Stock Analysis on Net
Stock Analysis on Net

General Motors Co. (NYSE:GM)

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 Motors Co., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 18.16%
01 FCFE0 15,485
1 FCFE1 17,712 = 15,485 × (1 + 14.38%) 14,991
2 FCFE2 19,363 = 17,712 × (1 + 9.32%) 13,869
3 FCFE3 20,185 = 19,363 × (1 + 4.25%) 12,236
4 FCFE4 20,019 = 20,185 × (1 + -0.82%) 10,271
5 FCFE5 18,840 = 20,019 × (1 + -5.89%) 8,180
5 Terminal value (TV5) 73,727 = 18,840 × (1 + -5.89%) ÷ (18.16% – -5.89%) 32,013
Intrinsic value of General Motors Co. common stock 91,559
 
Intrinsic value of General Motors Co. common stock (per share) $83.27
Current share price $55.11

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 General Motors Co. common stock βGM 1.48
 
Required rate of return on General Motors Co. common stock3 rGM 18.16%

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 rGM = RF + βGM [E(RM) – RF]
= 4.65% + 1.48 [13.79% – 4.65%]
= 18.16%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

General Motors 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)
Cash dividends paid on common stock 477 257 — 545 2,165
Net income attributable to stockholders 10,127 9,934 10,019 6,427 6,732
Automotive net sales and revenue 157,658 143,975 113,590 108,673 122,697
Total assets 273,064 264,037 244,718 235,194 228,037
Stockholders’ equity 64,286 67,792 59,744 45,030 41,792
Financial Ratios
Retention rate1 0.95 0.97 1.00 0.92 0.68
Profit margin2 6.42% 6.90% 8.82% 5.91% 5.49%
Asset turnover3 0.58 0.55 0.46 0.46 0.54
Financial leverage4 4.25 3.89 4.10 5.22 5.46
Averages
Retention rate 0.90
Profit margin 6.71%
Asset turnover 0.52
Financial leverage 4.58
 
FCFE growth rate (g)5 14.38%

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 stockholders – Cash dividends paid on common stock) ÷ Net income attributable to stockholders
= (10,127 – 477) ÷ 10,127
= 0.95

2 Profit margin = 100 × Net income attributable to stockholders ÷ Automotive net sales and revenue
= 100 × 10,127 ÷ 157,658
= 6.42%

3 Asset turnover = Automotive net sales and revenue ÷ Total assets
= 157,658 ÷ 273,064
= 0.58

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 273,064 ÷ 64,286
= 4.25

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.90 × 6.71% × 0.52 × 4.58
= 14.38%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (60,599 × 18.16% – 15,485) ÷ (60,599 + 15,485)
= -5.89%

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

FCFE growth rate (g) forecast

General Motors Co., H-model

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Year Value gt
1 g1 14.38%
2 g2 9.32%
3 g3 4.25%
4 g4 -0.82%
5 and thereafter g5 -5.89%

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)
= 14.38% + (-5.89% – 14.38%) × (2 – 1) ÷ (5 – 1)
= 9.32%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 14.38% + (-5.89% – 14.38%) × (3 – 1) ÷ (5 – 1)
= 4.25%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 14.38% + (-5.89% – 14.38%) × (4 – 1) ÷ (5 – 1)
= -0.82%