dcf analysis

Valuation LogicValuation Of a CompanyJust remember: Garbage in garbage out!1. Initial Filter- Cheapness? (high Ebit/EV)-Ugly? (New 52 Week Low)- Obscure (Spinoff, Divestiture)- Ignored (small/mid cap)2. Estimate a discount rate- Cost of Equity (which beta?)- Cost of Debt (which default risk? Which after-tax cost of debt?)- Cost of Capital (which Debt Ratio?)3. Valuation-Assets (certainty, NNWC or NCAV)- Earnings Power (Normalized Ebit/WACC)- Franchise Power (long term avg. Of FCF/Total Assets; ROA; ROIC; Gross Profit Margin4. Final Thoughts

&C&"Times New Roman,Normale"&12&A&C&"Times New Roman,Normale"&12Pagina &P

Jupa SnapshotCompanyHome Depot Inc | Income Stateme 3 13 23201020112012201320142015Share Price on 31/1228.0136.7744.3966.9276.85104.42Quality of Earnings-6.03%-3.11%-6.83%-5.94%-5.54%-4.75%Float1.151.171.101.070.930.85ROA6.51%8.32%9.58%11.04%13.29%15.88%ROIC16.51%20.55%22.48%27.76%32.88%39.13%Gross Profit Margin34.00%34.27%34.47%34.57%34.75%34.81%P/E17.8418.2917.9722.3120.4422.17P/FCF11.4417.1012.5617.5417.0020.07BV/Share11.4211.6411.6411.778.736.93


Income StatementHome Depot Inc | Income Stateme 3 13 23Home Depot Inc | Income Statement | Thomson Reuters Eikon 21-May-2015 15:48Home Depot IncHDLast111.96USD-0.14-0.001249BuyIncome StatementAnnual Standardised in Millions of U.S. Dollars201020112012201320142015Period End Date31-Jan-201030-Jan-201129-Jan-201203-Feb-201302-Feb-201401-Feb-2015Revenue66.17667.99770.39574.75478.81283.176Net Sales661766799770395747547881283176Other Revenue, Total------------Total Revenue66.17667.99770.39574.75478.81283.176Cost of Revenue, Total436744469346133489125142254222Cost of Revenue43.76444.69346.13348.91251.42254.222Gross Profit22.41223.30424.26225.84227.3928.954Selling/General/Admin. Expenses, Total15.90215.84916.02816.50816.59716.834Selling/General/Administrative Expense15.90215.84916.02816.50816.59716.834Research & Development------------Depreciation/Amortization1.7071.6161.5731.5681.6271.651Depreciation1.7071.6161.5731.5681.6271.651Interest Expense, Net - Operating------------Interest/Investment Income - Operating------------Interest Expense(Income) - Net Operating------------Interest Exp.(Inc.),Net-Operating, Total------------Unusual Expense (Income)------0----Other Unusual Expense (Income)------0----Other Operating Expenses, Total------------Total Operating Expense61.37362.15863.73466.98869.64672.707Operating Income4803583966617766916610469Interest Expense, Net Non-Operating(676)(530)(606)(632)(711)(830)Interest Expense - Non-Operating(676)(530)(606)(632)(711)(830)Interest/Invest Income - Non-Operating1815132012337Interest Income - Non-Operating1815132012337Interest Income(Exp), Net Non-Operating------------Interest Inc.(Exp.),Net-Non-Op., Total(658)(515)(593)(612)(699)(493)Gain (Loss) on Sale of Assets------------Other, Net(163)(51)06700Other Non-Operating Income (Expense)(163)(51)06700Net Income Before Taxes3.9825.2736.0687.2218.4679.976Provision for Income Taxes1.3621.9352.1852.6863.0823.631Net Income After Taxes2.623.3383.8834.5355.3856.345Minority Interest------------Equity In Affiliates------------U.S. GAAP Adjustment------------Net Income Before Extra. Items2.623.3383.8834.5355.3856.345Accounting Change------------Discontinued Operations4100------Extraordinary Item------------Tax on Extraordinary Items------------Total Extraordinary Items4100------Net Income266133383883453553856345Preferred Dividends------------General Partners' Distributions------------Miscellaneous Earnings Adjustment------------Pro Forma Adjustment------------Interest Adjustment - Primary EPS------------Total Adjustments to Net Income------------Income Available to Com Excl ExtraOrd2.623.3383.8834.5355.3856.345Income Available to Com Incl ExtraOrd2.6613.3383.8834.5355.3856.345Basic Weighted Average Shares1.6831.6481.5621.4991.4251.338Basic EPS Excluding Extraordinary Items1.562.032.493.033.784.74Basic EPS Including Extraordinary Items1.582.032.493.033.784.74Dilution Adjustment------0----Diluted Net Income2.6613.3383.8834.5355.3856.345Diluted Weighted Average Shares1.6921.6581.571.5111.4341.346Diluted EPS Excluding ExtraOrd Items1.552.012.4703:00:003.764.71Diluted EPS Including ExtraOrd Items1.572.012.473.003.764.71Supplemental ($ Millions)DPS - Common Stock Primary Issue0.900.951.041.261.561.88Dividends per Share - Com Stock Issue 2------------Dividends per Share - Com Stock Issue 3------------Dividends per Share - Com Stock Issue 4------------Special DPS - Common Stock Primary Issue------------Special DPS - Common Stock Issue 2------------Special DPS - Common Stock Issue 3------------Special DPS - Common Stock Issue 4------------Gross Dividends - Common Stock1.5251.5691.6321.7432.2432.53Pro Forma Stock Compensation Expense------------Net Income after Stock Based Comp. Exp.------------Basic EPS after Stock Based Comp. Exp.------------Diluted EPS after Stock Based Comp. Exp.------------Stock-Based Compensation, Supplemental201214215218228225Interest Expense, Supplemental676530606629709830Interest Capitalized, Supplemental(4)(3)(3)(3)(2)(2)Interest Expense (Financial Oper), Suppl------------Net Revenues------------Depreciation, Supplemental1.7071.6161.5731.6841.7571.786Funds From Operations - REIT------------(Gain) Loss on Sale of Assets, Suppl.------------Impairment-Assets Held for Sale, Suppl.------------Impairment-Assets Held for Use, Suppl.------------Litigation Charge, Supplemental------------Purchased R&D Written-Off, Supplemental------------Restructuring Charge, Supplemental------------Other Unusual Expense(Income), Suppl.146----------Non-Recurring Items, Supplemental, Total146----------Total Special Items146----0----Normalized Income Before Taxes4.1285.2736.0687.2218.4679.976Effect of Special Items on Income Taxes11818--0----Inc Tax Ex Impact of Sp Items1.481.9532.1852.6863.0823.631Normalized Income After Taxes2.6483.323.8834.5355.3856.345Normalized Inc. Avail to Com.2.6483.323.8834.5355.3856.345Basic Normalized EPS1.572.012.493.033.784.74Diluted Normalized EPS1.572.012.4733.764.71Amort of Acquisition Costs, Supplemental------------Amort of Intangibles, Supplemental------------Rental Expense, Supplemental823821823849905918Labor & Related Expense Suppl.------------EPS, Supplemental------------Advertising Expense, Supplemental897864--------Equity in Affiliates, Supplemental------------Minority Interest, Supplemental------------Research & Development Exp, Supplemental------------Audit Fees5555--5Audit-Related Fees0000--0Tax Fees0001--0All Other Fees0000--0Reported Recurring Revenue------------Reported Net Premiums Written------------Reported Total Revenue------------Reported Operating Revenue------------Reported Total Cost of Revenue------------Reported Total Sales, General & Admin.------------Reported Gross Profit------------Reported Operating Profit------------Reported Operating Profit Margin------------Reported Ordinary Profit------------Reported Net Income After Tax------------Reported Basic EPS------------Reported Diluted EPS------------Reported Net Business Profits------------Islamic Income------------Zakat------------Islamic Section, Supplemental------------Normalized EBIT4.9495.8396.6617.7669.16610.469Normalized EBITDA6.6567.4558.2349.4510.92312.255Tax & Pension Items ($ Millions)Current Tax - Total1.5361.811.952.5923.1143.515Current Tax - Domestic1.1571.4781.5662.062.5032.884Current Tax - Foreign195151150230265258Current Tax - Local184181234302346373Deferred Tax - Total(174)12523594(32)116Deferred Tax - Domestic(121)79199114(12)127Deferred Tax - Foreign(29)251(21)(24)0Deferred Tax - Local(24)213514(11)Income Tax - Total1.3621.9352.1852.6863.0823.631Income Tax by Region - Total------------Domestic Pension Plan Expense------------Foreign Pension Plan Expense------------Post-Retirement Plan Expense------------Total Pension Expense161171171182184182Defined Contribution Expense - Domestic161171171182184182Assumptions------------Total Plan Interest Cost------------Total Plan Service Cost------------Total Plan Expected Return------------Total Plan Other Expense------------


Balance SheetHome Depot Inc | Balance Sheet 3 13 23Home Depot Inc | Balance Sheet | Thomson Reuters Eikon 21-May-2015 15:49Home Depot IncHDLast112.10USD00BuyBalance SheetAnnual Standardised in Millions of U.S. Dollars201020112012201320142015Period End Date31-Jan-201030-Jan-201129-Jan-201203-Feb-201302-Feb-201401-Feb-2015Assets ($ Millions)Cash and Short Term Investments14215451987249419291723Cash & Equivalents1.4215451.9872.4941.9291.723Accounts Receivable - Trade, Net9641.0851.2451.3951.3981.484Total Receivables, Net9641.0851.2451.3951.3981.484Total Inventory10.18810.62510.32510.7111.05711.079Prepaid Expenses------------Other Current Assets, Total1.3271.2249637738951.016Deferred Income Tax - Current Asset------313482444Other Current Assets1.3271.224963460413572Total Current Assets139001347914520153721527915302Property/Plant/Equipment, Total - Gross37.34538.38538.97538.49139.06438.513Buildings - Gross18.77418.97919.10919.36319.33819.178Land/Improvements - Gross8.4518.4978.488.4858.3758.243Construction in Progress - Gross525654758647548585Other Property/Plant/Equipment - Gross9.59510.25510.6289.99610.80310.507Property/Plant/Equipment, Total - Net255502506024488240692334822720Accumulated Depreciation, Total(11,795)(13,325)(14,527)(14,422)(15,716)(15,793)Goodwill, Net1.1711.1871.121.171.2891.353Intangibles, Net------------Long Term Investments000000Note Receivable - Long Term33139135140----Other Long Term Assets, Total223260295333602571Defered Income Tax - Long Term Asset------304951Other Long Term Assets223260295303553520Total Assets408774012540518410844051839946Liabilities ($ Millions)Accounts Payable4.8634.7174.8565.3765.7975.807Payable/Accrued------------Accrued Expenses3.2143.1733.323.4713.5683.63Notes Payable/Short Term Debt00000290Current Port. of LT Debt/Capital Leases1.021.042301.3213338Other Current liabilities, Total1.2661.191.171.2941.3511.504Customer Advances1.1581.1771.1471.271.3371.468Income Taxes Payable1081323221235Deferred Income Tax - Current Liability------221Total Current Liabilities10363101229376114621074911269Total Long Term Debt8.6628.70710.7589.47514.69116.869Long Term Debt8.6628.70710.7589.47514.69116.869Total Debt9682974910788107961472417197Deferred Income Tax319272340319514642Deferred Income Tax - LT Liability319272340319514642Minority Interest------------Other Liabilities, Total2.142.1352.1462.0512.0421.844Other Long Term Liabilities2.142.1352.1462.0512.0421.844Total Liabilities214842123622620233072799630624Shareholders Equity ($ Millions)Redeemable Preferred Stock, Total------------Preferred Stock - Non Redeemable, Net------------Common Stock, Total868687888888Common Stock868687888888Additional Paid-In Capital6.3046.5566.9667.9488.4028.885Retained Earnings (Accumulated Deficit)13.22614.99517.24620.03823.1826.995Treasury Stock - Common(585)(3,193)(6,694)(10,694)(19,194)(26,194)ESOP Debt Guarantee------------Unrealized Gain (Loss)------------Other Equity, Total36244529339746(452)Other Comprehensive Income36244529339746(452)Total Equity19393188891789817777125229322Total Liabilities & Shareholders' Equity40.87740.12540.51841.08440.51839.946Supplemental ($ Millions)Shares Outstanding - Common Issue 2------------Shares Outstanding - Common Issue 3------------Shares Outstanding - Common Issue 4------------Total Common Shares Outstanding169816231537148413801307Shares Outs - Common Stock Primary Issue1.6981.6231.5371.4841.381.307Treas Shares - Common Stock Prmry Issue1899196270381461Treasury Shares - Common Issue 2------------Treasury Shares - Common Issue 3------------Treasury Shares - Common Issue 4------------Total Preferred Shares Outstanding------------Treasury Shares - Preferred Issue 1------------Treasury Shares - Preferred Issue 2------------Treasury Shares - Preferred Issue 3------------Treasury Shares - Preferred Issue 4------------Treasury Shares - Preferred Issue 5------------Treasury Shares - Preferred Issue 6------------Minority Interest - Redeemable------------Minority Interest - Non Redeemable------------Total Equity & Minority Interest19.39318.88917.89817.77712.5229.322Full-Time Employees193.37189.39331340365371Part-Time Employees123.63131.61--------Number of Common Shareholders1,371,0001,194,0001,203,0001,212,0001,288,0001,448,000Other Property/Plant/Equipment - Net------------Intangibles - Net------------Goodwill - Net1.1711.1871.121.171.2891.353Short Term Debt Financial Sector, Suppl.------------Curr Port - LTD/Cap Lse Fin Sec., Suppl.------------Long Term Debt Financial Sector, Suppl.------------Capital Lease Oblig. - Fin Sector, Suppl------------Accumulated Goodwill Amortization Suppl.------------Accumulated Intangible Amort, Suppl.------------Deferred Revenue - Current1.1581.1771.1471.271.3371.468Deferred Revenue - Long Term------------Curr Derivative Liab. Hedging, Suppl.------------Curr Derivative Liab. Spec./Trdg, Suppl.------------Non-Curr Derivative Liab. Hedging, Suppl------------Non-Curr Derivative Liab Spec/Trdg Suppl------------Total Risk-Weighted Capital------------Tier 1 Capital %------------Total Capital %------------Trading Account------------Credit Exposure------------Non-Performing Loans------------Assets under Management------------Total Current Assets less Inventory3.7122.8544.1954.6624.2224.223Net Debt8.2619.2048.8018.30212.79515.474Tangible Book Value, Common Equity18.22217.70216.77816.60711.2337.969Reported Total Assets------------Reported Total Liabilities------------Shareholders' Equity Excl. Stock Subscr.------------Reported Shareholder's Equity------------Reported Net Assets------------Reported Net Assets to Total Assets------------Reported Return on Assets------------Reported Return on Equity------------Islamic Investments & Deposits------------Islamic Receivables------------Islamic Debt------------Islamic Section, Supplemental------------Debt & Lease, Pension Items ($ Millions)Total Long Term Debt, Supplemental9.6639.68310.78710.78814.79116.875Long Term Debt Maturing within 1 Year11301.33338Long Term Debt Maturing in Year 21291.332303.1Long Term Debt Maturing in Year 3301.330293.137Long Term Debt Maturing in Year 41.328273.1281.2Long Term Debt Maturing in Year 533263.1271.21Long Term Debt Maturing in 2-3 Years1.031.3291.33613.133.137Long Term Debt Maturing in 4-5 Years1.333543.1273.1271.2282.2Long Term Debt Matur. in Year 6 & Beyond6.37.36.36.310.411.5Total Capital Leases, Supplemental408452449492499684Interest Costs(834)(807)(810)(813)(681)(726)Capital Lease Payments Due in Year 19011410611299113Capital Lease Payments Due in Year 2909610410794111Capital Lease Payments Due in Year 390961009992108Capital Lease Payments Due in Year 48992939789101Capital Lease Payments Due in Year 5888790938397Capital Lease Payments Due in 2-3 Years180192204206186219Capital Lease Payments Due in 4-5 Years177179183190172198Cap. Lease Pymts. Due in Year 6 & Beyond795774766797723880Total Operating Leases, Supplemental8.5368.1817.9998.2088.1967.705Operating Lease Payments Due in Year 1802783800856895893Operating Lease Payments Due in Year 2717699746807843817Operating Lease Payments Due in Year 3640639682747754737Operating Lease Payments Due in Year 4584582637656674638Operating Lease Payments Due in Year 5535543557582574561Operating Lease Pymts. Due in 2-3 Years1.3571.3381.4281.5541.5971.554Operating Lease Pymts. Due in 4-5 Years1.1191.1251.1941.2381.2481.199Oper. Lse. Pymts. Due in Year 6 & Beyond5.2584.9354.5774.564.4564.059Total Funded Status------------Period End Assumptions------------Net Assets Recognized on Balance Sheet------------Asset Allocation------------Total Plan Obligations------------Total Plan Assets------------


Cash Flow StatementHome Depot Inc | Cash Flow | Th 3 13 23Home Depot Inc | Cash Flow | Thomson Reuters Eikon 21-May-2015 15:50Home Depot IncHDLast111845USD-255-0.002275BuyCash FlowAnnual Standardised in Millions of U.S. Dollars201020112012201320142015Period End Date31-Jan-201030-Jan-201129-Jan-201203-Feb-201302-Feb-201401-Feb-2015Cash Flow-Operating Activities ($ Millions)Net Income/Starting Line2,661.03,338.03,883.04,535.05,385.06,345.0Depreciation/Depletion1,806.01,718.01,682.01,684.01,757.01,786.0Depreciation1,806.01,718.01,682.01,684.01,757.01,786.0Amortization------------Deferred Taxes(227.0)104.0170.0107.0(31.0)159.0Non-Cash Items364.0214.0215.0315.0228.0(98.0)Unusual Items163.00.00.097.00.0(323.0)Other Non-Cash Items201.0214.0215.0218.0228.0225.0Changes in Working Capital521.0(789.0)701.0334.0289.050.0Accounts Receivable(23.0)(102.0)(170.0)(143.0)(15.0)(81.0)Inventories625.0(355.0)256.0(350.0)(455.0)(124.0)Other Assets4.012.0159.093.0(5.0)(199.0)Payable/Accrued59.0(133.0)422.0698.0605.0244.0Taxes Payable(174.0)(85.0)14.087.0119.0168.0Other Liabilities(40.0)(51.0)(31.0)(59.0)88.0(6.0)Other Assets & Liabilities, Net70.0(75.0)51.08.0(48.0)48.0Cash from Operating Activities512545856651697576288242Cash Flow-Investing Activities ($ Millions)Capital Expenditures(966.0)(1,096.0)(1,221.0)(1,312.0)(1,389.0)(1,442.0)Purchase of Fixed Assets(966.0)(1,096.0)(1,221.0)(1,312.0)(1,389.0)(1,442.0)Other Investing Cash Flow Items, Total211.084.092.0(120.0)(118.0)171.0Acquisition of Business0.00.0(65.0)(170.0)(206.0)(200.0)Sale of Business0.00.0101.00.00.0--Sale of Fixed Assets178.084.056.050.088.048.0Sale/Maturity of Investment33.00.00.0----323.0Purchase of Investments0.00.0--------Cash from Investing Activities(755.0)(1,012.0)(1,129.0)(1,432.0)(1,507.0)(1,271.0)Cash Flow-Financing Activities ($ Millions)Financing Cash Flow Items(64.0)(347.0)(218.0)(59.0)(37.0)(25.0)Other Financing Cash Flow(64.0)(347.0)(218.0)(59.0)(37.0)(25.0)Total Cash Dividends Paid(1,525.0)(1,569.0)(1,632.0)(1,743.0)(2,243.0)(2,530.0)Cash Dividends Paid - Common(1,525.0)(1,569.0)(1,632.0)(1,743.0)(2,243.0)(2,530.0)Issuance (Retirement) of Stock, Net(140.0)(2,504.0)(3,164.0)(3,200.0)(8,305.0)(6,748.0)Sale/Issuance of Common73.0104.0306.0784.0241.0252.0Repurchase/Retirement of Common(213.0)(2,608.0)(3,470.0)(3,984.0)(8,546.0)(7,000.0)Common Stock, Net(140.0)(2,504.0)(3,164.0)(3,200.0)(8,305.0)(6,748.0)Issuance (Retirement) of Debt, Net(1,774.0)(31.0)966.0(32.0)3,933.02,232.0Short Term Debt Issued----------290.0Short Term Debt, Net0.00.0------290.0Long Term Debt Issued0.0998.01,994.00.05,222.01,981.0Long Term Debt Reduction(1,774.0)(1,029.0)(1,028.0)(32.0)(1,289.0)(39.0)Long Term Debt, Net(1,774.0)(31.0)966.0(32.0)3,933.01,942.0Cash from Financing Activities(3,503.0)(4,451.0)(4,048.0)(5,034.0)(6,652.0)(7,071.0)Foreign Exchange Effects35.02.0(32.0)(2.0)(34.0)(106.0)Net Change in Cash902.0(876.0)1,442.0507.0(565.0)(206.0)Net Cash - Beginning Balance519.01,421.0545.01,987.02,494.01,929.0Net Cash - Ending Balance1,421.0545.01,987.02,494.01,929.01,723.0Cash Interest Paid664.0579.0580.0617.0639.0782.0Cash Taxes Paid2,082.02,067.01,865.02,482.02,839.03,435.0Reported Cash from Operating Activities------------Reported Cash from Investing Activities------------Reported Cash from Financing Activities------------Free Cash Flow415934895430566362396800


Cost of EquityMost models use past prices to estimate Beta.Problem: past prices might not be available (spinoffs, private firms, etc.)a) Comparable firm betas?The beta of a firm measures only market risk, and is based upon theBeta of comparable1.2assumption that the investor in the business is well diversified. GivenTax rate on comparable=36.40%that private firm owners often have all or the bulk of their wealthTotal Debt on Comparable=16869invested in the private business, would you expect their perceivedTotal Equity on Comparable=9322costs of equity to be higher or lower than the costs of equity fromusing betas?Beta unlevered of comparable =0.5579061542Adjust the beta to reflect total risk rather than market risk. Thisb) Firm betaadjustment is a relatively simple one, since the correlation with themarket measures the proportion of the risk that is market risk.Industry average Debt/Equity =1.15Total Unlevered Beta = Market Beta / Correlation with marketTotal Levered Beta = Unlevered Beta*(1+(1-tax rate)*(Debt/Equity))Firm Tax Rate =36.40%Firm Beta =0.9659587154c) Market Values10Yr Gov. Bond Yield2.30%Long Term Gov. Bond Avg. Yield4.50%Equity Risk Premium3.00%http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/implpr.htmlSmall / Mid firm risk premium0Estimated Cost of Equity10.00%Lazy cost of Equity10% min 15% Max


Cost of DebtBasic Problem: Private firms generally do not access public debtmarkets, and are therefore not rated.Most debt on the books is bank debt, and the interest expense on thisdebt might not reflect the rate at which they can borrow (especially ifthe bank debt is old.)a) Assuming that the firm can borrow at the same rate as similar comparable firmsCost of Debt for Firm = Cost of Debt for Comparable Firms =5.88%B) If form 10 or some SEC filing is available:Interest Expense =Outstanding Debt=Cost of Debt =5.88%


WACCBasic problem: The debt ratios for private firms are stated in bookvalue terms, rather than market value. Furthermore, the debt ratio for aprivate firm that plans to go public might change as a consequence ofthat action.a) assume that Debt Ratio will gravitate towards industry averageDebt Ratio for Private firm = Industry Average Debt Ratiohttp://www.stockresearching.com/2014/01/12/home-depot-fundamental-analysis-wacc-cost-of-debt-and-cost-of-equity-hd/Industry Average Debt Ratio=1.34Is it = or thanDebt/(Debt + Equity) Calculated =0.6440762094Equity/(Debt/Equity)0.3559237906Cost of Equity10.00%Cost of Debt5.88%WACC11.43%which must be less than ROIC =>39.13%for current year


Stable Growth DCFThis model is appropriate for stable, predictable firmsUser defined inputsThe user has to define the following inputs to the model:1. Current Earnings per share2. Capital Spending and Depreciation per share3. Change in working capital per share4. Desired debt level for financing working capital and capital spending needs.5. Cost of Equity or Inputs to the CAPM (Beta, Riskfree rate, Risk Premium)6. Expected Growth Rate in free cashflows to equity forever.Please enter inputs to the model:Current Earnings per share =$5.45(in currency){You can input all the numbers for the aggregate company, if you so desire}Capital Spending/share =$2.00(in currency)Depreciation / share =$1.75(in currency)Chg. Working Capital/share =$0.60(in currency)Desired debt financing ratio =29.97%( in percent)Do you want to offset capital expenditures by depreciation in the future?No(Yes or No)The reinvestment rate based upon your inputs is computed to be10.96%Do you want to recompute this reinvestment rate based upon fundamentals?YesIf yes, enter the return on equity that you expect this firm to have in perpetuity12%Desired debt financing ratio =29.97%( in percent)Are you directly entering the cost of equity? (Yes or No)NoIf yes, enter cost of equity =(in percent)If no, enter the inputs for the CAPMBeta of the stock =1.1Riskfree rate =7%(in percent)Risk Premium=5.50%(in percent)Expected Growth Rate =6%(in percent)The expected growth rate for a stable firmcannot be significantly higher than the nominalgrowth rate in the economy in which the firmoperates. It can be lower.This is the output from the Gordon Growth ModelFirm Details: from inputs aboveCurrent Earnings per share =$5.45-(1- Desired debt fraction) *70.03%(Capital Spending - Depreciation)$3.29$2.30-(1- Desired debt fraction) *70.03% Working Capital$0.60$0.42Free Cashflow to Equity =$2.73Cost of Equity =13.05%Expected Growth rate =6.00%Gordon Growth Model Value =$40.97Growth rateValue10.00%$98.289.00%$73.348.00%$58.287.00%$48.196.00%$40.975.00%$35.544.00%$31.313.00%$27.932.00%$25.15

&C&"Times New Roman,Normale"&12&A&C&"Times New Roman,Normale"&12Pagina &PAswath Damodaran:If you set your perpetual growth rate at any number greater than zero, this should be no.Aswath Damodaran:Your reinvestment rate should be consistent with your growth rate assumptions. If you answer yes to this question, you should enter the return on equity below.

Stable Growth DCF

Share price vs Expected Growth Rate

Price vs Value of GrowthCost vs Value of GrowthMarket inputs for your companyShares Outstanding1316Price per share112.34Market Capitalization =$147,839.44Measures of profitability, leverage & growthFrom the balance sheetThis yearLast yearROE =50.67%Book value of equity =$9,322.00$12,522.00ROIC =26.33%Total Debt Outstanding =$16,869.00$14,691.00Net margin =7.63%Cash & Marketable Securities =$1,723.00$1,929.00Pre-tax operating margin =8.01%From the income statementD/E ratio (book) =180.96%Revenues$83,176.00$78,812.00D/E ratio (market) =11.41%Operating income (EBIT) =$10,469.00$9,166.00Growth rate (revenue)5.54%Effective tax rate =36%Growth rate (EBIT)14.22%Net Income$6,345.00Your growth inputsExpected growth rate in operating income=25%Return on Invested capital on growth =27.04%Length of growth period =10Your cost of capital inputsCost of equity =12.00%Cost of capital =12.00%Riskfree rate =4.50%Intrinsic ValueMarket ValueValue of assets in place =$55,485.70Market value of equity$147,839.44Value added by future growth =$132,851.00Enterprise value$162,985.44Intrinsic enterprise value$188,336.70Intrinsic equity value$173,190.70Growth AnalysisPrice you are paying for growth =$107,499.74per share =>81.69Value of this growth =$132,851.00per share =>100.95Price of growth/ Value of growth80.92%Breakdown of multiplesActualIntrinsicTotalAssets in PlaceGrowthTotalAssets in placeGrowthP/E23.306.3616.9427.306.3620.94P/BV15.864.3311.5318.584.3314.25EV/Sales1.780.671.112.260.671.60EV/Invested Capital6.042.273.777.702.275.43If you are interested in the mechanics of the valuation, here are the cash flows (for up to 10 years of high growth if your growth period exceeds 10 years, this detailed cash flow table will not work)No Growth ScenarioReinvestment Rate =0%012345678910After-tax Operating Income$6,658.28$6,658.28$6,658.28$6,658.28$6,658.28$6,658.28$6,658.28$6,658.28$6,658.28$6,658.28- Reinvestment$0.00$0.00$0.00$0.00$0.00$0.00$0.00$0.00$0.00$0.00FCFF$6,658.28$6,658.28$6,658.28$6,658.28$6,658.28$6,658.28$6,658.28$6,658.28$6,658.28$6,658.28Terminal year AT Oper income (in year n+1)$6,658.28Terminal year reinvestment (in year n+1)$0.00Terminal year FCFF (in year n+1)$6,658.28Terminal Value (in year n)$55,485.70Value today$55,485.70per share ==>$42.16Growth ScenarioReinvestment Rate =92.46%! Expected growth rate in high growth rate/ Return on Invested capital in high growthReinvestment Rate (stable growth)37.50%! Assume stable growth rate = riskfree rate; return on capital in stable growth = cost of capital012345678910After-tax Operating Income$8,322.86$10,403.57$13,004.46$16,255.58$20,319.47$25,399.34$31,749.17$39,686.47$49,608.08$62,010.10- Reinvestment$6,155.96$7,694.95$9,618.68$12,023.36$15,029.19$18,786.49$23,483.12$29,353.89$36,692.37$45,865.46$23,253.79FCFF-$6,155.96$627.91$784.88$981.11$1,226.38$1,532.98$1,916.22$2,395.28$2,994.10$3,742.62$38,756.31Terminal year operating income$64,800.56Terminal year FCFF$40,500.35Terminal Value$540,004.64Value today$188,336.70per share =>143.1129946807

&C&"Times New Roman,Normale"&12&A&C&"Times New Roman,Normale"&12Pagina &PAswath Damodaran:Market capitalizarion of all classes of shares in your company.Aswath Damodaran:Book value of equity from the balance sheet, including retailed earnings.Aswath Damodaran:Book value of interest bearting debt, short as well as long term. Should not include accounts payable, supplier credit, deferred iems or other non-interest bearing debt.Aswath Damodaran:Cash and marketable securites as of last balance sheet.Aswath Damodaran:Sales or revenues in most recent yearAswath Damodaran:Operating income for the most recent yearAswath Damodaran:Effective tax rate from income statement. Divide taxes paid by taxable income.Aswath Damodaran:Net income for most recent year, prior to extraordinary items.Aswath Damodaran:Expected compounded annual growth rate in operating income during high growth period.Aswath Damodaran:While the default is set to the current ROIC, you can change it to reflect industry averages or trends you see at your company.Aswath Damodaran:Length of the period that you will be able to maintain high growth before becoming stable growth firm.Aswath Damodaran:If you want to use the worksheet, you can or you can use the industry average.Aswath Damodaran:If you want to use the worksheet, you can or you can use the industry averageAswath Damodaran:Long term riskfree rate in the currency of valuation.Aswath Damodaran:Following the pure convention, which requires reinvestment to precede growth by a year. Reinvest the high growth reinvestment rate of current after-tax operating income to facilitate growth for year 1.Aswath Damodaran:Reinvestment rate drops to stable period reinvestment rate in final year of high growth.

2-Stage DCFThis model is suitable for firms that will have an initial period of higher growth, then revert to meanThe user has to define the following inputs:1. Length of high growth period2. Expected growth rate in earnings during the high growth period.3. Capital Spending, Depreciation and Working Capital needs during the high growth period.4. Expected growth rate in earnings during the stable growth period.5. Inputs for the cost of equity.Inputs to the modelCurrent Earnings per share =$4.00(in currency)Current Dividends per share =$0.25(in currency)Current Capital Spending/sh =$3.70(in currency)Current Depreciation / share =$1.70(in currency)Current Revenues/ share =$20.00Working Capital/ share =$8.00(in currency)Chg. Working Capital/share =$1.00Enter length of extraordinary growth period =5(in years)Do you want to enter cost of equity directly?No(Yes or No)If yes, enter the cost of equity =(in percent)If no, enter the inputs to the cost of equityBeta of the stock =1.3Riskfree rate=7.00%(in percent)Risk Premium=5.50%(in percent)Earnings InputsDo you want to use the historical growth rate?Yes(Yes or No)If yes, enter EPS from five years ago =$0.49(in currency)Do you have an outside estimate of growth ?Yes(Yes or No)If yes, enter the estimated growth:19.00%(in percent)Do you want to calculate the growth rate from fundamentals?Yes(Yes or No)If yes, enter the following inputs:Net Income Currently =$1,077.00(in currency)Interest Expense Currently =$53.85Last year(in currency)Book Value of Debt =$600.00$550.00(in currency)Book Value of Equity =$5,445.00$5,130.00(in currency)Tax Rate on Income=36.00%(in percent)The following will be the inputs to the fundamental growth formulation:ROC =19.57%D/E =11.02%(in percent)Retention =93.75%Interest Rate=8.98%(in percent)Do you want to change any of these inputs for the high growth period?No(Yes or No)If yes, specify the values for these inputs (Please enter all variables)ROC =19.57%D/E =11.02%(in percent)Retention =93.75%Interest Rate=8.98%(in percent)Specify weights to be assigned to each of these growth rates:Historical Growth Rate =10.00%(in percent)Outside Prediction of Growth =40.00%(in percent)Fundamental Estimate of Growth =50.00%(in percent)Enter growth rate in stable growth period?6.00%(in percent)BetaWill the beta to change in the stable period?Yes(Yes or No)If yes, enter the beta for stable period =1.1Capital Spending, Depreciation & Working CapitalDo you want all these items to grow at the same rate as earnings ?No(Yes or No)If not, enter the growth rates for each of the following items:Capital SpendingDepreciationRevenuesHigh Growth20%20%18%(in percent)Stable GrowthDo not enterDo not enter6%(in percent)Do you want to keep the current fraction of working capital to revenues?Yes(Yes or No)Specify working capital as a percent of revenues:40%(in percent)Do you want to use the current debt ratio as your desired mix?Yes(Yes or No)If no, enter the following inputs for financing mix,Desired debt financing proportion - Capital Spending(in percent)Desired debt financing proportion - Working Capital(in percent)Capital spending and Depreciation during Stable GrowthIs capital spending to be offset by depreciation in stable period?No(Yes or No)Do you want to compute your reinvestment rate from fundamentals?YesReturn on equity in stable growth period12%If no, enter capital expenditures as % of depreciation in stable growth150%(in percent)Output from the programCost of Equity =14.15%Proportion of Debt: Capital Spending (DR)=9.93%Proportion of Debt: Working Capital (DR)=9.93%Current Earnings per share=$4.00(Capital Spending - Depreciation)*(1-DR)$1.80Change in Working Capital * (1-DR)$0.90Current FCFE$1.30Growth Rate in Earnings per shareGrowth RateWeightHistorical Growth =52.19%10.00%Outside Estimates =19.00%40.00%Fundamental Growth =19.77%50.00%Weighted Average22.71%Growth Rate in capital spending, depreciation and working capitalHigh GrowthStable GrowthGrowth rate in capital spending =20.00%Do not enterGrowth rate in depreciation =20.00%Do not enterGrowth rate in revenues =18.00%6.00%Working Capital as percent of revenues =40.00%(in percent)The FCFE for the high growth phase are shown below (upto 6 years)12345Terminal YearEarnings$4.91$6.02$7.39$9.07$11.13$11.79- (CapEx-Depreciation)*(1-DR)$2.16$2.59$3.11$3.74$4.48$4.91-Chg. Working Capital*(1-DR)$1.30$1.53$1.81$2.13$2.51$0.99Free Cashflow to Equity$1.45$1.90$2.47$3.20$4.13$5.90Present Value$1.27$1.46$1.66$1.89$2.13Growth Rate in Stable Phase =6.00%FCFE in Stable Phase =$5.90Cost of Equity in Stable Phase =13.05%Price at the end of growth phase =$83.65Present Value of FCFE in high growth phase =$8.40Present Value of Terminal Price =$43.16Value of the stock =$51.56Estimating the value of growthValue of assets in place =$9.94Value of stable growth =$9.57Value of extraordinary growth =$32.05Value of the stock =$51.56

&C&"Times New Roman,Normale"&12&A&C&"Times New Roman,Normale"&12Pagina &PAswath Damodaran:If you are going to assume perpetual growth, you should answer no here and make sure that cap ex is higher than depreciation in yourterminal year.Aswath Damodaran:Yes or No. If yes, enter the return on equity that your firm will have in perpetuity below. If no, enter cap ex as a percent of depreciatiion.

Multi-Stage DCFDiscounted Cash Flow (DCF) Analysis($ in millions, except per share data)3 QuartersTodayEndingProjected Fiscal Years Ending September 30,5/21/159/30/15201620172018201920202021202220232024Fractional years per period0.751.001.001.001.001.001.001.001.001.00Cumulative fractional years from close0.751.752.753.754.755.756.757.758.759.75AssumptionsNet debt$25.6Fully diluted shares outstanding35.159Tax rate35.0%Unlevered Free Cash Flow (UFCF)EBITDA$94.9$155.9$160.1$161.3$162.4$163.6$164.8$166.0$167.2$168.5EBITA$82.7$139.7$143.9$144.9$145.9$147.0$148.1$150.7$152.4$153.4( ) Taxes(28.9)(48.9)(50.4)(50.7)(51.1)(51.4)(51.8)(52.8)(53.3)(53.7)Unlevered net income53.890.893.594.294.995.596.298.099.099.7( + ) Depreciation12.216.216.216.416.516.616.815.314.915.0( ) Capital expenditures(12.8)(18.0)(19.0)(19.2)(19.3)(19.5)(19.7)(19.9)(20.0)(20.2)( ) Change in working capital2.0(3.8)(1.3)(0.4)(0.4)(0.4)(0.4)(0.4)(0.4)(0.4)( ) Change in deferred taxes0.00.00.00.00.00.00.00.00.00.0Unlevered free cash flow0.0$55.1$85.2$89.5$91.0$91.6$92.2$92.9$93.0$93.4$94.1DCF Valuation XNPV Method( + ) Terminal cash flow (5,0x terminal multiple)$812.2Total cash flow EBITDA multiple method0.0$55.1$85.2$89.5$91.0$903.8DCF valuation (XNPV) EBITDA multiple method$807.6Check that XNPV yields same result as formulas below34.6( + ) Terminal cash flow (01% terminal growth)$800.5Total cash flow perpetuity growth method0.0$55.1$85.2$89.5$91.0$892.1DCF valuation (XNPV) perpetuity growth method$800.5Check that XNPV yields same result as formulas below34.2DCF Sensitivity EBITDA Multiple MethodNOTE: Enterprise value can be computed more simply using TABLEs sensitizing the XNPV result to the WACC and terminal multiple, but TABLEs were purposefully avoided to illustrate how this sensitivitycan be performed without TABLEs, which are slow to calculate.Enterprise ValueEquity ValueTerminal EBITDA MultipleTerminal EBITDA Multiple4.5x5.0x5.5x4.5x5.0x5.5xDiscount11.0%$751.7$801.2$850.6$726.1$775.6$825.0Rate12.0%$725.7$773.1$820.5$700.1$747.5$794.9(WACC)13.0%$700.9$746.3$791.8$675.3$720.7$766.2Implied Perpetuity Growth RateValue Per ShareTerminal EBITDA MultipleTerminal EBITDA Multiple4.5x5.0x5.5x4.5x5.0x5.5xDiscount11.0%(1.4%)(0.3%)0.7%$20.65$22.06$23.47Rate12.0%(0.5%)0.6%1.6%$19.91$21.26$22.61(WACC)13.0%0.4%1.5%2.5%$19.21$20.50$21.79DCF Sensitivity Perpetuity Growth MethodNOTE: Enterprise value can be computed more simply using TABLEs sensitizing the XNPV result to the WACC and terminal growth rate, but TABLEs were purposefully avoided to illustrate how this sensitivitycan be performed without TABLEs, which are slow to calculate.Enterprise ValueEquity ValueTerminal Perpetuity Growth RateTerminal Perpetuity Growth Rate0.00.5%1.0%0.00.5%1.0%Discount11.0%$813.7$840.5$870.0$788.1$814.9$844.4Rate12.0%$744.6$766.3$789.9$719.0$740.7$764.4(WACC)13.0%$686.1$704.0$723.3$660.5$678.4$697.7Implied Terminal EBITDA MultipleValue Per ShareTerminal Perpetuity Growth RateTerminal Perpetuity Growth Rate0.00.5%1.0%0.00.5%1.0%Discount11.0%5.1x5.4x5.7x$22.42$23.18$24.02Rate12.0%4.7x4.9x5.2x$20.45$21.07$21.74(WACC)13.0%4.3x4.5x4.7x$18.79$19.29$19.84

Foglio9Home DepotPriceEbit/shareCost of CapitalCost of Capital HighEPS DilutedRolling Long Term Avg.EPS Growth (%)Rolling Long Term Avg.Growth (%)10Yr Yield20Yr CorpGraham IVGraham OSVEPVEPVP/EE/PFCFTot AssetsFCF/AssetsSum200640.554.210.120.152.722.724.885.322739444056.17%0.061682243200740.744.30.120.152.792.7552.57352941182.573529411764.435.4925.2525.0835.8328.6714.60215053766.85%4118522637.88%13.12%200830.643.90.120.152.372.6266666667-15.0537634409-6.240117014553.145.05-3.04-4.2632.5026.0012.92827004227.73%2169443244.89%20.36%200921.532.590.120.151.342.305-43.4599156118-18.646716546974.425.26-39.65-39.4721.5817.2716.06716417916.22%3861411649.38%31.31%201028.012.840.120.151.572.15817.1641791045-9.693992634114.035.02-12.20-13.3223.6718.9317.84076433125.61%41594087710.17%41.70%201136.773.520.120.152.012.133333333328.025477707-2.150098565892.643.936.1310.2129.3323.4718.29353233835.47%3489401258.70%51.18%201244.394.240.120.152.472.181428571422.88557213932.022513218312.533.6515.9327.7035.3328.2717.9716599195.56%54304051813.40%64.08%201366.925.140.120.1532.2837521.45748987854.798938455493.644.6226.4531.9742.8334.2722.30666666674.48%56634108413.78%76.98%201476.856.390.120.153.762.447777777825.33333333337.365737815222.483.7929.7152.7153.2542.6020.43882978724.89%62394051815.40%93.46%2015104.427.780.120.154.712.67425.26595744689.354651107622.443.5239.9171.9764.8351.8722.169851384.51%68003994617.02%111.82%


dcf analysis

Documents