Microsoft Excel LibreOffice Calc

Lowe’s Cos. Inc. (LOW)

Enterprise Value to FCFF (EV/FCFF)

Difficulty: Intermediate

Free Cash Flow to The Firm (FCFF)

Lowe’s Cos. Inc., FCFF calculation

USD $ in millions

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12 months ended Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
Net earnings 3,447  3,093  2,546  2,698  2,286  1,959 
Net noncash charges 2,114  2,153  2,260  1,663  1,616  1,714 
Changes in operating assets and liabilities (496) 371  (22) 568  209  89 
Net cash provided by operating activities 5,065  5,617  4,784  4,929  4,111  3,762 
Cash paid for interest, net of amount capitalized, net of tax1 411  368  308  318  282  277 
Interest capitalized, net of tax2 3  2  2  1  2  2 
Capital expenditures (1,123) (1,167) (1,197) (880) (940) (1,211)
Non-cash property acquisitions, including assets acquired under capital lease (97) (86) (102) (44) (15) (101)
Free cash flow to the firm (FCFF) 4,259  4,735  3,795  4,324  3,441  2,730 

Based on: 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31), 10-K (filing date: 2013-04-02).

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Item Description The company
FCFF Free cash flow to the firm is the cash flow available to the Lowe’s Cos. Inc.’s suppliers of capital after all operating expenses have been paid and necessary investments in working and fixed capital have been made. Lowe’s Cos. Inc.’s FCFF increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.

Interest Paid, Net of Tax

Lowe’s Cos. Inc., interest paid, net of tax calculation

USD $ in millions

Microsoft Excel LibreOffice Calc
12 months ended Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
Effective Income Tax Rate (EITR)
EITR1 37.20% 40.50% 42.40% 36.90% 37.80% 37.60%
Interest Paid, Net of Tax
Cash paid for interest, net of amount capitalized, before tax 654  619  535  504  454  444 
Less: Cash paid for interest, net of amount capitalized, tax2 243  251  227  186  172  167 
Cash paid for interest, net of amount capitalized, net of tax 411  368  308  318  282  277 
Interest Costs Capitalized, Net of Tax
Interest capitalized, before tax 5  4  3  2  4  4 
Less: Interest capitalized, tax3 2  2  1  1  2  2 
Interest capitalized, net of tax 3  2  2  1  2  2 

Based on: 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31), 10-K (filing date: 2013-04-02).

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2018 Calculations

2 Cash paid for interest, net of amount capitalized, tax = Cash paid for interest, net of amount capitalized × EITR
= 654 × 37.20% = 243

3 Interest capitalized, tax = Interest capitalized × EITR
= 5 × 37.20% = 2

Enterprise Value to FCFF Ratio, Current

Lowe’s Cos. Inc., current EV/FCFF calculation, comparison to benchmarks

Microsoft Excel LibreOffice Calc
Selected Financial Data (USD $ in millions)
Enterprise value (EV) 100,575 
Free cash flow to the firm (FCFF) 4,259 
Ratio
EV/FCFF 23.62
Benchmarks
EV/FCFF, Competitors
Amazon.com Inc. 136.25
Costco Wholesale Corp. 35.65
eBay Inc. 16.44
Home Depot Inc. 22.21
Netflix Inc. –
Target Corp. 18.02
TJX Cos. Inc. 31.95
Walmart Inc. 16.11
EV/FCFF, Sector
General Retailers 38.45
EV/FCFF, Industry
Consumer Services 26.14

Based on: 10-K (filing date: 2018-04-02).

If company EV/FCFF is lower then the EV/FCFF of benchmark then company is relatively undervalued.

Otherwise, if company EV/FCFF is higher then the EV/FCFF of benchmark then company is relatively overvalued.

Enterprise Value to FCFF Ratio, Historical

Lowe’s Cos. Inc., historical EV/FCFF calculation, comparison to benchmarks

Microsoft Excel LibreOffice Calc
Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
Selected Financial Data (USD $ in millions)
Enterprise value (EV)1 86,157  84,991  79,846  81,573  59,763  49,796 
Free cash flow to the firm (FCFF)2 4,259  4,735  3,795  4,324  3,441  2,730 
Ratio
EV/FCFF3 20.23 17.95 21.04 18.86 17.37 18.24
Benchmarks
EV/FCFF, Competitors
Amazon.com Inc. 125.66 – 125.27 121.38 – –
Costco Wholesale Corp. 32.60 16.20 90.26 33.09 25.32 35.46
eBay Inc. 15.42 17.65 15.63 12.28 14.40 –
Home Depot Inc. 21.24 23.12 21.98 22.78 18.16 18.65
Netflix Inc. – – – – – –
Target Corp. 10.10 9.54 14.42 15.60 13.87 –
TJX Cos. Inc. 25.97 19.58 24.86 22.43 24.87 15.72
Walmart Inc. 14.98 11.32 14.23 16.45 24.10 20.15
EV/FCFF, Sector
General Retailers 35.41 36.28 28.57 25.47 28.12 –
EV/FCFF, Industry
Consumer Services 25.01 27.22 23.62 23.37 25.93 –

Based on: 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31), 10-K (filing date: 2013-04-02).

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2018 Calculations

3 EV/FCFF = EV ÷ FCFF
= 86,157 ÷ 4,259 = 20.23

Ratio Description The company
EV/FCFF Enterprise value to free cash flow to the firm is whole company valuation indicator. Lowe’s Cos. Inc.’s EV/FCFF ratio declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.