FCFF of Walmart, Coca Cola &

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

• Home improvement & gardening products

• USA, Canada, Mexico, Argentina

• End of Fiscal January, 1999: 900 stores, adding 250 stores per
annum (second biggest retailer after Wal Mart)

• Jan, 1999: Trade price per share: $83,

P/E: 53, P/B: 10.7, P/Sales: 4.1 on sales of $30.2 billion

• Outstanding shares: 1,475 million, market cap = $122.4 billion

(within top 20 companies of USA)
 Free Cash Flow for Coke

1999 2000 2001

Cash flow from operations reported $3,883 3,585 4,110
Net interest payments (61) 113 (21)
Tax benefit (36%) 22 (39) (41) 72 8 (13)
Cash from operations 3,844 3,657 4,097

Cash investments reported $3,421 $1,165 $1,188

Net “investments” (in securities) (342) (218) (1)
Cash investment in operating activities 3,079 947 1,187
Free Cash flow $ 765 $2,710 $2,910
 Free Cash Flow for Home Depot
2000 2001 2002
Cash flow from operations reported $2,446 $2,996 $5,963
Net interest payments $(11) $(31) $(35)
Tax benefit (39%) 4 ( 7) 12 (19) 14 (21)
Cash from operations 2,439 2,977 5,942

Cash investments reported $2,622 $3,530 $3,466

Net “investments” (2) (9) (60)
Cash investment in operation activities 2,620 3,521 3,406
Free Cash flow $ (181) $(544) $2,536
 FCF for Coke from 2004 to 2007
2004 2005 2006 2007
Cash flow from operations 5929 6421 5969 7258
Cash investments 618 1496 2258 7068
Free Cash Flow 5311 4925 3711 190

CFO is increasing. Why?

Cash investments are increasing. Why?

Free Cash Flow is decreasing. Why?

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

1988 1989 1990 1991 1992 1993 1994 1995 1996

CFO 536 828 968 1422 1553 1540 2573 3410 2993
Capex 627 541 894 1526 2150 3506 4486 3792 3332
FCF -91 287 74 -104 -597 -1966 -1913 -382 -339
Net 628 837 1076 1291 1608 1995 2333 2681 2740
Income
EPS 0.28 0.37 0.48 0.57 0.70 0.87 1.02 1.17 1.19

DCF’s application: Can you?