Intrinsic value of Canon ADR - CAJ

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$34.94

  Intrinsic Value

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  Value-price divergence*

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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 46.2

 

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
  3,469,517
  3,549,316
  3,640,533
  3,742,941
  3,856,416
  3,980,922
  4,116,499
  4,263,257
  4,421,364
  4,591,044
  4,772,572
  4,966,270
  5,172,505
  5,391,687
  5,624,268
  5,870,742
  6,131,643
  6,407,548
  6,699,073
  7,006,878
  7,331,666
  7,674,183
  8,035,220
  8,415,616
  8,816,258
  9,238,084
  9,682,081
  10,149,295
  10,640,825
  11,157,831
Variable operating expenses, $m
 
  2,367,807
  2,420,113
  2,479,903
  2,547,029
  2,621,408
  2,703,018
  2,791,885
  2,888,080
  2,991,714
  3,102,935
  3,128,279
  3,255,242
  3,390,423
  3,534,090
  3,686,540
  3,848,096
  4,019,109
  4,199,956
  4,391,042
  4,592,800
  4,805,688
  5,030,198
  5,266,847
  5,516,185
  5,778,794
  6,055,288
  6,346,315
  6,652,560
  6,974,743
  7,313,625
Fixed operating expenses, $m
 
  891,775
  914,069
  936,921
  960,344
  984,352
  1,008,961
  1,034,185
  1,060,040
  1,086,541
  1,113,704
  1,141,547
  1,170,086
  1,199,338
  1,229,321
  1,260,054
  1,291,556
  1,323,844
  1,356,941
  1,390,864
  1,425,636
  1,461,277
  1,497,808
  1,535,254
  1,573,635
  1,612,976
  1,653,300
  1,694,633
  1,736,999
  1,780,424
  1,824,934
Total operating expenses, $m
  27,619
  3,259,582
  3,334,182
  3,416,824
  3,507,373
  3,605,760
  3,711,979
  3,826,070
  3,948,120
  4,078,255
  4,216,639
  4,269,826
  4,425,328
  4,589,761
  4,763,411
  4,946,594
  5,139,652
  5,342,953
  5,556,897
  5,781,906
  6,018,436
  6,266,965
  6,528,006
  6,802,101
  7,089,820
  7,391,770
  7,708,588
  8,040,948
  8,389,559
  8,755,167
  9,138,559
Operating income, $m
  1,992
  209,935
  215,134
  223,709
  235,569
  250,656
  268,943
  290,429
  315,137
  343,109
  374,405
  502,747
  540,943
  582,745
  628,276
  677,674
  731,090
  788,690
  850,651
  917,167
  988,443
  1,064,701
  1,146,176
  1,233,119
  1,325,796
  1,424,488
  1,529,495
  1,641,133
  1,759,737
  1,885,658
  2,019,271
EBITDA, $m
  4,169
  450,769
  459,353
  471,798
  488,003
  507,904
  531,473
  558,711
  589,645
  624,324
  662,819
  705,219
  751,633
  802,184
  857,014
  916,279
  980,152
  1,048,820
  1,122,486
  1,201,370
  1,285,705
  1,375,742
  1,471,748
  1,574,007
  1,682,822
  1,798,511
  1,921,414
  2,051,888
  2,190,313
  2,337,087
  2,492,634
Interest expense (income), $m
  6
  21,395
  22,979
  24,910
  27,117
  29,595
  32,341
  35,354
  38,635
  42,186
  46,012
  50,118
  54,511
  59,198
  64,189
  69,493
  75,121
  81,085
  87,399
  94,075
  101,130
  108,578
  116,437
  124,726
  133,463
  142,668
  152,363
  162,570
  173,314
  184,620
  196,515
Earnings before tax, $m
  2,130
  188,540
  192,155
  198,800
  208,452
  221,061
  236,602
  255,075
  276,502
  300,923
  328,393
  452,629
  486,432
  523,547
  564,087
  608,181
  655,970
  707,605
  763,252
  823,091
  887,313
  956,123
  1,029,739
  1,108,393
  1,192,333
  1,281,821
  1,377,133
  1,478,563
  1,586,422
  1,701,038
  1,822,757
Tax expense, $m
  720
  50,906
  51,882
  53,676
  56,282
  59,686
  63,882
  68,870
  74,656
  81,249
  88,666
  122,210
  131,337
  141,358
  152,304
  164,209
  177,112
  191,053
  206,078
  222,235
  239,575
  258,153
  278,030
  299,266
  321,930
  346,092
  371,826
  399,212
  428,334
  459,280
  492,144
Net income, $m
  1,311
  137,634
  140,273
  145,124
  152,170
  161,374
  172,719
  186,205
  201,847
  219,673
  239,727
  330,419
  355,095
  382,189
  411,784
  443,972
  478,858
  516,551
  557,174
  600,857
  647,739
  697,970
  751,709
  809,127
  870,403
  935,729
  1,005,307
  1,079,351
  1,158,088
  1,241,758
  1,330,612

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
  4,595,386
  4,701,080
  4,821,898
  4,957,538
  5,107,836
  5,272,744
  5,452,316
  5,646,697
  5,856,111
  6,080,853
  6,321,288
  6,577,842
  6,851,000
  7,141,307
  7,449,362
  7,775,817
  8,121,382
  8,486,818
  8,872,944
  9,280,633
  9,710,816
  10,164,480
  10,642,675
  11,146,511
  11,677,163
  12,235,872
  12,823,949
  13,442,775
  14,093,808
  14,778,583
Adjusted assets (=assets-cash), $m
  39,219
  4,595,386
  4,701,080
  4,821,898
  4,957,538
  5,107,836
  5,272,744
  5,452,316
  5,646,697
  5,856,111
  6,080,853
  6,321,288
  6,577,842
  6,851,000
  7,141,307
  7,449,362
  7,775,817
  8,121,382
  8,486,818
  8,872,944
  9,280,633
  9,710,816
  10,164,480
  10,642,675
  11,146,511
  11,677,163
  12,235,872
  12,823,949
  13,442,775
  14,093,808
  14,778,583
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
  971,465
  993,808
  1,019,349
  1,048,024
  1,079,796
  1,114,658
  1,152,620
  1,193,712
  1,237,982
  1,285,492
  1,336,320
  1,390,556
  1,448,301
  1,509,672
  1,574,795
  1,643,808
  1,716,860
  1,794,113
  1,875,740
  1,961,926
  2,052,866
  2,148,771
  2,249,862
  2,356,372
  2,468,552
  2,586,663
  2,710,983
  2,841,803
  2,979,431
  3,124,193
Working capital, $m
  9,718
  496,141
  507,552
  520,596
  535,241
  551,467
  569,272
  588,659
  609,646
  632,255
  656,519
  682,478
  710,177
  739,668
  771,011
  804,270
  839,516
  876,825
  916,279
  957,967
  1,001,984
  1,048,428
  1,097,408
  1,149,036
  1,203,433
  1,260,725
  1,321,046
  1,384,538
  1,451,349
  1,521,638
  1,595,570
Total debt, $m
  5,338
  656,531
  711,703
  774,770
  845,574
  924,029
  1,010,111
  1,103,848
  1,205,315
  1,314,629
  1,431,944
  1,557,451
  1,691,372
  1,833,961
  1,985,501
  2,146,306
  2,316,715
  2,497,100
  2,687,858
  2,889,416
  3,102,230
  3,326,785
  3,563,598
  3,813,215
  4,076,218
  4,353,218
  4,644,864
  4,951,840
  5,274,868
  5,614,707
  5,972,160
Total liabilities, $m
  20,505
  2,398,792
  2,453,964
  2,517,031
  2,587,835
  2,666,290
  2,752,372
  2,846,109
  2,947,576
  3,056,890
  3,174,205
  3,299,712
  3,433,633
  3,576,222
  3,727,762
  3,888,567
  4,058,976
  4,239,361
  4,430,119
  4,631,677
  4,844,491
  5,069,046
  5,305,859
  5,555,476
  5,818,479
  6,095,479
  6,387,125
  6,694,101
  7,017,129
  7,356,968
  7,714,421
Total equity, $m
  24,229
  2,196,595
  2,247,116
  2,304,867
  2,369,703
  2,441,545
  2,520,372
  2,606,207
  2,699,121
  2,799,221
  2,906,648
  3,021,576
  3,144,208
  3,274,778
  3,413,545
  3,560,795
  3,716,841
  3,882,020
  4,056,699
  4,241,267
  4,436,143
  4,641,770
  4,858,622
  5,087,199
  5,328,032
  5,581,684
  5,848,747
  6,129,848
  6,425,647
  6,736,840
  7,064,163
Total liabilities and equity, $m
  44,734
  4,595,387
  4,701,080
  4,821,898
  4,957,538
  5,107,835
  5,272,744
  5,452,316
  5,646,697
  5,856,111
  6,080,853
  6,321,288
  6,577,841
  6,851,000
  7,141,307
  7,449,362
  7,775,817
  8,121,381
  8,486,818
  8,872,944
  9,280,634
  9,710,816
  10,164,481
  10,642,675
  11,146,511
  11,677,163
  12,235,872
  12,823,949
  13,442,776
  14,093,808
  14,778,584
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
  137,634
  140,273
  145,124
  152,170
  161,374
  172,719
  186,205
  201,847
  219,673
  239,727
  330,419
  355,095
  382,189
  411,784
  443,972
  478,858
  516,551
  557,174
  600,857
  647,739
  697,970
  751,709
  809,127
  870,403
  935,729
  1,005,307
  1,079,351
  1,158,088
  1,241,758
  1,330,612
Depreciation, amort., depletion, $m
  2,177
  240,834
  244,219
  248,089
  252,434
  257,248
  262,530
  268,282
  274,508
  281,215
  288,414
  202,473
  210,690
  219,440
  228,738
  238,605
  249,062
  260,130
  271,835
  284,203
  297,261
  311,040
  325,571
  340,888
  357,026
  374,023
  391,919
  410,755
  430,576
  451,429
  473,363
Funds from operations, $m
  5,015
  378,468
  384,493
  393,213
  404,604
  418,622
  435,249
  454,487
  476,354
  500,889
  528,141
  532,892
  565,786
  601,629
  640,522
  682,578
  727,920
  776,682
  829,010
  885,060
  945,000
  1,009,010
  1,077,281
  1,150,015
  1,227,429
  1,309,752
  1,397,226
  1,490,106
  1,588,664
  1,693,187
  1,803,975
Change in working capital, $m
  660
  9,728
  11,411
  13,044
  14,644
  16,227
  17,804
  19,388
  20,986
  22,609
  24,264
  25,959
  27,699
  29,492
  31,343
  33,259
  35,246
  37,309
  39,454
  41,688
  44,016
  46,445
  48,980
  51,628
  54,397
  57,292
  60,321
  63,492
  66,812
  70,289
  73,932
Cash from operations, $m
  4,355
  -138,556
  373,081
  380,169
  389,959
  402,395
  417,445
  435,099
  455,368
  478,280
  503,877
  506,933
  538,087
  572,137
  609,179
  649,319
  692,674
  739,373
  789,555
  843,372
  900,984
  962,566
  1,028,301
  1,098,387
  1,173,033
  1,252,460
  1,336,904
  1,426,614
  1,521,853
  1,622,898
  1,730,043
Maintenance CAPEX, $m
  0
  -144,479
  -147,192
  -150,577
  -154,447
  -158,791
  -163,606
  -168,888
  -174,639
  -180,865
  -187,573
  -194,772
  -202,473
  -210,690
  -219,440
  -228,738
  -238,605
  -249,062
  -260,130
  -271,835
  -284,203
  -297,261
  -311,040
  -325,571
  -340,888
  -357,026
  -374,023
  -391,919
  -410,755
  -430,576
  -451,429
New CAPEX, $m
  -1,802
  -17,901
  -22,344
  -25,541
  -28,674
  -31,773
  -34,862
  -37,962
  -41,092
  -44,270
  -47,511
  -50,828
  -54,235
  -57,746
  -61,371
  -65,123
  -69,013
  -73,052
  -77,253
  -81,627
  -86,185
  -90,941
  -95,905
  -101,090
  -106,511
  -112,180
  -118,111
  -124,319
  -130,820
  -137,628
  -144,762
Cash from investing activities, $m
  -7,288
  -162,380
  -169,536
  -176,118
  -183,121
  -190,564
  -198,468
  -206,850
  -215,731
  -225,135
  -235,084
  -245,600
  -256,708
  -268,436
  -280,811
  -293,861
  -307,618
  -322,114
  -337,383
  -353,462
  -370,388
  -388,202
  -406,945
  -426,661
  -447,399
  -469,206
  -492,134
  -516,238
  -541,575
  -568,204
  -596,191
Free cash flow, $m
  -2,933
  -300,936
  203,546
  204,051
  206,838
  211,831
  218,978
  228,250
  239,637
  253,144
  268,793
  261,334
  281,379
  303,701
  328,368
  355,458
  385,056
  417,259
  452,172
  489,909
  530,596
  574,364
  621,356
  671,725
  725,634
  783,254
  844,770
  910,376
  980,278
  1,054,693
  1,133,853
Issuance/(repayment) of debt, $m
  4,606
  45,242
  55,172
  63,067
  70,804
  78,455
  86,082
  93,737
  101,467
  109,314
  117,315
  125,507
  133,921
  142,589
  151,540
  160,804
  170,410
  180,385
  190,758
  201,558
  212,814
  224,555
  236,813
  249,618
  263,002
  277,000
  291,646
  306,976
  323,027
  339,839
  357,453
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
  45,242
  55,172
  63,067
  70,804
  78,455
  86,082
  93,737
  101,467
  109,314
  117,315
  125,507
  133,921
  142,589
  151,540
  160,804
  170,410
  180,385
  190,758
  201,558
  212,814
  224,555
  236,813
  249,618
  263,002
  277,000
  291,646
  306,976
  323,027
  339,839
  357,453
Total cash flow (excl. dividends), $m
  1,396
  -255,694
  258,718
  267,118
  277,642
  290,286
  305,060
  321,987
  341,104
  362,458
  386,108
  386,841
  415,300
  446,290
  479,909
  516,262
  555,466
  597,643
  642,930
  691,467
  743,409
  798,919
  858,169
  921,343
  988,636
  1,060,255
  1,136,416
  1,217,352
  1,303,305
  1,394,533
  1,491,305
Retained Cash Flow (-), $m
  1,595
  -45,015
  -50,522
  -57,751
  -64,836
  -71,842
  -78,826
  -85,836
  -92,914
  -100,100
  -107,427
  -114,928
  -122,633
  -130,570
  -138,767
  -147,250
  -156,046
  -165,180
  -174,679
  -184,568
  -194,875
  -205,627
  -216,852
  -228,577
  -240,834
  -253,652
  -267,063
  -281,101
  -295,799
  -311,194
  -327,323
Prev. year cash balance distribution, $m
 
  631,549
  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
 
  330,840
  208,197
  209,367
  212,806
  218,444
  226,234
  236,151
  248,189
  262,358
  278,682
  271,913
  292,667
  315,720
  341,142
  369,012
  399,420
  432,463
  468,251
  506,899
  548,534
  593,292
  641,317
  692,766
  747,803
  806,603
  869,353
  936,252
  1,007,506
  1,083,339
  1,163,983
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
 
  317,200
  190,597
  182,205
  175,225
  169,321
  164,187
  159,540
  155,125
  150,711
  146,102
  129,127
  124,891
  120,043
  114,527
  108,336
  101,501
  94,097
  86,233
  78,048
  69,702
  61,366
  53,212
  45,405
  38,087
  31,378
  25,363
  20,095
  15,588
  11,826
  8,764
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 29.1
Price to Sales 1.3
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 8.8
Price to Free Cash Flow 14.9
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 $3401487 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 $870024 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 28%.

Life of production assets of 6.6 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 - $2783129 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 1323.18 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 $46.2 billion.


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COMPANY NEWS

▶ The Canon PhotoMarathon 2017 Hong Kong   [Jun-27-17 04:00AM  Marketwired]
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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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