Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Kinder Morgan Inc., FCFF calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 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).
Between 2015 and 2019, a divergence is observed between net cash provided by operating activities and free cash flow to the firm (FCFF). While operating cash flow remained relatively stable with moderate fluctuations, FCFF exhibited a consistent and significant growth trajectory over the five-year period.
- Net Cash Provided by Operating Activities
- Operating cash flow demonstrated volatility without a clear directional trend. A peak of US$ 5,303 million was recorded in 2015, followed by a decline to a period low of US$ 4,601 million in 2017. A recovery occurred in 2018, reaching US$ 5,043 million, before declining slightly to US$ 4,748 million by the end of 2019.
- Free Cash Flow to the Firm (FCFF)
- FCFF showed a strong upward trend, rising from US$ 1,945 million in 2015 to US$ 3,793 million in 2019. This represents a substantial increase over the analyzed period. Excluding a minor dip in 2017 to US$ 2,668 million, the growth was consistent, with the most pronounced increases occurring between 2017 and 2019.
- Relationship Between Operating Cash and FCFF
- The data indicates a widening gap between operating cash flow and FCFF. Because operating cash flow remained within a range of US$ 4,601 million to US$ 5,303 million while FCFF nearly doubled, it can be inferred that the company significantly reduced its capital expenditures or adjusted its investment strategy to retain more cash available to the firm.
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Interest Paid, Net of Tax
Kinder Morgan Inc., interest paid, net of tax calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 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).
2 2019 Calculation
Cash paid during the period for interest, net of capitalized interest, tax = Cash paid during the period for interest, net of capitalized interest × EITR
= 1,860 × 29.30% = 545
Between 2015 and 2019, a significant shift is observed in the cash outflows related to interest payments and the accompanying effective income tax rate. The net cash paid for interest exhibited a strong upward trajectory for the majority of the period before experiencing a slight contraction in the final year.
- Effective Income Tax Rate Trends
- A substantial downward trend in the effective income tax rate occurred from 2015 to 2018, decreasing from 72.90% to a low of 23.40%. A moderate increase to 29.30% was recorded in 2019, though the rate remained significantly lower than the levels seen in the early part of the period.
- Cash Outflows for Interest
- Cash paid during the period for interest, net of capitalized interest and taxes, rose consistently from US$ 538 million in 2015 to a peak of US$ 1,439 million in 2018. This represents a growth of approximately 167% over the four-year span. In 2019, this figure declined slightly to US$ 1,315 million.
- Correlation and Financial Impact
- The increase in net interest payments coincided with a sharp decline in the effective income tax rate. Because the interest payments are reported net of tax, a lower tax rate increases the net cash outflow for each dollar of interest expense by reducing the available tax shield. The sustained rise in net payments suggests an increase in total debt obligations or borrowing costs that outweighed the impact of the fluctuating tax rates until the slight correction observed in 2019.
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Enterprise Value to FCFF Ratio, Current
Kinder Morgan Inc., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 69,130) |
| Free cash flow to the firm (FCFF) | 3,793) |
| Valuation Ratio | |
| EV/FCFF | 18.23 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Chevron Corp. | 27.10 |
| ConocoPhillips | 22.73 |
| ExxonMobil Holdings Corp. | 29.37 |
Based on: 10-K (reporting date: 2019-12-31).
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
Kinder Morgan Inc., historical EV/FCFF calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Enterprise value (EV)1 | 83,003) | 75,637) | 77,038) | 89,819) | 78,079) | |
| Free cash flow to the firm (FCFF)2 | 3,793) | 3,578) | 2,668) | 2,805) | 1,945) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 21.88 | 21.14 | 28.87 | 32.02 | 40.14 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Chevron Corp. | — | — | — | — | — | |
| ConocoPhillips | — | — | — | — | — | |
| ExxonMobil Holdings Corp. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 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).
3 2019 Calculation
EV/FCFF = EV ÷ FCFF
= 83,003 ÷ 3,793 = 21.88
4 Click competitor name to see calculations.
The valuation metrics from 2015 to 2019 demonstrate a significant compression in the Enterprise Value to Free Cash Flow to the Firm (EV/FCFF) ratio, indicating a substantial improvement in cash flow generation relative to the total value of the business.
- Enterprise Value Trends
- Enterprise value exhibited volatility over the five-year period, peaking in 2016 at 89,819 million USD before declining to a low of 75,637 million USD in 2018. A recovery followed in 2019, with the value rising to 83,003 million USD.
- Free Cash Flow to the Firm Growth
- A strong upward trajectory in FCFF is observed, increasing from 1,945 million USD in 2015 to 3,793 million USD in 2019. This represents a near doubling of annual free cash flow over the period, characterized by consistent growth interrupted only by a marginal dip in 2017.
- EV/FCFF Ratio Analysis
- The EV/FCFF ratio experienced a steady decline from 40.14 in 2015 to 21.88 in 2019. The most pronounced contraction occurred between 2015 and 2018, during which the ratio fell to 21.14. This downward trend signifies that the entity's ability to generate free cash flow grew at a faster rate than its enterprise valuation, effectively lowering the multiple assigned to its cash flows.
The overall analysis suggests that the reduction in the EV/FCFF ratio was driven primarily by the expansion of free cash flows rather than a collapse in enterprise value. By 2019, the business demonstrated a more favorable valuation profile, as it required a significantly lower multiple of its cash flow to support its total enterprise value compared to 2015.
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