Intrinsic value of Canon ADR - CAJ

Previous Close

$35.85

  Intrinsic Value

$81.75

stock screener

  Rating & Target

str. buy

+128%

  Value-price divergence*

-117%

Previous close

$35.85

 
Intrinsic value

$81.75

 
Up/down potential

+128%

 
Rating

str. buy

 
Value-price divergence*

-117%

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

We calculate the intrinsic value of CAJ 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 47.7

 

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, %
  -10.49
  15.40
  14.36
  13.42
  12.58
  11.82
  11.14
  10.53
  9.97
  9.48
  9.03
  8.63
  8.26
  7.94
  7.64
  7.38
  7.14
  6.93
  6.73
  6.56
  6.40
  6.26
  6.14
  6.02
  5.92
  5.83
  5.75
  5.67
  5.60
  5.54
  5.49
Revenue, $m
  29,612
  34,172
  39,079
  44,325
  49,902
  55,802
  62,019
  68,548
  75,385
  82,530
  89,981
  97,743
  105,820
  114,220
  122,950
  132,023
  141,451
  151,249
  161,435
  172,027
  183,045
  194,512
  206,451
  218,888
  231,850
  245,366
  259,466
  274,183
  289,550
  305,603
  322,380
Variable operating expenses, $m
 
  23,214
  26,431
  29,869
  33,525
  37,392
  41,467
  45,747
  50,228
  54,911
  59,795
  64,068
  69,362
  74,868
  80,590
  86,537
  92,717
  99,140
  105,816
  112,759
  119,981
  127,497
  135,322
  143,474
  151,971
  160,830
  170,072
  179,719
  189,791
  200,314
  211,311
Fixed operating expenses, $m
 
  7,757
  7,951
  8,150
  8,354
  8,562
  8,777
  8,996
  9,221
  9,451
  9,688
  9,930
  10,178
  10,433
  10,693
  10,961
  11,235
  11,516
  11,803
  12,099
  12,401
  12,711
  13,029
  13,355
  13,688
  14,031
  14,381
  14,741
  15,109
  15,487
  15,874
Total operating expenses, $m
  27,619
  30,971
  34,382
  38,019
  41,879
  45,954
  50,244
  54,743
  59,449
  64,362
  69,483
  73,998
  79,540
  85,301
  91,283
  97,498
  103,952
  110,656
  117,619
  124,858
  132,382
  140,208
  148,351
  156,829
  165,659
  174,861
  184,453
  194,460
  204,900
  215,801
  227,185
Operating income, $m
  1,992
  3,201
  4,698
  6,306
  8,024
  9,848
  11,776
  13,806
  15,936
  18,167
  20,498
  23,746
  26,280
  28,919
  31,667
  34,525
  37,499
  40,594
  43,816
  47,170
  50,663
  54,304
  58,100
  62,059
  66,191
  70,505
  75,012
  79,723
  84,649
  89,802
  95,195
EBITDA, $m
  4,169
  5,748
  7,493
  9,367
  11,368
  13,490
  15,733
  18,094
  20,571
  23,164
  25,873
  28,698
  31,642
  34,707
  37,896
  41,214
  44,666
  48,258
  51,995
  55,886
  59,938
  64,159
  68,560
  73,149
  77,938
  82,937
  88,158
  93,615
  99,319
  105,286
  111,529
Interest expense (income), $m
  6
  186
  296
  415
  542
  677
  820
  970
  1,128
  1,293
  1,466
  1,647
  1,834
  2,030
  2,233
  2,444
  2,664
  2,892
  3,129
  3,376
  3,632
  3,899
  4,176
  4,465
  4,766
  5,080
  5,407
  5,748
  6,104
  6,476
  6,864
Earnings before tax, $m
  2,130
  3,015
  4,402
  5,891
  7,482
  9,171
  10,956
  12,836
  14,808
  16,874
  19,032
  22,099
  24,446
  26,890
  29,433
  32,081
  34,835
  37,702
  40,686
  43,794
  47,031
  50,405
  53,923
  57,594
  61,425
  65,425
  69,605
  73,975
  78,545
  83,326
  88,331
Tax expense, $m
  720
  814
  1,188
  1,591
  2,020
  2,476
  2,958
  3,466
  3,998
  4,556
  5,139
  5,967
  6,600
  7,260
  7,947
  8,662
  9,406
  10,180
  10,985
  11,824
  12,698
  13,609
  14,559
  15,550
  16,585
  17,665
  18,793
  19,973
  21,207
  22,498
  23,849
Net income, $m
  1,311
  2,201
  3,213
  4,301
  5,462
  6,695
  7,998
  9,370
  10,810
  12,318
  13,893
  16,132
  17,845
  19,629
  21,486
  23,419
  25,430
  27,523
  29,701
  31,970
  34,333
  36,796
  39,364
  42,043
  44,840
  47,761
  50,812
  54,002
  57,338
  60,828
  64,481

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  5,514
  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
  44,733
  45,261
  51,761
  58,709
  66,096
  73,910
  82,145
  90,792
  99,848
  109,311
  119,180
  129,461
  140,160
  151,284
  162,848
  174,865
  187,352
  200,330
  213,821
  227,850
  242,444
  257,631
  273,445
  289,918
  307,086
  324,987
  343,663
  363,156
  383,510
  404,773
  426,994
Adjusted assets (=assets-cash), $m
  39,219
  45,261
  51,761
  58,709
  66,096
  73,910
  82,145
  90,792
  99,848
  109,311
  119,180
  129,461
  140,160
  151,284
  162,848
  174,865
  187,352
  200,330
  213,821
  227,850
  242,444
  257,631
  273,445
  289,918
  307,086
  324,987
  343,663
  363,156
  383,510
  404,773
  426,994
Revenue / Adjusted assets
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
Average production assets, $m
  13,503
  15,583
  17,820
  20,212
  22,755
  25,446
  28,281
  31,258
  34,376
  37,633
  41,031
  44,571
  48,254
  52,084
  56,065
  60,202
  64,502
  68,970
  73,614
  78,444
  83,469
  88,697
  94,142
  99,813
  105,723
  111,887
  118,316
  125,027
  132,035
  139,355
  147,005
Working capital, $m
  9,718
  4,887
  5,588
  6,339
  7,136
  7,980
  8,869
  9,802
  10,780
  11,802
  12,867
  13,977
  15,132
  16,333
  17,582
  18,879
  20,227
  21,629
  23,085
  24,600
  26,175
  27,815
  29,522
  31,301
  33,155
  35,087
  37,104
  39,208
  41,406
  43,701
  46,100
Total debt, $m
  5,338
  8,460
  11,853
  15,480
  19,336
  23,415
  27,714
  32,228
  36,955
  41,894
  47,046
  52,413
  57,997
  63,804
  69,841
  76,113
  82,632
  89,406
  96,449
  103,772
  111,390
  119,318
  127,572
  136,171
  145,133
  154,477
  164,226
  174,401
  185,026
  196,125
  207,725
Total liabilities, $m
  20,505
  23,626
  27,019
  30,646
  34,502
  38,581
  42,880
  47,394
  52,121
  57,060
  62,212
  67,579
  73,163
  78,970
  85,007
  91,279
  97,798
  104,572
  111,615
  118,938
  126,556
  134,484
  142,738
  151,337
  160,299
  169,643
  179,392
  189,567
  200,192
  211,291
  222,891
Total equity, $m
  24,229
  21,635
  24,742
  28,063
  31,594
  35,329
  39,265
  43,399
  47,727
  52,250
  56,968
  61,883
  66,996
  72,314
  77,841
  83,585
  89,554
  95,758
  102,207
  108,912
  115,888
  123,148
  130,707
  138,581
  146,787
  155,344
  164,271
  173,588
  183,318
  193,481
  204,103
Total liabilities and equity, $m
  44,734
  45,261
  51,761
  58,709
  66,096
  73,910
  82,145
  90,793
  99,848
  109,310
  119,180
  129,462
  140,159
  151,284
  162,848
  174,864
  187,352
  200,330
  213,822
  227,850
  242,444
  257,632
  273,445
  289,918
  307,086
  324,987
  343,663
  363,155
  383,510
  404,772
  426,994
Debt-to-equity ratio
  0.220
  0.390
  0.480
  0.550
  0.610
  0.660
  0.710
  0.740
  0.770
  0.800
  0.830
  0.850
  0.870
  0.880
  0.900
  0.910
  0.920
  0.930
  0.940
  0.950
  0.960
  0.970
  0.980
  0.980
  0.990
  0.990
  1.000
  1.000
  1.010
  1.010
  1.020
Adjusted equity ratio
  0.477
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,311
  2,201
  3,213
  4,301
  5,462
  6,695
  7,998
  9,370
  10,810
  12,318
  13,893
  16,132
  17,845
  19,629
  21,486
  23,419
  25,430
  27,523
  29,701
  31,970
  34,333
  36,796
  39,364
  42,043
  44,840
  47,761
  50,812
  54,002
  57,338
  60,828
  64,481
Depreciation, amort., depletion, $m
  2,177
  2,547
  2,795
  3,061
  3,344
  3,643
  3,958
  4,288
  4,635
  4,997
  5,374
  4,952
  5,362
  5,787
  6,229
  6,689
  7,167
  7,663
  8,179
  8,716
  9,274
  9,855
  10,460
  11,090
  11,747
  12,432
  13,146
  13,892
  14,671
  15,484
  16,334
Funds from operations, $m
  5,015
  4,747
  6,008
  7,362
  8,806
  10,337
  11,956
  13,658
  15,445
  17,315
  19,268
  21,085
  23,207
  25,417
  27,716
  30,108
  32,597
  35,186
  37,880
  40,686
  43,607
  46,651
  49,824
  53,134
  56,587
  60,192
  63,958
  67,894
  72,008
  76,312
  80,815
Change in working capital, $m
  660
  652
  702
  750
  797
  844
  889
  934
  978
  1,022
  1,066
  1,110
  1,155
  1,201
  1,248
  1,297
  1,348
  1,401
  1,457
  1,515
  1,576
  1,640
  1,707
  1,778
  1,854
  1,933
  2,016
  2,104
  2,198
  2,296
  2,399
Cash from operations, $m
  4,355
  4,095
  5,307
  6,612
  8,008
  9,494
  11,067
  12,725
  14,467
  16,293
  18,202
  19,975
  22,052
  24,215
  26,467
  28,811
  31,248
  33,785
  36,424
  39,171
  42,032
  45,011
  48,117
  51,355
  54,733
  58,260
  61,942
  65,789
  69,811
  74,016
  78,416
Maintenance CAPEX, $m
  0
  -1,500
  -1,731
  -1,980
  -2,246
  -2,528
  -2,827
  -3,142
  -3,473
  -3,820
  -4,181
  -4,559
  -4,952
  -5,362
  -5,787
  -6,229
  -6,689
  -7,167
  -7,663
  -8,179
  -8,716
  -9,274
  -9,855
  -10,460
  -11,090
  -11,747
  -12,432
  -13,146
  -13,892
  -14,671
  -15,484
New CAPEX, $m
  -1,802
  -2,080
  -2,238
  -2,392
  -2,543
  -2,690
  -2,835
  -2,977
  -3,118
  -3,258
  -3,398
  -3,539
  -3,683
  -3,830
  -3,981
  -4,137
  -4,299
  -4,468
  -4,645
  -4,830
  -5,024
  -5,229
  -5,444
  -5,671
  -5,911
  -6,163
  -6,430
  -6,711
  -7,007
  -7,320
  -7,650
Cash from investing activities, $m
  -7,288
  -3,580
  -3,969
  -4,372
  -4,789
  -5,218
  -5,662
  -6,119
  -6,591
  -7,078
  -7,579
  -8,098
  -8,635
  -9,192
  -9,768
  -10,366
  -10,988
  -11,635
  -12,308
  -13,009
  -13,740
  -14,503
  -15,299
  -16,131
  -17,001
  -17,910
  -18,862
  -19,857
  -20,899
  -21,991
  -23,134
Free cash flow, $m
  -2,933
  515
  1,338
  2,239
  3,219
  4,275
  5,404
  6,605
  7,876
  9,216
  10,623
  11,876
  13,416
  15,024
  16,699
  18,444
  20,260
  22,150
  24,116
  26,162
  28,291
  30,508
  32,818
  35,224
  37,732
  40,349
  43,080
  45,932
  48,911
  52,025
  55,282
Issuance/(repayment) of debt, $m
  4,606
  3,138
  3,393
  3,627
  3,856
  4,079
  4,298
  4,514
  4,727
  4,939
  5,152
  5,367
  5,584
  5,807
  6,036
  6,273
  6,519
  6,775
  7,042
  7,323
  7,618
  7,928
  8,255
  8,599
  8,962
  9,345
  9,749
  10,175
  10,625
  11,099
  11,600
Issuance/(repurchase) of shares, $m
  0
  703
  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  
  4,522
  3,841
  3,393
  3,627
  3,856
  4,079
  4,298
  4,514
  4,727
  4,939
  5,152
  5,367
  5,584
  5,807
  6,036
  6,273
  6,519
  6,775
  7,042
  7,323
  7,618
  7,928
  8,255
  8,599
  8,962
  9,345
  9,749
  10,175
  10,625
  11,099
  11,600
Total cash flow (excl. dividends), $m
  1,396
  4,357
  4,730
  5,866
  7,075
  8,354
  9,703
  11,119
  12,603
  14,155
  15,775
  17,243
  19,001
  20,831
  22,735
  24,717
  26,779
  28,924
  31,158
  33,485
  35,909
  38,436
  41,072
  43,823
  46,694
  49,694
  52,829
  56,107
  59,536
  63,125
  66,882
Retained Cash Flow (-), $m
  1,595
  -2,904
  -3,107
  -3,321
  -3,531
  -3,735
  -3,936
  -4,133
  -4,329
  -4,523
  -4,718
  -4,914
  -5,114
  -5,318
  -5,527
  -5,744
  -5,969
  -6,204
  -6,449
  -6,706
  -6,976
  -7,260
  -7,559
  -7,874
  -8,206
  -8,557
  -8,927
  -9,317
  -9,729
  -10,164
  -10,622
Prev. year cash balance distribution, $m
 
  5,498
  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
 
  6,951
  1,624
  2,545
  3,544
  4,619
  5,767
  6,986
  8,275
  9,632
  11,057
  12,328
  13,887
  15,513
  17,208
  18,973
  20,809
  22,721
  24,710
  26,779
  28,933
  31,177
  33,513
  35,949
  38,488
  41,137
  43,902
  46,790
  49,807
  52,961
  56,260
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
 
  6,664
  1,486
  2,215
  2,918
  3,580
  4,185
  4,720
  5,172
  5,533
  5,797
  5,855
  5,926
  5,898
  5,777
  5,570
  5,288
  4,944
  4,550
  4,123
  3,677
  3,225
  2,781
  2,356
  1,960
  1,600
  1,281
  1,004
  771
  578
  424
Current shareholders' claim on cash, %
  100
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1
  98.1

Canon Inc. (Canon) is a manufacturer of office multifunction devices (MFDs), plain paper copying machines, laser printers, inkjet printers, cameras and lithography equipment. Canon sells its products principally under the Canon brand name and through sales subsidiaries. Each of these subsidiaries is responsible for marketing and distribution to retail dealers in an assigned territory. Canon operates its business in three segments: the Office Business Unit, the Imaging System Business Unit, and the Industry and Others Business Unit. Canon's research and development activities range from basic research to product-oriented research directed at maintaining Canon's technological operations in the marketplace. Canon has manufacturing subsidiaries in a range of countries, including the United States, Germany, France, the Netherlands, Taiwan, China, Malaysia, Thailand, Vietnam and the Philippines.

FINANCIAL RATIOS  of  Canon ADR (CAJ)

Valuation Ratios
P/E Ratio 29.9
Price to Sales 1.3
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 9
Price to Free Cash Flow 15.3
Growth Rates
Sales Growth Rate -10.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -18.2%
Cap. Spend. - 3 Yr. Gr. Rate -2.4%
Financial Strength
Quick Ratio 345
Current Ratio 0
LT Debt to Equity 22%
Total Debt to Equity 22%
Interest Coverage 356
Management Effectiveness
Return On Assets 3.2%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 4.7%
Ret/ On T. Cap. - 3 Yr. Avg. 6.9%
Return On Equity 5.2%
Return On Equity - 3 Yr. Avg. 7.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 49.2%
Gross Margin - 3 Yr. Avg. 50%
EBITDA Margin 14.6%
EBITDA Margin - 3 Yr. Avg. 16.1%
Operating Margin 6.7%
Oper. Margin - 3 Yr. Avg. 8.6%
Pre-Tax Margin 7.2%
Pre-Tax Margin - 3 Yr. Avg. 8.9%
Net Profit Margin 4.4%
Net Profit Margin - 3 Yr. Avg. 5.7%
Effective Tax Rate 33.8%
Eff/ Tax Rate - 3 Yr. Avg. 32.7%
Payout Ratio 108.8%

CAJ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CAJ stock intrinsic value calculation we used $29612 million for the last fiscal year's total revenue generated by Canon ADR. The default revenue input number comes from 2016 income statement of Canon ADR. 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 CAJ stock valuation model: a) initial revenue growth rate of 15.4% 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 CAJ is calculated based on our internal credit rating of Canon ADR, 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 Canon ADR.
    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 CAJ stock the variable cost ratio is equal to 68.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $7568 million in the base year in the intrinsic value calculation for CAJ 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 Canon ADR.

Corporate tax rate of 27% is the nominal tax rate for Canon ADR. 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 CAJ 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 CAJ are equal to 45.6%.

Life of production assets of 9 years is the average useful life of capital assets used in Canon ADR 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 CAJ is equal to 14.3%. 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 - $24229 million for Canon ADR - 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 1329.41 million for Canon ADR 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 Canon ADR at the current share price and the inputted number of shares is $47.7 billion.

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COMPANY NEWS

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▶ Toshiba agreement on sale to Bain-led consortium protested   [Sep-13-17 03:41AM  Associated Press]
▶ Why Is No One Talking About Canon Inc.'s Stock?   [Sep-07-17 07:05PM  Motley Fool]
▶ Canon posts 2Q profit   [Jul-28-17 01:24AM  Associated Press]
▶ The Canon PhotoMarathon 2017 Hong Kong   [Jun-27-17 04:00AM  Marketwired]
▶ ETFs with exposure to Canon, Inc. : June 19, 2017   [Jun-19-17 03:03PM  Capital Cube]
▶ ETFs with exposure to Canon, Inc. : May 30, 2017   [May-30-17 12:19PM  Capital Cube]
▶ Canon posts 1Q profit   [Apr-26-17 05:01AM  Associated Press]
Financial statements of CAJ
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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