General Electric Company (GE)
Discount cash flow analysis
Price history
Sensitivity matrix
-1% |
Discount Rate % 0% |
1% |
||
---|---|---|---|---|
-1% | $37.03 | $35.67 | $34.36 | |
Terminal Growth% | 0 | $37.53 | $36.16 | $34.83 |
+1% | $38.04 | $36.66 | $35.31 |
How does a change in discount rate or terminal growth affect valuation?
This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate
Valuations and comments
- Valuecruncher created a new valuation of $24.70 (overvalued by 16.75%) - 4 years ago
- mvacca created a new valuation of $16.13 (undervalued by 4.88%) - over 10 years ago
- pbemech created a new valuation of $14.90 (overvalued by 6.29%) - almost 11 years ago
- GordonGekko created a new valuation of $14.68 (overvalued by 8.88%) - almost 11 years ago
- baselsina created a new valuation of $18.75 (undervalued by 16.39%) - almost 11 years ago
- jtwdc1 created a new valuation of $0.00 (overvalued by 100.0%) - 11 years ago
- GordonGekko created a new valuation of $0.00 (overvalued by 100.0%) - 11 years ago
- Yuvraj created a new valuation of $63.82 (undervalued by 376.27%) - over 11 years ago
- Yuvraj created a new valuation of $12.76 (overvalued by 4.78%) - over 11 years ago
- Yuvraj created a new valuation of $7.15 (overvalued by 46.64%) - over 11 years ago
- natet1 created a new valuation of $12.82 (undervalued by 18.05%) - over 11 years ago
- SethWellbourne created a new valuation of $0.00 (overvalued by 100.0%) - over 11 years ago
- jtmoney15 created a new valuation of $10.76 (undervalued by 11.39%) - over 11 years ago
- GordonGekko created a new valuation of $10.76 (undervalued by 11.85%) - over 11 years ago
- dweis created a new valuation of $37.74 (undervalued by 135.58%) - 12 years ago
- wyomingkid created a new valuation of $63.76 (undervalued by 226.81%) - 12 years ago
- Derek created a new valuation of $21.62 (undervalued by 14.03%) - 12 years ago
- GordonGekko created a new valuation of $20.88 (overvalued by 18.12%) - 12 years ago
- peypar created a new valuation of $11.23 (overvalued by 55.52%) - 12 years ago
- GordonGekko created a new valuation of $24.95 (overvalued by 6.27%) - 12 years ago
- Ashkat created a new valuation of $46.68 (undervalued by 66.12%) - over 12 years ago
- KiwiEMH created a new valuation of $26.49 (overvalued by 7.73%) - over 12 years ago
- GordonGekko created a new valuation of $27.01 (overvalued by 1.35%) - over 12 years ago
- TheCrunchBlog created a new valuation of $36.16 (undervalued by 32.07%) - over 12 years ago
- GordonGekko created a new valuation of $29.39 (undervalued by 7.34%) - over 12 years ago
- GordonGekko created a new valuation of $31.30 (undervalued by 0.94%) - over 12 years ago
Comments
The boring details
All amounts in millions | Figures |
Enterprise Value: | 794,101 |
Net Debt (Long-term borrowings less cash): | 498,369 |
Equity Value: | 272,907 |
Number of Shares Outstanding: | 9,967,000,000 |
Calculated value per share: | $36.16 |
Enterprise Value is the present value of the post-tax cash flows for a business into the future.
Where:
- C1, C2, C3 - the cash flow in period 1, 2, 3, ...
- r - the discount rate
To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.
Where:
- Cn - the cash flow in the final forecast period.
- LTG - the long-term growth rate
- r - the discount rate
- g - the terminal growth rate
The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.
Where:
- rt - the risk free rate
- t - the tax rate
- B - the beta of the company
- MRP - the Market Risk Premium
Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.
This valuation is part of this blog post:
http://blog.valuecruncher.com/2008/06/has-the-negative-sentiment-on-ge-gone-too-far/
GE grew revenues from US$134.3 billion in 2004 to US$172.7 billion in 2007 – 8.75% compound annual growth rate. Our assumptions of revenues for the next three years are US$187.5 billion in 2008 growing to US$206.5 billion in 2010 – 6.1% compound annual growth rate. We have projected EBITDA margins increasing from 23.5% in 2008 to 24.5% in 2010.
We have used a terminal growth rate of 2.5%. We calculated this terminal growth rate based on year three growth (2009 to 2010) of 5% dropping to a 2% stable growth rate over the next ten years.
We have used a WACC (discount rate) of 6.5%. The WACC (discount rate) has a material impact on a discounted cash flow valuation (as does the terminal growth rate). We think this WACC of 6.5% is reasonable but recognise that the actual number could be as low as 5.5% or as high as 7.5-8%.
We used a terminal capital expenditure number of US$4.0 billion.
This is a great analysis of GE's issues with their substantial lending operations:
http://www.nytimes.com/2008/09/22/business/22ge.html?pagewanted=1&_r=1&ref=business
“With the tsunami sweeping over the financial sector, it is unrealistic to expect that G.E. will not get wet.”