Intrinsic value of Fairfax Financial Holdings Limited Subor - FFH

Previous Close

$645.30

  Intrinsic Value

$1,040

stock screener

  Rating & Target

str. buy

+61%

  Value-price divergence*

0%

Previous close

$645.30

 
Intrinsic value

$1,040

 
Up/down potential

+61%

 
Rating

str. buy

 
Value-price divergence*

0%

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

We calculate the intrinsic value of FFH 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 2016), $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 18.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.82
  11.80
  11.12
  10.51
  9.96
  9.46
  9.02
  8.61
  8.25
  7.93
  7.63
  7.37
  7.13
  6.92
  6.73
  6.56
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.40
  5.36
  5.32
Revenue, $m
  0
  14,206
  15,786
  17,445
  19,182
  20,997
  22,890
  24,862
  26,913
  29,047
  31,264
  33,569
  35,964
  38,452
  41,040
  43,730
  46,529
  49,442
  52,474
  55,634
  58,926
  62,360
  65,942
  69,680
  73,584
  77,663
  81,925
  86,381
  91,042
  95,918
  101,021
Variable operating expenses, $m
 
  13,300
  14,754
  16,281
  17,880
  19,551
  21,294
  23,109
  24,998
  26,962
  29,004
  30,904
  33,109
  35,400
  37,782
  40,259
  42,836
  45,517
  48,309
  51,218
  54,249
  57,410
  60,708
  64,150
  67,744
  71,499
  75,423
  79,525
  83,816
  88,305
  93,003
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
  12,985
  13,300
  14,754
  16,281
  17,880
  19,551
  21,294
  23,109
  24,998
  26,962
  29,004
  30,904
  33,109
  35,400
  37,782
  40,259
  42,836
  45,517
  48,309
  51,218
  54,249
  57,410
  60,708
  64,150
  67,744
  71,499
  75,423
  79,525
  83,816
  88,305
  93,003
Operating income, $m
  -279
  907
  1,032
  1,164
  1,302
  1,446
  1,596
  1,753
  1,915
  2,085
  2,261
  2,664
  2,854
  3,052
  3,257
  3,471
  3,693
  3,924
  4,165
  4,416
  4,677
  4,949
  5,234
  5,530
  5,840
  6,164
  6,502
  6,856
  7,226
  7,613
  8,018
EBITDA, $m
  -20
  1,292
  1,436
  1,587
  1,744
  1,910
  2,082
  2,261
  2,448
  2,642
  2,843
  3,053
  3,271
  3,497
  3,732
  3,977
  4,232
  4,496
  4,772
  5,060
  5,359
  5,671
  5,997
  6,337
  6,692
  7,063
  7,451
  7,856
  8,280
  8,723
  9,187
Interest expense (income), $m
  292
  341
  624
  922
  1,236
  1,564
  1,907
  2,265
  2,638
  3,026
  3,429
  3,848
  4,284
  4,737
  5,207
  5,696
  6,205
  6,734
  7,284
  7,858
  8,455
  9,077
  9,727
  10,404
  11,110
  11,848
  12,619
  13,425
  14,268
  15,149
  16,070
Earnings before tax, $m
  -749
  565
  409
  242
  66
  -118
  -311
  -513
  -722
  -941
  -1,168
  -1,184
  -1,429
  -1,685
  -1,950
  -2,225
  -2,512
  -2,810
  -3,120
  -3,442
  -3,778
  -4,128
  -4,493
  -4,873
  -5,270
  -5,684
  -6,117
  -6,569
  -7,042
  -7,536
  -8,053
Tax expense, $m
  -216
  153
  110
  65
  18
  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
Net income, $m
  -692
  413
  298
  176
  48
  -118
  -311
  -513
  -722
  -941
  -1,168
  -1,184
  -1,429
  -1,685
  -1,950
  -2,225
  -2,512
  -2,810
  -3,120
  -3,442
  -3,778
  -4,128
  -4,493
  -4,873
  -5,270
  -5,684
  -6,117
  -6,569
  -7,042
  -7,536
  -8,053

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  58,616
  65,467
  72,747
  80,392
  88,396
  96,760
  105,483
  114,569
  124,024
  133,856
  144,075
  154,695
  165,730
  177,200
  189,123
  201,521
  214,418
  227,841
  241,817
  256,376
  271,550
  287,372
  303,879
  321,108
  339,098
  357,893
  377,534
  398,070
  419,547
  442,018
  465,534
Adjusted assets (=assets-cash), $m
  58,616
  65,467
  72,747
  80,392
  88,396
  96,760
  105,483
  114,569
  124,024
  133,856
  144,075
  154,695
  165,730
  177,200
  189,123
  201,521
  214,418
  227,841
  241,817
  256,376
  271,550
  287,372
  303,879
  321,108
  339,098
  357,893
  377,534
  398,070
  419,547
  442,018
  465,534
Revenue / Adjusted assets
  0.000
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
Average production assets, $m
  2,703
  3,026
  3,362
  3,716
  4,086
  4,472
  4,876
  5,296
  5,733
  6,187
  6,659
  7,150
  7,660
  8,190
  8,741
  9,314
  9,911
  10,531
  11,177
  11,850
  12,551
  13,283
  14,046
  14,842
  15,673
  16,542
  17,450
  18,399
  19,392
  20,431
  21,517
Working capital, $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
  0
Total debt, $m
  6,441
  11,765
  17,399
  23,316
  29,512
  35,985
  42,737
  49,770
  57,088
  64,697
  72,607
  80,827
  89,368
  98,246
  107,474
  117,070
  127,053
  137,442
  148,259
  159,528
  171,272
  183,519
  196,295
  209,630
  223,555
  238,102
  253,305
  269,199
  285,823
  303,215
  321,417
Total liabilities, $m
  45,348
  50,672
  56,306
  62,223
  68,419
  74,892
  81,644
  88,677
  95,995
  103,604
  111,514
  119,734
  128,275
  137,153
  146,381
  155,977
  165,960
  176,349
  187,166
  198,435
  210,179
  222,426
  235,202
  248,537
  262,462
  277,009
  292,212
  308,106
  324,730
  342,122
  360,324
Total equity, $m
  13,268
  14,796
  16,441
  18,169
  19,978
  21,868
  23,839
  25,893
  28,029
  30,251
  32,561
  34,961
  37,455
  40,047
  42,742
  45,544
  48,459
  51,492
  54,651
  57,941
  61,370
  64,946
  68,677
  72,570
  76,636
  80,884
  85,323
  89,964
  94,818
  99,896
  105,211
Total liabilities and equity, $m
  58,616
  65,468
  72,747
  80,392
  88,397
  96,760
  105,483
  114,570
  124,024
  133,855
  144,075
  154,695
  165,730
  177,200
  189,123
  201,521
  214,419
  227,841
  241,817
  256,376
  271,549
  287,372
  303,879
  321,107
  339,098
  357,893
  377,535
  398,070
  419,548
  442,018
  465,535
Debt-to-equity ratio
  0.485
  0.800
  1.060
  1.280
  1.480
  1.650
  1.790
  1.920
  2.040
  2.140
  2.230
  2.310
  2.390
  2.450
  2.510
  2.570
  2.620
  2.670
  2.710
  2.750
  2.790
  2.830
  2.860
  2.890
  2.920
  2.940
  2.970
  2.990
  3.010
  3.040
  3.050
Adjusted equity ratio
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -692
  413
  298
  176
  48
  -118
  -311
  -513
  -722
  -941
  -1,168
  -1,184
  -1,429
  -1,685
  -1,950
  -2,225
  -2,512
  -2,810
  -3,120
  -3,442
  -3,778
  -4,128
  -4,493
  -4,873
  -5,270
  -5,684
  -6,117
  -6,569
  -7,042
  -7,536
  -8,053
Depreciation, amort., depletion, $m
  259
  385
  403
  423
  443
  464
  486
  508
  532
  557
  583
  389
  416
  445
  475
  506
  539
  572
  607
  644
  682
  722
  763
  807
  852
  899
  948
  1,000
  1,054
  1,110
  1,169
Funds from operations, $m
  5,146
  798
  702
  599
  491
  345
  174
  -4
  -190
  -384
  -586
  -795
  -1,013
  -1,239
  -1,475
  -1,719
  -1,973
  -2,237
  -2,512
  -2,798
  -3,096
  -3,406
  -3,729
  -4,067
  -4,418
  -4,785
  -5,169
  -5,569
  -5,988
  -6,425
  -6,883
Change in working capital, $m
  3,446
  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 from operations, $m
  1,700
  798
  702
  599
  491
  345
  174
  -4
  -190
  -384
  -586
  -795
  -1,013
  -1,239
  -1,475
  -1,719
  -1,973
  -2,237
  -2,512
  -2,798
  -3,096
  -3,406
  -3,729
  -4,067
  -4,418
  -4,785
  -5,169
  -5,569
  -5,988
  -6,425
  -6,883
Maintenance CAPEX, $m
  0
  -147
  -164
  -183
  -202
  -222
  -243
  -265
  -288
  -312
  -336
  -362
  -389
  -416
  -445
  -475
  -506
  -539
  -572
  -607
  -644
  -682
  -722
  -763
  -807
  -852
  -899
  -948
  -1,000
  -1,054
  -1,110
New CAPEX, $m
  -281
  -323
  -336
  -353
  -370
  -387
  -403
  -420
  -437
  -454
  -472
  -491
  -510
  -530
  -551
  -573
  -596
  -620
  -646
  -673
  -701
  -731
  -763
  -796
  -832
  -869
  -908
  -949
  -993
  -1,039
  -1,087
Cash from investing activities, $m
  -2,257
  -470
  -500
  -536
  -572
  -609
  -646
  -685
  -725
  -766
  -808
  -853
  -899
  -946
  -996
  -1,048
  -1,102
  -1,159
  -1,218
  -1,280
  -1,345
  -1,413
  -1,485
  -1,559
  -1,639
  -1,721
  -1,807
  -1,897
  -1,993
  -2,093
  -2,197
Free cash flow, $m
  -557
  328
  201
  63
  -81
  -263
  -472
  -689
  -915
  -1,150
  -1,394
  -1,648
  -1,912
  -2,186
  -2,471
  -2,767
  -3,076
  -3,396
  -3,730
  -4,079
  -4,441
  -4,820
  -5,214
  -5,626
  -6,056
  -6,506
  -6,976
  -7,467
  -7,980
  -8,518
  -9,080
Issuance/(repayment) of debt, $m
  1,821
  5,324
  5,635
  5,917
  6,196
  6,473
  6,752
  7,033
  7,318
  7,610
  7,910
  8,220
  8,542
  8,877
  9,228
  9,596
  9,983
  10,389
  10,817
  11,269
  11,745
  12,247
  12,776
  13,335
  13,925
  14,547
  15,203
  15,894
  16,624
  17,392
  18,202
Issuance/(repurchase) of shares, $m
  501
  1,115
  1,347
  1,551
  1,761
  2,009
  2,283
  2,566
  2,859
  3,163
  3,478
  3,584
  3,924
  4,277
  4,644
  5,027
  5,427
  5,843
  6,278
  6,733
  7,207
  7,704
  8,223
  8,767
  9,336
  9,932
  10,556
  11,210
  11,896
  12,614
  13,367
Cash from financing (excl. dividends), $m  
  2,452
  6,439
  6,982
  7,468
  7,957
  8,482
  9,035
  9,599
  10,177
  10,773
  11,388
  11,804
  12,466
  13,154
  13,872
  14,623
  15,410
  16,232
  17,095
  18,002
  18,952
  19,951
  20,999
  22,102
  23,261
  24,479
  25,759
  27,104
  28,520
  30,006
  31,569
Total cash flow (excl. dividends), $m
  1,844
  6,766
  7,182
  7,531
  7,876
  8,219
  8,563
  8,910
  9,262
  9,623
  9,993
  10,156
  10,553
  10,968
  11,402
  11,856
  12,334
  12,836
  13,365
  13,923
  14,511
  15,131
  15,785
  16,476
  17,204
  17,973
  18,783
  19,638
  20,539
  21,488
  22,489
Retained Cash Flow (-), $m
  631
  -1,528
  -1,645
  -1,728
  -1,809
  -2,009
  -2,283
  -2,566
  -2,859
  -3,163
  -3,478
  -3,584
  -3,924
  -4,277
  -4,644
  -5,027
  -5,427
  -5,843
  -6,278
  -6,733
  -7,207
  -7,704
  -8,223
  -8,767
  -9,336
  -9,932
  -10,556
  -11,210
  -11,896
  -12,614
  -13,367
Prev. year cash balance distribution, $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 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
 
  5,239
  5,537
  5,803
  6,067
  6,210
  6,280
  6,344
  6,403
  6,460
  6,515
  6,572
  6,630
  6,691
  6,757
  6,829
  6,907
  6,993
  7,087
  7,190
  7,303
  7,427
  7,562
  7,709
  7,868
  8,041
  8,227
  8,428
  8,643
  8,874
  9,121
Discount rate, %
 
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
 
  4,842
  4,694
  4,476
  4,221
  3,862
  3,456
  3,058
  2,673
  2,308
  1,967
  1,655
  1,373
  1,122
  903
  715
  557
  426
  319
  235
  169
  119
  82
  55
  36
  23
  14
  8
  5
  3
  1
Current shareholders' claim on cash, %
  100
  94.2
  88.3
  82.6
  77.1
  71.8
  66.7
  61.8
  57.2
  52.8
  48.7
  45.0
  41.6
  38.4
  35.4
  32.6
  30.0
  27.5
  25.3
  23.2
  21.2
  19.4
  17.8
  16.3
  14.9
  13.6
  12.4
  11.3
  10.3
  9.4
  8.5

Fairfax Financial Holdings Limited is a holding company. The Company, through its subsidiaries, is engaged in property and casualty insurance, and reinsurance and investment management. The Company's segments include Insurance and Reinsurance, Runoff, Other, and Corporate and Other. The Insurance and Reinsurance segment includes Northbridge Financial Corporation (Northbridge), Odyssey Re Holdings Corp. (OdysseyRe) and Crum & Forster Holdings Corp (Crum & Forster). The Runoff segment principally includes RiverStone Insurance (UK) Limited (RiverStone (UK)), Syndicate 3500. The Other segment consists of the Company's non-insurance operations, including Cara Operations Limited (Cara). Corporate and Other segment includes the parent entity (Fairfax Financial Holdings Limited) and its subsidiary intermediate holding companies. The Company owns a majority stake in Grivalia Properties REIC.

FINANCIAL RATIOS  of  Fairfax Financial Holdings Limited Subor (FFH)

Valuation Ratios
P/E Ratio -22.3
Price to Sales 1.2
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 9.1
Price to Free Cash Flow 10.9
Growth Rates
Sales Growth Rate 3.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 3.3%
Cap. Spend. - 3 Yr. Gr. Rate 34%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 48.5%
Total Debt to Equity 48.5%
Interest Coverage -2
Management Effectiveness
Return On Assets -0.8%
Ret/ On Assets - 3 Yr. Avg. 2%
Return On Total Capital -3.6%
Ret/ On T. Cap. - 3 Yr. Avg. 4.8%
Return On Equity -5.1%
Return On Equity - 3 Yr. Avg. 6.3%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin -1.6%
EBITDA Margin - 3 Yr. Avg. 11.9%
Operating Margin -2.2%
Oper. Margin - 3 Yr. Avg. 9.5%
Pre-Tax Margin -5.9%
Pre-Tax Margin - 3 Yr. Avg. 8.2%
Net Profit Margin -5.4%
Net Profit Margin - 3 Yr. Avg. 5.8%
Effective Tax Rate 28.8%
Eff/ Tax Rate - 3 Yr. Avg. 18.3%
Payout Ratio -53%

FFH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FFH stock intrinsic value calculation we used $12707 million for the last fiscal year's total revenue generated by Fairfax Financial Holdings Limited Subor. The default revenue input number comes from 2016 income statement of Fairfax Financial Holdings Limited Subor. 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 FFH stock valuation model: a) initial revenue growth rate of 11.8% 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 8.2%, whose default value for FFH is calculated based on our internal credit rating of Fairfax Financial Holdings Limited Subor, 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 Fairfax Financial Holdings Limited Subor.
    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 FFH stock the variable cost ratio is equal to 93.8%.

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 FFH 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 5.3% for Fairfax Financial Holdings Limited Subor.

Corporate tax rate of 27% is the nominal tax rate for Fairfax Financial Holdings Limited Subor. 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 FFH 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 FFH are equal to 21.3%.

Life of production assets of 18.4 years is the average useful life of capital assets used in Fairfax Financial Holdings Limited Subor 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 FFH is equal to 0%. 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 - $13268 million for Fairfax Financial Holdings Limited Subor - 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 28.013 million for Fairfax Financial Holdings Limited Subor 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 Fairfax Financial Holdings Limited Subor at the current share price and the inputted number of shares is $18.1 billion.

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Financial statements of FFH
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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