Skip to main content
No. of Recommendations: 0
Also, for MUE analysis, are you including net cash in the computations, or are you looking purely at the baked-in growth rates on TTM FCF?

Hi Fletch,

Thanks for sharing the math. The math you're running to calculate cash equity value is different from what I'm doing. You're calling the FCF you calculate free cash flow to the firm (FCFF). When discounted and summed, this values the enterprise value of the firm. Adding cash and subtracting debt then converts EV to market cap, which is the equity value of the firm. Compare that to current prices and you get over- or undervalued (or fairly valued). And, as you noted, the discount rate has a huge effect on the intrinsic value (which it does for any DCF model).

Where we differ is that when I calculate FCF and then discount the future FCF values, I'm equating that directly to market cap, the equity value of the firm. So, there's no addition of cash or subtraction of debt.

But, I probably should adjust this. FCFE (FCF-to-equity) is actually net income - (net capex + depreciation - average acquisitions) - (changes in working capital) + (net debt issued). That's what I've been using for Nam Tai (NTE) but not for the others. Using CFFO - capex is a shorthand for the above, but if it's equated to FCFE, it assumes a stable capital structure (very little net debt being issued or paid off and relatively small acquisitions, if any).

Anyway, the fact that you went from EV to market cap almost certainly explains the differences between our two models (assuming we both had similar FCF values calculated).

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.