Intrinsic value of Great-West Lifeco Inc. - GWO

Previous Close

$35.21

  Intrinsic Value

$130.11

stock screener

  Rating & Target

str. buy

+270%

  Value-price divergence*

0%

Previous close

$35.21

 
Intrinsic value

$130.11

 
Up/down potential

+270%

 
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 GWO 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 34.7

 

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, %
  37.14
  4.20
  4.28
  4.35
  4.42
  4.48
  4.53
  4.57
  4.62
  4.66
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
Revenue, $m
  0
  48,329
  50,397
  52,591
  54,914
  57,371
  59,969
  62,712
  65,608
  68,662
  71,882
  75,276
  78,851
  82,615
  86,578
  90,749
  95,136
  99,752
  104,607
  109,712
  115,079
  120,721
  126,651
  132,884
  139,434
  146,316
  153,548
  161,146
  169,128
  177,514
  186,323
Variable operating expenses, $m
 
  43,326
  45,155
  47,094
  49,148
  51,320
  53,617
  56,042
  58,602
  61,303
  64,150
  66,553
  69,713
  73,041
  76,545
  80,232
  84,111
  88,192
  92,484
  96,997
  101,742
  106,731
  111,974
  117,484
  123,275
  129,360
  135,754
  142,471
  149,529
  156,943
  164,731
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
  43,002
  43,326
  45,155
  47,094
  49,148
  51,320
  53,617
  56,042
  58,602
  61,303
  64,150
  66,553
  69,713
  73,041
  76,545
  80,232
  84,111
  88,192
  92,484
  96,997
  101,742
  106,731
  111,974
  117,484
  123,275
  129,360
  135,754
  142,471
  149,529
  156,943
  164,731
Operating income, $m
  3,379
  5,003
  5,243
  5,497
  5,766
  6,051
  6,352
  6,670
  7,005
  7,359
  7,733
  8,723
  9,138
  9,574
  10,033
  10,517
  11,025
  11,560
  12,123
  12,714
  13,336
  13,990
  14,677
  15,399
  16,159
  16,956
  17,794
  18,675
  19,600
  20,572
  21,592
EBITDA, $m
  3,379
  6,016
  6,274
  6,547
  6,836
  7,142
  7,465
  7,807
  8,167
  8,548
  8,948
  9,371
  9,816
  10,285
  10,778
  11,297
  11,843
  12,418
  13,022
  13,658
  14,326
  15,028
  15,766
  16,542
  17,358
  18,214
  19,115
  20,061
  21,054
  22,098
  23,195
Interest expense (income), $m
  294
  307
  160
  962
  1,813
  2,714
  3,668
  4,675
  5,740
  6,863
  8,048
  9,297
  10,613
  12,000
  13,461
  14,998
  16,616
  18,318
  20,109
  21,992
  23,972
  26,054
  28,243
  30,543
  32,961
  35,502
  38,172
  40,978
  43,925
  47,022
  50,275
Earnings before tax, $m
  3,352
  4,696
  5,083
  4,535
  3,953
  3,337
  2,684
  1,995
  1,266
  497
  -315
  -573
  -1,476
  -2,426
  -3,427
  -4,481
  -5,591
  -6,758
  -7,986
  -9,278
  -10,636
  -12,064
  -13,566
  -15,144
  -16,803
  -18,546
  -20,378
  -22,303
  -24,325
  -26,450
  -28,682
Tax expense, $m
  396
  1,268
  1,372
  1,224
  1,067
  901
  725
  539
  342
  134
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  2,764
  3,428
  3,710
  3,310
  2,886
  2,436
  1,960
  1,456
  924
  362
  -315
  -573
  -1,476
  -2,426
  -3,427
  -4,481
  -5,591
  -6,758
  -7,986
  -9,278
  -10,636
  -12,064
  -13,566
  -15,144
  -16,803
  -18,546
  -20,378
  -22,303
  -24,325
  -26,450
  -28,682

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
  399,912
  416,629
  434,461
  453,369
  473,393
  494,578
  516,971
  540,621
  565,584
  591,915
  619,676
  648,932
  679,749
  712,201
  746,363
  782,315
  820,142
  859,933
  901,783
  945,789
  992,056
  1,040,694
  1,091,818
  1,145,549
  1,202,014
  1,261,347
  1,323,690
  1,389,191
  1,458,004
  1,530,294
  1,606,232
Adjusted assets (=assets-cash), $m
  399,912
  416,629
  434,461
  453,369
  473,393
  494,578
  516,971
  540,621
  565,584
  591,915
  619,676
  648,932
  679,749
  712,201
  746,363
  782,315
  820,142
  859,933
  901,783
  945,789
  992,056
  1,040,694
  1,091,818
  1,145,549
  1,202,014
  1,261,347
  1,323,690
  1,389,191
  1,458,004
  1,530,294
  1,606,232
Revenue / Adjusted assets
  0.000
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
  0.116
Average production assets, $m
  4,004
  4,156
  4,334
  4,523
  4,723
  4,934
  5,157
  5,393
  5,642
  5,905
  6,182
  6,474
  6,781
  7,105
  7,446
  7,804
  8,182
  8,579
  8,996
  9,435
  9,897
  10,382
  10,892
  11,428
  11,991
  12,583
  13,205
  13,859
  14,545
  15,266
  16,024
Working capital, $m
  0
  435
  454
  473
  494
  516
  540
  564
  590
  618
  647
  677
  710
  744
  779
  817
  856
  898
  941
  987
  1,036
  1,086
  1,140
  1,196
  1,255
  1,317
  1,382
  1,450
  1,522
  1,598
  1,677
Total debt, $m
  6,141
  3,197
  19,246
  36,263
  54,285
  73,351
  93,505
  114,790
  137,256
  160,955
  185,940
  212,270
  240,005
  269,212
  299,957
  332,314
  366,359
  402,171
  439,835
  479,441
  521,082
  564,856
  610,867
  659,225
  710,043
  763,444
  819,552
  878,503
  940,435
  1,005,495
  1,073,840
Total liabilities, $m
  377,910
  374,966
  391,015
  408,032
  426,054
  445,120
  465,274
  486,559
  509,025
  532,724
  557,709
  584,039
  611,774
  640,981
  671,726
  704,083
  738,128
  773,940
  811,604
  851,210
  892,851
  936,625
  982,636
  1,030,994
  1,081,812
  1,135,213
  1,191,321
  1,250,272
  1,312,204
  1,377,264
  1,445,609
Total equity, $m
  22,002
  41,663
  43,446
  45,337
  47,339
  49,458
  51,697
  54,062
  56,558
  59,192
  61,968
  64,893
  67,975
  71,220
  74,636
  78,231
  82,014
  85,993
  90,178
  94,579
  99,206
  104,069
  109,182
  114,555
  120,201
  126,135
  132,369
  138,919
  145,800
  153,029
  160,623
Total liabilities and equity, $m
  399,912
  416,629
  434,461
  453,369
  473,393
  494,578
  516,971
  540,621
  565,583
  591,916
  619,677
  648,932
  679,749
  712,201
  746,362
  782,314
  820,142
  859,933
  901,782
  945,789
  992,057
  1,040,694
  1,091,818
  1,145,549
  1,202,013
  1,261,348
  1,323,690
  1,389,191
  1,458,004
  1,530,293
  1,606,232
Debt-to-equity ratio
  0.279
  0.080
  0.440
  0.800
  1.150
  1.480
  1.810
  2.120
  2.430
  2.720
  3.000
  3.270
  3.530
  3.780
  4.020
  4.250
  4.470
  4.680
  4.880
  5.070
  5.250
  5.430
  5.590
  5.750
  5.910
  6.050
  6.190
  6.320
  6.450
  6.570
  6.690
Adjusted equity ratio
  0.055
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,764
  3,428
  3,710
  3,310
  2,886
  2,436
  1,960
  1,456
  924
  362
  -315
  -573
  -1,476
  -2,426
  -3,427
  -4,481
  -5,591
  -6,758
  -7,986
  -9,278
  -10,636
  -12,064
  -13,566
  -15,144
  -16,803
  -18,546
  -20,378
  -22,303
  -24,325
  -26,450
  -28,682
Depreciation, amort., depletion, $m
  0
  1,013
  1,031
  1,050
  1,070
  1,091
  1,113
  1,137
  1,162
  1,188
  1,216
  647
  678
  710
  745
  780
  818
  858
  900
  944
  990
  1,038
  1,089
  1,143
  1,199
  1,258
  1,321
  1,386
  1,455
  1,527
  1,602
Funds from operations, $m
  9,156
  4,441
  4,742
  4,360
  3,956
  3,527
  3,073
  2,593
  2,086
  1,551
  901
  74
  -798
  -1,716
  -2,683
  -3,701
  -4,772
  -5,900
  -7,086
  -8,334
  -9,646
  -11,026
  -12,476
  -14,001
  -15,604
  -17,288
  -19,057
  -20,917
  -22,871
  -24,924
  -27,080
Change in working capital, $m
  2,902
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  38
  39
  42
  44
  46
  48
  51
  53
  56
  59
  62
  65
  68
  72
  75
  79
Cash from operations, $m
  6,254
  4,424
  4,723
  4,340
  3,935
  3,505
  3,050
  2,568
  2,060
  1,523
  872
  43
  -830
  -1,750
  -2,718
  -3,738
  -4,812
  -5,942
  -7,130
  -8,380
  -9,695
  -11,077
  -12,530
  -14,057
  -15,663
  -17,350
  -19,123
  -20,985
  -22,943
  -24,999
  -27,159
Maintenance CAPEX, $m
  0
  -400
  -416
  -433
  -452
  -472
  -493
  -516
  -539
  -564
  -590
  -618
  -647
  -678
  -710
  -745
  -780
  -818
  -858
  -900
  -944
  -990
  -1,038
  -1,089
  -1,143
  -1,199
  -1,258
  -1,321
  -1,386
  -1,455
  -1,527
New CAPEX, $m
  0
  -152
  -178
  -189
  -200
  -211
  -223
  -236
  -249
  -263
  -277
  -292
  -307
  -324
  -341
  -359
  -377
  -397
  -417
  -439
  -462
  -485
  -510
  -536
  -563
  -592
  -622
  -653
  -686
  -721
  -758
Cash from investing activities, $m
  -4,565
  -552
  -594
  -622
  -652
  -683
  -716
  -752
  -788
  -827
  -867
  -910
  -954
  -1,002
  -1,051
  -1,104
  -1,157
  -1,215
  -1,275
  -1,339
  -1,406
  -1,475
  -1,548
  -1,625
  -1,706
  -1,791
  -1,880
  -1,974
  -2,072
  -2,176
  -2,285
Free cash flow, $m
  1,689
  3,871
  4,129
  3,718
  3,283
  2,821
  2,333
  1,817
  1,272
  696
  4
  -867
  -1,785
  -2,751
  -3,770
  -4,842
  -5,970
  -7,157
  -8,405
  -9,719
  -11,100
  -12,552
  -14,078
  -15,682
  -17,369
  -19,141
  -21,003
  -22,959
  -25,015
  -27,175
  -29,443
Issuance/(repayment) of debt, $m
  683
  -2,944
  16,049
  17,017
  18,022
  19,066
  20,153
  21,286
  22,466
  23,698
  24,985
  26,330
  27,736
  29,206
  30,746
  32,357
  34,044
  35,812
  37,664
  39,606
  41,641
  43,774
  46,011
  48,358
  50,819
  53,400
  56,109
  58,950
  61,932
  65,061
  68,344
Issuance/(repurchase) of shares, $m
  -236
  16,233
  0
  0
  0
  0
  280
  909
  1,572
  2,271
  3,091
  3,499
  4,557
  5,671
  6,844
  8,077
  9,373
  10,737
  12,171
  13,678
  15,263
  16,928
  18,678
  20,517
  22,449
  24,479
  26,612
  28,853
  31,207
  33,679
  36,276
Cash from financing (excl. dividends), $m  
  447
  13,289
  16,049
  17,017
  18,022
  19,066
  20,433
  22,195
  24,038
  25,969
  28,076
  29,829
  32,293
  34,877
  37,590
  40,434
  43,417
  46,549
  49,835
  53,284
  56,904
  60,702
  64,689
  68,875
  73,268
  77,879
  82,721
  87,803
  93,139
  98,740
  104,620
Total cash flow (excl. dividends), $m
  1,938
  17,160
  20,178
  20,735
  21,305
  21,888
  22,766
  24,011
  25,310
  26,665
  28,081
  28,962
  30,509
  32,126
  33,819
  35,592
  37,448
  39,392
  41,430
  43,565
  45,804
  48,150
  50,611
  53,192
  55,899
  58,739
  61,718
  64,844
  68,124
  71,565
  75,177
Retained Cash Flow (-), $m
  437
  -19,661
  -1,783
  -1,891
  -2,002
  -2,118
  -2,239
  -2,365
  -2,496
  -2,633
  -3,091
  -3,499
  -4,557
  -5,671
  -6,844
  -8,077
  -9,373
  -10,737
  -12,171
  -13,678
  -15,263
  -16,928
  -18,678
  -20,517
  -22,449
  -24,479
  -26,612
  -28,853
  -31,207
  -33,679
  -36,276
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
 
  -2,501
  18,395
  18,845
  19,302
  19,769
  20,527
  21,646
  22,814
  24,032
  24,989
  25,463
  25,951
  26,455
  26,976
  27,515
  28,075
  28,655
  29,259
  29,887
  30,541
  31,222
  31,933
  32,675
  33,450
  34,260
  35,106
  35,991
  36,917
  37,886
  38,901
Discount rate, %
 
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  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
PV of cash for distribution, $m
 
  -2,395
  16,806
  16,348
  15,823
  15,235
  14,789
  14,495
  14,109
  13,634
  12,912
  11,891
  10,865
  9,843
  8,838
  7,860
  6,920
  6,027
  5,190
  4,415
  3,708
  3,072
  2,509
  2,017
  1,596
  1,242
  949
  711
  522
  375
  264
Current shareholders' claim on cash, %
  100
  68.1
  68.1
  68.1
  68.1
  68.1
  67.9
  67.2
  65.9
  64.3
  62.2
  60.1
  57.5
  54.6
  51.5
  48.2
  44.8
  41.4
  38.0
  34.6
  31.4
  28.4
  25.5
  22.7
  20.2
  17.9
  15.8
  13.9
  12.2
  10.6
  9.2

Great-West Lifeco Inc., a financial services holding company, engages in life and health insurance, asset management, investment and retirement savings, and reinsurance businesses in Canada, the United States, Europe, and Asia. The company offers a portfolio of financial and benefit plan solutions for individuals, families, businesses, and organizations; life, disability, critical illness, health, and creditor insurance products; and accumulation and annuity products. It also provides employer-sponsored retirement savings plans, individual retirement accounts, enrollment services, communication materials, investment options, and education services; and fund management, investment, and advisory services. In addition, the company offers private-label recordkeeping and administrative services; executive benefits products; and investment products, including equity, fixed income, absolute return, and alternative strategies. Further, it provides protection and wealth management products; life, annuity, and property and casualty reinsurance and retrocession products; and pension products. The company offers its products under the Great-West Life, London Life, Canada Life, Freedom 55 Financial, Irish Life, Great-West Financial, Empower Retirement, and Putnam Investments and PanAgora brands. It distributes its products through a network of advisors, brokers, managing general agencies, financial institutions, consultants, third-party administrators, wholesale and retail sales force, financial planners, employee benefit consultants, banks, and multi-tied agents. The company was founded in 1891 and is based in Winnipeg, Canada. Great-West Lifeco Inc. operates as a subsidiary of Power Financial Corporation.

FINANCIAL RATIOS  of  Great-West Lifeco Inc. (GWO)

Valuation Ratios
P/E Ratio 12.6
Price to Sales 0.7
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 5.6
Price to Free Cash Flow 5.6
Growth Rates
Sales Growth Rate 37.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 26%
Total Debt to Equity 27.9%
Interest Coverage 12
Management Effectiveness
Return On Assets 0.8%
Ret/ On Assets - 3 Yr. Avg. 0.8%
Return On Total Capital 9.8%
Ret/ On T. Cap. - 3 Yr. Avg. 10.6%
Return On Equity 12.4%
Return On Equity - 3 Yr. Avg. 13.6%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 7.9%
EBITDA Margin - 3 Yr. Avg. 9.5%
Operating Margin 7.3%
Oper. Margin - 3 Yr. Avg. 8.8%
Pre-Tax Margin 7.2%
Pre-Tax Margin - 3 Yr. Avg. 8.7%
Net Profit Margin 6%
Net Profit Margin - 3 Yr. Avg. 7.1%
Effective Tax Rate 11.8%
Eff/ Tax Rate - 3 Yr. Avg. 14.5%
Payout Ratio 54%

GWO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GWO stock intrinsic value calculation we used $46381 million for the last fiscal year's total revenue generated by Great-West Lifeco Inc.. The default revenue input number comes from 2016 income statement of Great-West Lifeco Inc.. 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 GWO stock valuation model: a) initial revenue growth rate of 4.2% 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 4.4%, whose default value for GWO is calculated based on our internal credit rating of Great-West Lifeco Inc., 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 Great-West Lifeco Inc..
    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 GWO stock the variable cost ratio is equal to 89.7%.

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 GWO 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% for Great-West Lifeco Inc..

Corporate tax rate of 27% is the nominal tax rate for Great-West Lifeco Inc.. 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 GWO 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 GWO are equal to 8.6%.

Life of production assets of 10 years is the average useful life of capital assets used in Great-West Lifeco Inc. 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 GWO is equal to 0.9%. 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 - $22002 million for Great-West Lifeco Inc. - 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 986.107 million for Great-West Lifeco Inc. 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 Great-West Lifeco Inc. at the current share price and the inputted number of shares is $34.7 billion.

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Stock chart of GWO Financial statements of GWO
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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