Intrinsic value of AbbVie - ABBV

Previous Close

$72.64

  Intrinsic Value

$52.99

stock screener

  Rating & Target

sell

-27%

  Value-price divergence*

-65%

Previous close

$72.64

 
Intrinsic value

$52.99

 
Up/down potential

-27%

 
Rating

sell

 
Value-price divergence*

-65%

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

We calculate the intrinsic value of ABBV 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 115.1

 

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, %
  12.16
  6.20
  6.08
  5.97
  5.87
  5.79
  5.71
  5.64
  5.57
  5.52
  5.46
  5.42
  5.38
  5.34
  5.31
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
Revenue, $m
  25,638
  27,228
  28,883
  30,608
  32,406
  34,281
  36,238
  38,281
  40,415
  42,645
  44,975
  47,412
  49,961
  52,629
  55,421
  58,344
  61,405
  64,612
  67,972
  71,493
  75,184
  79,052
  83,109
  87,363
  91,824
  96,503
  101,411
  106,560
  111,962
  117,631
  123,579
Variable operating expenses, $m
 
  9,026
  9,481
  9,955
  10,449
  10,965
  11,502
  12,064
  12,651
  13,263
  13,904
  13,032
  13,733
  14,466
  15,234
  16,037
  16,879
  17,760
  18,684
  19,651
  20,666
  21,729
  22,844
  24,013
  25,240
  26,526
  27,875
  29,290
  30,775
  32,333
  33,968
Fixed operating expenses, $m
 
  8,043
  8,244
  8,450
  8,662
  8,878
  9,100
  9,328
  9,561
  9,800
  10,045
  10,296
  10,553
  10,817
  11,088
  11,365
  11,649
  11,940
  12,239
  12,545
  12,858
  13,180
  13,509
  13,847
  14,193
  14,548
  14,912
  15,284
  15,666
  16,058
  16,460
Total operating expenses, $m
  16,254
  17,069
  17,725
  18,405
  19,111
  19,843
  20,602
  21,392
  22,212
  23,063
  23,949
  23,328
  24,286
  25,283
  26,322
  27,402
  28,528
  29,700
  30,923
  32,196
  33,524
  34,909
  36,353
  37,860
  39,433
  41,074
  42,787
  44,574
  46,441
  48,391
  50,428
Operating income, $m
  9,384
  10,159
  11,158
  12,203
  13,295
  14,439
  15,636
  16,890
  18,204
  19,582
  21,027
  24,084
  25,675
  27,346
  29,100
  30,942
  32,878
  34,912
  37,050
  39,297
  41,660
  44,144
  46,756
  49,502
  52,391
  55,429
  58,624
  61,986
  65,521
  69,239
  73,151
EBITDA, $m
  10,573
  12,652
  13,710
  14,815
  15,970
  17,179
  18,445
  19,770
  21,159
  22,614
  24,141
  25,742
  27,422
  29,186
  31,038
  32,982
  35,025
  37,171
  39,427
  41,797
  44,289
  46,908
  49,662
  52,557
  55,602
  58,803
  62,170
  65,712
  69,436
  73,353
  77,472
Interest expense (income), $m
  986
  1,275
  1,133
  1,254
  1,380
  1,512
  1,650
  1,793
  1,943
  2,099
  2,262
  2,433
  2,611
  2,798
  2,994
  3,198
  3,412
  3,637
  3,871
  4,118
  4,376
  4,646
  4,929
  5,226
  5,538
  5,865
  6,208
  6,567
  6,944
  7,340
  7,755
Earnings before tax, $m
  7,884
  8,883
  10,025
  10,949
  11,915
  12,927
  13,986
  15,097
  16,261
  17,483
  18,764
  21,651
  23,064
  24,547
  26,106
  27,744
  29,466
  31,275
  33,178
  35,180
  37,284
  39,498
  41,826
  44,276
  46,853
  49,564
  52,417
  55,418
  58,576
  61,899
  65,396
Tax expense, $m
  1,931
  2,398
  2,707
  2,956
  3,217
  3,490
  3,776
  4,076
  4,391
  4,720
  5,066
  5,846
  6,227
  6,628
  7,049
  7,491
  7,956
  8,444
  8,958
  9,498
  10,067
  10,664
  11,293
  11,954
  12,650
  13,382
  14,153
  14,963
  15,816
  16,713
  17,657
Net income, $m
  5,953
  6,485
  7,318
  7,992
  8,698
  9,436
  10,210
  11,021
  11,871
  12,762
  13,698
  15,805
  16,836
  17,920
  19,057
  20,253
  21,510
  22,831
  24,220
  25,681
  27,217
  28,833
  30,533
  32,321
  34,203
  36,182
  38,264
  40,455
  42,761
  45,187
  47,739

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,423
  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
  66,099
  63,320
  67,170
  71,181
  75,363
  79,724
  84,275
  89,027
  93,989
  99,174
  104,594
  110,261
  116,189
  122,393
  128,886
  135,684
  142,803
  150,261
  158,075
  166,263
  174,846
  183,843
  193,277
  203,169
  213,543
  224,425
  235,839
  247,814
  260,378
  273,560
  287,393
Adjusted assets (=assets-cash), $m
  59,676
  63,320
  67,170
  71,181
  75,363
  79,724
  84,275
  89,027
  93,989
  99,174
  104,594
  110,261
  116,189
  122,393
  128,886
  135,684
  142,803
  150,261
  158,075
  166,263
  174,846
  183,843
  193,277
  203,169
  213,543
  224,425
  235,839
  247,814
  260,378
  273,560
  287,393
Revenue / Adjusted assets
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
Average production assets, $m
  26,888
  28,562
  30,298
  32,108
  33,994
  35,961
  38,014
  40,157
  42,396
  44,734
  47,179
  49,735
  52,410
  55,208
  58,136
  61,203
  64,414
  67,778
  71,303
  74,996
  78,868
  82,926
  87,181
  91,643
  96,323
  101,231
  106,380
  111,782
  117,449
  123,395
  129,634
Working capital, $m
  6,406
  408
  433
  459
  486
  514
  544
  574
  606
  640
  675
  711
  749
  789
  831
  875
  921
  969
  1,020
  1,072
  1,128
  1,186
  1,247
  1,310
  1,377
  1,448
  1,521
  1,598
  1,679
  1,764
  1,854
Total debt, $m
  36,842
  32,367
  35,832
  39,442
  43,206
  47,131
  51,227
  55,503
  59,969
  64,636
  69,513
  74,614
  79,949
  85,532
  91,376
  97,494
  103,902
  110,614
  117,646
  125,016
  132,740
  140,838
  149,328
  158,231
  167,568
  177,361
  187,634
  198,412
  209,719
  221,583
  234,033
Total liabilities, $m
  61,463
  56,988
  60,453
  64,063
  67,827
  71,752
  75,848
  80,124
  84,590
  89,257
  94,134
  99,235
  104,570
  110,153
  115,997
  122,115
  128,523
  135,235
  142,267
  149,637
  157,361
  165,459
  173,949
  182,852
  192,189
  201,982
  212,255
  223,033
  234,340
  246,204
  258,654
Total equity, $m
  4,636
  6,332
  6,717
  7,118
  7,536
  7,972
  8,428
  8,903
  9,399
  9,917
  10,459
  11,026
  11,619
  12,239
  12,889
  13,568
  14,280
  15,026
  15,807
  16,626
  17,485
  18,384
  19,328
  20,317
  21,354
  22,442
  23,584
  24,781
  26,038
  27,356
  28,739
Total liabilities and equity, $m
  66,099
  63,320
  67,170
  71,181
  75,363
  79,724
  84,276
  89,027
  93,989
  99,174
  104,593
  110,261
  116,189
  122,392
  128,886
  135,683
  142,803
  150,261
  158,074
  166,263
  174,846
  183,843
  193,277
  203,169
  213,543
  224,424
  235,839
  247,814
  260,378
  273,560
  287,393
Debt-to-equity ratio
  7.947
  5.110
  5.330
  5.540
  5.730
  5.910
  6.080
  6.230
  6.380
  6.520
  6.650
  6.770
  6.880
  6.990
  7.090
  7.190
  7.280
  7.360
  7.440
  7.520
  7.590
  7.660
  7.730
  7.790
  7.850
  7.900
  7.960
  8.010
  8.050
  8.100
  8.140
Adjusted equity ratio
  -0.024
  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
  5,953
  6,485
  7,318
  7,992
  8,698
  9,436
  10,210
  11,021
  11,871
  12,762
  13,698
  15,805
  16,836
  17,920
  19,057
  20,253
  21,510
  22,831
  24,220
  25,681
  27,217
  28,833
  30,533
  32,321
  34,203
  36,182
  38,264
  40,455
  42,761
  45,187
  47,739
Depreciation, amort., depletion, $m
  1,189
  2,494
  2,552
  2,612
  2,675
  2,740
  2,809
  2,880
  2,955
  3,033
  3,114
  1,658
  1,747
  1,840
  1,938
  2,040
  2,147
  2,259
  2,377
  2,500
  2,629
  2,764
  2,906
  3,055
  3,211
  3,374
  3,546
  3,726
  3,915
  4,113
  4,321
Funds from operations, $m
  5,352
  8,978
  9,870
  10,604
  11,373
  12,177
  13,019
  13,901
  14,826
  15,795
  16,812
  17,463
  18,583
  19,760
  20,995
  22,293
  23,657
  25,090
  26,597
  28,181
  29,846
  31,598
  33,439
  35,376
  37,413
  39,556
  41,810
  44,181
  46,676
  49,300
  52,060
Change in working capital, $m
  -1,689
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
  70
  74
  77
  81
  85
  89
Cash from operations, $m
  7,041
  13,568
  9,845
  10,578
  11,346
  12,149
  12,989
  13,870
  14,794
  15,762
  16,777
  17,427
  18,545
  19,720
  20,953
  22,249
  23,611
  25,042
  26,547
  28,128
  29,791
  31,539
  33,378
  35,312
  37,346
  39,486
  41,737
  44,104
  46,595
  49,215
  51,971
Maintenance CAPEX, $m
  0
  -896
  -952
  -1,010
  -1,070
  -1,133
  -1,199
  -1,267
  -1,339
  -1,413
  -1,491
  -1,573
  -1,658
  -1,747
  -1,840
  -1,938
  -2,040
  -2,147
  -2,259
  -2,377
  -2,500
  -2,629
  -2,764
  -2,906
  -3,055
  -3,211
  -3,374
  -3,546
  -3,726
  -3,915
  -4,113
New CAPEX, $m
  -479
  -1,674
  -1,737
  -1,809
  -1,886
  -1,967
  -2,053
  -2,143
  -2,238
  -2,339
  -2,445
  -2,556
  -2,674
  -2,798
  -2,929
  -3,066
  -3,211
  -3,364
  -3,525
  -3,694
  -3,871
  -4,058
  -4,255
  -4,462
  -4,680
  -4,908
  -5,149
  -5,401
  -5,667
  -5,946
  -6,239
Cash from investing activities, $m
  -6,074
  -2,570
  -2,689
  -2,819
  -2,956
  -3,100
  -3,252
  -3,410
  -3,577
  -3,752
  -3,936
  -4,129
  -4,332
  -4,545
  -4,769
  -5,004
  -5,251
  -5,511
  -5,784
  -6,071
  -6,371
  -6,687
  -7,019
  -7,368
  -7,735
  -8,119
  -8,523
  -8,947
  -9,393
  -9,861
  -10,352
Free cash flow, $m
  967
  10,998
  7,157
  7,759
  8,389
  9,048
  9,738
  10,460
  11,217
  12,010
  12,841
  13,298
  14,213
  15,175
  16,184
  17,245
  18,360
  19,531
  20,763
  22,058
  23,420
  24,852
  26,359
  27,944
  29,612
  31,367
  33,214
  35,157
  37,202
  39,353
  41,618
Issuance/(repayment) of debt, $m
  5,588
  -4,073
  3,465
  3,610
  3,764
  3,925
  4,096
  4,276
  4,466
  4,666
  4,878
  5,101
  5,335
  5,583
  5,844
  6,118
  6,407
  6,712
  7,032
  7,370
  7,724
  8,098
  8,490
  8,903
  9,337
  9,793
  10,273
  10,777
  11,307
  11,864
  12,449
Issuance/(repurchase) of shares, $m
  -5,765
  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  
  -211
  -4,073
  3,465
  3,610
  3,764
  3,925
  4,096
  4,276
  4,466
  4,666
  4,878
  5,101
  5,335
  5,583
  5,844
  6,118
  6,407
  6,712
  7,032
  7,370
  7,724
  8,098
  8,490
  8,903
  9,337
  9,793
  10,273
  10,777
  11,307
  11,864
  12,449
Total cash flow (excl. dividends), $m
  418
  6,925
  10,621
  11,369
  12,153
  12,973
  13,834
  14,736
  15,683
  16,676
  17,719
  18,398
  19,549
  20,758
  22,028
  23,363
  24,767
  26,243
  27,795
  29,427
  31,144
  32,950
  34,849
  36,847
  38,949
  41,160
  43,487
  45,934
  48,509
  51,218
  54,068
Retained Cash Flow (-), $m
  -691
  -7,717
  -385
  -401
  -418
  -436
  -455
  -475
  -496
  -518
  -542
  -567
  -593
  -620
  -649
  -680
  -712
  -746
  -781
  -819
  -858
  -900
  -943
  -989
  -1,037
  -1,088
  -1,141
  -1,197
  -1,256
  -1,318
  -1,383
Prev. year cash balance distribution, $m
 
  6,021
  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
 
  5,229
  10,236
  10,968
  11,735
  12,537
  13,379
  14,261
  15,186
  16,158
  17,177
  17,831
  18,956
  20,137
  21,379
  22,684
  24,055
  25,497
  27,014
  28,609
  30,286
  32,050
  33,906
  35,858
  37,912
  40,072
  42,345
  44,737
  47,252
  49,899
  52,684
Discount rate, %
 
  9.30
  9.77
  10.25
  10.77
  11.30
  11.87
  12.46
  13.09
  13.74
  14.43
  15.15
  15.91
  16.70
  17.54
  18.41
  19.33
  20.30
  21.32
  22.38
  23.50
  24.68
  25.91
  27.20
  28.57
  29.99
  31.49
  33.07
  34.72
  36.46
  38.28
PV of cash for distribution, $m
 
  4,784
  8,496
  8,184
  7,795
  7,339
  6,826
  6,267
  5,678
  5,072
  4,463
  3,779
  3,225
  2,704
  2,226
  1,798
  1,422
  1,101
  834
  616
  444
  312
  213
  142
  91
  57
  34
  20
  11
  6
  3
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

AbbVie Inc. discovers, develops, manufactures, and sells pharmaceutical products worldwide. The company offers HUMIRA, a biologic therapy administered as a subcutaneous injection to treat autoimmune diseases; IMBRUVICA, an oral therapy for the treatment of patients with chronic lymphocytic leukemia; and VIEKIRA PAK, an interferon-free therapy, with or without ribavirin, for the treatment of adults with genotype 1 chronic hepatitis C. It also provides Kaletra, an anti- human immunodeficiency virus(HIV)-1 medicine used with other anti-HIV-1 medications as a treatment that maintains viral suppression in HIV-1 patients; Norvir, a protease inhibitor indicated in combination with other antiretroviral agents to treat HIV-1; and Synagis to prevent RSV infection at-risk infants. In addition, the company offers AndroGel, a testosterone replacement therapy for males diagnosed with symptomatic low testosterone; Creon, a pancreatic enzyme therapy for exocrine pancreatic insufficiency; Synthroid to treat hypothyroidism; and Lupron, a product for the palliative treatment of prostate cancer, endometriosis, and central precocious puberty, as well as for the treatment of patients with anemia. Further, it provides Duopa and Duodopa, a levodopa-carbidopa intestinal gel to treat Parkinson’s disease; Sevoflurane, an anesthesia product for human use; and ZINBRYTA, a subcutaneous treatment for relapsing forms of multiple sclerosis. The company sells its products to wholesalers, distributors, government agencies, health care facilities, specialty pharmacies, and independent retailers from its distribution centers and public warehouses. AbbVie Inc. has collaboration agreements with C2N Diagnostics; Calico Life Sciences LLC; and Infinity Pharmaceuticals, Inc. The company was incorporated in 2012 and is based in North Chicago, Illinois.

FINANCIAL RATIOS  of  AbbVie (ABBV)

Valuation Ratios
P/E Ratio 19.4
Price to Sales 4.5
Price to Book 25
Price to Tangible Book
Price to Cash Flow 16.4
Price to Free Cash Flow 17.6
Growth Rates
Sales Growth Rate 12.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -10%
Cap. Spend. - 3 Yr. Gr. Rate -0.5%
Financial Strength
Quick Ratio 16
Current Ratio 0
LT Debt to Equity 786%
Total Debt to Equity 794.7%
Interest Coverage 9
Management Effectiveness
Return On Assets 11.2%
Ret/ On Assets - 3 Yr. Avg. 10.8%
Return On Total Capital 15.4%
Ret/ On T. Cap. - 3 Yr. Avg. 15%
Return On Equity 138.7%
Return On Equity - 3 Yr. Avg. 125.5%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 77.3%
Gross Margin - 3 Yr. Avg. 78.5%
EBITDA Margin 39.2%
EBITDA Margin - 3 Yr. Avg. 30.7%
Operating Margin 36.6%
Oper. Margin - 3 Yr. Avg. 28.9%
Pre-Tax Margin 30.8%
Pre-Tax Margin - 3 Yr. Avg. 23.9%
Net Profit Margin 23.2%
Net Profit Margin - 3 Yr. Avg. 18.2%
Effective Tax Rate 24.5%
Eff/ Tax Rate - 3 Yr. Avg. 24.1%
Payout Ratio 62.4%

ABBV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ABBV stock intrinsic value calculation we used $25638 million for the last fiscal year's total revenue generated by AbbVie. The default revenue input number comes from 2016 income statement of AbbVie. 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 ABBV stock valuation model: a) initial revenue growth rate of 6.2% 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 9.3%, whose default value for ABBV is calculated based on our internal credit rating of AbbVie, 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 AbbVie.
    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 ABBV stock the variable cost ratio is equal to 33.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $7847 million in the base year in the intrinsic value calculation for ABBV 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 AbbVie.

Corporate tax rate of 27% is the nominal tax rate for AbbVie. 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 ABBV 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 ABBV are equal to 104.9%.

Life of production assets of 34.6 years is the average useful life of capital assets used in AbbVie 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 ABBV is equal to 1.5%. 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 - $4636 million for AbbVie - 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 1584.12 million for AbbVie 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 AbbVie at the current share price and the inputted number of shares is $115.1 billion.

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Stock chart of ABBV Financial statements of ABBV Annual reports of ABBV
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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