Tài chính ngân hàng - Free cash flow valuation

Free Cash Flow ValuationPresenterVenueDateFree Cash FlowFree Cash Flow to the Firm= Cash flow available toCommon stockholdersDebtholdersPreferred stockholdersFree Cash Flow to Equity= Cash flow available toCommon stockholdersFCFF vs. FCFE Approaches to Equity ValuationEquity ValueFCFF Discounted at WACC – Debt ValueFCFE Discounted at Required Equity ReturnFCFF vs. FCFE Approaches to Equity ValuationSingle-Stage Free Cash Flow ModelsExample: Single-Stage FCFF ModelCurrent FCFF $6,000,000 Target debt to capital 0.25Market value of debt$30,000,000 Shares outstanding 2,900,000 Required return on equity12.0%Cost of debt7.0%Long-term growth in FCFF5.0%Tax rate30%Example: Single-Stage FCFF ModelExample: Single-Stage FCFF ModelUsing Net Income to Determine FCFFOther Noncash AdjustmentsAmortizationAdded backRestructuring ExpenseAdded backRestructuring IncomeSubtracted outCapital GainsSubtracted outCapital LossesAdded back Employee Option ExerciseAdded backDeferred TaxesAdded back?Tax AssetSubtracted out?Using EBIT and EBITDA to Determine FCFFUsing Cash Flow from Operations to Determine FCFFCalculating FCFE from FCFF, Net Income, & CFOFCFE & FCFF on a Uses of FCF BasisExample: Calculating FCFFEBITDA$1,000Depreciation expense$400Interest expense$150Tax rate30%Purchases of fixed assets$500Change in working capital$50Net borrowing$80Common dividends$200Example: Calculating FCFF from Net IncomeExample: Calculating FCFF from EBIT and EBITDAExample: Calculating FCFF from CFOExample: Calculating FCFE from FCFF, Net Income, & CFOExample: Calculating FCFE & FCFF on a Uses BasisForecasting FCFF & FCFEExample: Forecasting FCFF & FCFESales$4,000 Sales growth$200 EBIT$600 Tax rate30%Purchases of fixed assets$800Depreciation expense$700Change in working capital$50Net income margin10%Debt ratio40%Example: Forecasting FCFF & FCFEExample: Forecasting FCFFExample: Forecasting FCFEIssues in FCF AnalysisFinancial Statement DiscrepanciesDividends vs. FCFEEffect of Shareholder Cash Flows & LeverageFCFF & FCFE vs. EBITDA & Net IncomeCountry AdjustmentsSensitivity AnalysisNonoperating AssetsSimple Two-Stage FCF ModelsExample: Simple Two-Stage FCFE ModelCurrent sales per share$10 Sales growth for first three years20%Sales growth for year 4 and thereafter5%Net income margin10%FCInv/sales growth40%WCInv/sales growth25%Debt financing of FCInv and WCInv growth30%Required return on equity12.00%Example: Simple Two-Stage FCFE ModelExample: Simple Two-Stage FCFE ModelYear12345Sales growth in % 20% 20% 20% 5% 5%Sales per share$12.000$14.400$17.280$18.144$19.051EPS $1.200 $1.440 $1.728 $1.814 $1.905FCInv per share $0.800 $0.960 $1.152 $0.346 $0.363WCInv per share $0.500 $0.600 $0.720 $0.216 $0.227Debt financing per share $0.390 $0.468 $0.562 $0.168 $0.177FCFE per share $0.290 $0.348 $0.418 $1.421 $1.492Growth in FCFE 20.0% 20.0%240.3% 5.0%Example: Simple Two-Stage FCFE ModelDeclining Growth Two-Stage FCFE ModelInitiallyHigh earnings growthLarge capital expendituresLow or negative FCFECompetition Later IncreasesEarnings growth slowsCapital expenditures declineFCFE increasesExample: Declining Growth Two-Stage FCFE ModelCurrent EPS$1 .00WCInv/FCInv40%Debt financing of FCInv and WCInv growth30%Required return on equity12%EPS and FCInv growth for year 5 and thereafter5%Example: Declining Growth Two-Stage FCFE ModelYear12345EPS growth 30%21%13%8%5%FCInv per share $1.50 $1.25 $1.00 $0.75 $0.50 Example: Declining Growth Two-Stage FCFE ModelExample: Declining Growth Two-Stage FCFE ModelYear12345EPS $1.300$1.573$1.777$1.920$2.016FCInv per share $1.500$1.250$1.000$0.750$0.500WCInv per share $0.600$0.500$0.400$0.300$0.200Debt financing per share $0.630$0.525$0.420$0.315$0.210FCFE per share–$0.170$0.348$0.797$1.185$1.526Example: Declining Growth Two-Stage FCFE ModelExample: Declining Growth Two-Stage FCFE ModelExample: Three-Stage FCF ModelsCurrent FCFF in millions$100 .00Shares outstanding in millions 300 .00Long-term debt value in millions$400.00FCFF growth for years 1 to 330%FCFF growth for year 424%FCFF growth for year 512%FCFF growth for year 6 and thereafter5%WACC10%Example: Three-Stage FCF ModelsYear123456FCFF growth rate 30% 30% 30% 24% 12% 5%FCFF$130.0$169.0$219.7$272.4$305.1$320.4PV of FCFF$118.2$139.7$165.1$186.1$189.5Example: Three-Stage FCF ModelsExample: Three-Stage FCF ModelsSummaryFCFF vs. FCFEFCFF = Cash flow available to all firm capital providersFCFE = Cash flow available to common equityholdersFCFF is preferred when FCFE is negative or when capital structure is unstableEquity Valuation with FCFF & FCFEDiscount FCFF with WACCDiscount FCFE with required return on equityEquity value = PV(FCFF) – Debt value or PV(FCFE) SummaryAdjustments for Calculating Free Cash FlowsDepreciation, amortization, restructuring charges, capital gains/losses, employee stock options, deferred taxes/tax assetsApproaches for Calculating FCFF & FCFESources – adjust for noncash events and work from Net incomeEBITEBITDACFOUsesΔ in Cash balances and net payments to debtholders and stockholders SummaryIssues in FCF AnalysisFinancial statement discrepanciesDividends vs. free cash flowsShareholder cash flows and leverageFCFF & FCFE vs. EBITDA & Net incomeCountry adjustmentsSensitivity analysisNonoperating assetsSummaryForecasting FCFF & FCFEForecast sales growthAssume EBIT margin, FCInv, and WCInv are proportional to salesFor FCFE, assume debt ratio is constantFCF Valuation ModelsTwo-stage with distinct growth in each stageTwo-stage with declining growth from stage 1 to 2Three-stage model