Intrinsic value of Franklin Covey - FC

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  Intrinsic Value

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  Value-price divergence*

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

We calculate the intrinsic value of FC 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 0.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -4.76
  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
  200
  204
  209
  214
  220
  227
  234
  242
  251
  260
  270
  281
  292
  304
  317
  331
  345
  361
  377
  394
  412
  431
  451
  472
  495
  518
  543
  569
  597
  626
  656
Variable operating expenses, $m
 
  82
  83
  85
  88
  90
  93
  96
  100
  103
  107
  109
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  193
  202
  212
  222
  233
  244
  256
Fixed operating expenses, $m
 
  112
  115
  117
  120
  123
  126
  130
  133
  136
  140
  143
  147
  150
  154
  158
  162
  166
  170
  174
  179
  183
  188
  192
  197
  202
  207
  212
  218
  223
  229
Total operating expenses, $m
  186
  194
  198
  202
  208
  213
  219
  226
  233
  239
  247
  252
  261
  269
  278
  287
  297
  307
  317
  328
  340
  351
  364
  376
  390
  404
  419
  434
  451
  467
  485
Operating income, $m
  14
  11
  11
  11
  12
  13
  14
  16
  18
  20
  23
  28
  32
  35
  39
  44
  49
  54
  60
  66
  73
  80
  88
  96
  105
  114
  124
  135
  146
  159
  172
EBITDA, $m
  21
  18
  18
  19
  20
  21
  23
  25
  27
  29
  32
  36
  39
  43
  48
  53
  58
  64
  70
  77
  84
  92
  100
  109
  118
  128
  139
  150
  163
  176
  189
Interest expense (income), $m
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
Earnings before tax, $m
  12
  9
  9
  9
  9
  10
  12
  13
  15
  17
  19
  24
  27
  31
  34
  38
  43
  48
  53
  59
  65
  72
  79
  87
  95
  104
  113
  123
  134
  145
  157
Tax expense, $m
  5
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  7
  8
  9
  10
  12
  13
  14
  16
  18
  19
  21
  23
  26
  28
  31
  33
  36
  39
  42
Net income, $m
  7
  6
  6
  6
  7
  8
  8
  9
  11
  12
  14
  18
  20
  22
  25
  28
  31
  35
  39
  43
  48
  52
  58
  63
  69
  76
  83
  90
  98
  106
  115

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  10
  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
  191
  185
  189
  194
  199
  205
  212
  219
  227
  235
  244
  254
  264
  275
  287
  299
  312
  326
  341
  356
  373
  390
  408
  428
  448
  469
  492
  515
  540
  566
  594
Adjusted assets (=assets-cash), $m
  181
  185
  189
  194
  199
  205
  212
  219
  227
  235
  244
  254
  264
  275
  287
  299
  312
  326
  341
  356
  373
  390
  408
  428
  448
  469
  492
  515
  540
  566
  594
Revenue / Adjusted assets
  1.105
  1.103
  1.106
  1.103
  1.106
  1.107
  1.104
  1.105
  1.106
  1.106
  1.107
  1.106
  1.106
  1.105
  1.105
  1.107
  1.106
  1.107
  1.106
  1.107
  1.105
  1.105
  1.105
  1.103
  1.105
  1.104
  1.104
  1.105
  1.106
  1.106
  1.104
Average production assets, $m
  68
  69
  71
  72
  74
  77
  79
  82
  85
  88
  91
  95
  99
  103
  107
  112
  117
  122
  127
  133
  139
  146
  153
  160
  167
  175
  184
  192
  202
  211
  222
Working capital, $m
  36
  32
  32
  33
  34
  35
  36
  38
  39
  40
  42
  43
  45
  47
  49
  51
  54
  56
  58
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
  102
Total debt, $m
  39
  36
  38
  40
  43
  46
  50
  53
  57
  62
  66
  71
  76
  82
  88
  94
  101
  108
  115
  123
  131
  140
  149
  159
  169
  180
  192
  204
  216
  230
  244
Total liabilities, $m
  97
  94
  96
  98
  101
  104
  108
  111
  115
  120
  124
  129
  134
  140
  146
  152
  159
  166
  173
  181
  189
  198
  207
  217
  227
  238
  250
  262
  274
  288
  302
Total equity, $m
  94
  91
  93
  95
  98
  101
  104
  108
  112
  116
  120
  125
  130
  135
  141
  147
  154
  161
  168
  175
  183
  192
  201
  210
  220
  231
  242
  253
  266
  279
  292
Total liabilities and equity, $m
  191
  185
  189
  193
  199
  205
  212
  219
  227
  236
  244
  254
  264
  275
  287
  299
  313
  327
  341
  356
  372
  390
  408
  427
  447
  469
  492
  515
  540
  567
  594
Debt-to-equity ratio
  0.415
  0.390
  0.410
  0.420
  0.440
  0.460
  0.480
  0.490
  0.510
  0.530
  0.550
  0.570
  0.590
  0.600
  0.620
  0.640
  0.660
  0.670
  0.690
  0.700
  0.720
  0.730
  0.740
  0.760
  0.770
  0.780
  0.790
  0.800
  0.810
  0.820
  0.830
Adjusted equity ratio
  0.464
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492
  0.492

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  7
  6
  6
  6
  7
  8
  8
  9
  11
  12
  14
  18
  20
  22
  25
  28
  31
  35
  39
  43
  48
  52
  58
  63
  69
  76
  83
  90
  98
  106
  115
Depreciation, amort., depletion, $m
  7
  8
  8
  8
  8
  8
  8
  9
  9
  9
  9
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
Funds from operations, $m
  41
  14
  14
  14
  15
  16
  17
  18
  20
  21
  23
  25
  28
  31
  34
  37
  41
  45
  49
  54
  59
  64
  70
  76
  83
  90
  97
  105
  114
  123
  133
Change in working capital, $m
  8
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
Cash from operations, $m
  33
  12
  13
  13
  14
  15
  16
  17
  18
  20
  22
  23
  26
  29
  32
  35
  38
  42
  46
  51
  56
  61
  67
  73
  79
  86
  93
  101
  110
  118
  128
Maintenance CAPEX, $m
  0
  -5
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
New CAPEX, $m
  -4
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
Cash from investing activities, $m
  -6
  -6
  -8
  -8
  -8
  -8
  -8
  -9
  -10
  -10
  -10
  -11
  -12
  -12
  -12
  -14
  -14
  -14
  -15
  -16
  -17
  -17
  -19
  -19
  -21
  -21
  -22
  -24
  -24
  -26
  -27
Free cash flow, $m
  27
  5
  6
  6
  6
  6
  7
  8
  9
  10
  11
  13
  14
  17
  19
  22
  25
  28
  31
  35
  39
  43
  48
  53
  59
  65
  71
  78
  85
  93
  101
Issuance/(repayment) of debt, $m
  10
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
Issuance/(repurchase) of shares, $m
  -43
  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  
  -33
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
Total cash flow (excl. dividends), $m
  -6
  7
  8
  8
  9
  9
  10
  11
  13
  14
  16
  17
  20
  22
  25
  28
  31
  35
  39
  43
  47
  52
  57
  63
  69
  75
  82
  90
  97
  106
  115
Retained Cash Flow (-), $m
  32
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
Prev. year cash balance distribution, $m
 
  5
  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
 
  10
  6
  6
  6
  7
  7
  8
  9
  10
  12
  13
  15
  17
  19
  22
  25
  28
  31
  35
  39
  44
  49
  54
  59
  65
  71
  78
  85
  93
  101
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
 
  9
  6
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
  6
  6
  6
  6
  6
  5
  5
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
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
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Franklin Covey Co. provides training and consulting services in the areas of leadership, productivity, strategic execution, trust, sales force performance, customer loyalty, and communication effectiveness skills worldwide. The company operates through four segments: Direct Offices, Strategic Markets, Education Practice, and International Licensees. It also offers clients with training in management skills, relationship skills, and individual effectiveness, as well as personal-effectiveness literature and electronic educational solutions. In addition, the company sells a suite of individual-effectiveness and leadership-development training products; and books, e-books, audio media, downloadable and paper-based tools, training accessories, and content-rich software applications for smart phones and other handheld devices to consumer and corporate markets. It delivers its products and services through onsite presentations, client facilitators, international licensees, e-learning, public workshops, custom solutions, intellectual property licenses, and media publishing methods to organizational clients, including corporations, governmental agencies, educational institutions, and other organizations, as well as to individual clients. Franklin Covey Co. was founded in 1983 and is headquartered in Salt Lake City, Utah.

FINANCIAL RATIOS  of  Franklin Covey (FC)

Valuation Ratios
P/E Ratio 41.1
Price to Sales 1.4
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 8.7
Price to Free Cash Flow 9.9
Growth Rates
Sales Growth Rate -4.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 36.2%
Total Debt to Equity 41.5%
Interest Coverage 7
Management Effectiveness
Return On Assets 4.2%
Ret/ On Assets - 3 Yr. Avg. 6.7%
Return On Total Capital 4.9%
Ret/ On T. Cap. - 3 Yr. Avg. 8.2%
Return On Equity 6.4%
Return On Equity - 3 Yr. Avg. 10.1%
Asset Turnover 1
Profitability Ratios
Gross Margin 67.5%
Gross Margin - 3 Yr. Avg. 66.8%
EBITDA Margin 10.5%
EBITDA Margin - 3 Yr. Avg. 12.8%
Operating Margin 7%
Oper. Margin - 3 Yr. Avg. 9.6%
Pre-Tax Margin 6%
Pre-Tax Margin - 3 Yr. Avg. 8.3%
Net Profit Margin 3.5%
Net Profit Margin - 3 Yr. Avg. 5.8%
Effective Tax Rate 41.7%
Eff/ Tax Rate - 3 Yr. Avg. 31.7%
Payout Ratio 0%

FC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FC stock intrinsic value calculation we used $200 million for the last fiscal year's total revenue generated by Franklin Covey. The default revenue input number comes from 2016 income statement of Franklin Covey. 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 FC 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 4.3%, whose default value for FC is calculated based on our internal credit rating of Franklin Covey, 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 Franklin Covey.
    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 FC stock the variable cost ratio is equal to 40%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $109 million in the base year in the intrinsic value calculation for FC 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 6.2% for Franklin Covey.

Corporate tax rate of 27% is the nominal tax rate for Franklin Covey. 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 FC 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 FC are equal to 33.8%.

Life of production assets of 12.5 years is the average useful life of capital assets used in Franklin Covey 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 FC is equal to 15.5%. 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 - $94 million for Franklin Covey - 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 13.177 million for Franklin Covey 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 Franklin Covey at the current share price and the inputted number of shares is $0.3 billion.


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COMPANY NEWS

▶ Franklin Covey to Report Third-Quarter 2017 Results   [Jun-15-17 06:00PM  Business Wire]
▶ Franklin Covey Co. Acquires Robert Gregory Partners   [May-18-17 04:03PM  Business Wire]
▶ ETFs with exposure to Franklin Covey Co. : April 12, 2017   [Apr-12-17 01:11PM  Capital Cube]
▶ What Happened in the Stock Market Today   [Mar-31-17 05:02PM  Motley Fool]
▶ Franklin Covey reports 2Q loss   [04:36PM  Associated Press]
▶ Should You Get Rid of Franklin Covey (FC) Now?   [Jan-31-17 08:51AM  Zacks]
▶ Franklin Covey to Report First-Quarter Fiscal 2017 Results   [Dec-22-16 05:46PM  Business Wire]
▶ Hedge Funds Arent Crazy About Syneron Medical Ltd. (ELOS) Anymore   [Dec-09-16 05:26AM  at Insider Monkey]
▶ FranklinCovey Launches New Customer Loyalty Work Session   [Sep-20-16 08:47AM  Business Wire]
▶ Royal Bank of Scotland in Fridays 52-Week Low Club   [Jul-01-16 04:04PM  at 24/7 Wall St.]
Stock chart of FC Financial statements of FC Annual reports of FC
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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