Intrinsic value of CME Group Cl A - CME

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$115.12

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$115.12

 
Intrinsic value

$200.75

 
Up/down potential

+74%

 
Rating

str. buy

 
Value-price divergence* premium content

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Our model is not good at valuating stocks of financial companies, such as CME.

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

We calculate the intrinsic value of CME 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 39.1

 

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, %
  8.06
  12.20
  11.48
  10.83
  10.25
  9.72
  9.25
  8.83
  8.44
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.57
  5.52
  5.47
  5.42
  5.38
  5.34
Revenue, $m
  3,595
  4,034
  4,497
  4,984
  5,494
  6,029
  6,587
  7,168
  7,773
  8,403
  9,057
  9,737
  10,444
  11,179
  11,942
  12,736
  13,562
  14,421
  15,315
  16,246
  17,217
  18,228
  19,283
  20,384
  21,534
  22,734
  23,988
  25,299
  26,670
  28,104
  29,604
Variable operating expenses, $m
 
  735
  732
  729
  726
  723
  720
  717
  714
  710
  707
  -54
  -58
  -62
  -66
  -71
  -75
  -80
  -85
  -90
  -95
  -101
  -107
  -113
  -119
  -126
  -133
  -140
  -148
  -156
  -164
Fixed operating expenses, $m
 
  688
  705
  723
  741
  759
  778
  798
  818
  838
  859
  880
  902
  925
  948
  972
  996
  1,021
  1,047
  1,073
  1,100
  1,127
  1,155
  1,184
  1,214
  1,244
  1,275
  1,307
  1,340
  1,373
  1,407
Total operating expenses, $m
  1,393
  1,423
  1,437
  1,452
  1,467
  1,482
  1,498
  1,515
  1,532
  1,548
  1,566
  826
  844
  863
  882
  901
  921
  941
  962
  983
  1,005
  1,026
  1,048
  1,071
  1,095
  1,118
  1,142
  1,167
  1,192
  1,217
  1,243
Operating income, $m
  2,203
  2,611
  3,060
  3,532
  4,027
  4,546
  5,088
  5,653
  6,242
  6,854
  7,492
  8,911
  9,600
  10,316
  11,061
  11,835
  12,641
  13,480
  14,354
  15,264
  16,213
  17,202
  18,235
  19,313
  20,439
  21,616
  22,846
  24,132
  25,478
  26,887
  28,361
EBITDA, $m
  2,428
  4,121
  4,656
  5,219
  5,809
  6,428
  7,074
  7,747
  8,449
  9,179
  9,938
  10,728
  11,548
  12,402
  13,289
  14,211
  15,171
  16,170
  17,211
  18,295
  19,425
  20,603
  21,833
  23,116
  24,457
  25,857
  27,321
  28,852
  30,454
  32,130
  33,884
Interest expense (income), $m
  85
  85
  324
  566
  819
  1,086
  1,364
  1,655
  1,958
  2,273
  2,602
  2,943
  3,297
  3,666
  4,049
  4,447
  4,860
  5,291
  5,739
  6,205
  6,690
  7,196
  7,723
  8,273
  8,847
  9,446
  10,072
  10,725
  11,409
  12,123
  12,871
Earnings before tax, $m
  2,288
  2,526
  2,735
  2,966
  3,208
  3,460
  3,724
  3,998
  4,284
  4,581
  4,890
  5,968
  6,302
  6,650
  7,012
  7,388
  7,781
  8,189
  8,615
  9,059
  9,523
  10,006
  10,512
  11,040
  11,592
  12,170
  12,774
  13,407
  14,069
  14,763
  15,490
Tax expense, $m
  754
  682
  739
  801
  866
  934
  1,005
  1,080
  1,157
  1,237
  1,320
  1,611
  1,702
  1,796
  1,893
  1,995
  2,101
  2,211
  2,326
  2,446
  2,571
  2,702
  2,838
  2,981
  3,130
  3,286
  3,449
  3,620
  3,799
  3,986
  4,182
Net income, $m
  1,534
  1,844
  1,997
  2,165
  2,342
  2,526
  2,718
  2,919
  3,127
  3,344
  3,570
  4,357
  4,601
  4,855
  5,119
  5,394
  5,680
  5,978
  6,289
  6,613
  6,951
  7,305
  7,674
  8,059
  8,462
  8,884
  9,325
  9,787
  10,271
  10,777
  11,308

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,952
  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
  69,369
  76,105
  84,842
  94,033
  103,670
  113,750
  124,274
  135,243
  146,663
  158,541
  170,891
  183,726
  197,063
  210,923
  225,330
  240,308
  255,885
  272,094
  288,966
  306,537
  324,845
  343,931
  363,837
  384,608
  406,293
  428,941
  452,605
  477,341
  503,207
  530,263
  558,574
Adjusted assets (=assets-cash), $m
  67,417
  76,105
  84,842
  94,033
  103,670
  113,750
  124,274
  135,243
  146,663
  158,541
  170,891
  183,726
  197,063
  210,923
  225,330
  240,308
  255,885
  272,094
  288,966
  306,537
  324,845
  343,931
  363,837
  384,608
  406,293
  428,941
  452,605
  477,341
  503,207
  530,263
  558,574
Revenue / Adjusted assets
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
  0.053
Average production assets, $m
  20,123
  22,576
  25,168
  27,894
  30,753
  33,743
  36,865
  40,119
  43,506
  47,030
  50,693
  54,501
  58,457
  62,569
  66,842
  71,285
  75,906
  80,714
  85,719
  90,931
  96,362
  102,024
  107,929
  114,091
  120,523
  127,242
  134,261
  141,599
  149,272
  157,298
  165,696
Working capital, $m
  1,086
  -972
  -1,084
  -1,201
  -1,324
  -1,453
  -1,587
  -1,727
  -1,873
  -2,025
  -2,183
  -2,347
  -2,517
  -2,694
  -2,878
  -3,069
  -3,268
  -3,475
  -3,691
  -3,915
  -4,149
  -4,393
  -4,647
  -4,913
  -5,190
  -5,479
  -5,781
  -6,097
  -6,427
  -6,773
  -7,135
Total debt, $m
  2,231
  8,532
  14,883
  21,565
  28,571
  35,900
  43,550
  51,525
  59,827
  68,463
  77,441
  86,771
  96,468
  106,544
  117,018
  127,907
  139,232
  151,015
  163,281
  176,055
  189,365
  203,241
  217,712
  232,813
  248,578
  265,043
  282,247
  300,230
  319,034
  338,704
  359,287
Total liabilities, $m
  49,029
  55,329
  61,680
  68,362
  75,368
  82,697
  90,347
  98,322
  106,624
  115,260
  124,238
  133,568
  143,265
  153,341
  163,815
  174,704
  186,029
  197,812
  210,078
  222,852
  236,162
  250,038
  264,509
  279,610
  295,375
  311,840
  329,044
  347,027
  365,831
  385,501
  406,084
Total equity, $m
  20,341
  20,777
  23,162
  25,671
  28,302
  31,054
  33,927
  36,921
  40,039
  43,282
  46,653
  50,157
  53,798
  57,582
  61,515
  65,604
  69,857
  74,282
  78,888
  83,684
  88,683
  93,893
  99,327
  104,998
  110,918
  117,101
  123,561
  130,314
  137,375
  144,762
  152,491
Total liabilities and equity, $m
  69,370
  76,106
  84,842
  94,033
  103,670
  113,751
  124,274
  135,243
  146,663
  158,542
  170,891
  183,725
  197,063
  210,923
  225,330
  240,308
  255,886
  272,094
  288,966
  306,536
  324,845
  343,931
  363,836
  384,608
  406,293
  428,941
  452,605
  477,341
  503,206
  530,263
  558,575
Debt-to-equity ratio
  0.110
  0.410
  0.640
  0.840
  1.010
  1.160
  1.280
  1.400
  1.490
  1.580
  1.660
  1.730
  1.790
  1.850
  1.900
  1.950
  1.990
  2.030
  2.070
  2.100
  2.140
  2.160
  2.190
  2.220
  2.240
  2.260
  2.280
  2.300
  2.320
  2.340
  2.360
Adjusted equity ratio
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,534
  1,844
  1,997
  2,165
  2,342
  2,526
  2,718
  2,919
  3,127
  3,344
  3,570
  4,357
  4,601
  4,855
  5,119
  5,394
  5,680
  5,978
  6,289
  6,613
  6,951
  7,305
  7,674
  8,059
  8,462
  8,884
  9,325
  9,787
  10,271
  10,777
  11,308
Depreciation, amort., depletion, $m
  225
  1,509
  1,596
  1,687
  1,782
  1,882
  1,986
  2,094
  2,207
  2,325
  2,447
  1,817
  1,949
  2,086
  2,228
  2,376
  2,530
  2,690
  2,857
  3,031
  3,212
  3,401
  3,598
  3,803
  4,017
  4,241
  4,475
  4,720
  4,976
  5,243
  5,523
Funds from operations, $m
  1,713
  3,354
  3,593
  3,852
  4,124
  4,408
  4,704
  5,013
  5,334
  5,669
  6,016
  6,174
  6,549
  6,940
  7,347
  7,770
  8,210
  8,668
  9,146
  9,644
  10,164
  10,706
  11,271
  11,862
  12,480
  13,125
  13,801
  14,507
  15,246
  16,020
  16,831
Change in working capital, $m
  -3
  -106
  -112
  -117
  -123
  -129
  -134
  -140
  -146
  -152
  -158
  -164
  -170
  -177
  -184
  -191
  -199
  -207
  -216
  -224
  -234
  -244
  -254
  -265
  -277
  -289
  -302
  -316
  -330
  -346
  -362
Cash from operations, $m
  1,716
  3,378
  3,704
  3,969
  4,247
  4,537
  4,839
  5,153
  5,480
  5,820
  6,174
  6,337
  6,720
  7,117
  7,531
  7,961
  8,409
  8,876
  9,362
  9,869
  10,397
  10,949
  11,526
  12,128
  12,757
  13,415
  14,103
  14,823
  15,577
  16,366
  17,193
Maintenance CAPEX, $m
  0
  -671
  -753
  -839
  -930
  -1,025
  -1,125
  -1,229
  -1,337
  -1,450
  -1,568
  -1,690
  -1,817
  -1,949
  -2,086
  -2,228
  -2,376
  -2,530
  -2,690
  -2,857
  -3,031
  -3,212
  -3,401
  -3,598
  -3,803
  -4,017
  -4,241
  -4,475
  -4,720
  -4,976
  -5,243
New CAPEX, $m
  -92
  -2,453
  -2,592
  -2,726
  -2,859
  -2,990
  -3,122
  -3,254
  -3,388
  -3,524
  -3,663
  -3,807
  -3,956
  -4,112
  -4,274
  -4,443
  -4,621
  -4,808
  -5,005
  -5,212
  -5,431
  -5,662
  -5,905
  -6,162
  -6,433
  -6,718
  -7,020
  -7,338
  -7,673
  -8,026
  -8,398
Cash from investing activities, $m
  54
  -3,124
  -3,345
  -3,565
  -3,789
  -4,015
  -4,247
  -4,483
  -4,725
  -4,974
  -5,231
  -5,497
  -5,773
  -6,061
  -6,360
  -6,671
  -6,997
  -7,338
  -7,695
  -8,069
  -8,462
  -8,874
  -9,306
  -9,760
  -10,236
  -10,735
  -11,261
  -11,813
  -12,393
  -13,002
  -13,641
Free cash flow, $m
  1,770
  255
  360
  404
  458
  521
  592
  670
  755
  846
  943
  840
  947
  1,057
  1,172
  1,290
  1,412
  1,537
  1,666
  1,799
  1,935
  2,076
  2,220
  2,368
  2,521
  2,679
  2,842
  3,010
  3,184
  3,364
  3,551
Issuance/(repayment) of debt, $m
  130
  6,301
  6,352
  6,681
  7,006
  7,329
  7,651
  7,974
  8,302
  8,636
  8,978
  9,331
  9,696
  10,077
  10,473
  10,889
  11,325
  11,783
  12,266
  12,774
  13,310
  13,875
  14,472
  15,101
  15,765
  16,465
  17,204
  17,983
  18,804
  19,670
  20,582
Issuance/(repurchase) of shares, $m
  52
  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  
  193
  6,301
  6,352
  6,681
  7,006
  7,329
  7,651
  7,974
  8,302
  8,636
  8,978
  9,331
  9,696
  10,077
  10,473
  10,889
  11,325
  11,783
  12,266
  12,774
  13,310
  13,875
  14,472
  15,101
  15,765
  16,465
  17,204
  17,983
  18,804
  19,670
  20,582
Total cash flow (excl. dividends), $m
  1,963
  6,555
  6,712
  7,086
  7,465
  7,850
  8,243
  8,645
  9,057
  9,482
  9,921
  10,171
  10,643
  11,134
  11,645
  12,179
  12,737
  13,321
  13,932
  14,573
  15,245
  15,951
  16,692
  17,469
  18,286
  19,144
  20,046
  20,993
  21,988
  23,034
  24,134
Retained Cash Flow (-), $m
  211
  -2,388
  -2,385
  -2,509
  -2,631
  -2,752
  -2,873
  -2,995
  -3,118
  -3,243
  -3,371
  -3,504
  -3,641
  -3,784
  -3,933
  -4,089
  -4,253
  -4,425
  -4,606
  -4,797
  -4,998
  -5,210
  -5,434
  -5,671
  -5,920
  -6,183
  -6,460
  -6,753
  -7,061
  -7,386
  -7,729
Prev. year cash balance distribution, $m
 
  1,952
  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
 
  6,120
  4,327
  4,577
  4,834
  5,098
  5,370
  5,650
  5,940
  6,239
  6,550
  6,667
  7,002
  7,350
  7,712
  8,090
  8,484
  8,896
  9,326
  9,776
  10,247
  10,741
  11,257
  11,799
  12,366
  12,961
  13,585
  14,240
  14,927
  15,648
  16,405
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  5,867
  3,961
  3,983
  3,980
  3,951
  3,897
  3,817
  3,713
  3,584
  3,434
  3,166
  2,988
  2,795
  2,589
  2,375
  2,156
  1,936
  1,718
  1,505
  1,302
  1,111
  934
  773
  630
  504
  396
  306
  231
  171
  124
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

CME Group Inc., through its subsidiaries, operates contract markets for the trading of futures and options on futures contracts worldwide. The company offers a range of products across various asset classes, based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, and metals. Its products include exchange-traded; and privately negotiated futures and options contracts and swaps. It executes trade through its electronic trading platforms, open outcry, and privately negotiated transactions, as well as provides hosting, connectivity, and customer support for electronic trading through its co-location services. The company also provides clearing and settlement services for exchange-traded contracts, as well as for cleared swaps; and regulatory reporting solutions for market participants through its global repository services in the United States, the United Kingdom, Canada, and Australia. In addition, the company offers a range of market data services, including live quotes, delayed quotes, market reports, and historical data service, as well as index services. CME Group Inc. serves professional traders, financial institutions, institutional and individual investors, corporations, manufacturers, producers, governments, and central banks. The company was formerly known as Chicago Mercantile Exchange Holdings Inc. and changed its name to CME Group Inc. in July 2007. CME Group Inc. was founded in 1898 and is headquartered in Chicago, Illinois.

FINANCIAL RATIOS  of  CME Group Cl A (CME)

Valuation Ratios
P/E Ratio 25.4
Price to Sales 10.8
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 22.7
Price to Free Cash Flow 24
Growth Rates
Sales Growth Rate 8.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -19.3%
Cap. Spend. - 3 Yr. Gr. Rate -6.1%
Financial Strength
Quick Ratio NaN
Current Ratio 1
LT Debt to Equity 11%
Total Debt to Equity 11%
Interest Coverage 28
Management Effectiveness
Return On Assets 2.3%
Ret/ On Assets - 3 Yr. Avg. 2%
Return On Total Capital 6.8%
Ret/ On T. Cap. - 3 Yr. Avg. 5.7%
Return On Equity 7.5%
Return On Equity - 3 Yr. Avg. 6.3%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 72.3%
EBITDA Margin - 3 Yr. Avg. 69.5%
Operating Margin 61.3%
Oper. Margin - 3 Yr. Avg. 59.3%
Pre-Tax Margin 63.6%
Pre-Tax Margin - 3 Yr. Avg. 59.8%
Net Profit Margin 42.7%
Net Profit Margin - 3 Yr. Avg. 38.8%
Effective Tax Rate 33%
Eff/ Tax Rate - 3 Yr. Avg. 35.2%
Payout Ratio 116.5%

CME stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CME stock intrinsic value calculation we used $3595 million for the last fiscal year's total revenue generated by CME Group Cl A. The default revenue input number comes from 2016 income statement of CME Group Cl A. 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 CME stock valuation model: a) initial revenue growth rate of 12.2% 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 CME is calculated based on our internal credit rating of CME Group Cl A, 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 CME Group Cl A.
    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 CME stock the variable cost ratio is equal to 20.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $671 million in the base year in the intrinsic value calculation for CME 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 3.8% for CME Group Cl A.

Corporate tax rate of 27% is the nominal tax rate for CME Group Cl A. 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 CME 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 CME are equal to 559.7%.

Life of production assets of 123.1 years is the average useful life of capital assets used in CME Group Cl A 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 CME is equal to -24.1%. 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 - $20341 million for CME Group Cl A - 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 339.478 million for CME Group Cl A 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 CME Group Cl A at the current share price and the inputted number of shares is $39.1 billion.


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COMPANY NEWS

▶ CME tops 1Q profit forecasts   [07:22AM  Associated Press]
▶ Luxury Homeowners Hold Out to Find a Buyer   [Apr-13-17 11:26AM  MarketWatch]
▶ [$$] U.S. Futures Giant CME Group Pulls Back From Europe   [12:01AM  The Wall Street Journal]
▶ [$$] U.S. Futures Giant CME Group Pulls Back From Europe   [12:10PM  The Wall Street Journal]
▶ Bank Stocks Most Closely Linked to Trump's Approval Rating   [03:38PM  The Wall Street Journal]
▶ SGX Said to Have Held Discussions With Nasdaq, CME   [Mar-31-17 12:17AM  Bloomberg Video]
▶ [$$] ICE, S&P to Launch LNG Derivative Contracts   [Mar-22-17 09:07AM  at The Wall Street Journal]
▶ [$$] 7 Inflation-Resistant High-Payout Stocks   [Mar-18-17 01:22AM  at Barrons.com]
▶ Agricultural producer sentiment falls from January peak   [Mar-07-17 09:30AM  PR Newswire]
▶ [$$] LSE and Deutsche Börse consider life as separate companies   [Feb-28-17 01:29PM  at Financial Times]
▶ [$$] Fight to keep oil's Brent benchmark fit for purpose   [Feb-19-17 02:57PM  at Financial Times]
▶ CME Group Inc. Names Slate of Director Nominees   [Feb-14-17 12:46PM  PR Newswire]
▶ [$$] UK must wake up to risks of LSE/Deutsche Börse exchange deal   [Feb-12-17 11:30PM  at Financial Times]
▶ CME Group Increases Dividend by 10 Percent   [Feb-08-17 05:50PM  PR Newswire]
▶ Ag barometer: Producer sentiment skyrockets again   [Feb-07-17 09:30AM  PR Newswire]
▶ [$$] CME Group's Top and Bottom Lines Jump on Trading Surge   [08:09AM  at The Wall Street Journal]
Stock chart of CME Financial statements of CME
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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