Intrinsic value of Aetna - AET

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$135.07

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$135.07

 
Intrinsic value

$131.26

 
Up/down potential

-3%

 
Rating

hold

 
Value-price divergence* premium content

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Our model is not good at valuating stocks of financial companies, such as AET.

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

We calculate the intrinsic value of AET 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 47.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.67
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
  4.87
  4.89
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
Revenue, $m
  0
  65,997
  69,000
  72,170
  75,516
  79,044
  82,763
  86,681
  90,808
  95,153
  99,726
  104,538
  109,601
  114,927
  120,527
  126,415
  132,606
  139,113
  145,953
  153,141
  160,695
  168,632
  176,971
  185,733
  194,937
  204,606
  214,763
  225,432
  236,638
  248,408
  260,769
Variable operating expenses, $m
 
  60,933
  63,657
  66,534
  69,568
  72,769
  76,143
  79,697
  83,441
  87,382
  91,531
  94,833
  99,426
  104,256
  109,337
  114,679
  120,294
  126,198
  132,402
  138,923
  145,775
  152,976
  160,541
  168,489
  176,838
  185,610
  194,824
  204,502
  214,668
  225,345
  236,559
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  58,560
  60,933
  63,657
  66,534
  69,568
  72,769
  76,143
  79,697
  83,441
  87,382
  91,531
  94,833
  99,426
  104,256
  109,337
  114,679
  120,294
  126,198
  132,402
  138,923
  145,775
  152,976
  160,541
  168,489
  176,838
  185,610
  194,824
  204,502
  214,668
  225,345
  236,559
Operating income, $m
  4,595
  5,064
  5,342
  5,637
  5,947
  6,275
  6,620
  6,984
  7,367
  7,771
  8,195
  9,706
  10,176
  10,670
  11,190
  11,737
  12,311
  12,916
  13,551
  14,218
  14,919
  15,656
  16,430
  17,244
  18,098
  18,996
  19,939
  20,930
  21,970
  23,063
  24,211
EBITDA, $m
  5,276
  6,220
  6,502
  6,801
  7,117
  7,449
  7,800
  8,169
  8,558
  8,967
  9,398
  9,852
  10,329
  10,831
  11,358
  11,913
  12,497
  13,110
  13,755
  14,432
  15,144
  15,892
  16,678
  17,503
  18,371
  19,282
  20,239
  21,245
  22,301
  23,410
  24,575
Interest expense (income), $m
  541
  785
  872
  965
  1,063
  1,166
  1,275
  1,390
  1,510
  1,638
  1,772
  1,913
  2,061
  2,217
  2,382
  2,554
  2,736
  2,927
  3,127
  3,338
  3,560
  3,793
  4,038
  4,295
  4,565
  4,849
  5,147
  5,461
  5,790
  6,135
  6,498
Earnings before tax, $m
  3,991
  4,279
  4,470
  4,672
  4,885
  5,109
  5,345
  5,594
  5,857
  6,133
  6,423
  7,793
  8,115
  8,453
  8,809
  9,182
  9,576
  9,989
  10,423
  10,880
  11,359
  11,863
  12,393
  12,949
  13,533
  14,147
  14,792
  15,469
  16,180
  16,928
  17,712
Tax expense, $m
  1,735
  1,155
  1,207
  1,261
  1,319
  1,379
  1,443
  1,510
  1,581
  1,656
  1,734
  2,104
  2,191
  2,282
  2,378
  2,479
  2,585
  2,697
  2,814
  2,937
  3,067
  3,203
  3,346
  3,496
  3,654
  3,820
  3,994
  4,177
  4,369
  4,570
  4,782
Net income, $m
  2,271
  3,123
  3,263
  3,410
  3,566
  3,729
  3,902
  4,084
  4,275
  4,477
  4,689
  5,689
  5,924
  6,171
  6,430
  6,703
  6,990
  7,292
  7,609
  7,942
  8,292
  8,660
  9,047
  9,453
  9,879
  10,327
  10,798
  11,292
  11,812
  12,357
  12,930

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  69,146
  72,286
  75,575
  79,048
  82,712
  86,576
  90,649
  94,941
  99,461
  104,220
  109,229
  114,500
  120,045
  125,878
  132,012
  138,461
  145,242
  152,370
  159,861
  167,734
  176,007
  184,701
  193,835
  203,431
  213,512
  224,103
  235,228
  246,913
  259,187
  272,078
  285,618
Adjusted assets (=assets-cash), $m
  69,146
  72,286
  75,575
  79,048
  82,712
  86,576
  90,649
  94,941
  99,461
  104,220
  109,229
  114,500
  120,045
  125,878
  132,012
  138,461
  145,242
  152,370
  159,861
  167,734
  176,007
  184,701
  193,835
  203,431
  213,512
  224,103
  235,228
  246,913
  259,187
  272,078
  285,618
Revenue / Adjusted assets
  0.000
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
  0.913
Average production assets, $m
  1,565
  1,650
  1,725
  1,804
  1,888
  1,976
  2,069
  2,167
  2,270
  2,379
  2,493
  2,613
  2,740
  2,873
  3,013
  3,160
  3,315
  3,478
  3,649
  3,829
  4,017
  4,216
  4,424
  4,643
  4,873
  5,115
  5,369
  5,636
  5,916
  6,210
  6,519
Working capital, $m
  0
  1,716
  1,794
  1,876
  1,963
  2,055
  2,152
  2,254
  2,361
  2,474
  2,593
  2,718
  2,850
  2,988
  3,134
  3,287
  3,448
  3,617
  3,795
  3,982
  4,178
  4,384
  4,601
  4,829
  5,068
  5,320
  5,584
  5,861
  6,153
  6,459
  6,780
Total debt, $m
  20,661
  22,960
  25,397
  27,970
  30,685
  33,549
  36,567
  39,747
  43,096
  46,623
  50,335
  54,240
  58,349
  62,672
  67,217
  71,996
  77,020
  82,302
  87,853
  93,687
  99,817
  106,259
  113,028
  120,138
  127,609
  135,456
  143,700
  152,359
  161,453
  171,006
  181,039
Total liabilities, $m
  51,265
  53,564
  56,001
  58,574
  61,289
  64,153
  67,171
  70,351
  73,700
  77,227
  80,939
  84,844
  88,953
  93,276
  97,821
  102,600
  107,624
  112,906
  118,457
  124,291
  130,421
  136,863
  143,632
  150,742
  158,213
  166,060
  174,304
  182,963
  192,057
  201,610
  211,643
Total equity, $m
  17,881
  18,722
  19,574
  20,473
  21,422
  22,423
  23,478
  24,590
  25,760
  26,993
  28,290
  29,655
  31,092
  32,602
  34,191
  35,862
  37,618
  39,464
  41,404
  43,443
  45,586
  47,838
  50,203
  52,689
  55,300
  58,043
  60,924
  63,950
  67,129
  70,468
  73,975
Total liabilities and equity, $m
  69,146
  72,286
  75,575
  79,047
  82,711
  86,576
  90,649
  94,941
  99,460
  104,220
  109,229
  114,499
  120,045
  125,878
  132,012
  138,462
  145,242
  152,370
  159,861
  167,734
  176,007
  184,701
  193,835
  203,431
  213,513
  224,103
  235,228
  246,913
  259,186
  272,078
  285,618
Debt-to-equity ratio
  1.155
  1.230
  1.300
  1.370
  1.430
  1.500
  1.560
  1.620
  1.670
  1.730
  1.780
  1.830
  1.880
  1.920
  1.970
  2.010
  2.050
  2.090
  2.120
  2.160
  2.190
  2.220
  2.250
  2.280
  2.310
  2.330
  2.360
  2.380
  2.410
  2.430
  2.450
Adjusted equity ratio
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,271
  3,123
  3,263
  3,410
  3,566
  3,729
  3,902
  4,084
  4,275
  4,477
  4,689
  5,689
  5,924
  6,171
  6,430
  6,703
  6,990
  7,292
  7,609
  7,942
  8,292
  8,660
  9,047
  9,453
  9,879
  10,327
  10,798
  11,292
  11,812
  12,357
  12,930
Depreciation, amort., depletion, $m
  681
  1,156
  1,160
  1,164
  1,169
  1,174
  1,179
  1,185
  1,191
  1,197
  1,203
  146
  153
  161
  168
  177
  185
  194
  204
  214
  224
  236
  247
  259
  272
  286
  300
  315
  330
  347
  364
Funds from operations, $m
  4,375
  4,279
  4,423
  4,575
  4,735
  4,904
  5,081
  5,269
  5,466
  5,674
  5,892
  5,835
  6,077
  6,331
  6,599
  6,880
  7,175
  7,486
  7,813
  8,156
  8,517
  8,896
  9,294
  9,712
  10,151
  10,613
  11,098
  11,607
  12,142
  12,704
  13,294
Change in working capital, $m
  656
  74
  78
  82
  87
  92
  97
  102
  107
  113
  119
  125
  132
  138
  146
  153
  161
  169
  178
  187
  196
  206
  217
  228
  239
  251
  264
  277
  291
  306
  321
Cash from operations, $m
  3,719
  4,082
  4,345
  4,492
  4,648
  4,812
  4,985
  5,167
  5,359
  5,561
  5,773
  5,710
  5,945
  6,193
  6,453
  6,727
  7,014
  7,317
  7,635
  7,969
  8,320
  8,689
  9,077
  9,484
  9,912
  10,362
  10,834
  11,330
  11,851
  12,398
  12,973
Maintenance CAPEX, $m
  0
  -87
  -92
  -96
  -101
  -105
  -110
  -116
  -121
  -127
  -133
  -139
  -146
  -153
  -161
  -168
  -177
  -185
  -194
  -204
  -214
  -224
  -236
  -247
  -259
  -272
  -286
  -300
  -315
  -330
  -347
New CAPEX, $m
  -270
  -85
  -75
  -79
  -84
  -88
  -93
  -98
  -103
  -109
  -114
  -120
  -127
  -133
  -140
  -147
  -155
  -163
  -171
  -180
  -189
  -198
  -208
  -219
  -230
  -242
  -254
  -267
  -280
  -294
  -309
Cash from investing activities, $m
  -381
  -172
  -167
  -175
  -185
  -193
  -203
  -214
  -224
  -236
  -247
  -259
  -273
  -286
  -301
  -315
  -332
  -348
  -365
  -384
  -403
  -422
  -444
  -466
  -489
  -514
  -540
  -567
  -595
  -624
  -656
Free cash flow, $m
  3,338
  3,910
  4,178
  4,317
  4,463
  4,618
  4,781
  4,953
  5,134
  5,325
  5,526
  5,450
  5,672
  5,906
  6,152
  6,411
  6,683
  6,969
  7,270
  7,586
  7,918
  8,266
  8,633
  9,018
  9,423
  9,848
  10,294
  10,763
  11,256
  11,773
  12,317
Issuance/(repayment) of debt, $m
  12,886
  2,299
  2,437
  2,573
  2,715
  2,863
  3,018
  3,180
  3,349
  3,526
  3,712
  3,906
  4,109
  4,322
  4,545
  4,779
  5,024
  5,282
  5,551
  5,834
  6,131
  6,442
  6,768
  7,111
  7,470
  7,848
  8,243
  8,659
  9,095
  9,553
  10,033
Issuance/(repurchase) of shares, $m
  -139
  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  
  12,485
  2,299
  2,437
  2,573
  2,715
  2,863
  3,018
  3,180
  3,349
  3,526
  3,712
  3,906
  4,109
  4,322
  4,545
  4,779
  5,024
  5,282
  5,551
  5,834
  6,131
  6,442
  6,768
  7,111
  7,470
  7,848
  8,243
  8,659
  9,095
  9,553
  10,033
Total cash flow (excl. dividends), $m
  15,823
  6,209
  6,615
  6,890
  7,179
  7,482
  7,800
  8,133
  8,484
  8,852
  9,238
  9,356
  9,782
  10,228
  10,698
  11,190
  11,708
  12,251
  12,821
  13,420
  14,048
  14,708
  15,401
  16,129
  16,893
  17,695
  18,538
  19,422
  20,351
  21,326
  22,350
Retained Cash Flow (-), $m
  -1,767
  -841
  -852
  -899
  -949
  -1,001
  -1,055
  -1,112
  -1,171
  -1,233
  -1,297
  -1,365
  -1,436
  -1,511
  -1,589
  -1,670
  -1,756
  -1,846
  -1,940
  -2,039
  -2,143
  -2,252
  -2,366
  -2,485
  -2,611
  -2,743
  -2,881
  -3,027
  -3,179
  -3,339
  -3,507
Prev. year cash balance distribution, $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 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
 
  5,368
  5,763
  5,991
  6,230
  6,481
  6,745
  7,022
  7,313
  7,619
  7,940
  7,991
  8,345
  8,718
  9,109
  9,520
  9,951
  10,405
  10,881
  11,380
  11,905
  12,457
  13,036
  13,643
  14,282
  14,952
  15,656
  16,396
  17,172
  17,987
  18,843
Discount rate, %
 
  8.70
  9.14
  9.59
  10.07
  10.57
  11.10
  11.66
  12.24
  12.85
  13.50
  14.17
  14.88
  15.62
  16.41
  17.23
  18.09
  18.99
  19.94
  20.94
  21.98
  23.08
  24.24
  25.45
  26.72
  28.06
  29.46
  30.93
  32.48
  34.11
  35.81
PV of cash for distribution, $m
 
  4,938
  4,839
  4,551
  4,244
  3,921
  3,586
  3,245
  2,903
  2,566
  2,239
  1,860
  1,579
  1,321
  1,086
  878
  696
  541
  412
  307
  224
  159
  110
  74
  49
  31
  19
  11
  7
  4
  2
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

Aetna Inc. operates as a health care benefits company in the United States. It operates through three segments: Health Care, Group Insurance, and Large Case Pensions. The Health Care segment offers medical, pharmacy benefit management service, dental, behavioral health, and vision plans on an insured and employer-funded basis. It also provides point-of-service, preferred provider organization, health maintenance organization, and indemnity benefit plans, as well as health savings accounts and consumer-directed health plans. In addition, this segment offers Medicare and Medicaid products and services, as well as other medical products, such as medical management and data analytics services, medical stop loss insurance, workersÂ’ compensation administrative services, and products that provide access to its provider networks in select geographies. The Group Insurance segment offers life insurance products, including group term life insurance, voluntary spouse and dependent term life insurance, group universal life insurance, and accidental death and dismemberment insurance; disability insurance products; and long-term care insurance products, which provide the benefits to cover the cost of care in private home settings, adult day care, assisted living, or nursing facilities. The Large Case Pensions segment manages various retirement products, including pension and annuity products primarily for tax-qualified pension plans. The company provides its products and services to employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labor groups, and expatriates. Aetna Inc. was founded in 1853 and is based in Hartford, Connecticut.

FINANCIAL RATIOS  of  Aetna (AET)

Valuation Ratios
P/E Ratio 20.9
Price to Sales 0.8
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 12.8
Price to Free Cash Flow 13.8
Growth Rates
Sales Growth Rate 4.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -25.6%
Cap. Spend. - 3 Yr. Gr. Rate -10.8%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 106.4%
Total Debt to Equity 115.5%
Interest Coverage 8
Management Effectiveness
Return On Assets 4.2%
Ret/ On Assets - 3 Yr. Avg. 4.5%
Return On Total Capital 7.3%
Ret/ On T. Cap. - 3 Yr. Avg. 8.8%
Return On Equity 13.4%
Return On Equity - 3 Yr. Avg. 14.4%
Asset Turnover 1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 8.3%
EBITDA Margin - 3 Yr. Avg. 8.2%
Operating Margin 7.3%
Oper. Margin - 3 Yr. Avg. 7.2%
Pre-Tax Margin 6.3%
Pre-Tax Margin - 3 Yr. Avg. 6.5%
Net Profit Margin 3.6%
Net Profit Margin - 3 Yr. Avg. 3.7%
Effective Tax Rate 43.5%
Eff/ Tax Rate - 3 Yr. Avg. 42.8%
Payout Ratio 15.5%

AET stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AET stock intrinsic value calculation we used $63155 million for the last fiscal year's total revenue generated by Aetna. The default revenue input number comes from 2016 income statement of Aetna. 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 AET stock valuation model: a) initial revenue growth rate of 4.5% 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 8.7%, whose default value for AET is calculated based on our internal credit rating of Aetna, 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 Aetna.
    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 AET stock the variable cost ratio is equal to 92.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AET 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 Aetna.

Corporate tax rate of 27% is the nominal tax rate for Aetna. 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 AET 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 AET are equal to 2.5%.

Life of production assets of 17.9 years is the average useful life of capital assets used in Aetna 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 AET is equal to 2.6%. 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 - $17881 million for Aetna - 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 353.508 million for Aetna 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 Aetna at the current share price and the inputted number of shares is $47.7 billion.


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Stock chart of AET Financial statements of AET
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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