Intrinsic value of Gilead Sciences - GILD

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$65.93

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$65.93

 
Intrinsic value

$172.80

 
Up/down potential

+162%

 
Rating

str. buy

 
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 GILD 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 86.7

 

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, %
  -6.89
  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
  30,390
  30,998
  31,711
  32,526
  33,441
  34,454
  35,567
  36,778
  38,089
  39,502
  41,018
  42,640
  44,370
  46,213
  48,171
  50,249
  52,451
  54,782
  57,247
  59,852
  62,602
  65,504
  68,564
  71,789
  75,188
  78,767
  82,536
  86,503
  90,677
  95,069
  99,688
Variable operating expenses, $m
 
  9,917
  10,142
  10,400
  10,689
  11,010
  11,361
  11,744
  12,159
  12,605
  13,085
  13,480
  14,027
  14,610
  15,229
  15,886
  16,582
  17,319
  18,098
  18,922
  19,791
  20,709
  21,676
  22,696
  23,770
  24,902
  26,093
  27,347
  28,667
  30,055
  31,516
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
  12,757
  9,917
  10,142
  10,400
  10,689
  11,010
  11,361
  11,744
  12,159
  12,605
  13,085
  13,480
  14,027
  14,610
  15,229
  15,886
  16,582
  17,319
  18,098
  18,922
  19,791
  20,709
  21,676
  22,696
  23,770
  24,902
  26,093
  27,347
  28,667
  30,055
  31,516
Operating income, $m
  17,633
  21,081
  21,568
  22,126
  22,751
  23,445
  24,205
  25,034
  25,930
  26,896
  27,933
  29,159
  30,343
  31,603
  32,942
  34,363
  35,869
  37,463
  39,149
  40,930
  42,811
  44,795
  46,888
  49,094
  51,418
  53,866
  56,443
  59,156
  62,010
  65,013
  68,172
EBITDA, $m
  18,791
  22,279
  22,791
  23,377
  24,035
  24,763
  25,563
  26,433
  27,376
  28,391
  29,481
  30,646
  31,890
  33,214
  34,622
  36,115
  37,698
  39,373
  41,145
  43,017
  44,994
  47,079
  49,278
  51,597
  54,039
  56,612
  59,321
  62,172
  65,172
  68,328
  71,648
Interest expense (income), $m
  885
  975
  1,003
  1,036
  1,074
  1,116
  1,163
  1,215
  1,271
  1,332
  1,397
  1,468
  1,543
  1,623
  1,709
  1,799
  1,896
  1,998
  2,106
  2,220
  2,341
  2,469
  2,603
  2,745
  2,895
  3,052
  3,218
  3,393
  3,577
  3,770
  3,974
Earnings before tax, $m
  17,097
  20,106
  20,565
  21,090
  21,678
  22,328
  23,042
  23,819
  24,659
  25,565
  26,536
  27,692
  28,800
  29,980
  31,234
  32,564
  33,973
  35,465
  37,043
  38,710
  40,470
  42,326
  44,285
  46,349
  48,523
  50,813
  53,225
  55,763
  58,433
  61,243
  64,198
Tax expense, $m
  3,609
  5,429
  5,553
  5,694
  5,853
  6,029
  6,221
  6,431
  6,658
  6,902
  7,165
  7,477
  7,776
  8,095
  8,433
  8,792
  9,173
  9,576
  10,002
  10,452
  10,927
  11,428
  11,957
  12,514
  13,101
  13,720
  14,371
  15,056
  15,777
  16,536
  17,333
Net income, $m
  13,501
  14,677
  15,013
  15,395
  15,825
  16,300
  16,821
  17,388
  18,001
  18,662
  19,371
  20,215
  21,024
  21,885
  22,801
  23,772
  24,801
  25,890
  27,041
  28,258
  29,543
  30,898
  32,328
  33,834
  35,422
  37,094
  38,854
  40,707
  42,656
  44,707
  46,865

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  11,976
  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
  56,977
  45,923
  46,979
  48,186
  49,542
  51,044
  52,692
  54,486
  56,429
  58,521
  60,767
  63,170
  65,734
  68,463
  71,365
  74,443
  77,705
  81,159
  84,811
  88,669
  92,743
  97,042
  101,576
  106,354
  111,389
  116,692
  122,276
  128,152
  134,336
  140,842
  147,686
Adjusted assets (=assets-cash), $m
  45,001
  45,923
  46,979
  48,186
  49,542
  51,044
  52,692
  54,486
  56,429
  58,521
  60,767
  63,170
  65,734
  68,463
  71,365
  74,443
  77,705
  81,159
  84,811
  88,669
  92,743
  97,042
  101,576
  106,354
  111,389
  116,692
  122,276
  128,152
  134,336
  140,842
  147,686
Revenue / Adjusted assets
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
  0.675
Average production assets, $m
  12,180
  12,430
  12,716
  13,043
  13,410
  13,816
  14,262
  14,748
  15,274
  15,840
  16,448
  17,099
  17,792
  18,531
  19,317
  20,150
  21,033
  21,968
  22,956
  24,001
  25,103
  26,267
  27,494
  28,788
  30,150
  31,586
  33,097
  34,688
  36,362
  38,123
  39,975
Working capital, $m
  11,226
  -775
  -793
  -813
  -836
  -861
  -889
  -919
  -952
  -988
  -1,025
  -1,066
  -1,109
  -1,155
  -1,204
  -1,256
  -1,311
  -1,370
  -1,431
  -1,496
  -1,565
  -1,638
  -1,714
  -1,795
  -1,880
  -1,969
  -2,063
  -2,163
  -2,267
  -2,377
  -2,492
Total debt, $m
  26,346
  27,107
  28,000
  29,022
  30,168
  31,439
  32,833
  34,351
  35,995
  37,765
  39,665
  41,698
  43,867
  46,176
  48,630
  51,235
  53,995
  56,916
  60,006
  63,270
  66,717
  70,354
  74,189
  78,232
  82,491
  86,978
  91,701
  96,673
  101,905
  107,409
  113,198
Total liabilities, $m
  38,090
  38,851
  39,744
  40,766
  41,912
  43,183
  44,577
  46,095
  47,739
  49,509
  51,409
  53,442
  55,611
  57,920
  60,374
  62,979
  65,739
  68,660
  71,750
  75,014
  78,461
  82,098
  85,933
  89,976
  94,235
  98,722
  103,445
  108,417
  113,649
  119,153
  124,942
Total equity, $m
  18,887
  7,072
  7,235
  7,421
  7,629
  7,861
  8,115
  8,391
  8,690
  9,012
  9,358
  9,728
  10,123
  10,543
  10,990
  11,464
  11,967
  12,498
  13,061
  13,655
  14,282
  14,945
  15,643
  16,379
  17,154
  17,971
  18,830
  19,735
  20,688
  21,690
  22,744
Total liabilities and equity, $m
  56,977
  45,923
  46,979
  48,187
  49,541
  51,044
  52,692
  54,486
  56,429
  58,521
  60,767
  63,170
  65,734
  68,463
  71,364
  74,443
  77,706
  81,158
  84,811
  88,669
  92,743
  97,043
  101,576
  106,355
  111,389
  116,693
  122,275
  128,152
  134,337
  140,843
  147,686
Debt-to-equity ratio
  1.395
  3.830
  3.870
  3.910
  3.950
  4.000
  4.050
  4.090
  4.140
  4.190
  4.240
  4.290
  4.330
  4.380
  4.420
  4.470
  4.510
  4.550
  4.590
  4.630
  4.670
  4.710
  4.740
  4.780
  4.810
  4.840
  4.870
  4.900
  4.930
  4.950
  4.980
Adjusted equity ratio
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13,501
  14,677
  15,013
  15,395
  15,825
  16,300
  16,821
  17,388
  18,001
  18,662
  19,371
  20,215
  21,024
  21,885
  22,801
  23,772
  24,801
  25,890
  27,041
  28,258
  29,543
  30,898
  32,328
  33,834
  35,422
  37,094
  38,854
  40,707
  42,656
  44,707
  46,865
Depreciation, amort., depletion, $m
  1,158
  1,198
  1,223
  1,251
  1,283
  1,319
  1,357
  1,400
  1,445
  1,495
  1,547
  1,487
  1,547
  1,611
  1,680
  1,752
  1,829
  1,910
  1,996
  2,087
  2,183
  2,284
  2,391
  2,503
  2,622
  2,747
  2,878
  3,016
  3,162
  3,315
  3,476
Funds from operations, $m
  18,031
  15,875
  16,236
  16,647
  17,108
  17,618
  18,178
  18,787
  19,447
  20,157
  20,919
  21,702
  22,571
  23,497
  24,480
  25,524
  26,630
  27,800
  29,038
  30,345
  31,726
  33,182
  34,719
  36,338
  38,044
  39,840
  41,732
  43,723
  45,818
  48,022
  50,341
Change in working capital, $m
  1,362
  -15
  -18
  -20
  -23
  -25
  -28
  -30
  -33
  -35
  -38
  -41
  -43
  -46
  -49
  -52
  -55
  -58
  -62
  -65
  -69
  -73
  -77
  -81
  -85
  -89
  -94
  -99
  -104
  -110
  -115
Cash from operations, $m
  16,669
  15,547
  16,254
  16,667
  17,131
  17,644
  18,206
  18,818
  19,480
  20,192
  20,957
  21,742
  22,615
  23,543
  24,529
  25,576
  26,685
  27,858
  29,099
  30,410
  31,794
  33,255
  34,795
  36,418
  38,129
  39,930
  41,826
  43,822
  45,922
  48,132
  50,456
Maintenance CAPEX, $m
  0
  -1,059
  -1,081
  -1,106
  -1,134
  -1,166
  -1,201
  -1,240
  -1,282
  -1,328
  -1,377
  -1,430
  -1,487
  -1,547
  -1,611
  -1,680
  -1,752
  -1,829
  -1,910
  -1,996
  -2,087
  -2,183
  -2,284
  -2,391
  -2,503
  -2,622
  -2,747
  -2,878
  -3,016
  -3,162
  -3,315
New CAPEX, $m
  -748
  -251
  -286
  -327
  -367
  -407
  -446
  -486
  -526
  -566
  -608
  -650
  -694
  -739
  -785
  -833
  -883
  -935
  -988
  -1,044
  -1,103
  -1,164
  -1,227
  -1,293
  -1,363
  -1,435
  -1,511
  -1,591
  -1,674
  -1,761
  -1,852
Cash from investing activities, $m
  -11,985
  -1,310
  -1,367
  -1,433
  -1,501
  -1,573
  -1,647
  -1,726
  -1,808
  -1,894
  -1,985
  -2,080
  -2,181
  -2,286
  -2,396
  -2,513
  -2,635
  -2,764
  -2,898
  -3,040
  -3,190
  -3,347
  -3,511
  -3,684
  -3,866
  -4,057
  -4,258
  -4,469
  -4,690
  -4,923
  -5,167
Free cash flow, $m
  4,684
  14,237
  14,887
  15,235
  15,630
  16,071
  16,559
  17,092
  17,671
  18,298
  18,971
  19,662
  20,434
  21,257
  22,133
  23,063
  24,049
  25,094
  26,200
  27,370
  28,605
  29,908
  31,284
  32,734
  34,263
  35,873
  37,568
  39,354
  41,232
  43,209
  45,289
Issuance/(repayment) of debt, $m
  4,268
  761
  894
  1,021
  1,147
  1,271
  1,394
  1,518
  1,643
  1,770
  1,900
  2,033
  2,169
  2,309
  2,454
  2,604
  2,760
  2,921
  3,089
  3,264
  3,447
  3,637
  3,835
  4,043
  4,260
  4,486
  4,723
  4,972
  5,232
  5,504
  5,789
Issuance/(repurchase) of shares, $m
  -10,793
  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  
  -6,892
  761
  894
  1,021
  1,147
  1,271
  1,394
  1,518
  1,643
  1,770
  1,900
  2,033
  2,169
  2,309
  2,454
  2,604
  2,760
  2,921
  3,089
  3,264
  3,447
  3,637
  3,835
  4,043
  4,260
  4,486
  4,723
  4,972
  5,232
  5,504
  5,789
Total cash flow (excl. dividends), $m
  -2,167
  14,998
  15,780
  16,256
  16,776
  17,342
  17,953
  18,610
  19,315
  20,068
  20,871
  21,694
  22,603
  23,566
  24,587
  25,667
  26,809
  28,016
  29,290
  30,634
  32,051
  33,545
  35,119
  36,777
  38,522
  40,359
  42,292
  44,325
  46,464
  48,713
  51,078
Retained Cash Flow (-), $m
  -353
  -161
  -163
  -186
  -209
  -231
  -254
  -276
  -299
  -322
  -346
  -370
  -395
  -420
  -447
  -474
  -502
  -532
  -562
  -594
  -627
  -662
  -698
  -736
  -775
  -817
  -860
  -905
  -952
  -1,002
  -1,054
Prev. year cash balance distribution, $m
 
  11,976
  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
 
  26,813
  15,618
  16,070
  16,568
  17,111
  17,699
  18,334
  19,016
  19,746
  20,525
  21,324
  22,208
  23,146
  24,140
  25,193
  26,307
  27,484
  28,728
  30,040
  31,424
  32,883
  34,421
  36,041
  37,747
  39,542
  41,432
  43,420
  45,512
  47,711
  50,024
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
 
  25,708
  14,297
  13,985
  13,642
  13,263
  12,845
  12,386
  11,885
  11,343
  10,761
  10,127
  9,477
  8,800
  8,104
  7,396
  6,685
  5,980
  5,290
  4,625
  3,993
  3,401
  2,856
  2,362
  1,923
  1,538
  1,209
  932
  704
  521
  377
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

Gilead Sciences, Inc., a research-based biopharmaceutical company, discovers, develops, and commercializes medicines in areas of unmet medical needs in Europe, North America, Asia, South America, Africa, Australia, India, and the Middle East. The company’s products include Descovy, Odefsey, Genvoya, Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost, and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Vemlidy, Epclusa, Harvoni, Sovaldi, Viread, and Hepsera products for the treatment of liver diseases. It also offers Zydelig, a PI3K delta inhibitor, in combination with rituximab, for the treatment of certain blood cancers; Letairis, an endothelin receptor antagonist for the treatment of pulmonary arterial hypertension; Ranexa, a tablet used for the treatment of chronic angina; Lexiscan/Rapiscan injection for use as a pharmacologic stress agent in radionuclide myocardial perfusion imaging; Cayston, an inhaled antibiotic for the treatment of respiratory systems in cystic fibrosis patients; and Tamiflu, an oral antiviral capsule for the treatment and prevention of influenza A and B. In addition, the company provides other products, such as AmBisome, an antifungal agent to treat serious invasive fungal infections; and Macugen, an anti-angiogenic oligonucleotide to treat neovascular age-related macular degeneration. Further, it has product candidates in various stages of development for the treatment of HIV/AIDS and liver diseases, such as hepatitis C virus and hepatitis B virus; hematology/oncology; cardiovascular; and inflammation/respiratory diseases. The company markets its products through its commercial teams and/or in conjunction with third-party distributors and corporate partners. Gilead Sciences, Inc. has collaboration agreements with Bristol-Myers Squibb Company, Janssen R&D Ireland, Japan Tobacco Inc., and Galapagos NV. The company was founded in 1987 and is headquartered in Foster City, California.

FINANCIAL RATIOS  of  Gilead Sciences (GILD)

Valuation Ratios
P/E Ratio 6.4
Price to Sales 2.8
Price to Book 4.6
Price to Tangible Book
Price to Cash Flow 5.2
Price to Free Cash Flow 5.4
Growth Rates
Sales Growth Rate -6.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0.1%
Cap. Spend. - 3 Yr. Gr. Rate 31.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 139.5%
Total Debt to Equity 139.5%
Interest Coverage 20
Management Effectiveness
Return On Assets 26.1%
Ret/ On Assets - 3 Yr. Avg. 37.4%
Return On Total Capital 31.5%
Ret/ On T. Cap. - 3 Yr. Avg. 45.7%
Return On Equity 72.2%
Return On Equity - 3 Yr. Avg. 89.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 86%
Gross Margin - 3 Yr. Avg. 86.2%
EBITDA Margin 63%
EBITDA Margin - 3 Yr. Avg. 66.5%
Operating Margin 58%
Oper. Margin - 3 Yr. Avg. 62.4%
Pre-Tax Margin 56.3%
Pre-Tax Margin - 3 Yr. Avg. 60.8%
Net Profit Margin 44.4%
Net Profit Margin - 3 Yr. Avg. 49.5%
Effective Tax Rate 21.1%
Eff/ Tax Rate - 3 Yr. Avg. 18.8%
Payout Ratio 18.2%

GILD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GILD stock intrinsic value calculation we used $30390 million for the last fiscal year's total revenue generated by Gilead Sciences. The default revenue input number comes from 2016 income statement of Gilead Sciences. 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 GILD 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 GILD is calculated based on our internal credit rating of Gilead Sciences, 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 Gilead Sciences.
    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 GILD stock the variable cost ratio is equal to 32%.

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 GILD 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 3.7% for Gilead Sciences.

Corporate tax rate of 27% is the nominal tax rate for Gilead Sciences. 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 GILD 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 GILD are equal to 40.1%.

Life of production assets of 11.5 years is the average useful life of capital assets used in Gilead Sciences 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 GILD is equal to -2.5%. 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 - $18887 million for Gilead Sciences - 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 1314.78 million for Gilead Sciences 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 Gilead Sciences at the current share price and the inputted number of shares is $86.7 billion.


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Stock chart of GILD Financial statements of GILD
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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