Skip to main content

Apple DCF

 The most difficult part of this valuation was calculating the WACC. WACC equals Cost of debt * Weight of debt ( debt / debt + equity) * (1- effective tax rate) + Cost of equity* Weight of equity. Cost of debt is defined as the interest expenses of that year divided by total debt of that year.

Cost of equity is defined using the Capital asset pricing model CAPM), where CAPM = risk free-rate + company's beta(expected market risk - risk free rate). Using values from the 10-K and the yahoo! finance page of Apple, I came up with an estimated value of 11%. 

To calculate the Discount factor, you have to divide 1 by 1+WACC to the power of the corresponding future year (in my model 2021 equals year 1). The terminal value/ continuing value is calculated with the following formula: Last FCF value * (1+ perpetual growth rate)/(WACC- perpetual growth rate). The Enterprise value is the sum of the PV of Cash flows & the PV of the Continuing value. Following the few remaining steps, I ended up with a Fair value of equity of around $55, which stands in strong contrast too Apple's current stock price of $131.97. Even though, I felt like I have followed the right steps, there is a good possibility  have done something wrong along the way of my calculations. I will continue my research by looking at other examples of Apple DCFs in order to see what went wrong. 


Popular posts from this blog

Apple Multiples Valuation

Unlike a traditional DCF model, doing a multiples analysis with comparable companies is a lot easier and quicker to do. The four companies I used to compare with Apple are: Microsoft, Amazon, Netflix, and Google. I used Microsoft because Apple and Microsoft are competitors in the field of hardware, mainly computers. Amazon and Apple are comparable because they're both tech giants in their respective fields and even have services in common such as Amazon Prime/Apple TV and Siri/Echo. Similarly, Netflix and Apple compete with each other in regards to their streaming services. Google and Apple both produce hardware like  home-pods, phones and computers, despite Apple being considerably larger.  The multiples that I used for the valuation are: EV/Sales, EV/EBITDA, EV/EBIT, and P/E. EV is the Enterprise Value of a company, which can be calculated by subtracting cash and cash equivalents and adding total debt to the Market cap. EV is the true value of a company while taking into account

DCF Valuation - Netflix

Time to put everything together with this blog post looking at DCF for Netflix. In the case of WACC, I got a percentage of 12%. I still have difficulties calculating it, so I know I need to improve on that front.  Conclusion: Netflix stock is overvalued at 12%. I think in order to make my analysis more effective I can include a What-If analysis that includes a variety of WACC and perpetual growth rate percentages. 

3-Statement Model - Netflix

To be honest, this was a lot more time consuming than I thought it would be. But, I'm glad I got it done. First thing to note with this 3S model is that it was designed specifically to integrate with a DCF Valuation, which will be shown in the next blog post.