Intrinsic value of Automatic Data Processing - ADP

Previous Close

$111.10

  Intrinsic Value

$101.80

stock screener

  Rating & Target

hold

-8%

  Value-price divergence*

-35%

Previous close

$111.10

 
Intrinsic value

$101.80

 
Up/down potential

-8%

 
Rating

hold

 
Value-price divergence*

-35%

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

We calculate the intrinsic value of ADP 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 50.1

 

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, %
  6.66
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
Revenue, $m
  11,668
  12,251
  12,864
  13,507
  14,183
  14,892
  15,636
  16,418
  17,239
  18,101
  19,006
  19,956
  20,954
  22,002
  23,102
  24,257
  25,470
  26,743
  28,080
  29,484
  30,959
  32,507
  34,132
  35,839
  37,630
  39,512
  41,488
  43,562
  45,740
  48,027
  50,428
Variable operating expenses, $m
 
  8,813
  9,245
  9,699
  10,175
  10,676
  11,201
  11,753
  12,332
  12,940
  13,578
  14,081
  14,785
  15,524
  16,300
  17,115
  17,971
  18,870
  19,813
  20,804
  21,844
  22,936
  24,083
  25,287
  26,551
  27,879
  29,273
  30,737
  32,273
  33,887
  35,582
Fixed operating expenses, $m
 
  1,098
  1,125
  1,153
  1,182
  1,212
  1,242
  1,273
  1,305
  1,338
  1,371
  1,405
  1,440
  1,476
  1,513
  1,551
  1,590
  1,630
  1,670
  1,712
  1,755
  1,799
  1,844
  1,890
  1,937
  1,986
  2,035
  2,086
  2,138
  2,192
  2,246
Total operating expenses, $m
  9,448
  9,911
  10,370
  10,852
  11,357
  11,888
  12,443
  13,026
  13,637
  14,278
  14,949
  15,486
  16,225
  17,000
  17,813
  18,666
  19,561
  20,500
  21,483
  22,516
  23,599
  24,735
  25,927
  27,177
  28,488
  29,865
  31,308
  32,823
  34,411
  36,079
  37,828
Operating income, $m
  2,220
  2,341
  2,494
  2,655
  2,825
  3,004
  3,193
  3,392
  3,602
  3,823
  4,056
  4,470
  4,729
  5,001
  5,288
  5,590
  5,909
  6,244
  6,597
  6,969
  7,360
  7,772
  8,205
  8,662
  9,142
  9,647
  10,179
  10,739
  11,328
  11,948
  12,600
EBITDA, $m
  2,509
  2,633
  2,792
  2,960
  3,137
  3,323
  3,519
  3,726
  3,945
  4,174
  4,417
  4,672
  4,940
  5,223
  5,522
  5,835
  6,166
  6,514
  6,880
  7,266
  7,672
  8,100
  8,550
  9,023
  9,522
  10,046
  10,598
  11,179
  11,790
  12,433
  13,110
Interest expense (income), $m
  38
  76
  42
  115
  191
  271
  356
  444
  537
  634
  737
  844
  957
  1,075
  1,200
  1,331
  1,468
  1,612
  1,763
  1,922
  2,088
  2,264
  2,447
  2,640
  2,843
  3,056
  3,279
  3,514
  3,760
  4,019
  4,290
Earnings before tax, $m
  2,235
  2,265
  2,452
  2,540
  2,634
  2,733
  2,838
  2,948
  3,066
  3,189
  3,320
  3,626
  3,772
  3,926
  4,088
  4,260
  4,441
  4,632
  4,834
  5,047
  5,271
  5,508
  5,758
  6,021
  6,299
  6,592
  6,900
  7,225
  7,568
  7,929
  8,310
Tax expense, $m
  742
  611
  662
  686
  711
  738
  766
  796
  828
  861
  896
  979
  1,018
  1,060
  1,104
  1,150
  1,199
  1,251
  1,305
  1,363
  1,423
  1,487
  1,555
  1,626
  1,701
  1,780
  1,863
  1,951
  2,043
  2,141
  2,244
Net income, $m
  1,493
  1,653
  1,790
  1,855
  1,923
  1,995
  2,072
  2,152
  2,238
  2,328
  2,423
  2,647
  2,753
  2,866
  2,985
  3,110
  3,242
  3,382
  3,529
  3,684
  3,848
  4,021
  4,203
  4,395
  4,598
  4,812
  5,037
  5,275
  5,525
  5,788
  6,066

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,215
  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
  43,670
  42,540
  44,667
  46,900
  49,245
  51,707
  54,292
  57,007
  59,857
  62,850
  65,993
  69,292
  72,757
  76,395
  80,215
  84,225
  88,437
  92,859
  97,502
  102,377
  107,495
  112,870
  118,514
  124,439
  130,661
  137,194
  144,054
  151,257
  158,820
  166,761
  175,099
Adjusted assets (=assets-cash), $m
  40,455
  42,540
  44,667
  46,900
  49,245
  51,707
  54,292
  57,007
  59,857
  62,850
  65,993
  69,292
  72,757
  76,395
  80,215
  84,225
  88,437
  92,859
  97,502
  102,377
  107,495
  112,870
  118,514
  124,439
  130,661
  137,194
  144,054
  151,257
  158,820
  166,761
  175,099
Revenue / Adjusted assets
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
Average production assets, $m
  1,197
  1,262
  1,325
  1,391
  1,461
  1,534
  1,611
  1,691
  1,776
  1,864
  1,958
  2,055
  2,158
  2,266
  2,379
  2,498
  2,623
  2,755
  2,892
  3,037
  3,189
  3,348
  3,516
  3,691
  3,876
  4,070
  4,273
  4,487
  4,711
  4,947
  5,194
Working capital, $m
  3,653
  466
  489
  513
  539
  566
  594
  624
  655
  688
  722
  758
  796
  836
  878
  922
  968
  1,016
  1,067
  1,120
  1,176
  1,235
  1,297
  1,362
  1,430
  1,501
  1,577
  1,655
  1,738
  1,825
  1,916
Total debt, $m
  2,008
  1,106
  3,020
  5,030
  7,140
  9,356
  11,683
  14,126
  16,692
  19,385
  22,214
  25,183
  28,301
  31,575
  35,013
  38,623
  42,413
  46,393
  50,571
  54,959
  59,566
  64,403
  69,482
  74,815
  80,415
  86,295
  92,469
  98,951
  105,758
  112,905
  120,409
Total liabilities, $m
  39,188
  38,286
  40,200
  42,210
  44,320
  46,536
  48,863
  51,306
  53,872
  56,565
  59,394
  62,363
  65,481
  68,755
  72,193
  75,803
  79,593
  83,573
  87,751
  92,139
  96,746
  101,583
  106,662
  111,995
  117,595
  123,475
  129,649
  136,131
  142,938
  150,085
  157,589
Total equity, $m
  4,482
  4,254
  4,467
  4,690
  4,924
  5,171
  5,429
  5,701
  5,986
  6,285
  6,599
  6,929
  7,276
  7,639
  8,021
  8,423
  8,844
  9,286
  9,750
  10,238
  10,750
  11,287
  11,851
  12,444
  13,066
  13,719
  14,405
  15,126
  15,882
  16,676
  17,510
Total liabilities and equity, $m
  43,670
  42,540
  44,667
  46,900
  49,244
  51,707
  54,292
  57,007
  59,858
  62,850
  65,993
  69,292
  72,757
  76,394
  80,214
  84,226
  88,437
  92,859
  97,501
  102,377
  107,496
  112,870
  118,513
  124,439
  130,661
  137,194
  144,054
  151,257
  158,820
  166,761
  175,099
Debt-to-equity ratio
  0.448
  0.260
  0.680
  1.070
  1.450
  1.810
  2.150
  2.480
  2.790
  3.080
  3.370
  3.630
  3.890
  4.130
  4.360
  4.590
  4.800
  5.000
  5.190
  5.370
  5.540
  5.710
  5.860
  6.010
  6.150
  6.290
  6.420
  6.540
  6.660
  6.770
  6.880
Adjusted equity ratio
  0.031
  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
  1,493
  1,653
  1,790
  1,855
  1,923
  1,995
  2,072
  2,152
  2,238
  2,328
  2,423
  2,647
  2,753
  2,866
  2,985
  3,110
  3,242
  3,382
  3,529
  3,684
  3,848
  4,021
  4,203
  4,395
  4,598
  4,812
  5,037
  5,275
  5,525
  5,788
  6,066
Depreciation, amort., depletion, $m
  289
  292
  298
  305
  311
  319
  326
  334
  342
  351
  360
  202
  212
  222
  233
  245
  257
  270
  284
  298
  313
  328
  345
  362
  380
  399
  419
  440
  462
  485
  509
Funds from operations, $m
  1,731
  1,945
  2,088
  2,159
  2,234
  2,314
  2,398
  2,486
  2,580
  2,679
  2,784
  2,849
  2,965
  3,088
  3,218
  3,355
  3,499
  3,652
  3,812
  3,982
  4,161
  4,349
  4,548
  4,757
  4,978
  5,211
  5,456
  5,714
  5,987
  6,273
  6,576
Change in working capital, $m
  -129
  22
  23
  24
  26
  27
  28
  30
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
  62
  65
  68
  71
  75
  79
  83
  87
  91
Cash from operations, $m
  1,860
  1,923
  2,065
  2,135
  2,209
  2,287
  2,369
  2,457
  2,549
  2,646
  2,749
  2,812
  2,927
  3,048
  3,176
  3,311
  3,453
  3,603
  3,762
  3,929
  4,105
  4,290
  4,486
  4,693
  4,910
  5,139
  5,381
  5,636
  5,904
  6,187
  6,484
Maintenance CAPEX, $m
  0
  -117
  -124
  -130
  -136
  -143
  -150
  -158
  -166
  -174
  -183
  -192
  -202
  -212
  -222
  -233
  -245
  -257
  -270
  -284
  -298
  -313
  -328
  -345
  -362
  -380
  -399
  -419
  -440
  -462
  -485
New CAPEX, $m
  -386
  -65
  -63
  -66
  -70
  -73
  -77
  -81
  -85
  -89
  -93
  -98
  -103
  -108
  -113
  -119
  -125
  -131
  -138
  -145
  -152
  -159
  -167
  -176
  -185
  -194
  -203
  -214
  -224
  -236
  -247
Cash from investing activities, $m
  -9,087
  -182
  -187
  -196
  -206
  -216
  -227
  -239
  -251
  -263
  -276
  -290
  -305
  -320
  -335
  -352
  -370
  -388
  -408
  -429
  -450
  -472
  -495
  -521
  -547
  -574
  -602
  -633
  -664
  -698
  -732
Free cash flow, $m
  -7,227
  1,741
  1,878
  1,939
  2,003
  2,071
  2,142
  2,218
  2,299
  2,383
  2,473
  2,523
  2,623
  2,729
  2,841
  2,959
  3,083
  3,215
  3,354
  3,500
  3,655
  3,818
  3,990
  4,172
  4,364
  4,566
  4,779
  5,003
  5,240
  5,489
  5,752
Issuance/(repayment) of debt, $m
  10,800
  -902
  1,914
  2,010
  2,110
  2,216
  2,327
  2,443
  2,565
  2,694
  2,828
  2,970
  3,118
  3,274
  3,438
  3,610
  3,790
  3,980
  4,179
  4,388
  4,607
  4,837
  5,079
  5,333
  5,600
  5,880
  6,174
  6,482
  6,807
  7,147
  7,504
Issuance/(repurchase) of shares, $m
  -1,156
  1,334
  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  
  9,734
  432
  1,914
  2,010
  2,110
  2,216
  2,327
  2,443
  2,565
  2,694
  2,828
  2,970
  3,118
  3,274
  3,438
  3,610
  3,790
  3,980
  4,179
  4,388
  4,607
  4,837
  5,079
  5,333
  5,600
  5,880
  6,174
  6,482
  6,807
  7,147
  7,504
Total cash flow (excl. dividends), $m
  2,496
  2,172
  3,792
  3,949
  4,113
  4,287
  4,469
  4,661
  4,864
  5,077
  5,301
  5,492
  5,741
  6,003
  6,278
  6,568
  6,873
  7,195
  7,532
  7,888
  8,262
  8,656
  9,070
  9,505
  9,963
  10,445
  10,952
  11,485
  12,046
  12,636
  13,256
Retained Cash Flow (-), $m
  327
  -2,987
  -213
  -223
  -234
  -246
  -259
  -271
  -285
  -299
  -314
  -330
  -346
  -364
  -382
  -401
  -421
  -442
  -464
  -488
  -512
  -537
  -564
  -593
  -622
  -653
  -686
  -720
  -756
  -794
  -834
Prev. year cash balance distribution, $m
 
  3,215
  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
 
  2,400
  3,579
  3,725
  3,879
  4,040
  4,211
  4,390
  4,579
  4,778
  4,987
  5,162
  5,395
  5,639
  5,896
  6,167
  6,452
  6,752
  7,068
  7,400
  7,750
  8,118
  8,505
  8,913
  9,341
  9,792
  10,266
  10,765
  11,290
  11,842
  12,422
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
 
  2,301
  3,277
  3,242
  3,194
  3,132
  3,056
  2,966
  2,862
  2,745
  2,615
  2,452
  2,302
  2,144
  1,979
  1,811
  1,640
  1,469
  1,302
  1,139
  985
  840
  706
  584
  476
  381
  300
  231
  175
  129
  94
Current shareholders' claim on cash, %
  100
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5
  90.5

Automatic Data Processing, Inc., together with its subsidiaries, provides business process outsourcing services worldwide. The company operates through two segments, Employer Services and Professional Employer Organization (PEO) Services. The Employer Services segment offers a range of business outsourcing and technology-enabled human capital management (HCM) solutions, including payroll services, benefits administration services, talent management, human resources management solutions, time and attendance management solutions, insurance services, retirement services, and tax and compliance solutions. This segmentÂ’s integrated HCM solutions include RUN Powered by ADP, ADP Workforce Now, ADP Vantage HCM, and ADP GlobalView, which assist employers of all sizes in all stages of the employment cycle from recruitment to retirement; and ADP SmartCompliance and ADP Health Compliance. The PEO Services segment provides a human resources (HR) outsourcing solution through a co-employment model to small and mid-sized businesses. This segment offers ADP TotalSource that provides various HR management services and employee benefits functions, such as HR administration, employee benefits, and employer liability management into a single-source solution. The company was founded in 1949 and is headquartered in Roseland, New Jersey.

FINANCIAL RATIOS  of  Automatic Data Processing (ADP)

Valuation Ratios
P/E Ratio 33.9
Price to Sales 4.3
Price to Book 11.3
Price to Tangible Book
Price to Cash Flow 27.2
Price to Free Cash Flow 34.3
Growth Rates
Sales Growth Rate 6.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 14.9%
Cap. Spend. - 3 Yr. Gr. Rate 10.4%
Financial Strength
Quick Ratio NaN
Current Ratio 1
LT Debt to Equity 44.8%
Total Debt to Equity 44.8%
Interest Coverage 60
Management Effectiveness
Return On Assets 4%
Ret/ On Assets - 3 Yr. Avg. 4.4%
Return On Total Capital 26.4%
Ret/ On T. Cap. - 3 Yr. Avg. 22.6%
Return On Equity 32.1%
Return On Equity - 3 Yr. Avg. 27%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 43.2%
Gross Margin - 3 Yr. Avg. 43.1%
EBITDA Margin 22%
EBITDA Margin - 3 Yr. Avg. 21.5%
Operating Margin 19%
Oper. Margin - 3 Yr. Avg. 18.4%
Pre-Tax Margin 19.2%
Pre-Tax Margin - 3 Yr. Avg. 18.8%
Net Profit Margin 12.8%
Net Profit Margin - 3 Yr. Avg. 13.6%
Effective Tax Rate 33.2%
Eff/ Tax Rate - 3 Yr. Avg. 33.5%
Payout Ratio 63.2%

ADP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ADP stock intrinsic value calculation we used $11668 million for the last fiscal year's total revenue generated by Automatic Data Processing. The default revenue input number comes from 2016 income statement of Automatic Data Processing. 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 ADP stock valuation model: a) initial revenue growth rate of 5% 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 ADP is calculated based on our internal credit rating of Automatic Data Processing, 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 Automatic Data Processing.
    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 ADP stock the variable cost ratio is equal to 72%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1071 million in the base year in the intrinsic value calculation for ADP 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 3.8% for Automatic Data Processing.

Corporate tax rate of 27% is the nominal tax rate for Automatic Data Processing. 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 ADP 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 ADP are equal to 10.3%.

Life of production assets of 10.2 years is the average useful life of capital assets used in Automatic Data Processing 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 ADP is equal to 3.8%. 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 - $4482 million for Automatic Data Processing - 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 450.78 million for Automatic Data Processing 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 Automatic Data Processing at the current share price and the inputted number of shares is $50.1 billion.

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COMPANY NEWS

▶ Chipotle-Loving Bill Ackman Locked and Loaded to Torch ADP   [Aug-16-17 05:55PM  TheStreet.com]
▶ [$$] Ackman Disputes ADPs Narrative   [Aug-15-17 12:29AM  The Wall Street Journal]
▶ [$$] Ackman Refutes ADP's Narrative   [10:10AM  The Wall Street Journal]
▶ ADP chief throws shade at Ackman, calls the activist investor "a spoiled brat"   [Aug-10-17 07:15PM  American City Business Journals]
▶ Ackman jilted by ADP, no extension of board nominating deadline   [Aug-09-17 12:41PM  American City Business Journals]
▶ Cooperman Calls Ackman Attack on ADP 'Foolish'   [11:34AM  Bloomberg Video]
▶ ADP Stock Breakout Just Getting Started   [10:32AM  Investopedia]
▶ 6 Most Important Things in Business Today   [04:57AM  24/7 Wall St.]
▶ [$$] Ackmans Pershing Square Nominates Three to ADPs Board   [12:36AM  The Wall Street Journal]
▶ PRESS DIGEST- Financial Times - Aug 8   [Aug-07-17 07:17PM  Reuters]
▶ The battle over ADP   [01:09PM  CNBC Videos]
▶ [$$] ADP Takes Swipe at Ackman, Setting Stage for a Fight   [Aug-04-17 11:47PM  The Wall Street Journal]
▶ [$$] ADP Takes Swipe at Ackman, Setting Stage for a Fight   [03:57PM  The Wall Street Journal]
▶ 3 Activist Scenarios For ADP   [12:49PM  Barrons.com]
▶ Ackman urges CEO ouster and board changes at ADP   [11:55AM  American City Business Journals]
▶ Faber Report: Pershing Square targets ADP   [09:42AM  CNBC Videos]
▶ Who Asked You Anyway, Ackman?   [09:27AM  Bloomberg]
▶ Ackman Takes Aim AT ADP; ADP Says "No"   [09:16AM  Barrons.com]
▶ Ackman seeks control of ADP and ouster of CEO   [08:55AM  Associated Press]
▶ Bill Ackman seeks control of ADP   [08:01AM  CNBC Videos]
▶ ADP: Ackman Vs Short SellersWho's Right?   [03:54PM  Barrons.com]
▶ ADP Stock Down on Morgan Stanley Downgrade   [10:27AM  TheStreet.com]
▶ Rumors About Ackman Investment Cause Spike in ADP Shares   [Aug-01-17 06:17PM  Investopedia]
▶ ADP Declares Regular Quarterly Dividend   [01:35PM  GlobeNewswire]
▶ Automatic Data Processing: S&P 500s Top Gainer on July 27   [Jul-28-17 10:11AM  Market Realist]
▶ ADP misses 4Q profit forecasts   [01:24AM  Associated Press]
▶ The Hot Stock: Automatic Data Processing Climbs 9.1%   [Jul-27-17 04:53PM  Barrons.com]
Stock chart of ADP Financial statements of ADP
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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