Stock Analysis on Net
Stock Analysis on Net

General Mills Inc. (NYSE:GIS)

This company has been moved to the archive! The financial data has not been updated since December 18, 2019.

Present Value of Free Cash Flow to Equity (FCFE)

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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)

General Mills Inc., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 11.88%
01 FCFE0 1,062,700
1 FCFE1 1,188,056 = 1,062,700 × (1 + 11.80%) 1,061,918
2 FCFE2 1,317,815 = 1,188,056 × (1 + 10.92%) 1,052,842
3 FCFE3 1,450,229 = 1,317,815 × (1 + 10.05%) 1,035,618
4 FCFE4 1,583,273 = 1,450,229 × (1 + 9.17%) 1,010,586
5 FCFE5 1,714,685 = 1,583,273 × (1 + 8.30%) 978,264
5 Terminal value (TV5) 51,897,423 = 1,714,685 × (1 + 8.30%) ÷ (11.88% – 8.30%) 29,608,578
Intrinsic value of General Mills Inc. common stock 34,747,806
 
Intrinsic value of General Mills Inc. common stock (per share) $57.45
Current share price $53.18

Based on: 10-K (reporting date: 2019-05-26).

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 4.68%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of General Mills Inc. common stock βGIS 0.79
 
Required rate of return on General Mills Inc. common stock3 rGIS 11.88%

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 rGIS = RF + βGIS [E(RM) – RF]
= 4.68% + 0.79 [13.79% – 4.68%]
= 11.88%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

General Mills Inc., PRAT model

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Average May 26, 2019 May 27, 2018 May 28, 2017 May 29, 2016 May 31, 2015 May 25, 2014
Selected Financial Data (US$ in thousands)
Cash dividends declared 1,181,700 1,139,700 1,135,100 1,071,700 1,017,700 739,800
Net earnings attributable to General Mills 1,752,700 2,131,000 1,657,500 1,697,400 1,221,300 1,824,400
Net sales 16,865,200 15,740,400 15,619,800 16,563,100 17,630,300 17,909,600
Total assets 30,111,200 30,624,000 21,812,600 21,712,300 21,964,500 23,145,700
Stockholders’ equity 7,054,500 6,141,100 4,327,900 4,930,200 4,996,700 6,534,800
Financial Ratios
Retention rate1 0.33 0.47 0.32 0.37 0.17 0.59
Profit margin2 10.39% 13.54% 10.61% 10.25% 6.93% 10.19%
Asset turnover3 0.56 0.51 0.72 0.76 0.80 0.77
Financial leverage4 4.27 4.99 5.04 4.40 4.40 3.54
Averages
Retention rate 0.37
Profit margin 10.36%
Asset turnover 0.69
Financial leverage 4.44
 
FCFE growth rate (g)5 11.80%

Based on: 10-K (reporting date: 2019-05-26), 10-K (reporting date: 2018-05-27), 10-K (reporting date: 2017-05-28), 10-K (reporting date: 2016-05-29), 10-K (reporting date: 2015-05-31), 10-K (reporting date: 2014-05-25).

2019 Calculations

1 Retention rate = (Net earnings attributable to General Mills – Cash dividends declared) ÷ Net earnings attributable to General Mills
= (1,752,700 – 1,181,700) ÷ 1,752,700
= 0.33

2 Profit margin = 100 × Net earnings attributable to General Mills ÷ Net sales
= 100 × 1,752,700 ÷ 16,865,200
= 10.39%

3 Asset turnover = Net sales ÷ Total assets
= 16,865,200 ÷ 30,111,200
= 0.56

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 30,111,200 ÷ 7,054,500
= 4.27

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.37 × 10.36% × 0.69 × 4.44
= 11.80%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (32,164,158 × 11.88% – 1,062,700) ÷ (32,164,158 + 1,062,700)
= 8.30%

where:
Equity market value0 = current market value of General Mills Inc. common stock (US$ in thousands)
FCFE0 = the last year General Mills Inc. free cash flow to equity (US$ in thousands)
r = required rate of return on General Mills Inc. common stock

FCFE growth rate (g) forecast

General Mills Inc., H-model

Microsoft Excel
Year Value gt
1 g1 11.80%
2 g2 10.92%
3 g3 10.05%
4 g4 9.17%
5 and thereafter g5 8.30%

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)
= 11.80% + (8.30% – 11.80%) × (2 – 1) ÷ (5 – 1)
= 10.92%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 11.80% + (8.30% – 11.80%) × (3 – 1) ÷ (5 – 1)
= 10.05%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 11.80% + (8.30% – 11.80%) × (4 – 1) ÷ (5 – 1)
= 9.17%