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)

Dollar General Corp., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 6.89%
0¹	FCFF₀	983,914
1	FCFF₁	1,139,134	= 983,914 × (1 + 15.78%)	1,065,708
2	FCFF₂	1,281,391	= 1,139,134 × (1 + 12.49%)	1,121,524
3	FCFF₃	1,399,288	= 1,281,391 × (1 + 9.20%)	1,145,770
4	FCFF₄	1,482,031	= 1,399,288 × (1 + 5.91%)	1,135,301
5	FCFF₅	1,520,944	= 1,482,031 × (1 + 2.63%)	1,090,010
5	Terminal value (TV₅)	36,604,282	= 1,520,944 × (1 + 2.63%) ÷ (6.89% – 2.63%)	26,233,067
Intrinsic value of Dollar General Corp. capital				31,791,380
Less: Long-term obligations, including current portion (fair value)				6,856,163
Intrinsic value of Dollar General Corp. common stock				24,935,217

Intrinsic value of Dollar General Corp. common stock (per share)				$113.39
Current share price				$76.50

Based on: 10-K (reporting date: 2024-02-02).

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.

Dollar General Corp., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	16,823,512	0.71	8.27%
Long-term obligations, including current portion (fair value)	6,856,163	0.29	3.50%	= 4.49% × (1 – 21.95%)

Based on: 10-K (reporting date: 2024-02-02).

¹ US$ in thousands

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 219,915,184 × $76.50
= $16,823,511,576.00

Long-term obligations, including current portion (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
= (21.60% + 22.50% + 21.70% + 22.00% + 22.20% + 21.70%) ÷ 6
= 21.95%

WACC = 6.89%

FCFF growth rate (g) implied by PRAT model

Dollar General Corp., PRAT model

	Average	Feb 2, 2024	Feb 3, 2023	Jan 28, 2022	Jan 29, 2021	Jan 31, 2020	Feb 1, 2019
Selected Financial Data (US$ in thousands)
Interest expense		326,781)	211,273)	157,526)	150,385)	100,574)	99,871)
Net income		1,661,274)	2,415,989)	2,399,232)	2,655,050)	1,712,555)	1,589,472)

Effective income tax rate (EITR)¹		21.60%	22.50%	21.70%	22.00%	22.20%	21.70%

Interest expense, after tax²		256,196)	163,737)	123,343)	117,300)	78,247)	78,199)
Add: Dividends paid		517,999)	493,732)	392,217)	355,934)	327,578)	306,562)
Interest expense (after tax) and dividends		774,195)	657,469)	515,560)	473,234)	405,825)	384,761)

EBIT(1 – EITR)³		1,917,470)	2,579,726)	2,522,575)	2,772,350)	1,790,802)	1,667,671)

Current portion of long-term obligations		768,645)	—)	—)	—)	555)	1,950)
Long-term obligations, excluding current portion		6,231,539)	7,009,399)	4,172,068)	4,130,975)	2,911,438)	2,862,740)
Shareholders’ equity		6,749,119)	5,541,772)	6,261,986)	6,661,238)	6,702,500)	6,417,393)
Total capital		13,749,303)	12,551,171)	10,434,054)	10,792,213)	9,614,493)	9,282,083)
Financial Ratios
Retention rate (RR)⁴		0.60	0.75	0.80	0.83	0.77	0.77
Return on invested capital (ROIC)⁵		13.95%	20.55%	24.18%	25.69%	18.63%	17.97%
Averages
RR	0.78
ROIC	20.16%

FCFF growth rate (g)⁶	15.78%

Based on: 10-K (reporting date: 2024-02-02), 10-K (reporting date: 2023-02-03), 10-K (reporting date: 2022-01-28), 10-K (reporting date: 2021-01-29), 10-K (reporting date: 2020-01-31), 10-K (reporting date: 2019-02-01).

¹ See details »

2024 Calculations

² Interest expense, after tax = Interest expense × (1 – EITR)
= 326,781 × (1 – 21.60%)
= 256,196

³ EBIT(1 – EITR) = Net income + Interest expense, after tax
= 1,661,274 + 256,196
= 1,917,470

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,917,470 – 774,195] ÷ 1,917,470
= 0.60

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,917,470 ÷ 13,749,303
= 13.95%

⁶ g = RR × ROIC
= 0.78 × 20.16%
= 15.78%

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

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (23,679,675 × 6.89% – 983,914) ÷ (23,679,675 + 983,914)
= 2.63%

where:

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

FCFF growth rate (g) forecast

Dollar General Corp., H-model

Year	Value	g_t
1	g₁	15.78%
2	g₂	12.49%
3	g₃	9.20%
4	g₄	5.91%
5 and thereafter	g₅	2.63%

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)
= 15.78% + (2.63% – 15.78%) × (2 – 1) ÷ (5 – 1)
= 12.49%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 15.78% + (2.63% – 15.78%) × (3 – 1) ÷ (5 – 1)
= 9.20%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 15.78% + (2.63% – 15.78%) × (4 – 1) ÷ (5 – 1)
= 5.91%

Dollar General Corp. (NYSE:DG)

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