Intrinsic value of Canon ADR - CAJ

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$33.92

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$33.92

 
Intrinsic value

$23.10

 
Up/down potential

-32%

 
Rating

sell

 
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 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 44.3

 

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
  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
  29,612
  30,204
  30,899
  31,693
  32,585
  33,572
  34,656
  35,837
  37,114
  38,491
  39,968
  41,548
  43,234
  45,030
  46,938
  48,963
  51,108
  53,380
  55,782
  58,319
  60,999
  63,827
  66,808
  69,951
  73,263
  76,751
  80,423
  84,288
  88,356
  92,635
  97,136
Variable operating expenses, $m
 
  20,613
  21,069
  21,589
  22,173
  22,821
  23,531
  24,305
  25,142
  26,045
  27,013
  27,234
  28,339
  29,516
  30,766
  32,094
  33,500
  34,989
  36,563
  38,227
  39,983
  41,836
  43,791
  45,851
  48,022
  50,308
  52,715
  55,249
  57,915
  60,719
  63,670
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
  28,370
  29,020
  29,739
  30,527
  31,383
  32,308
  33,301
  34,363
  35,496
  36,701
  37,164
  38,517
  39,949
  41,459
  43,055
  44,735
  46,505
  48,366
  50,326
  52,384
  54,547
  56,820
  59,206
  61,710
  64,339
  67,096
  69,990
  73,024
  76,206
  79,544
Operating income, $m
  1,992
  1,834
  1,879
  1,954
  2,057
  2,189
  2,348
  2,536
  2,751
  2,995
  3,267
  4,385
  4,717
  5,082
  5,478
  5,908
  6,374
  6,875
  7,415
  7,994
  8,615
  9,279
  9,989
  10,746
  11,553
  12,412
  13,327
  14,299
  15,332
  16,428
  17,592
EBITDA, $m
  4,169
  4,179
  4,260
  4,375
  4,524
  4,705
  4,919
  5,167
  5,447
  5,760
  6,107
  6,490
  6,908
  7,363
  7,856
  8,389
  8,963
  9,580
  10,241
  10,949
  11,706
  12,513
  13,374
  14,290
  15,265
  16,301
  17,401
  18,569
  19,808
  21,122
  22,513
Interest expense (income), $m
  6
  186
  200
  217
  236
  258
  282
  308
  336
  367
  401
  436
  475
  515
  559
  605
  654
  706
  761
  819
  880
  945
  1,014
  1,086
  1,162
  1,242
  1,326
  1,415
  1,509
  1,607
  1,711
Earnings before tax, $m
  2,130
  1,648
  1,679
  1,737
  1,821
  1,931
  2,067
  2,228
  2,414
  2,627
  2,867
  3,948
  4,243
  4,566
  4,919
  5,303
  5,720
  6,169
  6,654
  7,175
  7,734
  8,334
  8,975
  9,660
  10,391
  11,170
  12,000
  12,884
  13,823
  14,821
  15,881
Tax expense, $m
  720
  445
  453
  469
  492
  521
  558
  601
  652
  709
  774
  1,066
  1,146
  1,233
  1,328
  1,432
  1,544
  1,666
  1,797
  1,937
  2,088
  2,250
  2,423
  2,608
  2,806
  3,016
  3,240
  3,479
  3,732
  4,002
  4,288
Net income, $m
  1,311
  1,203
  1,226
  1,268
  1,330
  1,410
  1,509
  1,626
  1,763
  1,918
  2,093
  2,882
  3,097
  3,333
  3,591
  3,871
  4,175
  4,504
  4,857
  5,238
  5,646
  6,084
  6,552
  7,052
  7,585
  8,154
  8,760
  9,405
  10,091
  10,819
  11,593

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
  40,006
  40,926
  41,978
  43,158
  44,467
  45,902
  47,466
  49,158
  50,981
  52,937
  55,031
  57,264
  59,642
  62,169
  64,851
  67,693
  70,702
  73,883
  77,244
  80,794
  84,539
  88,488
  92,651
  97,037
  101,657
  106,521
  111,640
  117,027
  122,695
  128,657
Adjusted assets (=assets-cash), $m
  39,219
  40,006
  40,926
  41,978
  43,158
  44,467
  45,902
  47,466
  49,158
  50,981
  52,937
  55,031
  57,264
  59,642
  62,169
  64,851
  67,693
  70,702
  73,883
  77,244
  80,794
  84,539
  88,488
  92,651
  97,037
  101,657
  106,521
  111,640
  117,027
  122,695
  128,657
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
  13,773
  14,090
  14,452
  14,859
  15,309
  15,803
  16,341
  16,924
  17,552
  18,225
  18,946
  19,715
  20,534
  21,404
  22,327
  23,305
  24,341
  25,436
  26,594
  27,816
  29,105
  30,465
  31,898
  33,408
  34,998
  36,673
  38,435
  40,290
  42,241
  44,294
Working capital, $m
  9,718
  4,319
  4,419
  4,532
  4,660
  4,801
  4,956
  5,125
  5,307
  5,504
  5,715
  5,941
  6,183
  6,439
  6,712
  7,002
  7,308
  7,633
  7,977
  8,340
  8,723
  9,127
  9,554
  10,003
  10,477
  10,975
  11,501
  12,053
  12,635
  13,247
  13,890
Total debt, $m
  5,338
  5,717
  6,197
  6,746
  7,363
  8,046
  8,795
  9,611
  10,494
  11,446
  12,467
  13,560
  14,726
  15,967
  17,286
  18,686
  20,170
  21,740
  23,401
  25,156
  27,008
  28,963
  31,025
  33,198
  35,487
  37,899
  40,438
  43,110
  45,922
  48,881
  51,993
Total liabilities, $m
  20,505
  20,883
  21,363
  21,912
  22,529
  23,212
  23,961
  24,777
  25,660
  26,612
  27,633
  28,726
  29,892
  31,133
  32,452
  33,852
  35,336
  36,906
  38,567
  40,322
  42,174
  44,129
  46,191
  48,364
  50,653
  53,065
  55,604
  58,276
  61,088
  64,047
  67,159
Total equity, $m
  24,229
  19,123
  19,563
  20,065
  20,630
  21,255
  21,941
  22,689
  23,497
  24,369
  25,304
  26,305
  27,372
  28,509
  29,717
  30,999
  32,357
  33,795
  35,316
  36,923
  38,619
  40,409
  42,297
  44,287
  46,384
  48,592
  50,917
  53,364
  55,939
  58,648
  61,498
Total liabilities and equity, $m
  44,734
  40,006
  40,926
  41,977
  43,159
  44,467
  45,902
  47,466
  49,157
  50,981
  52,937
  55,031
  57,264
  59,642
  62,169
  64,851
  67,693
  70,701
  73,883
  77,245
  80,793
  84,538
  88,488
  92,651
  97,037
  101,657
  106,521
  111,640
  117,027
  122,695
  128,657
Debt-to-equity ratio
  0.220
  0.300
  0.320
  0.340
  0.360
  0.380
  0.400
  0.420
  0.450
  0.470
  0.490
  0.520
  0.540
  0.560
  0.580
  0.600
  0.620
  0.640
  0.660
  0.680
  0.700
  0.720
  0.730
  0.750
  0.770
  0.780
  0.790
  0.810
  0.820
  0.830
  0.850
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
  1,203
  1,226
  1,268
  1,330
  1,410
  1,509
  1,626
  1,763
  1,918
  2,093
  2,882
  3,097
  3,333
  3,591
  3,871
  4,175
  4,504
  4,857
  5,238
  5,646
  6,084
  6,552
  7,052
  7,585
  8,154
  8,760
  9,405
  10,091
  10,819
  11,593
Depreciation, amort., depletion, $m
  2,177
  2,346
  2,381
  2,421
  2,466
  2,516
  2,571
  2,631
  2,696
  2,765
  2,840
  2,105
  2,191
  2,282
  2,378
  2,481
  2,589
  2,705
  2,826
  2,955
  3,091
  3,234
  3,385
  3,544
  3,712
  3,889
  4,075
  4,271
  4,477
  4,693
  4,922
Funds from operations, $m
  5,015
  3,548
  3,607
  3,689
  3,796
  3,926
  4,080
  4,257
  4,458
  4,683
  4,933
  4,987
  5,288
  5,615
  5,969
  6,352
  6,765
  7,208
  7,684
  8,193
  8,737
  9,318
  9,937
  10,596
  11,297
  12,043
  12,835
  13,676
  14,567
  15,513
  16,515
Change in working capital, $m
  660
  85
  99
  114
  127
  141
  155
  169
  183
  197
  211
  226
  241
  257
  273
  290
  307
  325
  343
  363
  383
  404
  426
  449
  474
  499
  525
  553
  582
  612
  644
Cash from operations, $m
  4,355
  4,249
  3,507
  3,576
  3,668
  3,785
  3,925
  4,088
  4,276
  4,486
  4,722
  4,761
  5,047
  5,358
  5,696
  6,063
  6,458
  6,883
  7,340
  7,830
  8,354
  8,913
  9,510
  10,146
  10,824
  11,544
  12,310
  13,123
  13,986
  14,901
  15,871
Maintenance CAPEX, $m
  0
  -1,500
  -1,530
  -1,566
  -1,606
  -1,651
  -1,701
  -1,756
  -1,816
  -1,880
  -1,950
  -2,025
  -2,105
  -2,191
  -2,282
  -2,378
  -2,481
  -2,589
  -2,705
  -2,826
  -2,955
  -3,091
  -3,234
  -3,385
  -3,544
  -3,712
  -3,889
  -4,075
  -4,271
  -4,477
  -4,693
New CAPEX, $m
  -1,802
  -270
  -317
  -362
  -407
  -450
  -494
  -538
  -583
  -628
  -674
  -721
  -769
  -819
  -870
  -923
  -978
  -1,036
  -1,095
  -1,157
  -1,222
  -1,289
  -1,360
  -1,433
  -1,510
  -1,590
  -1,675
  -1,763
  -1,855
  -1,951
  -2,052
Cash from investing activities, $m
  -7,288
  -1,770
  -1,847
  -1,928
  -2,013
  -2,101
  -2,195
  -2,294
  -2,399
  -2,508
  -2,624
  -2,746
  -2,874
  -3,010
  -3,152
  -3,301
  -3,459
  -3,625
  -3,800
  -3,983
  -4,177
  -4,380
  -4,594
  -4,818
  -5,054
  -5,302
  -5,564
  -5,838
  -6,126
  -6,428
  -6,745
Free cash flow, $m
  -2,933
  2,478
  1,660
  1,648
  1,656
  1,683
  1,730
  1,794
  1,877
  1,978
  2,098
  2,016
  2,173
  2,349
  2,545
  2,761
  2,999
  3,258
  3,540
  3,846
  4,177
  4,533
  4,917
  5,328
  5,770
  6,242
  6,747
  7,286
  7,860
  8,473
  9,125
Issuance/(repayment) of debt, $m
  4,606
  395
  480
  549
  616
  683
  749
  816
  883
  952
  1,021
  1,093
  1,166
  1,241
  1,319
  1,400
  1,484
  1,570
  1,661
  1,755
  1,853
  1,955
  2,062
  2,173
  2,290
  2,411
  2,539
  2,672
  2,812
  2,959
  3,112
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  4,522
  395
  480
  549
  616
  683
  749
  816
  883
  952
  1,021
  1,093
  1,166
  1,241
  1,319
  1,400
  1,484
  1,570
  1,661
  1,755
  1,853
  1,955
  2,062
  2,173
  2,290
  2,411
  2,539
  2,672
  2,812
  2,959
  3,112
Total cash flow (excl. dividends), $m
  1,396
  2,873
  2,140
  2,197
  2,272
  2,366
  2,479
  2,610
  2,761
  2,930
  3,119
  3,108
  3,338
  3,590
  3,864
  4,161
  4,482
  4,829
  5,201
  5,601
  6,030
  6,488
  6,978
  7,501
  8,059
  8,653
  9,286
  9,958
  10,673
  11,431
  12,237
Retained Cash Flow (-), $m
  1,595
  -392
  -440
  -503
  -564
  -625
  -686
  -747
  -809
  -871
  -935
  -1,001
  -1,068
  -1,137
  -1,208
  -1,282
  -1,358
  -1,438
  -1,521
  -1,607
  -1,697
  -1,790
  -1,888
  -1,990
  -2,097
  -2,208
  -2,325
  -2,447
  -2,575
  -2,709
  -2,850
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
 
  7,979
  1,701
  1,694
  1,708
  1,741
  1,793
  1,863
  1,952
  2,059
  2,184
  2,108
  2,271
  2,453
  2,656
  2,879
  3,124
  3,391
  3,680
  3,994
  4,333
  4,698
  5,090
  5,511
  5,963
  6,445
  6,961
  7,511
  8,097
  8,722
  9,387
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
 
  7,650
  1,557
  1,474
  1,406
  1,349
  1,301
  1,259
  1,220
  1,183
  1,145
  1,001
  969
  933
  892
  845
  794
  738
  678
  615
  551
  486
  422
  361
  304
  251
  203
  161
  125
  95
  71
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

Canon Inc. manufactures and sells office multifunction devices (MFDs), plain paper copying machines, laser printers, inkjet printers, cameras, and lithography equipment. The company operates in three segments: Office Business Unit, Imaging System Business Unit, and Industry and Others Business Unit. The Office Business Unit segment manufactures, markets, and services a range of office MFDs, printers, office copying machines, personal-use copying machines, laser MFDs, laser printers, digital production printing systems, high speed continuous feed printers, wide-format printers, and document solutions, as well as provides software, services, and solutions. The Imaging System Business Unit segment manufactures and markets interchangeable lens digital cameras, digital compact cameras, digital camcorders, digital cinema cameras, interchangeable lenses, compact photo printers, inkjet printers, large-format inkjet printers, commercial photo printers, image scanners, multimedia projectors, broadcast equipment, and calculators. The Industry and Others Business Unit segment offers semiconductor lithography equipment, flat panel display lithography equipment, digital radiography systems, ophthalmic equipment, vacuum thin-film deposition equipment, organic LED panel manufacturing equipment, die bonders, micromotors, network cameras, handy terminals, and document scanners. The company also provides maintenance services, as well as supplies replacement drums, parts, toners, and papers. It sells its products principally under the Canon brand name through subsidiaries and independent distributors to dealers and retail outlets, as well as directly to end users in Japan, the Americas, Europe, Asia, Oceania, and internationally. In addition, the company develops medical diagnostic imaging systems and medical solutions. Canon Inc. was founded in 1933 and is headquartered in Tokyo, Japan.

FINANCIAL RATIOS  of  Canon ADR (CAJ)

Valuation Ratios
P/E Ratio 28.3
Price to Sales 1.3
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 8.5
Price to Free Cash Flow 14.5
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 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 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 1307.32 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 $44.3 billion.


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Stock chart of CAJ Financial statements of CAJ Annual reports 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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