Intrinsic value of Fresenius Medical Care ADR - FMS

Previous Close

$46.50

  Intrinsic Value

$113.14

stock screener

  Rating & Target

str. buy

+143%

  Value-price divergence*

+57%

Previous close

$46.50

 
Intrinsic value

$113.14

 
Up/down potential

+143%

 
Rating

str. buy

 
Value-price divergence*

+57%

*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 28.6

 

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
  16.10
  14.99
  13.99
  13.09
  12.28
  11.55
  10.90
  10.31
  9.78
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
Revenue, $m
  17,911
  20,795
  23,912
  27,257
  30,826
  34,612
  38,611
  42,819
  47,234
  51,852
  56,675
  61,702
  66,936
  72,382
  78,043
  83,927
  90,041
  96,395
  103,000
  109,866
  117,006
  124,436
  132,169
  140,222
  148,613
  157,359
  166,481
  175,999
  185,935
  196,312
  207,154
Variable operating expenses, $m
 
  15,064
  17,117
  19,321
  21,672
  24,166
  26,800
  29,572
  32,480
  35,522
  38,698
  40,643
  44,091
  47,678
  51,407
  55,283
  59,310
  63,496
  67,846
  72,369
  77,072
  81,966
  87,060
  92,364
  97,891
  103,652
  109,661
  115,931
  122,475
  129,311
  136,452
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
  17,282
  19,391
  21,651
  24,061
  26,614
  29,310
  32,144
  35,117
  38,225
  41,468
  43,482
  47,001
  50,661
  54,465
  58,417
  62,522
  66,789
  71,221
  75,828
  80,618
  85,601
  90,785
  96,183
  101,805
  107,664
  113,773
  120,146
  126,795
  133,739
  140,991
Operating income, $m
  2,638
  3,513
  4,521
  5,606
  6,766
  7,998
  9,302
  10,675
  12,118
  13,628
  15,206
  18,220
  19,935
  21,721
  23,578
  25,510
  27,519
  29,607
  31,779
  34,038
  36,388
  38,835
  41,384
  44,039
  46,807
  49,695
  52,708
  55,853
  59,139
  62,573
  66,162
EBITDA, $m
  3,414
  5,032
  6,063
  7,173
  8,359
  9,619
  10,952
  12,356
  13,831
  15,375
  16,989
  18,673
  20,427
  22,252
  24,151
  26,126
  28,180
  30,315
  32,535
  34,844
  37,247
  39,749
  42,354
  45,069
  47,899
  50,850
  53,930
  57,146
  60,504
  64,014
  67,683
Interest expense (income), $m
  387
  345
  455
  573
  700
  836
  980
  1,132
  1,291
  1,459
  1,634
  1,817
  2,008
  2,207
  2,414
  2,629
  2,852
  3,084
  3,325
  3,576
  3,837
  4,108
  4,390
  4,684
  4,989
  5,308
  5,640
  5,986
  6,348
  6,725
  7,119
Earnings before tax, $m
  2,232
  3,167
  4,066
  5,032
  6,065
  7,162
  8,322
  9,544
  10,826
  12,169
  13,572
  16,402
  17,927
  19,514
  21,165
  22,881
  24,667
  26,523
  28,453
  30,461
  32,551
  34,727
  36,994
  39,355
  41,818
  44,387
  47,068
  49,867
  52,791
  55,848
  59,043
Tax expense, $m
  683
  855
  1,098
  1,359
  1,638
  1,934
  2,247
  2,577
  2,923
  3,286
  3,664
  4,429
  4,840
  5,269
  5,714
  6,178
  6,660
  7,161
  7,682
  8,225
  8,789
  9,376
  9,988
  10,626
  11,291
  11,984
  12,708
  13,464
  14,254
  15,079
  15,942
Net income, $m
  1,243
  2,312
  2,968
  3,674
  4,428
  5,228
  6,075
  6,967
  7,903
  8,883
  9,908
  11,974
  13,087
  14,245
  15,450
  16,703
  18,007
  19,362
  20,771
  22,237
  23,763
  25,351
  27,005
  28,729
  30,527
  32,402
  34,359
  36,403
  38,538
  40,769
  43,102

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
  30,094
  34,605
  39,446
  44,610
  50,090
  55,877
  61,967
  68,356
  75,040
  82,019
  89,294
  96,869
  104,749
  112,942
  121,457
  130,306
  139,501
  149,059
  158,995
  169,329
  180,081
  191,272
  202,926
  215,069
  227,727
  240,928
  254,702
  269,081
  284,098
  299,788
Adjusted assets (=assets-cash), $m
  25,907
  30,094
  34,605
  39,446
  44,610
  50,090
  55,877
  61,967
  68,356
  75,040
  82,019
  89,294
  96,869
  104,749
  112,942
  121,457
  130,306
  139,501
  149,059
  158,995
  169,329
  180,081
  191,272
  202,926
  215,069
  227,727
  240,928
  254,702
  269,081
  284,098
  299,788
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
  3,161
  3,635
  4,143
  4,686
  5,261
  5,869
  6,509
  7,180
  7,882
  8,615
  9,379
  10,174
  11,002
  11,863
  12,757
  13,686
  14,652
  15,656
  16,700
  17,785
  18,914
  20,090
  21,314
  22,589
  23,919
  25,305
  26,752
  28,262
  29,839
  31,487
Working capital, $m
  2,277
  3,182
  3,659
  4,170
  4,716
  5,296
  5,908
  6,551
  7,227
  7,933
  8,671
  9,440
  10,241
  11,074
  11,941
  12,841
  13,776
  14,749
  15,759
  16,809
  17,902
  19,039
  20,222
  21,454
  22,738
  24,076
  25,472
  26,928
  28,448
  30,036
  31,695
Total debt, $m
  8,694
  10,114
  12,743
  15,566
  18,577
  21,771
  25,146
  28,696
  32,420
  36,317
  40,386
  44,627
  49,044
  53,638
  58,414
  63,379
  68,537
  73,898
  79,470
  85,263
  91,288
  97,556
  104,080
  110,875
  117,954
  125,334
  133,030
  141,060
  149,443
  158,198
  167,346
Total liabilities, $m
  16,125
  17,545
  20,174
  22,997
  26,008
  29,202
  32,577
  36,127
  39,851
  43,748
  47,817
  52,058
  56,475
  61,069
  65,845
  70,810
  75,968
  81,329
  86,901
  92,694
  98,719
  104,987
  111,511
  118,306
  125,385
  132,765
  140,461
  148,491
  156,874
  165,629
  174,777
Total equity, $m
  10,809
  12,549
  14,430
  16,449
  18,603
  20,887
  23,301
  25,840
  28,504
  31,292
  34,202
  37,236
  40,394
  43,680
  47,097
  50,648
  54,338
  58,172
  62,158
  66,301
  70,610
  75,094
  79,760
  84,620
  89,684
  94,962
  100,467
  106,211
  112,207
  118,469
  125,012
Total liabilities and equity, $m
  26,934
  30,094
  34,604
  39,446
  44,611
  50,089
  55,878
  61,967
  68,355
  75,040
  82,019
  89,294
  96,869
  104,749
  112,942
  121,458
  130,306
  139,501
  149,059
  158,995
  169,329
  180,081
  191,271
  202,926
  215,069
  227,727
  240,928
  254,702
  269,081
  284,098
  299,789
Debt-to-equity ratio
  0.804
  0.810
  0.880
  0.950
  1.000
  1.040
  1.080
  1.110
  1.140
  1.160
  1.180
  1.200
  1.210
  1.230
  1.240
  1.250
  1.260
  1.270
  1.280
  1.290
  1.290
  1.300
  1.300
  1.310
  1.320
  1.320
  1.320
  1.330
  1.330
  1.340
  1.340
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
  2,312
  2,968
  3,674
  4,428
  5,228
  6,075
  6,967
  7,903
  8,883
  9,908
  11,974
  13,087
  14,245
  15,450
  16,703
  18,007
  19,362
  20,771
  22,237
  23,763
  25,351
  27,005
  28,729
  30,527
  32,402
  34,359
  36,403
  38,538
  40,769
  43,102
Depreciation, amort., depletion, $m
  776
  1,519
  1,542
  1,567
  1,593
  1,621
  1,650
  1,681
  1,713
  1,747
  1,783
  453
  492
  531
  573
  616
  661
  708
  756
  807
  859
  914
  971
  1,030
  1,091
  1,155
  1,222
  1,292
  1,365
  1,442
  1,521
Funds from operations, $m
  1,991
  3,832
  4,510
  5,240
  6,020
  6,849
  7,725
  8,648
  9,617
  10,631
  11,690
  12,427
  13,578
  14,777
  16,023
  17,320
  18,668
  20,069
  21,527
  23,044
  24,622
  26,265
  27,976
  29,759
  31,618
  33,558
  35,582
  37,695
  39,903
  42,210
  44,623
Change in working capital, $m
  -149
  441
  477
  512
  546
  579
  612
  644
  675
  707
  738
  769
  801
  833
  866
  900
  936
  972
  1,010
  1,050
  1,093
  1,137
  1,183
  1,232
  1,284
  1,338
  1,396
  1,456
  1,520
  1,588
  1,659
Cash from operations, $m
  2,140
  3,390
  4,033
  4,729
  5,474
  6,270
  7,113
  8,004
  8,941
  9,924
  10,953
  11,658
  12,777
  13,943
  15,157
  16,420
  17,732
  19,097
  20,517
  21,993
  23,529
  25,128
  26,793
  28,527
  30,335
  32,220
  34,186
  36,239
  38,383
  40,623
  42,964
Maintenance CAPEX, $m
  0
  -132
  -153
  -176
  -200
  -226
  -254
  -284
  -314
  -347
  -381
  -416
  -453
  -492
  -531
  -573
  -616
  -661
  -708
  -756
  -807
  -859
  -914
  -971
  -1,030
  -1,091
  -1,155
  -1,222
  -1,292
  -1,365
  -1,442
New CAPEX, $m
  -1,608
  -436
  -474
  -509
  -542
  -576
  -608
  -640
  -671
  -702
  -733
  -764
  -796
  -828
  -861
  -894
  -929
  -966
  -1,004
  -1,044
  -1,085
  -1,129
  -1,175
  -1,224
  -1,275
  -1,329
  -1,387
  -1,447
  -1,510
  -1,577
  -1,648
Cash from investing activities, $m
  -1,379
  -568
  -627
  -685
  -742
  -802
  -862
  -924
  -985
  -1,049
  -1,114
  -1,180
  -1,249
  -1,320
  -1,392
  -1,467
  -1,545
  -1,627
  -1,712
  -1,800
  -1,892
  -1,988
  -2,089
  -2,195
  -2,305
  -2,420
  -2,542
  -2,669
  -2,802
  -2,942
  -3,090
Free cash flow, $m
  761
  2,823
  3,407
  4,044
  4,732
  5,468
  6,251
  7,081
  7,956
  8,875
  9,839
  10,477
  11,529
  12,624
  13,765
  14,952
  16,187
  17,470
  18,805
  20,193
  21,637
  23,140
  24,704
  26,332
  28,030
  29,799
  31,644
  33,570
  35,580
  37,680
  39,875
Issuance/(repayment) of debt, $m
  -234
  2,447
  2,630
  2,823
  3,011
  3,194
  3,374
  3,551
  3,724
  3,897
  4,069
  4,242
  4,416
  4,594
  4,776
  4,964
  5,159
  5,361
  5,572
  5,793
  6,025
  6,268
  6,524
  6,795
  7,079
  7,379
  7,696
  8,030
  8,383
  8,755
  9,147
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
  2,447
  2,630
  2,823
  3,011
  3,194
  3,374
  3,551
  3,724
  3,897
  4,069
  4,242
  4,416
  4,594
  4,776
  4,964
  5,159
  5,361
  5,572
  5,793
  6,025
  6,268
  6,524
  6,795
  7,079
  7,379
  7,696
  8,030
  8,383
  8,755
  9,147
Total cash flow (excl. dividends), $m
  475
  5,269
  6,037
  6,867
  7,743
  8,662
  9,626
  10,631
  11,680
  12,772
  13,908
  14,719
  15,945
  17,218
  18,542
  19,916
  21,345
  22,831
  24,377
  25,986
  27,662
  29,408
  31,228
  33,127
  35,109
  37,178
  39,340
  41,600
  43,963
  46,435
  49,022
Retained Cash Flow (-), $m
  -922
  -1,740
  -1,881
  -2,019
  -2,153
  -2,285
  -2,413
  -2,540
  -2,664
  -2,787
  -2,910
  -3,034
  -3,159
  -3,286
  -3,416
  -3,551
  -3,690
  -3,835
  -3,985
  -4,143
  -4,309
  -4,483
  -4,667
  -4,860
  -5,063
  -5,278
  -5,505
  -5,744
  -5,996
  -6,262
  -6,543
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
 
  3,529
  4,156
  4,848
  5,589
  6,378
  7,212
  8,092
  9,016
  9,985
  10,997
  11,685
  12,786
  13,932
  15,125
  16,366
  17,655
  18,997
  20,392
  21,843
  23,352
  24,924
  26,561
  28,267
  30,045
  31,900
  33,836
  35,856
  37,967
  40,173
  42,479
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
 
  3,314
  3,642
  3,939
  4,181
  4,360
  4,471
  4,510
  4,477
  4,374
  4,208
  3,862
  3,609
  3,317
  2,997
  2,662
  2,324
  1,991
  1,674
  1,380
  1,115
  882
  682
  516
  381
  274
  192
  131
  87
  56
  35
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 11.5
Price to Sales 0.8
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 6.7
Price to Free Cash Flow 26.8
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 16.1% 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 $28.6 billion.

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COMPANY NEWS

▶ [$$] Fresenius Unit Buys NxStage Medical in $2 Billion Dialysis Deal   [Aug-08-17 12:37AM  The Wall Street Journal]
▶ Buyout Bid Overshadows NxStage Medical's Losses   [Aug-07-17 05:31PM  Motley Fool]
▶ Fresenius to buy Lawrence-based NxStage Medical for $2B   [03:11PM  American City Business Journals]
▶ Fresenius Pays an Arm, and Maybe a Leg   [06:29AM  Bloomberg]
▶ [$$] 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]
▶ Is Humana Inc (HUM) A Good Stock To Buy Right Now?   [Dec-01-16 09:22AM  at Insider Monkey]
Stock chart of FMS Financial statements 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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