The Cash Flow Of The Free Cash Flows ( Fcf )

1609 Words Apr 27th, 2016 7 Pages
Firm Valuation
As shown in Exhibit 4, in order to value a company we first started by calculating the free cash flows (FCF) year by year. In order to do so, we decided to use the forecasted revenue numbers from Capital IQ and calculate all the other metrics by using the trends we saw in last three years (Exhibit 3). The company can allocate free cash flow in several ways, including but not limited to: repurchasing stock, reinvesting for growth and paying out dividends.
After calculating the free cash flows, we had to calculate the terminal value of the company. Doing so required us to estimate a terminal growth rate. We decided that 3.1% growth rate was suitable for Kimberly-Clark. This rate was integrated by 2% expected inflation growth per year in the US (Federal Reserve), in addition with a 1.1% expected growth of the population (World O Meters). As a team we believe that since KMB is in a personal care industry, it can be perceived as a commodity, thus the population growth should directly affect our sales. Necessary goods will still have relevance in the future.
After terminal value was calculated, we proceeded by valuing KMB using the entity approach. As shown in the Exhibit 5, the value of the assets is $55,128.44. This was calculated by discounting all the unlevered cash flows and the terminal value by our WACC of 6.8257%. For the total value of debt we used the market value of $7064.3 million. After the value of the equity was calculated, we got the implied debt…

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