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)
Weighted Average Cost of Capital (WACC)
FCFF Growth Rate (g)

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

US$ in millions, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 13.20%
0¹	FCFF₀	11,921
1	FCFF₁	12,751	= 11,921 × (1 + 6.97%)	11,264
2	FCFF₂	13,655	= 12,751 × (1 + 7.09%)	10,656
3	FCFF₃	14,639	= 13,655 × (1 + 7.20%)	10,091
4	FCFF₄	15,710	= 14,639 × (1 + 7.32%)	9,566
5	FCFF₅	16,879	= 15,710 × (1 + 7.44%)	9,079
5	Terminal value (TV₅)	314,450	= 16,879 × (1 + 7.44%) ÷ (13.20% – 7.44%)	169,143
Intrinsic value of Caterpillar Inc. capital				219,798
Less: Short-term borrowings and long-term debt (fair value)				37,492
Intrinsic value of Caterpillar Inc. common stock				182,306

Intrinsic value of Caterpillar Inc. common stock (per share)				$377.60
Current share price				$382.33

Based on: 10-K (reporting date: 2023-12-31).

¹ See details »

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.

Caterpillar Inc., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	184,590	0.83	15.11%
Short-term borrowings and long-term debt (fair value)	37,492	0.17	3.83%	= 4.96% × (1 – 22.74%)

Based on: 10-K (reporting date: 2023-12-31).

¹ US$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 482,802,488 × $382.33
= $184,589,875,237.04

Short-term borrowings and 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
= (21.30% + 23.60% + 21.20% + 25.20% + 22.40%) ÷ 5
= 22.74%

WACC = 13.20%

FCFF growth rate (g) implied by PRAT model

Caterpillar Inc., PRAT model

	Average	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in millions)
Interest expense excluding Financial Products		511)	443)	488)	514)	421)
Profit attributable to common stockholders		10,335)	6,705)	6,489)	2,998)	6,093)

Effective income tax rate (EITR)¹		21.30%	23.60%	21.20%	25.20%	22.40%

Interest expense excluding Financial Products, after tax²		402)	338)	385)	384)	327)
Add: Dividends declared		2,599)	2,473)	2,374)	2,247)	2,210)
Interest expense (after tax) and dividends		3,001)	2,811)	2,759)	2,631)	2,537)

EBIT(1 – EITR)³		10,737)	7,043)	6,874)	3,382)	6,420)

Short-term borrowings		4,643)	5,957)	5,404)	2,015)	5,166)
Long-term debt due within one year		8,763)	5,322)	6,352)	9,149)	6,210)
Long-term debt due after one year		24,472)	25,714)	26,033)	25,999)	26,281)
Equity attributable to common shareholders		19,494)	15,869)	16,484)	15,331)	14,588)
Total capital		57,372)	52,862)	54,273)	52,494)	52,245)
Financial Ratios
Retention rate (RR)⁴		0.72	0.60	0.60	0.22	0.60
Return on invested capital (ROIC)⁵		18.71%	13.32%	12.66%	6.44%	12.29%
Averages
RR	0.55
ROIC	12.69%

FCFF growth rate (g)⁶	6.97%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

¹ See details »

2023 Calculations

² Interest expense excluding Financial Products, after tax = Interest expense excluding Financial Products × (1 – EITR)
= 511 × (1 – 21.30%)
= 402

³ EBIT(1 – EITR) = Profit attributable to common stockholders + Interest expense excluding Financial Products, after tax
= 10,335 + 402
= 10,737

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [10,737 – 3,001] ÷ 10,737
= 0.72

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 10,737 ÷ 57,372
= 18.71%

⁶ g = RR × ROIC
= 0.55 × 12.69%
= 6.97%

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

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (222,082 × 13.20% – 11,921) ÷ (222,082 + 11,921)
= 7.44%

where:

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

FCFF growth rate (g) forecast

Caterpillar Inc., H-model

Year	Value	g_t
1	g₁	6.97%
2	g₂	7.09%
3	g₃	7.20%
4	g₄	7.32%
5 and thereafter	g₅	7.44%

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 + (g₅ – g₁) × (2 – 1) ÷ (5 – 1)
= 6.97% + (7.44% – 6.97%) × (2 – 1) ÷ (5 – 1)
= 7.09%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 6.97% + (7.44% – 6.97%) × (3 – 1) ÷ (5 – 1)
= 7.20%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 6.97% + (7.44% – 6.97%) × (4 – 1) ÷ (5 – 1)
= 7.32%

Caterpillar Inc. (NYSE:CAT)

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

Intrinsic Stock Value (Valuation Summary)

Weighted Average Cost of Capital (WACC)

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

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

FCFF growth rate (g) forecast