Intrinsic value of Broadcom - AVGO

Previous Close

$253.42

  Intrinsic Value

$1,875

stock screener

  Rating & Target

str. buy

+640%

  Value-price divergence*

+1698%

Previous close

$253.42

 
Intrinsic value

$1,875

 
Up/down potential

+640%

 
Rating

str. buy

 
Value-price divergence*

+1698%

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

We calculate the intrinsic value of AVGO 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 100.5

 

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, %
  94.02
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  13,240
  21,184
  32,729
  48,947
  71,019
  100,198
  137,749
  184,899
  242,784
  312,404
  394,592
  489,994
  599,064
  722,074
  859,125
  1,010,179
  1,175,081
  1,353,594
  1,545,432
  1,750,282
  1,967,836
  2,197,812
  2,439,968
  2,694,121
  2,960,155
  3,238,029
  3,527,782
  3,829,534
  4,143,488
  4,469,929
  4,809,223
Variable operating expenses, $m
 
  14,637
  21,266
  30,578
  43,253
  60,007
  81,569
  108,643
  141,880
  181,856
  229,049
  281,356
  343,984
  414,617
  493,312
  580,047
  674,734
  777,237
  887,391
  1,005,016
  1,129,936
  1,261,989
  1,401,035
  1,546,971
  1,699,728
  1,859,284
  2,025,661
  2,198,928
  2,379,201
  2,566,644
  2,761,467
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
  13,772
  14,637
  21,266
  30,578
  43,253
  60,007
  81,569
  108,643
  141,880
  181,856
  229,049
  281,356
  343,984
  414,617
  493,312
  580,047
  674,734
  777,237
  887,391
  1,005,016
  1,129,936
  1,261,989
  1,401,035
  1,546,971
  1,699,728
  1,859,284
  2,025,661
  2,198,928
  2,379,201
  2,566,644
  2,761,467
Operating income, $m
  -532
  6,547
  11,463
  18,368
  27,767
  40,191
  56,180
  76,256
  100,904
  130,548
  165,543
  208,638
  255,080
  307,457
  365,814
  430,132
  500,346
  576,357
  658,041
  745,266
  837,900
  935,823
  1,038,932
  1,147,150
  1,260,427
  1,378,745
  1,502,121
  1,630,606
  1,764,287
  1,903,285
  2,047,755
EBITDA, $m
  2,510
  10,689
  16,515
  24,698
  35,836
  50,560
  69,508
  93,300
  122,508
  157,638
  199,110
  247,250
  302,286
  364,357
  433,513
  509,734
  592,943
  683,020
  779,821
  883,188
  992,965
  1,109,011
  1,231,202
  1,359,447
  1,493,687
  1,633,902
  1,780,110
  1,932,374
  2,090,794
  2,255,516
  2,426,722
Interest expense (income), $m
  0
  462
  1,107
  2,042
  3,357
  5,146
  7,511
  10,554
  14,375
  19,067
  24,709
  31,370
  39,102
  47,942
  57,911
  69,019
  81,261
  94,626
  109,093
  124,641
  141,243
  158,875
  177,514
  197,140
  217,738
  239,299
  261,819
  285,303
  309,759
  335,203
  361,660
Earnings before tax, $m
  -1,107
  6,085
  10,356
  16,326
  24,410
  35,045
  48,669
  65,703
  86,528
  111,481
  140,834
  177,268
  215,978
  259,516
  307,902
  361,113
  419,086
  481,732
  548,948
  620,625
  696,657
  776,948
  861,418
  950,010
  1,042,689
  1,139,446
  1,240,302
  1,345,304
  1,454,529
  1,568,082
  1,686,095
Tax expense, $m
  642
  1,643
  2,796
  4,408
  6,591
  9,462
  13,141
  17,740
  23,363
  30,100
  38,025
  47,862
  58,314
  70,069
  83,134
  97,501
  113,153
  130,068
  148,216
  167,569
  188,097
  209,776
  232,583
  256,503
  281,526
  307,650
  334,881
  363,232
  392,723
  423,382
  455,246
Net income, $m
  -1,739
  4,442
  7,560
  11,918
  17,819
  25,583
  35,529
  47,963
  63,166
  81,381
  102,809
  129,406
  157,664
  189,446
  224,769
  263,613
  305,932
  351,664
  400,732
  453,056
  508,559
  567,172
  628,835
  693,508
  761,163
  831,796
  905,420
  982,072
  1,061,806
  1,144,700
  1,230,849

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,097
  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
  49,966
  75,121
  116,061
  173,570
  251,841
  355,311
  488,471
  655,671
  860,937
  1,107,817
  1,399,262
  1,737,566
  2,124,341
  2,560,546
  3,046,544
  3,582,195
  4,166,952
  4,799,980
  5,480,254
  6,206,673
  6,978,143
  7,793,659
  8,652,368
  9,553,619
  10,497,002
  11,482,372
  12,509,865
  13,579,908
  14,693,221
  15,850,814
  17,053,981
Adjusted assets (=assets-cash), $m
  46,869
  75,121
  116,061
  173,570
  251,841
  355,311
  488,471
  655,671
  860,937
  1,107,817
  1,399,262
  1,737,566
  2,124,341
  2,560,546
  3,046,544
  3,582,195
  4,166,952
  4,799,980
  5,480,254
  6,206,673
  6,978,143
  7,793,659
  8,652,368
  9,553,619
  10,497,002
  11,482,372
  12,509,865
  13,579,908
  14,693,221
  15,850,814
  17,053,981
Revenue / Adjusted assets
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
Average production assets, $m
  10,427
  16,693
  25,791
  38,570
  55,963
  78,956
  108,546
  145,700
  191,314
  246,175
  310,938
  386,115
  472,063
  568,994
  676,991
  796,021
  925,963
  1,066,632
  1,217,800
  1,379,222
  1,550,655
  1,731,876
  1,922,695
  2,122,967
  2,332,602
  2,551,567
  2,779,892
  3,017,673
  3,265,069
  3,522,304
  3,789,667
Working capital, $m
  4,047
  2,246
  3,469
  5,188
  7,528
  10,621
  14,601
  19,599
  25,735
  33,115
  41,827
  51,939
  63,501
  76,540
  91,067
  107,079
  124,559
  143,481
  163,816
  185,530
  208,591
  232,968
  258,637
  285,577
  313,776
  343,231
  373,945
  405,931
  439,210
  473,813
  509,778
Total debt, $m
  13,642
  31,622
  58,356
  95,909
  147,020
  214,586
  301,539
  410,721
  544,760
  705,972
  896,286
  1,117,199
  1,369,763
  1,654,604
  1,971,961
  2,321,741
  2,703,588
  3,116,955
  3,561,174
  4,035,526
  4,539,295
  5,071,827
  5,632,564
  6,221,081
  6,837,110
  7,480,557
  8,151,510
  8,850,248
  9,577,241
  10,333,149
  11,118,818
Total liabilities, $m
  31,074
  49,054
  75,788
  113,341
  164,452
  232,018
  318,971
  428,153
  562,192
  723,404
  913,718
  1,134,631
  1,387,195
  1,672,036
  1,989,393
  2,339,173
  2,721,020
  3,134,387
  3,578,606
  4,052,958
  4,556,727
  5,089,259
  5,649,996
  6,238,513
  6,854,542
  7,497,989
  8,168,942
  8,867,680
  9,594,673
  10,350,581
  11,136,250
Total equity, $m
  18,892
  26,067
  40,273
  60,229
  87,389
  123,293
  169,499
  227,518
  298,745
  384,412
  485,544
  602,936
  737,146
  888,509
  1,057,151
  1,243,021
  1,445,932
  1,665,593
  1,901,648
  2,153,716
  2,421,416
  2,704,400
  3,002,372
  3,315,106
  3,642,460
  3,984,383
  4,340,923
  4,712,228
  5,098,548
  5,500,232
  5,917,731
Total liabilities and equity, $m
  49,966
  75,121
  116,061
  173,570
  251,841
  355,311
  488,470
  655,671
  860,937
  1,107,816
  1,399,262
  1,737,567
  2,124,341
  2,560,545
  3,046,544
  3,582,194
  4,166,952
  4,799,980
  5,480,254
  6,206,674
  6,978,143
  7,793,659
  8,652,368
  9,553,619
  10,497,002
  11,482,372
  12,509,865
  13,579,908
  14,693,221
  15,850,813
  17,053,981
Debt-to-equity ratio
  0.722
  1.210
  1.450
  1.590
  1.680
  1.740
  1.780
  1.810
  1.820
  1.840
  1.850
  1.850
  1.860
  1.860
  1.870
  1.870
  1.870
  1.870
  1.870
  1.870
  1.870
  1.880
  1.880
  1.880
  1.880
  1.880
  1.880
  1.880
  1.880
  1.880
  1.880
Adjusted equity ratio
  0.337
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1,739
  4,442
  7,560
  11,918
  17,819
  25,583
  35,529
  47,963
  63,166
  81,381
  102,809
  129,406
  157,664
  189,446
  224,769
  263,613
  305,932
  351,664
  400,732
  453,056
  508,559
  567,172
  628,835
  693,508
  761,163
  831,796
  905,420
  982,072
  1,061,806
  1,144,700
  1,230,849
Depreciation, amort., depletion, $m
  3,042
  4,142
  5,052
  6,330
  8,070
  10,369
  13,328
  17,043
  21,605
  27,091
  33,567
  38,612
  47,206
  56,899
  67,699
  79,602
  92,596
  106,663
  121,780
  137,922
  155,066
  173,188
  192,269
  212,297
  233,260
  255,157
  277,989
  301,767
  326,507
  352,230
  378,967
Funds from operations, $m
  3,894
  8,585
  12,612
  18,248
  25,889
  35,952
  48,856
  65,006
  84,770
  108,472
  136,376
  168,017
  204,870
  246,346
  292,468
  343,215
  398,529
  458,327
  522,512
  590,978
  663,625
  740,359
  821,105
  905,804
  994,423
  1,086,952
  1,183,409
  1,283,839
  1,388,313
  1,496,930
  1,609,816
Change in working capital, $m
  483
  842
  1,224
  1,719
  2,340
  3,093
  3,980
  4,998
  6,136
  7,380
  8,712
  10,113
  11,561
  13,039
  14,527
  16,012
  17,480
  18,922
  20,335
  21,714
  23,061
  24,377
  25,669
  26,940
  28,200
  29,455
  30,714
  31,986
  33,279
  34,603
  35,965
Cash from operations, $m
  3,411
  7,743
  11,388
  16,529
  23,549
  32,859
  44,876
  60,008
  78,635
  101,092
  127,664
  157,905
  193,309
  233,307
  277,940
  327,203
  381,049
  439,405
  502,177
  569,264
  640,564
  715,982
  795,436
  878,864
  966,223
  1,057,498
  1,152,696
  1,251,853
  1,355,034
  1,462,327
  1,573,851
Maintenance CAPEX, $m
  0
  -1,043
  -1,669
  -2,579
  -3,857
  -5,596
  -7,896
  -10,855
  -14,570
  -19,131
  -24,617
  -31,094
  -38,612
  -47,206
  -56,899
  -67,699
  -79,602
  -92,596
  -106,663
  -121,780
  -137,922
  -155,066
  -173,188
  -192,269
  -212,297
  -233,260
  -255,157
  -277,989
  -301,767
  -326,507
  -352,230
New CAPEX, $m
  -723
  -6,266
  -9,098
  -12,779
  -17,393
  -22,993
  -29,590
  -37,154
  -45,613
  -54,861
  -64,764
  -75,177
  -85,948
  -96,932
  -107,997
  -119,030
  -129,943
  -140,669
  -151,168
  -161,422
  -171,433
  -181,221
  -190,819
  -200,272
  -209,635
  -218,965
  -228,325
  -237,781
  -247,396
  -257,236
  -267,363
Cash from investing activities, $m
  -9,840
  -7,309
  -10,767
  -15,358
  -21,250
  -28,589
  -37,486
  -48,009
  -60,183
  -73,992
  -89,381
  -106,271
  -124,560
  -144,138
  -164,896
  -186,729
  -209,545
  -233,265
  -257,831
  -283,202
  -309,355
  -336,287
  -364,007
  -392,541
  -421,932
  -452,225
  -483,482
  -515,770
  -549,163
  -583,743
  -619,593
Free cash flow, $m
  -6,429
  434
  621
  1,171
  2,299
  4,270
  7,390
  11,999
  18,451
  27,100
  38,283
  51,634
  68,750
  89,169
  113,044
  140,474
  171,505
  206,140
  244,346
  286,062
  331,209
  379,696
  431,430
  486,322
  544,292
  605,272
  669,213
  736,083
  805,870
  878,585
  954,258
Issuance/(repayment) of debt, $m
  8,193
  18,434
  26,734
  37,553
  51,111
  67,566
  86,953
  109,182
  134,039
  161,212
  190,314
  220,913
  252,564
  284,841
  317,357
  349,780
  381,847
  413,367
  444,219
  474,352
  503,770
  532,532
  560,737
  588,517
  616,029
  643,446
  670,953
  698,738
  726,993
  755,908
  785,668
Issuance/(repurchase) of shares, $m
  295
  5,376
  6,646
  8,038
  9,341
  10,321
  10,678
  10,056
  8,062
  4,286
  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  
  8,454
  23,810
  33,380
  45,591
  60,452
  77,887
  97,631
  119,238
  142,101
  165,498
  190,314
  220,913
  252,564
  284,841
  317,357
  349,780
  381,847
  413,367
  444,219
  474,352
  503,770
  532,532
  560,737
  588,517
  616,029
  643,446
  670,953
  698,738
  726,993
  755,908
  785,668
Total cash flow (excl. dividends), $m
  2,025
  24,243
  34,002
  46,761
  62,751
  82,157
  105,021
  131,236
  160,552
  192,599
  228,597
  272,547
  321,314
  374,010
  430,401
  490,254
  553,351
  619,506
  688,565
  760,414
  834,979
  912,228
  992,167
  1,074,839
  1,160,321
  1,248,719
  1,340,166
  1,434,821
  1,532,864
  1,634,493
  1,739,926
Retained Cash Flow (-), $m
  -14,178
  -9,818
  -14,206
  -19,955
  -27,160
  -35,904
  -46,206
  -58,018
  -71,227
  -85,667
  -101,132
  -117,392
  -134,211
  -151,363
  -168,641
  -185,871
  -202,911
  -219,660
  -236,055
  -252,067
  -267,700
  -282,984
  -297,972
  -312,734
  -327,354
  -341,923
  -356,540
  -371,305
  -386,320
  -401,685
  -417,499
Prev. year cash balance distribution, $m
 
  2,643
  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
 
  17,068
  19,796
  26,806
  35,591
  46,253
  58,815
  73,218
  89,324
  106,931
  127,465
  155,155
  187,103
  222,647
  261,760
  304,383
  350,440
  399,846
  452,510
  508,346
  567,279
  629,244
  694,195
  762,105
  832,967
  906,796
  983,626
  1,063,516
  1,146,544
  1,232,808
  1,322,427
Discount rate, %
 
  6.20
  6.51
  6.84
  7.18
  7.54
  7.91
  8.31
  8.72
  9.16
  9.62
  10.10
  10.60
  11.13
  11.69
  12.28
  12.89
  13.53
  14.21
  14.92
  15.67
  16.45
  17.27
  18.14
  19.04
  20.00
  21.00
  22.05
  23.15
  24.30
  25.52
PV of cash for distribution, $m
 
  16,072
  17,450
  21,983
  26,973
  32,164
  37,243
  41,877
  45,747
  48,588
  50,882
  53,845
  55,825
  56,441
  55,673
  53,597
  50,369
  46,213
  41,392
  36,188
  30,875
  25,695
  20,851
  16,488
  12,697
  9,514
  6,932
  4,906
  3,369
  2,243
  1,445
Current shareholders' claim on cash, %
  100
  94.1
  89.8
  86.6
  84.1
  82.3
  81.0
  80.1
  79.6
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4
  79.4

Broadcom Limited designs, develops, and supplies a range of complex digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products worldwide. The company operates through four segments: Wired Infrastructure, Wireless Communications, Enterprise Storage, and Industrial & Other. The Wired Infrastructure segment provides set-top box system-on-chips (SoCs); cable, digital subscriber line, and passive optical networking central office/consumer premise equipment SoCs; Ethernet switching and routing application specific standard product; embedded processors and controllers; serializer/deserializer application specific integrated circuits; optical and copper physical layers; and fiber optic laser and receiver components. The Wireless Communications segment offers RF front end modules, filters, and power amplifiers; Wi-Fi, Bluetooth, and global positioning system/global navigation satellite system SoCs; and custom touch controllers. The Enterprise Storage segment provides serial attached small computer system interface, and redundant array of independent disks controllers and adapters; peripheral component interconnect express switches; fiber channel host bus adapters; read channel based SoCs; and preamplifiers. The Industrial & Other segment optocouplers; industrial fiber optics motion control encoders and subsystems; and light emitting diodes. Its products are used in various applications, including enterprise and data center networking, home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. The company was formerly known as Avago Technologies Limited and changed its name to Broadcom Limited in February 2016. Broadcom Limited was founded in 2005 and is headquartered in Singapore.

FINANCIAL RATIOS  of  Broadcom (AVGO)

Valuation Ratios
P/E Ratio -58
Price to Sales 7.6
Price to Book 5.3
Price to Tangible Book
Price to Cash Flow 29.6
Price to Free Cash Flow 37.5
Growth Rates
Sales Growth Rate 94%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 21.9%
Cap. Spend. - 3 Yr. Gr. Rate 25.1%
Financial Strength
Quick Ratio 7
Current Ratio 0.1
LT Debt to Equity 69.8%
Total Debt to Equity 72.2%
Interest Coverage 0
Management Effectiveness
Return On Assets -5.8%
Ret/ On Assets - 3 Yr. Avg. 4.5%
Return On Total Capital -8.5%
Ret/ On T. Cap. - 3 Yr. Avg. 4.4%
Return On Equity -14.7%
Return On Equity - 3 Yr. Avg. 9.4%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 45.3%
Gross Margin - 3 Yr. Avg. 47.3%
EBITDA Margin 14.6%
EBITDA Margin - 3 Yr. Avg. 25.7%
Operating Margin -4%
Oper. Margin - 3 Yr. Avg. 10.1%
Pre-Tax Margin -8.4%
Pre-Tax Margin - 3 Yr. Avg. 7%
Net Profit Margin -13.1%
Net Profit Margin - 3 Yr. Avg. 4.3%
Effective Tax Rate -58%
Eff/ Tax Rate - 3 Yr. Avg. -14.4%
Payout Ratio -43.1%

AVGO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AVGO stock intrinsic value calculation we used $13240 million for the last fiscal year's total revenue generated by Broadcom. The default revenue input number comes from 2016 income statement of Broadcom. 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 AVGO stock valuation model: a) initial revenue growth rate of 60% 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 6.2%, whose default value for AVGO is calculated based on our internal credit rating of Broadcom, 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 Broadcom.
    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 AVGO stock the variable cost ratio is equal to 76.1%.

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 AVGO 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 Broadcom.

Corporate tax rate of 27% is the nominal tax rate for Broadcom. 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 AVGO 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 AVGO are equal to 78.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Broadcom 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 AVGO is equal to 10.6%. 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 - $18892 million for Broadcom - 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 396.625 million for Broadcom 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 Broadcom at the current share price and the inputted number of shares is $100.5 billion.

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Stock chart of AVGO Financial statements of AVGO
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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