Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Halliburton Co., FCFF calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2014-12-31).
The financial performance from 2014 to 2018 is characterized by significant volatility in cash flow generation, featuring a sharp contraction followed by a phased recovery.
- Cash Flow Volatility and the 2016 Trough
- Operating cash flows experienced a substantial decline from US$ 4,062 million in 2014 to a deficit of US$ 1,703 million in 2016. This downturn was mirrored in the Free Cash Flow to the Firm (FCFF), which dropped from US$ 1,397 million in 2014 to a negative US$ 1,781 million in 2016, marking the lowest point in the observed period.
- Post-2016 Recovery Trend
- A recovery began in 2017, with operating cash flows returning to a positive US$ 2,468 million and FCFF rising to US$ 1,533 million. This upward trajectory continued into 2018, with operating cash flows reaching US$ 3,157 million and FCFF increasing to US$ 1,842 million.
- Correlation Between Operating Cash Flow and FCFF
- FCFF consistently remained lower than operating cash flows during all years of positive generation, indicating ongoing capital expenditure. In 2016, the FCFF deficit was more pronounced than the operating cash flow loss, suggesting that capital investments continued despite the negative operational cash position.
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Interest Paid, Net of Tax
Halliburton Co., interest paid, net of tax calculation
US$ in millions
Based on: 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), 10-K (reporting date: 2014-12-31).
2 2018 Calculation
Cash payments during the period for interest, tax = Cash payments during the period for interest × EITR
= 556 × 11.30% = 63
The analysis of cash payments for interest, net of tax, reveals a highly volatile trend characterized by significant fluctuations between 2014 and 2018, closely coinciding with extreme variances in the effective income tax rate.
- Interest Expenditure Trends
- Net interest payments remained relatively stable between 2014 and 2015, moving from 280 million to 269 million US dollars. A sharp increase was recorded in 2016, with payments rising to 498 million US dollars. This was followed by a substantial decrease to 280 million US dollars in 2017, before climbing again to 493 million US dollars in 2018.
- Effective Income Tax Rate (EITR) Volatility
- The effective income tax rate exhibited considerable instability. From 2014 to 2016, the rate remained within a moderate range of 24.40% to 29.30%. However, a dramatic spike occurred in 2017, where the EITR reached 52.80%, followed by a steep decline to 11.30% in 2018.
- Impact of Tax Shield on Cash Outflows
- A strong inverse correlation is observable between the EITR and the net cash payments for interest. In 2017, the peak tax rate of 52.80% coincided with a reduction in net interest payments to 280 million US dollars, suggesting a higher tax shield efficiency. Conversely, the record low EITR of 11.30% in 2018 aligned with a surge in net payments to 493 million US dollars, as the reduced tax rate diminished the net tax benefit of the interest expense.
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Enterprise Value to FCFF Ratio, Current
Halliburton Co., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 35,869) |
| Free cash flow to the firm (FCFF) | 1,842) |
| Valuation Ratio | |
| EV/FCFF | 19.47 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| SLB N.V. | 17.93 |
Based on: 10-K (reporting date: 2018-12-31).
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
Halliburton 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 (US$ in millions) | ||||||
| Enterprise value (EV)1 | 35,869) | 49,490) | 55,991) | 32,211) | 42,232) | |
| Free cash flow to the firm (FCFF)2 | 1,842) | 1,533) | (1,781) | 1,159) | 1,397) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 19.47 | 32.28 | — | 27.80 | 30.23 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| SLB N.V. | — | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2014-12-31).
3 2018 Calculation
EV/FCFF = EV ÷ FCFF
= 35,869 ÷ 1,842 = 19.47
4 Click competitor name to see calculations.
The financial trajectory between 2014 and 2018 is characterized by significant volatility in both enterprise value and cash flow generation, resulting in a fluctuating valuation multiple. A notable period of instability occurred in 2016, followed by a recovery in cash flow and a subsequent compression of the valuation ratio by 2018.
- Enterprise Value Trends
- Enterprise value exhibited substantial variance, declining from 42,232 million USD in 2014 to 32,211 million USD in 2015, before peaking at 55,991 million USD in 2016. This peak was followed by a steady decline over the subsequent two years, ending at 35,869 million USD in 2018, representing a overall decrease in the company's total market valuation over the analyzed period.
- Free Cash Flow to the Firm (FCFF) Performance
- Cash flow generation showed a critical disruption in 2016, where FCFF shifted from positive values of 1,397 million USD in 2014 and 1,159 million USD in 2015 to a deficit of 1,781 million USD. A strong recovery was observed in 2017 and 2018, with FCFF rising to 1,533 million USD and 1,842 million USD, respectively, indicating a restoration of operational cash efficiency.
- EV/FCFF Ratio Interpretation
- The EV/FCFF ratio remained relatively stable between 2014 and 2015, ranging from 30.23 to 27.80. The ratio was non-calculable in 2016 due to the negative cash flow. Upon the recovery of FCFF in 2017, the ratio peaked at 32.28, reflecting a high valuation relative to the returning cash flows. However, by 2018, the ratio contracted sharply to 19.47, driven by the simultaneous increase in FCFF and the reduction in enterprise value, suggesting a more favorable valuation multiple or a market correction in the company's pricing relative to its cash-generating capacity.
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