Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Marathon Oil Corp., 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).
The financial performance between 2017 and 2021 is characterized by significant volatility in operating cash flows and a dramatic expansion in free cash flow to the firm (FCFF), particularly in the final year of the period.
- Operating Cash Flow Trends
- Net cash provided by operating activities exhibited a non-linear trajectory. An initial increase occurred between 2017 and 2018, where cash flow rose from 1,988 million to 3,234 million. This was followed by a steady decline, reaching a period low of 1,473 million in 2020. A robust recovery was observed in 2021, with operating cash flow returning to 3,239 million, effectively neutralizing the losses seen during the 2020 contraction.
- Free Cash Flow to the Firm (FCFF) Analysis
- FCFF demonstrated a more aggressive growth pattern than operating cash flow. In 2017, FCFF was minimal at 78 million, suggesting that a vast majority of operating cash was absorbed by capital expenditures or other firm-level investments. While FCFF experienced a moderate dip between 2018 and 2020, falling from 689 million to 378 million, it surged to 2,410 million in 2021. This represents a substantial increase in the cash available to all capital providers.
- Cash Flow Conversion Efficiency
- A critical shift is observable in the relationship between operating cash flow and FCFF. In 2017, the conversion rate was extremely low, with FCFF representing only a small fraction of operating cash. By 2021, this ratio shifted dramatically; FCFF constituted approximately 74.4% of net cash provided by operating activities. This trend indicates a strategic pivot toward capital discipline and a reduction in the proportion of cash reinvested into the business relative to the cash generated from operations.
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Interest Paid, Net of Tax
Marathon Oil Corp., 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
Interest paid, net of amounts capitalized, tax = Interest paid, net of amounts capitalized × EITR
= 231 × 6.00% = 14
Between 2017 and 2021, interest payments net of tax exhibited a sharp initial increase followed by a period of relative stability and a peak in 2020. The overall trajectory indicates a significant expansion in net financing costs over the five-year period, although the net impact was heavily influenced by fluctuations in the effective income tax rate.
- Interest Expenditure Trends
- A substantial increase in net interest paid is observed between 2017 and 2018, where the value rose from 64 million US$ to 208 million US$. Following this surge, the expenditure remained relatively consistent through 2019 at 213 million US$, before reaching a five-year peak of 248 million US$ in 2020. By 2021, the amount decreased to 217 million US$, returning to levels seen in the 2018-2019 period.
- Impact of Effective Income Tax Rate (EITR)
- The net interest cost demonstrates a strong correlation with the volatile effective income tax rate. In 2017, an exceptionally high EITR of 83.00% coincided with the lowest net interest payment of 64 million US$, suggesting a significant tax shield effect. Conversely, in 2020, the EITR dropped to a minimum of 1.00%, which corresponds with the peak net interest expenditure of 248 million US$, as the lack of a tax offset increased the net cash outflow for interest.
- Analysis of Volatility
- The data reveals that the net cost of interest is not solely a function of debt levels but is highly sensitive to fiscal variables. While interest payments remained in the 200-250 million US$ range from 2018 to 2021, the variance in EITR from 23.00% in 2018 to 6.00% in 2021 contributed to the fluctuations in the final net amount paid.
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Enterprise Value to FCFF Ratio, Current
Marathon Oil Corp., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 18,012) |
| Free cash flow to the firm (FCFF) | 2,410) |
| Valuation Ratio | |
| EV/FCFF | 7.47 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Chevron Corp. | 26.61 |
| ConocoPhillips | 22.63 |
| ExxonMobil Holdings Corp. | 28.81 |
| EV/FCFF, Sector | |
| Oil, Gas & Consumable Fuels | 18.94 |
| EV/FCFF, Industry | |
| Energy | 19.21 |
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
Marathon Oil Corp., 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 | 19,460) | 13,468) | 12,800) | 17,690) | 17,830) | |
| Free cash flow to the firm (FCFF)2 | 2,410) | 378) | 412) | 689) | 78) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 8.07 | 35.58 | 31.11 | 25.68 | 227.34 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Chevron Corp. | 13.33 | — | — | — | — | |
| ConocoPhillips | 10.72 | — | — | — | — | |
| ExxonMobil Holdings Corp. | 10.06 | — | — | — | — | |
| EV/FCFF, Sector | ||||||
| Oil, Gas & Consumable Fuels | 11.15 | — | — | — | — | |
| EV/FCFF, Industry | ||||||
| Energy | 11.54 | — | — | — | — | |
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
= 19,460 ÷ 2,410 = 8.07
4 Click competitor name to see calculations.
The Enterprise Value to Free Cash Flow to the Firm (EV/FCFF) ratio demonstrates a significant overall contraction between 2017 and 2021, indicating a substantial improvement in cash flow generation relative to the total valuation of the entity.
- Ratio Volatility and Initial Correction
- A dramatic reduction in the EV/FCFF ratio is observed between 2017 and 2018, falling from 227.34 to 25.68. This sharp decline was primarily driven by a surge in Free Cash Flow to the Firm, which increased from 78 million US$ to 689 million US$, while the Enterprise Value remained relatively stable.
- Mid-Period Trends
- From 2019 to 2020, the ratio experienced a modest upward trend, moving from 31.11 to 35.58. This period was characterized by a contraction in Free Cash Flow to the Firm, which declined to 378 million US$ by the end of 2020, occurring alongside fluctuations in Enterprise Value that reached a period low of 12,800 million US$ in 2019.
- Valuation and Cash Flow Divergence
- By the end of 2021, the EV/FCFF ratio reached its lowest point of 8.07. This occurred despite the Enterprise Value increasing to a five-year peak of 19,460 million US$. The compression of the ratio was the result of an aggressive expansion in Free Cash Flow to the Firm, which rose to 2,410 million US$, suggesting that cash flow growth significantly outpaced the increase in the total enterprise valuation.
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