Intrinsic value of Broadcom - AVGO

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$236.54

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$236.54

 
Intrinsic value

$2,236

 
Up/down potential

+845%

 
Rating

str. buy

 
Value-price divergence* premium content

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*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 94.5

 

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
  11,160
  17,243
  25,786
  37,415
  52,786
  72,569
  97,409
  127,904
  164,582
  207,880
  258,140
  315,601
  380,405
  452,607
  532,186
  619,060
  713,105
  814,169
  922,089
  1,036,702
  1,157,858
  1,285,432
  1,419,325
  1,559,478
  1,705,869
  1,858,517
  2,017,488
  2,182,886
  2,354,863
  2,533,610
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
  4,613
  5,780
  7,418
  9,648
  12,596
  16,389
  21,153
  27,001
  34,034
  42,337
  49,502
  60,521
  72,948
  86,794
  102,054
  118,713
  136,748
  156,128
  176,823
  198,802
  222,035
  246,499
  272,175
  299,052
  327,124
  356,396
  386,881
  418,599
  451,577
  485,855
Funds from operations, $m
  3,894
  9,056
  13,340
  19,336
  27,467
  38,179
  51,918
  69,116
  90,166
  115,415
  145,146
  178,908
  218,185
  262,394
  311,562
  365,667
  424,646
  488,412
  556,860
  629,879
  707,361
  789,207
  875,335
  965,683
  1,060,214
  1,158,920
  1,261,817
  1,368,953
  1,480,404
  1,596,277
  1,716,704
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
  15,364
  12,116
  17,617
  25,127
  35,086
  47,938
  64,118
  84,031
  108,036
  136,434
  168,795
  206,623
  249,355
  297,035
  349,655
  407,166
  469,489
  536,525
  608,165
  684,300
  764,830
  849,666
  938,743
  1,032,015
  1,129,465
  1,231,103
  1,336,967
  1,447,125
  1,561,674
  1,680,739
Maintenance CAPEX, $m
  0
  -1,337
  -2,140
  -3,306
  -4,945
  -7,175
  -10,123
  -13,916
  -18,680
  -24,527
  -31,561
  -39,864
  -49,502
  -60,521
  -72,948
  -86,794
  -102,054
  -118,713
  -136,748
  -156,128
  -176,823
  -198,802
  -222,035
  -246,499
  -272,175
  -299,052
  -327,124
  -356,396
  -386,881
  -418,599
  -451,577
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
  -7,603
  -11,238
  -16,085
  -22,338
  -30,168
  -39,713
  -51,070
  -64,293
  -79,388
  -96,325
  -115,041
  -135,450
  -157,453
  -180,945
  -205,824
  -231,997
  -259,382
  -287,916
  -317,550
  -348,256
  -380,023
  -412,854
  -446,771
  -481,810
  -518,017
  -555,449
  -594,177
  -634,277
  -675,835
  -718,940
Free cash flow, $m
  -6,429
  7,761
  878
  1,531
  2,789
  4,918
  8,225
  13,047
  19,738
  28,648
  40,109
  53,755
  71,174
  91,903
  116,090
  143,831
  175,170
  210,107
  248,610
  290,615
  336,044
  384,807
  436,812
  491,971
  550,205
  611,448
  675,653
  742,790
  812,848
  885,840
  961,799
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
  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  
  8,454
  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
Total cash flow (excl. dividends), $m
  2,025
  26,194
  27,612
  39,084
  53,901
  72,484
  95,178
  122,229
  153,777
  189,860
  230,423
  274,667
  323,738
  376,744
  433,447
  493,611
  557,016
  623,474
  692,829
  764,967
  839,814
  917,339
  997,549
  1,080,488
  1,166,234
  1,254,895
  1,346,606
  1,441,528
  1,539,842
  1,641,748
  1,747,467
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
 
  19,020
  13,406
  19,129
  26,740
  36,580
  48,972
  64,210
  82,549
  104,193
  129,292
  157,276
  189,527
  225,381
  264,806
  307,740
  354,106
  403,814
  456,774
  512,899
  572,114
  634,355
  699,577
  767,754
  838,880
  912,972
  990,066
  1,070,223
  1,153,522
  1,240,064
  1,329,968
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
 
  17,909
  11,817
  15,687
  20,265
  25,437
  31,010
  36,725
  42,277
  47,343
  51,611
  54,581
  56,548
  57,134
  56,321
  54,188
  50,896
  46,671
  41,782
  36,512
  31,138
  25,904
  21,013
  16,610
  12,787
  9,579
  6,977
  4,936
  3,389
  2,256
  1,454
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

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 -54.2
Price to Sales 7.1
Price to Book 5
Price to Tangible Book
Price to Cash Flow 27.6
Price to Free Cash Flow 35
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 7.8 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 399.388 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 $94.5 billion.


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Stock chart of AVGO Financial statements of AVGO Annual reports 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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