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# TJX Cos. Inc. (TJX)

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

Difficulty: Intermediate

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)

TJX Cos. Inc., free cash flow to the firm (FCFF) forecast

USD \$ in thousands, except per share data

Year Value FCFFt or Terminal value (TVt) Calculation Present value at
01 FCFF0
1 FCFF1 = × (1 + )
2 FCFF2 = × (1 + )
3 FCFF3 = × (1 + )
4 FCFF4 = × (1 + )
5 FCFF5 = × (1 + )
5 Terminal value (TV5) = × (1 + ) ÷ ()
Intrinsic value of TJX Cos. Inc.’s capital
Less: Long-term debt (fair value)
Intrinsic value of TJX Cos. Inc.’s common stock
Intrinsic value of TJX Cos. Inc.’s common stock (per share) \$
Current share price \$

Based on: 10-K (filing date: 2019-04-03).

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)

TJX Cos. Inc., cost of capital

Value1 Weight Required rate of return2 Calculation
Equity (fair value)
Long-term debt (fair value) = × (1 – )

Based on: 10-K (filing date: 2019-04-03).

1 USD \$ in thousands

Equity (fair value) = No. shares of common stock outstanding × Current share price
= × \$ = \$

Long-term 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
= ( + + + + + ) ÷ 6 =

WACC =

### FCFF Growth Rate (g)

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

TJX Cos. Inc., PRAT model

Average Feb 2, 2019 Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014
Selected Financial Data (USD \$ in thousands)
Interest expense, excluding capitalized interest
Net income
Effective income tax rate (EITR)1
Interest expense, excluding capitalized interest, after tax2
Add: Cash dividends declared on common stock
Interest expense (after tax) and dividends
EBIT(1 – EITR)3
Long-term debt
Shareholders’ equity
Total capital
Ratios
Retention rate (RR)4
Return on invested capital (ROIC)5
Averages
RR
ROIC
Growth rate of FCFF (g)6

Based on: 10-K (filing date: 2019-04-03), 10-K (filing date: 2018-04-04), 10-K (filing date: 2017-03-28), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-04-01).

2019 Calculations

2 Interest expense, excluding capitalized interest, after tax = Interest expense, excluding capitalized interest × (1 – EITR)
= × (1 – ) =

3 EBIT(1 – EITR) = Net income + Interest expense, excluding capitalized interest, after tax
= + =

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [] ÷ =

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × ÷ =

6 g = RR × ROIC
= × =

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × ( × ) ÷ ( + ) =

where:
Total capital, fair value0 = current fair value of TJX Cos. Inc.’s debt and equity (USD \$ in thousands)
FCFF0 = last year TJX Cos. Inc.’s free cash flow to the firm (USD \$ in thousands)
WACC = weighted average cost of TJX Cos. Inc.’s capital

#### FCFF growth rate (g) forecast

TJX Cos. Inc., H-model

Year Value gt
1 g1
2 g2
3 g3
4 g4
5 and thereafter g5

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)
= + () × (2 – 1) ÷ (5 – 1) =

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= + () × (3 – 1) ÷ (5 – 1) =

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= + () × (4 – 1) ÷ (5 – 1) =