Intrinsic value of American Express - AXP

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$82.22

  Intrinsic Value

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  Value-price divergence*

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$82.22

 
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Our model is not good at valuating stocks of financial companies, such as AXP.

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

We calculate the intrinsic value of AXP 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 75.1

 

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, %
  -1.73
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  32,717
  33,371
  34,139
  35,016
  36,001
  37,093
  38,290
  39,594
  41,006
  42,527
  44,159
  45,905
  47,768
  49,751
  51,860
  54,097
  56,467
  58,977
  61,631
  64,435
  67,395
  70,519
  73,814
  77,286
  80,945
  84,799
  88,856
  93,127
  97,620
  102,348
  107,321
Variable operating expenses, $m
 
  25,423
  26,001
  26,662
  27,404
  28,225
  29,127
  30,109
  31,172
  32,318
  33,547
  34,569
  35,972
  37,465
  39,053
  40,738
  42,523
  44,413
  46,411
  48,523
  50,752
  53,105
  55,586
  58,201
  60,956
  63,858
  66,913
  70,129
  73,513
  77,074
  80,818
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
  24,621
  25,423
  26,001
  26,662
  27,404
  28,225
  29,127
  30,109
  31,172
  32,318
  33,547
  34,569
  35,972
  37,465
  39,053
  40,738
  42,523
  44,413
  46,411
  48,523
  50,752
  53,105
  55,586
  58,201
  60,956
  63,858
  66,913
  70,129
  73,513
  77,074
  80,818
Operating income, $m
  8,096
  7,948
  8,138
  8,354
  8,598
  8,867
  9,163
  9,485
  9,834
  10,209
  10,612
  11,336
  11,796
  12,286
  12,807
  13,359
  13,944
  14,564
  15,219
  15,912
  16,643
  17,414
  18,228
  19,086
  19,989
  20,941
  21,943
  22,997
  24,107
  25,275
  26,503
EBITDA, $m
  9,191
  8,954
  9,160
  9,395
  9,660
  9,953
  10,274
  10,624
  11,003
  11,411
  11,848
  12,317
  12,817
  13,349
  13,915
  14,515
  15,151
  15,824
  16,536
  17,289
  18,083
  18,921
  19,805
  20,737
  21,719
  22,753
  23,842
  24,987
  26,193
  27,462
  28,796
Interest expense (income), $m
  1,700
  3,661
  3,759
  3,870
  3,997
  4,140
  4,298
  4,471
  4,660
  4,864
  5,084
  5,320
  5,573
  5,842
  6,129
  6,434
  6,758
  7,101
  7,464
  7,848
  8,253
  8,682
  9,133
  9,610
  10,112
  10,642
  11,199
  11,786
  12,404
  13,054
  13,738
Earnings before tax, $m
  8,096
  4,288
  4,378
  4,484
  4,600
  4,727
  4,865
  5,014
  5,174
  5,345
  5,528
  6,016
  6,224
  6,444
  6,678
  6,925
  7,187
  7,464
  7,756
  8,064
  8,390
  8,733
  9,095
  9,476
  9,877
  10,299
  10,743
  11,211
  11,703
  12,220
  12,764
Tax expense, $m
  2,688
  1,158
  1,182
  1,211
  1,242
  1,276
  1,314
  1,354
  1,397
  1,443
  1,493
  1,624
  1,680
  1,740
  1,803
  1,870
  1,940
  2,015
  2,094
  2,177
  2,265
  2,358
  2,456
  2,558
  2,667
  2,781
  2,901
  3,027
  3,160
  3,300
  3,446
Net income, $m
  5,408
  3,130
  3,196
  3,273
  3,358
  3,451
  3,552
  3,660
  3,777
  3,902
  4,036
  4,392
  4,543
  4,704
  4,875
  5,055
  5,246
  5,448
  5,662
  5,887
  6,125
  6,375
  6,639
  6,917
  7,210
  7,518
  7,843
  8,184
  8,543
  8,921
  9,318

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,278
  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
  158,893
  158,911
  162,566
  166,744
  171,435
  176,632
  182,335
  188,544
  195,266
  202,508
  210,279
  218,594
  227,466
  236,912
  246,951
  257,603
  268,892
  280,842
  293,479
  306,832
  320,930
  335,806
  351,494
  368,030
  385,453
  403,803
  423,124
  443,460
  464,859
  487,372
  511,052
Adjusted assets (=assets-cash), $m
  155,615
  158,911
  162,566
  166,744
  171,435
  176,632
  182,335
  188,544
  195,266
  202,508
  210,279
  218,594
  227,466
  236,912
  246,951
  257,603
  268,892
  280,842
  293,479
  306,832
  320,930
  335,806
  351,494
  368,030
  385,453
  403,803
  423,124
  443,460
  464,859
  487,372
  511,052
Revenue / Adjusted assets
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
Average production assets, $m
  5,103
  5,206
  5,326
  5,463
  5,616
  5,786
  5,973
  6,177
  6,397
  6,634
  6,889
  7,161
  7,452
  7,761
  8,090
  8,439
  8,809
  9,200
  9,614
  10,052
  10,514
  11,001
  11,515
  12,057
  12,627
  13,229
  13,862
  14,528
  15,229
  15,966
  16,742
Working capital, $m
  0
  16,686
  17,069
  17,508
  18,001
  18,546
  19,145
  19,797
  20,503
  21,263
  22,079
  22,952
  23,884
  24,876
  25,930
  27,048
  28,234
  29,488
  30,815
  32,217
  33,698
  35,260
  36,907
  38,643
  40,473
  42,399
  44,428
  46,563
  48,810
  51,174
  53,660
Total debt, $m
  107,868
  107,411
  110,583
  114,210
  118,281
  122,793
  127,742
  133,132
  138,967
  145,253
  151,999
  159,215
  166,916
  175,115
  183,829
  193,076
  202,875
  213,247
  224,216
  235,806
  248,043
  260,955
  274,572
  288,926
  304,049
  319,977
  336,747
  354,399
  372,974
  392,515
  413,069
Total liabilities, $m
  138,392
  137,935
  141,107
  144,734
  148,805
  153,317
  158,266
  163,656
  169,491
  175,777
  182,523
  189,739
  197,440
  205,639
  214,353
  223,600
  233,399
  243,771
  254,740
  266,330
  278,567
  291,479
  305,096
  319,450
  334,573
  350,501
  367,271
  384,923
  403,498
  423,039
  443,593
Total equity, $m
  20,501
  20,976
  21,459
  22,010
  22,629
  23,315
  24,068
  24,888
  25,775
  26,731
  27,757
  28,854
  30,025
  31,272
  32,597
  34,004
  35,494
  37,071
  38,739
  40,502
  42,363
  44,326
  46,397
  48,580
  50,880
  53,302
  55,852
  58,537
  61,361
  64,333
  67,459
Total liabilities and equity, $m
  158,893
  158,911
  162,566
  166,744
  171,434
  176,632
  182,334
  188,544
  195,266
  202,508
  210,280
  218,593
  227,465
  236,911
  246,950
  257,604
  268,893
  280,842
  293,479
  306,832
  320,930
  335,805
  351,493
  368,030
  385,453
  403,803
  423,123
  443,460
  464,859
  487,372
  511,052
Debt-to-equity ratio
  5.262
  5.120
  5.150
  5.190
  5.230
  5.270
  5.310
  5.350
  5.390
  5.430
  5.480
  5.520
  5.560
  5.600
  5.640
  5.680
  5.720
  5.750
  5.790
  5.820
  5.860
  5.890
  5.920
  5.950
  5.980
  6.000
  6.030
  6.050
  6.080
  6.100
  6.120
Adjusted equity ratio
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,408
  3,130
  3,196
  3,273
  3,358
  3,451
  3,552
  3,660
  3,777
  3,902
  4,036
  4,392
  4,543
  4,704
  4,875
  5,055
  5,246
  5,448
  5,662
  5,887
  6,125
  6,375
  6,639
  6,917
  7,210
  7,518
  7,843
  8,184
  8,543
  8,921
  9,318
Depreciation, amort., depletion, $m
  1,095
  1,006
  1,022
  1,041
  1,062
  1,085
  1,111
  1,139
  1,169
  1,201
  1,236
  981
  1,021
  1,063
  1,108
  1,156
  1,207
  1,260
  1,317
  1,377
  1,440
  1,507
  1,577
  1,652
  1,730
  1,812
  1,899
  1,990
  2,086
  2,187
  2,293
Funds from operations, $m
  8,797
  4,136
  4,218
  4,314
  4,420
  4,536
  4,663
  4,799
  4,946
  5,104
  5,272
  5,373
  5,564
  5,767
  5,983
  6,211
  6,453
  6,709
  6,979
  7,264
  7,565
  7,882
  8,216
  8,569
  8,940
  9,330
  9,742
  10,174
  10,629
  11,108
  11,612
Change in working capital, $m
  573
  327
  384
  439
  493
  546
  599
  652
  706
  760
  816
  873
  932
  992
  1,054
  1,119
  1,185
  1,255
  1,327
  1,402
  1,480
  1,562
  1,647
  1,736
  1,829
  1,927
  2,029
  2,135
  2,247
  2,364
  2,486
Cash from operations, $m
  8,224
  4,007
  3,835
  3,876
  3,928
  3,991
  4,064
  4,147
  4,240
  4,343
  4,456
  4,500
  4,632
  4,775
  4,929
  5,093
  5,268
  5,454
  5,652
  5,862
  6,084
  6,320
  6,569
  6,832
  7,110
  7,404
  7,713
  8,039
  8,382
  8,744
  9,125
Maintenance CAPEX, $m
  0
  -699
  -713
  -730
  -748
  -769
  -793
  -818
  -846
  -876
  -909
  -944
  -981
  -1,021
  -1,063
  -1,108
  -1,156
  -1,207
  -1,260
  -1,317
  -1,377
  -1,440
  -1,507
  -1,577
  -1,652
  -1,730
  -1,812
  -1,899
  -1,990
  -2,086
  -2,187
New CAPEX, $m
  -1,375
  -103
  -120
  -137
  -154
  -170
  -187
  -203
  -220
  -237
  -255
  -272
  -291
  -309
  -329
  -349
  -370
  -391
  -414
  -437
  -462
  -487
  -514
  -542
  -571
  -601
  -633
  -666
  -701
  -738
  -776
Cash from investing activities, $m
  1,868
  -802
  -833
  -867
  -902
  -939
  -980
  -1,021
  -1,066
  -1,113
  -1,164
  -1,216
  -1,272
  -1,330
  -1,392
  -1,457
  -1,526
  -1,598
  -1,674
  -1,754
  -1,839
  -1,927
  -2,021
  -2,119
  -2,223
  -2,331
  -2,445
  -2,565
  -2,691
  -2,824
  -2,963
Free cash flow, $m
  10,092
  3,205
  3,002
  3,009
  3,026
  3,051
  3,084
  3,125
  3,174
  3,230
  3,293
  3,284
  3,361
  3,445
  3,537
  3,636
  3,742
  3,856
  3,978
  4,107
  4,246
  4,393
  4,548
  4,713
  4,888
  5,073
  5,268
  5,474
  5,691
  5,921
  6,162
Issuance/(repayment) of debt, $m
  -136
  2,821
  3,173
  3,626
  4,071
  4,511
  4,950
  5,390
  5,835
  6,286
  6,746
  7,217
  7,701
  8,199
  8,714
  9,247
  9,799
  10,372
  10,969
  11,590
  12,237
  12,912
  13,617
  14,353
  15,123
  15,928
  16,770
  17,652
  18,575
  19,541
  20,554
Issuance/(repurchase) of shares, $m
  -4,254
  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  
  -6,325
  2,821
  3,173
  3,626
  4,071
  4,511
  4,950
  5,390
  5,835
  6,286
  6,746
  7,217
  7,701
  8,199
  8,714
  9,247
  9,799
  10,372
  10,969
  11,590
  12,237
  12,912
  13,617
  14,353
  15,123
  15,928
  16,770
  17,652
  18,575
  19,541
  20,554
Total cash flow (excl. dividends), $m
  3,653
  6,026
  6,174
  6,636
  7,097
  7,562
  8,034
  8,515
  9,008
  9,515
  10,038
  10,501
  11,062
  11,644
  12,251
  12,882
  13,541
  14,228
  14,947
  15,697
  16,483
  17,305
  18,165
  19,067
  20,011
  21,001
  22,038
  23,126
  24,266
  25,462
  26,716
Retained Cash Flow (-), $m
  172
  -475
  -482
  -551
  -619
  -686
  -753
  -820
  -887
  -956
  -1,026
  -1,097
  -1,171
  -1,247
  -1,325
  -1,406
  -1,490
  -1,577
  -1,668
  -1,763
  -1,861
  -1,964
  -2,071
  -2,183
  -2,300
  -2,422
  -2,550
  -2,684
  -2,825
  -2,972
  -3,126
Prev. year cash balance distribution, $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 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
 
  5,550
  5,692
  6,084
  6,478
  6,876
  7,281
  7,696
  8,121
  8,559
  9,013
  9,403
  9,890
  10,397
  10,925
  11,476
  12,051
  12,651
  13,278
  13,935
  14,622
  15,341
  16,095
  16,884
  17,711
  18,578
  19,488
  20,441
  21,441
  22,490
  23,591
Discount rate, %
 
  12.60
  13.23
  13.89
  14.59
  15.32
  16.08
  16.89
  17.73
  18.62
  19.55
  20.52
  21.55
  22.63
  23.76
  24.95
  26.19
  27.50
  28.88
  30.32
  31.84
  33.43
  35.10
  36.86
  38.70
  40.64
  42.67
  44.80
  47.04
  49.39
  51.86
PV of cash for distribution, $m
 
  4,929
  4,439
  4,118
  3,758
  3,372
  2,976
  2,582
  2,201
  1,841
  1,512
  1,206
  951
  733
  553
  406
  291
  203
  138
  91
  58
  36
  21
  12
  7
  4
  2
  1
  0
  0
  0
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

American Express Company, together with its subsidiaries, provides charge and credit payment card products and travel-related services to consumers and businesses worldwide. It operates through four segments: U.S. Consumer Services, International Consumer and Network Services, Global Commercial Services, and Global Merchant Services. The company’s products and services include charge and credit card products, as well as other payment and financing products; network services; expense management products and services; travel-related services; and stored value/prepaid products. Its products and services also comprise merchant acquisition and processing, servicing and settlement, merchant financing, point-of-sale marketing, and information products and services for merchants; and fraud prevention services, as well as the design and operation of customer loyalty programs. The company sells its products and services to consumers, small businesses, mid-sized companies, and large corporations through online applications, direct mail, in-house teams, third-party vendors, and direct response advertising. American Express Company was founded in 1850 and is headquartered in New York, New York.

FINANCIAL RATIOS  of  American Express (AXP)

Valuation Ratios
P/E Ratio 13.7
Price to Sales 2.3
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 9
Price to Free Cash Flow 10.9
Growth Rates
Sales Growth Rate -1.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.5%
Cap. Spend. - 3 Yr. Gr. Rate 6.4%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 229.2%
Total Debt to Equity 526.2%
Interest Coverage 6
Management Effectiveness
Return On Assets 4.1%
Ret/ On Assets - 3 Yr. Avg. 4.1%
Return On Total Capital 4.2%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity 26.3%
Return On Equity - 3 Yr. Avg. 26.8%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 74%
Gross Margin - 3 Yr. Avg. 75%
EBITDA Margin 33.3%
EBITDA Margin - 3 Yr. Avg. 32.9%
Operating Margin 24.7%
Oper. Margin - 3 Yr. Avg. 24.8%
Pre-Tax Margin 24.7%
Pre-Tax Margin - 3 Yr. Avg. 24.8%
Net Profit Margin 16.5%
Net Profit Margin - 3 Yr. Avg. 16.3%
Effective Tax Rate 33.2%
Eff/ Tax Rate - 3 Yr. Avg. 34.2%
Payout Ratio 22.3%

AXP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AXP stock intrinsic value calculation we used $32717 million for the last fiscal year's total revenue generated by American Express. The default revenue input number comes from 2016 income statement of American Express. 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 AXP stock valuation model: a) initial revenue growth rate of 2% 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 12.6%, whose default value for AXP is calculated based on our internal credit rating of American Express, 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 American Express.
    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 AXP stock the variable cost ratio is equal to 76.2%.

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 AXP 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 American Express.

Corporate tax rate of 27% is the nominal tax rate for American Express. 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 AXP 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 AXP are equal to 15.6%.

Life of production assets of 7.3 years is the average useful life of capital assets used in American Express 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 AXP is equal to 50%. 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 - $20501 million for American Express - 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 913.94 million for American Express 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 American Express at the current share price and the inputted number of shares is $75.1 billion.


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Stock chart of AXP Financial statements of AXP Annual reports of AXP
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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