Stock Analysis on Net

Procter & Gamble Co. (NYSE:PG)

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)

Procter & Gamble 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 7.84%
01 FCFF0 17,225
1 FCFF1 18,442 = 17,225 × (1 + 7.07%) 17,101
2 FCFF2 19,590 = 18,442 × (1 + 6.23%) 16,846
3 FCFF3 20,646 = 19,590 × (1 + 5.39%) 16,464
4 FCFF4 21,586 = 20,646 × (1 + 4.55%) 15,962
5 FCFF5 22,388 = 21,586 × (1 + 3.71%) 15,352
5 Terminal value (TV5) 563,064 = 22,388 × (1 + 3.71%) ÷ (7.84%3.71%) 386,092
Intrinsic value of Procter & Gamble Co. capital 467,816
Less: Short-term and long-term debt (fair value) 31,053
Intrinsic value of Procter & Gamble Co. common stock 436,763
 
Intrinsic value of Procter & Gamble Co. common stock (per share) $185.46
Current share price $170.76

Based on: 10-K (reporting date: 2024-06-30).

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)

Procter & Gamble Co., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 402,147 0.93 8.24%
Short-term and long-term debt (fair value) 31,053 0.07 2.69% = 3.31% × (1 – 18.68%)

Based on: 10-K (reporting date: 2024-06-30).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 2,355,041,729 × $170.76
= $402,146,925,644.04

   Short-term and long-term 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
= (20.20% + 19.70% + 17.80% + 18.50% + 17.20% + 34.70%) ÷ 6
= 18.68%

WACC = 7.84%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Procter & Gamble Co., PRAT model

Microsoft Excel
Average Jun 30, 2024 Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019
Selected Financial Data (US$ in millions)
Interest expense 925 756 439 502 465 509
Net earnings attributable to Procter & Gamble (P&G) 14,879 14,653 14,742 14,306 13,027 3,897
 
Effective income tax rate (EITR)1 20.20% 19.70% 17.80% 18.50% 17.20% 34.70%
 
Interest expense, after tax2 738 607 361 409 385 332
Add: Dividends and dividend equivalents, preferred 284 282 281 271 263 263
Add: Dividends and dividend equivalents, common 9,053 8,742 8,514 8,020 7,551 7,256
Interest expense (after tax) and dividends 10,075 9,631 9,156 8,700 8,199 7,851
 
EBIT(1 – EITR)3 15,617 15,260 15,103 14,715 13,412 4,229
 
Debt due within one year 7,191 10,229 8,645 8,889 11,183 9,697
Long-term debt, excluding due within one year 25,269 24,378 22,848 23,099 23,537 20,395
Shareholders’ equity attributable to Procter & Gamble 50,287 46,777 46,589 46,378 46,521 47,194
Total capital 82,747 81,384 78,082 78,366 81,241 77,286
Financial Ratios
Retention rate (RR)4 0.35 0.37 0.39 0.41 0.39 -0.86
Return on invested capital (ROIC)5 18.87% 18.75% 19.34% 18.78% 16.51% 5.47%
Averages
RR 0.38
ROIC 18.45%
 
FCFF growth rate (g)6 7.07%

Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30).

1 See details »

2024 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 925 × (1 – 20.20%)
= 738

3 EBIT(1 – EITR) = Net earnings attributable to Procter & Gamble (P&G) + Interest expense, after tax
= 14,879 + 738
= 15,617

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [15,61710,075] ÷ 15,617
= 0.35

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 15,617 ÷ 82,747
= 18.87%

6 g = RR × ROIC
= 0.38 × 18.45%
= 7.07%


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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (433,200 × 7.84%17,225) ÷ (433,200 + 17,225)
= 3.71%

where:

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


FCFF growth rate (g) forecast

Procter & Gamble Co., H-model

Microsoft Excel
Year Value gt
1 g1 7.07%
2 g2 6.23%
3 g3 5.39%
4 g4 4.55%
5 and thereafter g5 3.71%

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 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 7.07% + (3.71%7.07%) × (2 – 1) ÷ (5 – 1)
= 6.23%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 7.07% + (3.71%7.07%) × (3 – 1) ÷ (5 – 1)
= 5.39%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 7.07% + (3.71%7.07%) × (4 – 1) ÷ (5 – 1)
= 4.55%