Intrinsic value of Canon ADR - CAJ

Previous Close

$35.01

  Intrinsic Value

$129.16

stock screener

  Rating & Target

str. buy

+269%

  Value-price divergence*

+5000%

Previous close

$35.01

 
Intrinsic value

$129.16

 
Up/down potential

+269%

 
Rating

str. buy

 
Value-price divergence*

+5000%

*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 46.3

 

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
  22.00
  20.30
  18.77
  17.39
  16.15
  15.04
  14.03
  13.13
  12.32
  11.59
  10.93
  10.33
  9.80
  9.32
  8.89
  8.50
  8.15
  7.84
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
Revenue, $m
  29,612
  36,127
  43,460
  51,618
  60,596
  70,384
  80,969
  92,332
  104,457
  117,323
  130,917
  145,223
  160,231
  175,936
  192,335
  209,432
  227,234
  245,754
  265,009
  285,021
  305,818
  327,429
  349,892
  373,244
  397,530
  422,797
  449,096
  476,484
  505,018
  534,762
  565,783
Variable operating expenses, $m
 
  24,495
  29,302
  34,649
  40,534
  46,950
  53,888
  61,336
  69,283
  77,717
  86,627
  95,189
  105,027
  115,321
  126,070
  137,277
  148,945
  161,084
  173,706
  186,823
  200,455
  214,620
  229,344
  244,650
  260,569
  277,131
  294,369
  312,321
  331,025
  350,521
  370,854
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
  32,252
  37,253
  42,799
  48,888
  55,512
  62,665
  70,332
  78,504
  87,168
  96,315
  105,119
  115,205
  125,754
  136,763
  148,238
  160,180
  172,600
  185,509
  198,922
  212,856
  227,331
  242,373
  258,005
  274,257
  291,162
  308,750
  327,062
  346,134
  366,008
  386,728
Operating income, $m
  1,992
  3,874
  6,207
  8,819
  11,708
  14,872
  18,304
  22,000
  25,952
  30,155
  34,602
  40,104
  45,026
  50,183
  55,572
  61,195
  67,054
  73,154
  79,500
  86,100
  92,962
  100,098
  107,519
  115,239
  123,272
  131,635
  140,345
  149,422
  158,884
  168,754
  179,054
EBITDA, $m
  4,169
  6,337
  9,004
  11,988
  15,287
  18,896
  22,812
  27,026
  31,531
  36,320
  41,387
  46,726
  52,333
  58,205
  64,342
  70,745
  77,416
  84,360
  91,584
  99,097
  106,908
  115,029
  123,474
  132,259
  141,400
  150,915
  160,824
  171,149
  181,913
  193,139
  204,854
Interest expense (income), $m
  6
  186
  343
  521
  718
  936
  1,172
  1,429
  1,704
  1,997
  2,308
  2,637
  2,983
  3,347
  3,727
  4,123
  4,537
  4,968
  5,416
  5,882
  6,366
  6,870
  7,393
  7,936
  8,501
  9,089
  9,700
  10,337
  10,999
  11,690
  12,410
Earnings before tax, $m
  2,130
  3,688
  5,864
  8,298
  10,990
  13,936
  17,132
  20,572
  24,249
  28,158
  32,294
  37,466
  42,043
  46,836
  51,845
  57,071
  62,517
  68,186
  74,084
  80,218
  86,596
  93,228
  100,127
  107,303
  114,771
  122,546
  130,645
  139,085
  147,885
  157,064
  166,645
Tax expense, $m
  720
  996
  1,583
  2,240
  2,967
  3,763
  4,626
  5,554
  6,547
  7,603
  8,719
  10,116
  11,352
  12,646
  13,998
  15,409
  16,880
  18,410
  20,003
  21,659
  23,381
  25,172
  27,034
  28,972
  30,988
  33,088
  35,274
  37,553
  39,929
  42,407
  44,994
Net income, $m
  1,311
  2,692
  4,280
  6,057
  8,023
  10,173
  12,506
  15,017
  17,702
  20,555
  23,574
  27,350
  30,691
  34,190
  37,847
  41,662
  45,637
  49,776
  54,081
  58,559
  63,215
  68,057
  73,092
  78,331
  83,783
  89,459
  95,371
  101,532
  107,956
  114,657
  121,651

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
  47,850
  57,563
  68,368
  80,259
  93,224
  107,243
  122,295
  138,353
  155,395
  173,400
  192,348
  212,227
  233,028
  254,749
  277,393
  300,972
  325,502
  351,005
  377,512
  405,057
  433,681
  463,432
  494,362
  526,529
  559,996
  594,830
  631,105
  668,899
  708,295
  749,381
Adjusted assets (=assets-cash), $m
  39,219
  47,850
  57,563
  68,368
  80,259
  93,224
  107,243
  122,295
  138,353
  155,395
  173,400
  192,348
  212,227
  233,028
  254,749
  277,393
  300,972
  325,502
  351,005
  377,512
  405,057
  433,681
  463,432
  494,362
  526,529
  559,996
  594,830
  631,105
  668,899
  708,295
  749,381
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
  16,474
  19,818
  23,538
  27,632
  32,095
  36,922
  42,104
  47,632
  53,500
  59,698
  66,222
  73,065
  80,227
  87,705
  95,501
  103,619
  112,064
  120,844
  129,970
  139,453
  149,308
  159,551
  170,199
  181,273
  192,795
  204,788
  217,277
  230,288
  243,852
  257,997
Working capital, $m
  9,718
  5,166
  6,215
  7,381
  8,665
  10,065
  11,579
  13,204
  14,937
  16,777
  18,721
  20,767
  22,913
  25,159
  27,504
  29,949
  32,494
  35,143
  37,896
  40,758
  43,732
  46,822
  50,034
  53,374
  56,847
  60,460
  64,221
  68,137
  72,218
  76,471
  80,907
Total debt, $m
  5,338
  9,812
  14,882
  20,522
  26,729
  33,497
  40,815
  48,672
  57,054
  65,950
  75,349
  85,240
  95,616
  106,474
  117,813
  129,633
  141,942
  154,746
  168,059
  181,895
  196,274
  211,216
  226,746
  242,891
  259,682
  277,152
  295,335
  314,271
  333,999
  354,564
  376,011
Total liabilities, $m
  20,505
  24,978
  30,048
  35,688
  41,895
  48,663
  55,981
  63,838
  72,220
  81,116
  90,515
  100,406
  110,782
  121,640
  132,979
  144,799
  157,108
  169,912
  183,225
  197,061
  211,440
  226,382
  241,912
  258,057
  274,848
  292,318
  310,501
  329,437
  349,165
  369,730
  391,177
Total equity, $m
  24,229
  22,872
  27,515
  32,680
  38,364
  44,561
  51,262
  58,457
  66,133
  74,279
  82,885
  91,942
  101,444
  111,387
  121,770
  132,594
  143,865
  155,590
  167,781
  180,451
  193,617
  207,300
  221,521
  236,305
  251,681
  267,678
  284,329
  301,668
  319,734
  338,565
  358,204
Total liabilities and equity, $m
  44,734
  47,850
  57,563
  68,368
  80,259
  93,224
  107,243
  122,295
  138,353
  155,395
  173,400
  192,348
  212,226
  233,027
  254,749
  277,393
  300,973
  325,502
  351,006
  377,512
  405,057
  433,682
  463,433
  494,362
  526,529
  559,996
  594,830
  631,105
  668,899
  708,295
  749,381
Debt-to-equity ratio
  0.220
  0.430
  0.540
  0.630
  0.700
  0.750
  0.800
  0.830
  0.860
  0.890
  0.910
  0.930
  0.940
  0.960
  0.970
  0.980
  0.990
  0.990
  1.000
  1.010
  1.010
  1.020
  1.020
  1.030
  1.030
  1.040
  1.040
  1.040
  1.040
  1.050
  1.050
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
  2,692
  4,280
  6,057
  8,023
  10,173
  12,506
  15,017
  17,702
  20,555
  23,574
  27,350
  30,691
  34,190
  37,847
  41,662
  45,637
  49,776
  54,081
  58,559
  63,215
  68,057
  73,092
  78,331
  83,783
  89,459
  95,371
  101,532
  107,956
  114,657
  121,651
Depreciation, amort., depletion, $m
  2,177
  2,463
  2,797
  3,169
  3,578
  4,025
  4,507
  5,026
  5,578
  6,165
  6,785
  6,622
  7,307
  8,023
  8,770
  9,550
  10,362
  11,206
  12,084
  12,997
  13,945
  14,931
  15,955
  17,020
  18,127
  19,280
  20,479
  21,728
  23,029
  24,385
  25,800
Funds from operations, $m
  5,015
  5,155
  7,077
  9,226
  11,601
  14,198
  17,014
  20,043
  23,280
  26,720
  30,359
  33,973
  37,998
  42,213
  46,617
  51,212
  55,999
  60,982
  66,166
  71,556
  77,160
  82,988
  89,047
  95,351
  101,910
  108,738
  115,850
  123,260
  130,985
  139,042
  147,450
Change in working capital, $m
  660
  932
  1,049
  1,167
  1,284
  1,400
  1,514
  1,625
  1,734
  1,840
  1,944
  2,046
  2,146
  2,246
  2,345
  2,445
  2,546
  2,648
  2,753
  2,862
  2,974
  3,090
  3,212
  3,339
  3,473
  3,613
  3,761
  3,916
  4,080
  4,253
  4,436
Cash from operations, $m
  4,355
  4,223
  6,029
  8,060
  10,317
  12,798
  15,500
  18,418
  21,546
  24,880
  28,415
  31,927
  35,852
  39,967
  44,272
  48,767
  53,454
  58,334
  63,412
  68,694
  74,186
  79,897
  85,835
  92,012
  98,437
  105,125
  112,089
  119,343
  126,904
  134,789
  143,014
Maintenance CAPEX, $m
  0
  -1,350
  -1,647
  -1,982
  -2,354
  -2,763
  -3,210
  -3,692
  -4,210
  -4,763
  -5,350
  -5,970
  -6,622
  -7,307
  -8,023
  -8,770
  -9,550
  -10,362
  -11,206
  -12,084
  -12,997
  -13,945
  -14,931
  -15,955
  -17,020
  -18,127
  -19,280
  -20,479
  -21,728
  -23,029
  -24,385
New CAPEX, $m
  -1,802
  -2,971
  -3,344
  -3,720
  -4,094
  -4,464
  -4,827
  -5,182
  -5,529
  -5,867
  -6,199
  -6,524
  -6,844
  -7,161
  -7,478
  -7,796
  -8,118
  -8,445
  -8,780
  -9,126
  -9,483
  -9,855
  -10,243
  -10,649
  -11,074
  -11,522
  -11,993
  -12,489
  -13,012
  -13,563
  -14,145
Cash from investing activities, $m
  -7,288
  -4,321
  -4,991
  -5,702
  -6,448
  -7,227
  -8,037
  -8,874
  -9,739
  -10,630
  -11,549
  -12,494
  -13,466
  -14,468
  -15,501
  -16,566
  -17,668
  -18,807
  -19,986
  -21,210
  -22,480
  -23,800
  -25,174
  -26,604
  -28,094
  -29,649
  -31,273
  -32,968
  -34,740
  -36,592
  -38,530
Free cash flow, $m
  -2,933
  -98
  1,037
  2,358
  3,869
  5,572
  7,464
  9,544
  11,807
  14,250
  16,867
  19,434
  22,386
  25,499
  28,772
  32,201
  35,786
  39,527
  43,425
  47,484
  51,706
  56,097
  60,662
  65,408
  70,343
  75,476
  80,817
  86,376
  92,165
  98,197
  104,484
Issuance/(repayment) of debt, $m
  4,606
  4,490
  5,070
  5,640
  6,207
  6,768
  7,318
  7,857
  8,383
  8,896
  9,398
  9,891
  10,377
  10,858
  11,338
  11,821
  12,308
  12,804
  13,313
  13,836
  14,378
  14,942
  15,530
  16,145
  16,791
  17,469
  18,183
  18,936
  19,728
  20,565
  21,447
Issuance/(repurchase) of shares, $m
  0
  1,449
  363
  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
  5,939
  5,433
  5,640
  6,207
  6,768
  7,318
  7,857
  8,383
  8,896
  9,398
  9,891
  10,377
  10,858
  11,338
  11,821
  12,308
  12,804
  13,313
  13,836
  14,378
  14,942
  15,530
  16,145
  16,791
  17,469
  18,183
  18,936
  19,728
  20,565
  21,447
Total cash flow (excl. dividends), $m
  1,396
  5,841
  6,470
  7,998
  10,077
  12,339
  14,782
  17,400
  20,190
  23,146
  26,265
  29,325
  32,762
  36,357
  40,110
  44,021
  48,094
  52,331
  56,738
  61,320
  66,085
  71,039
  76,192
  81,553
  87,134
  92,945
  99,000
  105,311
  111,893
  118,761
  125,931
Retained Cash Flow (-), $m
  1,595
  -4,141
  -4,643
  -5,165
  -5,684
  -6,197
  -6,701
  -7,194
  -7,676
  -8,146
  -8,606
  -9,057
  -9,502
  -9,943
  -10,383
  -10,824
  -11,271
  -11,725
  -12,191
  -12,670
  -13,166
  -13,683
  -14,221
  -14,785
  -15,376
  -15,997
  -16,651
  -17,339
  -18,066
  -18,831
  -19,639
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
 
  7,198
  1,827
  2,834
  4,393
  6,142
  8,081
  10,206
  12,514
  15,000
  17,659
  20,267
  23,260
  26,414
  29,727
  33,197
  36,823
  40,606
  44,548
  48,650
  52,918
  57,356
  61,971
  66,769
  71,758
  76,949
  82,349
  87,972
  93,828
  99,930
  106,292
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
 
  6,901
  1,673
  2,466
  3,617
  4,761
  5,865
  6,895
  7,821
  8,617
  9,258
  9,625
  9,926
  10,043
  9,980
  9,746
  9,358
  8,835
  8,204
  7,491
  6,724
  5,933
  5,142
  4,376
  3,655
  2,993
  2,403
  1,888
  1,452
  1,091
  800
Current shareholders' claim on cash, %
  100
  96.1
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3

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 29.2
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 15
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 22% 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 10 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 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 $46.3 billion.

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COMPANY NEWS

▶ 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]
▶ ETFs with exposure to Canon, Inc. : April 7, 2017   [Apr-07-17 04:05PM  Capital Cube]
▶ Top Ranked Momentum Stocks to Buy for April 4th   [Apr-04-17 11:14AM  Zacks]
▶ 13 Best Small Lightweight Digital SLR Cameras   [Mar-23-17 08:49PM  Insider Monkey]
▶ The Output Optimization Rx for Healthcare   [01:42PM  PR Newswire]
Stock chart of CAJ 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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