Enterprise Value to FCFF (EV/FCFF)
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Illinois Tool Works Inc. pages available for free this week:
- Income Statement
- Cash Flow Statement
- Analysis of Liquidity Ratios
- Analysis of Long-term (Investment) Activity Ratios
- Selected Financial Data since 2005
- Return on Equity (ROE) since 2005
- Price to Earnings (P/E) since 2005
- Price to Book Value (P/BV) since 2005
- Price to Sales (P/S) since 2005
- Aggregate Accruals
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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).
- Net Cash Provided by Operating Activities
-
Over the five-year period, the net cash provided by operating activities exhibited a generally increasing trend from 2017 through 2019, rising from 2,402 million USD to 2,995 million USD. However, a decline is observed in 2020 and 2021, with cash flows decreasing to 2,807 million USD and further to 2,557 million USD respectively. This pattern suggests an initial improvement in operating cash generation capacity, potentially reflecting operational efficiency or revenue growth during the early years, followed by a downturn in the last two years that may be attributed to external factors or operational challenges.
- Free Cash Flow to the Firm (FCFF)
-
The free cash flow to the firm displays a similar trend to operating cash flows, increasing from 2,291 million USD in 2017 to a peak of 2,865 million USD in 2019. Subsequently, FCFF declines gradually to 2,732 million USD in 2020 and further to 2,429 million USD in 2021. The parallel movement with operating cash flows suggests consistent capital expenditure levels relative to operating performance. The decrease after 2019 may indicate increased investments, deteriorating operating performance, or a combination thereof.
- Overall Financial Cash Flow Trends
-
Both key liquidity metrics show growth leading up to 2019, indicating strengthening cash generation capabilities. The subsequent reductions in 2020 and 2021 could be indicative of market disruptions or strategic shifts in capital deployment. Despite the reductions, cash flows remain at relatively high absolute levels compared to the 2017 baseline, supporting ongoing financial stability.
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
= × =
The analysis of the financial trends over the five-year period reveals a consistent decrease in the effective income tax rate, alongside fluctuations in cash paid during the year for interest, net of tax.
- Effective Income Tax Rate (EITR)
- Over the period starting from December 31, 2017, the effective income tax rate exhibited a declining trend. It decreased from 28.3% in 2017 to 19% in 2021. This progressive reduction suggests improvements in tax management, the effect of changing tax regulations, or potential shifts in the geographical distribution of taxable income. The decline is steady each year, with a notable drop of approximately 9.3 percentage points over the five-year timeframe.
- Cash Paid During the Year for Interest, Net of Tax (US$ in millions)
- The cash outflows for interest payments, net of tax, fluctuated moderately throughout the period. It started at $172 million in 2017, peaked at $186 million in 2018, and then experienced a gradual reduction to $151 million by 2020. There was a slight increase to $160 million in 2021. These variations may reflect changing debt levels, interest rates, or strategic decisions on financing. Overall, the values indicate that interest expenses have remained within a relatively narrow band, with a slight downward tendency towards the latter years.
Enterprise Value to FCFF Ratio, Current
Illinois Tool Works Inc., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | |
| Free cash flow to the firm (FCFF) | |
| Valuation Ratio | |
| EV/FCFF | |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Boeing Co. | |
| Caterpillar Inc. | |
| Eaton Corp. plc | |
| GE Aerospace | |
| Honeywell International Inc. | |
| Lockheed Martin Corp. | |
| RTX Corp. | |
| EV/FCFF, Sector | |
| Capital Goods | |
| EV/FCFF, Industry | |
| Industrials | |
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 | ||||||
| Free cash flow to the firm (FCFF)2 | ||||||
| Valuation Ratio | ||||||
| EV/FCFF3 | ||||||
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Boeing Co. | ||||||
| Caterpillar Inc. | ||||||
| Eaton Corp. plc | ||||||
| GE Aerospace | ||||||
| Honeywell International Inc. | ||||||
| Lockheed Martin Corp. | ||||||
| RTX Corp. | ||||||
| EV/FCFF, Sector | ||||||
| Capital Goods | ||||||
| EV/FCFF, Industry | ||||||
| Industrials | ||||||
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
= ÷ =
4 Click competitor name to see calculations.
The analyzed financial data reveals several notable trends over the five-year period ending December 31, 2021, for Illinois Tool Works Inc.
- Enterprise Value (EV)
- The enterprise value exhibits a fluctuating upward trajectory. Starting at 61,033 million US dollars in 2017, it decreased to 53,197 million in 2018, indicating a temporary decline. Subsequently, it increased steadily through 2019, 2020, and 2021, reaching 74,291 million by the end of 2021. This represents an overall growth in enterprise value, despite the initial drop in 2018.
- Free Cash Flow to the Firm (FCFF)
- Free cash flow to the firm shows a generally positive trend from 2017 to 2019, rising from 2,291 million US dollars to 2,865 million. However, after peaking in 2019, FCFF declined moderately each subsequent year, dropping to 2,429 million by 2021. Although the decline in the last two years suggests some pressure on cash flow generation, the firm maintained relatively strong free cash flows throughout the period.
- EV/FCFF Ratio
- The EV to FCFF ratio decreased significantly from 26.64 in 2017 to a low of 20 in 2018, reflecting improved valuation relative to cash flow or changes in market perceptions. This ratio then increased to 22.93 in 2019, followed by further acceleration to 25.33 in 2020 and 30.59 in 2021. The rising ratio from 2019 onwards may indicate that the enterprise value increased at a faster pace than free cash flow or that investors priced the company at a higher premium relative to its cash flow generation capacity during these years.
Overall, the data suggest that while the company experienced fluctuating enterprise value and free cash flow during the period, there was a persistent growth in capital market valuation relative to cash flow in the latter years. The increasing EV/FCFF ratio towards 2021 could warrant monitoring for implications about valuation sustainability and cash flow performance going forward.