Intrinsic value of Diageo ADR - DEO

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$119.62

  Intrinsic Value

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  Value-price divergence*

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$119.62

 
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*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 74.0

 

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
  10,695
  10,941
  11,222
  11,538
  11,887
  12,271
  12,689
  13,141
  13,629
  14,152
  14,711
  15,308
  15,944
  16,620
  17,337
  18,096
  18,901
  19,751
  20,650
  21,599
  22,600
  23,655
  24,768
  25,941
  27,176
  28,476
  29,845
  31,285
  32,800
  34,394
Variable operating expenses, $m
 
  7,556
  7,723
  7,915
  8,130
  8,368
  8,630
  8,914
  9,223
  9,555
  9,911
  10,022
  10,429
  10,862
  11,322
  11,811
  12,328
  12,876
  13,456
  14,068
  14,714
  15,396
  16,115
  16,874
  17,672
  18,514
  19,400
  20,332
  21,313
  22,345
  23,431
Fixed operating expenses, $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
Total operating expenses, $m
  9,143
  7,556
  7,723
  7,915
  8,130
  8,368
  8,630
  8,914
  9,223
  9,555
  9,911
  10,022
  10,429
  10,862
  11,322
  11,811
  12,328
  12,876
  13,456
  14,068
  14,714
  15,396
  16,115
  16,874
  17,672
  18,514
  19,400
  20,332
  21,313
  22,345
  23,431
Operating income, $m
  3,603
  3,139
  3,217
  3,307
  3,408
  3,519
  3,641
  3,775
  3,919
  4,074
  4,241
  4,689
  4,879
  5,082
  5,297
  5,526
  5,768
  6,024
  6,295
  6,582
  6,884
  7,203
  7,540
  7,895
  8,268
  8,662
  9,077
  9,513
  9,972
  10,455
  10,963
EBITDA, $m
  4,178
  3,850
  3,939
  4,040
  4,154
  4,280
  4,418
  4,568
  4,731
  4,906
  5,095
  5,296
  5,511
  5,740
  5,983
  6,241
  6,515
  6,804
  7,111
  7,434
  7,776
  8,136
  8,516
  8,917
  9,339
  9,784
  10,252
  10,744
  11,263
  11,808
  12,382
Interest expense (income), $m
  582
  427
  444
  464
  487
  514
  543
  574
  609
  646
  687
  730
  776
  826
  878
  934
  994
  1,056
  1,123
  1,193
  1,268
  1,346
  1,429
  1,516
  1,608
  1,706
  1,808
  1,915
  2,029
  2,148
  2,273
Earnings before tax, $m
  3,474
  2,712
  2,773
  2,843
  2,920
  3,005
  3,099
  3,200
  3,310
  3,428
  3,554
  3,959
  4,103
  4,256
  4,419
  4,592
  4,775
  4,968
  5,173
  5,389
  5,617
  5,857
  6,111
  6,378
  6,660
  6,957
  7,269
  7,597
  7,943
  8,307
  8,690
Tax expense, $m
  603
  732
  749
  768
  788
  811
  837
  864
  894
  926
  960
  1,069
  1,108
  1,149
  1,193
  1,240
  1,289
  1,341
  1,397
  1,455
  1,517
  1,581
  1,650
  1,722
  1,798
  1,878
  1,963
  2,051
  2,145
  2,243
  2,346
Net income, $m
  2,728
  1,980
  2,025
  2,075
  2,132
  2,194
  2,262
  2,336
  2,416
  2,502
  2,595
  2,890
  2,995
  3,107
  3,226
  3,352
  3,485
  3,627
  3,776
  3,934
  4,100
  4,276
  4,461
  4,656
  4,862
  5,078
  5,306
  5,546
  5,799
  6,064
  6,343

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
  27,923
  28,566
  29,300
  30,124
  31,037
  32,039
  33,131
  34,312
  35,584
  36,950
  38,411
  39,970
  41,630
  43,394
  45,265
  47,249
  49,349
  51,569
  53,916
  56,393
  59,007
  61,764
  64,669
  67,731
  70,955
  74,350
  77,924
  81,684
  85,640
  89,801
Adjusted assets (=assets-cash), $m
  33,311
  27,923
  28,566
  29,300
  30,124
  31,037
  32,039
  33,131
  34,312
  35,584
  36,950
  38,411
  39,970
  41,630
  43,394
  45,265
  47,249
  49,349
  51,569
  53,916
  56,393
  59,007
  61,764
  64,669
  67,731
  70,955
  74,350
  77,924
  81,684
  85,640
  89,801
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
  13,240
  13,545
  13,893
  14,283
  14,716
  15,192
  15,709
  16,269
  16,872
  17,520
  18,213
  18,952
  19,739
  20,575
  21,463
  22,403
  23,399
  24,452
  25,564
  26,739
  27,978
  29,285
  30,663
  32,115
  33,644
  35,253
  36,948
  38,731
  40,607
  42,579
Working capital, $m
  3,239
  3,732
  3,818
  3,916
  4,027
  4,149
  4,283
  4,428
  4,586
  4,756
  4,939
  5,134
  5,343
  5,564
  5,800
  6,050
  6,316
  6,596
  6,893
  7,207
  7,538
  7,887
  8,256
  8,644
  9,053
  9,484
  9,938
  10,416
  10,918
  11,447
  12,003
Total debt, $m
  12,608
  9,649
  10,092
  10,598
  11,165
  11,795
  12,485
  13,237
  14,051
  14,928
  15,868
  16,875
  17,949
  19,093
  20,308
  21,598
  22,965
  24,411
  25,941
  27,558
  29,265
  31,066
  32,965
  34,967
  37,077
  39,298
  41,637
  44,099
  46,690
  49,416
  52,283
Total liabilities, $m
  24,267
  19,239
  19,682
  20,188
  20,755
  21,385
  22,075
  22,827
  23,641
  24,518
  25,458
  26,465
  27,539
  28,683
  29,898
  31,188
  32,555
  34,001
  35,531
  37,148
  38,855
  40,656
  42,555
  44,557
  46,667
  48,888
  51,227
  53,689
  56,280
  59,006
  61,873
Total equity, $m
  10,370
  8,684
  8,884
  9,112
  9,369
  9,653
  9,964
  10,304
  10,671
  11,067
  11,491
  11,946
  12,431
  12,947
  13,495
  14,078
  14,694
  15,348
  16,038
  16,768
  17,538
  18,351
  19,208
  20,112
  21,064
  22,067
  23,123
  24,234
  25,404
  26,634
  27,928
Total liabilities and equity, $m
  34,637
  27,923
  28,566
  29,300
  30,124
  31,038
  32,039
  33,131
  34,312
  35,585
  36,949
  38,411
  39,970
  41,630
  43,393
  45,266
  47,249
  49,349
  51,569
  53,916
  56,393
  59,007
  61,763
  64,669
  67,731
  70,955
  74,350
  77,923
  81,684
  85,640
  89,801
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
  1,980
  2,025
  2,075
  2,132
  2,194
  2,262
  2,336
  2,416
  2,502
  2,595
  2,890
  2,995
  3,107
  3,226
  3,352
  3,485
  3,627
  3,776
  3,934
  4,100
  4,276
  4,461
  4,656
  4,862
  5,078
  5,306
  5,546
  5,799
  6,064
  6,343
Depreciation, amort., depletion, $m
  575
  711
  721
  733
  746
  760
  776
  794
  812
  832
  854
  607
  632
  658
  686
  715
  747
  780
  815
  852
  891
  933
  976
  1,022
  1,070
  1,121
  1,175
  1,232
  1,291
  1,354
  1,419
Funds from operations, $m
  2,257
  2,691
  2,746
  2,808
  2,878
  2,954
  3,038
  3,130
  3,228
  3,335
  3,448
  3,497
  3,627
  3,765
  3,912
  4,067
  4,232
  4,407
  4,591
  4,786
  4,991
  5,208
  5,437
  5,678
  5,932
  6,200
  6,481
  6,778
  7,090
  7,418
  7,763
Change in working capital, $m
  -841
  73
  86
  98
  110
  122
  134
  146
  158
  170
  183
  195
  208
  222
  236
  250
  265
  281
  297
  314
  331
  349
  368
  388
  409
  431
  454
  478
  503
  529
  556
Cash from operations, $m
  3,098
  3,194
  2,660
  2,710
  2,768
  2,832
  2,905
  2,984
  3,071
  3,165
  3,266
  3,302
  3,419
  3,543
  3,676
  3,817
  3,967
  4,126
  4,294
  4,472
  4,660
  4,859
  5,069
  5,290
  5,523
  5,769
  6,028
  6,300
  6,587
  6,889
  7,207
Maintenance CAPEX, $m
  0
  -433
  -441
  -451
  -463
  -476
  -491
  -506
  -524
  -542
  -562
  -584
  -607
  -632
  -658
  -686
  -715
  -747
  -780
  -815
  -852
  -891
  -933
  -976
  -1,022
  -1,070
  -1,121
  -1,175
  -1,232
  -1,291
  -1,354
New CAPEX, $m
  -615
  -264
  -305
  -348
  -391
  -433
  -475
  -517
  -560
  -603
  -648
  -693
  -739
  -787
  -836
  -888
  -941
  -996
  -1,053
  -1,112
  -1,175
  -1,239
  -1,307
  -1,378
  -1,452
  -1,529
  -1,610
  -1,694
  -1,783
  -1,876
  -1,973
Cash from investing activities, $m
  725
  -697
  -746
  -799
  -854
  -909
  -966
  -1,023
  -1,084
  -1,145
  -1,210
  -1,277
  -1,346
  -1,419
  -1,494
  -1,574
  -1,656
  -1,743
  -1,833
  -1,927
  -2,027
  -2,130
  -2,240
  -2,354
  -2,474
  -2,599
  -2,731
  -2,869
  -3,015
  -3,167
  -3,327
Free cash flow, $m
  3,823
  2,497
  1,914
  1,910
  1,914
  1,923
  1,939
  1,960
  1,987
  2,019
  2,056
  2,025
  2,072
  2,125
  2,182
  2,244
  2,311
  2,384
  2,461
  2,545
  2,634
  2,728
  2,829
  2,936
  3,049
  3,169
  3,296
  3,431
  3,572
  3,722
  3,880
Issuance/(repayment) of debt, $m
  -1,503
  368
  443
  506
  568
  629
  690
  752
  814
  877
  941
  1,007
  1,074
  1,144
  1,215
  1,290
  1,367
  1,447
  1,530
  1,617
  1,707
  1,801
  1,899
  2,002
  2,109
  2,222
  2,339
  2,462
  2,591
  2,726
  2,867
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
  368
  443
  506
  568
  629
  690
  752
  814
  877
  941
  1,007
  1,074
  1,144
  1,215
  1,290
  1,367
  1,447
  1,530
  1,617
  1,707
  1,801
  1,899
  2,002
  2,109
  2,222
  2,339
  2,462
  2,591
  2,726
  2,867
Total cash flow (excl. dividends), $m
  2,273
  2,866
  2,357
  2,416
  2,482
  2,552
  2,629
  2,712
  2,801
  2,896
  2,997
  3,032
  3,147
  3,268
  3,397
  3,534
  3,678
  3,830
  3,991
  4,161
  4,340
  4,529
  4,728
  4,938
  5,159
  5,391
  5,635
  5,893
  6,163
  6,448
  6,747
Retained Cash Flow (-), $m
  -923
  -154
  -200
  -228
  -256
  -284
  -312
  -339
  -367
  -396
  -425
  -454
  -485
  -516
  -549
  -582
  -617
  -653
  -691
  -730
  -770
  -813
  -857
  -904
  -952
  -1,003
  -1,056
  -1,111
  -1,169
  -1,230
  -1,294
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
 
  2,711
  2,157
  2,188
  2,225
  2,268
  2,318
  2,373
  2,433
  2,500
  2,572
  2,578
  2,662
  2,752
  2,848
  2,951
  3,061
  3,177
  3,301
  3,432
  3,570
  3,716
  3,871
  4,034
  4,207
  4,388
  4,580
  4,781
  4,994
  5,217
  5,453
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
 
  2,539
  1,879
  1,761
  1,643
  1,525
  1,407
  1,289
  1,171
  1,056
  944
  812
  711
  615
  526
  444
  369
  302
  243
  193
  150
  114
  85
  62
  44
  31
  21
  14
  9
  6
  3
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 110.4
Price to Sales 23.6
Price to Book 29
Price to Tangible Book
Price to Cash Flow 97.2
Price to Free Cash Flow 121.3
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 $10485 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 70.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 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 - $8530 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 $74.0 billion.


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Stock chart of DEO Financial statements of DEO Annual reports 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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