Stock Analysis on Net
Stock Analysis on Net

Coca-Cola Co. (NYSE:KO)

Present Value of Free Cash Flow to Equity (FCFE)

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 equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Coca-Cola Co., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 10.04%
01 FCFE0 11,678
1 FCFE1 12,707 = 11,678 × (1 + 8.81%) 11,547
2 FCFE2 13,720 = 12,707 × (1 + 7.97%) 11,330
3 FCFE3 14,699 = 13,720 × (1 + 7.14%) 11,032
4 FCFE4 15,626 = 14,699 × (1 + 6.31%) 10,658
5 FCFE5 16,481 = 15,626 × (1 + 5.47%) 10,215
5 Terminal value (TV5) 380,516 = 16,481 × (1 + 5.47%) ÷ (10.04% – 5.47%) 235,849
Intrinsic value of Coca-Cola Co. common stock 290,631
 
Intrinsic value of Coca-Cola Co. common stock (per share) $67.47
Current share price $62.59

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.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.65%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Coca-Cola Co. common stock βKO 0.59
 
Required rate of return on Coca-Cola Co. common stock3 rKO 10.04%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rKO = RF + βKO [E(RM) – RF]
= 4.65% + 0.59 [13.79% – 4.65%]
= 10.04%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Coca-Cola Co., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends 7,951 7,617 7,251 7,047 6,845
Net income attributable to shareowners of The Coca-Cola Company 10,714 9,542 9,771 7,747 8,920
Net operating revenues 45,754 43,004 38,655 33,014 37,266
Total assets 97,703 92,763 94,354 87,296 86,381
Equity attributable to shareowners of The Coca-Cola Company 25,941 24,105 22,999 19,299 18,981
Financial Ratios
Retention rate1 0.26 0.20 0.26 0.09 0.23
Profit margin2 23.42% 22.19% 25.28% 23.47% 23.94%
Asset turnover3 0.47 0.46 0.41 0.38 0.43
Financial leverage4 3.77 3.85 4.10 4.52 4.55
Averages
Retention rate 0.21
Profit margin 23.66%
Asset turnover 0.43
Financial leverage 4.16
 
FCFE growth rate (g)5 8.81%

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).

2023 Calculations

1 Retention rate = (Net income attributable to shareowners of The Coca-Cola Company – Dividends) ÷ Net income attributable to shareowners of The Coca-Cola Company
= (10,714 – 7,951) ÷ 10,714
= 0.26

2 Profit margin = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Net operating revenues
= 100 × 10,714 ÷ 45,754
= 23.42%

3 Asset turnover = Net operating revenues ÷ Total assets
= 45,754 ÷ 97,703
= 0.47

4 Financial leverage = Total assets ÷ Equity attributable to shareowners of The Coca-Cola Company
= 97,703 ÷ 25,941
= 3.77

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.21 × 23.66% × 0.43 × 4.16
= 8.81%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (269,625 × 10.04% – 11,678) ÷ (269,625 + 11,678)
= 5.47%

where:
Equity market value0 = current market value of Coca-Cola Co. common stock (US$ in millions)
FCFE0 = the last year Coca-Cola Co. free cash flow to equity (US$ in millions)
r = required rate of return on Coca-Cola Co. common stock

FCFE growth rate (g) forecast

Coca-Cola Co., H-model

Microsoft Excel
Year Value gt
1 g1 8.81%
2 g2 7.97%
3 g3 7.14%
4 g4 6.31%
5 and thereafter g5 5.47%

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)
= 8.81% + (5.47% – 8.81%) × (2 – 1) ÷ (5 – 1)
= 7.97%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 8.81% + (5.47% – 8.81%) × (3 – 1) ÷ (5 – 1)
= 7.14%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 8.81% + (5.47% – 8.81%) × (4 – 1) ÷ (5 – 1)
= 6.31%