Intrinsic value of Broadcom - AVGO

Previous Close

$258.70

  Intrinsic Value

$244.39

stock screener

  Rating & Target

hold

-6%

Previous close

$258.70

 
Intrinsic value

$244.39

 
Up/down potential

-6%

 
Rating

hold

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 105.5

 

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
  17.70
  16.43
  15.29
  14.26
  13.33
  12.50
  11.75
  11.07
  10.47
  9.92
  9.43
  8.99
  8.59
  8.23
  7.91
  7.61
  7.35
  7.12
  6.91
  6.72
  6.54
  6.39
  6.25
  6.13
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
Revenue, $m
  13,240
  15,583
  18,144
  20,917
  23,900
  27,086
  30,472
  34,052
  37,823
  41,782
  45,927
  50,257
  54,773
  59,476
  64,370
  69,459
  74,748
  80,245
  85,956
  91,893
  98,064
  104,481
  111,157
  118,105
  125,340
  132,877
  140,732
  148,923
  157,469
  166,389
  175,704
Variable operating expenses, $m
 
  11,421
  12,891
  14,484
  16,197
  18,026
  19,970
  22,026
  24,191
  26,465
  28,845
  28,858
  31,451
  34,152
  36,962
  39,883
  42,921
  46,077
  49,356
  52,765
  56,309
  59,993
  63,827
  67,816
  71,970
  76,298
  80,809
  85,512
  90,419
  95,541
  100,890
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
  11,421
  12,891
  14,484
  16,197
  18,026
  19,970
  22,026
  24,191
  26,465
  28,845
  28,858
  31,451
  34,152
  36,962
  39,883
  42,921
  46,077
  49,356
  52,765
  56,309
  59,993
  63,827
  67,816
  71,970
  76,298
  80,809
  85,512
  90,419
  95,541
  100,890
Operating income, $m
  -532
  4,162
  5,252
  6,433
  7,703
  9,060
  10,502
  12,026
  13,632
  15,318
  17,082
  21,399
  23,322
  25,325
  27,409
  29,575
  31,828
  34,168
  36,600
  39,128
  41,755
  44,488
  47,330
  50,289
  53,369
  56,579
  59,923
  63,411
  67,050
  70,848
  74,814
EBITDA, $m
  2,510
  8,210
  9,559
  11,020
  12,591
  14,270
  16,053
  17,940
  19,926
  22,012
  24,196
  26,477
  28,856
  31,334
  33,912
  36,593
  39,379
  42,275
  45,284
  48,411
  51,662
  55,043
  58,560
  62,221
  66,032
  70,002
  74,141
  78,456
  82,958
  87,658
  92,565
Interest expense (income), $m
  0
  462
  653
  860
  1,085
  1,327
  1,585
  1,860
  2,150
  2,455
  2,776
  3,112
  3,463
  3,829
  4,210
  4,607
  5,019
  5,448
  5,893
  6,356
  6,837
  7,338
  7,858
  8,399
  8,962
  9,548
  10,159
  10,796
  11,460
  12,152
  12,875
Earnings before tax, $m
  -1,107
  3,701
  4,600
  5,573
  6,618
  7,733
  8,917
  10,167
  11,482
  12,862
  14,306
  18,287
  19,859
  21,496
  23,198
  24,969
  26,808
  28,720
  30,707
  32,771
  34,918
  37,150
  39,473
  41,890
  44,408
  47,030
  49,764
  52,616
  55,590
  58,696
  61,939
Tax expense, $m
  642
  999
  1,242
  1,505
  1,787
  2,088
  2,407
  2,745
  3,100
  3,473
  3,863
  4,938
  5,362
  5,804
  6,264
  6,742
  7,238
  7,754
  8,291
  8,848
  9,428
  10,031
  10,658
  11,310
  11,990
  12,698
  13,436
  14,206
  15,009
  15,848
  16,724
Net income, $m
  -1,739
  2,701
  3,358
  4,068
  4,831
  5,645
  6,509
  7,422
  8,382
  9,389
  10,444
  13,350
  14,497
  15,692
  16,935
  18,227
  19,570
  20,966
  22,416
  23,923
  25,490
  27,120
  28,815
  30,580
  32,418
  34,332
  36,328
  38,409
  40,581
  42,848
  45,216

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
  55,261
  64,340
  74,176
  84,752
  96,051
  108,057
  120,753
  134,125
  148,164
  162,862
  178,217
  194,231
  210,909
  228,263
  246,308
  265,064
  284,555
  304,810
  325,861
  347,744
  370,501
  394,174
  418,813
  444,467
  471,193
  499,049
  528,097
  558,401
  590,033
  623,064
Adjusted assets (=assets-cash), $m
  46,869
  55,261
  64,340
  74,176
  84,752
  96,051
  108,057
  120,753
  134,125
  148,164
  162,862
  178,217
  194,231
  210,909
  228,263
  246,308
  265,064
  284,555
  304,810
  325,861
  347,744
  370,501
  394,174
  418,813
  444,467
  471,193
  499,049
  528,097
  558,401
  590,033
  623,064
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
  12,280
  14,297
  16,483
  18,833
  21,344
  24,012
  26,833
  29,805
  32,924
  36,191
  39,603
  43,161
  46,867
  50,724
  54,734
  58,902
  63,233
  67,734
  72,411
  77,274
  82,331
  87,592
  93,067
  98,768
  104,707
  110,897
  117,352
  124,086
  131,115
  138,455
Working capital, $m
  4,047
  1,652
  1,923
  2,217
  2,533
  2,871
  3,230
  3,610
  4,009
  4,429
  4,868
  5,327
  5,806
  6,305
  6,823
  7,363
  7,923
  8,506
  9,111
  9,741
  10,395
  11,075
  11,783
  12,519
  13,286
  14,085
  14,918
  15,786
  16,692
  17,637
  18,625
Total debt, $m
  13,642
  18,653
  24,582
  31,005
  37,911
  45,289
  53,129
  61,420
  70,152
  79,319
  88,917
  98,944
  109,401
  120,292
  131,624
  143,407
  155,655
  168,383
  181,609
  195,355
  209,645
  224,505
  239,964
  256,053
  272,805
  290,257
  308,447
  327,415
  347,204
  367,859
  389,429
Total liabilities, $m
  31,074
  36,085
  42,014
  48,437
  55,343
  62,721
  70,561
  78,852
  87,584
  96,751
  106,349
  116,376
  126,833
  137,724
  149,056
  160,839
  173,087
  185,815
  199,041
  212,787
  227,077
  241,937
  257,396
  273,485
  290,237
  307,689
  325,879
  344,847
  364,636
  385,291
  406,861
Total equity, $m
  18,892
  19,175
  22,326
  25,739
  29,409
  33,330
  37,496
  41,901
  46,541
  51,413
  56,513
  61,841
  67,398
  73,186
  79,207
  85,469
  91,977
  98,741
  105,769
  113,074
  120,667
  128,564
  136,778
  145,328
  154,230
  163,504
  173,170
  183,250
  193,765
  204,741
  216,203
Total liabilities and equity, $m
  49,966
  55,260
  64,340
  74,176
  84,752
  96,051
  108,057
  120,753
  134,125
  148,164
  162,862
  178,217
  194,231
  210,910
  228,263
  246,308
  265,064
  284,556
  304,810
  325,861
  347,744
  370,501
  394,174
  418,813
  444,467
  471,193
  499,049
  528,097
  558,401
  590,032
  623,064
Debt-to-equity ratio
  0.722
  0.970
  1.100
  1.200
  1.290
  1.360
  1.420
  1.470
  1.510
  1.540
  1.570
  1.600
  1.620
  1.640
  1.660
  1.680
  1.690
  1.710
  1.720
  1.730
  1.740
  1.750
  1.750
  1.760
  1.770
  1.780
  1.780
  1.790
  1.790
  1.800
  1.800
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
  2,701
  3,358
  4,068
  4,831
  5,645
  6,509
  7,422
  8,382
  9,389
  10,444
  13,350
  14,497
  15,692
  16,935
  18,227
  19,570
  20,966
  22,416
  23,923
  25,490
  27,120
  28,815
  30,580
  32,418
  34,332
  36,328
  38,409
  40,581
  42,848
  45,216
Depreciation, amort., depletion, $m
  3,042
  4,048
  4,306
  4,586
  4,888
  5,210
  5,552
  5,913
  6,294
  6,694
  7,113
  5,077
  5,533
  6,009
  6,503
  7,017
  7,551
  8,107
  8,684
  9,284
  9,907
  10,555
  11,230
  11,932
  12,663
  13,424
  14,218
  15,045
  15,908
  16,810
  17,751
Funds from operations, $m
  3,894
  6,749
  7,664
  8,655
  9,719
  10,855
  12,061
  13,335
  14,676
  16,084
  17,557
  18,427
  20,031
  21,701
  23,438
  25,244
  27,122
  29,072
  31,100
  33,207
  35,397
  37,675
  40,045
  42,511
  45,080
  47,756
  50,545
  53,454
  56,489
  59,658
  62,966
Change in working capital, $m
  483
  248
  271
  294
  316
  338
  359
  380
  400
  420
  439
  459
  479
  499
  519
  539
  561
  583
  605
  629
  654
  680
  708
  736
  767
  799
  833
  868
  906
  946
  987
Cash from operations, $m
  3,411
  6,501
  7,392
  8,361
  9,403
  10,517
  11,702
  12,956
  14,277
  15,664
  17,117
  17,968
  19,552
  21,202
  22,919
  24,705
  26,561
  28,490
  30,494
  32,577
  34,743
  36,995
  39,337
  41,775
  44,313
  46,957
  49,713
  52,586
  55,584
  58,712
  61,979
Maintenance CAPEX, $m
  0
  -1,337
  -1,574
  -1,833
  -2,113
  -2,415
  -2,736
  -3,078
  -3,440
  -3,821
  -4,221
  -4,640
  -5,077
  -5,533
  -6,009
  -6,503
  -7,017
  -7,551
  -8,107
  -8,684
  -9,284
  -9,907
  -10,555
  -11,230
  -11,932
  -12,663
  -13,424
  -14,218
  -15,045
  -15,908
  -16,810
New CAPEX, $m
  -723
  -1,853
  -2,018
  -2,186
  -2,350
  -2,511
  -2,668
  -2,821
  -2,972
  -3,120
  -3,266
  -3,412
  -3,558
  -3,706
  -3,856
  -4,010
  -4,168
  -4,331
  -4,501
  -4,678
  -4,863
  -5,057
  -5,261
  -5,475
  -5,701
  -5,939
  -6,190
  -6,455
  -6,734
  -7,029
  -7,340
Cash from investing activities, $m
  -9,840
  -3,190
  -3,592
  -4,019
  -4,463
  -4,926
  -5,404
  -5,899
  -6,412
  -6,941
  -7,487
  -8,052
  -8,635
  -9,239
  -9,865
  -10,513
  -11,185
  -11,882
  -12,608
  -13,362
  -14,147
  -14,964
  -15,816
  -16,705
  -17,633
  -18,602
  -19,614
  -20,673
  -21,779
  -22,937
  -24,150
Free cash flow, $m
  -6,429
  3,311
  3,801
  4,342
  4,939
  5,592
  6,298
  7,056
  7,865
  8,723
  9,630
  9,916
  10,916
  11,962
  13,054
  14,192
  15,376
  16,607
  17,887
  19,216
  20,597
  22,031
  23,521
  25,070
  26,681
  28,356
  30,099
  31,914
  33,804
  35,775
  37,829
Issuance/(repayment) of debt, $m
  8,193
  5,465
  5,929
  6,423
  6,906
  7,379
  7,840
  8,290
  8,732
  9,167
  9,598
  10,027
  10,457
  10,891
  11,332
  11,783
  12,248
  12,728
  13,226
  13,746
  14,290
  14,860
  15,459
  16,089
  16,753
  17,452
  18,190
  18,968
  19,789
  20,655
  21,569
Issuance/(repurchase) of shares, $m
  295
  225
  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
  5,690
  5,929
  6,423
  6,906
  7,379
  7,840
  8,290
  8,732
  9,167
  9,598
  10,027
  10,457
  10,891
  11,332
  11,783
  12,248
  12,728
  13,226
  13,746
  14,290
  14,860
  15,459
  16,089
  16,753
  17,452
  18,190
  18,968
  19,789
  20,655
  21,569
Total cash flow (excl. dividends), $m
  2,025
  9,001
  9,729
  10,765
  11,846
  12,970
  14,137
  15,346
  16,597
  17,891
  19,228
  19,943
  21,373
  22,853
  24,386
  25,975
  27,624
  29,335
  31,113
  32,962
  34,886
  36,891
  38,980
  41,159
  43,433
  45,808
  48,289
  50,882
  53,593
  56,430
  59,399
Retained Cash Flow (-), $m
  -14,178
  -2,926
  -3,151
  -3,413
  -3,670
  -3,921
  -4,166
  -4,405
  -4,640
  -4,871
  -5,100
  -5,328
  -5,557
  -5,787
  -6,022
  -6,262
  -6,508
  -6,763
  -7,028
  -7,305
  -7,594
  -7,896
  -8,215
  -8,550
  -8,902
  -9,274
  -9,666
  -10,079
  -10,516
  -10,976
  -11,462
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
 
  8,718
  6,579
  7,352
  8,176
  9,049
  9,971
  10,941
  11,957
  13,019
  14,128
  14,615
  15,816
  17,066
  18,365
  19,714
  21,115
  22,571
  24,084
  25,657
  27,293
  28,994
  30,765
  32,610
  34,531
  36,534
  38,623
  40,802
  43,078
  45,454
  47,937
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
 
  8,209
  5,799
  6,029
  6,196
  6,293
  6,314
  6,258
  6,124
  5,916
  5,640
  5,072
  4,719
  4,326
  3,906
  3,471
  3,035
  2,609
  2,203
  1,826
  1,485
  1,184
  924
  706
  526
  383
  272
  188
  127
  83
  52
Current shareholders' claim on cash, %
  100
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8

Broadcom Limited is a designer, developer and global supplier of a range of semiconductor devices with a focus on digital and mixed signal complementary metal oxide semiconductor (CMOS)-based devices and analog III-V based products. The Company operates through four segments: Wired Infrastructure, Wireless Communications, Enterprise Storage, and Industrial & Other. It offers a range of products that are used in end-products, such as enterprise and data center networking, home connectivity, set-top boxes (STBs), broadband access, telecommunication equipment, smartphones, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Its product portfolio ranges from discrete devices to complex sub-systems that include multiple device types, and also includes firmware for interfacing between analog and digital systems. Its products include mechanical hardware that interfaces with optoelectronic or capacitive sensors.

FINANCIAL RATIOS  of  Broadcom (AVGO)

Valuation Ratios
P/E Ratio -59.2
Price to Sales 7.8
Price to Book 5.5
Price to Tangible Book
Price to Cash Flow 30.2
Price to Free Cash Flow 38.3
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 17.7% 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 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 407.959 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 $105.5 billion.

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COMPANY NEWS

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▶ Negative News Emerges for Apple iPhone X Sales   [Dec-09-17 06:26PM  Motley Fool]
▶ [$$] Broadcoms Biggest Challenge With Qualcomm   [Dec-08-17 11:49PM  The Wall Street Journal]
▶ Here's How You Know Apple Is Killing It   [12:07PM  TheStreet.com]
▶ Broadcom: Not a Bear to Be Found   [11:53AM  Barrons.com]
▶ Broadcom Soars on 4th Quarter Numbers   [11:29AM  GuruFocus.com]
▶ Things Are Looking Up for Broadcom   [10:05AM  24/7 Wall St.]
▶ Cramer's Mad Dash: Broadcom earnings   [09:24AM  CNBC Videos]
▶ [$$] Smartphone Parts Boost Broadcoms Earnings   [11:58PM  The Wall Street Journal]
▶ [$$] Smartphone Parts Boost Broadcom's Earnings   [07:15PM  The Wall Street Journal]
▶ Broadcom CFO Talks Qualcomm on Earnings Call   [06:47PM  Bloomberg Video]
▶ Broadcom shares rise after earnings beat   [05:22PM  MarketWatch]
▶ Broadcom Ltd. tops Street 4Q forecasts   [04:49PM  Associated Press]
▶ Broadcom Beats Quarterly Targets, Raises Dividend   [04:21PM  Investor's Business Daily]
▶ Broadcom: Make Up Your Mind!   [04:14PM  Barrons.com]
▶ Why Roku Shares May Fall 30% Further   [03:16PM  Investopedia]
▶ Broadcom: Reason for Optimism?   [01:21PM  Barrons.com]
▶ Broadcom Limited to Host Earnings Call   [12:10PM  ACCESSWIRE]
▶ Broadcom set to report earnings   [11:51AM  CNBC Videos]
▶ Broadcom Goes Hostile for Qualcomm   [08:15AM  Investopedia]
▶ Broadcom Earnings Could Get Apple Juice From iPhone Production   [Dec-05-17 05:30PM  Investor's Business Daily]
▶ These Tech Stocks Are the Best in the World   [01:46PM  TheStreet.com]
▶ Qualcomm at Its Breaking Point?   [11:49AM  TheStreet.com]
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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