Intrinsic value of Abbott Laboratories - ABT

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$49.08

  Intrinsic Value

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  Value-price divergence*

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$49.08

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

We calculate the intrinsic value of ABT 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 84.1

 

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, %
  2.20
  2.80
  3.02
  3.22
  3.40
  3.56
  3.70
  3.83
  3.95
  4.05
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
Revenue, $m
  20,853
  21,437
  22,084
  22,795
  23,569
  24,407
  25,311
  26,280
  27,318
  28,425
  29,604
  30,857
  32,187
  33,596
  35,088
  36,666
  38,333
  40,094
  41,951
  43,910
  45,975
  48,151
  50,443
  52,855
  55,395
  58,068
  60,879
  63,837
  66,947
  70,217
  73,655
Variable operating expenses, $m
 
  6,195
  6,359
  6,539
  6,735
  6,947
  7,176
  7,421
  7,684
  7,964
  8,263
  7,812
  8,148
  8,505
  8,883
  9,282
  9,704
  10,150
  10,620
  11,116
  11,639
  12,190
  12,770
  13,381
  14,024
  14,700
  15,412
  16,161
  16,948
  17,776
  18,646
Fixed operating expenses, $m
 
  12,205
  12,510
  12,823
  13,143
  13,472
  13,808
  14,154
  14,508
  14,870
  15,242
  15,623
  16,014
  16,414
  16,824
  17,245
  17,676
  18,118
  18,571
  19,035
  19,511
  19,999
  20,499
  21,011
  21,536
  22,075
  22,627
  23,192
  23,772
  24,367
  24,976
Total operating expenses, $m
  17,668
  18,400
  18,869
  19,362
  19,878
  20,419
  20,984
  21,575
  22,192
  22,834
  23,505
  23,435
  24,162
  24,919
  25,707
  26,527
  27,380
  28,268
  29,191
  30,151
  31,150
  32,189
  33,269
  34,392
  35,560
  36,775
  38,039
  39,353
  40,720
  42,143
  43,622
Operating income, $m
  3,185
  3,037
  3,215
  3,433
  3,691
  3,989
  4,326
  4,705
  5,126
  5,590
  6,099
  7,422
  8,025
  8,677
  9,381
  10,139
  10,953
  11,826
  12,760
  13,759
  14,825
  15,962
  17,174
  18,464
  19,835
  21,293
  22,841
  24,484
  26,227
  28,075
  30,033
EBITDA, $m
  4,538
  4,573
  4,775
  5,019
  5,304
  5,631
  6,002
  6,415
  6,873
  7,377
  7,928
  8,528
  9,178
  9,881
  10,638
  11,453
  12,326
  13,262
  14,263
  15,332
  16,473
  17,688
  18,981
  20,357
  21,820
  23,373
  25,022
  26,771
  28,626
  30,591
  32,673
Interest expense (income), $m
  181
  724
  728
  761
  797
  837
  880
  926
  976
  1,029
  1,086
  1,146
  1,210
  1,278
  1,351
  1,427
  1,508
  1,593
  1,683
  1,779
  1,879
  1,985
  2,096
  2,213
  2,337
  2,467
  2,604
  2,748
  2,900
  3,059
  3,226
Earnings before tax, $m
  1,413
  2,313
  2,488
  2,672
  2,894
  3,151
  3,446
  3,779
  4,150
  4,561
  5,013
  6,276
  6,815
  7,399
  8,030
  8,712
  9,445
  10,232
  11,077
  11,980
  12,946
  13,978
  15,078
  16,250
  17,498
  18,825
  20,237
  21,736
  23,327
  25,016
  26,807
Tax expense, $m
  350
  625
  672
  722
  781
  851
  931
  1,020
  1,121
  1,232
  1,354
  1,695
  1,840
  1,998
  2,168
  2,352
  2,550
  2,763
  2,991
  3,235
  3,496
  3,774
  4,071
  4,388
  4,724
  5,083
  5,464
  5,869
  6,298
  6,754
  7,238
Net income, $m
  1,400
  1,689
  1,816
  1,951
  2,112
  2,301
  2,516
  2,759
  3,030
  3,330
  3,660
  4,582
  4,975
  5,401
  5,862
  6,360
  6,895
  7,470
  8,086
  8,746
  9,451
  10,204
  11,007
  11,863
  12,773
  13,743
  14,773
  15,867
  17,029
  18,262
  19,569

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  18,775
  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
  52,666
  34,857
  35,909
  37,065
  38,324
  39,687
  41,156
  42,732
  44,419
  46,219
  48,136
  50,174
  52,336
  54,628
  57,054
  59,619
  62,330
  65,193
  68,213
  71,399
  74,756
  78,294
  82,020
  85,944
  90,073
  94,419
  98,991
  103,800
  108,857
  114,174
  119,765
Adjusted assets (=assets-cash), $m
  33,891
  34,857
  35,909
  37,065
  38,324
  39,687
  41,156
  42,732
  44,419
  46,219
  48,136
  50,174
  52,336
  54,628
  57,054
  59,619
  62,330
  65,193
  68,213
  71,399
  74,756
  78,294
  82,020
  85,944
  90,073
  94,419
  98,991
  103,800
  108,857
  114,174
  119,765
Revenue / Adjusted assets
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
Average production assets, $m
  10,768
  11,061
  11,395
  11,762
  12,162
  12,594
  13,060
  13,561
  14,096
  14,667
  15,276
  15,922
  16,608
  17,336
  18,105
  18,920
  19,780
  20,688
  21,647
  22,658
  23,723
  24,846
  26,028
  27,273
  28,584
  29,963
  31,414
  32,940
  34,545
  36,232
  38,006
Working capital, $m
  20,116
  2,272
  2,341
  2,416
  2,498
  2,587
  2,683
  2,786
  2,896
  3,013
  3,138
  3,271
  3,412
  3,561
  3,719
  3,887
  4,063
  4,250
  4,447
  4,654
  4,873
  5,104
  5,347
  5,603
  5,872
  6,155
  6,453
  6,767
  7,096
  7,443
  7,807
Total debt, $m
  21,552
  20,795
  21,742
  22,782
  23,915
  25,142
  26,464
  27,883
  29,401
  31,021
  32,747
  34,581
  36,527
  38,589
  40,772
  43,081
  45,521
  48,097
  50,816
  53,683
  56,705
  59,889
  63,242
  66,773
  70,490
  74,401
  78,516
  82,844
  87,395
  92,181
  97,212
Total liabilities, $m
  32,128
  31,371
  32,318
  33,358
  34,491
  35,718
  37,040
  38,459
  39,977
  41,597
  43,323
  45,157
  47,103
  49,165
  51,348
  53,657
  56,097
  58,673
  61,392
  64,259
  67,281
  70,465
  73,818
  77,349
  81,066
  84,977
  89,092
  93,420
  97,971
  102,757
  107,788
Total equity, $m
  20,538
  3,486
  3,591
  3,706
  3,832
  3,969
  4,116
  4,273
  4,442
  4,622
  4,814
  5,017
  5,234
  5,463
  5,705
  5,962
  6,233
  6,519
  6,821
  7,140
  7,476
  7,829
  8,202
  8,594
  9,007
  9,442
  9,899
  10,380
  10,886
  11,417
  11,976
Total liabilities and equity, $m
  52,666
  34,857
  35,909
  37,064
  38,323
  39,687
  41,156
  42,732
  44,419
  46,219
  48,137
  50,174
  52,337
  54,628
  57,053
  59,619
  62,330
  65,192
  68,213
  71,399
  74,757
  78,294
  82,020
  85,943
  90,073
  94,419
  98,991
  103,800
  108,857
  114,174
  119,764
Debt-to-equity ratio
  1.049
  5.970
  6.050
  6.150
  6.240
  6.340
  6.430
  6.530
  6.620
  6.710
  6.800
  6.890
  6.980
  7.060
  7.150
  7.230
  7.300
  7.380
  7.450
  7.520
  7.590
  7.650
  7.710
  7.770
  7.830
  7.880
  7.930
  7.980
  8.030
  8.070
  8.120
Adjusted equity ratio
  0.078
  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
  1,400
  1,689
  1,816
  1,951
  2,112
  2,301
  2,516
  2,759
  3,030
  3,330
  3,660
  4,582
  4,975
  5,401
  5,862
  6,360
  6,895
  7,470
  8,086
  8,746
  9,451
  10,204
  11,007
  11,863
  12,773
  13,743
  14,773
  15,867
  17,029
  18,262
  19,569
Depreciation, amort., depletion, $m
  1,353
  1,536
  1,560
  1,585
  1,613
  1,643
  1,675
  1,710
  1,747
  1,787
  1,829
  1,106
  1,153
  1,204
  1,257
  1,314
  1,374
  1,437
  1,503
  1,573
  1,647
  1,725
  1,808
  1,894
  1,985
  2,081
  2,182
  2,287
  2,399
  2,516
  2,639
Funds from operations, $m
  1,690
  3,225
  3,376
  3,536
  3,725
  3,943
  4,191
  4,469
  4,777
  5,117
  5,489
  5,687
  6,128
  6,605
  7,120
  7,673
  8,268
  8,906
  9,589
  10,319
  11,098
  11,929
  12,814
  13,757
  14,758
  15,823
  16,954
  18,154
  19,428
  20,778
  22,208
Change in working capital, $m
  -1,513
  62
  69
  75
  82
  89
  96
  103
  110
  117
  125
  133
  141
  149
  158
  167
  177
  187
  197
  208
  219
  231
  243
  256
  269
  283
  298
  313
  330
  347
  364
Cash from operations, $m
  3,203
  2,639
  3,307
  3,461
  3,643
  3,855
  4,095
  4,366
  4,667
  4,999
  5,364
  5,555
  5,987
  6,456
  6,961
  7,506
  8,092
  8,720
  9,392
  10,111
  10,879
  11,699
  12,571
  13,501
  14,489
  15,540
  16,656
  17,841
  19,098
  20,431
  21,844
Maintenance CAPEX, $m
  0
  -748
  -768
  -791
  -817
  -845
  -875
  -907
  -942
  -979
  -1,019
  -1,061
  -1,106
  -1,153
  -1,204
  -1,257
  -1,314
  -1,374
  -1,437
  -1,503
  -1,573
  -1,647
  -1,725
  -1,808
  -1,894
  -1,985
  -2,081
  -2,182
  -2,287
  -2,399
  -2,516
New CAPEX, $m
  -1,121
  -293
  -334
  -367
  -399
  -433
  -466
  -500
  -535
  -571
  -608
  -647
  -686
  -727
  -770
  -814
  -860
  -908
  -959
  -1,011
  -1,066
  -1,123
  -1,182
  -1,245
  -1,310
  -1,379
  -1,451
  -1,526
  -1,605
  -1,687
  -1,774
Cash from investing activities, $m
  -248
  -1,041
  -1,102
  -1,158
  -1,216
  -1,278
  -1,341
  -1,407
  -1,477
  -1,550
  -1,627
  -1,708
  -1,792
  -1,880
  -1,974
  -2,071
  -2,174
  -2,282
  -2,396
  -2,514
  -2,639
  -2,770
  -2,907
  -3,053
  -3,204
  -3,364
  -3,532
  -3,708
  -3,892
  -4,086
  -4,290
Free cash flow, $m
  2,955
  1,598
  2,205
  2,303
  2,427
  2,578
  2,755
  2,959
  3,190
  3,449
  3,737
  3,847
  4,195
  4,575
  4,988
  5,435
  5,918
  6,438
  6,997
  7,597
  8,240
  8,928
  9,664
  10,448
  11,285
  12,176
  13,125
  14,133
  15,206
  16,345
  17,554
Issuance/(repayment) of debt, $m
  13,155
  114
  947
  1,040
  1,133
  1,227
  1,322
  1,419
  1,518
  1,620
  1,725
  1,834
  1,946
  2,062
  2,183
  2,309
  2,440
  2,576
  2,718
  2,867
  3,022
  3,184
  3,354
  3,531
  3,717
  3,911
  4,115
  4,328
  4,551
  4,786
  5,031
Issuance/(repurchase) of shares, $m
  -274
  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  
  12,686
  114
  947
  1,040
  1,133
  1,227
  1,322
  1,419
  1,518
  1,620
  1,725
  1,834
  1,946
  2,062
  2,183
  2,309
  2,440
  2,576
  2,718
  2,867
  3,022
  3,184
  3,354
  3,531
  3,717
  3,911
  4,115
  4,328
  4,551
  4,786
  5,031
Total cash flow (excl. dividends), $m
  15,158
  1,712
  3,152
  3,343
  3,560
  3,804
  4,077
  4,378
  4,708
  5,069
  5,462
  5,681
  6,141
  6,637
  7,171
  7,744
  8,357
  9,014
  9,716
  10,464
  11,262
  12,112
  13,017
  13,979
  15,001
  16,087
  17,239
  18,461
  19,757
  21,130
  22,585
Retained Cash Flow (-), $m
  673
  -852
  -105
  -116
  -126
  -136
  -147
  -158
  -169
  -180
  -192
  -204
  -216
  -229
  -243
  -257
  -271
  -286
  -302
  -319
  -336
  -354
  -373
  -392
  -413
  -435
  -457
  -481
  -506
  -532
  -559
Prev. year cash balance distribution, $m
 
  17,904
  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
 
  18,764
  3,047
  3,227
  3,434
  3,668
  3,930
  4,220
  4,539
  4,889
  5,271
  5,477
  5,925
  6,408
  6,928
  7,487
  8,086
  8,728
  9,413
  10,146
  10,927
  11,759
  12,645
  13,587
  14,588
  15,652
  16,782
  17,980
  19,251
  20,599
  22,026
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
 
  17,991
  2,789
  2,808
  2,827
  2,843
  2,852
  2,851
  2,837
  2,809
  2,763
  2,601
  2,528
  2,437
  2,326
  2,198
  2,055
  1,899
  1,734
  1,562
  1,388
  1,216
  1,049
  890
  743
  609
  490
  386
  298
  225
  166
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

Abbott Laboratories manufactures and sells health care products worldwide. The company’s Established Pharmaceutical Products segment offers branded generic pharmaceuticals to treat pancreatic exocrine insufficiency; irritable bowel syndrome or biliary spasm; intrahepatic cholestasis or depressive symptoms; gynecological disorders; hormone replacement therapy; dyslipidemia; hypertension; hypothyroidism; Ménière's disease and vestibular vertigo; pain, fever, and inflammation; migraines; anti-infective clarithromycin; cardiovascular and metabolic products; and influenza vaccines, as well as to regulate physiological rhythm of the colon. Its Diagnostic Products segment provides immunoassay and clinical chemistry systems; assays used to screen and/or diagnosis cancer, cardiac, drugs of abuse, fertility, infectious diseases, and therapeutic drug monitoring; hematology systems and reagents; diagnostic systems and cartridges; instruments to automate the extraction, purification, and preparation of DNA and RNA from patient samples, and detects and measures infectious agents; genomic-based tests; informatics and automation solutions; and a suite of informatics tools and professional services. The company’s Nutritional Products segment provides pediatric and adult nutritional products. Its Vascular Products segment offers coronary, endovascular, vessel closure, and structural heart devices to treat vascular disease. The company also provides blood and flash glucose monitoring systems, including test strips, sensors, data management decision software, and accessories for people with diabetes; and medical devices for the eye, such as cataract and LASIK surgery, contact lens care, and dry eye products. It serves retailers, wholesalers, hospitals, health care facilities, laboratories, physicians' offices, and government agencies. The company was founded in 1888 and is headquartered in Abbott Park, Illinois.

FINANCIAL RATIOS  of  Abbott Laboratories (ABT)

Valuation Ratios
P/E Ratio 51.6
Price to Sales 3.5
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 22.6
Price to Free Cash Flow 34.7
Growth Rates
Sales Growth Rate 2.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 1%
Cap. Spend. - 3 Yr. Gr. Rate -0.4%
Financial Strength
Quick Ratio 22
Current Ratio 0.1
LT Debt to Equity 100.7%
Total Debt to Equity 104.9%
Interest Coverage 9
Management Effectiveness
Return On Assets 3.3%
Ret/ On Assets - 3 Yr. Avg. 6.7%
Return On Total Capital 3.9%
Ret/ On T. Cap. - 3 Yr. Avg. 8.9%
Return On Equity 6.7%
Return On Equity - 3 Yr. Avg. 12.4%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 56.8%
Gross Margin - 3 Yr. Avg. 56.2%
EBITDA Margin 14.1%
EBITDA Margin - 3 Yr. Avg. 19.6%
Operating Margin 15.3%
Oper. Margin - 3 Yr. Avg. 14%
Pre-Tax Margin 6.8%
Pre-Tax Margin - 3 Yr. Avg. 11.6%
Net Profit Margin 6.7%
Net Profit Margin - 3 Yr. Avg. 13.2%
Effective Tax Rate 24.8%
Eff/ Tax Rate - 3 Yr. Avg. 24.8%
Payout Ratio 109.9%

ABT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ABT stock intrinsic value calculation we used $20853 million for the last fiscal year's total revenue generated by Abbott Laboratories. The default revenue input number comes from 2016 income statement of Abbott Laboratories. 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 ABT stock valuation model: a) initial revenue growth rate of 2.8% 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 ABT is calculated based on our internal credit rating of Abbott Laboratories, 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 Abbott Laboratories.
    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 ABT stock the variable cost ratio is equal to 29%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $11907 million in the base year in the intrinsic value calculation for ABT 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 Abbott Laboratories.

Corporate tax rate of 27% is the nominal tax rate for Abbott Laboratories. 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 ABT 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 ABT are equal to 51.6%.

Life of production assets of 14.4 years is the average useful life of capital assets used in Abbott Laboratories 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 ABT is equal to 10.6%. 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 - $20538 million for Abbott Laboratories - 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 1713.53 million for Abbott Laboratories 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 Abbott Laboratories at the current share price and the inputted number of shares is $84.1 billion.


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Stock chart of ABT Financial statements of ABT Annual reports of ABT
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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