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FCFF of Coke & Home Depot, Walmart
FCFF of Coke & Home Depot, Walmart
Home Depot
Dr. Manaswee K Samal
Facts given for Coca Cola
• 200 countries
• Beginning of 1999, trade price per share: $67
• P/E : 47; P/B: 19.7; P/Sales: 8.8 on annual sales
of $18.8 billion
• Shares outstanding : 2465 million
• Market cap: $165.2 billion (among top 20
companies in USA)
Facts about Home Depot
• Newer company
• End of Fiscal January, 1999: 900 stores, adding 250 stores per
annum (second biggest retailer after Wal Mart)
You have 7 year’s FCF figure from 1999 to 2001 and then from 2004 to 2007.
Home Depot & DCF
DCF FAILS!
Out of three years, HD has positive FCF only in one year. Can we use that figure to
apply DCF? Quite unrealistic.
Is this positive FCF figure a durable one? Huge increase in accounts payable and
accrued liability in that year! So, unsustainable. No use using cash flow of 2002 to
forecast the future.
Points to note:
Could it be that Free cash flow is a partial liquidation concept. What happens to
FCF when you liquidate your investments? Is it value creation? To get FCF, capex is
deducted. Is it value destruction? To get FCF, we add back depreciation. Is it value
creation?
Way out:
Accrual accounting gives us earnings. Net earnings figure of HD is showing some
trend. Can we use earnings figure to value Home Depot?
Cash Flows for Wal-Mart Stores
USD in million