Intrinsic value of General Dynamics - GD

Previous Close

$200.61

  Intrinsic Value

$201.80

stock screener

  Rating & Target

hold

+1%

  Value-price divergence*

-7%

Previous close

$200.61

 
Intrinsic value

$201.80

 
Up/down potential

+1%

 
Rating

hold

 
Value-price divergence*

-7%

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

We calculate the intrinsic value of GD 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 60.5

 

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, %
  -0.37
  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
  31,353
  31,980
  32,716
  33,556
  34,500
  35,546
  36,694
  37,944
  39,296
  40,754
  42,318
  43,991
  45,776
  47,677
  49,698
  51,841
  54,113
  56,518
  59,061
  61,748
  64,585
  67,579
  70,736
  74,064
  77,570
  81,263
  85,151
  89,244
  93,551
  98,081
  102,847
Variable operating expenses, $m
 
  27,704
  28,315
  29,013
  29,797
  30,666
  31,619
  32,657
  33,780
  34,990
  36,289
  36,534
  38,017
  39,596
  41,274
  43,054
  44,941
  46,938
  49,050
  51,282
  53,638
  56,124
  58,746
  61,510
  64,422
  67,489
  70,718
  74,117
  77,693
  81,456
  85,414
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
  27,044
  27,704
  28,315
  29,013
  29,797
  30,666
  31,619
  32,657
  33,780
  34,990
  36,289
  36,534
  38,017
  39,596
  41,274
  43,054
  44,941
  46,938
  49,050
  51,282
  53,638
  56,124
  58,746
  61,510
  64,422
  67,489
  70,718
  74,117
  77,693
  81,456
  85,414
Operating income, $m
  4,309
  4,276
  4,401
  4,543
  4,703
  4,881
  5,075
  5,287
  5,516
  5,763
  6,029
  7,457
  7,759
  8,081
  8,424
  8,787
  9,172
  9,580
  10,011
  10,467
  10,947
  11,455
  11,990
  12,554
  13,148
  13,774
  14,433
  15,127
  15,857
  16,625
  17,433
EBITDA, $m
  4,763
  5,504
  5,630
  5,775
  5,938
  6,118
  6,315
  6,530
  6,763
  7,014
  7,283
  7,571
  7,878
  8,205
  8,553
  8,922
  9,313
  9,727
  10,165
  10,627
  11,115
  11,631
  12,174
  12,747
  13,350
  13,986
  14,655
  15,359
  16,100
  16,880
  17,700
Interest expense (income), $m
  83
  105
  119
  137
  158
  181
  207
  235
  265
  298
  334
  373
  414
  457
  504
  553
  606
  662
  720
  783
  849
  918
  992
  1,069
  1,150
  1,236
  1,327
  1,422
  1,522
  1,628
  1,739
Earnings before tax, $m
  4,231
  4,172
  4,282
  4,406
  4,546
  4,700
  4,869
  5,052
  5,251
  5,465
  5,694
  7,084
  7,346
  7,624
  7,920
  8,234
  8,567
  8,918
  9,291
  9,684
  10,099
  10,537
  10,999
  11,485
  11,998
  12,538
  13,107
  13,705
  14,335
  14,997
  15,694
Tax expense, $m
  1,169
  1,126
  1,156
  1,190
  1,227
  1,269
  1,315
  1,364
  1,418
  1,476
  1,537
  1,913
  1,983
  2,059
  2,138
  2,223
  2,313
  2,408
  2,508
  2,615
  2,727
  2,845
  2,970
  3,101
  3,239
  3,385
  3,539
  3,700
  3,870
  4,049
  4,237
Net income, $m
  2,955
  3,045
  3,126
  3,217
  3,318
  3,431
  3,554
  3,688
  3,833
  3,989
  4,157
  5,171
  5,362
  5,566
  5,782
  6,011
  6,254
  6,510
  6,782
  7,069
  7,372
  7,692
  8,029
  8,384
  8,759
  9,153
  9,568
  10,005
  10,464
  10,948
  11,457

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,334
  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
  33,172
  31,445
  32,169
  32,995
  33,924
  34,952
  36,081
  37,309
  38,639
  40,072
  41,610
  43,256
  45,011
  46,880
  48,867
  50,975
  53,209
  55,573
  58,074
  60,716
  63,506
  66,450
  69,554
  72,826
  76,274
  79,905
  83,728
  87,752
  91,987
  96,442
  101,127
Adjusted assets (=assets-cash), $m
  30,838
  31,445
  32,169
  32,995
  33,924
  34,952
  36,081
  37,309
  38,639
  40,072
  41,610
  43,256
  45,011
  46,880
  48,867
  50,975
  53,209
  55,573
  58,074
  60,716
  63,506
  66,450
  69,554
  72,826
  76,274
  79,905
  83,728
  87,752
  91,987
  96,442
  101,127
Revenue / Adjusted assets
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
Average production assets, $m
  2,454
  2,494
  2,552
  2,617
  2,691
  2,773
  2,862
  2,960
  3,065
  3,179
  3,301
  3,431
  3,571
  3,719
  3,876
  4,044
  4,221
  4,408
  4,607
  4,816
  5,038
  5,271
  5,517
  5,777
  6,050
  6,339
  6,642
  6,961
  7,297
  7,650
  8,022
Working capital, $m
  3,084
  1,695
  1,734
  1,778
  1,829
  1,884
  1,945
  2,011
  2,083
  2,160
  2,243
  2,332
  2,426
  2,527
  2,634
  2,748
  2,868
  2,995
  3,130
  3,273
  3,423
  3,582
  3,749
  3,925
  4,111
  4,307
  4,513
  4,730
  4,958
  5,198
  5,451
Total debt, $m
  3,888
  3,406
  3,921
  4,510
  5,171
  5,903
  6,706
  7,581
  8,528
  9,549
  10,644
  11,815
  13,065
  14,396
  15,810
  17,311
  18,902
  20,585
  22,366
  24,247
  26,233
  28,329
  30,539
  32,869
  35,324
  37,909
  40,631
  43,497
  46,512
  49,683
  53,020
Total liabilities, $m
  22,871
  22,389
  22,904
  23,493
  24,154
  24,886
  25,689
  26,564
  27,511
  28,532
  29,627
  30,798
  32,048
  33,379
  34,793
  36,294
  37,885
  39,568
  41,349
  43,230
  45,216
  47,312
  49,522
  51,852
  54,307
  56,892
  59,614
  62,480
  65,495
  68,666
  72,003
Total equity, $m
  10,301
  9,056
  9,265
  9,503
  9,770
  10,066
  10,391
  10,745
  11,128
  11,541
  11,984
  12,458
  12,963
  13,502
  14,074
  14,681
  15,324
  16,005
  16,725
  17,486
  18,290
  19,137
  20,032
  20,974
  21,967
  23,013
  24,114
  25,273
  26,492
  27,775
  29,125
Total liabilities and equity, $m
  33,172
  31,445
  32,169
  32,996
  33,924
  34,952
  36,080
  37,309
  38,639
  40,073
  41,611
  43,256
  45,011
  46,881
  48,867
  50,975
  53,209
  55,573
  58,074
  60,716
  63,506
  66,449
  69,554
  72,826
  76,274
  79,905
  83,728
  87,753
  91,987
  96,441
  101,128
Debt-to-equity ratio
  0.377
  0.380
  0.420
  0.470
  0.530
  0.590
  0.650
  0.710
  0.770
  0.830
  0.890
  0.950
  1.010
  1.070
  1.120
  1.180
  1.230
  1.290
  1.340
  1.390
  1.430
  1.480
  1.520
  1.570
  1.610
  1.650
  1.680
  1.720
  1.760
  1.790
  1.820
Adjusted equity ratio
  0.258
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,955
  3,045
  3,126
  3,217
  3,318
  3,431
  3,554
  3,688
  3,833
  3,989
  4,157
  5,171
  5,362
  5,566
  5,782
  6,011
  6,254
  6,510
  6,782
  7,069
  7,372
  7,692
  8,029
  8,384
  8,759
  9,153
  9,568
  10,005
  10,464
  10,948
  11,457
Depreciation, amort., depletion, $m
  454
  1,228
  1,230
  1,232
  1,234
  1,237
  1,240
  1,243
  1,247
  1,250
  1,255
  114
  119
  124
  129
  135
  141
  147
  154
  161
  168
  176
  184
  193
  202
  211
  221
  232
  243
  255
  267
Funds from operations, $m
  350
  4,273
  4,355
  4,448
  4,552
  4,668
  4,794
  4,931
  5,080
  5,240
  5,411
  5,286
  5,481
  5,690
  5,911
  6,146
  6,394
  6,657
  6,936
  7,230
  7,540
  7,868
  8,213
  8,577
  8,960
  9,364
  9,789
  10,237
  10,708
  11,203
  11,724
Change in working capital, $m
  -1,794
  33
  39
  45
  50
  55
  61
  66
  72
  77
  83
  89
  95
  101
  107
  114
  120
  127
  135
  142
  150
  159
  167
  176
  186
  196
  206
  217
  228
  240
  253
Cash from operations, $m
  2,144
  4,240
  4,316
  4,404
  4,502
  4,612
  4,733
  4,865
  5,008
  5,163
  5,328
  5,197
  5,387
  5,589
  5,804
  6,032
  6,274
  6,530
  6,801
  7,087
  7,390
  7,709
  8,046
  8,400
  8,774
  9,168
  9,583
  10,020
  10,479
  10,963
  11,471
Maintenance CAPEX, $m
  0
  -82
  -83
  -85
  -87
  -90
  -92
  -95
  -99
  -102
  -106
  -110
  -114
  -119
  -124
  -129
  -135
  -141
  -147
  -154
  -161
  -168
  -176
  -184
  -193
  -202
  -211
  -221
  -232
  -243
  -255
New CAPEX, $m
  -392
  -41
  -57
  -66
  -74
  -82
  -90
  -97
  -106
  -114
  -122
  -131
  -139
  -148
  -158
  -167
  -177
  -188
  -198
  -210
  -221
  -234
  -246
  -260
  -273
  -288
  -303
  -319
  -336
  -353
  -372
Cash from investing activities, $m
  -426
  -123
  -140
  -151
  -161
  -172
  -182
  -192
  -205
  -216
  -228
  -241
  -253
  -267
  -282
  -296
  -312
  -329
  -345
  -364
  -382
  -402
  -422
  -444
  -466
  -490
  -514
  -540
  -568
  -596
  -627
Free cash flow, $m
  1,718
  4,117
  4,176
  4,253
  4,342
  4,441
  4,551
  4,672
  4,804
  4,947
  5,101
  4,957
  5,133
  5,322
  5,522
  5,736
  5,962
  6,202
  6,456
  6,724
  7,008
  7,307
  7,624
  7,957
  8,308
  8,679
  9,069
  9,479
  9,911
  10,366
  10,845
Issuance/(repayment) of debt, $m
  492
  418
  515
  589
  661
  732
  803
  875
  947
  1,020
  1,095
  1,171
  1,250
  1,331
  1,414
  1,501
  1,591
  1,684
  1,780
  1,881
  1,986
  2,096
  2,210
  2,330
  2,455
  2,585
  2,722
  2,865
  3,015
  3,172
  3,336
Issuance/(repurchase) of shares, $m
  -1,704
  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  
  -1,258
  418
  515
  589
  661
  732
  803
  875
  947
  1,020
  1,095
  1,171
  1,250
  1,331
  1,414
  1,501
  1,591
  1,684
  1,780
  1,881
  1,986
  2,096
  2,210
  2,330
  2,455
  2,585
  2,722
  2,865
  3,015
  3,172
  3,336
Total cash flow (excl. dividends), $m
  460
  4,535
  4,691
  4,842
  5,002
  5,173
  5,355
  5,547
  5,751
  5,967
  6,195
  6,128
  6,383
  6,652
  6,937
  7,236
  7,552
  7,885
  8,236
  8,605
  8,994
  9,403
  9,834
  10,287
  10,763
  11,264
  11,791
  12,344
  12,926
  13,538
  14,181
Retained Cash Flow (-), $m
  437
  -189
  -208
  -238
  -267
  -296
  -325
  -354
  -383
  -413
  -443
  -474
  -506
  -538
  -572
  -607
  -643
  -681
  -720
  -761
  -803
  -848
  -894
  -942
  -993
  -1,046
  -1,101
  -1,159
  -1,220
  -1,283
  -1,350
Prev. year cash balance distribution, $m
 
  1,434
  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
 
  5,780
  4,482
  4,604
  4,735
  4,877
  5,030
  5,193
  5,368
  5,554
  5,753
  5,654
  5,877
  6,114
  6,365
  6,629
  6,909
  7,204
  7,516
  7,844
  8,191
  8,556
  8,940
  9,344
  9,770
  10,218
  10,690
  11,185
  11,707
  12,255
  12,831
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
 
  5,542
  4,103
  4,006
  3,899
  3,780
  3,650
  3,508
  3,355
  3,191
  3,016
  2,685
  2,508
  2,325
  2,137
  1,946
  1,756
  1,568
  1,384
  1,208
  1,041
  885
  742
  612
  498
  398
  312
  240
  181
  134
  97
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

General Dynamics Corporation operates as an aerospace and defense company worldwide. It operates through four business groups: Aerospace; Combat Systems; Information Systems and Technology; and Marine Systems. The Aerospace group designs, develops, manufactures, and outfits business-jet aircraft; provides aircraft services, such as maintenance, repair, aircraft management, charter, fixed-base operational, and staffing services; and performs aircraft completion services for other original equipment manufacturers. The Combat Systems group is involved in the design, development, production, modernization, and sustainment of combat vehicles, weapons systems, and munitions. This group offers wheeled combat and tactical vehicles; main battle tanks and tracked combat vehicles; armaments; and maintenance and logistics support and sustainment services. The Information Systems and Technology group provides technologies, products, and services that support a range of military, federal/civilian, state, local, and commercial customers. This group offers information technology solutions and mission support services; communication, command-and-control, and computer mission systems; and imagery, signals, and multi-intelligence systems for customers in the defense sector, intelligence and homeland security communities, and the United States allies. The Marine Systems group designs, constructs, and repairs surface ships and submarines for the United States Navy and Jones Act ships for commercial customers. This group offers nuclear-powered surface combatants, auxiliary and combat-logistics ships, and commercial product carriers and containerships; and provides design and engineering support services, as well as maintenance, modernization, and lifecycle support services. General Dynamics Corporation was founded in 1899 and is based in Falls Church, Virginia.

FINANCIAL RATIOS  of  General Dynamics (GD)

Valuation Ratios
P/E Ratio 20.5
Price to Sales 1.9
Price to Book 5.9
Price to Tangible Book
Price to Cash Flow 28.2
Price to Free Cash Flow 34.5
Growth Rates
Sales Growth Rate -0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -31.1%
Cap. Spend. - 3 Yr. Gr. Rate -2.1%
Financial Strength
Quick Ratio 3
Current Ratio 0.1
LT Debt to Equity 29%
Total Debt to Equity 37.7%
Interest Coverage 52
Management Effectiveness
Return On Assets 9.3%
Ret/ On Assets - 3 Yr. Avg. 8.5%
Return On Total Capital 20.9%
Ret/ On T. Cap. - 3 Yr. Avg. 18.5%
Return On Equity 28.1%
Return On Equity - 3 Yr. Avg. 24.5%
Asset Turnover 1
Profitability Ratios
Gross Margin 19.9%
Gross Margin - 3 Yr. Avg. 19.5%
EBITDA Margin 15.2%
EBITDA Margin - 3 Yr. Avg. 14.8%
Operating Margin 13.7%
Oper. Margin - 3 Yr. Avg. 13.2%
Pre-Tax Margin 13.5%
Pre-Tax Margin - 3 Yr. Avg. 13%
Net Profit Margin 9.4%
Net Profit Margin - 3 Yr. Avg. 9%
Effective Tax Rate 27.6%
Eff/ Tax Rate - 3 Yr. Avg. 28.3%
Payout Ratio 30.8%

GD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GD stock intrinsic value calculation we used $31353 million for the last fiscal year's total revenue generated by General Dynamics. The default revenue input number comes from 2016 income statement of General Dynamics. 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 GD 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 GD is calculated based on our internal credit rating of General Dynamics, 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 General Dynamics.
    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 GD stock the variable cost ratio is equal to 86.7%.

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 GD 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 3.5% for General Dynamics.

Corporate tax rate of 27% is the nominal tax rate for General Dynamics. 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 GD 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 GD are equal to 7.8%.

Life of production assets of 30.6 years is the average useful life of capital assets used in General Dynamics 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 GD is equal to 5.3%. 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 - $10301 million for General Dynamics - 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 301.803 million for General Dynamics 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 General Dynamics at the current share price and the inputted number of shares is $60.5 billion.

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COMPANY NEWS

▶ Warships and weapon control: Two firms score contracts worth $42.2M   [Aug-15-17 02:25PM  American City Business Journals]
▶ [$$] General Dynamics Benefits From Trump Saber-Rattling   [Aug-11-17 11:36PM  Barrons.com]
▶ General Dynamics Board Declares Dividend   [01:53PM  PR Newswire]
▶ Margins Slip but Cash Surges at Raytheon   [08:41AM  Motley Fool]
▶ General Dynamics meets 2Q profit forecasts   [09:58PM  Associated Press]
▶ 2 Defense Giants Boost Views After Strong Earnings   [04:25PM  Investor's Business Daily]
▶ General Dynamics meets 2Q profit forecasts   [07:38AM  Associated Press]
▶ Gulfstream Delivers 550th G550   [Jul-18-17 10:30AM  PR Newswire]
▶ The Latest: Keel laying marks attack submarine construction   [Jul-08-17 02:26PM  Associated Press]
▶ These 4 Defense Stocks Are In Buy Range After North Korea ICBM Test   [Jul-05-17 04:13PM  Investor's Business Daily]
▶ North Korea defense sector impact   [02:15PM  CNBC Videos]
  [Jul-02-17 08:08PM  Bloomberg Video]
▶ Georgia Tech lands Boeing manufacturing R&D center   [Jun-27-17 04:40PM  American City Business Journals]
▶ Better Buy: General Dynamics Corporation vs. Raytheon   [Jun-21-17 05:02PM  Motley Fool]
▶ Made in America Is a Matter of National Security   [Jun-15-17 07:10AM  Bloomberg Video]
▶ Lead By Boeing, Defense Stocks Could Be Headed Higher   [Jun-13-17 02:29PM  TheStreet.com]
▶ How Boeing Stock Reacted to the Qatar Crisis   [09:06AM  Market Realist]
▶ General Dynamics Board Declares Dividend   [02:30PM  PR Newswire]
Stock chart of GD Financial statements of GD
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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