Intrinsic value of Amgen - AMGN

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$172.50

  Intrinsic Value

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  Value-price divergence*

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$172.50

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

We calculate the intrinsic value of AMGN 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 127.3

 

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, %
  6.14
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
  5.16
  5.14
  5.13
Revenue, $m
  22,991
  24,761
  26,601
  28,513
  30,500
  32,565
  34,712
  36,946
  39,271
  41,691
  44,211
  46,838
  49,577
  52,434
  55,415
  58,528
  61,780
  65,178
  68,730
  72,446
  76,332
  80,399
  84,657
  89,115
  93,784
  98,675
  103,800
  109,171
  114,801
  120,703
  126,892
Variable operating expenses, $m
 
  2,907
  3,014
  3,124
  3,239
  3,359
  3,483
  3,612
  3,747
  3,886
  4,032
  2,709
  2,868
  3,033
  3,205
  3,385
  3,573
  3,770
  3,975
  4,190
  4,415
  4,650
  4,897
  5,154
  5,424
  5,707
  6,004
  6,314
  6,640
  6,981
  7,339
Fixed operating expenses, $m
 
  11,088
  11,366
  11,650
  11,941
  12,240
  12,546
  12,859
  13,181
  13,510
  13,848
  14,194
  14,549
  14,913
  15,286
  15,668
  16,059
  16,461
  16,872
  17,294
  17,727
  18,170
  18,624
  19,090
  19,567
  20,056
  20,557
  21,071
  21,598
  22,138
  22,691
Total operating expenses, $m
  13,197
  13,995
  14,380
  14,774
  15,180
  15,599
  16,029
  16,471
  16,928
  17,396
  17,880
  16,903
  17,417
  17,946
  18,491
  19,053
  19,632
  20,231
  20,847
  21,484
  22,142
  22,820
  23,521
  24,244
  24,991
  25,763
  26,561
  27,385
  28,238
  29,119
  30,030
Operating income, $m
  9,794
  10,766
  12,222
  13,739
  15,319
  16,967
  18,684
  20,475
  22,343
  24,294
  26,331
  29,935
  32,160
  34,488
  36,924
  39,475
  42,147
  44,947
  47,883
  50,961
  54,190
  57,579
  61,136
  64,871
  68,792
  72,911
  77,239
  81,785
  86,563
  91,584
  96,861
EBITDA, $m
  11,899
  13,322
  14,858
  16,459
  18,126
  19,864
  21,675
  23,563
  25,533
  27,589
  29,736
  31,980
  34,325
  36,777
  39,344
  42,030
  44,844
  47,793
  50,883
  54,124
  57,523
  61,089
  64,832
  68,761
  72,887
  77,219
  81,770
  86,551
  91,574
  96,853
  102,400
Interest expense (income), $m
  1,300
  1,178
  983
  1,094
  1,210
  1,330
  1,454
  1,584
  1,719
  1,859
  2,006
  2,158
  2,317
  2,482
  2,655
  2,835
  3,023
  3,219
  3,425
  3,639
  3,864
  4,098
  4,344
  4,601
  4,871
  5,153
  5,448
  5,758
  6,082
  6,422
  6,779
Earnings before tax, $m
  9,163
  9,588
  11,239
  12,645
  14,110
  15,637
  17,230
  18,891
  20,624
  22,434
  24,325
  27,777
  29,844
  32,006
  34,270
  36,640
  39,124
  41,728
  44,458
  47,322
  50,327
  53,481
  56,792
  60,269
  63,922
  67,759
  71,790
  76,027
  80,480
  85,161
  90,082
Tax expense, $m
  1,441
  2,589
  3,034
  3,414
  3,810
  4,222
  4,652
  5,101
  5,569
  6,057
  6,568
  7,500
  8,058
  8,642
  9,253
  9,893
  10,564
  11,267
  12,004
  12,777
  13,588
  14,440
  15,334
  16,273
  17,259
  18,295
  19,383
  20,527
  21,730
  22,993
  24,322
Net income, $m
  7,722
  6,999
  8,204
  9,231
  10,300
  11,415
  12,578
  13,790
  15,056
  16,377
  17,758
  20,277
  21,786
  23,364
  25,017
  26,748
  28,561
  30,461
  32,454
  34,545
  36,739
  39,041
  41,458
  43,997
  46,663
  49,464
  52,407
  55,500
  58,751
  62,168
  65,760

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  38,085
  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
  77,626
  42,618
  45,785
  49,076
  52,495
  56,050
  59,746
  63,591
  67,591
  71,757
  76,095
  80,616
  85,330
  90,247
  95,379
  100,737
  106,334
  112,183
  118,297
  124,691
  131,380
  138,381
  145,709
  153,381
  161,418
  169,836
  178,657
  187,902
  197,592
  207,750
  218,402
Adjusted assets (=assets-cash), $m
  39,541
  42,618
  45,785
  49,076
  52,495
  56,050
  59,746
  63,591
  67,591
  71,757
  76,095
  80,616
  85,330
  90,247
  95,379
  100,737
  106,334
  112,183
  118,297
  124,691
  131,380
  138,381
  145,709
  153,381
  161,418
  169,836
  178,657
  187,902
  197,592
  207,750
  218,402
Revenue / Adjusted assets
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
  0.581
Average production assets, $m
  13,441
  14,485
  15,562
  16,680
  17,842
  19,051
  20,307
  21,614
  22,973
  24,389
  25,864
  27,400
  29,002
  30,674
  32,418
  34,239
  36,141
  38,129
  40,207
  42,381
  44,654
  47,034
  49,524
  52,132
  54,863
  57,725
  60,723
  63,865
  67,158
  70,611
  74,232
Working capital, $m
  34,806
  1,213
  1,303
  1,397
  1,494
  1,596
  1,701
  1,810
  1,924
  2,043
  2,166
  2,295
  2,429
  2,569
  2,715
  2,868
  3,027
  3,194
  3,368
  3,550
  3,740
  3,940
  4,148
  4,367
  4,595
  4,835
  5,086
  5,349
  5,625
  5,914
  6,218
Total debt, $m
  34,596
  25,202
  28,051
  31,013
  34,091
  37,290
  40,616
  44,077
  47,677
  51,426
  55,331
  59,400
  63,642
  68,067
  72,686
  77,508
  82,545
  87,809
  93,312
  99,067
  105,087
  111,388
  117,983
  124,888
  132,121
  139,697
  147,636
  155,956
  164,677
  173,820
  183,407
Total liabilities, $m
  47,751
  38,357
  41,206
  44,168
  47,246
  50,445
  53,771
  57,232
  60,832
  64,581
  68,486
  72,555
  76,797
  81,222
  85,841
  90,663
  95,700
  100,964
  106,467
  112,222
  118,242
  124,543
  131,138
  138,043
  145,276
  152,852
  160,791
  169,111
  177,832
  186,975
  196,562
Total equity, $m
  29,875
  4,262
  4,578
  4,908
  5,250
  5,605
  5,975
  6,359
  6,759
  7,176
  7,610
  8,062
  8,533
  9,025
  9,538
  10,074
  10,633
  11,218
  11,830
  12,469
  13,138
  13,838
  14,571
  15,338
  16,142
  16,984
  17,866
  18,790
  19,759
  20,775
  21,840
Total liabilities and equity, $m
  77,626
  42,619
  45,784
  49,076
  52,496
  56,050
  59,746
  63,591
  67,591
  71,757
  76,096
  80,617
  85,330
  90,247
  95,379
  100,737
  106,333
  112,182
  118,297
  124,691
  131,380
  138,381
  145,709
  153,381
  161,418
  169,836
  178,657
  187,901
  197,591
  207,750
  218,402
Debt-to-equity ratio
  1.158
  5.910
  6.130
  6.320
  6.490
  6.650
  6.800
  6.930
  7.050
  7.170
  7.270
  7.370
  7.460
  7.540
  7.620
  7.690
  7.760
  7.830
  7.890
  7.940
  8.000
  8.050
  8.100
  8.140
  8.190
  8.230
  8.260
  8.300
  8.330
  8.370
  8.400
Adjusted equity ratio
  -0.208
  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
  7,722
  6,999
  8,204
  9,231
  10,300
  11,415
  12,578
  13,790
  15,056
  16,377
  17,758
  20,277
  21,786
  23,364
  25,017
  26,748
  28,561
  30,461
  32,454
  34,545
  36,739
  39,041
  41,458
  43,997
  46,663
  49,464
  52,407
  55,500
  58,751
  62,168
  65,760
Depreciation, amort., depletion, $m
  2,105
  2,556
  2,636
  2,720
  2,807
  2,897
  2,991
  3,088
  3,190
  3,295
  3,405
  2,045
  2,164
  2,289
  2,419
  2,555
  2,697
  2,845
  3,001
  3,163
  3,332
  3,510
  3,696
  3,890
  4,094
  4,308
  4,532
  4,766
  5,012
  5,269
  5,540
Funds from operations, $m
  10,355
  9,555
  10,841
  11,951
  13,107
  14,312
  15,568
  16,878
  18,245
  19,672
  21,163
  22,322
  23,950
  25,654
  27,436
  29,303
  31,258
  33,307
  35,455
  37,708
  40,071
  42,551
  45,154
  47,887
  50,757
  53,772
  56,939
  60,266
  63,762
  67,437
  71,299
Change in working capital, $m
  1
  87
  90
  94
  97
  101
  105
  109
  114
  119
  124
  129
  134
  140
  146
  153
  159
  167
  174
  182
  190
  199
  209
  218
  229
  240
  251
  263
  276
  289
  303
Cash from operations, $m
  10,354
  11,268
  10,751
  11,857
  13,010
  14,211
  15,463
  16,769
  18,131
  19,554
  21,039
  22,193
  23,816
  25,514
  27,290
  29,150
  31,099
  33,140
  35,281
  37,526
  39,881
  42,352
  44,945
  47,669
  50,528
  53,532
  56,687
  60,003
  63,487
  67,148
  70,996
Maintenance CAPEX, $m
  0
  -1,003
  -1,081
  -1,161
  -1,245
  -1,332
  -1,422
  -1,515
  -1,613
  -1,714
  -1,820
  -1,930
  -2,045
  -2,164
  -2,289
  -2,419
  -2,555
  -2,697
  -2,845
  -3,001
  -3,163
  -3,332
  -3,510
  -3,696
  -3,890
  -4,094
  -4,308
  -4,532
  -4,766
  -5,012
  -5,269
New CAPEX, $m
  -837
  -1,045
  -1,076
  -1,118
  -1,162
  -1,208
  -1,256
  -1,307
  -1,360
  -1,416
  -1,475
  -1,537
  -1,602
  -1,671
  -1,744
  -1,821
  -1,902
  -1,988
  -2,078
  -2,173
  -2,274
  -2,379
  -2,491
  -2,608
  -2,731
  -2,861
  -2,998
  -3,142
  -3,294
  -3,453
  -3,620
Cash from investing activities, $m
  -8,658
  -2,048
  -2,157
  -2,279
  -2,407
  -2,540
  -2,678
  -2,822
  -2,973
  -3,130
  -3,295
  -3,467
  -3,647
  -3,835
  -4,033
  -4,240
  -4,457
  -4,685
  -4,923
  -5,174
  -5,437
  -5,711
  -6,001
  -6,304
  -6,621
  -6,955
  -7,306
  -7,674
  -8,060
  -8,465
  -8,889
Free cash flow, $m
  1,696
  9,220
  8,593
  9,577
  10,602
  11,671
  12,785
  13,947
  15,159
  16,424
  17,745
  18,726
  20,169
  21,678
  23,257
  24,910
  26,641
  28,455
  30,357
  32,352
  34,444
  36,640
  38,945
  41,365
  43,907
  46,576
  49,381
  52,329
  55,427
  58,683
  62,106
Issuance/(repayment) of debt, $m
  3,593
  -4,991
  2,850
  2,962
  3,078
  3,199
  3,327
  3,460
  3,601
  3,749
  3,905
  4,069
  4,242
  4,425
  4,619
  4,822
  5,037
  5,264
  5,503
  5,755
  6,020
  6,300
  6,595
  6,906
  7,233
  7,577
  7,939
  8,320
  8,721
  9,143
  9,587
Issuance/(repurchase) of shares, $m
  -2,910
  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  
  399
  -4,991
  2,850
  2,962
  3,078
  3,199
  3,327
  3,460
  3,601
  3,749
  3,905
  4,069
  4,242
  4,425
  4,619
  4,822
  5,037
  5,264
  5,503
  5,755
  6,020
  6,300
  6,595
  6,906
  7,233
  7,577
  7,939
  8,320
  8,721
  9,143
  9,587
Total cash flow (excl. dividends), $m
  2,095
  4,229
  11,443
  12,539
  13,680
  14,870
  16,112
  17,407
  18,759
  20,172
  21,649
  22,795
  24,412
  26,103
  27,875
  29,732
  31,678
  33,719
  35,860
  38,107
  40,465
  42,940
  45,540
  48,270
  51,139
  54,153
  57,320
  60,649
  64,148
  67,826
  71,693
Retained Cash Flow (-), $m
  -1,792
  -8,069
  -317
  -329
  -342
  -355
  -370
  -384
  -400
  -417
  -434
  -452
  -471
  -492
  -513
  -536
  -560
  -585
  -611
  -639
  -669
  -700
  -733
  -767
  -804
  -842
  -882
  -924
  -969
  -1,016
  -1,065
Prev. year cash balance distribution, $m
 
  33,682
  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
 
  29,842
  11,127
  12,210
  13,338
  14,515
  15,742
  17,022
  18,359
  19,756
  21,215
  22,343
  23,940
  25,612
  27,362
  29,196
  31,119
  33,134
  35,249
  37,467
  39,796
  42,240
  44,807
  47,503
  50,335
  53,311
  56,438
  59,725
  63,179
  66,810
  70,628
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
 
  28,612
  10,186
  10,626
  10,983
  11,251
  11,425
  11,500
  11,475
  11,349
  11,122
  10,611
  10,216
  9,738
  9,186
  8,572
  7,908
  7,209
  6,491
  5,769
  5,057
  4,369
  3,718
  3,113
  2,564
  2,074
  1,647
  1,282
  977
  729
  532
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

Amgen Inc. discovers, develops, manufactures, and delivers human therapeutics worldwide. It offers products for the treatment of illness in the areas of oncology/hematology, cardiovascular, inflammation, bone health, nephrology, and neuroscience. The company’s products include Evenity to treat osteoporosis in postmenopausal women; Prolia to treat postmenopausal women with osteoporosis; Xgeva for the prevention of skeletal-related events; Repatha to treat coronary artery diseases; Enbrel to treat plaque psoriasis, rheumatoid arthritis, and psoriatic arthritis; Parsabiv to treat secondary hyperparathyroidism (sHPT); and Erenumab for the prevention of chronic migraine. Its products also comprise Blincyto to treat patients with Philadelphia chromosome-negative relapsed or refractory B-cell precursor acute lymphoblastic leukemia; Kyprolis, a proteasome inhibitor to treat patients with multiple myeloma and small-cell lung cancer; Nplate, a thrombopoietic compound; AMJEVITA to treat psoriatic arthritis and polyarticular juvenile idiopathic arthritis, as well as ankylosing spondylitis and moderate-to-severe rheumatoid arthritis; ABP 215 for biosimilar candidates; and ABP 980 to treat human epidermal growth factor receptor 2-positive early breast cancer. The company’s other marketed products include Neulasta, a pegylated protein to treat cancer patients; Aranesp to treat anemia; Sensipar/Mimpara products for use to treat sHPT in chronic kidney disease; EPOGEN to treat a lower-than-normal number of red blood cells; NEUPOGEN, a recombinant-methionyl human granulocyte colony-stimulating factor; and IMLYGIC to treat various cancer cells. It serves pharmaceutical wholesale distributors; and physicians or their clinics, dialysis centers, hospitals, and pharmacies, as well as consumers. The company has collaborative agreements with Pfizer Inc.; UCB; and Bayer HealthCare Pharmaceuticals Inc. Amgen Inc. was founded in 1980 and is headquartered in Thousand Oaks, California.

FINANCIAL RATIOS  of  Amgen (AMGN)

Valuation Ratios
P/E Ratio 16.5
Price to Sales 5.5
Price to Book 4.3
Price to Tangible Book
Price to Cash Flow 12.3
Price to Free Cash Flow 13.4
Growth Rates
Sales Growth Rate 6.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 29%
Cap. Spend. - 3 Yr. Gr. Rate 3.8%
Financial Strength
Quick Ratio 9
Current Ratio 0.2
LT Debt to Equity 101.1%
Total Debt to Equity 115.8%
Interest Coverage 8
Management Effectiveness
Return On Assets 11.8%
Ret/ On Assets - 3 Yr. Avg. 10.7%
Return On Total Capital 12.5%
Ret/ On T. Cap. - 3 Yr. Avg. 11.2%
Return On Equity 26.6%
Return On Equity - 3 Yr. Avg. 24.7%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 81.9%
Gross Margin - 3 Yr. Avg. 80.1%
EBITDA Margin 54.7%
EBITDA Margin - 3 Yr. Avg. 50%
Operating Margin 42.6%
Oper. Margin - 3 Yr. Avg. 37.5%
Pre-Tax Margin 39.9%
Pre-Tax Margin - 3 Yr. Avg. 34.8%
Net Profit Margin 33.6%
Net Profit Margin - 3 Yr. Avg. 30.4%
Effective Tax Rate 15.7%
Eff/ Tax Rate - 3 Yr. Avg. 12.1%
Payout Ratio 38.8%

AMGN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AMGN stock intrinsic value calculation we used $22991 million for the last fiscal year's total revenue generated by Amgen. The default revenue input number comes from 2016 income statement of Amgen. 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 AMGN stock valuation model: a) initial revenue growth rate of 7.7% 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 AMGN is calculated based on our internal credit rating of Amgen, 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 Amgen.
    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 AMGN stock the variable cost ratio is equal to 12.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $10818 million in the base year in the intrinsic value calculation for AMGN 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 3.9% for Amgen.

Corporate tax rate of 27% is the nominal tax rate for Amgen. 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 AMGN 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 AMGN are equal to 58.5%.

Life of production assets of 13.4 years is the average useful life of capital assets used in Amgen 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 AMGN is equal to 4.9%. 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 - $29875 million for Amgen - 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 738.106 million for Amgen 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 Amgen at the current share price and the inputted number of shares is $127.3 billion.


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Stock chart of AMGN Financial statements of AMGN Annual reports of AMGN
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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