Stock Analysis on Net
Stock Analysis on Net

Workday Inc. (NASDAQ:WDAY)

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

Microsoft Excel

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)

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

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 17.17%
01 FCFF0 2,280
1 FCFF1 2,280 = 2,280 × (1 + 0.00%) 1,946
2 FCFF2 2,356 = 2,280 × (1 + 3.34%) 1,716
3 FCFF3 2,513 = 2,356 × (1 + 6.67%) 1,562
4 FCFF4 2,764 = 2,513 × (1 + 10.00%) 1,467
5 FCFF5 3,133 = 2,764 × (1 + 13.33%) 1,419
5 Terminal value (TV5) 92,650 = 3,133 × (1 + 13.33%) ÷ (17.17% – 13.33%) 41,960
Intrinsic value of Workday Inc. capital 50,070
Less: Debt (fair value) 2,800
Intrinsic value of Workday Inc. common stock 47,270
 
Intrinsic value of Workday Inc. common stock (per share) $177.71
Current share price $242.93

Based on: 10-K (reporting date: 2025-01-31).

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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)

Workday Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 64,619 0.96 17.78%
Debt (fair value) 2,800 0.04 3.03% = 3.80% × (1 – 20.30%)

Based on: 10-K (reporting date: 2025-01-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 266,000,000 × $242.93
= $64,619,380,000.00

   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
= (17.50% + 21.00% + 21.00% + 21.00% + 21.00% + 0.40%) ÷ 6
= 20.30%

WACC = 17.17%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Workday Inc., PRAT model

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Average Jan 31, 2025 Jan 31, 2024 Jan 31, 2023 Jan 31, 2022 Jan 31, 2021 Jan 31, 2020
Selected Financial Data (US$ in millions)
Interest expense 114 114 102 17 69 59
Net income (loss) 526 1,381 (367) 29 (282) (481)
 
Effective income tax rate (EITR)1 17.50% 21.00% 21.00% 21.00% 21.00% 0.40%
 
Interest expense, after tax2 94 90 81 13 54 58
Interest expense (after tax) and dividends 94 90 81 13 54 58
 
EBIT(1 – EITR)3 620 1,471 (286) 42 (228) (422)
 
Debt, current — — — 1,222 1,103 244
Debt, noncurrent 2,984 2,980 2,976 617 692 1,018
Stockholders’ equity 9,034 8,082 5,586 4,535 3,278 2,487
Total capital 12,018 11,062 8,562 6,375 5,073 3,749
Financial Ratios
Retention rate (RR)4 0.85 0.94 — 0.69 — —
Return on invested capital (ROIC)5 5.16% 13.30% -3.34% 0.67% -4.50% -11.26%
Averages
RR 0.83
ROIC 0.00%
 
FCFF growth rate (g)6 0.00%

Based on: 10-K (reporting date: 2025-01-31), 10-K (reporting date: 2024-01-31), 10-K (reporting date: 2023-01-31), 10-K (reporting date: 2022-01-31), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-01-31).

1 See details »

2025 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 114 × (1 – 17.50%)
= 94

3 EBIT(1 – EITR) = Net income (loss) + Interest expense, after tax
= 526 + 94
= 620

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [620 – 94] ÷ 620
= 0.85

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 620 ÷ 12,018
= 5.16%

6 g = RR × ROIC
= 0.83 × 0.00%
= 0.00%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (67,419 × 17.17% – 2,280) ÷ (67,419 + 2,280)
= 13.33%

where:

Total capital, fair value0 = current fair value of Workday Inc. debt and equity (US$ in millions)
FCFF0 = the last year Workday Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Workday Inc. capital

FCFF growth rate (g) forecast

Workday Inc., H-model

Microsoft Excel
Year Value gt
1 g1 0.00%
2 g2 3.34%
3 g3 6.67%
4 g4 10.00%
5 and thereafter g5 13.33%

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

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 0.00% + (13.33% – 0.00%) × (2 – 1) ÷ (5 – 1)
= 3.34%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 0.00% + (13.33% – 0.00%) × (3 – 1) ÷ (5 – 1)
= 6.67%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 0.00% + (13.33% – 0.00%) × (4 – 1) ÷ (5 – 1)
= 10.00%