Intrinsic value of Adobe Systems - ADBE

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$145.41

  Intrinsic Value

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  Value-price divergence*

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$145.41

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

We calculate the intrinsic value of ADBE 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 71.6

 

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, %
  22.06
  22.10
  20.39
  18.85
  17.47
  16.22
  15.10
  14.09
  13.18
  12.36
  11.62
  10.96
  10.37
  9.83
  9.35
  8.91
  8.52
  8.17
  7.85
  7.57
  7.31
  7.08
  6.87
  6.68
  6.52
  6.36
  6.23
  6.10
  5.99
  5.89
  5.81
Revenue, $m
  5,854
  7,148
  8,605
  10,227
  12,014
  13,962
  16,070
  18,334
  20,750
  23,315
  26,025
  28,878
  31,872
  35,005
  38,277
  41,688
  45,240
  48,935
  52,778
  56,771
  60,921
  65,234
  69,716
  74,376
  79,222
  84,264
  89,511
  94,976
  100,669
  106,603
  112,792
Variable operating expenses, $m
 
  3,047
  3,558
  4,127
  4,753
  5,436
  6,176
  6,969
  7,817
  8,716
  9,666
  10,126
  11,176
  12,275
  13,422
  14,618
  15,864
  17,159
  18,507
  19,907
  21,362
  22,874
  24,446
  26,080
  27,779
  29,547
  31,387
  33,303
  35,300
  37,381
  39,551
Fixed operating expenses, $m
 
  1,855
  1,902
  1,949
  1,998
  2,048
  2,099
  2,152
  2,205
  2,260
  2,317
  2,375
  2,434
  2,495
  2,557
  2,621
  2,687
  2,754
  2,823
  2,894
  2,966
  3,040
  3,116
  3,194
  3,274
  3,356
  3,440
  3,526
  3,614
  3,704
  3,797
Total operating expenses, $m
  4,361
  4,902
  5,460
  6,076
  6,751
  7,484
  8,275
  9,121
  10,022
  10,976
  11,983
  12,501
  13,610
  14,770
  15,979
  17,239
  18,551
  19,913
  21,330
  22,801
  24,328
  25,914
  27,562
  29,274
  31,053
  32,903
  34,827
  36,829
  38,914
  41,085
  43,348
Operating income, $m
  1,494
  2,246
  3,146
  4,151
  5,263
  6,478
  7,795
  9,213
  10,728
  12,339
  14,042
  16,377
  18,262
  20,235
  22,297
  24,448
  26,689
  29,022
  31,448
  33,971
  36,593
  39,319
  42,154
  45,102
  48,169
  51,361
  54,684
  58,147
  61,755
  65,518
  69,445
EBITDA, $m
  1,826
  2,863
  3,779
  4,802
  5,933
  7,169
  8,510
  9,952
  11,493
  13,131
  14,864
  16,689
  18,606
  20,613
  22,711
  24,899
  27,178
  29,550
  32,018
  34,584
  37,251
  40,024
  42,907
  45,905
  49,024
  52,271
  55,651
  59,172
  62,843
  66,670
  70,663
Interest expense (income), $m
  66
  67
  107
  153
  205
  261
  323
  389
  461
  537
  618
  704
  794
  888
  987
  1,091
  1,198
  1,310
  1,427
  1,548
  1,675
  1,806
  1,942
  2,083
  2,231
  2,384
  2,543
  2,709
  2,881
  3,061
  3,248
Earnings before tax, $m
  1,435
  2,179
  3,038
  3,998
  5,058
  6,217
  7,473
  8,824
  10,267
  11,802
  13,424
  15,674
  17,468
  19,347
  21,310
  23,358
  25,491
  27,712
  30,021
  32,422
  34,919
  37,514
  40,212
  43,018
  45,938
  48,977
  52,141
  55,438
  58,874
  62,458
  66,196
Tax expense, $m
  266
  588
  820
  1,079
  1,366
  1,679
  2,018
  2,382
  2,772
  3,186
  3,624
  4,232
  4,716
  5,224
  5,754
  6,307
  6,883
  7,482
  8,106
  8,754
  9,428
  10,129
  10,857
  11,615
  12,403
  13,224
  14,078
  14,968
  15,896
  16,864
  17,873
Net income, $m
  1,169
  1,591
  2,218
  2,918
  3,692
  4,538
  5,455
  6,441
  7,495
  8,615
  9,799
  11,442
  12,752
  14,123
  15,556
  17,051
  18,609
  20,229
  21,915
  23,668
  25,491
  27,385
  29,355
  31,403
  33,535
  35,753
  38,063
  40,470
  42,978
  45,594
  48,323

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,765
  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
Total assets, $m
  12,697
  9,698
  11,676
  13,877
  16,301
  18,945
  21,805
  24,876
  28,155
  31,635
  35,313
  39,184
  43,246
  47,496
  51,936
  56,564
  61,384
  66,398
  71,612
  77,030
  82,661
  88,513
  94,594
  100,917
  107,492
  114,333
  121,453
  128,868
  136,593
  144,645
  153,042
Adjusted assets (=assets-cash), $m
  7,932
  9,698
  11,676
  13,877
  16,301
  18,945
  21,805
  24,876
  28,155
  31,635
  35,313
  39,184
  43,246
  47,496
  51,936
  56,564
  61,384
  66,398
  71,612
  77,030
  82,661
  88,513
  94,594
  100,917
  107,492
  114,333
  121,453
  128,868
  136,593
  144,645
  153,042
Revenue / Adjusted assets
  0.738
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
  0.737
Average production assets, $m
  856
  1,544
  1,859
  2,209
  2,595
  3,016
  3,471
  3,960
  4,482
  5,036
  5,621
  6,238
  6,884
  7,561
  8,268
  9,005
  9,772
  10,570
  11,400
  12,263
  13,159
  14,091
  15,059
  16,065
  17,112
  18,201
  19,334
  20,515
  21,744
  23,026
  24,363
Working capital, $m
  3,028
  -2,123
  -2,556
  -3,038
  -3,568
  -4,147
  -4,773
  -5,445
  -6,163
  -6,925
  -7,730
  -8,577
  -9,466
  -10,396
  -11,368
  -12,381
  -13,436
  -14,534
  -15,675
  -16,861
  -18,094
  -19,374
  -20,706
  -22,090
  -23,529
  -25,026
  -26,585
  -28,208
  -29,899
  -31,661
  -33,499
Total debt, $m
  1,892
  3,069
  4,384
  5,848
  7,460
  9,218
  11,120
  13,163
  15,343
  17,657
  20,103
  22,677
  25,378
  28,205
  31,157
  34,235
  37,440
  40,775
  44,242
  47,845
  51,590
  55,481
  59,525
  63,730
  68,102
  72,652
  77,387
  82,317
  87,454
  92,809
  98,393
Total liabilities, $m
  5,272
  6,449
  7,764
  9,228
  10,840
  12,598
  14,500
  16,543
  18,723
  21,037
  23,483
  26,057
  28,758
  31,585
  34,537
  37,615
  40,820
  44,155
  47,622
  51,225
  54,970
  58,861
  62,905
  67,110
  71,482
  76,032
  80,767
  85,697
  90,834
  96,189
  101,773
Total equity, $m
  7,425
  3,249
  3,911
  4,649
  5,461
  6,346
  7,305
  8,334
  9,432
  10,598
  11,830
  13,127
  14,487
  15,911
  17,398
  18,949
  20,564
  22,243
  23,990
  25,805
  27,691
  29,652
  31,689
  33,807
  36,010
  38,302
  40,687
  43,171
  45,759
  48,456
  51,269
Total liabilities and equity, $m
  12,697
  9,698
  11,675
  13,877
  16,301
  18,944
  21,805
  24,877
  28,155
  31,635
  35,313
  39,184
  43,245
  47,496
  51,935
  56,564
  61,384
  66,398
  71,612
  77,030
  82,661
  88,513
  94,594
  100,917
  107,492
  114,334
  121,454
  128,868
  136,593
  144,645
  153,042
Debt-to-equity ratio
  0.255
  0.940
  1.120
  1.260
  1.370
  1.450
  1.520
  1.580
  1.630
  1.670
  1.700
  1.730
  1.750
  1.770
  1.790
  1.810
  1.820
  1.830
  1.840
  1.850
  1.860
  1.870
  1.880
  1.890
  1.890
  1.900
  1.900
  1.910
  1.910
  1.920
  1.920
Adjusted equity ratio
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,169
  1,591
  2,218
  2,918
  3,692
  4,538
  5,455
  6,441
  7,495
  8,615
  9,799
  11,442
  12,752
  14,123
  15,556
  17,051
  18,609
  20,229
  21,915
  23,668
  25,491
  27,385
  29,355
  31,403
  33,535
  35,753
  38,063
  40,470
  42,978
  45,594
  48,323
Depreciation, amort., depletion, $m
  332
  618
  634
  651
  670
  691
  714
  739
  765
  792
  822
  312
  344
  378
  413
  450
  489
  529
  570
  613
  658
  705
  753
  803
  856
  910
  967
  1,026
  1,087
  1,151
  1,218
Funds from operations, $m
  2,520
  2,208
  2,851
  3,569
  4,363
  5,230
  6,169
  7,180
  8,260
  9,408
  10,621
  11,754
  13,096
  14,501
  15,970
  17,502
  19,097
  20,758
  22,485
  24,281
  26,148
  28,090
  30,108
  32,207
  34,390
  36,663
  39,030
  41,496
  44,065
  46,745
  49,541
Change in working capital, $m
  320
  -384
  -433
  -482
  -531
  -579
  -626
  -672
  -718
  -762
  -805
  -847
  -889
  -930
  -972
  -1,013
  -1,055
  -1,098
  -1,141
  -1,186
  -1,233
  -1,281
  -1,331
  -1,384
  -1,439
  -1,497
  -1,559
  -1,623
  -1,691
  -1,763
  -1,838
Cash from operations, $m
  2,200
  2,559
  3,284
  4,051
  4,893
  5,808
  6,795
  7,852
  8,978
  10,169
  11,426
  12,601
  13,985
  15,432
  16,942
  18,515
  20,152
  21,856
  23,626
  25,467
  27,381
  29,370
  31,439
  33,591
  35,830
  38,161
  40,589
  43,119
  45,756
  48,508
  51,379
Maintenance CAPEX, $m
  0
  -63
  -77
  -93
  -110
  -130
  -151
  -174
  -198
  -224
  -252
  -281
  -312
  -344
  -378
  -413
  -450
  -489
  -529
  -570
  -613
  -658
  -705
  -753
  -803
  -856
  -910
  -967
  -1,026
  -1,087
  -1,151
New CAPEX, $m
  -204
  -280
  -315
  -350
  -386
  -421
  -455
  -489
  -522
  -554
  -585
  -616
  -647
  -677
  -707
  -737
  -767
  -798
  -830
  -863
  -896
  -932
  -968
  -1,007
  -1,047
  -1,089
  -1,133
  -1,180
  -1,230
  -1,282
  -1,337
Cash from investing activities, $m
  -960
  -343
  -392
  -443
  -496
  -551
  -606
  -663
  -720
  -778
  -837
  -897
  -959
  -1,021
  -1,085
  -1,150
  -1,217
  -1,287
  -1,359
  -1,433
  -1,509
  -1,590
  -1,673
  -1,760
  -1,850
  -1,945
  -2,043
  -2,147
  -2,256
  -2,369
  -2,488
Free cash flow, $m
  1,240
  2,216
  2,892
  3,608
  4,397
  5,258
  6,189
  7,190
  8,258
  9,391
  10,589
  11,704
  13,026
  14,411
  15,857
  17,364
  18,935
  20,569
  22,268
  24,035
  25,872
  27,781
  29,766
  31,831
  33,980
  36,216
  38,545
  40,971
  43,501
  46,139
  48,891
Issuance/(repayment) of debt, $m
  0
  1,167
  1,315
  1,464
  1,612
  1,758
  1,902
  2,043
  2,180
  2,314
  2,446
  2,574
  2,701
  2,827
  2,952
  3,078
  3,205
  3,334
  3,467
  3,603
  3,745
  3,891
  4,044
  4,205
  4,373
  4,549
  4,735
  4,931
  5,137
  5,355
  5,584
Issuance/(repurchase) of shares, $m
  -1,166
  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  
  -1,091
  1,167
  1,315
  1,464
  1,612
  1,758
  1,902
  2,043
  2,180
  2,314
  2,446
  2,574
  2,701
  2,827
  2,952
  3,078
  3,205
  3,334
  3,467
  3,603
  3,745
  3,891
  4,044
  4,205
  4,373
  4,549
  4,735
  4,931
  5,137
  5,355
  5,584
Total cash flow (excl. dividends), $m
  135
  3,383
  4,207
  5,072
  6,009
  7,016
  8,091
  9,232
  10,438
  11,706
  13,034
  14,278
  15,728
  17,238
  18,809
  20,442
  22,140
  23,903
  25,735
  27,638
  29,616
  31,672
  33,811
  36,036
  38,352
  40,765
  43,280
  45,902
  48,638
  51,493
  54,476
Retained Cash Flow (-), $m
  -423
  -589
  -662
  -737
  -812
  -886
  -958
  -1,029
  -1,098
  -1,166
  -1,232
  -1,297
  -1,361
  -1,424
  -1,487
  -1,551
  -1,615
  -1,680
  -1,747
  -1,815
  -1,886
  -1,960
  -2,037
  -2,118
  -2,203
  -2,292
  -2,385
  -2,484
  -2,588
  -2,697
  -2,813
Prev. year cash balance distribution, $m
 
  4,765
  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
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
 
  7,559
  3,545
  4,334
  5,197
  6,130
  7,133
  8,203
  9,340
  10,540
  11,802
  12,981
  14,367
  15,814
  17,322
  18,892
  20,525
  22,223
  23,988
  25,823
  27,730
  29,712
  31,773
  33,918
  36,150
  38,474
  40,895
  43,418
  46,050
  48,796
  51,662
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
 
  7,247
  3,245
  3,772
  4,279
  4,752
  5,177
  5,542
  5,837
  6,054
  6,188
  6,165
  6,131
  6,013
  5,815
  5,546
  5,216
  4,835
  4,418
  3,976
  3,524
  3,073
  2,636
  2,223
  1,841
  1,497
  1,193
  932
  712
  533
  389
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

Adobe Systems Incorporated operates as a diversified software company worldwide. Its Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote, and monetize their digital content. This segment’s flagship product is Creative Cloud, a subscription service that allows customers to download and install the latest versions of its creative products. This segment serves traditional content creators, Web application developers, and digital media professionals, as well as their management in marketing departments and agencies, companies, and publishers. The company’s Digital Marketing segment offers solutions for how digital advertising and marketing are created, managed, executed, measured, and optimized. This segment provides analytics, social marketing, targeting, advertising and media optimization, digital experience management, cross-channel campaign management, and audience management solutions, as well as video delivery and monetization to digital marketers, advertisers, publishers, merchandisers, Web analysts, chief marketing officers, chief information officers, and chief revenue officers. Its Print and Publishing segment offers products and services, such as eLearning solutions, technical document publishing, Web application development, and high-end printing, as well as publishing needs of technical and business, and original equipment manufacturers (OEMs) printing businesses. The company markets and licenses its products and services directly to enterprise customers through its sales force, as well as to end-users through app stores and through its Website at adobe.com. It also distributes products and services through a network of distributors, value-added resellers, systems integrators, independent software vendors, retailers, and OEMs. The company was founded in 1982 and is headquartered in San Jose, California.

FINANCIAL RATIOS  of  Adobe Systems (ADBE)

Valuation Ratios
P/E Ratio 61.5
Price to Sales 12.3
Price to Book 9.7
Price to Tangible Book
Price to Cash Flow 32.7
Price to Free Cash Flow 36
Growth Rates
Sales Growth Rate 22.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 10.3%
Cap. Spend. - 3 Yr. Gr. Rate 1.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 25.5%
Total Debt to Equity 25.5%
Interest Coverage 23
Management Effectiveness
Return On Assets 10%
Ret/ On Assets - 3 Yr. Avg. 6.3%
Return On Total Capital 12.8%
Ret/ On T. Cap. - 3 Yr. Avg. 7.8%
Return On Equity 16.2%
Return On Equity - 3 Yr. Avg. 9.8%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 86%
Gross Margin - 3 Yr. Avg. 85.2%
EBITDA Margin 31.3%
EBITDA Margin - 3 Yr. Avg. 25.2%
Operating Margin 25.5%
Oper. Margin - 3 Yr. Avg. 18.1%
Pre-Tax Margin 24.5%
Pre-Tax Margin - 3 Yr. Avg. 17.1%
Net Profit Margin 20%
Net Profit Margin - 3 Yr. Avg. 13.2%
Effective Tax Rate 18.5%
Eff/ Tax Rate - 3 Yr. Avg. 24.1%
Payout Ratio 0%

ADBE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ADBE stock intrinsic value calculation we used $5854 million for the last fiscal year's total revenue generated by Adobe Systems. The default revenue input number comes from 2016 income statement of Adobe Systems. 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 ADBE stock valuation model: a) initial revenue growth rate of 22.1% 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 ADBE is calculated based on our internal credit rating of Adobe Systems, 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 Adobe Systems.
    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 ADBE stock the variable cost ratio is equal to 44.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1810 million in the base year in the intrinsic value calculation for ADBE 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 Adobe Systems.

Corporate tax rate of 27% is the nominal tax rate for Adobe Systems. 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 ADBE 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 ADBE are equal to 21.6%.

Life of production assets of 20 years is the average useful life of capital assets used in Adobe Systems 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 ADBE is equal to -29.7%. 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 - $7425 million for Adobe Systems - 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 492.231 million for Adobe Systems 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 Adobe Systems at the current share price and the inputted number of shares is $71.6 billion.


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COMPANY NEWS

▶ Adobe Creates Record Earnings: Its Head Is in the Clouds   [Jun-22-17 06:45PM  Motley Fool]
▶ Adobe Systems Stock Gets More Price-Target Hikes Post-Earnings   [04:12PM  Investor's Business Daily]
▶ Company News for June 22, 2017   [10:57AM  Zacks]
▶ Adobe: Cramer's Top Takeaways   [06:32AM  TheStreet.com]
▶ Finding real growth in a split market   [05:48PM  CNBC Videos]
▶ What Happened in the Stock Market Today   [05:10PM  Motley Fool]
▶ Adobe, FedEx gain; Actuant and Whirlpool fall   [05:10PM  Associated Press]
▶ Boeing, Adobe, Red Hat Price Targets Hiked; Chevron Downgraded   [04:09PM  Investor's Business Daily]
▶ Adobe Stock Hits Record High On Beat-And-Raise Earnings Report   [04:04PM  Investor's Business Daily]
▶ Cramer's Stop Trading: Adobe growth   [09:55AM  CNBC Videos]
▶ Earnings Calendar, Analyst Estimates And Stocks To Watch   [09:47AM  Investor's Business Daily]
▶ Stocks Open Higher; 2 Software Makers Spike On Earnings   [09:45AM  Investor's Business Daily]
▶ Story Stocks from Briefing.com   [09:38AM  Briefing.com]
▶ Adobe beats Street 2Q forecasts   [Jun-20-17 09:26PM  Associated Press]
▶ Adobe Up 4% on FYQ2 Beat, Higher Q3 View   [07:43PM  Barrons.com]
▶ Adobe Crushes Wall Street's Q2 Estimates, Guides Higher   [05:05PM  Investor's Business Daily]
▶ Adobe Achieves Record Revenue   [04:05PM  Business Wire]
▶ How to Play Adobe Ahead of Earnings   [03:41PM  Bloomberg Video]
▶ Adobe Is Overbought   [12:32PM  TheStreet.com]
▶ Adobe Systems Looks To Continue Winning Ways   [Jun-19-17 04:49PM  Investor's Business Daily]
▶ Adobe: Walk Softly and Carry a Big Stock   [02:06PM  TheStreet.com]
▶ Here are the 10 highest-paid Bay Area CEOs over the past five years   [11:50AM  American City Business Journals]
▶ Oracle, FedEx and More Earnings Coming Out This Week   [Jun-18-17 10:25AM  24/7 Wall St.]
▶ 3 Growth Stocks for Savvy Investors   [09:09AM  Motley Fool]
▶ US blames North Korea for series of cyberattacks   [Jun-14-17 03:29PM  Associated Press]
▶ 3 Growth Stocks You Should Consider Today   [11:32AM  Motley Fool]
▶ Apple Downgraded As iPhone Buzz Wears Off; Adobe Cut, Parsley Upgraded   [Jun-12-17 04:05PM  Investor's Business Daily]
▶ Pivotal: Adobe's run too far, too fast   [01:30PM  CNBC Videos]
▶ Alibaba 'Leverage' Hailed, Snap Cut On Users, Zynga Upgraded   [Jun-09-17 04:17PM  Investor's Business Daily]
▶ How Adobe Got Its Customers Hooked on Subscriptions   [Jun-08-17 06:00AM  Bloomberg]
▶ [$$] Say Again? A New Tool for Editing the Recorded Voice   [Jun-02-17 10:53PM  The Wall Street Journal]
Stock chart of ADBE Financial statements of ADBE Annual reports of ADBE
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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