Intrinsic value of Fresenius Medical Care ADR - FMS

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$49.19

  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 FMS 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 30.3

 

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, %
  7.01
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.21
  6.08
  5.98
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
Revenue, $m
  17,911
  19,308
  20,760
  22,269
  23,837
  25,467
  27,161
  28,923
  30,757
  32,665
  34,653
  36,724
  38,883
  41,134
  43,484
  45,937
  48,498
  51,175
  53,972
  56,898
  59,958
  63,160
  66,511
  70,020
  73,695
  77,545
  81,578
  85,804
  90,234
  94,878
  99,747
Variable operating expenses, $m
 
  14,085
  15,041
  16,035
  17,068
  18,141
  19,258
  20,418
  21,626
  22,883
  24,192
  24,190
  25,612
  27,095
  28,643
  30,258
  31,946
  33,709
  35,552
  37,479
  39,494
  41,604
  43,811
  46,123
  48,543
  51,079
  53,735
  56,519
  59,437
  62,496
  65,703
Fixed operating expenses, $m
 
  2,218
  2,274
  2,330
  2,389
  2,448
  2,510
  2,572
  2,637
  2,703
  2,770
  2,839
  2,910
  2,983
  3,058
  3,134
  3,212
  3,293
  3,375
  3,459
  3,546
  3,635
  3,725
  3,819
  3,914
  4,012
  4,112
  4,215
  4,320
  4,428
  4,539
Total operating expenses, $m
  15,273
  16,303
  17,315
  18,365
  19,457
  20,589
  21,768
  22,990
  24,263
  25,586
  26,962
  27,029
  28,522
  30,078
  31,701
  33,392
  35,158
  37,002
  38,927
  40,938
  43,040
  45,239
  47,536
  49,942
  52,457
  55,091
  57,847
  60,734
  63,757
  66,924
  70,242
Operating income, $m
  2,638
  3,005
  3,445
  3,903
  4,380
  4,877
  5,394
  5,933
  6,494
  7,079
  7,690
  9,694
  10,360
  11,056
  11,783
  12,544
  13,340
  14,173
  15,046
  15,960
  16,918
  17,922
  18,975
  20,079
  21,238
  22,454
  23,730
  25,070
  26,476
  27,953
  29,504
EBITDA, $m
  3,414
  4,514
  4,964
  5,433
  5,922
  6,430
  6,960
  7,512
  8,086
  8,686
  9,311
  9,964
  10,646
  11,358
  12,103
  12,881
  13,696
  14,549
  15,442
  16,378
  17,358
  18,386
  19,463
  20,593
  21,779
  23,023
  24,329
  25,700
  27,139
  28,650
  30,237
Interest expense (income), $m
  387
  345
  399
  454
  511
  571
  632
  697
  764
  833
  906
  981
  1,060
  1,142
  1,227
  1,317
  1,410
  1,507
  1,609
  1,715
  1,826
  1,942
  2,064
  2,191
  2,324
  2,464
  2,610
  2,763
  2,923
  3,091
  3,268
Earnings before tax, $m
  2,232
  2,660
  3,047
  3,450
  3,869
  4,306
  4,761
  5,236
  5,730
  6,246
  6,785
  8,713
  9,300
  9,914
  10,556
  11,227
  11,930
  12,666
  13,437
  14,245
  15,092
  15,980
  16,911
  17,888
  18,914
  19,990
  21,120
  22,307
  23,553
  24,862
  26,237
Tax expense, $m
  683
  718
  823
  931
  1,045
  1,163
  1,286
  1,414
  1,547
  1,686
  1,832
  2,353
  2,511
  2,677
  2,850
  3,031
  3,221
  3,420
  3,628
  3,846
  4,075
  4,315
  4,566
  4,830
  5,107
  5,397
  5,703
  6,023
  6,359
  6,713
  7,084
Net income, $m
  1,243
  1,942
  2,224
  2,518
  2,824
  3,143
  3,476
  3,822
  4,183
  4,560
  4,953
  6,361
  6,789
  7,237
  7,706
  8,196
  8,709
  9,246
  9,809
  10,399
  11,017
  11,665
  12,345
  13,059
  13,807
  14,593
  15,418
  16,284
  17,194
  18,149
  19,153

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,027
  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
  26,934
  27,942
  30,043
  32,227
  34,496
  36,855
  39,307
  41,857
  44,510
  47,272
  50,149
  53,146
  56,270
  59,529
  62,929
  66,478
  70,185
  74,059
  78,108
  82,341
  86,770
  91,404
  96,254
  101,332
  106,650
  112,221
  118,057
  124,174
  130,585
  137,305
  144,352
Adjusted assets (=assets-cash), $m
  25,907
  27,942
  30,043
  32,227
  34,496
  36,855
  39,307
  41,857
  44,510
  47,272
  50,149
  53,146
  56,270
  59,529
  62,929
  66,478
  70,185
  74,059
  78,108
  82,341
  86,770
  91,404
  96,254
  101,332
  106,650
  112,221
  118,057
  124,174
  130,585
  137,305
  144,352
Revenue / Adjusted assets
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
Average production assets, $m
  2,725
  2,935
  3,156
  3,385
  3,623
  3,871
  4,128
  4,396
  4,675
  4,965
  5,267
  5,582
  5,910
  6,252
  6,610
  6,982
  7,372
  7,779
  8,204
  8,648
  9,114
  9,600
  10,110
  10,643
  11,202
  11,787
  12,400
  13,042
  13,716
  14,421
  15,162
Working capital, $m
  2,277
  2,954
  3,176
  3,407
  3,647
  3,896
  4,156
  4,425
  4,706
  4,998
  5,302
  5,619
  5,949
  6,294
  6,653
  7,028
  7,420
  7,830
  8,258
  8,705
  9,174
  9,663
  10,176
  10,713
  11,275
  11,864
  12,481
  13,128
  13,806
  14,516
  15,261
Total debt, $m
  8,694
  8,859
  10,084
  11,357
  12,680
  14,055
  15,485
  16,972
  18,519
  20,129
  21,806
  23,553
  25,375
  27,274
  29,256
  31,326
  33,487
  35,745
  38,106
  40,574
  43,156
  45,857
  48,685
  51,646
  54,746
  57,994
  61,396
  64,962
  68,700
  72,618
  76,726
Total liabilities, $m
  16,125
  16,290
  17,515
  18,788
  20,111
  21,486
  22,916
  24,403
  25,950
  27,560
  29,237
  30,984
  32,806
  34,705
  36,687
  38,757
  40,918
  43,176
  45,537
  48,005
  50,587
  53,288
  56,116
  59,077
  62,177
  65,425
  68,827
  72,393
  76,131
  80,049
  84,157
Total equity, $m
  10,809
  11,652
  12,528
  13,439
  14,385
  15,368
  16,391
  17,454
  18,561
  19,713
  20,912
  22,162
  23,465
  24,823
  26,241
  27,721
  29,267
  30,883
  32,571
  34,336
  36,183
  38,115
  40,138
  42,255
  44,473
  46,796
  49,230
  51,781
  54,454
  57,256
  60,195
Total liabilities and equity, $m
  26,934
  27,942
  30,043
  32,227
  34,496
  36,854
  39,307
  41,857
  44,511
  47,273
  50,149
  53,146
  56,271
  59,528
  62,928
  66,478
  70,185
  74,059
  78,108
  82,341
  86,770
  91,403
  96,254
  101,332
  106,650
  112,221
  118,057
  124,174
  130,585
  137,305
  144,352
Debt-to-equity ratio
  0.804
  0.760
  0.800
  0.850
  0.880
  0.910
  0.940
  0.970
  1.000
  1.020
  1.040
  1.060
  1.080
  1.100
  1.110
  1.130
  1.140
  1.160
  1.170
  1.180
  1.190
  1.200
  1.210
  1.220
  1.230
  1.240
  1.250
  1.250
  1.260
  1.270
  1.270
Adjusted equity ratio
  0.381
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,243
  1,942
  2,224
  2,518
  2,824
  3,143
  3,476
  3,822
  4,183
  4,560
  4,953
  6,361
  6,789
  7,237
  7,706
  8,196
  8,709
  9,246
  9,809
  10,399
  11,017
  11,665
  12,345
  13,059
  13,807
  14,593
  15,418
  16,284
  17,194
  18,149
  19,153
Depreciation, amort., depletion, $m
  776
  1,508
  1,519
  1,530
  1,542
  1,554
  1,566
  1,579
  1,592
  1,606
  1,621
  270
  286
  302
  319
  337
  356
  376
  396
  418
  440
  464
  488
  514
  541
  569
  599
  630
  663
  697
  732
Funds from operations, $m
  1,991
  3,450
  3,743
  4,048
  4,366
  4,697
  5,042
  5,401
  5,776
  6,166
  6,574
  6,630
  7,075
  7,539
  8,025
  8,533
  9,065
  9,622
  10,205
  10,817
  11,457
  12,129
  12,834
  13,573
  14,348
  15,162
  16,017
  16,914
  17,856
  18,846
  19,885
Change in working capital, $m
  -149
  214
  222
  231
  240
  249
  259
  270
  281
  292
  304
  317
  330
  344
  359
  375
  392
  410
  428
  448
  468
  490
  513
  537
  562
  589
  617
  647
  678
  711
  745
Cash from operations, $m
  2,140
  5,132
  3,521
  3,817
  4,126
  4,448
  4,783
  5,131
  5,495
  5,874
  6,270
  6,313
  6,745
  7,195
  7,666
  8,158
  8,673
  9,213
  9,777
  10,369
  10,989
  11,639
  12,321
  13,036
  13,786
  14,573
  15,400
  16,268
  17,179
  18,135
  19,140
Maintenance CAPEX, $m
  0
  -132
  -142
  -152
  -164
  -175
  -187
  -199
  -212
  -226
  -240
  -254
  -270
  -286
  -302
  -319
  -337
  -356
  -376
  -396
  -418
  -440
  -464
  -488
  -514
  -541
  -569
  -599
  -630
  -663
  -697
New CAPEX, $m
  -1,608
  -210
  -221
  -229
  -238
  -248
  -258
  -268
  -279
  -290
  -302
  -315
  -328
  -342
  -357
  -373
  -389
  -407
  -425
  -445
  -465
  -487
  -509
  -533
  -559
  -585
  -613
  -642
  -673
  -706
  -740
Cash from investing activities, $m
  -1,379
  -342
  -363
  -381
  -402
  -423
  -445
  -467
  -491
  -516
  -542
  -569
  -598
  -628
  -659
  -692
  -726
  -763
  -801
  -841
  -883
  -927
  -973
  -1,021
  -1,073
  -1,126
  -1,182
  -1,241
  -1,303
  -1,369
  -1,437
Free cash flow, $m
  761
  4,790
  3,158
  3,436
  3,724
  4,025
  4,338
  4,664
  5,004
  5,358
  5,728
  5,744
  6,147
  6,567
  7,007
  7,466
  7,947
  8,450
  8,976
  9,528
  10,106
  10,712
  11,348
  12,014
  12,713
  13,447
  14,217
  15,026
  15,875
  16,767
  17,703
Issuance/(repayment) of debt, $m
  -234
  1,192
  1,225
  1,273
  1,323
  1,375
  1,430
  1,487
  1,547
  1,610
  1,677
  1,747
  1,821
  1,900
  1,982
  2,069
  2,161
  2,258
  2,360
  2,468
  2,582
  2,702
  2,828
  2,961
  3,100
  3,248
  3,403
  3,566
  3,738
  3,918
  4,108
Issuance/(repurchase) of shares, $m
  49
  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  
  -308
  1,192
  1,225
  1,273
  1,323
  1,375
  1,430
  1,487
  1,547
  1,610
  1,677
  1,747
  1,821
  1,900
  1,982
  2,069
  2,161
  2,258
  2,360
  2,468
  2,582
  2,702
  2,828
  2,961
  3,100
  3,248
  3,403
  3,566
  3,738
  3,918
  4,108
Total cash flow (excl. dividends), $m
  475
  5,982
  4,383
  4,709
  5,047
  5,400
  5,768
  6,151
  6,551
  6,968
  7,405
  7,491
  7,968
  8,467
  8,989
  9,535
  10,108
  10,708
  11,337
  11,996
  12,688
  13,414
  14,175
  14,975
  15,814
  16,695
  17,620
  18,592
  19,613
  20,685
  21,811
Retained Cash Flow (-), $m
  -922
  -843
  -876
  -911
  -946
  -984
  -1,023
  -1,063
  -1,106
  -1,152
  -1,199
  -1,250
  -1,303
  -1,359
  -1,418
  -1,480
  -1,546
  -1,615
  -1,688
  -1,765
  -1,847
  -1,932
  -2,023
  -2,118
  -2,218
  -2,323
  -2,434
  -2,551
  -2,673
  -2,802
  -2,938
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
 
  5,139
  3,507
  3,798
  4,101
  4,417
  4,745
  5,087
  5,444
  5,817
  6,205
  6,242
  6,665
  7,108
  7,571
  8,055
  8,562
  9,093
  9,648
  10,231
  10,841
  11,481
  12,153
  12,857
  13,596
  14,372
  15,186
  16,041
  16,939
  17,883
  18,873
Discount rate, %
 
  6.50
  6.83
  7.17
  7.52
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
  19.01
  19.96
  20.96
  22.01
  23.11
  24.27
  25.48
  26.75
PV of cash for distribution, $m
 
  4,826
  3,073
  3,086
  3,068
  3,020
  2,942
  2,835
  2,703
  2,548
  2,374
  2,063
  1,881
  1,692
  1,500
  1,310
  1,127
  953
  792
  647
  518
  406
  312
  235
  172
  123
  86
  58
  39
  25
  15
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

Fresenius Medical Care AG & Co. KGaA, a kidney dialysis company, provides dialysis care and related services, and other health care services. It offers dialysis treatment, and related laboratory and diagnostic services through a network of outpatient dialysis clinics; materials, training, and patient support services comprising clinical monitoring, follow-up assistance, and arranging for delivery of the supplies to the patient's residence; and dialysis services under contract to hospitals in the United States for the hospitalized ESRD patients and for patients suffering from acute kidney failure. The company also develops, manufactures, and distributes dialysis products, including hemodialysis machines, peritoneal cyclers, dialyzers, peritoneal solutions, hemodialysis concentrates, solutions and granulates, bloodlines, renal pharmaceuticals, and water treatment systems for the treatment of ESRD; offers renal medications and supplies to patients at homes or to dialysis clinics; and provides vascular, cardiovascular, and endovascular specialty, as well as hospitalist and intensivist, and medical cost management services. In addition, it develops, acquires, and in-licenses renal pharmaceuticals; and offers laboratory services that include general testing, clinical anatomic pathology, and molecular testing. The company sells its products to clinics, hospitals, and specialized treatment clinics directly, as well as through local sales forces, independent distributors, dealers, and sales agents. As of December 31, 2016, it operated 3,624 dialysis clinics in approximately 45 countries worldwide. Fresenius Medical Care AG & Co. KGaA was founded in 1996 and is headquartered in Bad Homburg, Germany.

FINANCIAL RATIOS  of  Fresenius Medical Care ADR (FMS)

Valuation Ratios
P/E Ratio 12.1
Price to Sales 0.8
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 7
Price to Free Cash Flow 28.3
Growth Rates
Sales Growth Rate 7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 26.6%
Cap. Spend. - 3 Yr. Gr. Rate 5.3%
Financial Strength
Quick Ratio 1
Current Ratio 0.2
LT Debt to Equity 66.6%
Total Debt to Equity 80.4%
Interest Coverage 7
Management Effectiveness
Return On Assets 5.8%
Ret/ On Assets - 3 Yr. Avg. 5%
Return On Total Capital 6.5%
Ret/ On T. Cap. - 3 Yr. Avg. 5.9%
Return On Equity 12%
Return On Equity - 3 Yr. Avg. 11.3%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 32.3%
Gross Margin - 3 Yr. Avg. 31.9%
EBITDA Margin 19%
EBITDA Margin - 3 Yr. Avg. 17.7%
Operating Margin 14.7%
Oper. Margin - 3 Yr. Avg. 14.3%
Pre-Tax Margin 12.5%
Pre-Tax Margin - 3 Yr. Avg. 11.9%
Net Profit Margin 6.9%
Net Profit Margin - 3 Yr. Avg. 6.6%
Effective Tax Rate 30.6%
Eff/ Tax Rate - 3 Yr. Avg. 31.5%
Payout Ratio 22.3%

FMS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FMS stock intrinsic value calculation we used $17911 million for the last fiscal year's total revenue generated by Fresenius Medical Care ADR. The default revenue input number comes from 2016 income statement of Fresenius Medical Care 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 FMS stock valuation model: a) initial revenue growth rate of 7.8% 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 6.5%, whose default value for FMS is calculated based on our internal credit rating of Fresenius Medical Care 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 Fresenius Medical Care 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 FMS stock the variable cost ratio is equal to 73.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2164 million in the base year in the intrinsic value calculation for FMS 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 4.5% for Fresenius Medical Care ADR.

Corporate tax rate of 27% is the nominal tax rate for Fresenius Medical Care 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 FMS 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 FMS are equal to 15.2%.

Life of production assets of 20.7 years is the average useful life of capital assets used in Fresenius Medical Care 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 FMS is equal to 15.3%. 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 - $10809 million for Fresenius Medical Care 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 615.935 million for Fresenius Medical Care 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 Fresenius Medical Care ADR at the current share price and the inputted number of shares is $30.3 billion.


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COMPANY NEWS

▶ [$$] U.S. Charges Four With Trading Insider Tips on Health-Care Policy   [May-24-17 07:44PM  The Wall Street Journal]
▶ Fresenius beats Street 1Q forecasts   [May-03-17 05:02AM  Associated Press]
▶ [$$] Revelstoke Capital Adds Operating Partner to Team   [May-02-17 12:03PM  The Wall Street Journal]
▶ Fresenius Buys Akorn -- What Now?   [09:29AM  Motley Fool]
▶ Akorn Launches To Six-Month High On Fresenius Takeover Rumor   [Apr-07-17 04:39PM  Investor's Business Daily]
▶ Fresenius Medical Care misses 4Q revenue forecasts   [Feb-22-17 05:07PM  Associated Press]
▶ Cleveland Clinic East Kidney Center Opening Soon   [Jan-04-17 12:30PM  Business Wire]
▶ How Kellogg Company (K) Stacks Up Against Its Peers   [Dec-10-16 09:07PM  at Insider Monkey]
▶ Hedge Funds Are Selling Sempra Energy (SRE)   [Dec-08-16 08:46AM  at Insider Monkey]
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▶ OPKO Inks Win-Win Deal With Swiss Pharma   [May-09-16 09:54AM  at Forbes]
Stock chart of FMS Financial statements of FMS Annual reports of FMS
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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