Intrinsic value of Diageo ADR - DEO

Previous Close

$132.87

  Intrinsic Value

$37.51

stock screener

  Rating & Target

str. sell

-72%

  Value-price divergence*

-60%

Previous close

$132.87

 
Intrinsic value

$37.51

 
Up/down potential

-72%

 
Rating

str. sell

 
Value-price divergence*

-60%

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

We calculate the intrinsic value of DEO 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 82.2

 

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, %
  -3.03
  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
  12,747
  13,002
  13,301
  13,643
  14,027
  14,452
  14,918
  15,426
  15,976
  16,569
  17,205
  17,885
  18,611
  19,384
  20,205
  21,077
  22,000
  22,978
  24,012
  25,105
  26,258
  27,475
  28,759
  30,112
  31,537
  33,039
  34,620
  36,283
  38,034
  39,876
  41,814
Variable operating expenses, $m
 
  4,856
  4,960
  5,079
  5,213
  5,361
  5,524
  5,701
  5,892
  6,098
  6,320
  6,229
  6,481
  6,751
  7,037
  7,340
  7,662
  8,002
  8,362
  8,743
  9,145
  9,569
  10,016
  10,487
  10,983
  11,506
  12,057
  12,636
  13,246
  13,887
  14,562
Fixed operating expenses, $m
 
  4,592
  4,707
  4,824
  4,945
  5,069
  5,195
  5,325
  5,458
  5,595
  5,735
  5,878
  6,025
  6,176
  6,330
  6,488
  6,651
  6,817
  6,987
  7,162
  7,341
  7,525
  7,713
  7,905
  8,103
  8,306
  8,513
  8,726
  8,944
  9,168
  9,397
Total operating expenses, $m
  9,143
  9,448
  9,667
  9,903
  10,158
  10,430
  10,719
  11,026
  11,350
  11,693
  12,055
  12,107
  12,506
  12,927
  13,367
  13,828
  14,313
  14,819
  15,349
  15,905
  16,486
  17,094
  17,729
  18,392
  19,086
  19,812
  20,570
  21,362
  22,190
  23,055
  23,959
Operating income, $m
  3,603
  3,554
  3,634
  3,739
  3,869
  4,022
  4,199
  4,401
  4,626
  4,876
  5,150
  5,778
  6,104
  6,457
  6,838
  7,248
  7,688
  8,159
  8,662
  9,200
  9,772
  10,382
  11,031
  11,720
  12,451
  13,227
  14,050
  14,921
  15,844
  16,821
  17,855
EBITDA, $m
  4,178
  4,418
  4,511
  4,630
  4,775
  4,947
  5,143
  5,365
  5,613
  5,887
  6,188
  6,516
  6,872
  7,257
  7,672
  8,118
  8,596
  9,107
  9,653
  10,236
  10,856
  11,516
  12,217
  12,962
  13,752
  14,590
  15,478
  16,418
  17,414
  18,467
  19,580
Interest expense (income), $m
  582
  519
  540
  564
  593
  624
  660
  698
  740
  786
  835
  887
  944
  1,004
  1,068
  1,136
  1,208
  1,284
  1,365
  1,451
  1,541
  1,637
  1,737
  1,844
  1,956
  2,074
  2,198
  2,329
  2,466
  2,611
  2,764
Earnings before tax, $m
  3,474
  3,035
  3,094
  3,175
  3,276
  3,398
  3,540
  3,702
  3,886
  4,090
  4,315
  4,891
  5,161
  5,454
  5,771
  6,112
  6,480
  6,875
  7,297
  7,749
  8,231
  8,746
  9,293
  9,876
  10,495
  11,153
  11,852
  12,593
  13,378
  14,210
  15,091
Tax expense, $m
  603
  819
  835
  857
  884
  917
  956
  1,000
  1,049
  1,104
  1,165
  1,321
  1,393
  1,472
  1,558
  1,650
  1,750
  1,856
  1,970
  2,092
  2,222
  2,361
  2,509
  2,667
  2,834
  3,011
  3,200
  3,400
  3,612
  3,837
  4,075
Net income, $m
  2,728
  2,215
  2,259
  2,317
  2,391
  2,480
  2,584
  2,703
  2,837
  2,986
  3,150
  3,570
  3,767
  3,981
  4,213
  4,462
  4,730
  5,018
  5,327
  5,657
  6,009
  6,384
  6,784
  7,209
  7,662
  8,142
  8,652
  9,193
  9,766
  10,373
  11,016

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,325
  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
  34,636
  33,948
  34,728
  35,621
  36,623
  37,733
  38,951
  40,278
  41,714
  43,261
  44,921
  46,697
  48,593
  50,611
  52,755
  55,031
  57,443
  59,995
  62,695
  65,547
  68,559
  71,737
  75,088
  78,621
  82,343
  86,263
  90,390
  94,735
  99,306
  104,116
  109,174
Adjusted assets (=assets-cash), $m
  33,311
  33,948
  34,728
  35,621
  36,623
  37,733
  38,951
  40,278
  41,714
  43,261
  44,921
  46,697
  48,593
  50,611
  52,755
  55,031
  57,443
  59,995
  62,695
  65,547
  68,559
  71,737
  75,088
  78,621
  82,343
  86,263
  90,390
  94,735
  99,306
  104,116
  109,174
Revenue / Adjusted assets
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
  0.383
Average production assets, $m
  15,775
  16,096
  16,467
  16,890
  17,365
  17,891
  18,469
  19,098
  19,779
  20,512
  21,300
  22,142
  23,040
  23,997
  25,014
  26,093
  27,237
  28,447
  29,727
  31,080
  32,508
  34,014
  35,603
  37,278
  39,043
  40,902
  42,859
  44,919
  47,086
  49,367
  51,765
Working capital, $m
  3,239
  4,538
  4,642
  4,761
  4,895
  5,044
  5,207
  5,384
  5,576
  5,783
  6,004
  6,242
  6,495
  6,765
  7,052
  7,356
  7,678
  8,019
  8,380
  8,762
  9,164
  9,589
  10,037
  10,509
  11,007
  11,531
  12,082
  12,663
  13,274
  13,917
  14,593
Total debt, $m
  12,608
  11,732
  12,270
  12,885
  13,575
  14,340
  15,180
  16,094
  17,083
  18,149
  19,293
  20,517
  21,822
  23,213
  24,690
  26,258
  27,920
  29,679
  31,539
  33,504
  35,579
  37,769
  40,078
  42,512
  45,076
  47,777
  50,621
  53,614
  56,764
  60,078
  63,563
Total liabilities, $m
  24,267
  23,390
  23,928
  24,543
  25,233
  25,998
  26,838
  27,752
  28,741
  29,807
  30,951
  32,175
  33,480
  34,871
  36,348
  37,916
  39,578
  41,337
  43,197
  45,162
  47,237
  49,427
  51,736
  54,170
  56,734
  59,435
  62,279
  65,272
  68,422
  71,736
  75,221
Total equity, $m
  10,370
  10,558
  10,801
  11,078
  11,390
  11,735
  12,114
  12,526
  12,973
  13,454
  13,971
  14,523
  15,112
  15,740
  16,407
  17,115
  17,865
  18,659
  19,498
  20,385
  21,322
  22,310
  23,352
  24,451
  25,609
  26,828
  28,111
  29,462
  30,884
  32,380
  33,953
Total liabilities and equity, $m
  34,637
  33,948
  34,729
  35,621
  36,623
  37,733
  38,952
  40,278
  41,714
  43,261
  44,922
  46,698
  48,592
  50,611
  52,755
  55,031
  57,443
  59,996
  62,695
  65,547
  68,559
  71,737
  75,088
  78,621
  82,343
  86,263
  90,390
  94,734
  99,306
  104,116
  109,174
Debt-to-equity ratio
  1.216
  1.110
  1.140
  1.160
  1.190
  1.220
  1.250
  1.280
  1.320
  1.350
  1.380
  1.410
  1.440
  1.470
  1.500
  1.530
  1.560
  1.590
  1.620
  1.640
  1.670
  1.690
  1.720
  1.740
  1.760
  1.780
  1.800
  1.820
  1.840
  1.860
  1.870
Adjusted equity ratio
  0.282
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,728
  2,215
  2,259
  2,317
  2,391
  2,480
  2,584
  2,703
  2,837
  2,986
  3,150
  3,570
  3,767
  3,981
  4,213
  4,462
  4,730
  5,018
  5,327
  5,657
  6,009
  6,384
  6,784
  7,209
  7,662
  8,142
  8,652
  9,193
  9,766
  10,373
  11,016
Depreciation, amort., depletion, $m
  575
  865
  877
  891
  907
  924
  944
  965
  987
  1,012
  1,038
  738
  768
  800
  834
  870
  908
  948
  991
  1,036
  1,084
  1,134
  1,187
  1,243
  1,301
  1,363
  1,429
  1,497
  1,570
  1,646
  1,726
Funds from operations, $m
  2,257
  3,080
  3,136
  3,209
  3,298
  3,405
  3,528
  3,667
  3,824
  3,997
  4,188
  4,308
  4,535
  4,781
  5,046
  5,332
  5,638
  5,967
  6,318
  6,693
  7,092
  7,518
  7,971
  8,452
  8,963
  9,505
  10,080
  10,690
  11,335
  12,019
  12,742
Change in working capital, $m
  -841
  89
  104
  119
  134
  148
  163
  177
  192
  207
  222
  237
  253
  270
  287
  304
  322
  341
  361
  381
  403
  425
  448
  472
  498
  524
  552
  581
  611
  643
  676
Cash from operations, $m
  3,098
  2,991
  3,031
  3,089
  3,164
  3,256
  3,365
  3,490
  3,632
  3,791
  3,966
  4,071
  4,282
  4,511
  4,760
  5,028
  5,316
  5,625
  5,957
  6,311
  6,690
  7,093
  7,523
  7,980
  8,466
  8,981
  9,529
  10,109
  10,724
  11,376
  12,066
Maintenance CAPEX, $m
  0
  -526
  -537
  -549
  -563
  -579
  -596
  -616
  -637
  -659
  -684
  -710
  -738
  -768
  -800
  -834
  -870
  -908
  -948
  -991
  -1,036
  -1,084
  -1,134
  -1,187
  -1,243
  -1,301
  -1,363
  -1,429
  -1,497
  -1,570
  -1,646
New CAPEX, $m
  -615
  -321
  -370
  -423
  -475
  -526
  -578
  -629
  -681
  -734
  -787
  -842
  -899
  -957
  -1,017
  -1,079
  -1,143
  -1,210
  -1,280
  -1,352
  -1,428
  -1,507
  -1,589
  -1,675
  -1,765
  -1,859
  -1,957
  -2,060
  -2,168
  -2,280
  -2,399
Cash from investing activities, $m
  725
  -847
  -907
  -972
  -1,038
  -1,105
  -1,174
  -1,245
  -1,318
  -1,393
  -1,471
  -1,552
  -1,637
  -1,725
  -1,817
  -1,913
  -2,013
  -2,118
  -2,228
  -2,343
  -2,464
  -2,591
  -2,723
  -2,862
  -3,008
  -3,160
  -3,320
  -3,489
  -3,665
  -3,850
  -4,045
Free cash flow, $m
  3,823
  2,144
  2,125
  2,117
  2,126
  2,151
  2,191
  2,245
  2,315
  2,398
  2,495
  2,519
  2,645
  2,787
  2,943
  3,115
  3,303
  3,507
  3,729
  3,968
  4,226
  4,503
  4,800
  5,118
  5,458
  5,821
  6,208
  6,621
  7,059
  7,526
  8,022
Issuance/(repayment) of debt, $m
  -1,503
  449
  538
  615
  690
  765
  839
  914
  989
  1,066
  1,144
  1,224
  1,306
  1,390
  1,478
  1,568
  1,662
  1,759
  1,860
  1,965
  2,075
  2,190
  2,309
  2,434
  2,564
  2,701
  2,844
  2,993
  3,150
  3,314
  3,485
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  
  -1,651
  449
  538
  615
  690
  765
  839
  914
  989
  1,066
  1,144
  1,224
  1,306
  1,390
  1,478
  1,568
  1,662
  1,759
  1,860
  1,965
  2,075
  2,190
  2,309
  2,434
  2,564
  2,701
  2,844
  2,993
  3,150
  3,314
  3,485
Total cash flow (excl. dividends), $m
  2,273
  2,593
  2,663
  2,732
  2,817
  2,916
  3,030
  3,159
  3,304
  3,464
  3,639
  3,743
  3,951
  4,177
  4,421
  4,683
  4,964
  5,266
  5,589
  5,933
  6,301
  6,692
  7,109
  7,552
  8,023
  8,522
  9,052
  9,614
  10,209
  10,840
  11,507
Retained Cash Flow (-), $m
  -923
  -188
  -243
  -278
  -312
  -345
  -379
  -413
  -447
  -481
  -516
  -552
  -589
  -628
  -667
  -708
  -750
  -794
  -840
  -887
  -937
  -988
  -1,042
  -1,099
  -1,158
  -1,219
  -1,284
  -1,351
  -1,422
  -1,496
  -1,573
Prev. year cash balance distribution, $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 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
 
  2,405
  2,420
  2,455
  2,505
  2,571
  2,651
  2,747
  2,857
  2,983
  3,123
  3,190
  3,362
  3,549
  3,754
  3,975
  4,214
  4,472
  4,749
  5,046
  5,364
  5,704
  6,067
  6,453
  6,865
  7,303
  7,769
  8,263
  8,787
  9,344
  9,934
Discount rate, %
 
  6.80
  7.14
  7.50
  7.87
  8.27
  8.68
  9.11
  9.57
  10.05
  10.55
  11.08
  11.63
  12.21
  12.82
  13.46
  14.14
  14.84
  15.59
  16.37
  17.18
  18.04
  18.94
  19.89
  20.89
  21.93
  23.03
  24.18
  25.39
  26.66
  27.99
PV of cash for distribution, $m
 
  2,252
  2,108
  1,976
  1,850
  1,728
  1,609
  1,492
  1,376
  1,260
  1,146
  1,005
  898
  794
  693
  598
  508
  425
  350
  283
  225
  175
  133
  99
  72
  51
  36
  24
  16
  10
  6
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

Diageo plc produces, markets, and sells alcoholic beverages worldwide It offers scotch whiskey, gin, vodka, rum, beer and spirits, Irish cream liqueurs, wine, Raki, tequila, Canadian and American whiskey, Cachaça, and brandy, as well as adult beverages and ready to drink products. The company’s premium brands comprise Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, and Guinness. Its reserve brands include Johnnie Walker Blue Label, Johnnie Walker Green Label, Johnnie Walker Gold Label 18 year old, Johnnie Walker Gold Label Reserve, Johnnie Walker Platinum Label 18 year old, John Walker & Sons Collection, Johnnie Walker The Gold Route, Johnnie Walker The Royal Route, and other Johnnie Walker super premium brands; The Singleton, Cardhu, Talisker, Lagavulin, and other malt brands; Buchanan’s Special Reserve and Buchanan’s Red Seal; Bulleit Bourbon and Bulleit Rye; Tanqueray No. TEN and Tanqueray Malacca Gin; Cîroc and Ketel One vodka; and Don Julio, Zacapa, Bundaberg SDlx, Shui Jing Fang, Jinzu gin, Haig Club whisky, Orphan Barrel whiskey, and DeLeón Tequila. The company was founded in 1886 and is headquartered in London, the United Kingdom.

FINANCIAL RATIOS  of  Diageo ADR (DEO)

Valuation Ratios
P/E Ratio 122.6
Price to Sales 26.2
Price to Book 32.3
Price to Tangible Book
Price to Cash Flow 108
Price to Free Cash Flow 134.7
Growth Rates
Sales Growth Rate -3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -20.7%
Cap. Spend. - 3 Yr. Gr. Rate -4.5%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 97.1%
Total Debt to Equity 121.6%
Interest Coverage 7
Management Effectiveness
Return On Assets 9.7%
Ret/ On Assets - 3 Yr. Avg. 11%
Return On Total Capital 12.1%
Ret/ On T. Cap. - 3 Yr. Avg. 13.1%
Return On Equity 27.5%
Return On Equity - 3 Yr. Avg. 30.9%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 59.5%
Gross Margin - 3 Yr. Avg. 59.3%
EBITDA Margin 36.3%
EBITDA Margin - 3 Yr. Avg. 37.1%
Operating Margin 28.3%
Oper. Margin - 3 Yr. Avg. 28.4%
Pre-Tax Margin 27.3%
Pre-Tax Margin - 3 Yr. Avg. 26.9%
Net Profit Margin 21.4%
Net Profit Margin - 3 Yr. Avg. 21.8%
Effective Tax Rate 17.4%
Eff/ Tax Rate - 3 Yr. Avg. 16.6%
Payout Ratio 64.3%

DEO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DEO stock intrinsic value calculation we used $12747 million for the last fiscal year's total revenue generated by Diageo ADR. The default revenue input number comes from 2016 income statement of Diageo 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 DEO 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 6.8%, whose default value for DEO is calculated based on our internal credit rating of Diageo 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 Diageo 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 DEO stock the variable cost ratio is equal to 37.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $4480 million in the base year in the intrinsic value calculation for DEO 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 4.6% for Diageo ADR.

Corporate tax rate of 27% is the nominal tax rate for Diageo 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 DEO 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 DEO are equal to 123.8%.

Life of production assets of 33 years is the average useful life of capital assets used in Diageo 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 DEO is equal to 34.9%. 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 - $10370 million for Diageo 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 618.625 million for Diageo 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 Diageo ADR at the current share price and the inputted number of shares is $82.2 billion.

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COMPANY NEWS

▶ 4 stocks to buy in uncertain times   [05:00PM  CNBC Videos]
▶ Scotch Sales Drive Diageo plc Growth   [Jul-28-17 02:56PM  Motley Fool]
▶ [$$] Diageo finds a cure for its cash hangover   [Jul-27-17 06:03PM  Financial Times]
▶ Nasdaq Tumbles as Tech Takes a Turn Lower   [02:18PM  TheStreet.com]
▶ Why George Strait Is Singing Praise for Tequila   [Jun-30-17 02:05PM  Fortune]
▶ [$$] GKN shares hit the brakes after peer's profit warning   [Jun-27-17 12:56PM  Financial Times]
▶ Diageo and Constellation Brands: Cramer's Top Takeaways   [Jun-23-17 06:35AM  TheStreet.com]
▶ Cramer pores over the top names in tequila   [Jun-22-17 06:22PM  CNBC]
▶ Cramer's tops in tequila   [03:48PM  CNBC Videos]
▶ George Clooney sells his tequila brand   [07:45AM  Reuters Videos]
▶ ShowBiz Minute: Cosby, Howard, Clooney   [06:56AM  Associated Press Videos]
▶ [$$] Diageo: su casa   [05:43PM  Financial Times]
▶ Isinglass, Cochineal, GMOs: Whats in Your Beer?   [Jun-18-17 03:25PM  Insider Monkey]
▶ Summer Goals: Sip Naked, Save Turtles.   [Jun-16-17 07:00AM  PR Newswire]
▶ 3 Growth Stocks for Those Moving Up in the World   [Jun-14-17 08:46AM  Motley Fool]
▶ [$$] U.K. Investors Fear a Weaker Theresa May   [Jun-09-17 11:49PM  Barrons.com]
▶ Guinness names brewmaster for Baltimore County facility, moves to get liquor license   [Jun-06-17 02:00PM  American City Business Journals]
▶ 10 Best Whisky Producers in the World   [Jun-05-17 06:13PM  Insider Monkey]
▶ Alcohol As A Pain Reliever?   [May-23-17 07:47AM  Benzinga]
▶ Diageo and Brexit   [May-22-17 06:15PM  CNBC Videos]
Stock chart of DEO Financial statements of DEO
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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