Intrinsic value of General Electric - GE

Previous Close

$25.10

  Intrinsic Value

$16.08

stock screener

  Rating & Target

sell

-36%

  Value-price divergence*

-44%

Previous close

$25.10

 
Intrinsic value

$16.08

 
Up/down potential

-36%

 
Rating

sell

 
Value-price divergence*

-44%

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

We calculate the intrinsic value of GE 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 221.1

 

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, %
  5.37
  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
  123,692
  126,166
  129,068
  132,385
  136,109
  140,235
  144,763
  149,693
  155,029
  160,779
  166,949
  173,550
  180,594
  188,093
  196,064
  204,521
  213,484
  222,972
  233,005
  243,606
  254,799
  266,609
  279,065
  292,194
  306,026
  320,595
  335,935
  352,080
  369,070
  386,944
  405,744
Variable operating expenses, $m
 
  107,731
  110,047
  112,694
  115,666
  118,959
  122,572
  126,507
  130,766
  135,354
  140,278
  138,502
  144,124
  150,109
  156,469
  163,219
  170,372
  177,943
  185,950
  194,410
  203,343
  212,769
  222,709
  233,186
  244,225
  255,852
  268,094
  280,979
  294,538
  308,802
  323,806
Fixed operating expenses, $m
 
  8,110
  8,313
  8,520
  8,733
  8,952
  9,175
  9,405
  9,640
  9,881
  10,128
  10,381
  10,641
  10,907
  11,179
  11,459
  11,745
  12,039
  12,340
  12,649
  12,965
  13,289
  13,621
  13,962
  14,311
  14,668
  15,035
  15,411
  15,796
  16,191
  16,596
Total operating expenses, $m
  113,427
  115,841
  118,360
  121,214
  124,399
  127,911
  131,747
  135,912
  140,406
  145,235
  150,406
  148,883
  154,765
  161,016
  167,648
  174,678
  182,117
  189,982
  198,290
  207,059
  216,308
  226,058
  236,330
  247,148
  258,536
  270,520
  283,129
  296,390
  310,334
  324,993
  340,402
Operating income, $m
  10,265
  10,325
  10,708
  11,170
  11,709
  12,324
  13,015
  13,781
  14,624
  15,544
  16,543
  24,667
  25,830
  27,078
  28,415
  29,843
  31,367
  32,989
  34,714
  36,547
  38,491
  40,552
  42,735
  45,046
  47,490
  50,075
  52,806
  55,690
  58,736
  61,951
  65,343
EBITDA, $m
  15,262
  19,943
  20,385
  20,915
  21,530
  22,229
  23,012
  23,879
  24,830
  25,868
  26,992
  28,207
  29,514
  30,915
  32,415
  34,016
  35,722
  37,538
  39,468
  41,516
  43,689
  45,991
  48,428
  51,007
  53,733
  56,615
  59,659
  62,873
  66,265
  69,844
  73,620
Interest expense (income), $m
  5,779
  3,692
  3,888
  4,100
  4,344
  4,616
  4,919
  5,251
  5,612
  6,003
  6,425
  6,877
  7,361
  7,877
  8,427
  9,011
  9,631
  10,288
  10,983
  11,719
  12,496
  13,316
  14,182
  15,095
  16,057
  17,071
  18,139
  19,263
  20,447
  21,692
  23,002
Earnings before tax, $m
  9,030
  6,633
  6,821
  7,070
  7,366
  7,708
  8,096
  8,530
  9,012
  9,541
  10,118
  17,790
  18,469
  19,201
  19,988
  20,832
  21,736
  22,701
  23,731
  24,828
  25,995
  27,236
  28,553
  29,951
  31,433
  33,003
  34,667
  36,427
  38,289
  40,259
  42,340
Tax expense, $m
  -464
  1,791
  1,842
  1,909
  1,989
  2,081
  2,186
  2,303
  2,433
  2,576
  2,732
  4,803
  4,987
  5,184
  5,397
  5,625
  5,869
  6,129
  6,407
  6,704
  7,019
  7,354
  7,709
  8,087
  8,487
  8,911
  9,360
  9,835
  10,338
  10,870
  11,432
Net income, $m
  8,831
  4,842
  4,979
  5,161
  5,377
  5,627
  5,910
  6,227
  6,579
  6,965
  7,386
  12,986
  13,482
  14,017
  14,591
  15,208
  15,867
  16,572
  17,324
  18,124
  18,976
  19,882
  20,844
  21,864
  22,946
  24,093
  25,307
  26,592
  27,951
  29,389
  30,908

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  48,129
  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
  365,183
  330,277
  337,873
  346,557
  356,305
  367,108
  378,960
  391,866
  405,836
  420,887
  437,040
  454,320
  472,759
  492,391
  513,256
  535,396
  558,859
  583,695
  609,960
  637,711
  667,013
  697,930
  730,536
  764,904
  801,116
  839,255
  879,410
  921,676
  966,152
  1,012,942
  1,062,158
Adjusted assets (=assets-cash), $m
  317,054
  330,277
  337,873
  346,557
  356,305
  367,108
  378,960
  391,866
  405,836
  420,887
  437,040
  454,320
  472,759
  492,391
  513,256
  535,396
  558,859
  583,695
  609,960
  637,711
  667,013
  697,930
  730,536
  764,904
  801,116
  839,255
  879,410
  921,676
  966,152
  1,012,942
  1,062,158
Revenue / Adjusted assets
  0.390
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
Average production assets, $m
  69,423
  70,779
  72,407
  74,268
  76,357
  78,672
  81,212
  83,978
  86,972
  90,197
  93,658
  97,362
  101,313
  105,520
  109,992
  114,737
  119,765
  125,087
  130,716
  136,663
  142,942
  149,568
  156,555
  163,921
  171,681
  179,854
  188,459
  197,517
  207,048
  217,076
  227,623
Working capital, $m
  0
  -12,617
  -12,907
  -13,238
  -13,611
  -14,024
  -14,476
  -14,969
  -15,503
  -16,078
  -16,695
  -17,355
  -18,059
  -18,809
  -19,606
  -20,452
  -21,348
  -22,297
  -23,300
  -24,361
  -25,480
  -26,661
  -27,906
  -29,219
  -30,603
  -32,060
  -33,593
  -35,208
  -36,907
  -38,694
  -40,574
Total debt, $m
  136,211
  111,077
  117,154
  124,100
  131,899
  140,541
  150,023
  160,348
  171,524
  183,565
  196,487
  210,311
  225,062
  240,768
  257,460
  275,172
  293,942
  313,811
  334,823
  357,024
  380,465
  405,199
  431,284
  458,779
  487,748
  518,259
  550,383
  584,196
  619,776
  657,209
  696,582
Total liabilities, $m
  289,356
  264,222
  270,299
  277,245
  285,044
  293,686
  303,168
  313,493
  324,669
  336,710
  349,632
  363,456
  378,207
  393,913
  410,605
  428,317
  447,087
  466,956
  487,968
  510,169
  533,610
  558,344
  584,429
  611,924
  640,893
  671,404
  703,528
  737,341
  772,921
  810,354
  849,727
Total equity, $m
  75,827
  66,055
  67,575
  69,311
  71,261
  73,422
  75,792
  78,373
  81,167
  84,177
  87,408
  90,864
  94,552
  98,478
  102,651
  107,079
  111,772
  116,739
  121,992
  127,542
  133,403
  139,586
  146,107
  152,981
  160,223
  167,851
  175,882
  184,335
  193,230
  202,588
  212,432
Total liabilities and equity, $m
  365,183
  330,277
  337,874
  346,556
  356,305
  367,108
  378,960
  391,866
  405,836
  420,887
  437,040
  454,320
  472,759
  492,391
  513,256
  535,396
  558,859
  583,695
  609,960
  637,711
  667,013
  697,930
  730,536
  764,905
  801,116
  839,255
  879,410
  921,676
  966,151
  1,012,942
  1,062,159
Debt-to-equity ratio
  1.796
  1.680
  1.730
  1.790
  1.850
  1.910
  1.980
  2.050
  2.110
  2.180
  2.250
  2.310
  2.380
  2.440
  2.510
  2.570
  2.630
  2.690
  2.740
  2.800
  2.850
  2.900
  2.950
  3.000
  3.040
  3.090
  3.130
  3.170
  3.210
  3.240
  3.280
Adjusted equity ratio
  0.110
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  8,831
  4,842
  4,979
  5,161
  5,377
  5,627
  5,910
  6,227
  6,579
  6,965
  7,386
  12,986
  13,482
  14,017
  14,591
  15,208
  15,867
  16,572
  17,324
  18,124
  18,976
  19,882
  20,844
  21,864
  22,946
  24,093
  25,307
  26,592
  27,951
  29,389
  30,908
Depreciation, amort., depletion, $m
  4,997
  9,618
  9,677
  9,744
  9,820
  9,905
  9,997
  10,098
  10,206
  10,324
  10,450
  3,540
  3,684
  3,837
  4,000
  4,172
  4,355
  4,549
  4,753
  4,970
  5,198
  5,439
  5,693
  5,961
  6,243
  6,540
  6,853
  7,182
  7,529
  7,894
  8,277
Funds from operations, $m
  -9,741
  14,459
  14,656
  14,906
  15,198
  15,531
  15,907
  16,325
  16,785
  17,288
  17,836
  16,527
  17,166
  17,854
  18,591
  19,380
  20,222
  21,121
  22,077
  23,094
  24,174
  25,321
  26,537
  27,825
  29,189
  30,633
  32,160
  33,774
  35,480
  37,282
  39,186
Change in working capital, $m
  -9,497
  -247
  -290
  -332
  -372
  -413
  -453
  -493
  -534
  -575
  -617
  -660
  -704
  -750
  -797
  -846
  -896
  -949
  -1,003
  -1,060
  -1,119
  -1,181
  -1,246
  -1,313
  -1,383
  -1,457
  -1,534
  -1,615
  -1,699
  -1,787
  -1,880
Cash from operations, $m
  -244
  14,707
  14,946
  15,237
  15,570
  15,944
  16,360
  16,818
  17,319
  17,863
  18,453
  17,187
  17,871
  18,604
  19,388
  20,226
  21,119
  22,069
  23,080
  24,154
  25,294
  26,502
  27,782
  29,138
  30,572
  32,090
  33,694
  35,389
  37,179
  39,070
  41,066
Maintenance CAPEX, $m
  0
  -2,524
  -2,574
  -2,633
  -2,701
  -2,777
  -2,861
  -2,953
  -3,054
  -3,163
  -3,280
  -3,406
  -3,540
  -3,684
  -3,837
  -4,000
  -4,172
  -4,355
  -4,549
  -4,753
  -4,970
  -5,198
  -5,439
  -5,693
  -5,961
  -6,243
  -6,540
  -6,853
  -7,182
  -7,529
  -7,894
New CAPEX, $m
  -7,199
  -1,356
  -1,628
  -1,861
  -2,089
  -2,315
  -2,540
  -2,766
  -2,994
  -3,225
  -3,462
  -3,703
  -3,951
  -4,207
  -4,471
  -4,745
  -5,028
  -5,322
  -5,629
  -5,947
  -6,279
  -6,626
  -6,987
  -7,365
  -7,760
  -8,173
  -8,605
  -9,058
  -9,531
  -10,027
  -10,547
Cash from investing activities, $m
  49,202
  -3,880
  -4,202
  -4,494
  -4,790
  -5,092
  -5,401
  -5,719
  -6,048
  -6,388
  -6,742
  -7,109
  -7,491
  -7,891
  -8,308
  -8,745
  -9,200
  -9,677
  -10,178
  -10,700
  -11,249
  -11,824
  -12,426
  -13,058
  -13,721
  -14,416
  -15,145
  -15,911
  -16,713
  -17,556
  -18,441
Free cash flow, $m
  48,958
  10,826
  10,744
  10,743
  10,780
  10,853
  10,959
  11,099
  11,271
  11,475
  11,711
  10,078
  10,379
  10,712
  11,080
  11,481
  11,918
  12,392
  12,903
  13,454
  14,045
  14,678
  15,356
  16,080
  16,851
  17,673
  18,548
  19,478
  20,465
  21,513
  22,625
Issuance/(repayment) of debt, $m
  -58,411
  5,580
  6,077
  6,947
  7,799
  8,642
  9,482
  10,325
  11,176
  12,041
  12,922
  13,824
  14,751
  15,706
  16,692
  17,712
  18,770
  19,869
  21,012
  22,201
  23,441
  24,734
  26,084
  27,495
  28,969
  30,511
  32,124
  33,813
  35,581
  37,433
  39,373
Issuance/(repurchase) of shares, $m
  -21,429
  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  
  -80,325
  5,580
  6,077
  6,947
  7,799
  8,642
  9,482
  10,325
  11,176
  12,041
  12,922
  13,824
  14,751
  15,706
  16,692
  17,712
  18,770
  19,869
  21,012
  22,201
  23,441
  24,734
  26,084
  27,495
  28,969
  30,511
  32,124
  33,813
  35,581
  37,433
  39,373
Total cash flow (excl. dividends), $m
  -32,513
  16,406
  16,821
  17,690
  18,579
  19,494
  20,441
  21,424
  22,447
  23,516
  24,633
  23,902
  25,130
  26,418
  27,771
  29,193
  30,688
  32,261
  33,915
  35,655
  37,486
  39,413
  41,440
  43,574
  45,821
  48,184
  50,672
  53,291
  56,046
  58,946
  61,998
Retained Cash Flow (-), $m
  22,446
  -1,289
  -1,519
  -1,737
  -1,950
  -2,160
  -2,370
  -2,581
  -2,794
  -3,010
  -3,231
  -3,456
  -3,688
  -3,926
  -4,173
  -4,428
  -4,693
  -4,967
  -5,253
  -5,550
  -5,860
  -6,184
  -6,521
  -6,874
  -7,242
  -7,628
  -8,031
  -8,453
  -8,895
  -9,358
  -9,843
Prev. year cash balance distribution, $m
 
  11,060
  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
 
  26,178
  15,302
  15,953
  16,629
  17,334
  18,070
  18,842
  19,653
  20,506
  21,403
  20,446
  21,442
  22,492
  23,598
  24,765
  25,996
  27,293
  28,662
  30,104
  31,625
  33,229
  34,919
  36,701
  38,578
  40,557
  42,641
  44,837
  47,151
  49,588
  52,154
Discount rate, %
 
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.85
  11.40
  11.97
  12.57
  13.19
  13.85
  14.55
  15.27
  16.04
  16.84
  17.68
  18.57
  19.49
  20.47
  21.49
  22.57
  23.69
  24.88
  26.12
  27.43
  28.80
  30.24
  31.75
  33.34
PV of cash for distribution, $m
 
  24,216
  12,997
  12,343
  11,619
  10,839
  10,014
  9,159
  8,288
  7,414
  6,553
  5,231
  4,520
  3,848
  3,226
  2,660
  2,155
  1,714
  1,337
  1,021
  763
  557
  397
  276
  186
  123
  78
  48
  29
  17
  9
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 Electric Company operates as an infrastructure and technology company worldwide. Its Power segment offers gas and steam power systems; maintenance, service, and upgrade solutions; distributed power gas engines; water treatment, wastewater treatment, and process system solutions; and nuclear reactors, fuels, and support services. The company’s Renewable Energy segment provides wind turbine platforms, and hardware and software; onshore and offshore wind turbines; and solutions, products, and services to hydropower industry. Its Oil & Gas segment offers surface and subsea drilling and production systems, and equipment for floating production platforms; and compressors, turbines, turboexpanders, high pressure reactors, industrial power generation, and auxiliary equipment. The company’s Aviation segment provides designs and produces commercial and military aircraft engines, integrated digital components, electric power, and mechanical aircraft systems; and aftermarket services. Its Healthcare segment offers diagnostic imaging and clinical systems; products for drug discovery, biopharmaceutical manufacturing, and cellular technologies; and medical technologies, software, analytics, cloud solutions, and implementation services. The company’s Transportation segment provides freight and passenger locomotives, rail, and support advisory services; and parts, integrated software solutions and data analytics, software-enabled solutions, mining equipment and services, and marine diesel and stationary power diesel engines and motors, as well as overhaul, repair and upgrade, and wreck repair services. Its Energy Connections & Lighting segment offers industrial, grid, power conversion, automation and control, lighting, and current solutions. The company’s Capital segment provides energy financial services; and commercial aircraft leasing, financing, and consulting services. General Electric Company was founded in 1892 and is headquartered in Boston, Massachusetts.

FINANCIAL RATIOS  of  General Electric (GE)

Valuation Ratios
P/E Ratio 24.8
Price to Sales 1.8
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow -899.3
Price to Free Cash Flow -29.5
Growth Rates
Sales Growth Rate 5.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -1.5%
Cap. Spend. - 3 Yr. Gr. Rate 1.3%
Financial Strength
Quick Ratio 2
Current Ratio NaN
LT Debt to Equity 139.1%
Total Debt to Equity 179.6%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. 2.1%
Return On Total Capital 3.5%
Ret/ On T. Cap. - 3 Yr. Avg. 1.7%
Return On Equity 10.1%
Return On Equity - 3 Yr. Avg. 5.5%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 26.2%
Gross Margin - 3 Yr. Avg. 27%
EBITDA Margin 16%
EBITDA Margin - 3 Yr. Avg. 18.6%
Operating Margin 8.3%
Oper. Margin - 3 Yr. Avg. 8.6%
Pre-Tax Margin 7.3%
Pre-Tax Margin - 3 Yr. Avg. 7.7%
Net Profit Margin 7.1%
Net Profit Margin - 3 Yr. Avg. 5%
Effective Tax Rate -5.1%
Eff/ Tax Rate - 3 Yr. Avg. 27.2%
Payout Ratio 99.7%

GE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GE stock intrinsic value calculation we used $123692 million for the last fiscal year's total revenue generated by General Electric. The default revenue input number comes from 2016 income statement of General Electric. 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 GE 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 8.1%, whose default value for GE is calculated based on our internal credit rating of General Electric, 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 Electric.
    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 GE stock the variable cost ratio is equal to 85.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $7912 million in the base year in the intrinsic value calculation for GE 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 Electric.

Corporate tax rate of 27% is the nominal tax rate for General Electric. 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 GE 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 GE are equal to 56.1%.

Life of production assets of 27.5 years is the average useful life of capital assets used in General Electric 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 GE is equal to -10%. 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 - $75827 million for General Electric - 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 8807.88 million for General Electric 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 Electric at the current share price and the inputted number of shares is $221.1 billion.

Articles on GE

Sell GE before it is really too late

GE share price is just a reflection of the company’s former CEO pathetic performance. In substance, things are not going to change under his successor. It is all about the culture of “appearance first” and self-praise.  [June 16, 2017]  read article

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COMPANY NEWS

▶ Home Depot transforming store rooftops into 'mini solar farms'   [10:05AM  American City Business Journals]
▶ Disarray engulfs White House advisory panels as dozens of CEOs exit   [08:25AM  American City Business Journals]
▶ Warren Buffetts Had It With These Stocks!   [06:01AM  Motley Fool]
▶ GEs Immelt: I quit Trump council before president disbanded it   [Aug-16-17 04:35PM  American City Business Journals]
▶ [$$] More CEOs Quit Trump Council   [02:31PM  The Wall Street Journal]
▶ GE Shares, Down 20%, Put Drag on Dow   [06:30AM  24/7 Wall St.]
▶ [$$] Corrections & Amplifications   [12:26AM  The Wall Street Journal]
▶ How Warren Buffett Made $1.5 Billion on GE   [12:25AM  The Wall Street Journal]
▶ [$$] Berkshire Made $1.5 Billion on GE   [12:10AM  The Wall Street Journal]
▶ Warren Buffett Bailed on GE Stock, Should You Too?   [Aug-15-17 10:40PM  TheStreet.com]
▶ [$$] Corrections & Amplifications   [09:56PM  The Wall Street Journal]
▶ How Warren Buffett Made $1.5 Billion on GE   [03:06PM  The Wall Street Journal]
▶ Southlake-based Sabre rounds out C-suite with GE exec   [01:00PM  American City Business Journals]
▶ Stocks Edge Up At Open; Retail Sales, N.Y. Manufacturing Surge   [09:37AM  Investor's Business Daily]
▶ Warren Buffett sells all $315M worth of shares in General Electric   [05:30AM  American City Business Journals]
▶ [$$] Berkshire Hathaway Exits GE, Buys Into Synchrony Financial   [Aug-14-17 06:40PM  The Wall Street Journal]
▶ GEs Immelt will stay on Trump advisory council, unlike Merck CEO   [03:04PM  American City Business Journals]
▶ Weekly CEO Buys Highlights   [12:06PM  GuruFocus.com]
▶ 1 Company That Could Eat ExOne's Lunch   [10:14AM  Motley Fool]
▶ Losses Continue for US Market Indexes   [11:34AM  GuruFocus.com]
▶ With stock buy, GE's new CEO puts millions behind a turnaround   [Aug-10-17 10:30PM  American City Business Journals]
▶ [$$] GEs New CEO Bets $2.7 Million He Can Revive the Stock   [10:29PM  The Wall Street Journal]
▶ [$$] GE's New CEO Bets $2.7 Million He Can Revive the Stock   [05:23PM  The Wall Street Journal]
▶ 52-Week Company Lows   [12:29PM  GuruFocus.com]
▶ Walsh: GE's CEO gave complete full support about commitment to Boston   [10:48AM  American City Business Journals]
▶ [$$] New GE Chief Delays Part of Boston HQ   [12:18AM  The Wall Street Journal]
▶ Shares of these 3 American icons are bargains   [Aug-09-17 05:29PM  MarketWatch]
▶ [$$] New GE Chief Delays Part of Boston HQ   [04:21PM  The Wall Street Journal]
▶ GE again postpones expected completion of new Boston HQ campus   [02:50PM  American City Business Journals]
Stock chart of GE Financial statements of GE
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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