Intrinsic value of Hudson's Bay Company - HBC

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$12.48

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$12.48

 
Intrinsic value

$62.55

 
Up/down potential

+401%

 
Rating

str. buy

 
Value-price divergence* premium content

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

We calculate the intrinsic value of HBC 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 2.1

 

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, %
  36.64
  28.60
  26.24
  24.12
  22.20
  20.48
  18.94
  17.54
  16.29
  15.16
  14.14
  13.23
  12.41
  11.67
  11.00
  10.40
  9.86
  9.37
  8.94
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.24
  6.11
Revenue, $m
  11,162
  14,354
  18,121
  22,491
  27,485
  33,115
  39,385
  46,294
  53,835
  61,996
  70,764
  80,125
  90,065
  100,572
  111,633
  123,242
  135,392
  148,083
  161,315
  175,095
  189,432
  204,339
  219,832
  235,933
  252,664
  270,054
  288,132
  306,932
  326,491
  346,848
  368,046
Variable operating expenses, $m
 
  13,350
  16,852
  20,917
  25,561
  30,797
  36,628
  43,054
  50,066
  57,656
  65,810
  74,516
  83,761
  93,532
  103,819
  114,615
  125,915
  137,717
  150,023
  162,838
  176,172
  190,035
  204,444
  219,418
  234,978
  251,150
  267,963
  285,447
  303,637
  322,569
  342,283
Fixed operating expenses, $m
 
  101
  104
  107
  109
  112
  115
  118
  121
  124
  127
  130
  133
  136
  140
  143
  147
  151
  154
  158
  162
  166
  170
  175
  179
  184
  188
  193
  198
  203
  208
Total operating expenses, $m
  10,480
  13,451
  16,956
  21,024
  25,670
  30,909
  36,743
  43,172
  50,187
  57,780
  65,937
  74,646
  83,894
  93,668
  103,959
  114,758
  126,062
  137,868
  150,177
  162,996
  176,334
  190,201
  204,614
  219,593
  235,157
  251,334
  268,151
  285,640
  303,835
  322,772
  342,491
Operating income, $m
  682
  903
  1,164
  1,468
  1,815
  2,206
  2,642
  3,123
  3,648
  4,216
  4,827
  5,479
  6,171
  6,904
  7,674
  8,484
  9,330
  10,215
  11,138
  12,098
  13,098
  14,137
  15,218
  16,341
  17,507
  18,720
  19,981
  21,292
  22,657
  24,077
  25,556
EBITDA, $m
  1,142
  1,474
  1,885
  2,362
  2,907
  3,522
  4,208
  4,963
  5,788
  6,681
  7,640
  8,664
  9,752
  10,902
  12,112
  13,383
  14,713
  16,102
  17,550
  19,059
  20,629
  22,261
  23,957
  25,720
  27,552
  29,456
  31,435
  33,494
  35,636
  37,865
  40,187
Interest expense (income), $m
  147
  142
  254
  387
  540
  716
  914
  1,135
  1,378
  1,643
  1,930
  2,239
  2,568
  2,918
  3,287
  3,676
  4,085
  4,512
  4,959
  5,424
  5,909
  6,414
  6,938
  7,483
  8,050
  8,638
  9,250
  9,886
  10,547
  11,236
  11,952
Earnings before tax, $m
  519
  762
  910
  1,081
  1,274
  1,490
  1,728
  1,988
  2,270
  2,573
  2,897
  3,240
  3,603
  3,986
  4,387
  4,807
  5,246
  5,703
  6,179
  6,674
  7,189
  7,724
  8,280
  8,858
  9,458
  10,082
  10,731
  11,406
  12,109
  12,841
  13,604
Tax expense, $m
  132
  206
  246
  292
  344
  402
  467
  537
  613
  695
  782
  875
  973
  1,076
  1,185
  1,298
  1,416
  1,540
  1,668
  1,802
  1,941
  2,085
  2,236
  2,392
  2,554
  2,722
  2,897
  3,080
  3,270
  3,467
  3,673
Net income, $m
  387
  556
  665
  789
  930
  1,088
  1,262
  1,451
  1,657
  1,878
  2,115
  2,365
  2,631
  2,910
  3,203
  3,509
  3,829
  4,163
  4,511
  4,872
  5,248
  5,638
  6,044
  6,466
  6,904
  7,360
  7,834
  8,327
  8,840
  9,374
  9,931

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  413
  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
  12,641
  15,722
  19,848
  24,634
  30,104
  36,270
  43,138
  50,706
  58,965
  67,903
  77,507
  87,760
  98,647
  110,155
  122,271
  134,986
  148,294
  162,194
  176,687
  191,780
  207,483
  223,810
  240,780
  258,415
  276,741
  295,788
  315,588
  336,180
  357,602
  379,899
  403,117
Adjusted assets (=assets-cash), $m
  12,228
  15,722
  19,848
  24,634
  30,104
  36,270
  43,138
  50,706
  58,965
  67,903
  77,507
  87,760
  98,647
  110,155
  122,271
  134,986
  148,294
  162,194
  176,687
  191,780
  207,483
  223,810
  240,780
  258,415
  276,741
  295,788
  315,588
  336,180
  357,602
  379,899
  403,117
Revenue / Adjusted assets
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
Average production assets, $m
  3,599
  4,622
  5,835
  7,242
  8,850
  10,663
  12,682
  14,907
  17,335
  19,963
  22,786
  25,800
  29,001
  32,384
  35,946
  39,684
  43,596
  47,683
  51,944
  56,381
  60,997
  65,797
  70,786
  75,970
  81,358
  86,957
  92,779
  98,832
  105,130
  111,685
  118,511
Working capital, $m
  1,232
  1,665
  2,102
  2,609
  3,188
  3,841
  4,569
  5,370
  6,245
  7,191
  8,209
  9,294
  10,448
  11,666
  12,949
  14,296
  15,706
  17,178
  18,713
  20,311
  21,974
  23,703
  25,501
  27,368
  29,309
  31,326
  33,423
  35,604
  37,873
  40,234
  42,693
Total debt, $m
  3,705
  5,907
  8,989
  12,565
  16,651
  21,257
  26,387
  32,040
  38,210
  44,887
  52,061
  59,720
  67,853
  76,449
  85,499
  94,997
  104,939
  115,322
  126,148
  137,423
  149,153
  161,349
  174,026
  187,199
  200,888
  215,116
  229,907
  245,289
  261,292
  277,948
  295,292
Total liabilities, $m
  9,542
  11,744
  14,826
  18,402
  22,488
  27,094
  32,224
  37,877
  44,047
  50,724
  57,898
  65,557
  73,690
  82,286
  91,336
  100,834
  110,776
  121,159
  131,985
  143,260
  154,990
  167,186
  179,863
  193,036
  206,725
  220,953
  235,744
  251,126
  267,129
  283,785
  301,129
Total equity, $m
  3,099
  3,978
  5,021
  6,232
  7,616
  9,176
  10,914
  12,829
  14,918
  17,180
  19,609
  22,203
  24,958
  27,869
  30,935
  34,151
  37,518
  41,035
  44,702
  48,520
  52,493
  56,624
  60,917
  65,379
  70,015
  74,834
  79,844
  85,054
  90,473
  96,115
  101,989
Total liabilities and equity, $m
  12,641
  15,722
  19,847
  24,634
  30,104
  36,270
  43,138
  50,706
  58,965
  67,904
  77,507
  87,760
  98,648
  110,155
  122,271
  134,985
  148,294
  162,194
  176,687
  191,780
  207,483
  223,810
  240,780
  258,415
  276,740
  295,787
  315,588
  336,180
  357,602
  379,900
  403,118
Debt-to-equity ratio
  1.196
  1.490
  1.790
  2.020
  2.190
  2.320
  2.420
  2.500
  2.560
  2.610
  2.650
  2.690
  2.720
  2.740
  2.760
  2.780
  2.800
  2.810
  2.820
  2.830
  2.840
  2.850
  2.860
  2.860
  2.870
  2.870
  2.880
  2.880
  2.890
  2.890
  2.900
Adjusted equity ratio
  0.220
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  387
  556
  665
  789
  930
  1,088
  1,262
  1,451
  1,657
  1,878
  2,115
  2,365
  2,631
  2,910
  3,203
  3,509
  3,829
  4,163
  4,511
  4,872
  5,248
  5,638
  6,044
  6,466
  6,904
  7,360
  7,834
  8,327
  8,840
  9,374
  9,931
Depreciation, amort., depletion, $m
  460
  571
  720
  894
  1,093
  1,316
  1,566
  1,840
  2,140
  2,465
  2,813
  3,185
  3,580
  3,998
  4,438
  4,899
  5,382
  5,887
  6,413
  6,961
  7,531
  8,123
  8,739
  9,379
  10,044
  10,735
  11,454
  12,202
  12,979
  13,788
  14,631
Funds from operations, $m
  -277
  1,127
  1,385
  1,683
  2,023
  2,404
  2,827
  3,292
  3,797
  4,343
  4,928
  5,551
  6,211
  6,908
  7,640
  8,408
  9,212
  10,050
  10,923
  11,833
  12,778
  13,762
  14,783
  15,845
  16,948
  18,095
  19,288
  20,528
  21,819
  23,162
  24,562
Change in working capital, $m
  -295
  370
  437
  507
  579
  653
  727
  801
  875
  947
  1,017
  1,086
  1,153
  1,219
  1,283
  1,347
  1,409
  1,472
  1,535
  1,598
  1,663
  1,729
  1,797
  1,868
  1,941
  2,017
  2,097
  2,181
  2,269
  2,361
  2,459
Cash from operations, $m
  18
  -1,072
  948
  1,176
  1,444
  1,751
  2,100
  2,490
  2,923
  3,396
  3,910
  4,465
  5,058
  5,689
  6,357
  7,062
  7,802
  8,578
  9,388
  10,234
  11,115
  12,032
  12,986
  13,977
  15,008
  16,078
  17,191
  18,347
  19,550
  20,801
  22,103
Maintenance CAPEX, $m
  0
  -444
  -571
  -720
  -894
  -1,093
  -1,316
  -1,566
  -1,840
  -2,140
  -2,465
  -2,813
  -3,185
  -3,580
  -3,998
  -4,438
  -4,899
  -5,382
  -5,887
  -6,413
  -6,961
  -7,531
  -8,123
  -8,739
  -9,379
  -10,044
  -10,735
  -11,454
  -12,202
  -12,979
  -13,788
New CAPEX, $m
  -610
  -1,023
  -1,213
  -1,407
  -1,608
  -1,813
  -2,019
  -2,225
  -2,428
  -2,628
  -2,823
  -3,014
  -3,201
  -3,383
  -3,562
  -3,738
  -3,912
  -4,086
  -4,261
  -4,437
  -4,616
  -4,800
  -4,989
  -5,184
  -5,388
  -5,599
  -5,821
  -6,054
  -6,298
  -6,555
  -6,826
Cash from investing activities, $m
  448
  -1,467
  -1,784
  -2,127
  -2,502
  -2,906
  -3,335
  -3,791
  -4,268
  -4,768
  -5,288
  -5,827
  -6,386
  -6,963
  -7,560
  -8,176
  -8,811
  -9,468
  -10,148
  -10,850
  -11,577
  -12,331
  -13,112
  -13,923
  -14,767
  -15,643
  -16,556
  -17,508
  -18,500
  -19,534
  -20,614
Free cash flow, $m
  466
  -2,539
  -835
  -951
  -1,059
  -1,154
  -1,236
  -1,300
  -1,346
  -1,372
  -1,377
  -1,363
  -1,328
  -1,274
  -1,203
  -1,114
  -1,010
  -891
  -759
  -616
  -462
  -298
  -126
  54
  241
  435
  634
  840
  1,051
  1,267
  1,489
Issuance/(repayment) of debt, $m
  -77
  2,615
  3,082
  3,575
  4,086
  4,606
  5,130
  5,653
  6,169
  6,677
  7,174
  7,659
  8,133
  8,596
  9,050
  9,498
  9,941
  10,383
  10,827
  11,274
  11,730
  12,196
  12,677
  13,173
  13,689
  14,228
  14,791
  15,382
  16,003
  16,656
  17,344
Issuance/(repurchase) of shares, $m
  0
  802
  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 financing (excl. dividends), $m  
  -102
  3,417
  3,082
  3,575
  4,086
  4,606
  5,130
  5,653
  6,169
  6,677
  7,174
  7,659
  8,133
  8,596
  9,050
  9,498
  9,941
  10,383
  10,827
  11,274
  11,730
  12,196
  12,677
  13,173
  13,689
  14,228
  14,791
  15,382
  16,003
  16,656
  17,344
Total cash flow (excl. dividends), $m
  375
  76
  2,246
  2,624
  3,027
  3,452
  3,895
  4,353
  4,824
  5,305
  5,797
  6,296
  6,805
  7,322
  7,848
  8,384
  8,932
  9,492
  10,067
  10,659
  11,268
  11,898
  12,551
  13,227
  13,930
  14,662
  15,425
  16,221
  17,053
  17,923
  18,833
Retained Cash Flow (-), $m
  -625
  -879
  -1,044
  -1,211
  -1,384
  -1,560
  -1,738
  -1,915
  -2,089
  -2,261
  -2,430
  -2,594
  -2,755
  -2,911
  -3,065
  -3,217
  -3,367
  -3,517
  -3,667
  -3,819
  -3,973
  -4,131
  -4,293
  -4,462
  -4,636
  -4,819
  -5,010
  -5,210
  -5,420
  -5,641
  -5,874
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
 
  0
  1,203
  1,413
  1,644
  1,892
  2,157
  2,438
  2,734
  3,044
  3,367
  3,702
  4,050
  4,410
  4,783
  5,167
  5,565
  5,976
  6,400
  6,840
  7,296
  7,768
  8,257
  8,766
  9,294
  9,844
  10,416
  11,012
  11,633
  12,282
  12,958
Discount rate, %
 
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
  21.18
  22.24
  23.35
  24.52
  25.74
  27.03
  28.38
  29.80
  31.29
  32.85
  34.50
  36.22
PV of cash for distribution, $m
 
  0
  1,008
  1,071
  1,115
  1,138
  1,139
  1,117
  1,075
  1,013
  936
  848
  753
  655
  557
  464
  378
  301
  234
  178
  132
  95
  66
  45
  30
  19
  12
  7
  4
  2
  1
Current shareholders' claim on cash, %
  100
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0
  73.0

Hudson's Bay Company owns and operates department stores in Canada, the United States, and Europe. The company’s stores offer fashion apparel, accessories, cosmetics, and home products. As of September 22, 2016, it operated approximately 470 stores under the Hudson’s Bay, Lord & Taylor, Saks Fifth Avenue, Saks Fifth Avenue OFF 5TH, Find @ Lord & Taylor, Home Outfitters, Kaufhof Banners, GALERIA Kaufhof, Galeria Inno, and Sportarena banners. The company also operates four e-commerce sites, such as thebay.com, lordandtaylor.com, saks.com, and saksoff5th.com. The company was founded in 1670 and is based in Toronto, Canada. Hudson's Bay Company is a subsidiary of Hudson's Bay Company (Luxembourg) S. à r. l.

FINANCIAL RATIOS  of  Hudson's Bay Company (HBC)

Valuation Ratios
P/E Ratio 5.9
Price to Sales 0.2
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 126.3
Price to Free Cash Flow -3.8
Growth Rates
Sales Growth Rate 36.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 43.2%
Cap. Spend. - 3 Yr. Gr. Rate 24.6%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 104.2%
Total Debt to Equity 119.6%
Interest Coverage 5
Management Effectiveness
Return On Assets 4.6%
Ret/ On Assets - 3 Yr. Avg. 1.8%
Return On Total Capital 6.2%
Ret/ On T. Cap. - 3 Yr. Avg. 1.1%
Return On Equity 13.9%
Return On Equity - 3 Yr. Avg. 2.4%
Asset Turnover 1
Profitability Ratios
Gross Margin 40.5%
Gross Margin - 3 Yr. Avg. 39.6%
EBITDA Margin 10.1%
EBITDA Margin - 3 Yr. Avg. 6.2%
Operating Margin 6.1%
Oper. Margin - 3 Yr. Avg. 4%
Pre-Tax Margin 4.6%
Pre-Tax Margin - 3 Yr. Avg. 0.8%
Net Profit Margin 3.5%
Net Profit Margin - 3 Yr. Avg. 0.5%
Effective Tax Rate 25.4%
Eff/ Tax Rate - 3 Yr. Avg. 15.3%
Payout Ratio 9.3%

HBC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HBC stock intrinsic value calculation we used $11162 million for the last fiscal year's total revenue generated by Hudson's Bay Company. The default revenue input number comes from 2016 income statement of Hudson's Bay Company. 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 HBC stock valuation model: a) initial revenue growth rate of 28.6% 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 8.8%, whose default value for HBC is calculated based on our internal credit rating of Hudson's Bay Company, 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 Hudson's Bay Company.
    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 HBC stock the variable cost ratio is equal to 93%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $99 million in the base year in the intrinsic value calculation for HBC 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 4.3% for Hudson's Bay Company.

Corporate tax rate of 27% is the nominal tax rate for Hudson's Bay Company. 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 HBC 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 HBC are equal to 32.2%.

Life of production assets of 8.1 years is the average useful life of capital assets used in Hudson's Bay Company 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 HBC is equal to 11.6%. 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 - $3099 million for Hudson's Bay Company - 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 168.008 million for Hudson's Bay Company 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 Hudson's Bay Company at the current share price and the inputted number of shares is $2.1 billion.


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Stock chart of HBC Financial statements of HBC
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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