Intrinsic value of Cardinal Health - CAH

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$72.50

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$72.50

 
Intrinsic value

$171.25

 
Up/down potential

+136%

 
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 22.8

 

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
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.15
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
Revenue, $m
  121,546
  128,109
  134,976
  142,162
  149,685
  157,562
  165,812
  174,455
  183,512
  193,003
  202,953
  213,383
  224,320
  235,790
  247,819
  260,437
  273,673
  287,560
  302,130
  317,417
  333,460
  350,295
  367,963
  386,506
  405,968
  426,396
  447,839
  470,346
  493,973
  518,775
  544,812
Variable operating expenses, $m
 
  125,509
  132,197
  139,197
  146,525
  154,198
  162,235
  170,654
  179,476
  188,722
  198,414
  207,858
  218,511
  229,684
  241,401
  253,692
  266,586
  280,113
  294,305
  309,197
  324,824
  341,224
  358,434
  376,497
  395,455
  415,354
  436,241
  458,166
  481,181
  505,341
  530,703
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
  125,509
  132,197
  139,197
  146,525
  154,198
  162,235
  170,654
  179,476
  188,722
  198,414
  207,858
  218,511
  229,684
  241,401
  253,692
  266,586
  280,113
  294,305
  309,197
  324,824
  341,224
  358,434
  376,497
  395,455
  415,354
  436,241
  458,166
  481,181
  505,341
  530,703
Operating income, $m
  2,459
  2,601
  2,779
  2,965
  3,160
  3,364
  3,577
  3,801
  4,036
  4,281
  4,539
  5,526
  5,809
  6,106
  6,418
  6,744
  7,087
  7,447
  7,824
  8,220
  8,635
  9,071
  9,529
  10,009
  10,513
  11,042
  11,597
  12,180
  12,792
  13,434
  14,109
EBITDA, $m
  3,100
  3,555
  3,745
  3,944
  4,153
  4,372
  4,601
  4,840
  5,092
  5,355
  5,631
  5,921
  6,224
  6,542
  6,876
  7,226
  7,593
  7,979
  8,383
  8,807
  9,252
  9,719
  10,209
  10,724
  11,264
  11,831
  12,426
  13,050
  13,706
  14,394
  15,116
Interest expense (income), $m
  174
  173
  224
  277
  333
  392
  453
  517
  584
  654
  728
  805
  886
  971
  1,060
  1,154
  1,252
  1,354
  1,462
  1,576
  1,694
  1,819
  1,950
  2,087
  2,231
  2,382
  2,541
  2,707
  2,882
  3,065
  3,258
Earnings before tax, $m
  2,276
  2,428
  2,555
  2,688
  2,827
  2,972
  3,125
  3,284
  3,452
  3,627
  3,811
  4,721
  4,923
  5,135
  5,357
  5,591
  5,835
  6,092
  6,362
  6,645
  6,941
  7,253
  7,579
  7,922
  8,282
  8,660
  9,057
  9,473
  9,910
  10,369
  10,851
Tax expense, $m
  845
  655
  690
  726
  763
  802
  844
  887
  932
  979
  1,029
  1,275
  1,329
  1,386
  1,446
  1,509
  1,576
  1,645
  1,718
  1,794
  1,874
  1,958
  2,046
  2,139
  2,236
  2,338
  2,445
  2,558
  2,676
  2,800
  2,930
Net income, $m
  1,427
  1,772
  1,865
  1,962
  2,063
  2,170
  2,281
  2,398
  2,520
  2,648
  2,782
  3,446
  3,594
  3,749
  3,911
  4,081
  4,260
  4,447
  4,644
  4,850
  5,067
  5,294
  5,533
  5,783
  6,046
  6,322
  6,611
  6,915
  7,234
  7,569
  7,921

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
  33,484
  35,279
  37,157
  39,123
  41,182
  43,338
  45,597
  47,964
  50,445
  53,046
  55,772
  58,631
  61,628
  64,772
  68,070
  71,530
  75,159
  78,967
  82,963
  87,156
  91,556
  96,174
  101,021
  106,108
  111,447
  117,051
  122,934
  129,110
  135,592
  142,397
Adjusted assets (=assets-cash), $m
  31,766
  33,484
  35,279
  37,157
  39,123
  41,182
  43,338
  45,597
  47,964
  50,445
  53,046
  55,772
  58,631
  61,628
  64,772
  68,070
  71,530
  75,159
  78,967
  82,963
  87,156
  91,556
  96,174
  101,021
  106,108
  111,447
  117,051
  122,934
  129,110
  135,592
  142,397
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
  3,459
  3,644
  3,838
  4,041
  4,254
  4,477
  4,710
  4,955
  5,211
  5,480
  5,761
  6,057
  6,366
  6,691
  7,032
  7,389
  7,764
  8,157
  8,570
  9,003
  9,458
  9,935
  10,436
  10,961
  11,513
  12,092
  12,699
  13,337
  14,007
  14,710
Working capital, $m
  2,255
  512
  540
  569
  599
  630
  663
  698
  734
  772
  812
  854
  897
  943
  991
  1,042
  1,095
  1,150
  1,209
  1,270
  1,334
  1,401
  1,472
  1,546
  1,624
  1,706
  1,791
  1,881
  1,976
  2,075
  2,179
Total debt, $m
  5,539
  6,399
  7,923
  9,517
  11,187
  12,934
  14,765
  16,683
  18,693
  20,799
  23,007
  25,321
  27,748
  30,293
  32,963
  35,763
  38,700
  41,781
  45,014
  48,407
  51,967
  55,702
  59,623
  63,738
  68,057
  72,590
  77,348
  82,342
  87,585
  93,089
  98,866
Total liabilities, $m
  27,568
  28,428
  29,952
  31,546
  33,216
  34,963
  36,794
  38,712
  40,722
  42,828
  45,036
  47,350
  49,777
  52,322
  54,992
  57,792
  60,729
  63,810
  67,043
  70,436
  73,996
  77,731
  81,652
  85,767
  90,086
  94,619
  99,377
  104,371
  109,614
  115,118
  120,895
Total equity, $m
  6,554
  5,056
  5,327
  5,611
  5,908
  6,218
  6,544
  6,885
  7,243
  7,617
  8,010
  8,422
  8,853
  9,306
  9,781
  10,279
  10,801
  11,349
  11,924
  12,527
  13,161
  13,825
  14,522
  15,254
  16,022
  16,829
  17,675
  18,563
  19,496
  20,474
  21,502
Total liabilities and equity, $m
  34,122
  33,484
  35,279
  37,157
  39,124
  41,181
  43,338
  45,597
  47,965
  50,445
  53,046
  55,772
  58,630
  61,628
  64,773
  68,071
  71,530
  75,159
  78,967
  82,963
  87,157
  91,556
  96,174
  101,021
  106,108
  111,448
  117,052
  122,934
  129,110
  135,592
  142,397
Debt-to-equity ratio
  0.845
  1.270
  1.490
  1.700
  1.890
  2.080
  2.260
  2.420
  2.580
  2.730
  2.870
  3.010
  3.130
  3.260
  3.370
  3.480
  3.580
  3.680
  3.780
  3.860
  3.950
  4.030
  4.110
  4.180
  4.250
  4.310
  4.380
  4.440
  4.490
  4.550
  4.600
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
  1,772
  1,865
  1,962
  2,063
  2,170
  2,281
  2,398
  2,520
  2,648
  2,782
  3,446
  3,594
  3,749
  3,911
  4,081
  4,260
  4,447
  4,644
  4,850
  5,067
  5,294
  5,533
  5,783
  6,046
  6,322
  6,611
  6,915
  7,234
  7,569
  7,921
Depreciation, amort., depletion, $m
  641
  954
  966
  980
  994
  1,008
  1,023
  1,039
  1,056
  1,074
  1,092
  395
  415
  436
  458
  482
  506
  532
  559
  587
  617
  648
  680
  715
  751
  789
  828
  870
  914
  959
  1,008
Funds from operations, $m
  3,594
  2,726
  2,831
  2,941
  3,057
  3,178
  3,304
  3,437
  3,576
  3,721
  3,874
  3,841
  4,009
  4,185
  4,369
  4,563
  4,766
  4,979
  5,203
  5,437
  5,684
  5,942
  6,213
  6,498
  6,797
  7,110
  7,440
  7,785
  8,148
  8,529
  8,928
Change in working capital, $m
  623
  26
  27
  29
  30
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  50
  53
  56
  58
  61
  64
  67
  71
  74
  78
  82
  86
  90
  95
  99
  104
Cash from operations, $m
  2,971
  3,500
  2,804
  2,913
  3,027
  3,146
  3,271
  3,402
  3,540
  3,683
  3,834
  3,799
  3,965
  4,139
  4,321
  4,512
  4,713
  4,924
  5,145
  5,376
  5,620
  5,875
  6,143
  6,424
  6,719
  7,029
  7,354
  7,695
  8,053
  8,430
  8,824
Maintenance CAPEX, $m
  0
  -223
  -237
  -250
  -263
  -277
  -291
  -307
  -323
  -339
  -357
  -375
  -395
  -415
  -436
  -458
  -482
  -506
  -532
  -559
  -587
  -617
  -648
  -680
  -715
  -751
  -789
  -828
  -870
  -914
  -959
New CAPEX, $m
  -465
  -204
  -185
  -194
  -203
  -213
  -223
  -233
  -245
  -256
  -269
  -282
  -295
  -310
  -325
  -341
  -357
  -375
  -393
  -413
  -433
  -455
  -477
  -501
  -525
  -552
  -579
  -608
  -638
  -670
  -703
Cash from investing activities, $m
  -4,080
  -427
  -422
  -444
  -466
  -490
  -514
  -540
  -568
  -595
  -626
  -657
  -690
  -725
  -761
  -799
  -839
  -881
  -925
  -972
  -1,020
  -1,072
  -1,125
  -1,181
  -1,240
  -1,303
  -1,368
  -1,436
  -1,508
  -1,584
  -1,662
Free cash flow, $m
  -1,109
  3,073
  2,382
  2,469
  2,561
  2,657
  2,757
  2,862
  2,972
  3,088
  3,209
  3,142
  3,275
  3,414
  3,560
  3,713
  3,874
  4,043
  4,219
  4,405
  4,599
  4,804
  5,018
  5,243
  5,479
  5,726
  5,986
  6,259
  6,546
  6,846
  7,162
Issuance/(repayment) of debt, $m
  -5
  1,447
  1,524
  1,595
  1,669
  1,748
  1,831
  1,918
  2,010
  2,106
  2,208
  2,315
  2,427
  2,545
  2,669
  2,800
  2,937
  3,081
  3,233
  3,392
  3,560
  3,736
  3,921
  4,115
  4,319
  4,533
  4,758
  4,995
  5,243
  5,504
  5,778
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
  1,447
  1,524
  1,595
  1,669
  1,748
  1,831
  1,918
  2,010
  2,106
  2,208
  2,315
  2,427
  2,545
  2,669
  2,800
  2,937
  3,081
  3,233
  3,392
  3,560
  3,736
  3,921
  4,115
  4,319
  4,533
  4,758
  4,995
  5,243
  5,504
  5,778
Total cash flow (excl. dividends), $m
  -1,748
  4,519
  3,905
  4,064
  4,230
  4,405
  4,588
  4,780
  4,982
  5,194
  5,417
  5,457
  5,702
  5,959
  6,230
  6,513
  6,811
  7,124
  7,452
  7,797
  8,159
  8,539
  8,939
  9,358
  9,798
  10,259
  10,745
  11,254
  11,789
  12,350
  12,940
Retained Cash Flow (-), $m
  -298
  -271
  -271
  -284
  -297
  -311
  -326
  -341
  -357
  -375
  -393
  -412
  -432
  -453
  -475
  -498
  -522
  -548
  -575
  -603
  -633
  -664
  -697
  -732
  -768
  -806
  -846
  -888
  -932
  -979
  -1,028
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
 
  6,017
  3,634
  3,780
  3,933
  4,094
  4,262
  4,439
  4,625
  4,819
  5,024
  5,045
  5,270
  5,507
  5,755
  6,015
  6,289
  6,576
  6,877
  7,194
  7,526
  7,875
  8,241
  8,626
  9,029
  9,453
  9,898
  10,366
  10,856
  11,371
  11,912
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
 
  5,769
  3,327
  3,290
  3,239
  3,173
  3,093
  2,999
  2,891
  2,769
  2,634
  2,396
  2,249
  2,094
  1,932
  1,766
  1,598
  1,431
  1,267
  1,108
  956
  815
  684
  565
  460
  368
  289
  222
  168
  124
  90
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 16.4
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 9.3
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 5.4% 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 315.021 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 $22.8 billion.


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Stock chart of CAH Financial statements 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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