Intrinsic value of Open Text Corporation - OTEX

Previous Close

$42.56

  Intrinsic Value

$118.17

stock screener

  Rating & Target

str. buy

+178%

Previous close

$42.56

 
Intrinsic value

$118.17

 
Up/down potential

+178%

 
Rating

str. buy

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of OTEX stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 11.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  25.56
  37.20
  33.98
  31.08
  28.47
  26.13
  24.01
  22.11
  20.40
  18.86
  17.47
  16.23
  15.10
  14.09
  13.18
  12.37
  11.63
  10.97
  10.37
  9.83
  9.35
  8.91
  8.52
  8.17
  7.85
  7.57
  7.31
  7.08
  6.87
  6.69
  6.52
Revenue, $m
  3,095
  4,246
  5,689
  7,458
  9,581
  12,084
  14,986
  18,300
  22,033
  26,189
  30,765
  35,758
  41,159
  46,960
  53,152
  59,725
  66,670
  73,982
  81,654
  89,683
  98,068
  106,811
  115,914
  125,386
  135,233
  145,469
  156,105
  167,158
  178,645
  190,588
  203,008
Variable operating expenses, $m
 
  3,217
  4,153
  5,300
  6,678
  8,303
  10,185
  12,336
  14,758
  17,454
  20,424
  23,202
  26,706
  30,470
  34,488
  38,753
  43,260
  48,004
  52,982
  58,191
  63,632
  69,305
  75,212
  81,357
  87,747
  94,388
  101,289
  108,461
  115,915
  123,664
  131,723
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  2,619
  3,217
  4,153
  5,300
  6,678
  8,303
  10,185
  12,336
  14,758
  17,454
  20,424
  23,202
  26,706
  30,470
  34,488
  38,753
  43,260
  48,004
  52,982
  58,191
  63,632
  69,305
  75,212
  81,357
  87,747
  94,388
  101,289
  108,461
  115,915
  123,664
  131,723
Operating income, $m
  477
  1,029
  1,536
  2,157
  2,903
  3,782
  4,801
  5,964
  7,275
  8,734
  10,342
  12,556
  14,453
  16,490
  18,664
  20,972
  23,411
  25,978
  28,672
  31,492
  34,436
  37,506
  40,703
  44,028
  47,486
  51,080
  54,815
  58,696
  62,730
  66,924
  71,285
EBITDA, $m
  944
  1,686
  2,259
  2,962
  3,805
  4,799
  5,952
  7,268
  8,750
  10,401
  12,218
  14,201
  16,346
  18,650
  21,109
  23,719
  26,478
  29,381
  32,428
  35,617
  38,947
  42,419
  46,035
  49,796
  53,707
  57,772
  61,996
  66,386
  70,948
  75,691
  80,623
Interest expense (income), $m
  156
  158
  250
  366
  508
  679
  881
  1,114
  1,380
  1,681
  2,015
  2,383
  2,784
  3,219
  3,685
  4,183
  4,711
  5,270
  5,858
  6,475
  7,121
  7,795
  8,498
  9,230
  9,992
  10,783
  11,606
  12,462
  13,351
  14,274
  15,235
Earnings before tax, $m
  337
  871
  1,286
  1,791
  2,394
  3,102
  3,920
  4,850
  5,895
  7,054
  8,327
  10,173
  11,669
  13,271
  14,979
  16,789
  18,699
  20,708
  22,814
  25,017
  27,315
  29,711
  32,205
  34,799
  37,495
  40,297
  43,209
  46,235
  49,380
  52,649
  56,050
Tax expense, $m
  -1,049
  235
  347
  484
  646
  838
  1,058
  1,310
  1,592
  1,905
  2,248
  2,747
  3,151
  3,583
  4,044
  4,533
  5,049
  5,591
  6,160
  6,755
  7,375
  8,022
  8,695
  9,396
  10,124
  10,880
  11,666
  12,483
  13,332
  14,215
  15,134
Net income, $m
  1,386
  636
  939
  1,307
  1,748
  2,265
  2,862
  3,541
  4,303
  5,149
  6,079
  7,427
  8,518
  9,688
  10,935
  12,256
  13,651
  15,117
  16,654
  18,262
  19,940
  21,689
  23,510
  25,403
  27,371
  29,417
  31,542
  33,751
  36,047
  38,434
  40,917

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  599
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  10,107
  13,026
  17,452
  22,876
  29,390
  37,068
  45,970
  56,135
  67,587
  80,334
  94,373
  109,687
  126,255
  144,049
  163,042
  183,204
  204,510
  226,939
  250,472
  275,101
  300,822
  327,640
  355,566
  384,619
  414,826
  446,223
  478,849
  512,753
  547,992
  584,626
  622,724
Adjusted assets (=assets-cash), $m
  9,508
  13,026
  17,452
  22,876
  29,390
  37,068
  45,970
  56,135
  67,587
  80,334
  94,373
  109,687
  126,255
  144,049
  163,042
  183,204
  204,510
  226,939
  250,472
  275,101
  300,822
  327,640
  355,566
  384,619
  414,826
  446,223
  478,849
  512,753
  547,992
  584,626
  622,724
Revenue / Adjusted assets
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
Average production assets, $m
  1,709
  2,344
  3,140
  4,117
  5,289
  6,670
  8,272
  10,102
  12,162
  14,456
  16,983
  19,738
  22,720
  25,922
  29,340
  32,968
  36,802
  40,838
  45,073
  49,505
  54,134
  58,959
  63,985
  69,213
  74,649
  80,299
  86,170
  92,271
  98,612
  105,205
  112,060
Working capital, $m
  -167
  -713
  -956
  -1,253
  -1,610
  -2,030
  -2,518
  -3,074
  -3,702
  -4,400
  -5,169
  -6,007
  -6,915
  -7,889
  -8,929
  -10,034
  -11,201
  -12,429
  -13,718
  -15,067
  -16,475
  -17,944
  -19,474
  -21,065
  -22,719
  -24,439
  -26,226
  -28,082
  -30,012
  -32,019
  -34,105
Total debt, $m
  3,472
  5,107
  7,475
  10,377
  13,861
  17,969
  22,732
  28,170
  34,297
  41,117
  48,627
  56,820
  65,684
  75,204
  85,365
  96,152
  107,551
  119,550
  132,141
  145,317
  159,078
  173,425
  188,366
  203,909
  220,070
  236,867
  254,322
  272,461
  291,314
  310,913
  331,296
Total liabilities, $m
  5,334
  6,969
  9,337
  12,239
  15,723
  19,831
  24,594
  30,032
  36,159
  42,979
  50,489
  58,682
  67,546
  77,066
  87,227
  98,014
  109,413
  121,412
  134,003
  147,179
  160,940
  175,287
  190,228
  205,771
  221,932
  238,729
  256,184
  274,323
  293,176
  312,775
  333,158
Total equity, $m
  4,773
  6,057
  8,115
  10,637
  13,666
  17,237
  21,376
  26,103
  31,428
  37,355
  43,883
  51,004
  58,708
  66,983
  75,815
  85,190
  95,097
  105,526
  116,470
  127,922
  139,882
  152,353
  165,338
  178,848
  192,894
  207,493
  222,665
  238,430
  254,816
  271,851
  289,567
Total liabilities and equity, $m
  10,107
  13,026
  17,452
  22,876
  29,389
  37,068
  45,970
  56,135
  67,587
  80,334
  94,372
  109,686
  126,254
  144,049
  163,042
  183,204
  204,510
  226,938
  250,473
  275,101
  300,822
  327,640
  355,566
  384,619
  414,826
  446,222
  478,849
  512,753
  547,992
  584,626
  622,725
Debt-to-equity ratio
  0.727
  0.840
  0.920
  0.980
  1.010
  1.040
  1.060
  1.080
  1.090
  1.100
  1.110
  1.110
  1.120
  1.120
  1.130
  1.130
  1.130
  1.130
  1.130
  1.140
  1.140
  1.140
  1.140
  1.140
  1.140
  1.140
  1.140
  1.140
  1.140
  1.140
  1.140
Adjusted equity ratio
  0.439
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465
  0.465

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,386
  636
  939
  1,307
  1,748
  2,265
  2,862
  3,541
  4,303
  5,149
  6,079
  7,427
  8,518
  9,688
  10,935
  12,256
  13,651
  15,117
  16,654
  18,262
  19,940
  21,689
  23,510
  25,403
  27,371
  29,417
  31,542
  33,751
  36,047
  38,434
  40,917
Depreciation, amort., depletion, $m
  467
  657
  723
  805
  902
  1,017
  1,151
  1,303
  1,475
  1,666
  1,877
  1,645
  1,893
  2,160
  2,445
  2,747
  3,067
  3,403
  3,756
  4,125
  4,511
  4,913
  5,332
  5,768
  6,221
  6,692
  7,181
  7,689
  8,218
  8,767
  9,338
Funds from operations, $m
  455
  1,293
  1,662
  2,112
  2,650
  3,282
  4,013
  4,844
  5,778
  6,816
  7,955
  9,071
  10,411
  11,848
  13,380
  15,003
  16,717
  18,520
  20,411
  22,388
  24,451
  26,602
  28,842
  31,171
  33,592
  36,108
  38,723
  41,440
  44,265
  47,201
  50,255
Change in working capital, $m
  -138
  -193
  -242
  -297
  -357
  -421
  -488
  -557
  -627
  -698
  -769
  -839
  -907
  -975
  -1,040
  -1,104
  -1,167
  -1,228
  -1,289
  -1,349
  -1,409
  -1,469
  -1,529
  -1,591
  -1,654
  -1,719
  -1,787
  -1,857
  -1,930
  -2,006
  -2,087
Cash from operations, $m
  593
  1,487
  1,904
  2,409
  3,007
  3,703
  4,500
  5,401
  6,406
  7,514
  8,724
  9,910
  11,319
  12,823
  14,420
  16,108
  17,884
  19,749
  21,699
  23,737
  25,860
  28,071
  30,371
  32,762
  35,246
  37,828
  40,510
  43,297
  46,195
  49,208
  52,342
Maintenance CAPEX, $m
  0
  -142
  -195
  -262
  -343
  -441
  -556
  -689
  -842
  -1,014
  -1,205
  -1,415
  -1,645
  -1,893
  -2,160
  -2,445
  -2,747
  -3,067
  -3,403
  -3,756
  -4,125
  -4,511
  -4,913
  -5,332
  -5,768
  -6,221
  -6,692
  -7,181
  -7,689
  -8,218
  -8,767
New CAPEX, $m
  -108
  -635
  -796
  -976
  -1,172
  -1,382
  -1,602
  -1,829
  -2,061
  -2,294
  -2,526
  -2,756
  -2,981
  -3,202
  -3,418
  -3,628
  -3,834
  -4,036
  -4,235
  -4,432
  -4,629
  -4,826
  -5,025
  -5,228
  -5,436
  -5,650
  -5,871
  -6,101
  -6,341
  -6,592
  -6,856
Cash from investing activities, $m
  -2,960
  -777
  -991
  -1,238
  -1,515
  -1,823
  -2,158
  -2,518
  -2,903
  -3,308
  -3,731
  -4,171
  -4,626
  -5,095
  -5,578
  -6,073
  -6,581
  -7,103
  -7,638
  -8,188
  -8,754
  -9,337
  -9,938
  -10,560
  -11,204
  -11,871
  -12,563
  -13,282
  -14,030
  -14,810
  -15,623
Free cash flow, $m
  -2,367
  709
  913
  1,171
  1,492
  1,880
  2,342
  2,882
  3,503
  4,206
  4,993
  5,739
  6,692
  7,727
  8,842
  10,034
  11,303
  12,646
  14,061
  15,548
  17,106
  18,734
  20,432
  22,202
  24,043
  25,957
  27,947
  30,015
  32,164
  34,397
  36,719
Issuance/(repayment) of debt, $m
  573
  1,882
  2,368
  2,902
  3,485
  4,108
  4,762
  5,438
  6,127
  6,820
  7,511
  8,193
  8,864
  9,520
  10,161
  10,787
  11,399
  11,999
  12,591
  13,177
  13,761
  14,347
  14,940
  15,543
  16,161
  16,797
  17,455
  18,139
  18,853
  19,599
  20,382
Issuance/(repurchase) of shares, $m
  853
  1,000
  1,119
  1,215
  1,281
  1,306
  1,277
  1,186
  1,022
  778
  449
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1,392
  2,882
  3,487
  4,117
  4,766
  5,414
  6,039
  6,624
  7,149
  7,598
  7,960
  8,193
  8,864
  9,520
  10,161
  10,787
  11,399
  11,999
  12,591
  13,177
  13,761
  14,347
  14,940
  15,543
  16,161
  16,797
  17,455
  18,139
  18,853
  19,599
  20,382
Total cash flow (excl. dividends), $m
  -972
  3,591
  4,400
  5,288
  6,258
  7,294
  8,382
  9,507
  10,652
  11,805
  12,953
  13,932
  15,556
  17,247
  19,003
  20,821
  22,702
  24,645
  26,652
  28,725
  30,867
  33,082
  35,373
  37,745
  40,204
  42,754
  45,402
  48,154
  51,017
  53,997
  57,101
Retained Cash Flow (-), $m
  -2,100
  -1,636
  -2,058
  -2,522
  -3,029
  -3,570
  -4,139
  -4,727
  -5,325
  -5,928
  -6,528
  -7,121
  -7,704
  -8,275
  -8,832
  -9,375
  -9,907
  -10,429
  -10,943
  -11,453
  -11,960
  -12,470
  -12,985
  -13,510
  -14,046
  -14,599
  -15,171
  -15,766
  -16,386
  -17,035
  -17,716
Prev. year cash balance distribution, $m
 
  352
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  2,307
  2,342
  2,766
  3,229
  3,724
  4,243
  4,780
  5,327
  5,877
  6,425
  6,811
  7,852
  8,973
  10,171
  11,446
  12,794
  14,216
  15,709
  17,272
  18,907
  20,611
  22,387
  24,235
  26,157
  28,155
  30,231
  32,389
  34,631
  36,962
  39,386
Discount rate, %
 
  6.50
  6.83
  7.17
  7.52
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
  19.01
  19.96
  20.96
  22.01
  23.11
  24.27
  25.48
  26.75
PV of cash for distribution, $m
 
  2,166
  2,052
  2,247
  2,415
  2,546
  2,630
  2,664
  2,645
  2,575
  2,458
  2,251
  2,216
  2,136
  2,016
  1,862
  1,684
  1,490
  1,290
  1,092
  903
  729
  575
  442
  331
  242
  171
  118
  79
  51
  32
Current shareholders' claim on cash, %
  100
  91.2
  84.6
  79.5
  75.7
  72.7
  70.5
  68.9
  67.7
  67.0
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7
  66.7

Open Text Corporation provides a platform and suite of software products and services that assist organizations in finding, utilizing, and sharing business information from any device. The Company designs, develops, markets and sells Enterprise Information Management (EIM) software and solutions. Its EIM offerings include Enterprise Content Management (ECM), Business Process Management (BPM), Customer Experience Management (CEM), Business Network, Discovery and Analytics. Its software and services allow organizations to manage the information that flows into, out of, and throughout the enterprise as part of daily operations. Its solutions incorporate collaborative and mobile technologies and are delivered for on-premises deployment, as well as through cloud, hybrid and managed hosted services models. In addition, the Company provides solutions that facilitate the exchange of information and transactions that occur between supply chain participants.

FINANCIAL RATIOS  of  Open Text Corporation (OTEX)

Valuation Ratios
P/E Ratio 8.1
Price to Sales 3.6
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 19
Price to Free Cash Flow 23.2
Growth Rates
Sales Growth Rate 25.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 13.7%
Cap. Spend. - 3 Yr. Gr. Rate 13.6%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 67.6%
Total Debt to Equity 72.7%
Interest Coverage 3
Management Effectiveness
Return On Assets 23.8%
Ret/ On Assets - 3 Yr. Avg. 12.5%
Return On Total Capital 20.1%
Ret/ On T. Cap. - 3 Yr. Avg. 11.7%
Return On Equity 37.2%
Return On Equity - 3 Yr. Avg. 21.9%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 66.7%
Gross Margin - 3 Yr. Avg. 67.6%
EBITDA Margin 31%
EBITDA Margin - 3 Yr. Avg. 31.1%
Operating Margin 15.4%
Oper. Margin - 3 Yr. Avg. 18.1%
Pre-Tax Margin 10.9%
Pre-Tax Margin - 3 Yr. Avg. 13.7%
Net Profit Margin 44.8%
Net Profit Margin - 3 Yr. Avg. 24.3%
Effective Tax Rate -311.3%
Eff/ Tax Rate - 3 Yr. Avg. -99.1%
Payout Ratio 11.8%

OTEX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OTEX stock intrinsic value calculation we used $3095 million for the last fiscal year's total revenue generated by Open Text Corporation. The default revenue input number comes from 2017 income statement of Open Text Corporation. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our OTEX stock valuation model: a) initial revenue growth rate of 37.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 6.5%, whose default value for OTEX is calculated based on our internal credit rating of Open Text Corporation, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Open Text Corporation.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of OTEX stock the variable cost ratio is equal to 79.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for OTEX stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.9% for Open Text Corporation.

Corporate tax rate of 27% is the nominal tax rate for Open Text Corporation. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the OTEX stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for OTEX are equal to 55.2%.

Life of production assets of 12 years is the average useful life of capital assets used in Open Text Corporation operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for OTEX is equal to -16.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $4773 million for Open Text Corporation - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 264.056 million for Open Text Corporation is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Open Text Corporation at the current share price and the inputted number of shares is $11.2 billion.

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Financial statements of OTEX
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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