Intrinsic value of Cardinal Health - CAH

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$73.10

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$73.10

 
Intrinsic value

$152.12

 
Up/down potential

+108%

 
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 CAH 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 23.1

 

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, %
  18.55
  3.80
  3.92
  4.03
  4.13
  4.21
  4.29
  4.36
  4.43
  4.48
  4.54
  4.58
  4.62
  4.66
  4.69
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
Revenue, $m
  121,546
  126,165
  131,110
  136,392
  142,018
  148,001
  154,352
  161,085
  168,215
  175,757
  183,728
  192,145
  201,029
  210,399
  220,277
  230,686
  241,651
  253,196
  265,349
  278,139
  291,595
  305,749
  320,635
  336,288
  352,744
  370,044
  388,227
  407,338
  427,420
  448,523
  470,696
Variable operating expenses, $m
 
  123,614
  128,432
  133,576
  139,057
  144,885
  151,072
  157,630
  164,576
  171,922
  179,686
  187,169
  195,823
  204,950
  214,573
  224,712
  235,393
  246,639
  258,477
  270,936
  284,043
  297,831
  312,332
  327,579
  343,610
  360,461
  378,174
  396,789
  416,352
  436,908
  458,506
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
  119,087
  123,614
  128,432
  133,576
  139,057
  144,885
  151,072
  157,630
  164,576
  171,922
  179,686
  187,169
  195,823
  204,950
  214,573
  224,712
  235,393
  246,639
  258,477
  270,936
  284,043
  297,831
  312,332
  327,579
  343,610
  360,461
  378,174
  396,789
  416,352
  436,908
  458,506
Operating income, $m
  2,459
  2,551
  2,679
  2,815
  2,961
  3,116
  3,280
  3,455
  3,639
  3,835
  4,041
  4,976
  5,206
  5,449
  5,704
  5,974
  6,258
  6,557
  6,872
  7,203
  7,551
  7,918
  8,303
  8,709
  9,135
  9,583
  10,054
  10,549
  11,069
  11,615
  12,189
EBITDA, $m
  3,100
  3,501
  3,638
  3,784
  3,940
  4,106
  4,283
  4,469
  4,667
  4,877
  5,098
  5,331
  5,578
  5,838
  6,112
  6,401
  6,705
  7,025
  7,362
  7,717
  8,091
  8,483
  8,896
  9,331
  9,787
  10,267
  10,772
  11,302
  11,859
  12,445
  13,060
Interest expense (income), $m
  174
  173
  209
  247
  288
  332
  378
  428
  480
  535
  594
  656
  721
  790
  863
  940
  1,021
  1,106
  1,195
  1,290
  1,389
  1,494
  1,604
  1,719
  1,841
  1,969
  2,103
  2,244
  2,393
  2,549
  2,712
Earnings before tax, $m
  2,276
  2,377
  2,470
  2,568
  2,673
  2,784
  2,902
  3,027
  3,159
  3,299
  3,447
  4,320
  4,485
  4,658
  4,841
  5,034
  5,237
  5,451
  5,676
  5,913
  6,162
  6,424
  6,700
  6,989
  7,294
  7,614
  7,951
  8,304
  8,676
  9,067
  9,477
Tax expense, $m
  845
  642
  667
  693
  722
  752
  784
  817
  853
  891
  931
  1,166
  1,211
  1,258
  1,307
  1,359
  1,414
  1,472
  1,533
  1,597
  1,664
  1,735
  1,809
  1,887
  1,969
  2,056
  2,147
  2,242
  2,343
  2,448
  2,559
Net income, $m
  1,427
  1,735
  1,803
  1,875
  1,951
  2,032
  2,118
  2,210
  2,306
  2,409
  2,516
  3,154
  3,274
  3,401
  3,534
  3,675
  3,823
  3,979
  4,144
  4,316
  4,498
  4,690
  4,891
  5,102
  5,325
  5,558
  5,804
  6,062
  6,334
  6,619
  6,918

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,356
  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
  34,122
  32,976
  34,268
  35,649
  37,119
  38,683
  40,343
  42,103
  43,966
  45,937
  48,021
  50,221
  52,543
  54,992
  57,574
  60,294
  63,160
  66,178
  69,354
  72,697
  76,214
  79,913
  83,804
  87,895
  92,197
  96,718
  101,471
  106,466
  111,715
  117,230
  123,026
Adjusted assets (=assets-cash), $m
  31,766
  32,976
  34,268
  35,649
  37,119
  38,683
  40,343
  42,103
  43,966
  45,937
  48,021
  50,221
  52,543
  54,992
  57,574
  60,294
  63,160
  66,178
  69,354
  72,697
  76,214
  79,913
  83,804
  87,895
  92,197
  96,718
  101,471
  106,466
  111,715
  117,230
  123,026
Revenue / Adjusted assets
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
  3.826
Average production assets, $m
  3,255
  3,406
  3,540
  3,683
  3,834
  3,996
  4,168
  4,349
  4,542
  4,745
  4,961
  5,188
  5,428
  5,681
  5,947
  6,229
  6,525
  6,836
  7,164
  7,510
  7,873
  8,255
  8,657
  9,080
  9,524
  9,991
  10,482
  10,998
  11,540
  12,110
  12,709
Working capital, $m
  2,255
  505
  524
  546
  568
  592
  617
  644
  673
  703
  735
  769
  804
  842
  881
  923
  967
  1,013
  1,061
  1,113
  1,166
  1,223
  1,283
  1,345
  1,411
  1,480
  1,553
  1,629
  1,710
  1,794
  1,883
Total debt, $m
  5,539
  5,967
  7,065
  8,237
  9,485
  10,813
  12,222
  13,716
  15,298
  16,972
  18,741
  20,609
  22,580
  24,659
  26,851
  29,161
  31,594
  34,156
  36,853
  39,691
  42,677
  45,818
  49,121
  52,594
  56,246
  60,085
  64,120
  68,360
  72,817
  77,500
  82,420
Total liabilities, $m
  27,568
  27,996
  29,094
  30,266
  31,514
  32,842
  34,251
  35,745
  37,327
  39,001
  40,770
  42,638
  44,609
  46,688
  48,880
  51,190
  53,623
  56,185
  58,882
  61,720
  64,706
  67,847
  71,150
  74,623
  78,275
  82,114
  86,149
  90,389
  94,846
  99,529
  104,449
Total equity, $m
  6,554
  4,979
  5,175
  5,383
  5,605
  5,841
  6,092
  6,358
  6,639
  6,937
  7,251
  7,583
  7,934
  8,304
  8,694
  9,104
  9,537
  9,993
  10,472
  10,977
  11,508
  12,067
  12,654
  13,272
  13,922
  14,604
  15,322
  16,076
  16,869
  17,702
  18,577
Total liabilities and equity, $m
  34,122
  32,975
  34,269
  35,649
  37,119
  38,683
  40,343
  42,103
  43,966
  45,938
  48,021
  50,221
  52,543
  54,992
  57,574
  60,294
  63,160
  66,178
  69,354
  72,697
  76,214
  79,914
  83,804
  87,895
  92,197
  96,718
  101,471
  106,465
  111,715
  117,231
  123,026
Debt-to-equity ratio
  0.845
  1.200
  1.370
  1.530
  1.690
  1.850
  2.010
  2.160
  2.300
  2.450
  2.580
  2.720
  2.850
  2.970
  3.090
  3.200
  3.310
  3.420
  3.520
  3.620
  3.710
  3.800
  3.880
  3.960
  4.040
  4.110
  4.180
  4.250
  4.320
  4.380
  4.440
Adjusted equity ratio
  0.132
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151
  0.151

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,427
  1,735
  1,803
  1,875
  1,951
  2,032
  2,118
  2,210
  2,306
  2,409
  2,516
  3,154
  3,274
  3,401
  3,534
  3,675
  3,823
  3,979
  4,144
  4,316
  4,498
  4,690
  4,891
  5,102
  5,325
  5,558
  5,804
  6,062
  6,334
  6,619
  6,918
Depreciation, amort., depletion, $m
  641
  950
  959
  969
  979
  990
  1,002
  1,015
  1,028
  1,042
  1,056
  355
  372
  389
  407
  427
  447
  468
  491
  514
  539
  565
  593
  622
  652
  684
  718
  753
  790
  829
  870
Funds from operations, $m
  3,594
  2,685
  2,762
  2,844
  2,930
  3,023
  3,121
  3,224
  3,334
  3,450
  3,573
  3,509
  3,646
  3,790
  3,942
  4,102
  4,270
  4,448
  4,634
  4,831
  5,038
  5,255
  5,484
  5,724
  5,977
  6,243
  6,522
  6,816
  7,124
  7,448
  7,789
Change in working capital, $m
  623
  18
  20
  21
  23
  24
  25
  27
  29
  30
  32
  34
  36
  37
  40
  42
  44
  46
  49
  51
  54
  57
  60
  63
  66
  69
  73
  76
  80
  84
  89
Cash from operations, $m
  2,971
  3,467
  2,742
  2,823
  2,908
  2,999
  3,095
  3,197
  3,306
  3,420
  3,541
  3,475
  3,610
  3,752
  3,902
  4,060
  4,226
  4,401
  4,586
  4,780
  4,984
  5,198
  5,424
  5,662
  5,911
  6,174
  6,449
  6,739
  7,044
  7,364
  7,700
Maintenance CAPEX, $m
  0
  -223
  -233
  -242
  -252
  -263
  -274
  -285
  -298
  -311
  -325
  -340
  -355
  -372
  -389
  -407
  -427
  -447
  -468
  -491
  -514
  -539
  -565
  -593
  -622
  -652
  -684
  -718
  -753
  -790
  -829
New CAPEX, $m
  -465
  -152
  -134
  -143
  -152
  -162
  -171
  -182
  -193
  -204
  -215
  -227
  -240
  -253
  -267
  -281
  -296
  -312
  -328
  -345
  -363
  -382
  -402
  -423
  -444
  -467
  -491
  -516
  -542
  -570
  -599
Cash from investing activities, $m
  -4,080
  -375
  -367
  -385
  -404
  -425
  -445
  -467
  -491
  -515
  -540
  -567
  -595
  -625
  -656
  -688
  -723
  -759
  -796
  -836
  -877
  -921
  -967
  -1,016
  -1,066
  -1,119
  -1,175
  -1,234
  -1,295
  -1,360
  -1,428
Free cash flow, $m
  -1,109
  3,093
  2,375
  2,437
  2,504
  2,575
  2,650
  2,730
  2,815
  2,905
  3,001
  2,908
  3,015
  3,127
  3,246
  3,372
  3,504
  3,643
  3,789
  3,944
  4,106
  4,277
  4,457
  4,646
  4,845
  5,054
  5,274
  5,505
  5,748
  6,003
  6,272
Issuance/(repayment) of debt, $m
  -5
  1,015
  1,097
  1,172
  1,249
  1,328
  1,409
  1,494
  1,582
  1,674
  1,769
  1,868
  1,971
  2,079
  2,192
  2,310
  2,433
  2,562
  2,697
  2,838
  2,986
  3,141
  3,303
  3,473
  3,652
  3,839
  4,035
  4,241
  4,456
  4,683
  4,920
Issuance/(repurchase) of shares, $m
  -645
  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  
  -627
  1,015
  1,097
  1,172
  1,249
  1,328
  1,409
  1,494
  1,582
  1,674
  1,769
  1,868
  1,971
  2,079
  2,192
  2,310
  2,433
  2,562
  2,697
  2,838
  2,986
  3,141
  3,303
  3,473
  3,652
  3,839
  4,035
  4,241
  4,456
  4,683
  4,920
Total cash flow (excl. dividends), $m
  -1,748
  4,108
  3,473
  3,609
  3,752
  3,902
  4,059
  4,224
  4,397
  4,579
  4,770
  4,776
  4,986
  5,207
  5,438
  5,681
  5,937
  6,205
  6,486
  6,782
  7,092
  7,418
  7,760
  8,119
  8,497
  8,893
  9,309
  9,746
  10,205
  10,686
  11,192
Retained Cash Flow (-), $m
  -298
  -194
  -195
  -208
  -222
  -236
  -251
  -266
  -281
  -298
  -315
  -332
  -351
  -370
  -390
  -411
  -433
  -456
  -480
  -505
  -531
  -559
  -588
  -618
  -649
  -683
  -718
  -754
  -793
  -833
  -875
Prev. year cash balance distribution, $m
 
  1,769
  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
 
  5,683
  3,278
  3,401
  3,530
  3,666
  3,809
  3,959
  4,116
  4,281
  4,455
  4,444
  4,636
  4,837
  5,048
  5,271
  5,504
  5,749
  6,006
  6,277
  6,561
  6,859
  7,173
  7,502
  7,847
  8,210
  8,591
  8,992
  9,412
  9,853
  10,317
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  5,448
  3,001
  2,960
  2,907
  2,842
  2,764
  2,674
  2,573
  2,459
  2,336
  2,110
  1,978
  1,839
  1,695
  1,547
  1,399
  1,251
  1,106
  966
  834
  709
  595
  492
  400
  319
  251
  193
  146
  108
  78
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

Cardinal Health, Inc. operates as a healthcare services and products company worldwide. The company’s Pharmaceutical segment distributes branded and generic pharmaceutical, over-the-counter healthcare, specialty pharmaceutical, and consumer products to retailers, hospitals, and other healthcare providers. It offers distribution, inventory management, data reporting, new product launch support, and contract pricing and chargeback administration services to pharmaceutical manufacturers; pharmacy and medication therapy management, and patient outcomes services to hospitals, other healthcare providers, and payers; consulting, patient support, and other services to pharmaceutical manufacturers and healthcare providers. This segment also operates nuclear pharmacies and cyclotron facilities that manufacture, prepare, and deliver radiopharmaceuticals, as well as operates direct-to-patient specialty pharmacies; offers logistics, marketing, and other services; and repackages generic pharmaceuticals and over-the-counter healthcare products. The company’s Medical segment distributes a range of medical, surgical, and laboratory products and services to hospitals, ambulatory surgery centers, clinical laboratories, and other healthcare providers, as well as to patients in the home. This segment also develops, manufactures, and sources medical and surgical products comprising surgical drapes, and gowns and apparel; exam and surgical gloves; fluid suction and collection systems; cardiovascular and endovascular products; and wound care and orthopedic products, as well as assembles and offers sterile and non-sterile procedure kits. In addition, it offers supply chain services, including spend, distribution, and inventory management services to healthcare providers; and post-acute care management, and transition services and software to hospitals, other healthcare providers, and payers. The company was founded in 1979 and is headquartered in Dublin, Ohio.

FINANCIAL RATIOS  of  Cardinal Health (CAH)

Valuation Ratios
P/E Ratio 16.5
Price to Sales 0.2
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 7.9
Price to Free Cash Flow 9.4
Growth Rates
Sales Growth Rate 18.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 55%
Cap. Spend. - 3 Yr. Gr. Rate 19%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 75.6%
Total Debt to Equity 84.5%
Interest Coverage 14
Management Effectiveness
Return On Assets 4.8%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital 12%
Ret/ On T. Cap. - 3 Yr. Avg. 11.5%
Return On Equity 22.3%
Return On Equity - 3 Yr. Avg. 20.1%
Asset Turnover 3.8
Profitability Ratios
Gross Margin 5.4%
Gross Margin - 3 Yr. Avg. 5.5%
EBITDA Margin 2.5%
EBITDA Margin - 3 Yr. Avg. 2.6%
Operating Margin 2%
Oper. Margin - 3 Yr. Avg. 2%
Pre-Tax Margin 1.9%
Pre-Tax Margin - 3 Yr. Avg. 1.9%
Net Profit Margin 1.2%
Net Profit Margin - 3 Yr. Avg. 1.2%
Effective Tax Rate 37.1%
Eff/ Tax Rate - 3 Yr. Avg. 36.9%
Payout Ratio 35.9%

CAH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CAH stock intrinsic value calculation we used $121546 million for the last fiscal year's total revenue generated by Cardinal Health. The default revenue input number comes from 2016 income statement of Cardinal Health. 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 CAH stock valuation model: a) initial revenue growth rate of 3.8% 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 4.3%, whose default value for CAH is calculated based on our internal credit rating of Cardinal Health, 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 Cardinal Health.
    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 CAH stock the variable cost ratio is equal to 98%.

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 CAH 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 Cardinal Health.

Corporate tax rate of 27% is the nominal tax rate for Cardinal Health. 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 CAH 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 CAH are equal to 2.7%.

Life of production assets of 14.6 years is the average useful life of capital assets used in Cardinal Health 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 CAH is equal to 0.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $6554 million for Cardinal Health - 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 316.449 million for Cardinal Health 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 Cardinal Health at the current share price and the inputted number of shares is $23.1 billion.


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Stock chart of CAH Financial statements of CAH Annual reports of CAH
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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