Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Illinois Tool Works Inc., FCFF calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
An analysis of cash flow performance from 2017 to 2021 reveals a cyclical trend characterized by initial growth followed by a moderate decline. Both net cash provided by operating activities and free cash flow to the firm (FCFF) exhibited a strong positive correlation, moving in tandem throughout the period.
- Operating Cash Flow Trends
- Net cash provided by operating activities grew consistently from 2017 to 2019, rising from 2,402 million USD to a peak of 2,995 million USD. However, a reversal occurred in 2020, with a decrease to 2,807 million USD, and a further decline to 2,557 million USD by the end of 2021.
- Free Cash Flow to the Firm (FCFF) Performance
- FCFF followed a trajectory nearly identical to operating cash flows. The value increased from 2,291 million USD in 2017 to a peak of 2,865 million USD in 2019. This was followed by a downward trend, ending at 2,429 million USD in 2021. The peak in 2019 represents a 25% increase over the 2017 baseline before the subsequent contraction.
- Capital Expenditure Stability
- The narrow margin between net cash provided by operating activities and FCFF suggests a highly stable and disciplined approach to capital expenditures. Throughout the five-year period, FCFF consistently remained above 94% of the net cash provided by operating activities, indicating that capital reinvestment requirements remained low and proportional relative to the cash generated from operations.
Overall, while the total cash generated declined in the final two years of the period, the efficiency of converting operating cash into free cash flow for the firm remained remarkably consistent.
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Interest Paid, Net of Tax
Illinois Tool Works Inc., interest paid, net of tax calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
2 2021 Calculation
Cash paid during the year for interest, tax = Cash paid during the year for interest × EITR
= 197 × 19.00% = 37
The financial data reveals a consistent reduction in the effective income tax rate alongside fluctuating net-of-tax cash outflows for interest payments between 2017 and 2021.
- Effective Income Tax Rate Analysis
- A steady downward trajectory is observed in the effective income tax rate, which declined from 28.3% in 2017 to 19.0% in 2021. This represents a continuous year-over-year decrease, totaling a reduction of 9.3 percentage points over the five-year period.
- Interest Payment Trends (Net of Tax)
- Cash outflows for interest, net of tax, exhibited volatility during the period. Payments increased from 172 million USD in 2017 to a peak of 186 million USD in 2018, followed by a decline to a period low of 151 million USD in 2020. A slight increase to 160 million USD was recorded in 2021.
- Correlation Between Tax Rates and Net Interest Costs
- The reduction in the effective income tax rate typically increases the net-of-tax cost of interest because the tax shield provided by interest deductions is diminished. However, the net cash paid for interest decreased overall from 172 million USD in 2017 to 160 million USD in 2021. This suggests that a decrease in gross interest expenses or a change in debt obligations offset the impact of the falling tax rate.
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Enterprise Value to FCFF Ratio, Current
Illinois Tool Works Inc., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 74,291) |
| Free cash flow to the firm (FCFF) | 2,429) |
| Valuation Ratio | |
| EV/FCFF | 30.59 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Boeing Co. | 309.34 |
| Caterpillar Inc. | 42.99 |
| Eaton Corp. plc | 45.95 |
| GE Aerospace | 42.66 |
| Honeywell International Inc. | 14.58 |
| Lockheed Martin Corp. | 17.73 |
| RTX Corp. | 30.46 |
| EV/FCFF, Sector | |
| Capital Goods | 57.96 |
| EV/FCFF, Industry | |
| Industrials | 42.70 |
Based on: 10-K (reporting date: 2021-12-31).
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
Illinois Tool Works Inc., historical EV/FCFF calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Enterprise value (EV)1 | 74,291) | 69,202) | 65,683) | 53,197) | 61,033) | |
| Free cash flow to the firm (FCFF)2 | 2,429) | 2,732) | 2,865) | 2,659) | 2,291) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 30.59 | 25.33 | 22.93 | 20.00 | 26.64 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Boeing Co. | — | — | — | — | — | |
| Caterpillar Inc. | 20.50 | — | — | — | — | |
| Eaton Corp. plc | 38.16 | — | — | — | — | |
| GE Aerospace | 56.53 | — | — | — | — | |
| Honeywell International Inc. | 25.22 | — | — | — | — | |
| Lockheed Martin Corp. | 13.92 | — | — | — | — | |
| RTX Corp. | 27.29 | — | — | — | — | |
| EV/FCFF, Sector | ||||||
| Capital Goods | 32.16 | — | — | — | — | |
| EV/FCFF, Industry | ||||||
| Industrials | 28.81 | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
3 2021 Calculation
EV/FCFF = EV ÷ FCFF
= 74,291 ÷ 2,429 = 30.59
4 Click competitor name to see calculations.
The financial performance from 2017 to 2021 reveals a diverging trend between the enterprise value and free cash flow to the firm, resulting in a progressive expansion of the valuation multiple during the latter half of the period.
- Enterprise Value Evolution
- Enterprise value experienced a contraction in 2018, decreasing to 53,197 million US dollars from 61,033 million US dollars in 2017. Following this dip, a consistent growth trajectory was established, with the value rising to 65,683 million US dollars in 2019, 69,202 million US dollars in 2020, and peaking at 74,291 million US dollars by the end of 2021.
- Free Cash Flow to the Firm (FCFF) Trends
- FCFF demonstrated an initial upward trend, increasing from 2,291 million US dollars in 2017 to a five-year peak of 2,865 million US dollars in 2019. However, cash flow generation subsequently declined, falling to 2,732 million US dollars in 2020 and further to 2,429 million US dollars in 2021, indicating a reduction in the cash available to all capital providers.
- EV/FCFF Ratio Interpretation
- The EV/FCFF ratio reached its lowest point of 20.00 in 2018, coinciding with the lowest enterprise value of the period. From 2019 onward, the ratio climbed steadily, moving from 22.93 to 25.33 in 2020, and ending at 30.59 in 2021. This increase was driven by the simultaneous rise in enterprise value and the decline in free cash flow, suggesting that the market attributed a higher premium to the company's valuation relative to its actual cash flow generation capacity toward the end of the observed period.
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