# Schlumberger Ltd. (NYSE:SLB)

This company was transferred to the archive: financial data is no longer updated!

## Present Value of Free Cash Flow to the Firm (FCFF)

Intermediate level

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

### Intrinsic Stock Value (Valuation Summary)

Schlumberger Ltd., free cash flow to the firm (FCFF) forecast

US\$ in millions, except per share data

Year Value FCFFt or Terminal value (TVt) Calculation Present value at 11.87%
01 FCFF0 4,248
1 FCFF1 4,284  = 4,248  × (1 + 0.85%) 3,830
2 FCFF2 4,316  = 4,284  × (1 + 0.75%) 3,449
3 FCFF3 4,344  = 4,316  × (1 + 0.65%) 3,103
4 FCFF4 4,368  = 4,344  × (1 + 0.55%) 2,789
5 FCFF5 4,388  = 4,368  × (1 + 0.45%) 2,504
5 Terminal value (TV5) 38,593  = 4,388  × (1 + 0.45%) ÷ (11.87%0.45%) 22,027
Intrinsic value of Schlumberger Ltd.’s capital 37,702
Less: Debt (fair value) 15,824
Intrinsic value of Schlumberger Ltd.’s common stock 21,878

Intrinsic value of Schlumberger Ltd.’s common stock (per share) \$15.80
Current share price \$15.56

Based on: 10-K (filing date: 2020-01-22).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

### Weighted Average Cost of Capital (WACC)

Schlumberger Ltd., cost of capital

Value1 Weight Required rate of return2 Calculation
Equity (fair value) 21,543  0.58 18.75%
Debt (fair value) 15,824  0.42 2.50% = 3.09% × (1 – 19.20%)

Based on: 10-K (filing date: 2020-01-22).

1 US\$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,384,515,345 × \$15.56 = \$21,543,058,768.20

Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

Required rate of return on debt. See details »

Required rate of return on debt is after tax.

Estimated (average) effective income tax rate
= (3.00% + 17.00% + 35.00% + 15.00% + 26.00%) ÷ 5 = 19.20%

WACC = 11.87%

### FCFF Growth Rate (g)

#### FCFF growth rate (g) implied by PRAT model

Schlumberger Ltd., PRAT model

Average Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Selected Financial Data (US\$ in millions)
Interest expense 609  575  566  570  346
Net income (loss) attributable to Schlumberger (10,137) 2,138  (1,505) (1,687) 2,072

Effective income tax rate (EITR)1 3.00% 17.00% 35.00% 15.00% 26.00%

Interest expense, after tax2 591  477  368  485  256
Add: Dividends declared 2,770  2,770  2,775  2,713  2,535
Interest expense (after tax) and dividends 3,361  3,247  3,143  3,198  2,791

EBIT(1 – EITR)3 (9,546) 2,615  (1,137) (1,203) 2,328

Short-term borrowings and current portion of long-term debt 524  1,407  3,324  3,153  4,557
Long-term debt, excluding current portion 14,770  14,644  14,875  16,463  14,442
Total Schlumberger stockholders’ equity 23,760  36,162  36,842  41,078  35,633
Total capital 39,054  52,213  55,041  60,694  54,632
Financial Ratios
Retention rate (RR)4 -0.24 -0.20
Return on invested capital (ROIC)5 -24.44% 5.01% -2.07% -1.98% 4.26%
Averages
RR -0.22
ROIC -3.84%

FCFF growth rate (g)6 0.85%

Based on: 10-K (filing date: 2020-01-22), 10-K (filing date: 2019-01-23), 10-K (filing date: 2018-01-24), 10-K (filing date: 2017-01-25), 10-K (filing date: 2016-01-27).

2019 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 609 × (1 – 3.00%) = 591

3 EBIT(1 – EITR) = Net income (loss) attributable to Schlumberger + Interest expense, after tax
= -10,137 + 591 = -9,546

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [-9,5463,361] ÷ -9,546 =

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × -9,546 ÷ 39,054 = -24.44%

6 g = RR × ROIC
= -0.22 × -3.84% = 0.85%

#### FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (37,367 × 11.87%4,248) ÷ (37,367 + 4,248) = 0.45%

where:
Total capital, fair value0 = current fair value of Schlumberger Ltd.’s debt and equity (US\$ in millions)
FCFF0 = the last year Schlumberger Ltd.’s free cash flow to the firm (US\$ in millions)
WACC = weighted average cost of Schlumberger Ltd.’s capital

#### FCFF growth rate (g) forecast

Schlumberger Ltd., H-model

Year Value gt
1 g1 0.85%
2 g2 0.75%
3 g3 0.65%
4 g4 0.55%
5 and thereafter g5 0.45%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 0.85% + (0.45%0.85%) × (2 – 1) ÷ (5 – 1) = 0.75%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 0.85% + (0.45%0.85%) × (3 – 1) ÷ (5 – 1) = 0.65%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 0.85% + (0.45%0.85%) × (4 – 1) ÷ (5 – 1) = 0.55%