Intrinsic value of CNH Industrial - CNHI

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$10.41

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$10.41

 
Intrinsic value

$3.69

 
Up/down potential

-65%

 
Rating

str. 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 CNHI 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 14.2

 

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, %
  -4.01
  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
  24,872
  25,369
  25,953
  26,620
  27,369
  28,198
  29,109
  30,100
  31,173
  32,329
  33,570
  34,898
  36,314
  37,822
  39,425
  41,125
  42,927
  44,835
  46,853
  48,984
  51,235
  53,610
  56,114
  58,754
  61,536
  64,465
  67,550
  70,796
  74,213
  77,807
  81,587
Variable operating expenses, $m
 
  8,722
  8,917
  9,140
  9,390
  9,668
  9,972
  10,303
  10,662
  11,048
  11,462
  11,661
  12,134
  12,638
  13,174
  13,742
  14,344
  14,982
  15,656
  16,368
  17,120
  17,914
  18,751
  19,633
  20,562
  21,541
  22,572
  23,657
  24,798
  25,999
  27,263
Fixed operating expenses, $m
 
  15,438
  15,823
  16,219
  16,625
  17,040
  17,466
  17,903
  18,350
  18,809
  19,279
  19,761
  20,255
  20,762
  21,281
  21,813
  22,358
  22,917
  23,490
  24,077
  24,679
  25,296
  25,929
  26,577
  27,241
  27,922
  28,620
  29,336
  30,069
  30,821
  31,591
Total operating expenses, $m
  23,256
  24,160
  24,740
  25,359
  26,015
  26,708
  27,438
  28,206
  29,012
  29,857
  30,741
  31,422
  32,389
  33,400
  34,455
  35,555
  36,702
  37,899
  39,146
  40,445
  41,799
  43,210
  44,680
  46,210
  47,803
  49,463
  51,192
  52,993
  54,867
  56,820
  58,854
Operating income, $m
  1,616
  1,210
  1,212
  1,261
  1,354
  1,491
  1,671
  1,894
  2,161
  2,472
  2,828
  3,475
  3,924
  4,422
  4,970
  5,570
  6,225
  6,936
  7,707
  8,539
  9,435
  10,400
  11,435
  12,545
  13,732
  15,002
  16,357
  17,804
  19,345
  20,986
  22,733
EBITDA, $m
  2,877
  2,464
  2,490
  2,565
  2,688
  2,858
  3,074
  3,337
  3,646
  4,003
  4,409
  4,863
  5,369
  5,926
  6,538
  7,206
  7,933
  8,720
  9,571
  10,487
  11,474
  12,532
  13,667
  14,882
  16,180
  17,566
  19,045
  20,620
  22,297
  24,082
  25,979
Interest expense (income), $m
  930
  910
  769
  800
  835
  874
  918
  966
  1,019
  1,075
  1,136
  1,202
  1,272
  1,346
  1,426
  1,511
  1,600
  1,695
  1,796
  1,903
  2,015
  2,134
  2,259
  2,391
  2,531
  2,677
  2,832
  2,995
  3,166
  3,346
  3,536
Earnings before tax, $m
  -9
  300
  443
  461
  519
  616
  753
  928
  1,143
  1,397
  1,692
  2,273
  2,652
  3,075
  3,544
  4,060
  4,625
  5,241
  5,910
  6,636
  7,420
  8,266
  9,176
  10,153
  11,202
  12,324
  13,525
  14,809
  16,179
  17,640
  19,197
Tax expense, $m
  298
  81
  120
  124
  140
  166
  203
  251
  309
  377
  457
  614
  716
  830
  957
  1,096
  1,249
  1,415
  1,596
  1,792
  2,003
  2,232
  2,477
  2,741
  3,024
  3,328
  3,652
  3,998
  4,368
  4,763
  5,183
Net income, $m
  -252
  219
  324
  337
  379
  450
  550
  678
  834
  1,020
  1,235
  1,660
  1,936
  2,245
  2,587
  2,964
  3,376
  3,826
  4,315
  4,844
  5,417
  6,034
  6,698
  7,412
  8,177
  8,997
  9,874
  10,811
  11,811
  12,877
  14,014

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  5,017
  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
  45,547
  41,318
  42,269
  43,355
  44,575
  45,926
  47,409
  49,023
  50,771
  52,654
  54,675
  56,836
  59,143
  61,599
  64,209
  66,979
  69,914
  73,021
  76,307
  79,779
  83,445
  87,312
  91,391
  95,691
  100,221
  104,992
  110,016
  115,303
  120,867
  126,721
  132,878
Adjusted assets (=assets-cash), $m
  40,530
  41,318
  42,269
  43,355
  44,575
  45,926
  47,409
  49,023
  50,771
  52,654
  54,675
  56,836
  59,143
  61,599
  64,209
  66,979
  69,914
  73,021
  76,307
  79,779
  83,445
  87,312
  91,391
  95,691
  100,221
  104,992
  110,016
  115,303
  120,867
  126,721
  132,878
Revenue / Adjusted assets
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
  0.614
Average production assets, $m
  9,109
  9,285
  9,499
  9,743
  10,017
  10,321
  10,654
  11,017
  11,409
  11,833
  12,287
  12,772
  13,291
  13,843
  14,429
  15,052
  15,711
  16,410
  17,148
  17,928
  18,752
  19,621
  20,538
  21,504
  22,522
  23,594
  24,723
  25,911
  27,162
  28,477
  29,861
Working capital, $m
  0
  -5,125
  -5,242
  -5,377
  -5,528
  -5,696
  -5,880
  -6,080
  -6,297
  -6,531
  -6,781
  -7,049
  -7,335
  -7,640
  -7,964
  -8,307
  -8,671
  -9,057
  -9,464
  -9,895
  -10,349
  -10,829
  -11,335
  -11,868
  -12,430
  -13,022
  -13,645
  -14,301
  -14,991
  -15,717
  -16,481
Total debt, $m
  25,276
  21,359
  22,215
  23,192
  24,290
  25,506
  26,841
  28,294
  29,867
  31,561
  33,380
  35,326
  37,402
  39,612
  41,961
  44,454
  47,096
  49,892
  52,849
  55,974
  59,273
  62,754
  66,425
  70,295
  74,372
  78,666
  83,187
  87,946
  92,954
  98,222
  103,763
Total liabilities, $m
  41,103
  37,186
  38,042
  39,019
  40,117
  41,333
  42,668
  44,121
  45,694
  47,388
  49,207
  51,153
  53,229
  55,439
  57,788
  60,281
  62,923
  65,719
  68,676
  71,801
  75,100
  78,581
  82,252
  86,122
  90,199
  94,493
  99,014
  103,773
  108,781
  114,049
  119,590
Total equity, $m
  4,444
  4,132
  4,227
  4,335
  4,457
  4,593
  4,741
  4,902
  5,077
  5,265
  5,467
  5,684
  5,914
  6,160
  6,421
  6,698
  6,991
  7,302
  7,631
  7,978
  8,344
  8,731
  9,139
  9,569
  10,022
  10,499
  11,002
  11,530
  12,087
  12,672
  13,288
Total liabilities and equity, $m
  45,547
  41,318
  42,269
  43,354
  44,574
  45,926
  47,409
  49,023
  50,771
  52,653
  54,674
  56,837
  59,143
  61,599
  64,209
  66,979
  69,914
  73,021
  76,307
  79,779
  83,444
  87,312
  91,391
  95,691
  100,221
  104,992
  110,016
  115,303
  120,868
  126,721
  132,878
Debt-to-equity ratio
  5.688
  5.170
  5.260
  5.350
  5.450
  5.550
  5.660
  5.770
  5.880
  5.990
  6.110
  6.220
  6.320
  6.430
  6.540
  6.640
  6.740
  6.830
  6.930
  7.020
  7.100
  7.190
  7.270
  7.350
  7.420
  7.490
  7.560
  7.630
  7.690
  7.750
  7.810
Adjusted equity ratio
  -0.014
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -252
  219
  324
  337
  379
  450
  550
  678
  834
  1,020
  1,235
  1,660
  1,936
  2,245
  2,587
  2,964
  3,376
  3,826
  4,315
  4,844
  5,417
  6,034
  6,698
  7,412
  8,177
  8,997
  9,874
  10,811
  11,811
  12,877
  14,014
Depreciation, amort., depletion, $m
  1,261
  1,254
  1,277
  1,304
  1,334
  1,367
  1,403
  1,442
  1,485
  1,531
  1,580
  1,388
  1,445
  1,505
  1,568
  1,636
  1,708
  1,784
  1,864
  1,949
  2,038
  2,133
  2,232
  2,337
  2,448
  2,565
  2,687
  2,816
  2,952
  3,095
  3,246
Funds from operations, $m
  2,875
  1,473
  1,601
  1,641
  1,713
  1,817
  1,952
  2,120
  2,319
  2,551
  2,816
  3,048
  3,381
  3,750
  4,155
  4,600
  5,084
  5,609
  6,179
  6,793
  7,455
  8,167
  8,931
  9,749
  10,625
  11,561
  12,561
  13,627
  14,763
  15,973
  17,260
Change in working capital, $m
  767
  -100
  -118
  -135
  -151
  -168
  -184
  -200
  -217
  -234
  -251
  -268
  -286
  -305
  -324
  -344
  -364
  -385
  -408
  -431
  -455
  -480
  -506
  -533
  -562
  -592
  -623
  -656
  -690
  -726
  -764
Cash from operations, $m
  2,108
  1,556
  1,719
  1,775
  1,864
  1,984
  2,136
  2,320
  2,536
  2,785
  3,066
  3,316
  3,667
  4,054
  4,479
  4,943
  5,448
  5,995
  6,586
  7,224
  7,910
  8,647
  9,437
  10,283
  11,187
  12,153
  13,184
  14,283
  15,453
  16,699
  18,023
Maintenance CAPEX, $m
  0
  -990
  -1,009
  -1,032
  -1,059
  -1,089
  -1,122
  -1,158
  -1,197
  -1,240
  -1,286
  -1,336
  -1,388
  -1,445
  -1,505
  -1,568
  -1,636
  -1,708
  -1,784
  -1,864
  -1,949
  -2,038
  -2,133
  -2,232
  -2,337
  -2,448
  -2,565
  -2,687
  -2,816
  -2,952
  -3,095
New CAPEX, $m
  -2,134
  -177
  -214
  -244
  -274
  -304
  -333
  -363
  -393
  -423
  -454
  -486
  -518
  -552
  -587
  -622
  -660
  -698
  -738
  -780
  -824
  -869
  -917
  -966
  -1,018
  -1,072
  -1,129
  -1,188
  -1,250
  -1,315
  -1,384
Cash from investing activities, $m
  -921
  -1,167
  -1,223
  -1,276
  -1,333
  -1,393
  -1,455
  -1,521
  -1,590
  -1,663
  -1,740
  -1,822
  -1,906
  -1,997
  -2,092
  -2,190
  -2,296
  -2,406
  -2,522
  -2,644
  -2,773
  -2,907
  -3,050
  -3,198
  -3,355
  -3,520
  -3,694
  -3,875
  -4,066
  -4,267
  -4,479
Free cash flow, $m
  1,187
  389
  496
  499
  531
  592
  681
  799
  946
  1,121
  1,326
  1,495
  1,760
  2,058
  2,388
  2,752
  3,152
  3,589
  4,064
  4,580
  5,137
  5,739
  6,387
  7,084
  7,832
  8,633
  9,490
  10,407
  11,386
  12,431
  13,544
Issuance/(repayment) of debt, $m
  -1,141
  -3,917
  855
  978
  1,098
  1,216
  1,334
  1,453
  1,573
  1,695
  1,819
  1,946
  2,076
  2,210
  2,349
  2,493
  2,642
  2,796
  2,957
  3,125
  3,299
  3,481
  3,671
  3,870
  4,077
  4,294
  4,521
  4,759
  5,008
  5,268
  5,541
Issuance/(repurchase) of shares, $m
  0
  3,215
  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  
  -1,331
  -702
  855
  978
  1,098
  1,216
  1,334
  1,453
  1,573
  1,695
  1,819
  1,946
  2,076
  2,210
  2,349
  2,493
  2,642
  2,796
  2,957
  3,125
  3,299
  3,481
  3,671
  3,870
  4,077
  4,294
  4,521
  4,759
  5,008
  5,268
  5,541
Total cash flow (excl. dividends), $m
  -160
  -3,527
  1,351
  1,476
  1,628
  1,808
  2,016
  2,252
  2,519
  2,816
  3,145
  3,440
  3,836
  4,268
  4,737
  5,245
  5,794
  6,385
  7,021
  7,704
  8,436
  9,220
  10,058
  10,954
  11,909
  12,927
  14,012
  15,166
  16,394
  17,699
  19,086
Retained Cash Flow (-), $m
  358
  -4,705
  -95
  -109
  -122
  -135
  -148
  -161
  -175
  -188
  -202
  -216
  -231
  -246
  -261
  -277
  -294
  -311
  -329
  -347
  -367
  -387
  -408
  -430
  -453
  -477
  -502
  -529
  -556
  -585
  -616
Prev. year cash balance distribution, $m
 
  5,017
  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
 
  0
  1,256
  1,368
  1,506
  1,673
  1,868
  2,091
  2,344
  2,628
  2,943
  3,224
  3,606
  4,023
  4,476
  4,968
  5,500
  6,074
  6,693
  7,357
  8,070
  8,833
  9,650
  10,524
  11,456
  12,450
  13,509
  14,637
  15,837
  17,114
  18,470
Discount rate, %
 
  11.10
  11.66
  12.24
  12.85
  13.49
  14.17
  14.88
  15.62
  16.40
  17.22
  18.08
  18.98
  19.93
  20.93
  21.98
  23.08
  24.23
  25.44
  26.71
  28.05
  29.45
  30.92
  32.47
  34.09
  35.80
  37.59
  39.47
  41.44
  43.51
  45.69
PV of cash for distribution, $m
 
  0
  1,008
  967
  929
  888
  843
  792
  734
  670
  601
  518
  448
  379
  313
  252
  198
  152
  113
  82
  57
  39
  26
  16
  10
  6
  3
  2
  1
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

CNH Industrial N.V. designs, produces, markets, sells, and finances agricultural and construction equipment, trucks, commercial vehicles, buses, and specialty vehicles, engines, transmissions, and axles worldwide. The Agricultural Equipment segment provides farm machinery and implements, including two-wheel and four-wheel drive tractors, crawler tractors, combines, cotton pickers, grape and sugar cane harvesters, hay and forage equipment, planting and seeding equipment, soil preparation and cultivation implements, and material handling equipment. This segment offers its products under the New Holland Agriculture, Case IH Agriculture, Steyr, and Miller brand names. The Construction Equipment segment offers excavators, crawler dozers, graders, wheel loaders, backhoe loaders, skid steer loaders, compact track loaders, and telehandlers, under the New Holland Construction and Case Construction brand names. The Commercial Vehicles segment provides light, medium, and heavy vehicles for the transportation and distribution of goods under the Iveco brand name; commuter buses and touring coaches under the Iveco Bus and Heuliez Bus brand names; quarry and mining equipment under the Iveco Astra name; and firefighting vehicles under the Magirus brand name, as well as vehicles for civil defense and peace-keeping missions under the Iveco Defence Vehicles brand name. The Powertrain segment offers propulsion and transmission systems and axles for on-and off-road applications, as well as engines for marine application and power generation through the FPT Industrial brand. The Financial Services segment provides and administers retail financing to customers for the purchase or lease of new and used industrial equipment or vehicles, and other equipment; and wholesale financing, which consists primarily of floor plan financing to CNH Industrial dealers. CNH Industrial N.V. is based in London, the United Kingdom.

FINANCIAL RATIOS  of  CNH Industrial (CNHI)

Valuation Ratios
P/E Ratio -56.2
Price to Sales 0.6
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 6.7
Price to Free Cash Flow -545.2
Growth Rates
Sales Growth Rate -4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -14.9%
Cap. Spend. - 3 Yr. Gr. Rate -4.4%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 568.8%
Total Debt to Equity 568.8%
Interest Coverage 1
Management Effectiveness
Return On Assets 68.2%
Ret/ On Assets - 3 Yr. Avg. 23.9%
Return On Total Capital -0.8%
Ret/ On T. Cap. - 3 Yr. Avg. 0.7%
Return On Equity -5.5%
Return On Equity - 3 Yr. Avg. 4.7%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 21.4%
Gross Margin - 3 Yr. Avg. 21.5%
EBITDA Margin 8.8%
EBITDA Margin - 3 Yr. Avg. 9.6%
Operating Margin 6.5%
Oper. Margin - 3 Yr. Avg. 8%
Pre-Tax Margin -0%
Pre-Tax Margin - 3 Yr. Avg. 1.8%
Net Profit Margin -1%
Net Profit Margin - 3 Yr. Avg. 0.7%
Effective Tax Rate -3311.1%
Eff/ Tax Rate - 3 Yr. Avg. -1068.2%
Payout Ratio -82.1%

CNHI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CNHI stock intrinsic value calculation we used $24872 million for the last fiscal year's total revenue generated by CNH Industrial. The default revenue input number comes from 2016 income statement of CNH Industrial. 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 CNHI 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 11.1%, whose default value for CNHI is calculated based on our internal credit rating of CNH Industrial, 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 CNH Industrial.
    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 CNHI stock the variable cost ratio is equal to 34.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $15061 million in the base year in the intrinsic value calculation for CNHI 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 3.6% for CNH Industrial.

Corporate tax rate of 27% is the nominal tax rate for CNH Industrial. 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 CNHI 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 CNHI are equal to 36.6%.

Life of production assets of 9.2 years is the average useful life of capital assets used in CNH Industrial 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 CNHI is equal to -20.2%. 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 - $4444 million for CNH Industrial - 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 1363.07 million for CNH Industrial 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 CNH Industrial at the current share price and the inputted number of shares is $14.2 billion.


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COMPANY NEWS

▶ Longleaf Partners Comments on CNH Industrial   [Apr-14-17 06:11PM  GuruFocus.com]
▶ Longleaf Partners 1st Quarter Commentary   [05:50PM  GuruFocus.com]
▶ Pricing of CNH Industrial Capital LLC $500 million notes   [Apr-05-17 05:40PM  PR Newswire]
▶ Here's Why Deere & Company's Management is Doing a Good Job   [Mar-06-17 09:11AM  at Motley Fool]
▶ CNH Industrial publishes its 2017 Corporate Calendar   [Jan-31-17 01:00PM  PR Newswire]
▶ Deere: A Good Time to Sellor a Great Time to Buy?   [Jan-24-17 03:34PM  at Barrons.com]
▶ Behind the Wheel: The CASE Rodeo   [Dec-22-16 08:04AM  PR Newswire]
▶ Behind the Wheel: The CASE Rodeo   [Dec-20-16 07:28AM  PR Newswire]
▶ Iveco and SAIC Restructure their Joint Ventures in China   [Dec-16-16 03:13AM  PR Newswire]
▶ Is CNH Industrial NV (CNHI) the Right Stock for Your Portfolio?   [Dec-12-16 04:51PM  at Insider Monkey]
▶ Deere: A Bummer of an Upgrade   [Nov-28-16 11:55AM  at Barrons.com]
▶ Is WestRock Co (WRK) A Good Stock to Buy?   [Nov-26-16 06:11PM  at Insider Monkey]
Stock chart of CNHI Financial statements of CNHI
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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