Phase 1: Analysis of the company and the business

Calculate the profitability, liquidity, efficiency, leverage and investment r

Leverage ratios

Debt ratio
Debt to equity ratio
Times interest earned ratio
Cash flow to debt ratio

Profitability ratios

Return on Assets
Return on Equity
Gross profit margin
Operating margin

Efficiency ratios

Receivables turnover
Average collection period
Fixed asset turnover

Liquidity ratios

Working Capital ratio

 Current ratio
Quick ratio

Investment ratios

Equity book value per share

Dividend yield
Dividend payout
Price-earnings ratio
Market-to-book ratio

Used price of the share of the 7th December 2020

ciency, leverage and investment ratios of the company
2020

Formula Result
Total Liabilities/Total Assets 1.237
Total Debt/Shareholders' Equity -2.966
EBIT/Interest Expense 17.723
Cash flow from operations/Total Debt 0.311

Formula Result
Net Income/Total Assets 0.192
Net Income/Shareholders' Equity -0.808
(Revenues-Cost of Services)/Revenues 0.251
Net operating income/Revenues 0.153

Formula Result
Revenues/Accounts receivable 20.22
365/Receivables turnover 18.05
Sales/Net fixed assets 11.95

Formula Result
Current Assets/Total Assets 0.48
 Current Assets/Current Liabilities 1.10
Cash and CE + MS + AR/Current Liabilities 0.56

Formula Result
Shareholders' equity/Number of shares 6.74
Dividend per share/Price per share 0.06
Dividend per share/Earnings per share 0.92
Share price/Earnings per share 16.36
Share price/Book value per share 12.52

ember 2020

Debt ratio
Debt to equity ratio
Times interest earned ratio
Cash flow to debt ratio
Return on Assets
Return on Equity
Gross profit margin
Operating margin
Receivables turnover
Average collection period
Fixed asset turnover
Working Capital ratio
2019
Formula
Total Liabilities/Total Assets
Total Debt/Shareholders' Equity
EBIT/Interest Expense
Cash flow from operations/Total Debt
Formula
Net Income/Total Assets
Net Income/Shareholders' Equity
(Revenues-Cost of Services)/Revenues
Net operating income/Revenues
Formula
Revenues/Accounts receivable
365/Receivables turnover
Sales/Net fixed assets
Formula
Current Assets/Total Assets
Current ratio Current Assets/Current Liabilities
Quick ratio (Current Assets-Inventories)/Current Liabilities

Formula
Dividend payout Dividend per share/Earnings per share
 in millions of dollars Values

Result
1.224
-3.234 Net income
17.319
0.325
Shareholder's equity

Revenues
Accounts receivable

Result Cost of services

0.180
-0.805 Net fixed assets
0.248 Current assets
0.135 Current liabilities
Total Assets
C&C equivalents

Net operating income

Result Total Liabilities
20.96 Total debt
17.41 EBIT
11.75 Interest expense
CF From Operations
Nb of shares
Dividend per share
Price per share
Earnings per share
Result
0.48
 1.09
0.56

Used price/share of decembre 14th 2020

Result
1.00
 2020 2019

8592 7728

10631 9599

76947 77921
3761 3717

9569 10513

6365 6631
21492 20514
19615 18833
44815 42875
7280 6861

11668 10531
55446 52474
31536 31045
10953 9872
618 570
9812 10090
1,577,451,856 1555894663
4.74 4.62
84.4 84.05
5.16 4.61
of decembre 14th 2020
 Altria Group INC
Debt to equity ratio 10.07
Return on Assets 0.0939
Return on Equity 1.5227
Operating margin 0.4157
Receivables turnover 190.89
Fixed asset turnover 5.516
Current ratio 0.7853
British American Tobacco Universal Corporation Sector
0.6984 0.4594 3.743
0.047672 0.041126 0.061
0.104265 0.071427 0.57
0.38648 0.074525 0.29
6.7832 5.3886 67.69
1.872 8.469 5.286
0.87 5.3055 2.320
Phase 2: Valuing the company using Discounted Cash Flow Valuation.
 1. Estimation of the Cost of Equity

Cost of Equity = Risk-free rate of return + Beta's asset * (Expected return of the Market - Risk-fr

According to the website of the FRED (https://fred.stlouisfed.org), the risk free rate of 31st december 2020 if I take

I can find the 5Y monthly levered beta of Philip Morris on Yahoo finance and it is 0.89

According to www.nerdwallet.com, the average stock market return (S&P500) is about 10% per year for nearly the

Then, I have: Risk-free rate 0.93%

Expected return of the market 10%
PM's beta 0.89

Cost of Equity 9.00%

of Equity

eturn of the Market - Risk-free rate of return)

1st december 2020 if I take the current 10-Year Treasury Constant Maturity Rate (GS10) in the USA is 0.93%.

0% per year for nearly the last 10 years so I will use 10% as the expected return of the market.
 2. Estimation of the WACC

WACC = E/(E+D)*Cost of Equity + D/(E+D)*Cost of Deb

Firstly, I have to compute the Cost of Debt : Cost of Debt = Interest Expens

Interest expenses
Current portion of long-term debt and
bank borrowings + Current portion of
lease liabilities

Long-term debt + Long-term liabilities

Total debt
Latest 2 years average debt

Cost of Debt

Now, I can compute the WACC

WACC = E/(E+D)*Cost of Equity + D/(E+D)*Cost of Deb
According to the 10-K report, the effective tax rate was 21.7%
The market value of equity (E) is also called "Market Capitalization". According to yahoo finance
For the market value of debt (D), I decided to chose the latest-2-year average debt that I h

Then, I have: Tax rate

Cost of debt
Cost of Equity
Debt
Equity

WACC
 2. Estimation of the WACC

E+D)*Cost of Equity + D/(E+D)*Cost of Debt*(1-Tax rate)

Cost of Debt : Cost of Debt = Interest Expenses/(Latest 2 years average debt)

2020 2019
618,000,000 570,000,000

3,831,000,000 4,814,000,000
30,677,000,000 29,099,000,000
34,508,000,000 33,913,000,000
34,210,500,000

1.81%

Now, I can compute the WACC

E+D)*Cost of Equity + D/(E+D)*Cost of Debt*(1-Tax rate)
-K report, the effective tax rate was 21.7%
t Capitalization". According to yahoo finance, Philip Morris' market capitalization (E) is $142.715B
hose the latest-2-year average debt that I have computed before, which is $34,210,500,000

21.70%
1.81%
9.00%
34,210,500,000
142,715,000,000

7.53%
Estimate the equity value using a discounted cash flow based on FC

Assumptions
1. The firm is expected to grow at a higher growth rate in the first period.
2. The growth rate will drop at the end of the first period to the stable growth rate.

The user has to define the following inputs:

1. Length of high growth period
2. Expected growth rate in earnings during the high growth period.
3. Capital Spending, Depreciation and Working Capital needs during the high growth period
4. Expected growth rate in earnings during the stable growth period.
5. Inputs for the cost of capital. (Cost of equity, Cost of debt, Weights on debt and equity)

Current EBIT =
Current Interest Expense =
Current Capital Spending
Current Depreciation & Amort'n =
Tax Rate on Income =
Current Revenues =
Current Non-cash Working Capital =
Chg. Working Capital =
Cash and Marketable Securities
Value of equity options issued by firm =
Book Value of Debt =
Book Value of Equity =
Weights on Debt and Equity
Is the firm publicly traded ?

If yes, enter the market price per share =

& Number of shares outstanding =
& Market Value of Debt =

If no, do you want to use the book value debt ratio ?

If no, enter the debt to capital ratio to be used =

Enter length of extraordinary growth period =

Do you want to change the debt ratio in the stable growth period?
If yes, enter the debt ratio for the stable growth period =

Costs of Components
Do you want to enter cost of equity directly?
If yes, enter the cost of equity =
If no, enter the inputs to the cost of equity
Beta of the stock =
Riskfree rate=
Risk Premium=

Enter the cost of debt for cost of capital calculation

Earnings Inputs
Do you want to use the historical growth rate?
If yes, enter EBIT from five years ago =

Do you have an outside estimate of growth ?

If yes, enter the estimated growth:

Do you want to calculate the growth rate from fundamentals?

The following will be the inputs to the fundamental growth formulation:
ROC = 21.28%
Reinv. Rate = -8.97%
Do you want to change any of these inputs for the high growth period?
If yes, specify the values for these inputs (Please enter all variables)
ROC = 10.00%
Reinv. Rate = 100.00%

Specify weights to be assigned to each of these growth rates:

Historical Growth Rate =
Outside Prediction of Growth =
Fundamental Estimate of Growth =

Enter growth rate in stable growth period?

Beta
Will the beta to change in the stable period?
If yes, enter the beta for stable period =

Will the cost of debt change in the stable period?

If yes, enter the new cost of debt =

Capital Spending, Depreciation & Working Capital

Do you want all these items to grow at the same rate as earnings ?
If not, enter the growth rates for each of the following items:
Capital Spending
High Growth
Stable Growth Do not enter

Do you want to keep the current fraction of working capital to revenues?

Specify working capital as a percent of revenues:

Capital Spending and Depreciation in Stable Growth

Is capital spending to be offset by depreciation in stable period?
Aswath
Do you want your reinvestment to be computed from fundamentals?
Damodaran:
Return on capital in perpetuity Yes or no. If yes, enter
the return on capital that
If no, do you want to enter capital expenditure
youras %will
firm ofhave
depreciation
stable growth. If no,
in

enter cap ex as a percent

of depreciation in the
cell below.
 your firm will have in
stable growth. If no,
enter cap ex as a percent
of depreciation in the
cell below.

Cost of Equity =
Equity/(Debt+Equity ) =
After-tax Cost of debt =
Debt/(Debt +Equity) =
Cost of Capital =

Current EBIT * (1 - tax rate) =

- (Capital Spending - Depreciation)
- Change in Working Capital
Current FCFF

Growth Rate in Earnings per share

Historical Growth =
Outside Estimates =
Fundamental Growth =
Weighted Average

Growth Rate in capital spending, depreciation and working capital

Growth rate in capital spending =

Growth rate in depreciation =
Growth rate in revenues =

Working Capital as percent of revenues =

The FCFE for the high growth phase are shown below (upto 10 years)

EBIT * (1 - tax rate)

- (CapEx-Depreciation)
-Chg. Working Capital
Free Cashflow to Firm
Present Value

Growth Rate in Stable Phase =

FCFF in Stable Phase =
Cost of Equity in Stable Phase =
Equity/ (Equity + Debt) =
AT Cost of Debt in Stable Phase =
Debt/ (Equity + Debt) =
Cost of Capital in Stable Phase =
Value at the end of growth phase =

Present Value of FCFF in high growth phase =

Present Value of Terminal Value of Firm =
Value of the firm =
Cash and Marketable Securities =
Market Value of outstanding debt =
Market Value of Equity =
Value of Equity options issued by the company =
Market Value of Equity/share =
discounted cash flow based on FCFF (Free cash flow to the firm).

Two-Stag

This model is designed to valu

period of higher growth an
For a richer version of this model, try the fc

wth rate in the first period.

irst period to the stable growth rate.

high growth period.

g Capital needs during the high growth period.
stable growth period.
, Cost of debt, Weights on debt and equity)

Inp
$ 10,953,000,000.00
$ 618,000,000.00
$ 649,000,000.00
$ 981,000,000.00
21.70% According to what is said in the 10-K report of Accenture
$ 28,694,000,000.00
$ 981,000,000.00
$ -437,000,000.00 Last year
$ 7,280,000,000.00
$ -
$ 31,292,000,000.00 $ 30,707,000,000.00
$ 10,631,000,000.00 $ 9,599,000,000.00
 3

ble growth period?

h period =

No

0.89
0.93% (in percent)
9.07% (in percent)

1.81%

Yes
$ 10,623,000,000.00

Yes
5.20%

fundamentals?
ental growth formulation:
 the high growth period?
se enter all variables)

growth rates:
2.50%
92.50%
5.00%

3.00%

No

No

e rate as earnings ?
llowing items:
Depreciation Revenues

Do not enter

orking capital to revenues?

in stable period?
wath
d from fundamentals?
amodaran:
s or no. If yes, enter
return on capital that
uras %will
firm ofhave
depreciation
in
ble growth. If no,
er cap ex as a percent
depreciation in the
l below.
ur firm will have in
ble growth. If no,
er cap ex as a percent
depreciation in the
l below.

Outpu
9.00%
79.35%
1.41%
20.65%
7.44%

$8,576,199,000.00
$ -332,000,000.00
$ -437,000,000.00
$ 9,345,199,000.00

Growth Rate Weight

0.61% 2.50%
5.20% 92.50%
-1.91% 5.00%
4.73%

and working capital

High Growth Stable Growth
4.73% Do not enter
4.73% Do not enter
4.73% 0.00%

3.42%
n below (upto 10 years)
1 2
$ 8,981,848,721.10 $ 9,406,685,461.56
$ -347,703,426.12 $ -364,149,616.08
$ 46,400,786.22 $ 48,595,519.11
$ 9,283,151,361.00 $ 9,722,239,558.52
$ 8,640,687,917.42 $ 8,423,102,663.17

3.00%
$ 8,716,490,751.55
9.00%
79.35%
1.41%
20.65%
7.44%
$ 196,524,175,090.10
the firm).

Two-Stage FCFF Discount Model

This model is designed to value a firm, with two stages of growth, an initial
period of higher growth and a subsequent period of stable growth.
her version of this model, try the fcffginzu.xls spreadsheet.

Inputs to the model

he 10-K report of Accenture

 Yes

$ 84.40
1,557,451,856
$ 34,210,500,000.00

No

(in years)

No

(Yes or No)
(in percent)

( in percent)

(Yes or No)
(in currency)

(Yes or No)
(in percent)

Yes
 No

(in percent)
(in percent)
(in percent)

(in percent)

(Yes or No)

(Yes or No)
( in percent)

Yes

(in percent)
(in percent)

Yes
(in percent)

No
Yes
21%
120%
 Output from the program

(in percent)

3
$ 9,851,616,757.34
$ -381,373,702.20
$ 50,894,061.71
$ 10,182,096,397.83
$ 8,210,996,526.25
$ 25,274,787,106.84
$ 158,480,066,966.71
$ 183,754,854,073.55
$ 7,280,000,000.00
$ 34,210,500,000.00
$ 156,824,354,073.55
$ -
$ 100.69
age FCFF Discount Model

lue a firm, with two stages of growth, an initial

and a subsequent period of stable growth.
fcffginzu.xls spreadsheet.

nputs to the model

 ( Yes or No)

(in currency) Used price of the share of the 13th December 2020
(in #)
( in currency)

(Yes or No)
(in percent)

Accenture has been constantly growing since March 2008 according to www.finance.yahoo.com

According to yahoo finance

(Yes or No)
(Yes or No)

(Yes or No)

(Yes or No)

(Yes or No)

(in percent)
put from the program
Terminal Year
###
###
- €
###
Phase 3: Valuing the Company using Comparable Companies Analysis
 Set of comparable compa

By looking at the 10K-form, this is what Philip Morris s

"Competitors include three large international tobacco companies, new market entrants, particularly with respect
some instances, state-owned tobacco enterprises, principally in Algeria, Egypt,

That's why I decided to chose the following companies

Altria Group INC

British American
Tobacco

Universal
Corporation
 Set of comparable companies

By looking at the 10K-form, this is what Philip Morris says about its competitors:

ors include three large international tobacco companies, new market entrants, particularly with respect to innovative products, several reg
some instances, state-owned tobacco enterprises, principally in Algeria, Egypt, the PRC, Taiwan, Thailand and Vie

That's why I decided to chose the following companies as comparables:

Altria Group, Inc. (previously known as Philip Morris Companies, Inc.) is an American corporation and one of the
world's largest producers and marketers of tobacco, cigarettes and related products. It operates worldwide.

British American Tobacco plc (BAT) is a British multinational company that manufactures and sells cigarettes, tobacco and other
nicotine products. The company, established in 1902, is headquartered in London, England. As of 2019, it is the largest tobacco
company in the world based on net sales. BAT has operations in around 180 countries, and its cigarette brands
include Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans. Its brands also include Vype and Vuse and Glo.

Universal Corporation is one of the world's leading tobacco merchants. Universal buys, sells, and processes flue-
cured and burley tobacco.
nies

ays about its competitors:

o innovative products, several regional and local tobacco companies and, in

he PRC, Taiwan, Thailand and Vietnam"

as comparables:
 1. Estimate the equity value using at least one equity side m

Philip Morris Altria Group

Diluted EPS $ 5.16 $ 2.40
Share price $ 81.48 $ 40.74
P/E ratio 15.791 16.975

Philip Morris implied value based on comparables

Philip Morris EPS
Philip Morris Fully diluted shares

Upper estimated price

Lower estimated price
Average estimated price

Upper estimated equity value

Lower estimated equity value
Average estimated equity value
equity value using at least one equity side multiples (eg: P/E, Price/Book)

British American Tobacco Universal Corporation

$ 3.70 $ 2.86
$ 37.72 $ 48.28
10.195 16.881

mplied value based on comparables

5.16
1,557,451,856

87.591
52.6041081081081
75.7672271782272

136,418,765,519
81,928,365,806
118,003,808,593
 Altria Group

Number of shares outsanding 1,858,689,654

RSUs 2,239,379
PSUs 409,392

No information mentioning
Stock options options in the 10-K and 10-Q
reports

Current stock price 40.74

Fully diluted shares 1,861,338,425

Equity Value 75,830,927,435

+ Debt 27,971,000,000
+ Preferred shares 0
+ Noncontrolling interest 40,000,000
+ Unfunded pension liabilities 0
- C&C equivalents 4,945,000,000
= EV 98,896,927,435
 Altria Goup British American Tobacco
EV/EBIT 14.354 12.542
EV/EBITDA 13.838 11.041
EV/Sales 3.781 5.190
 British American Tobacco

Number of shares outsanding

RSUs
PSUs

Stock options

Current stock price

Fully diluted shares

Equity Value
+ Debt
+ Preferred shares
+ Noncontrolling interest
+ Unfunded pension liabilities
- C&C equivalents
= EV

Philip

EV lower bound
Universal Corporation
14.174 EV/EBIT $ 137,370,462,158.80
10.454 EV/EBITDA $ 124,763,682,048.71
0.899 EV/Sales $ 68,328,719,008.06
merican Tobacco

2,456,520,738
0
0

No information mentioning
options in the 10-K and 10-Q
reports

37.72

2,456,520,738

92,659,962,237
43,968,000,000
0
282,000,000
0
3,139,000,000
133,770,962,237

Philip Morris implied value using comparables

EV upper bond Equity Value lower bond Equity Value upper Value per share
bond Lower bound

$ 157,215,971,870.84 $ 116,238,462,158.80 $ 136,083,971,870.84 $ 74.63

$ 165,137,250,874.96 $ 103,631,682,048.71 $ 144,005,250,874.96 $ 66.54
$ 394,664,818,640.00 $ 47,196,719,008.06 $ 373,532,818,640.00 $ 30.30
 Universal Corporation

Number of shares outsanding 24,514,867

RSUs 342,468
PSUs 161,147

Stock options 11,600

Exercise price 42
Current stock price 51.60
Proceeds from option exercises 487,200.00
Buyback shares 9,441.86
Net shares from options 2,158.14

Fully diluted shares 25,020,640

Equity Value 1,291,065,031

+ Debt 647,089,000
+ Preferred shares 0
+ Noncontrolling interest 41,126,000
+ Unfunded pension liabilities 0
- C&C equivalents 197,221,000
= EV 1,782,059,031

Value per share

Upper bond

$ 87.38
$ 92.46
$ 239.84