inc. | 48.60 |
| Cisco Systems Inc. | 31.13 |
| Dell Technologies Inc. | 32.12 |
| Lumentum Holdings Inc. | 186.55 |
| Super Micro Computer Inc. | — |
Based on: 10-K (reporting date: 2018-10-31).
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
HP Inc., historical EV/FCFF calculation, comparison to benchmarks
| Oct 31, 2018 | Oct 31, 2017 | Oct 31, 2016 | Oct 31, 2015 | Oct 31, 2014 | Oct 31, 2013 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Enterprise value (EV)1 | 35,448) | 34,944) | 27,000) | 29,583) | 77,821) | 64,390) | |
| Free cash flow to the firm (FCFF)2 | 4,148) | 3,392) | 2,843) | 3,753) | 9,729) | 9,716) | |
| Valuation Ratio | |||||||
| EV/FCFF3 | 8.55 | 10.30 | 9.50 | 7.88 | 8.00 | 6.63 | |
| Benchmarks | |||||||
| EV/FCFF, Competitors4 | |||||||
| Apple Inc. | — | — | — | — | — | — | |
| Arista Networks Inc. | — | — | — | — | — | — | |
| Cisco Systems Inc. | — | — | — | — | — | — | |
| Dell Technologies Inc. | — | — | — | — | — | — | |
| Lumentum Holdings Inc. | — | — | — | — | — | — | |
| Super Micro Computer Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).
3 2018 Calculation
EV/FCFF = EV ÷ FCFF
= 35,448 ÷ 4,148 = 8.55
4 Click competitor name to see calculations.
The financial trajectory between 2013 and 2018 is characterized by a significant structural adjustment in both enterprise valuation and cash flow generation. A notable contraction occurred between 2014 and 2015, after which the firm entered a period of gradual recovery in absolute cash flow terms, while the valuation multiple experienced volatility.
- Enterprise Value (EV) Trends
- Enterprise value peaked in 2014 at 77,821 million before experiencing a sharp decline to 29,583 million in 2015. Following this trough, a steady recovery is observed, with the value climbing to 34,944 million in 2017 and ending the period at 35,448 million in 2018.
- Free Cash Flow to the Firm (FCFF) Performance
- FCFF remained stable between 2013 and 2014, holding near 9.7 billion. A substantial reduction followed in 2015, with cash flows dropping to 3,753 million and reaching a minimum of 2,843 million in 2016. From 2017 through 2018, a consistent upward trend is evident, with FCFF recovering to 4,148 million.
- EV/FCFF Ratio Interpretation
- The EV/FCFF ratio demonstrates a general expansionary trend for much of the period, rising from 6.63 in 2013 to a peak of 10.30 in 2017. This increase indicates that the decline in cash flow generation was more pronounced than the decline in enterprise value during the mid-period transition. However, the ratio contracted to 8.55 in 2018, suggesting that the improvement in cash flow recovery began to outpace the growth in enterprise value, leading to a more favorable valuation multiple.
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