Intrinsic value of General Electric - GE

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$28.28

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$28.28

 
Intrinsic value

$17.05

 
Up/down potential

-40%

 
Rating

sell

 
Value-price divergence* premium content

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*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 245.7

 

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
  3,879
  4,092
  4,335
  4,607
  4,909
  5,241
  5,602
  5,993
  6,414
  6,866
  7,349
  7,865
  8,414
  8,998
  9,617
  10,274
  10,968
  11,703
  12,479
  13,299
  14,164
  15,076
  16,037
  17,050
  18,117
  19,241
  20,423
  21,667
  22,976
Earnings before tax, $m
  9,030
  6,633
  6,829
  7,079
  7,375
  7,717
  8,106
  8,540
  9,022
  9,551
  10,129
  17,801
  18,480
  19,213
  20,001
  20,846
  21,750
  22,716
  23,746
  24,844
  26,012
  27,253
  28,571
  29,970
  31,453
  33,024
  34,688
  36,450
  38,313
  40,284
  42,366
Tax expense, $m
  -464
  1,791
  1,844
  1,911
  1,991
  2,084
  2,188
  2,306
  2,436
  2,579
  2,735
  4,806
  4,990
  5,188
  5,400
  5,628
  5,872
  6,133
  6,411
  6,708
  7,023
  7,358
  7,714
  8,092
  8,492
  8,917
  9,366
  9,841
  10,345
  10,877
  11,439
Net income, $m
  8,831
  4,842
  4,985
  5,168
  5,384
  5,634
  5,917
  6,234
  6,586
  6,972
  7,394
  12,995
  13,491
  14,026
  14,601
  15,217
  15,877
  16,582
  17,335
  18,136
  18,988
  19,895
  20,857
  21,878
  22,961
  24,108
  25,322
  26,608
  27,968
  29,407
  30,928

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
  323,502
  330,943
  339,448
  348,997
  359,577
  371,186
  383,828
  397,511
  412,254
  428,075
  445,001
  463,061
  482,291
  502,728
  524,414
  547,395
  571,722
  597,448
  624,630
  653,330
  683,614
  715,551
  749,214
  784,683
  822,039
  861,371
  902,770
  946,333
  992,164
  1,040,370
Adjusted assets (=assets-cash), $m
  317,054
  323,502
  330,943
  339,448
  348,997
  359,577
  371,186
  383,828
  397,511
  412,254
  428,075
  445,001
  463,061
  482,291
  502,728
  524,414
  547,395
  571,722
  597,448
  624,630
  653,330
  683,614
  715,551
  749,214
  784,683
  822,039
  861,371
  902,770
  946,333
  992,164
  1,040,370
Revenue / Adjusted assets
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
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
  -17,789
  -18,199
  -18,666
  -19,191
  -19,773
  -20,412
  -21,107
  -21,859
  -22,670
  -23,540
  -24,471
  -25,464
  -26,521
  -27,645
  -28,838
  -30,101
  -31,439
  -32,854
  -34,348
  -35,927
  -37,592
  -39,348
  -41,199
  -43,150
  -45,204
  -47,367
  -49,643
  -52,039
  -54,559
  -57,210
Total debt, $m
  136,211
  110,833
  116,904
  123,845
  131,636
  140,270
  149,743
  160,058
  171,224
  183,254
  196,164
  209,976
  224,713
  240,404
  257,081
  274,777
  293,530
  313,380
  334,372
  356,553
  379,972
  404,684
  430,744
  458,214
  487,156
  517,639
  549,733
  583,515
  619,063
  656,461
  695,797
Total liabilities, $m
  289,356
  263,978
  270,049
  276,990
  284,781
  293,415
  302,888
  313,203
  324,369
  336,399
  349,309
  363,121
  377,858
  393,549
  410,226
  427,922
  446,675
  466,525
  487,517
  509,698
  533,117
  557,829
  583,889
  611,359
  640,301
  670,784
  702,878
  736,660
  772,208
  809,606
  848,942
Total equity, $m
  75,827
  59,524
  60,893
  62,458
  64,215
  66,162
  68,298
  70,624
  73,142
  75,855
  78,766
  81,880
  85,203
  88,742
  92,502
  96,492
  100,721
  105,197
  109,930
  114,932
  120,213
  125,785
  131,661
  137,855
  144,382
  151,255
  158,492
  166,110
  174,125
  182,558
  191,428
Total liabilities and equity, $m
  365,183
  323,502
  330,942
  339,448
  348,996
  359,577
  371,186
  383,827
  397,511
  412,254
  428,075
  445,001
  463,061
  482,291
  502,728
  524,414
  547,396
  571,722
  597,447
  624,630
  653,330
  683,614
  715,550
  749,214
  784,683
  822,039
  861,370
  902,770
  946,333
  992,164
  1,040,370
Debt-to-equity ratio
  1.796
  1.860
  1.920
  1.980
  2.050
  2.120
  2.190
  2.270
  2.340
  2.420
  2.490
  2.560
  2.640
  2.710
  2.780
  2.850
  2.910
  2.980
  3.040
  3.100
  3.160
  3.220
  3.270
  3.320
  3.370
  3.420
  3.470
  3.510
  3.560
  3.600
  3.630
Adjusted equity ratio
  0.110
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  8,831
  4,842
  4,985
  5,168
  5,384
  5,634
  5,917
  6,234
  6,586
  6,972
  7,394
  12,995
  13,491
  14,026
  14,601
  15,217
  15,877
  16,582
  17,335
  18,136
  18,988
  19,895
  20,857
  21,878
  22,961
  24,108
  25,322
  26,608
  27,968
  29,407
  30,928
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
  14,662
  14,912
  15,204
  15,538
  15,914
  16,332
  16,792
  17,296
  17,844
  16,535
  17,175
  17,863
  18,600
  19,390
  20,232
  21,131
  22,088
  23,105
  24,186
  25,333
  26,550
  27,839
  29,203
  30,648
  32,175
  33,791
  35,498
  37,301
  39,205
Change in working capital, $m
  -9,497
  -349
  -409
  -468
  -525
  -582
  -638
  -695
  -752
  -811
  -870
  -931
  -993
  -1,057
  -1,124
  -1,193
  -1,264
  -1,338
  -1,415
  -1,495
  -1,578
  -1,665
  -1,756
  -1,851
  -1,950
  -2,054
  -2,163
  -2,277
  -2,396
  -2,520
  -2,651
Cash from operations, $m
  -244
  12,339
  15,071
  15,380
  15,729
  16,120
  16,552
  17,027
  17,545
  18,107
  18,714
  17,466
  18,168
  18,920
  19,724
  20,582
  21,496
  22,469
  23,503
  24,600
  25,765
  26,999
  28,306
  29,690
  31,154
  32,702
  34,338
  36,067
  37,893
  39,821
  41,856
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
  8,459
  10,870
  10,886
  10,939
  11,028
  11,152
  11,308
  11,497
  11,719
  11,972
  10,357
  10,676
  11,029
  11,416
  11,838
  12,296
  12,791
  13,325
  13,900
  14,516
  15,175
  15,880
  16,632
  17,433
  18,286
  19,193
  20,156
  21,179
  22,265
  23,415
Issuance/(repayment) of debt, $m
  -58,411
  5,336
  6,071
  6,940
  7,792
  8,634
  9,473
  10,315
  11,166
  12,030
  12,910
  13,812
  14,737
  15,691
  16,676
  17,696
  18,753
  19,851
  20,992
  22,181
  23,419
  24,711
  26,060
  27,469
  28,942
  30,483
  32,095
  33,782
  35,548
  37,398
  39,336
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
  5,336
  6,071
  6,940
  7,792
  8,634
  9,473
  10,315
  11,166
  12,030
  12,910
  13,812
  14,737
  15,691
  16,676
  17,696
  18,753
  19,851
  20,992
  22,181
  23,419
  24,711
  26,060
  27,469
  28,942
  30,483
  32,095
  33,782
  35,548
  37,398
  39,336
Total cash flow (excl. dividends), $m
  -32,513
  13,795
  16,941
  17,826
  18,731
  19,662
  20,625
  21,623
  22,663
  23,748
  24,882
  24,168
  25,414
  26,720
  28,092
  29,534
  31,049
  32,642
  34,318
  36,080
  37,935
  39,887
  41,940
  44,101
  46,375
  48,769
  51,287
  53,938
  56,727
  59,663
  62,751
Retained Cash Flow (-), $m
  22,446
  -1,112
  -1,369
  -1,565
  -1,757
  -1,947
  -2,136
  -2,326
  -2,518
  -2,713
  -2,911
  -3,114
  -3,323
  -3,538
  -3,760
  -3,990
  -4,229
  -4,476
  -4,734
  -5,002
  -5,281
  -5,572
  -5,876
  -6,194
  -6,526
  -6,874
  -7,237
  -7,617
  -8,016
  -8,433
  -8,870
Prev. year cash balance distribution, $m
 
  17,415
  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
 
  30,097
  15,572
  16,261
  16,974
  17,715
  18,489
  19,297
  20,145
  21,036
  21,971
  21,054
  22,090
  23,182
  24,332
  25,543
  26,820
  28,166
  29,584
  31,079
  32,654
  34,314
  36,064
  37,907
  39,849
  41,895
  44,050
  46,321
  48,712
  51,230
  53,881
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
 
  27,842
  13,227
  12,581
  11,860
  11,077
  10,246
  9,380
  8,495
  7,606
  6,727
  5,386
  4,656
  3,966
  3,326
  2,743
  2,223
  1,769
  1,380
  1,054
  788
  575
  410
  285
  193
  127
  81
  50
  30
  17
  10
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 28
Price to Sales 2
Price to Book 3.3
Price to Tangible Book
Price to Cash Flow -1013.3
Price to Free Cash Flow -33.2
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 -14.1%. 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 8688.25 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 $245.7 billion.


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COMPANY NEWS

▶ [$$] GE Chief Adds Some Caution to 2018 Profit Goal   [May-24-17 01:23PM  The Wall Street Journal]
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▶ GE signs $15B in deals with Saudi Arabia during Trump visit   [05:47AM  American City Business Journals]
▶ [$$] Saudi Arabia Remains Tough Place to Do Business, Despite U.S. Deals   [May-21-17 11:53PM  The Wall Street Journal]
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▶ Halliburton, GE Among Firms Seen Getting Saudi Energy Deals   [May-17-17 05:18PM  Investor's Business Daily]
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▶ Aramco Sees Deals Helping Sourcing Goal   [12:50AM  Bloomberg Video]
▶ Why GE Is Moving From the Connecticut Suburbs to Boston   [May-16-17 10:15PM  The Wall Street Journal]
▶ GEs Jeff Immelt makes big stock buy after shares slump   [02:55PM  American City Business Journals]
▶ [$$] Views from the top on what Temer should do   [May-15-17 06:31PM  Financial Times]
▶ GE Falls to Fresh Lows after Downgrade   [09:06AM  Investopedia]
▶ Boeing Resumes Test Flights on 737 MAX Jets   [09:05AM  24/7 Wall St.]
▶ Nasdaq Closes at 6121, Stocks Mostly Lower   [06:04PM  GuruFocus.com]
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Stock chart of GE Financial statements of GE Annual reports 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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