Using an unlevered Free Cash Flow to Firm (FCFF) model, we project Microsoft Corporation's cash flows over 5 years with line-by-line expense modeling. Revenue is projected revenue growing from 16.3% to 23.4% annually, with expenses (COGS, SG&A, R&D) held at historical ratios. Depreciation is computed from a vintage matrix based on a 5-year useful life. Working capital is modeled using historical turnover days (DSO 85, DPO 108, DIO 13). At a 9.1% WACC with mid-year discounting, the terminal value (92% of enterprise value) is derived by applying the industry peer median EV/EBITDA multiple of 25.9x to Year 6 EBITDA. After subtracting net debt, the equity value implies a fair price of $847.59 per share, suggesting MSFT is undervalued by 128.4% at the current price of $371.04.
Adjust parameters to explore scenarios. Changes are for exploration only and do not affect saved valuations.
| 2026 | 2027 | 2028 | 2029 | 2030 | Terminal | |
|---|---|---|---|---|---|---|
| Profit Before Tax | 137,765 | 158,977 | 185,127 | 219,465 | 270,729 | 277,498 |
| (−) Net Interest | 3,544 | 4,089 | 4,762 | 5,645 | 6,964 | 7,138 |
| (+) D&A | 36,329 | 42,508 | 49,621 | 57,846 | 65,365 | 66,999 |
| EBITDA | 177,637 | 205,574 | 239,509 | 282,955 | 343,058 | 351,634 |
| (−) Tax | 22,533 | 26,002 | 30,279 | 35,895 | 44,280 | — |
| (−) CapEx | 51,519 | 59,451 | 69,230 | 82,071 | 101,242 | — |
| (−) ΔWC | 6,707 | 7,672 | 9,458 | 12,419 | 18,541 | — |
| Free Cash Flow (FCF) | 96,879 | 112,449 | 130,542 | 152,569 | 178,994 | — |
| Peers' EBITDA Multiple | 25.9x | |||||
| Terminal Value | 9,096,773 | |||||
| WACC / Discount Rate | 9.12% | |||||
| Timing of FCF (mid year) | 0.5 | 1.5 | 2.5 | 3.5 | 4.5 | 5 |
| Present Value of FCF | 92,742 | 98,651 | 104,952 | 112,409 | 120,856 | 5,879,855 |
| Enterprise Value | 6,409,465 | |||||
| Projection Period | 529,610 | 8.3% | ||||
| Terminal Value | 5,879,855 | 91.7% | ||||
| (−) Current Net Debt | 81,942 | |||||
| Equity Value | 6,327,523 | |||||
| (÷) Outstanding Shares | 7465M | |||||
| Fair Price | $848 | +128.4% | ||||
| WACC \ EV/EBITDA Exit Multiple | 21.9x | 23.9x | 25.9x | 27.9x | 29.9x |
|---|---|---|---|---|---|
| 7.1% | $794 | $861 | $927 | $994 | $1061 |
| 8.1% | $759 | $823 | $886 | $950 | $1014 |
| 9.1% | $726 | $787 | $848 | $908 | $969 |
| 10.1% | $694 | $753 | $811 | $869 | $927 |
| 11.1% | $665 | $720 | $776 | $832 | $887 |
Current price: $371.04. Green = undervalued, Red = overvalued.
Based on default parameters
This is an unlevered Free Cash Flow to Firm (FCFF) model with a 5-year projection period. Revenue, expenses, D&A, and working capital are projected using the same line-by-line approach as the Growth Exit models. The key difference is the terminal value methodology: instead of assuming perpetual cash flow growth, the terminal value is calculated by applying the industry peer median EV/EBITDA multiple to the projected Year 6 EBITDA.
Using a peer exit multiple anchors the terminal value to how the market currently prices comparable companies, rather than relying on a theoretical perpetual growth assumption. This approach captures relative valuation dynamics and is particularly useful when a company is expected to converge toward industry-average profitability over time. The sensitivity matrix shows how fair value changes across different WACC and EV/EBITDA multiple scenarios.