Intrinsic value of ABB ADR - ABB

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$22.57

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$22.57

 
Intrinsic value

$20.40

 
Up/down potential

-10%

 
Rating

hold

 
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 ABB 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 50.0

 

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, %
  -4.66
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  33,828
  34,505
  35,298
  36,205
  37,224
  38,352
  39,591
  40,939
  42,398
  43,971
  45,658
  47,464
  49,390
  51,441
  53,621
  55,934
  58,385
  60,980
  63,723
  66,623
  69,684
  72,914
  76,320
  79,911
  83,694
  87,678
  91,873
  96,289
  100,935
  105,824
  110,965
Variable operating expenses, $m
 
  31,518
  32,221
  33,025
  33,927
  34,927
  36,024
  37,218
  38,511
  39,904
  41,399
  42,049
  43,755
  45,572
  47,503
  49,552
  51,724
  54,023
  56,453
  59,022
  61,734
  64,595
  67,613
  70,794
  74,146
  77,675
  81,392
  85,304
  89,420
  93,751
  98,306
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
  30,841
  31,518
  32,221
  33,025
  33,927
  34,927
  36,024
  37,218
  38,511
  39,904
  41,399
  42,049
  43,755
  45,572
  47,503
  49,552
  51,724
  54,023
  56,453
  59,022
  61,734
  64,595
  67,613
  70,794
  74,146
  77,675
  81,392
  85,304
  89,420
  93,751
  98,306
Operating income, $m
  2,987
  2,986
  3,077
  3,180
  3,297
  3,425
  3,567
  3,720
  3,887
  4,066
  4,259
  5,415
  5,635
  5,869
  6,117
  6,381
  6,661
  6,957
  7,270
  7,601
  7,950
  8,318
  8,707
  9,117
  9,548
  10,003
  10,481
  10,985
  11,515
  12,073
  12,660
EBITDA, $m
  4,122
  4,322
  4,422
  4,535
  4,663
  4,804
  4,959
  5,128
  5,311
  5,508
  5,719
  5,946
  6,187
  6,444
  6,717
  7,007
  7,314
  7,639
  7,982
  8,346
  8,729
  9,134
  9,560
  10,010
  10,484
  10,983
  11,509
  12,062
  12,644
  13,256
  13,900
Interest expense (income), $m
  213
  203
  221
  241
  265
  291
  320
  353
  388
  425
  466
  510
  557
  607
  660
  717
  777
  841
  908
  979
  1,054
  1,134
  1,218
  1,306
  1,399
  1,498
  1,601
  1,710
  1,825
  1,945
  2,072
Earnings before tax, $m
  2,799
  2,783
  2,856
  2,939
  3,032
  3,134
  3,246
  3,368
  3,499
  3,641
  3,793
  4,905
  5,078
  5,262
  5,457
  5,664
  5,884
  6,116
  6,362
  6,622
  6,896
  7,185
  7,489
  7,811
  8,149
  8,505
  8,880
  9,275
  9,691
  10,128
  10,588
Tax expense, $m
  781
  752
  771
  794
  819
  846
  876
  909
  945
  983
  1,024
  1,324
  1,371
  1,421
  1,473
  1,529
  1,589
  1,651
  1,718
  1,788
  1,862
  1,940
  2,022
  2,109
  2,200
  2,296
  2,398
  2,504
  2,617
  2,735
  2,859
Net income, $m
  1,899
  2,032
  2,085
  2,146
  2,213
  2,288
  2,370
  2,459
  2,555
  2,658
  2,769
  3,581
  3,707
  3,841
  3,984
  4,135
  4,295
  4,465
  4,644
  4,834
  5,034
  5,245
  5,467
  5,702
  5,949
  6,209
  6,483
  6,771
  7,074
  7,393
  7,729

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  5,597
  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
  39,202
  34,539
  35,333
  36,242
  37,261
  38,391
  39,630
  40,980
  42,441
  44,015
  45,704
  47,511
  49,439
  51,492
  53,674
  55,990
  58,443
  61,041
  63,787
  66,689
  69,754
  72,987
  76,397
  79,991
  83,778
  87,766
  91,965
  96,385
  101,036
  105,930
  111,076
Adjusted assets (=assets-cash), $m
  33,605
  34,539
  35,333
  36,242
  37,261
  38,391
  39,630
  40,980
  42,441
  44,015
  45,704
  47,511
  49,439
  51,492
  53,674
  55,990
  58,443
  61,041
  63,787
  66,689
  69,754
  72,987
  76,397
  79,991
  83,778
  87,766
  91,965
  96,385
  101,036
  105,930
  111,076
Revenue / Adjusted assets
  1.007
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
  0.999
Average production assets, $m
  4,805
  4,900
  5,012
  5,141
  5,286
  5,446
  5,622
  5,813
  6,021
  6,244
  6,483
  6,740
  7,013
  7,305
  7,614
  7,943
  8,291
  8,659
  9,049
  9,460
  9,895
  10,354
  10,837
  11,347
  11,885
  12,450
  13,046
  13,673
  14,333
  15,027
  15,757
Working capital, $m
  5,903
  1,967
  2,012
  2,064
  2,122
  2,186
  2,257
  2,334
  2,417
  2,506
  2,603
  2,705
  2,815
  2,932
  3,056
  3,188
  3,328
  3,476
  3,632
  3,797
  3,972
  4,156
  4,350
  4,555
  4,771
  4,998
  5,237
  5,488
  5,753
  6,032
  6,325
Total debt, $m
  6,803
  6,301
  6,890
  7,563
  8,318
  9,155
  10,074
  11,074
  12,157
  13,323
  14,575
  15,914
  17,343
  18,864
  20,481
  22,196
  24,015
  25,939
  27,974
  30,125
  32,395
  34,791
  37,318
  39,981
  42,787
  45,743
  48,854
  52,129
  55,576
  59,202
  63,016
Total liabilities, $m
  25,807
  25,593
  26,182
  26,855
  27,610
  28,447
  29,366
  30,366
  31,449
  32,615
  33,867
  35,206
  36,635
  38,156
  39,773
  41,488
  43,307
  45,231
  47,266
  49,417
  51,687
  54,083
  56,610
  59,273
  62,079
  65,035
  68,146
  71,421
  74,868
  78,494
  82,308
Total equity, $m
  13,395
  8,946
  9,151
  9,387
  9,651
  9,943
  10,264
  10,614
  10,992
  11,400
  11,837
  12,305
  12,805
  13,337
  13,902
  14,501
  15,137
  15,810
  16,521
  17,273
  18,066
  18,904
  19,787
  20,718
  21,698
  22,731
  23,819
  24,964
  26,168
  27,436
  28,769
Total liabilities and equity, $m
  39,202
  34,539
  35,333
  36,242
  37,261
  38,390
  39,630
  40,980
  42,441
  44,015
  45,704
  47,511
  49,440
  51,493
  53,675
  55,989
  58,444
  61,041
  63,787
  66,690
  69,753
  72,987
  76,397
  79,991
  83,777
  87,766
  91,965
  96,385
  101,036
  105,930
  111,077
Debt-to-equity ratio
  0.508
  0.700
  0.750
  0.810
  0.860
  0.920
  0.980
  1.040
  1.110
  1.170
  1.230
  1.290
  1.350
  1.410
  1.470
  1.530
  1.590
  1.640
  1.690
  1.740
  1.790
  1.840
  1.890
  1.930
  1.970
  2.010
  2.050
  2.090
  2.120
  2.160
  2.190
Adjusted equity ratio
  0.232
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,899
  2,032
  2,085
  2,146
  2,213
  2,288
  2,370
  2,459
  2,555
  2,658
  2,769
  3,581
  3,707
  3,841
  3,984
  4,135
  4,295
  4,465
  4,644
  4,834
  5,034
  5,245
  5,467
  5,702
  5,949
  6,209
  6,483
  6,771
  7,074
  7,393
  7,729
Depreciation, amort., depletion, $m
  1,135
  1,336
  1,345
  1,355
  1,366
  1,379
  1,393
  1,408
  1,424
  1,442
  1,461
  531
  552
  575
  600
  625
  653
  682
  712
  745
  779
  815
  853
  893
  936
  980
  1,027
  1,077
  1,129
  1,183
  1,241
Funds from operations, $m
  4,502
  3,368
  3,430
  3,501
  3,580
  3,667
  3,762
  3,866
  3,979
  4,100
  4,229
  4,111
  4,259
  4,416
  4,583
  4,760
  4,948
  5,147
  5,357
  5,579
  5,813
  6,060
  6,321
  6,595
  6,885
  7,189
  7,510
  7,848
  8,203
  8,577
  8,970
Change in working capital, $m
  659
  39
  45
  52
  58
  64
  71
  77
  83
  90
  96
  103
  110
  117
  124
  132
  140
  148
  156
  165
  174
  184
  194
  205
  216
  227
  239
  252
  265
  279
  293
Cash from operations, $m
  3,843
  521
  3,385
  3,449
  3,522
  3,603
  3,692
  3,790
  3,896
  4,010
  4,133
  4,008
  4,149
  4,299
  4,459
  4,629
  4,808
  4,999
  5,200
  5,413
  5,638
  5,876
  6,126
  6,391
  6,669
  6,962
  7,271
  7,596
  7,938
  8,298
  8,677
Maintenance CAPEX, $m
  0
  -378
  -386
  -395
  -405
  -416
  -429
  -443
  -458
  -474
  -492
  -511
  -531
  -552
  -575
  -600
  -625
  -653
  -682
  -712
  -745
  -779
  -815
  -853
  -893
  -936
  -980
  -1,027
  -1,077
  -1,129
  -1,183
New CAPEX, $m
  -831
  -95
  -113
  -129
  -145
  -160
  -176
  -191
  -207
  -223
  -240
  -256
  -274
  -291
  -310
  -328
  -348
  -368
  -390
  -412
  -435
  -459
  -484
  -510
  -537
  -566
  -596
  -627
  -660
  -694
  -730
Cash from investing activities, $m
  -1,305
  -473
  -499
  -524
  -550
  -576
  -605
  -634
  -665
  -697
  -732
  -767
  -805
  -843
  -885
  -928
  -973
  -1,021
  -1,072
  -1,124
  -1,180
  -1,238
  -1,299
  -1,363
  -1,430
  -1,502
  -1,576
  -1,654
  -1,737
  -1,823
  -1,913
Free cash flow, $m
  2,538
  47
  2,886
  2,925
  2,972
  3,026
  3,087
  3,155
  3,231
  3,313
  3,402
  3,241
  3,345
  3,456
  3,574
  3,701
  3,835
  3,978
  4,129
  4,289
  4,459
  4,638
  4,827
  5,027
  5,238
  5,461
  5,695
  5,942
  6,202
  6,475
  6,763
Issuance/(repayment) of debt, $m
  -489
  501
  589
  673
  755
  837
  918
  1,000
  1,083
  1,166
  1,252
  1,339
  1,429
  1,521
  1,617
  1,716
  1,818
  1,925
  2,035
  2,150
  2,271
  2,396
  2,527
  2,663
  2,806
  2,955
  3,112
  3,275
  3,446
  3,626
  3,814
Issuance/(repurchase) of shares, $m
  -1,107
  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 financing (excl. dividends), $m  
  -3,355
  501
  589
  673
  755
  837
  918
  1,000
  1,083
  1,166
  1,252
  1,339
  1,429
  1,521
  1,617
  1,716
  1,818
  1,925
  2,035
  2,150
  2,271
  2,396
  2,527
  2,663
  2,806
  2,955
  3,112
  3,275
  3,446
  3,626
  3,814
Total cash flow (excl. dividends), $m
  -921
  549
  3,475
  3,598
  3,728
  3,863
  4,006
  4,156
  4,313
  4,479
  4,653
  4,581
  4,774
  4,977
  5,191
  5,416
  5,653
  5,902
  6,164
  6,440
  6,729
  7,034
  7,354
  7,691
  8,044
  8,416
  8,807
  9,217
  9,648
  10,101
  10,577
Retained Cash Flow (-), $m
  1,086
  -172
  -206
  -235
  -264
  -293
  -321
  -350
  -378
  -408
  -437
  -468
  -499
  -532
  -565
  -600
  -635
  -673
  -711
  -752
  -794
  -837
  -883
  -931
  -981
  -1,033
  -1,088
  -1,145
  -1,205
  -1,267
  -1,333
Prev. year cash balance distribution, $m
 
  4,685
  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
 
  5,062
  3,269
  3,363
  3,463
  3,571
  3,685
  3,806
  3,935
  4,071
  4,216
  4,112
  4,274
  4,445
  4,626
  4,817
  5,018
  5,230
  5,453
  5,688
  5,936
  6,197
  6,471
  6,760
  7,063
  7,383
  7,719
  8,072
  8,443
  8,834
  9,244
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
 
  4,853
  2,993
  2,927
  2,852
  2,768
  2,674
  2,571
  2,459
  2,339
  2,210
  1,953
  1,824
  1,690
  1,553
  1,414
  1,275
  1,138
  1,004
  876
  754
  641
  537
  443
  360
  287
  225
  173
  131
  96
  70
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
  100.0
  100.0
  100.0
  100.0
  100.0

ABB Ltd provides power and automation technologies for utility and industrial customers worldwide. The company’s Discrete Automation and Motion segment provides motors, generators, variable speed drives, programmable logic controllers, robots and robotics, solar inverters, wind converters, rectifiers, and excitation systems, as well as power quality and protection solutions, electric vehicle fast charging infrastructure solutions, components and subsystems for railways, and related services for discrete automation, process industries, transportation, and utilities. Its Low Voltage Products segment provides protection, control, and measurement for electrical installations; enclosures, switchboards, electronics, and electromechanical devices for industrial machines and plants; products for wiring and cable management, cable protection systems, power connection, and safety; and building control systems for home and building automation. The company’s Process Automation segment develops and sells control and plant optimization systems, automation products and solutions, and industry-specific application services for the oil, gas, petrochemicals, metals and minerals, marine and turbocharging, pulp and paper, chemical and pharmaceuticals, and power industries. Its Power Products segment offers circuit breakers, switchgears, and capacitors, as well as instrument, power, distribution, and traction transformers for electrical and other infrastructure utilities, as well as industrial and commercial customers. The company’s Power Systems segment provides transmission and distribution systems, as well as power plant automation and electrification solutions, including monitoring and control products, software and services, and components for power generation, transmission and distribution utilities, and other infrastructure utilities, as well as other industrial and commercial enterprises. ABB Ltd was founded in 1883 and is headquartered in Zurich, Switzerland.

FINANCIAL RATIOS  of  ABB ADR (ABB)

Valuation Ratios
P/E Ratio 25.4
Price to Sales 1.4
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 12.6
Price to Free Cash Flow 16
Growth Rates
Sales Growth Rate -4.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -5.1%
Cap. Spend. - 3 Yr. Gr. Rate -5.6%
Financial Strength
Quick Ratio 6
Current Ratio 0.1
LT Debt to Equity 43.3%
Total Debt to Equity 50.8%
Interest Coverage 14
Management Effectiveness
Return On Assets 5.1%
Ret/ On Assets - 3 Yr. Avg. 5.3%
Return On Total Capital 9%
Ret/ On T. Cap. - 3 Yr. Avg. 9.2%
Return On Equity 13.6%
Return On Equity - 3 Yr. Avg. 13.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 28.8%
Gross Margin - 3 Yr. Avg. 28.5%
EBITDA Margin 12.3%
EBITDA Margin - 3 Yr. Avg. 12.6%
Operating Margin 8.8%
Oper. Margin - 3 Yr. Avg. 9.3%
Pre-Tax Margin 8.3%
Pre-Tax Margin - 3 Yr. Avg. 8.7%
Net Profit Margin 5.6%
Net Profit Margin - 3 Yr. Avg. 5.9%
Effective Tax Rate 27.9%
Eff/ Tax Rate - 3 Yr. Avg. 28.8%
Payout Ratio 0%

ABB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ABB stock intrinsic value calculation we used $33828 million for the last fiscal year's total revenue generated by ABB ADR. The default revenue input number comes from 2016 income statement of ABB ADR. 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 ABB stock valuation model: a) initial revenue growth rate of 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 4.3%, whose default value for ABB is calculated based on our internal credit rating of ABB ADR, 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 ABB ADR.
    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 ABB stock the variable cost ratio is equal to 91.4%.

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 ABB 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 3.5% for ABB ADR.

Corporate tax rate of 27% is the nominal tax rate for ABB ADR. 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 ABB 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 ABB are equal to 14.2%.

Life of production assets of 12.7 years is the average useful life of capital assets used in ABB ADR 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 ABB is equal to 5.7%. 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 - $13459 million for ABB ADR - 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 2217.15 million for ABB ADR 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 ABB ADR at the current share price and the inputted number of shares is $50.0 billion.


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COMPANY NEWS

▶ ABB strengthens commitment to Canada   [May-24-17 10:00AM  PR Newswire]
▶ ETFs with exposure to ABB Ltd. : May 19, 2017   [May-19-17 01:37PM  Capital Cube]
▶ The World's Top 4 Alternative Energy Companies   [May-18-17 02:18PM  Investopedia]
▶ Better Buy: Caterpillar Inc. vs ABB Ltd.   [May-16-17 10:45AM  Motley Fool]
▶ ETFs with exposure to ABB Ltd. : May 8, 2017   [May-08-17 04:05PM  Capital Cube]
▶ ETFs with exposure to ABB Ltd. : April 26, 2017   [Apr-26-17 03:03PM  Capital Cube]
▶ The Best Electrical Equipment Stocks to Buy in 2017   [Apr-17-17 11:30AM  Motley Fool]
▶ The $20 Billion Takeover Target That Wasn't   [Apr-05-17 03:09PM  Bloomberg]
▶ 7 Stocks That Are Outperforming the Market   [Mar-22-17 05:44PM  GuruFocus.com]
▶ [$$] ABB Says Lax Controls Played Part in Fraud in South Korea   [Mar-13-17 01:03PM  at The Wall Street Journal]
▶ The World's Top 4 Alternative Energy Companies   [Mar-09-17 02:50PM  at Investopedia]
▶ Why Robot Stocks Will Rise in the Age of Trump   [Mar-08-17 11:15AM  at Investopedia]
▶ Better Buy for 2017: Caterpillar Inc. vs. ABB Ltd.   [Dec-26-16 08:23AM  at Motley Fool]
▶ Is ABB Ltd (ADR) (ABB) A Good Stock to Buy?   [Dec-13-16 03:27AM  at Insider Monkey]
Stock chart of ABB Financial statements of ABB Annual reports of ABB
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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