Intrinsic value of ARRIS International - ARRS

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$28.92

  Intrinsic Value

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  Value-price divergence*

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$28.92

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

We calculate the intrinsic value of ARRS 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 5.4

 

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, %
  42.33
  59.60
  54.14
  49.23
  44.80
  40.82
  37.24
  34.02
  31.12
  28.50
  26.15
  24.04
  22.13
  20.42
  18.88
  17.49
  16.24
  15.12
  14.11
  13.20
  12.38
  11.64
  10.97
  10.38
  9.84
  9.36
  8.92
  8.53
  8.17
  7.86
  7.57
Revenue, $m
  6,829
  10,899
  16,800
  25,070
  36,302
  51,121
  70,159
  94,025
  123,281
  158,421
  199,853
  247,893
  302,762
  364,588
  433,417
  509,224
  591,931
  681,416
  777,534
  880,131
  989,053
  1,104,160
  1,225,334
  1,352,485
  1,485,558
  1,624,536
  1,769,440
  1,920,333
  2,077,320
  2,240,545
  2,410,193
Variable operating expenses, $m
 
  10,299
  15,766
  23,428
  33,834
  47,564
  65,203
  87,314
  114,419
  146,975
  185,361
  229,668
  280,502
  337,783
  401,551
  471,785
  548,411
  631,317
  720,369
  815,423
  916,337
  1,022,981
  1,135,246
  1,253,049
  1,376,338
  1,505,098
  1,639,349
  1,779,148
  1,924,593
  2,075,818
  2,232,993
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
  6,718
  10,299
  15,766
  23,428
  33,834
  47,564
  65,203
  87,314
  114,419
  146,975
  185,361
  229,668
  280,502
  337,783
  401,551
  471,785
  548,411
  631,317
  720,369
  815,423
  916,337
  1,022,981
  1,135,246
  1,253,049
  1,376,338
  1,505,098
  1,639,349
  1,779,148
  1,924,593
  2,075,818
  2,232,993
Operating income, $m
  111
  600
  1,034
  1,642
  2,467
  3,557
  4,957
  6,711
  8,862
  11,446
  14,492
  18,225
  22,259
  26,805
  31,865
  37,439
  43,519
  50,098
  57,165
  64,708
  72,716
  81,179
  90,088
  99,436
  109,220
  119,438
  130,091
  141,185
  152,727
  164,727
  177,200
EBITDA, $m
  606
  1,180
  1,819
  2,714
  3,930
  5,535
  7,596
  10,180
  13,347
  17,152
  21,637
  26,839
  32,779
  39,473
  46,925
  55,132
  64,087
  73,775
  84,181
  95,289
  107,082
  119,544
  132,663
  146,429
  160,837
  175,884
  191,572
  207,909
  224,905
  242,577
  260,944
Interest expense (income), $m
  71
  76
  170
  306
  496
  754
  1,095
  1,533
  2,082
  2,755
  3,563
  4,516
  5,621
  6,884
  8,306
  9,889
  11,633
  13,535
  15,594
  17,805
  20,165
  22,670
  25,318
  28,105
  31,030
  34,091
  37,288
  40,621
  44,092
  47,704
  51,458
Earnings before tax, $m
  24
  523
  864
  1,336
  1,972
  2,803
  3,862
  5,178
  6,780
  8,691
  10,929
  13,709
  16,638
  19,921
  23,560
  27,550
  31,887
  36,563
  41,572
  46,904
  52,552
  58,509
  64,770
  71,331
  78,190
  85,346
  92,803
  100,564
  108,635
  117,024
  125,742
Tax expense, $m
  15
  141
  233
  361
  532
  757
  1,043
  1,398
  1,831
  2,346
  2,951
  3,701
  4,492
  5,379
  6,361
  7,438
  8,609
  9,872
  11,224
  12,664
  14,189
  15,797
  17,488
  19,259
  21,111
  23,044
  25,057
  27,152
  29,331
  31,596
  33,950
Net income, $m
  18
  382
  630
  975
  1,439
  2,046
  2,819
  3,780
  4,950
  6,344
  7,978
  10,008
  12,146
  14,543
  17,198
  20,111
  23,277
  26,691
  30,347
  34,240
  38,363
  42,711
  47,282
  52,072
  57,078
  62,303
  67,746
  73,411
  79,303
  85,427
  91,792

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,096
  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
  7,758
  10,644
  16,406
  24,482
  35,451
  49,923
  68,515
  91,821
  120,392
  154,708
  195,169
  242,083
  295,666
  356,043
  423,258
  497,289
  578,057
  665,445
  759,311
  859,503
  965,873
  1,078,282
  1,196,615
  1,320,786
  1,450,740
  1,586,461
  1,727,969
  1,875,326
  2,028,633
  2,188,032
  2,353,704
Adjusted assets (=assets-cash), $m
  6,662
  10,644
  16,406
  24,482
  35,451
  49,923
  68,515
  91,821
  120,392
  154,708
  195,169
  242,083
  295,666
  356,043
  423,258
  497,289
  578,057
  665,445
  759,311
  859,503
  965,873
  1,078,282
  1,196,615
  1,320,786
  1,450,740
  1,586,461
  1,727,969
  1,875,326
  2,028,633
  2,188,032
  2,353,704
Revenue / Adjusted assets
  1.025
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
  1.024
Average production assets, $m
  1,577
  2,234
  3,444
  5,139
  7,442
  10,480
  14,383
  19,275
  25,273
  32,476
  40,970
  50,818
  62,066
  74,740
  88,850
  104,391
  121,346
  139,690
  159,395
  180,427
  202,756
  226,353
  251,193
  277,259
  304,539
  333,030
  362,735
  393,668
  425,851
  459,312
  494,090
Working capital, $m
  1,446
  698
  1,075
  1,604
  2,323
  3,272
  4,490
  6,018
  7,890
  10,139
  12,791
  15,865
  19,377
  23,334
  27,739
  32,590
  37,884
  43,611
  49,762
  56,328
  63,299
  70,666
  78,421
  86,559
  95,076
  103,970
  113,244
  122,901
  132,948
  143,395
  154,252
Total debt, $m
  2,263
  4,853
  8,731
  14,166
  21,549
  31,288
  43,801
  59,486
  78,714
  101,808
  129,038
  160,612
  196,673
  237,307
  282,543
  332,366
  386,723
  445,535
  508,706
  576,136
  647,722
  723,374
  803,012
  886,579
  974,038
  1,065,378
  1,160,613
  1,259,784
  1,362,960
  1,470,236
  1,581,733
Total liabilities, $m
  4,570
  7,163
  11,041
  16,476
  23,859
  33,598
  46,111
  61,796
  81,024
  104,118
  131,348
  162,922
  198,983
  239,617
  284,853
  334,676
  389,033
  447,845
  511,016
  578,446
  650,032
  725,684
  805,322
  888,889
  976,348
  1,067,688
  1,162,923
  1,262,094
  1,365,270
  1,472,546
  1,584,043
Total equity, $m
  3,189
  3,480
  5,365
  8,006
  11,592
  16,325
  22,404
  30,026
  39,368
  50,589
  63,820
  79,161
  96,683
  116,426
  138,405
  162,614
  189,025
  217,601
  248,295
  281,058
  315,840
  352,598
  391,293
  431,897
  474,392
  518,773
  565,046
  613,231
  663,363
  715,487
  769,661
Total liabilities and equity, $m
  7,759
  10,643
  16,406
  24,482
  35,451
  49,923
  68,515
  91,822
  120,392
  154,707
  195,168
  242,083
  295,666
  356,043
  423,258
  497,290
  578,058
  665,446
  759,311
  859,504
  965,872
  1,078,282
  1,196,615
  1,320,786
  1,450,740
  1,586,461
  1,727,969
  1,875,325
  2,028,633
  2,188,033
  2,353,704
Debt-to-equity ratio
  0.710
  1.390
  1.630
  1.770
  1.860
  1.920
  1.950
  1.980
  2.000
  2.010
  2.020
  2.030
  2.030
  2.040
  2.040
  2.040
  2.050
  2.050
  2.050
  2.050
  2.050
  2.050
  2.050
  2.050
  2.050
  2.050
  2.050
  2.050
  2.050
  2.050
  2.060
Adjusted equity ratio
  0.314
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  18
  382
  630
  975
  1,439
  2,046
  2,819
  3,780
  4,950
  6,344
  7,978
  10,008
  12,146
  14,543
  17,198
  20,111
  23,277
  26,691
  30,347
  34,240
  38,363
  42,711
  47,282
  52,072
  57,078
  62,303
  67,746
  73,411
  79,303
  85,427
  91,792
Depreciation, amort., depletion, $m
  495
  580
  785
  1,073
  1,463
  1,978
  2,639
  3,469
  4,485
  5,706
  7,146
  8,613
  10,520
  12,668
  15,059
  17,693
  20,567
  23,676
  27,016
  30,581
  34,365
  38,365
  42,575
  46,993
  51,617
  56,446
  61,481
  66,723
  72,178
  77,849
  83,744
Funds from operations, $m
  275
  962
  1,416
  2,048
  2,902
  4,024
  5,458
  7,249
  9,435
  12,050
  15,123
  18,621
  22,665
  27,210
  32,258
  37,805
  43,844
  50,367
  57,363
  64,820
  72,728
  81,076
  89,857
  99,065
  108,695
  118,749
  129,227
  140,135
  151,481
  163,277
  175,536
Change in working capital, $m
  -88
  260
  378
  529
  719
  948
  1,218
  1,527
  1,872
  2,249
  2,652
  3,075
  3,512
  3,957
  4,405
  4,852
  5,293
  5,727
  6,152
  6,566
  6,971
  7,367
  7,755
  8,138
  8,517
  8,895
  9,274
  9,657
  10,047
  10,446
  10,857
Cash from operations, $m
  363
  979
  1,038
  1,519
  2,183
  3,075
  4,240
  5,721
  7,562
  9,801
  12,472
  15,546
  19,154
  23,254
  27,853
  32,953
  38,551
  44,640
  51,212
  58,254
  65,757
  73,710
  82,102
  90,927
  100,179
  109,854
  119,953
  130,478
  141,434
  152,830
  164,678
Maintenance CAPEX, $m
  0
  -237
  -379
  -584
  -871
  -1,261
  -1,776
  -2,438
  -3,267
  -4,283
  -5,504
  -6,944
  -8,613
  -10,520
  -12,668
  -15,059
  -17,693
  -20,567
  -23,676
  -27,016
  -30,581
  -34,365
  -38,365
  -42,575
  -46,993
  -51,617
  -56,446
  -61,481
  -66,723
  -72,178
  -77,849
New CAPEX, $m
  -72
  -835
  -1,210
  -1,695
  -2,303
  -3,038
  -3,903
  -4,893
  -5,997
  -7,204
  -8,494
  -9,848
  -11,248
  -12,674
  -14,110
  -15,541
  -16,955
  -18,344
  -19,704
  -21,032
  -22,329
  -23,597
  -24,841
  -26,066
  -27,280
  -28,490
  -29,705
  -30,933
  -32,182
  -33,461
  -34,778
Cash from investing activities, $m
  -525
  -1,072
  -1,589
  -2,279
  -3,174
  -4,299
  -5,679
  -7,331
  -9,264
  -11,487
  -13,998
  -16,792
  -19,861
  -23,194
  -26,778
  -30,600
  -34,648
  -38,911
  -43,380
  -48,048
  -52,910
  -57,962
  -63,206
  -68,641
  -74,273
  -80,107
  -86,151
  -92,414
  -98,905
  -105,639
  -112,627
Free cash flow, $m
  -162
  -93
  -550
  -760
  -990
  -1,224
  -1,439
  -1,609
  -1,702
  -1,686
  -1,526
  -1,246
  -708
  60
  1,075
  2,353
  3,903
  5,729
  7,831
  10,206
  12,847
  15,747
  18,897
  22,286
  25,906
  29,747
  33,802
  38,064
  42,528
  47,191
  52,051
Issuance/(repayment) of debt, $m
  479
  2,673
  3,878
  5,435
  7,382
  9,740
  12,512
  15,685
  19,228
  23,095
  27,230
  31,573
  36,061
  40,634
  45,236
  49,823
  54,357
  58,812
  63,172
  67,429
  71,586
  75,651
  79,639
  83,567
  87,459
  91,340
  95,235
  99,171
  103,176
  107,276
  111,497
Issuance/(repurchase) of shares, $m
  -183
  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  
  291
  2,673
  3,878
  5,435
  7,382
  9,740
  12,512
  15,685
  19,228
  23,095
  27,230
  31,573
  36,061
  40,634
  45,236
  49,823
  54,357
  58,812
  63,172
  67,429
  71,586
  75,651
  79,639
  83,567
  87,459
  91,340
  95,235
  99,171
  103,176
  107,276
  111,497
Total cash flow (excl. dividends), $m
  117
  2,581
  3,328
  4,675
  6,392
  8,516
  11,073
  14,076
  17,526
  21,409
  25,704
  30,327
  35,354
  40,693
  46,311
  52,176
  58,260
  64,541
  71,003
  77,635
  84,434
  91,399
  98,535
  105,853
  113,365
  121,087
  129,037
  137,235
  145,704
  154,467
  163,548
Retained Cash Flow (-), $m
  -1,395
  -1,303
  -1,884
  -2,641
  -3,587
  -4,732
  -6,080
  -7,621
  -9,342
  -11,221
  -13,231
  -15,341
  -17,522
  -19,743
  -21,980
  -24,208
  -26,411
  -28,576
  -30,694
  -32,763
  -34,783
  -36,758
  -38,695
  -40,604
  -42,495
  -44,381
  -46,273
  -48,186
  -50,132
  -52,124
  -54,175
Prev. year cash balance distribution, $m
 
  1,013
  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
 
  2,290
  1,444
  2,034
  2,805
  3,783
  4,994
  6,455
  8,183
  10,188
  12,473
  14,986
  17,832
  20,950
  24,332
  27,968
  31,849
  35,965
  40,309
  44,872
  49,651
  54,641
  59,840
  65,249
  70,870
  76,706
  82,764
  89,050
  95,573
  102,343
  109,373
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  2,181
  1,303
  1,731
  2,240
  2,817
  3,445
  4,100
  4,750
  5,364
  5,909
  6,334
  6,661
  6,850
  6,892
  6,788
  6,545
  6,181
  5,718
  5,181
  4,597
  3,994
  3,396
  2,825
  2,298
  1,827
  1,418
  1,074
  793
  570
  399
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

ARRIS International plc provides media entertainment and data communications solutions in the United States and internationally. It operates through two segments, Customer Premises Equipment and Network & Cloud. The Customer Premises Equipment segment offers various product solutions, including set-top boxes, gateways, digital subscriber lines and cable modems, and embedded multimedia terminal adapters and voice/data modems that enable service providers to offer voice, video, and high-speed data services to residential and business subscribers. The Network & Cloud segment provides cable modem termination system, converged cable access platform, multichannel video programming distributors, programmer equipment, Ad insertion technologies, and equipment in the ground or on transmission poles, as well as equipment used to initiate the distribution of content-carrying signals. This segment also offers technical support, professional services, and systems integration capabilities; software products that enable providers to deliver user experiences; multiscreen recommendations, offer management, and advertising services; network management products that collect information from the broadband network; and workforce management solutions enabling service providers to efficiently manage and dispatch field technicians, as well as network surveillance and issue correlation software and services. The company was formerly known as ARRIS Group, Inc. and changed its name to ARRIS International plc in January 2016. ARRIS International plc was founded in 1969 and is headquartered in Suwanee, Georgia.

FINANCIAL RATIOS  of  ARRIS International (ARRS)

Valuation Ratios
P/E Ratio 237
Price to Sales 0.6
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 11.8
Price to Free Cash Flow 14.7
Growth Rates
Sales Growth Rate 42.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -19.1%
Cap. Spend. - 3 Yr. Gr. Rate 0.3%
Financial Strength
Quick Ratio 13
Current Ratio 0.1
LT Debt to Equity 68.4%
Total Debt to Equity 71%
Interest Coverage 1
Management Effectiveness
Return On Assets 0.7%
Ret/ On Assets - 3 Yr. Avg. 4.3%
Return On Total Capital 0.4%
Ret/ On T. Cap. - 3 Yr. Avg. 4.6%
Return On Equity 0.7%
Return On Equity - 3 Yr. Avg. 9.2%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 25%
Gross Margin - 3 Yr. Avg. 28.1%
EBITDA Margin 8.6%
EBITDA Margin - 3 Yr. Avg. 10%
Operating Margin 1.6%
Oper. Margin - 3 Yr. Avg. 4.1%
Pre-Tax Margin 0.4%
Pre-Tax Margin - 3 Yr. Avg. 2.4%
Net Profit Margin 0.3%
Net Profit Margin - 3 Yr. Avg. 2.8%
Effective Tax Rate 62.5%
Eff/ Tax Rate - 3 Yr. Avg. 15.7%
Payout Ratio 0%

ARRS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARRS stock intrinsic value calculation we used $6829 million for the last fiscal year's total revenue generated by ARRIS International. The default revenue input number comes from 2016 income statement of ARRIS International. 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 ARRS stock valuation model: a) initial revenue growth rate of 59.6% 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 5%, whose default value for ARRS is calculated based on our internal credit rating of ARRIS International, 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 ARRIS International.
    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 ARRS stock the variable cost ratio is equal to 95.6%.

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 ARRS 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 ARRIS International.

Corporate tax rate of 27% is the nominal tax rate for ARRIS International. 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 ARRS 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 ARRS are equal to 20.5%.

Life of production assets of 5.9 years is the average useful life of capital assets used in ARRIS International 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 ARRS is equal to 6.4%. 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 - $3190 million for ARRIS International - 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 187.669 million for ARRIS International 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 ARRIS International at the current share price and the inputted number of shares is $5.4 billion.


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COMPANY NEWS

▶ Arris Rated A Buy Despite Set-Top Box Decline; Ruckus Deal A Plus   [Jun-15-17 04:22PM  Investor's Business Daily]
▶ ARRIS to Present at NASDAQ's 36th Investor Program   [Jun-01-17 11:00AM  PR Newswire]
▶ Ferrari Leads 5 Stocks Racing Higher On Earnings   [May-04-17 04:02PM  Investor's Business Daily]
▶ Arris Group reports 1Q loss   [May-03-17 05:44PM  Associated Press]
▶ ZoneTV Expands Its Pay-TV Set-Top Box Reach Through Cloud   [Apr-24-17 10:45AM  Business Wire]
▶ [$$] Broadcom-Brocade Deal Gets Better   [Mar-30-17 03:00PM  Barrons.com]
▶ [$$] Broadcom-Brocade Deal Gets Better   [03:00PM  at Barrons.com]
▶ ARRIS Unveils SURFboard® Voice Gateway   [Mar-20-17 06:00AM  PR Newswire]
▶ Why ARRIS International plc Fell 15% Today   [01:48PM  at Motley Fool]
▶ ARRIS Announces 2017 Investor Day   [02:30PM  PR Newswire]
▶ Hedge Funds Are Buying Teradyne, Inc. (TER)   [Nov-28-16 09:09AM  at Insider Monkey]
▶ Investors Are Abuzz About ARRIS International PLC (ARRS)   [Nov-24-16 04:04PM  at Insider Monkey]
▶ ARRIS Names Dan Whalen President, Network & Cloud   [Nov-02-16 08:06AM  PR Newswire]
▶ Today's Top 5 Stock Picks: Cash Gushers   [07:29AM  at Barrons.com]
Stock chart of ARRS Financial statements of ARRS Annual reports of ARRS
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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