Intrinsic value of Alphabet Cl A - GOOGL

Previous Close

$1,095.50

  Intrinsic Value

$1,028

stock screener

  Rating & Target

hold

-6%

Previous close

$1,095.50

 
Intrinsic value

$1,028

 
Up/down potential

-6%

 
Rating

hold

We calculate the intrinsic value of GOOGL 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  20.38
  23.70
  21.83
  20.15
  18.63
  17.27
  16.04
  14.94
  13.94
  13.05
  12.24
  11.52
  10.87
  10.28
  9.75
  9.28
  8.85
  8.47
  8.12
  7.81
  7.53
  7.27
  7.05
  6.84
  6.66
  6.49
  6.34
  6.21
  6.09
  5.98
  5.88
Revenue, $m
  90,272
  111,666
  136,043
  163,452
  193,907
  227,393
  263,871
  303,288
  345,579
  390,676
  438,514
  489,032
  542,181
  597,925
  656,242
  717,128
  780,595
  846,674
  915,412
  986,877
  1,061,150
  1,138,332
  1,218,541
  1,301,907
  1,388,580
  1,478,722
  1,572,509
  1,670,134
  1,771,802
  1,877,732
  1,988,157
Variable operating expenses, $m
 
  79,451
  96,436
  115,533
  136,753
  160,084
  185,501
  212,965
  242,432
  273,853
  307,185
  340,737
  377,769
  416,609
  457,242
  499,664
  543,886
  589,926
  637,820
  687,613
  739,364
  793,141
  849,027
  907,114
  967,503
  1,030,310
  1,095,657
  1,163,678
  1,234,516
  1,308,323
  1,385,263
Fixed operating expenses, $m
 
  2,116
  2,168
  2,223
  2,278
  2,335
  2,394
  2,453
  2,515
  2,578
  2,642
  2,708
  2,776
  2,845
  2,916
  2,989
  3,064
  3,141
  3,219
  3,300
  3,382
  3,467
  3,553
  3,642
  3,733
  3,827
  3,922
  4,020
  4,121
  4,224
  4,329
Total operating expenses, $m
  66,556
  81,567
  98,604
  117,756
  139,031
  162,419
  187,895
  215,418
  244,947
  276,431
  309,827
  343,445
  380,545
  419,454
  460,158
  502,653
  546,950
  593,067
  641,039
  690,913
  742,746
  796,608
  852,580
  910,756
  971,236
  1,034,137
  1,099,579
  1,167,698
  1,238,637
  1,312,547
  1,389,592
Operating income, $m
  23,716
  30,100
  37,439
  45,696
  54,876
  64,973
  75,977
  87,870
  100,633
  114,245
  128,687
  145,587
  161,637
  178,471
  196,084
  214,475
  233,646
  253,607
  274,373
  295,963
  318,404
  341,724
  365,960
  391,152
  417,344
  444,585
  472,930
  502,436
  533,165
  565,185
  598,565
EBITDA, $m
  29,860
  36,931
  45,402
  54,932
  65,525
  77,177
  89,875
  103,598
  118,324
  134,031
  150,694
  168,292
  186,809
  206,232
  226,553
  247,770
  269,888
  292,917
  316,874
  341,783
  367,671
  394,575
  422,535
  451,597
  481,813
  513,240
  545,939
  579,978
  615,427
  652,365
  690,872
Interest expense (income), $m
  84
  138
  374
  643
  946
  1,282
  1,651
  2,054
  2,489
  2,956
  3,454
  3,982
  4,539
  5,126
  5,741
  6,385
  7,057
  7,758
  8,487
  9,246
  10,034
  10,854
  11,706
  12,592
  13,512
  14,468
  15,463
  16,499
  17,576
  18,698
  19,867
Earnings before tax, $m
  24,150
  29,962
  37,065
  45,053
  53,930
  63,691
  74,325
  85,816
  98,144
  111,289
  125,233
  141,605
  157,097
  173,345
  190,343
  208,090
  226,589
  245,849
  265,886
  286,718
  308,369
  330,870
  354,254
  378,560
  403,832
  430,117
  457,466
  485,937
  515,589
  546,486
  578,697
Tax expense, $m
  4,672
  8,090
  10,007
  12,164
  14,561
  17,197
  20,068
  23,170
  26,499
  30,048
  33,813
  38,233
  42,416
  46,803
  51,393
  56,184
  61,179
  66,379
  71,789
  77,414
  83,260
  89,335
  95,649
  102,211
  109,035
  116,131
  123,516
  131,203
  139,209
  147,551
  156,248
Net income, $m
  19,478
  21,872
  27,057
  32,889
  39,369
  46,495
  54,257
  62,645
  71,645
  81,241
  91,420
  103,372
  114,681
  126,542
  138,950
  151,905
  165,410
  179,470
  194,097
  209,304
  225,110
  241,535
  258,605
  276,349
  294,797
  313,985
  333,950
  354,734
  376,380
  398,935
  422,449

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  86,390
  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
  167,497
  100,329
  122,231
  146,857
  174,220
  204,306
  237,081
  272,496
  310,493
  351,012
  393,993
  439,382
  487,135
  537,219
  589,616
  644,320
  701,344
  760,713
  822,473
  886,681
  953,414
  1,022,760
  1,094,825
  1,169,728
  1,247,601
  1,328,591
  1,412,856
  1,500,570
  1,591,915
  1,687,091
  1,786,305
Adjusted assets (=assets-cash), $m
  81,107
  100,329
  122,231
  146,857
  174,220
  204,306
  237,081
  272,496
  310,493
  351,012
  393,993
  439,382
  487,135
  537,219
  589,616
  644,320
  701,344
  760,713
  822,473
  886,681
  953,414
  1,022,760
  1,094,825
  1,169,728
  1,247,601
  1,328,591
  1,412,856
  1,500,570
  1,591,915
  1,687,091
  1,786,305
Revenue / Adjusted assets
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
  1.113
Average production assets, $m
  35,202
  43,550
  53,057
  63,746
  75,624
  88,683
  102,910
  118,282
  134,776
  152,364
  171,020
  190,722
  211,451
  233,191
  255,935
  279,680
  304,432
  330,203
  357,011
  384,882
  413,848
  443,950
  475,231
  507,744
  541,546
  576,701
  613,279
  651,352
  691,003
  732,315
  775,381
Working capital, $m
  88,652
  2,792
  3,401
  4,086
  4,848
  5,685
  6,597
  7,582
  8,639
  9,767
  10,963
  12,226
  13,555
  14,948
  16,406
  17,928
  19,515
  21,167
  22,885
  24,672
  26,529
  28,458
  30,464
  32,548
  34,715
  36,968
  39,313
  41,753
  44,295
  46,943
  49,704
Total debt, $m
  3,935
  10,690
  18,377
  27,021
  36,625
  47,185
  58,689
  71,120
  84,457
  98,679
  113,765
  129,697
  146,458
  164,038
  182,429
  201,630
  221,646
  242,484
  264,162
  286,699
  310,122
  334,463
  359,758
  386,049
  413,382
  441,809
  471,387
  502,174
  534,236
  567,643
  602,467
Total liabilities, $m
  28,461
  35,216
  42,903
  51,547
  61,151
  71,711
  83,215
  95,646
  108,983
  123,205
  138,291
  154,223
  170,984
  188,564
  206,955
  226,156
  246,172
  267,010
  288,688
  311,225
  334,648
  358,989
  384,284
  410,575
  437,908
  466,335
  495,913
  526,700
  558,762
  592,169
  626,993
Total equity, $m
  139,036
  65,114
  79,328
  95,310
  113,069
  132,595
  153,866
  176,850
  201,510
  227,807
  255,701
  285,159
  316,151
  348,655
  382,661
  418,164
  455,172
  493,703
  533,785
  575,456
  618,766
  663,771
  710,542
  759,154
  809,693
  862,256
  916,944
  973,870
  1,033,153
  1,094,922
  1,159,312
Total liabilities and equity, $m
  167,497
  100,330
  122,231
  146,857
  174,220
  204,306
  237,081
  272,496
  310,493
  351,012
  393,992
  439,382
  487,135
  537,219
  589,616
  644,320
  701,344
  760,713
  822,473
  886,681
  953,414
  1,022,760
  1,094,826
  1,169,729
  1,247,601
  1,328,591
  1,412,857
  1,500,570
  1,591,915
  1,687,091
  1,786,305
Debt-to-equity ratio
  0.028
  0.160
  0.230
  0.280
  0.320
  0.360
  0.380
  0.400
  0.420
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.480
  0.490
  0.490
  0.490
  0.500
  0.500
  0.500
  0.510
  0.510
  0.510
  0.510
  0.510
  0.520
  0.520
  0.520
  0.520
Adjusted equity ratio
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  19,478
  21,872
  27,057
  32,889
  39,369
  46,495
  54,257
  62,645
  71,645
  81,241
  91,420
  103,372
  114,681
  126,542
  138,950
  151,905
  165,410
  179,470
  194,097
  209,304
  225,110
  241,535
  258,605
  276,349
  294,797
  313,985
  333,950
  354,734
  376,380
  398,935
  422,449
Depreciation, amort., depletion, $m
  6,144
  6,831
  7,963
  9,236
  10,650
  12,204
  13,898
  15,728
  17,692
  19,785
  22,006
  22,705
  25,173
  27,761
  30,468
  33,295
  36,242
  39,310
  42,501
  45,819
  49,268
  52,851
  56,575
  60,446
  64,470
  68,655
  73,009
  77,542
  82,262
  87,180
  92,307
Funds from operations, $m
  39,336
  28,704
  35,020
  42,124
  50,019
  58,699
  68,155
  78,373
  89,336
  101,027
  113,427
  126,077
  139,854
  154,303
  169,419
  185,201
  201,652
  218,780
  236,598
  255,123
  274,377
  294,386
  315,181
  336,795
  359,267
  382,640
  406,960
  432,276
  458,642
  486,115
  514,756
Change in working capital, $m
  3,300
  535
  609
  685
  761
  837
  912
  985
  1,057
  1,127
  1,196
  1,263
  1,329
  1,394
  1,458
  1,522
  1,587
  1,652
  1,718
  1,787
  1,857
  1,930
  2,005
  2,084
  2,167
  2,254
  2,345
  2,441
  2,542
  2,648
  2,761
Cash from operations, $m
  36,036
  28,169
  34,411
  41,439
  49,257
  57,862
  67,243
  77,388
  88,279
  99,899
  112,231
  124,814
  138,525
  152,909
  167,961
  183,679
  200,065
  217,128
  234,880
  253,337
  272,520
  292,457
  313,175
  334,710
  357,100
  380,387
  404,615
  429,835
  456,101
  483,467
  511,996
Maintenance CAPEX, $m
  0
  -4,191
  -5,185
  -6,316
  -7,589
  -9,003
  -10,558
  -12,251
  -14,081
  -16,045
  -18,139
  -20,360
  -22,705
  -25,173
  -27,761
  -30,468
  -33,295
  -36,242
  -39,310
  -42,501
  -45,819
  -49,268
  -52,851
  -56,575
  -60,446
  -64,470
  -68,655
  -73,009
  -77,542
  -82,262
  -87,180
New CAPEX, $m
  -10,212
  -8,348
  -9,507
  -10,689
  -11,877
  -13,059
  -14,227
  -15,373
  -16,493
  -17,588
  -18,657
  -19,702
  -20,728
  -21,740
  -22,744
  -23,746
  -24,752
  -25,771
  -26,808
  -27,871
  -28,967
  -30,101
  -31,281
  -32,513
  -33,802
  -35,155
  -36,577
  -38,074
  -39,650
  -41,313
  -43,066
Cash from investing activities, $m
  -31,165
  -12,539
  -14,692
  -17,005
  -19,466
  -22,062
  -24,785
  -27,624
  -30,574
  -33,633
  -36,796
  -40,062
  -43,433
  -46,913
  -50,505
  -54,214
  -58,047
  -62,013
  -66,118
  -70,372
  -74,786
  -79,369
  -84,132
  -89,088
  -94,248
  -99,625
  -105,232
  -111,083
  -117,192
  -123,575
  -130,246
Free cash flow, $m
  4,871
  15,630
  19,719
  24,433
  29,791
  35,799
  42,459
  49,764
  57,704
  66,266
  75,436
  84,752
  95,092
  105,996
  117,456
  129,465
  142,018
  155,115
  168,762
  182,964
  197,735
  213,088
  229,043
  245,622
  262,852
  280,762
  299,383
  318,752
  338,908
  359,892
  381,749
Issuance/(repayment) of debt, $m
  -1,335
  6,755
  7,688
  8,644
  9,604
  10,560
  11,504
  12,431
  13,337
  14,222
  15,086
  15,932
  16,761
  17,580
  18,391
  19,201
  20,015
  20,839
  21,678
  22,537
  23,423
  24,341
  25,295
  26,291
  27,333
  28,427
  29,577
  30,787
  32,062
  33,406
  34,824
Issuance/(repurchase) of shares, $m
  -3,693
  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  
  -8,332
  6,755
  7,688
  8,644
  9,604
  10,560
  11,504
  12,431
  13,337
  14,222
  15,086
  15,932
  16,761
  17,580
  18,391
  19,201
  20,015
  20,839
  21,678
  22,537
  23,423
  24,341
  25,295
  26,291
  27,333
  28,427
  29,577
  30,787
  32,062
  33,406
  34,824
Total cash flow (excl. dividends), $m
  -3,631
  22,385
  27,407
  33,077
  39,395
  46,360
  53,963
  62,195
  71,041
  80,488
  90,522
  100,684
  111,853
  123,576
  135,847
  148,666
  162,033
  175,954
  190,439
  205,502
  221,158
  237,428
  254,338
  271,913
  290,186
  309,189
  328,960
  349,540
  370,970
  393,299
  416,574
Retained Cash Flow (-), $m
  -18,705
  -12,468
  -14,214
  -15,982
  -17,758
  -19,526
  -21,271
  -22,984
  -24,660
  -26,297
  -27,894
  -29,458
  -30,992
  -32,505
  -34,005
  -35,503
  -37,008
  -38,531
  -40,082
  -41,671
  -43,309
  -45,006
  -46,770
  -48,612
  -50,540
  -52,562
  -54,688
  -56,926
  -59,283
  -61,769
  -64,390
Prev. year cash balance distribution, $m
 
  86,390
  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
 
  96,307
  13,193
  17,095
  21,637
  26,834
  32,692
  39,211
  46,381
  54,192
  62,627
  71,226
  80,861
  91,071
  101,842
  113,163
  125,025
  137,423
  150,357
  163,830
  177,848
  192,423
  207,567
  223,301
  239,646
  256,627
  274,272
  292,614
  311,687
  331,530
  352,183
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
 
  92,336
  12,077
  14,877
  17,816
  20,799
  23,726
  26,490
  28,989
  31,130
  32,833
  33,824
  34,506
  34,627
  34,190
  33,223
  31,771
  29,901
  27,690
  25,225
  22,599
  19,903
  17,223
  14,635
  12,206
  9,983
  8,002
  6,280
  4,822
  3,619
  2,652
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

Alphabet Inc. is a holding company. The Company's businesses include Google Inc. (Google) and its Internet products, such as Access, Calico, CapitalG, GV, Nest, Verily, Waymo and X. The Company's segments include Google and Other Bets. The Google segment includes its Internet products, such as Search, Ads, Commerce, Maps, YouTube, Google Cloud, Android, Chrome and Google Play, as well as its hardware initiatives. The Google segment is engaged in advertising, sales of digital content, applications and cloud offerings, and sales of hardware products. The Other Bets segment is engaged in the sales of Internet and television services through Google Fiber, sales of Nest products and services, and licensing and research and development (R&D) services through Verily. It offers Google Assistant, which allows users to type or talk with Google; Google Maps, which helps users navigate to a store, and Google Photos, which helps users store and organize all of their photos.

FINANCIAL RATIOS  of  Alphabet Cl A (GOOGL)

Valuation Ratios
P/E Ratio 38.9
Price to Sales 8.4
Price to Book 5.4
Price to Tangible Book
Price to Cash Flow 21
Price to Free Cash Flow 29.3
Growth Rates
Sales Growth Rate 20.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.6%
Cap. Spend. - 3 Yr. Gr. Rate 6.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 2.8%
Total Debt to Equity 2.8%
Interest Coverage 289
Management Effectiveness
Return On Assets 12.4%
Ret/ On Assets - 3 Yr. Avg. 12%
Return On Total Capital 14.5%
Ret/ On T. Cap. - 3 Yr. Avg. 14.2%
Return On Equity 15%
Return On Equity - 3 Yr. Avg. 14.8%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 61.1%
Gross Margin - 3 Yr. Avg. 61.7%
EBITDA Margin 33.7%
EBITDA Margin - 3 Yr. Avg. 33.5%
Operating Margin 26.3%
Oper. Margin - 3 Yr. Avg. 25.7%
Pre-Tax Margin 26.8%
Pre-Tax Margin - 3 Yr. Avg. 26.4%
Net Profit Margin 21.6%
Net Profit Margin - 3 Yr. Avg. 21.6%
Effective Tax Rate 19.3%
Eff/ Tax Rate - 3 Yr. Avg. 19.1%
Payout Ratio 0%

GOOGL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GOOGL stock intrinsic value calculation we used $90272 million for the last fiscal year's total revenue generated by Alphabet Cl A. The default revenue input number comes from 2016 income statement of Alphabet Cl A. 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 GOOGL stock valuation model: a) initial revenue growth rate of 23.7% 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 GOOGL is calculated based on our internal credit rating of Alphabet Cl A, 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 Alphabet Cl A.
    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 GOOGL stock the variable cost ratio is equal to 71.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2064 million in the base year in the intrinsic value calculation for GOOGL 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 Alphabet Cl A.

Corporate tax rate of 27% is the nominal tax rate for Alphabet Cl A. 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 GOOGL 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 GOOGL are equal to 39%.

Life of production assets of 8.4 years is the average useful life of capital assets used in Alphabet Cl A 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 GOOGL 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 - $139036 million for Alphabet Cl A - 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 693.896 million for Alphabet Cl A 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 Alphabet Cl A at the current share price and the inputted number of shares is $760.2 billion.

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Financial statements of GOOGL
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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