Unlocking Apple's Intrinsic Value with Discounted Cash Flow

Apple's discounted cash flow is a powerful tool for unlocking the company's intrinsic value. The free cash flow, which was $63.4 billion in 2020, is a key component of this calculation.

By using a terminal growth rate of 2%, we can estimate the present value of Apple's future cash flows. This rate is based on the company's historical growth rate of 2% over the past decade.

The discount rate used in the calculation is 7.5%, which is a reasonable estimate given the company's beta of 0.9 and the current risk-free rate of 2%.

Explore further: Discount Rate of Cash Flows

Determining the discount rate is a crucial step in the DCF model, and it's essential to consider a company's cost of capital.

Apple relies heavily on equity financing, with relatively low debt levels.

The WACC, or weighted average cost of capital, is the rate used to discount future cash flows to the present, factoring in both equity and debt costs.

Apple's WACC is 9.74%, which is the rate used to calculate the present value of future cash flows.

Apple's low debt levels contribute to its relatively low WACC, making it an attractive investment opportunity.

See what others are reading: Future Cash Flows

The DCF model is a powerful tool for valuing companies like Apple. It's based on projecting future cash flows, which is crucial for determining the company's value.

To project these cash flows, we need to make some key assumptions. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is expected to grow consistently, reaching nearly $295B by Year 5.

The growth rate of revenue is also a key assumption. In the first year, revenue growth is 0%, followed by 14% in 2021, and 5% from 2022 to 2024.

The Weighted Average Cost of Capital (WACC) is another important assumption. For Apple, the WACC is 10.97%.

Here's a breakdown of the key assumptions used in the DCF model:

These assumptions are crucial for determining Apple's value, and they're based on recent financial trends and historical figures.

The DCF model helps estimate a company's intrinsic value, essentially telling us what the stock should be worth based on its expected future cash flows.

A reliable tool in the investor's toolkit is the Discounted Cash Flow (DCF) model, which is used to value companies like Apple.

The DCF model includes sections on corporate overview, financials, competitive landscape, trends and forecasts, key assumptions for valuation, a discounted cash flow valuation, and a conclusion.

Apple's valuation using the DCF model values the company at around $240 currently, based on assumptions that the iPhone will maintain innovation leadership and the company can succeed without Steve Jobs.

The DCF model is highly sensitive to the assumptions used, and analysts are giving price targets that range from a low of US$243 to a high of US$370.

Curious to learn more? Check out: Corporate Valuation Model

As a corporate tax consultant and data science enthusiast, I've seen firsthand how valuable a well-crafted Discounted Cash Flow (DCF) model can be. The DCF model is a reliable tool for investors to estimate a company's intrinsic value.

A fresh viewpoint: Dcf Analysis Template

The DCF model helps estimate a company's intrinsic value, essentially telling us what the stock should be worth based on its expected future cash flows. This is exactly what we'll be focusing on when analyzing Apple's valuation.

To conduct a DCF analysis, we need to break down the company's expected future cash flows into their present value. This involves making key assumptions about the company's growth rate, discount rate, and terminal value.

Intriguing read: Discounted Cash Flow Terminal Value

The DCF Value is a crucial aspect of valuation analysis, and it's essential to understand how it's calculated. The DCF model helps estimate a company's intrinsic value based on its expected future cash flows.

Using the Discounted Cash Flow (DCF) model, the intrinsic value of Apple (AAPL) is calculated to be $207.89 per share. This is based on projected free cash flows and key assumptions.

A sensitivity analysis is conducted to see how changes in growth rates and the discount rate can affect the DCF outcome. Here's a breakdown of the results:

As you can see, the DCF model is highly sensitive to changes in growth assumptions. This highlights the importance of accurate forecasting in valuation analysis.

The DCF Value can also be affected by changes in the operating model. For example, switching to a new operating model can discard any changes made to the current valuation.

A different take: Bjerksund Stensland Model

Based on the DCF model, the fair value of Apple is estimated to be around $247 per share, assuming an annual revenue growth rate of 5% and a weighted average cost of capital (WACC) of 9%.

Using a DCF model to value Apple, we can see that its stock price was potentially undervalued at $224 per share on 23 March 2020.

The fair value estimate of $247 per share suggests that buying Apple at $224 per share on 23 March 2020 could have been a good investment decision.

However, it's essential to consider the assumptions made in the DCF model, such as the annual revenue growth rate and WACC, to ensure that the estimate is reasonable and accurate.

Assuming a more reasonable annual revenue growth rate of 5% is a crucial assumption in the DCF model, as it significantly impacts the estimated fair value of Apple.

If this caught your attention, see: Discounted Present Value of Future Cash Flows

The Apple Valuation DCF Model is a powerful tool for estimating a company's intrinsic value.

The model uses a top-down approach to calculate the free cash flow to equity (FCF), with assumptions made for revenue, cost, working capital, capital expenditure, etc.

To keep things simple, the author assumed Apple's net income to be 22% of revenue and FCF to be 106% of net income. These assumptions are based on the company's average 3-year historical figures, taken from Yahoo Finance.

The weighted average cost of capital (WACC) is a crucial component of the DCF model, and it's assumed to be 10.97% in this analysis.

A perpetual growth rate of 2.50% is also used in the model, which is a key assumption that affects the estimated value of the company.

Here are the key assumptions used in the DCF model: