Stock Analysis on Net
Stock Analysis on Net

General Motors Co. (NYSE:GM)

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

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

General Motors Co., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 8.64%
01 FCFF0 14,555
1 FCFF1 15,228 = 14,555 × (1 + 4.62%) 14,017
2 FCFF2 15,779 = 15,228 × (1 + 3.61%) 13,369
3 FCFF3 16,189 = 15,779 × (1 + 2.60%) 12,626
4 FCFF4 16,447 = 16,189 × (1 + 1.59%) 11,807
5 FCFF5 16,543 = 16,447 × (1 + 0.58%) 10,932
5 Terminal value (TV5) 206,526 = 16,543 × (1 + 0.58%) ÷ (8.64% – 0.58%) 136,473
Intrinsic value of General Motors Co. capital 199,225
Less: Debt (fair value) 121,112
Intrinsic value of General Motors Co. common stock 78,113
 
Intrinsic value of General Motors Co. common stock (per share) $71.04
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.

Weighted Average Cost of Capital (WACC)

General Motors Co., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 60,599 0.33 18.16%
Debt (fair value) 121,112 0.67 3.88% = 4.68% × (1 – 17.17%)

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
= 1,099,595,840 × $55.11
= $60,598,726,742.40

   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
= (5.67% + 17.55% + 24.28% + 23.91% + 14.45%) ÷ 5
= 17.17%

WACC = 8.64%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

General Motors Co., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Automotive interest expense 911 987 950 1,098 782
Net income attributable to stockholders 10,127 9,934 10,019 6,427 6,732
 
Effective income tax rate (EITR)1 5.67% 17.55% 24.28% 23.91% 14.45%
 
Automotive interest expense, after tax2 859 814 719 835 669
Add: Cash dividends paid on common stock 477 257 — 545 2,165
Interest expense (after tax) and dividends 1,336 1,071 719 1,380 2,834
 
EBIT(1 – EITR)3 10,986 10,748 10,738 7,262 7,401
 
Short-term debt and current portion of long-term debt 38,968 38,778 33,720 36,913 37,400
Long-term debt, excluding current portion 82,773 75,921 75,659 72,981 65,924
Stockholders’ equity 64,286 67,792 59,744 45,030 41,792
Total capital 186,027 182,491 169,123 154,924 145,116
Financial Ratios
Retention rate (RR)4 0.88 0.90 0.93 0.81 0.62
Return on invested capital (ROIC)5 5.91% 5.89% 6.35% 4.69% 5.10%
Averages
RR 0.83
ROIC 5.59%
 
FCFF growth rate (g)6 4.62%

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 Automotive interest expense, after tax = Automotive interest expense × (1 – EITR)
= 911 × (1 – 5.67%)
= 859

3 EBIT(1 – EITR) = Net income attributable to stockholders + Automotive interest expense, after tax
= 10,127 + 859
= 10,986

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [10,986 – 1,336] ÷ 10,986
= 0.88

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 10,986 ÷ 186,027
= 5.91%

6 g = RR × ROIC
= 0.83 × 5.59%
= 4.62%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (181,711 × 8.64% – 14,555) ÷ (181,711 + 14,555)
= 0.58%

where:

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

FCFF growth rate (g) forecast

General Motors Co., H-model

Microsoft Excel
Year Value gt
1 g1 4.62%
2 g2 3.61%
3 g3 2.60%
4 g4 1.59%
5 and thereafter g5 0.58%

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)
= 4.62% + (0.58% – 4.62%) × (2 – 1) ÷ (5 – 1)
= 3.61%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 4.62% + (0.58% – 4.62%) × (3 – 1) ÷ (5 – 1)
= 2.60%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 4.62% + (0.58% – 4.62%) × (4 – 1) ÷ (5 – 1)
= 1.59%