Intrinsic value of Manulife Financial Corporation - MFC

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$23.94

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$23.94

 
Intrinsic value

$6,538

 
Up/down potential

+999%

 
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 MFC 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 47.3

 

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, %
  54.91
  54.90
  49.91
  45.42
  41.38
  37.74
  34.47
  31.52
  28.87
  26.48
  24.33
  22.40
  20.66
  19.09
  17.68
  16.42
  15.27
  14.25
  13.32
  12.49
  11.74
  11.07
  10.46
  9.91
  9.42
  8.98
  8.58
  8.22
  7.90
  7.61
  7.35
Revenue, $m
  0
  82,619
  123,854
  180,107
  254,631
  350,727
  471,606
  620,252
  799,300
  1,010,957
  1,256,946
  1,538,490
  1,856,328
  2,210,762
  2,601,711
  3,028,795
  3,491,412
  3,988,819
  4,520,206
  5,084,767
  5,681,756
  6,310,538
  6,970,621
  7,661,689
  8,383,619
  9,136,497
  9,920,620
  10,736,500
  11,584,863
  12,466,645
  13,382,987
Variable operating expenses, $m
 
  73,373
  109,700
  159,257
  224,910
  309,568
  416,059
  547,010
  704,746
  891,209
  1,107,918
  1,355,360
  1,635,366
  1,947,611
  2,292,024
  2,668,272
  3,075,823
  3,514,023
  3,982,158
  4,479,518
  5,005,447
  5,559,384
  6,140,896
  6,749,704
  7,385,702
  8,048,964
  8,739,751
  9,458,515
  10,205,896
  10,982,718
  11,789,987
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
  48,995
  73,373
  109,700
  159,257
  224,910
  309,568
  416,059
  547,010
  704,746
  891,209
  1,107,918
  1,355,360
  1,635,366
  1,947,611
  2,292,024
  2,668,272
  3,075,823
  3,514,023
  3,982,158
  4,479,518
  5,005,447
  5,559,384
  6,140,896
  6,749,704
  7,385,702
  8,048,964
  8,739,751
  9,458,515
  10,205,896
  10,982,718
  11,789,987
Operating income, $m
  4,342
  9,246
  14,154
  20,850
  29,721
  41,159
  55,548
  73,241
  94,554
  119,748
  149,028
  183,129
  220,962
  263,151
  309,686
  360,523
  415,589
  474,796
  538,048
  605,249
  676,309
  751,154
  829,725
  911,984
  997,917
  1,087,533
  1,180,869
  1,277,984
  1,378,966
  1,483,926
  1,593,000
EBITDA, $m
  5,035
  10,268
  15,393
  22,384
  31,646
  43,588
  58,611
  77,085
  99,337
  125,642
  156,213
  191,203
  230,704
  274,753
  323,341
  376,419
  433,913
  495,730
  561,771
  631,935
  706,129
  784,273
  866,309
  952,194
  1,041,916
  1,135,484
  1,232,934
  1,334,332
  1,439,766
  1,549,354
  1,663,237
Interest expense (income), $m
  983
  1,133
  29,841
  73,974
  134,180
  213,940
  316,789
  446,163
  605,253
  796,883
  1,023,413
  1,286,688
  1,588,016
  1,928,189
  2,307,529
  2,725,950
  3,183,045
  3,678,171
  4,210,530
  4,779,258
  5,383,491
  6,022,431
  6,695,397
  7,401,864
  8,141,494
  8,914,155
  9,719,938
  10,559,161
  11,432,372
  12,340,350
  13,284,096
Earnings before tax, $m
  3,329
  8,113
  -15,687
  -53,124
  -104,459
  -172,781
  -261,241
  -372,921
  -510,699
  -677,135
  -874,385
  -1,103,559
  -1,367,054
  -1,665,039
  -1,997,842
  -2,365,427
  -2,767,457
  -3,203,375
  -3,672,482
  -4,174,009
  -4,707,181
  -5,271,277
  -5,865,672
  -6,489,880
  -7,143,577
  -7,826,621
  -8,539,069
  -9,281,176
  -10,053,406
  -10,856,424
  -11,691,095
Tax expense, $m
  196
  2,190
  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
Net income, $m
  2,990
  5,922
  -15,687
  -53,124
  -104,459
  -172,781
  -261,241
  -372,921
  -510,699
  -677,135
  -874,385
  -1,103,559
  -1,367,054
  -1,665,039
  -1,997,842
  -2,365,427
  -2,767,457
  -3,203,375
  -3,672,482
  -4,174,009
  -4,707,181
  -5,271,277
  -5,865,672
  -6,489,880
  -7,143,577
  -7,826,621
  -8,539,069
  -9,281,176
  -10,053,406
  -10,856,424
  -11,691,095

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
  720,681
  1,116,473
  1,673,705
  2,433,885
  3,440,956
  4,739,552
  6,373,060
  8,381,778
  10,801,347
  13,661,578
  16,985,752
  20,790,400
  25,085,519
  29,875,156
  35,158,252
  40,929,662
  47,181,245
  53,902,954
  61,083,859
  68,713,064
  76,780,493
  85,277,540
  94,197,578
  103,536,332
  113,292,152
  123,466,179
  134,062,431
  145,087,832
  156,552,196
  168,468,174
  180,851,182
Adjusted assets (=assets-cash), $m
  720,681
  1,116,473
  1,673,705
  2,433,885
  3,440,956
  4,739,552
  6,373,060
  8,381,778
  10,801,347
  13,661,578
  16,985,752
  20,790,400
  25,085,519
  29,875,156
  35,158,252
  40,929,662
  47,181,245
  53,902,954
  61,083,859
  68,713,064
  76,780,493
  85,277,540
  94,197,578
  103,536,332
  113,292,152
  123,466,179
  134,062,431
  145,087,832
  156,552,196
  168,468,174
  180,851,182
Revenue / Adjusted assets
  0.000
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
Average production assets, $m
  3,961
  6,114
  9,165
  13,328
  18,843
  25,954
  34,899
  45,899
  59,148
  74,811
  93,014
  113,848
  137,368
  163,596
  192,527
  224,131
  258,364
  295,173
  334,495
  376,273
  420,450
  466,980
  515,826
  566,965
  620,388
  676,101
  734,126
  794,501
  857,280
  922,532
  990,341
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
  12,876
  339,101
  840,609
  1,524,771
  2,431,135
  3,599,872
  5,070,029
  6,877,875
  9,055,488
  11,629,695
  14,621,452
  18,045,635
  21,911,242
  26,221,915
  30,976,702
  36,170,970
  41,797,395
  47,846,934
  54,309,748
  61,176,032
  68,436,718
  76,084,061
  84,112,095
  92,516,974
  101,297,212
  110,453,836
  119,990,463
  129,913,324
  140,231,252
  150,955,632
  162,100,339
Total liabilities, $m
  678,601
  1,004,826
  1,506,334
  2,190,496
  3,096,860
  4,265,597
  5,735,754
  7,543,600
  9,721,213
  12,295,420
  15,287,177
  18,711,360
  22,576,967
  26,887,640
  31,642,427
  36,836,695
  42,463,120
  48,512,659
  54,975,473
  61,841,757
  69,102,443
  76,749,786
  84,777,820
  93,182,699
  101,962,937
  111,119,561
  120,656,188
  130,579,049
  140,896,977
  151,621,357
  162,766,064
Total equity, $m
  42,080
  111,647
  167,370
  243,388
  344,096
  473,955
  637,306
  838,178
  1,080,135
  1,366,158
  1,698,575
  2,079,040
  2,508,552
  2,987,516
  3,515,825
  4,092,966
  4,718,124
  5,390,295
  6,108,386
  6,871,306
  7,678,049
  8,527,754
  9,419,758
  10,353,633
  11,329,215
  12,346,618
  13,406,243
  14,508,783
  15,655,220
  16,846,817
  18,085,118
Total liabilities and equity, $m
  720,681
  1,116,473
  1,673,704
  2,433,884
  3,440,956
  4,739,552
  6,373,060
  8,381,778
  10,801,348
  13,661,578
  16,985,752
  20,790,400
  25,085,519
  29,875,156
  35,158,252
  40,929,661
  47,181,244
  53,902,954
  61,083,859
  68,713,063
  76,780,492
  85,277,540
  94,197,578
  103,536,332
  113,292,152
  123,466,179
  134,062,431
  145,087,832
  156,552,197
  168,468,174
  180,851,182
Debt-to-equity ratio
  0.306
  3.040
  5.020
  6.260
  7.070
  7.600
  7.960
  8.210
  8.380
  8.510
  8.610
  8.680
  8.730
  8.780
  8.810
  8.840
  8.860
  8.880
  8.890
  8.900
  8.910
  8.920
  8.930
  8.940
  8.940
  8.950
  8.950
  8.950
  8.960
  8.960
  8.960
Adjusted equity ratio
  0.058
  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
  2,990
  5,922
  -15,687
  -53,124
  -104,459
  -172,781
  -261,241
  -372,921
  -510,699
  -677,135
  -874,385
  -1,103,559
  -1,367,054
  -1,665,039
  -1,997,842
  -2,365,427
  -2,767,457
  -3,203,375
  -3,672,482
  -4,174,009
  -4,707,181
  -5,271,277
  -5,865,672
  -6,489,880
  -7,143,577
  -7,826,621
  -8,539,069
  -9,281,176
  -10,053,406
  -10,856,424
  -11,691,095
Depreciation, amort., depletion, $m
  693
  1,022
  1,238
  1,534
  1,925
  2,429
  3,063
  3,844
  4,783
  5,894
  7,185
  8,074
  9,742
  11,603
  13,654
  15,896
  18,324
  20,934
  23,723
  26,686
  29,819
  33,119
  36,583
  40,210
  43,999
  47,950
  52,066
  56,348
  60,800
  65,428
  70,237
Funds from operations, $m
  15,174
  6,944
  -14,448
  -51,590
  -102,534
  -170,352
  -258,177
  -369,078
  -505,916
  -671,241
  -867,200
  -1,095,484
  -1,357,311
  -1,653,436
  -1,984,188
  -2,349,531
  -2,749,133
  -3,182,441
  -3,648,759
  -4,147,323
  -4,677,362
  -5,238,158
  -5,829,089
  -6,449,670
  -7,099,578
  -7,778,671
  -8,487,003
  -9,224,829
  -9,992,606
  -10,790,996
  -11,620,858
Change in working capital, $m
  -1,862
  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
  17,036
  7,206
  -14,448
  -51,590
  -102,534
  -170,352
  -258,177
  -369,078
  -505,916
  -671,241
  -867,200
  -1,095,484
  -1,357,311
  -1,653,436
  -1,984,188
  -2,349,531
  -2,749,133
  -3,182,441
  -3,648,759
  -4,147,323
  -4,677,362
  -5,238,158
  -5,829,089
  -6,449,670
  -7,099,578
  -7,778,671
  -8,487,003
  -9,224,829
  -9,992,606
  -10,790,996
  -11,620,858
Maintenance CAPEX, $m
  0
  -281
  -434
  -650
  -945
  -1,336
  -1,841
  -2,475
  -3,255
  -4,195
  -5,306
  -6,597
  -8,074
  -9,742
  -11,603
  -13,654
  -15,896
  -18,324
  -20,934
  -23,723
  -26,686
  -29,819
  -33,119
  -36,583
  -40,210
  -43,999
  -47,950
  -52,066
  -56,348
  -60,800
  -65,428
New CAPEX, $m
  0
  -2,153
  -3,051
  -4,163
  -5,515
  -7,111
  -8,945
  -11,000
  -13,250
  -15,663
  -18,203
  -20,834
  -23,520
  -26,228
  -28,930
  -31,604
  -34,234
  -36,808
  -39,323
  -41,778
  -44,177
  -46,530
  -48,846
  -51,139
  -53,423
  -55,713
  -58,025
  -60,375
  -62,779
  -65,252
  -67,809
Cash from investing activities, $m
  -22,739
  -2,434
  -3,485
  -4,813
  -6,460
  -8,447
  -10,786
  -13,475
  -16,505
  -19,858
  -23,509
  -27,431
  -31,594
  -35,970
  -40,533
  -45,258
  -50,130
  -55,132
  -60,257
  -65,501
  -70,863
  -76,349
  -81,965
  -87,722
  -93,633
  -99,712
  -105,975
  -112,441
  -119,127
  -126,052
  -133,237
Free cash flow, $m
  -5,703
  4,773
  -17,933
  -56,403
  -108,994
  -178,799
  -268,963
  -382,553
  -522,421
  -691,099
  -890,709
  -1,122,915
  -1,388,906
  -1,689,406
  -2,024,721
  -2,394,790
  -2,799,262
  -3,237,572
  -3,709,016
  -4,212,824
  -4,748,226
  -5,314,507
  -5,911,054
  -6,537,392
  -7,193,211
  -7,878,383
  -8,592,979
  -9,337,270
  -10,111,733
  -10,917,048
  -11,754,095
Issuance/(repayment) of debt, $m
  20
  326,225
  501,509
  684,162
  906,364
  1,168,736
  1,470,157
  1,807,847
  2,177,612
  2,574,208
  2,991,756
  3,424,183
  3,865,608
  4,310,673
  4,754,786
  5,194,269
  5,626,425
  6,049,538
  6,462,815
  6,866,284
  7,260,686
  7,647,343
  8,028,033
  8,404,879
  8,780,239
  9,156,624
  9,536,626
  9,922,861
  10,317,928
  10,724,380
  11,144,707
Issuance/(repurchase) of shares, $m
  950
  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
  115,978
  516,949
  940,241
  1,384,266
  1,847,689
Cash from financing (excl. dividends), $m  
  4,879
  326,225
  501,509
  684,162
  906,364
  1,168,736
  1,470,157
  1,807,847
  2,177,612
  2,574,208
  2,991,756
  3,424,183
  3,865,608
  4,310,673
  4,754,786
  5,194,269
  5,626,425
  6,049,538
  6,462,815
  6,866,284
  7,260,686
  7,647,343
  8,028,033
  8,404,879
  8,780,239
  9,156,624
  9,652,604
  10,439,810
  11,258,169
  12,108,646
  12,992,396
Total cash flow (excl. dividends), $m
  -1,171
  330,997
  483,575
  627,759
  797,370
  989,937
  1,201,194
  1,425,294
  1,655,191
  1,883,109
  2,101,047
  2,301,268
  2,476,702
  2,621,267
  2,730,065
  2,799,479
  2,827,163
  2,811,966
  2,753,798
  2,653,460
  2,512,461
  2,332,836
  2,116,979
  1,867,486
  1,587,028
  1,278,241
  943,648
  585,592
  206,195
  -192,668
  -609,389
Retained Cash Flow (-), $m
  -734
  -69,567
  -55,723
  -76,018
  -100,707
  -129,860
  -163,351
  -200,872
  -241,957
  -286,023
  -332,417
  -380,465
  -429,512
  -478,964
  -528,310
  -577,141
  -625,158
  -672,171
  -718,091
  -762,920
  -806,743
  -849,705
  -892,004
  -933,875
  -975,582
  -1,017,403
  -1,059,625
  -1,102,540
  -1,146,436
  -1,191,598
  -1,238,301
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
 
  261,430
  427,852
  551,741
  696,662
  860,078
  1,037,843
  1,224,422
  1,413,234
  1,597,086
  1,768,630
  1,920,803
  2,047,190
  2,142,303
  2,201,756
  2,222,338
  2,202,004
  2,139,795
  2,035,708
  1,890,540
  1,705,718
  1,483,131
  1,224,976
  933,611
  611,446
  260,838
  0
  0
  0
  0
  0
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  250,652
  391,685
  480,163
  573,631
  666,666
  753,205
  827,203
  883,306
  917,442
  927,225
  912,161
  873,609
  814,543
  739,168
  652,441
  559,576
  465,584
  374,896
  291,089
  216,745
  153,405
  101,641
  61,190
  31,142
  10,147
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  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
  99.2
  95.9
  90.7
  84.1
  76.6

Manulife Financial Corporation, together with its subsidiaries, provides financial advice, insurance, and wealth and asset management solutions for individuals, groups, and institutions in Asia, Canada, and the United States. It offers various health and individual life, and individual and group long-term care insurance through insurance agents, brokers, banks, financial planners, and direct marketing. The company also provides pension contracts and mutual fund products and services; various retirement products to group benefit plans; and annuities, single premium, and banking products, such as deposit and credit products to Canadian customers, as well as non-guaranteed, partially guaranteed, and fully guaranteed investment options through general and separate account products. It distributes wealth and asset management products through insurance agents and brokers affiliated with the company, securities brokerage firms, financial planners, pension plan sponsors, pension plan consultants, and banks. In addition, the company is involved in the property and casualty reinsurance business; and run-off reinsurance operations, including variable annuities, and accident and health. Further, it provides planning software platform that enables financial advisors and institutions to help clients make financial planning decisions; manages timberland and agricultural portfolios; insurance agency, investment counseling, portfolio and mutual fund management, mutual fund dealer, financial reinsurance, and mutual funds marketing businesses, as well as investment management, advisory, and dealer activities. Additionally, the company holds and manages oil and gas properties; holds oil and gas royalties and European equities; and develops and operates hydro-electric power projects. Manulife Financial Corporation was founded in 1887 and is headquartered in Toronto, Canada.

FINANCIAL RATIOS  of  Manulife Financial Corporation (MFC)

Valuation Ratios
P/E Ratio 15.8
Price to Sales 0.9
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 2.8
Price to Free Cash Flow 2.8
Growth Rates
Sales Growth Rate 54.9%
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 NaN
Current Ratio NaN
LT Debt to Equity 30.6%
Total Debt to Equity 30.6%
Interest Coverage 4
Management Effectiveness
Return On Assets 0.5%
Ret/ On Assets - 3 Yr. Avg. 0.6%
Return On Total Capital 5.6%
Ret/ On T. Cap. - 3 Yr. Avg. 6.4%
Return On Equity 7.2%
Return On Equity - 3 Yr. Avg. 8.1%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 9.4%
EBITDA Margin - 3 Yr. Avg. 10.8%
Operating Margin 8.1%
Oper. Margin - 3 Yr. Avg. 9.6%
Pre-Tax Margin 6.2%
Pre-Tax Margin - 3 Yr. Avg. 7.2%
Net Profit Margin 5.6%
Net Profit Margin - 3 Yr. Avg. 6.2%
Effective Tax Rate 5.9%
Eff/ Tax Rate - 3 Yr. Avg. 11.4%
Payout Ratio 53.3%

MFC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MFC stock intrinsic value calculation we used $53337 million for the last fiscal year's total revenue generated by Manulife Financial Corporation. The default revenue input number comes from 2016 income statement of Manulife Financial 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 MFC stock valuation model: a) initial revenue growth rate of 54.9% 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 4.3%, whose default value for MFC is calculated based on our internal credit rating of Manulife Financial 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 Manulife Financial 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 MFC stock the variable cost ratio is equal to 89.2%.

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 MFC 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 8.8% for Manulife Financial Corporation.

Corporate tax rate of 27% is the nominal tax rate for Manulife Financial 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 MFC 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 MFC are equal to 7.4%.

Life of production assets of 14.1 years is the average useful life of capital assets used in Manulife Financial 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 MFC 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 - $42080 million for Manulife Financial 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 1977.55 million for Manulife Financial 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 Manulife Financial Corporation at the current share price and the inputted number of shares is $47.3 billion.


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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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