Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Northrop Grumman Corp., FCFF calculation
US$ in millions
Based on: 10-K (reporting date: 2022-12-31), 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).
An analysis of the financial performance from 2018 to 2022 reveals a cyclical trend in cash generation, characterized by an initial period of growth followed by a sustained contraction in both operating cash flows and free cash flow to the firm (FCFF).
- Operating Cash Flow Trends
- Net cash provided by operating activities experienced an upward trajectory between 2018 and 2020, peaking at 4,305 million. However, a significant reversal occurred after 2020, with cash flows declining to 3,567 million in 2021 and further dropping to 2,901 million by the end of 2022. This represents a 32.6% decrease from the 2020 peak to the 2022 year-end value.
- Free Cash Flow to the Firm (FCFF) Analysis
- FCFF followed a similar, albeit more aggressive, downward trajectory after reaching a peak of 3,493 million in 2019. From 2019 to 2022, FCFF declined steadily, ending the period at 1,864 million. The total reduction from the 2019 peak to the 2022 value constitutes a decrease of approximately 46.6%.
- Capital Expenditure Implications
- The divergence between net cash provided by operating activities and FCFF indicates a consistent commitment to capital expenditures. Notably, while both primary cash metrics declined between 2020 and 2022, the absolute difference between them widened. The implicit capital expenditure grew from 931 million in 2020 to 1,037 million in 2022, suggesting that investment in long-term assets increased even as operational cash generation diminished.
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Interest Paid, Net of Tax
Northrop Grumman Corp., interest paid, net of tax calculation
US$ in millions
Based on: 10-K (reporting date: 2022-12-31), 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).
2 2022 Calculation
Interest payments, net of interest received, tax = Interest payments, net of interest received × EITR
= 474 × 16.10% = 76
An analysis of net interest payments from 2018 to 2022 reveals a trajectory of initial growth followed by a consistent decline. The net cash outflow for interest peaked in 2020 before returning to levels closely approximating the 2018 baseline by the end of the observed period.
- Net Interest Payment Trends
- Interest payments, net of interest received and tax, rose from US$ 383 million in 2018 to US$ 460 million in 2019, reaching a peak of US$ 489 million in 2020. This represents a cumulative increase of approximately 27.7% over the first three years. Subsequently, a downward trend emerged, with payments decreasing to US$ 447 million in 2021 and further declining to US$ 398 million by December 31, 2022.
- Effective Income Tax Rate (EITR) Fluctuations
- The effective income tax rate demonstrated significant volatility over the five-year span. The rate declined from 15.90% in 2018 to a period low of 11.80% in 2019. A sharp increase followed, peaking at 21.60% in 2021, before moderating to 16.10% in 2022.
- Impact of Tax Rates on Net Interest Costs
- The relationship between the EITR and net interest payments suggests that tax shield efficiency influenced the reported net costs. The period of highest net interest payments (2019-2020) coincided with lower EITR values (11.80% and 14.50%), which reduced the tax-deductible benefit of interest expenses. In contrast, the peak tax rate of 21.60% in 2021 likely contributed to the reduction of the net interest payment to US$ 447 million by increasing the tax savings associated with interest expenditures.
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Enterprise Value to FCFF Ratio, Current
Northrop Grumman Corp., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 79,803) |
| Free cash flow to the firm (FCFF) | 1,864) |
| Valuation Ratio | |
| EV/FCFF | 42.82 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Boeing Co. | 281.55 |
| Caterpillar Inc. | 31.92 |
| Eaton Corp. plc | 37.34 |
| GE Aerospace | 42.79 |
| Honeywell International Inc. | 15.42 |
| Lockheed Martin Corp. | 19.99 |
| RTX Corp. | 31.78 |
| EV/FCFF, Sector | |
| Capital Goods | 41.24 |
| EV/FCFF, Industry | |
| Industrials | 35.77 |
Based on: 10-K (reporting date: 2022-12-31).
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
Northrop Grumman Corp., historical EV/FCFF calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Enterprise value (EV)1 | 78,175) | 67,634) | 58,949) | 76,153) | 59,592) | |
| Free cash flow to the firm (FCFF)2 | 1,864) | 2,599) | 3,374) | 3,493) | 2,961) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 41.95 | 26.02 | 17.47 | 21.80 | 20.12 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Boeing Co. | 37.53 | — | — | — | — | |
| Caterpillar Inc. | 23.54 | 20.50 | — | — | — | |
| Eaton Corp. plc | 33.44 | 38.16 | — | — | — | |
| GE Aerospace | 17.29 | 56.53 | — | — | — | |
| Honeywell International Inc. | 29.82 | 25.22 | — | — | — | |
| Lockheed Martin Corp. | 19.69 | 13.92 | — | — | — | |
| RTX Corp. | 28.45 | 27.29 | — | — | — | |
| EV/FCFF, Sector | ||||||
| Capital Goods | 25.87 | 32.16 | — | — | — | |
| EV/FCFF, Industry | ||||||
| Industrials | 24.33 | 28.81 | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 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).
3 2022 Calculation
EV/FCFF = EV ÷ FCFF
= 78,175 ÷ 1,864 = 41.95
4 Click competitor name to see calculations.
Between 2018 and 2022, a divergent trend emerged between the valuation of the enterprise and its capacity to generate free cash flow to the firm. While the total enterprise value experienced an overall increase over the five-year period, the free cash flow attributable to the firm declined significantly after 2019, leading to a substantial expansion of the EV/FCFF multiple.
- Enterprise Value Trends
- The enterprise value exhibited notable volatility, rising from 59,592 million USD in 2018 to a peak of 76,153 million USD in 2019. Following a sharp contraction to 58,949 million USD in 2020, a consistent recovery occurred, with the value reaching its highest point of 78,175 million USD by December 31, 2022.
- Free Cash Flow to the Firm (FCFF) Performance
- FCFF reached a maximum of 3,493 million USD in 2019. Subsequently, a persistent downward trajectory is observed, with cash flows decreasing to 2,599 million USD in 2021 and further declining to 1,864 million USD by the end of 2022. This represents a significant reduction in the firm's cash generation capabilities relative to its 2019 peak.
- EV/FCFF Ratio Analysis
- The EV/FCFF ratio shifted from a period of relative stability to one of rapid expansion. After reaching a five-year low of 17.47 in 2020, the ratio climbed to 26.02 in 2021 and surged to 41.95 in 2022. This sharp increase indicates that the enterprise value has grown while the underlying cash flow has diminished, resulting in a much higher valuation multiple per unit of free cash flow.
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