FCFF – free cash flow to the Firm
FCFF – free cash flow which is available to all providers of capital. This data is not readily available in reports but can be calculated using formula:
FCFF = Net Income + Depreciation and Amortization + Interest * (1-tax) – CAPEX – changes in Working Сapital
FCFF is often used for evaluating fair value of the firm by different models, for example by extended Gordon Growth model.
Example of FCFF calculation for GAP company (ticker GPS).
1. First, we calculate the unknown values for substitution in the formula:
(1-tax): 1-(177/528)=1-0.335=0.6647 ( to calculate the tax rate, let us divide Income taxes by Income before income taxes from table 1, and then subtract the result from 1)
Interest: 76-30=46
Capex: 702+343-220=825 (from table 3 we add up the amount of the purchase of equipment and buildings, and subtract the income from the sale of buildings)
Changes in Working Capital: (13679-3209-7154) – (8049-2174-2322) = -237 (data are taken from table #2, Working Capital = Total Assets – Total Liabilities)
2. Now let’s move on to the calculations using the basic formula:
+351 (Net Income, data are taken from table #1)
+557 (Depreciation, Amortization, data are taken from table #3)
+(46*0,6647) (Interest и tax we have calculated above, in 1 point)
-825 (Capex we have calculated above, in 1 point)
-(-237) (Changes in Working Capital we have calculated above, in 1 point)
FCFF = 351 + 557 + 30.576 – 825 +237 = 350.576
Таблица 1:
CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Millions, $ in Millions 12 Months Ended
Feb. 01, 2020 Feb. 02, 2019
Revenues $ 16 383 $ 16 580
Cost of goods sold and occupancy expenses 10 250 10 258
Gross profit 6 133 6 322
Operating expenses 5 559 4 960
Operating income 574 1 362
Interest expense 76 73
Interest income -30 -33
Income before income taxes 528 1 322
Income taxes 177 319
Net income $ 351 $ 1 003
Weighted-average number of shares - diluted (in shares) 378 388
Earnings per share - basic (in dollars per share) $ 0.93 $ 2.61
Earnings per share - diluted (in dollars per share) 0.93 2.59
Common Stock, Dividends, Per Share, Declared $ 0.97 $ 0.97
Таблица 2:
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions Feb. 01, 2020 Feb. 02, 2019
Current assets:
Cash and cash equivalents $ 1 364 $ 1 081
Short-term Investments 290 288
Merchandise inventory 2 156 2 131
Other current assets 706 751
Total current assets 4 516 4 251
Property and equipment, net of accumulated depreciation of $5,839 and $5,755 3 122 2 912
Operating Lease, Right-of-Use Asset 5 402 0
Other long-term assets 639 886
Total assets 13 679 8 049
Current liabilities:
Accounts payable 1 174 1 126
Accrued expenses and other current liabilities 1 067 1 024
Operating Lease, Liability, Current 920 0
Income taxes payable 48 24
Total current liabilities 3 209 2 174
Long-term liabilities:
Long-term debt 1 249 1 249
Operating Lease, Liability, Noncurrent 5 508 0
Lease incentives and other long-term liabilities 397 1 073
Total long-term liabilities 7 154 2 322
Stockholders' equity:
Common stock $0.05 par value, Authorized 2,300 shares 19 19
Additional Paid in Capital 0 0
Retained earnings 3 257 3 481
Accumulated other comprehensive income 40 53
Total stockholders' equity 3 316 3 553
Total liabilities and stockholders' equity $ 13 679 $ 8 049
Таблица 3:
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions 12 Months Ended
Feb. 01, 2020 Feb. 02, 2019
Cash flows from operating activities:
Net income $ 351 $ 1 003
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 557 578
Amortization Lease Incentives 0 -61
Operating Lease, Impairment Loss 239 0
Share-based compensation 68 91
Other Asset Impairment Charges 98 14
Gain (Loss) on Disposition of PPE, Excluding Oil, Gas and Timber Property 70 4
Non-cash and other items -10 -10
Gain (Loss) on Disposition of Property Plant Equipment -191 0
Deferred income taxes -81 65
Changes in operating assets and liabilities:
Merchandise inventory 4 -154
Other current assets and other long-term assets 105 -18
Accounts payable 66 -78
Accrued expenses and other current liabilities 110 -196
Income taxes payable, net of prepaid and other tax-related items 86 113
Lease incentives and other long-term liabilities 0 30
ChangeOperatingLeaseAssetAndLiabilitiesNet -61 0
Net cash provided by operating activities 1 411 1 381
Cash flows from investing activities:
Purchases of property and equipment -702 -705
Payments to Acquire Buildings -343 0
Proceeds from Sale of Buildings 220 0
Payments to Acquire Short-term Investments -293 -464
Sales and maturities of short-term investments 293 177
Payments to Acquire Businesses, Net of Cash Acquired -69 0
Insurance proceeds related to loss on property and equipment 0 0
Other 0 -9
Net cash used for investing activities -894 -1 001
Cash flows from financing activities:
Payments of debt 0 0
Proceeds from issuances under share-based compensation plans 25 46
Withholding tax payments related to vesting of stock units -21 -23
Repurchases of common stock -200 -398
Cash dividends paid -364 -373
Other 0 -1
Net cash used for financing activities -560 -749
Effect of Exchange Rate on Cash, Cash Equivalents, and Restricted Cash 4 -10
Net increase (decrease) in Cash, Cash Equivalents, and Restricted Cash -39 -379
Cash, Cash Equivalents, and Restricted Cash at beginning of period 1 420 1 799
Cash, Cash Equivalents, and Restricted Cash end of period 1 381 1 420
Non-cash investing activities:
Purchases of property and equipment not yet paid at end of period 85 93
Supplemental disclosure of cash flow information:
Cash paid for interest during the period 76 76
Cash paid for income taxes during the period, net of refunds 176 143
Operating Lease, Payments $ 1 244 $ 0
