Intrinsic value of Alphabet Cl A - GOOGL

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$986.09

  Intrinsic Value

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  Value-price divergence*

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$986.09

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

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

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 669.3

 

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
  22.20
  20.48
  18.93
  17.54
  16.28
  15.16
  14.14
  13.23
  12.40
  11.66
  11.00
  10.40
  9.86
  9.37
  8.93
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
Revenue, $m
  90,272
  110,312
  132,904
  158,066
  185,789
  216,044
  248,789
  283,969
  321,529
  361,412
  403,566
  447,947
  494,522
  543,271
  594,187
  647,276
  702,562
  760,082
  819,889
  882,050
  946,647
  1,013,775
  1,083,543
  1,156,073
  1,231,500
  1,309,971
  1,391,645
  1,476,692
  1,565,297
  1,657,651
  1,753,963
Variable operating expenses, $m
 
  78,508
  94,249
  111,780
  131,096
  152,177
  174,992
  199,505
  225,675
  253,463
  282,834
  312,110
  344,562
  378,528
  414,004
  450,994
  489,515
  529,593
  571,264
  614,575
  659,583
  706,355
  754,966
  805,502
  858,057
  912,732
  969,639
  1,028,896
  1,090,632
  1,154,981
  1,222,087
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
  80,624
  96,417
  114,003
  133,374
  154,512
  177,386
  201,958
  228,190
  256,041
  285,476
  314,818
  347,338
  381,373
  416,920
  453,983
  492,579
  532,734
  574,483
  617,875
  662,965
  709,822
  758,519
  809,144
  861,790
  916,559
  973,561
  1,032,916
  1,094,753
  1,159,205
  1,226,416
Operating income, $m
  23,716
  29,689
  36,487
  44,063
  52,414
  61,532
  71,403
  82,011
  93,340
  105,371
  118,089
  133,128
  147,184
  161,898
  177,266
  193,292
  209,983
  227,349
  245,406
  264,176
  283,682
  303,953
  325,023
  346,928
  369,710
  393,412
  418,084
  443,776
  470,544
  498,447
  527,547
EBITDA, $m
  29,860
  36,457
  44,304
  53,048
  62,687
  73,209
  84,601
  96,843
  109,915
  123,798
  138,473
  153,926
  170,144
  187,121
  204,854
  223,345
  242,602
  262,638
  283,472
  305,128
  327,633
  351,021
  375,330
  400,603
  426,887
  454,233
  482,696
  512,337
  543,218
  575,409
  608,981
Interest expense (income), $m
  84
  138
  359
  609
  886
  1,192
  1,526
  1,888
  2,276
  2,691
  3,131
  3,596
  4,086
  4,600
  5,138
  5,700
  6,286
  6,896
  7,531
  8,191
  8,877
  9,590
  10,331
  11,101
  11,902
  12,735
  13,601
  14,502
  15,441
  16,419
  17,438
Earnings before tax, $m
  24,150
  29,551
  36,128
  43,454
  51,528
  60,340
  69,877
  80,124
  91,064
  102,680
  114,959
  129,532
  143,098
  157,298
  172,128
  187,592
  203,697
  220,452
  237,875
  255,984
  274,804
  294,363
  314,692
  335,827
  357,808
  380,678
  404,483
  429,274
  455,103
  482,028
  510,109
Tax expense, $m
  4,672
  7,979
  9,755
  11,733
  13,912
  16,292
  18,867
  21,633
  24,587
  27,724
  31,039
  34,974
  38,637
  42,470
  46,475
  50,650
  54,998
  59,522
  64,226
  69,116
  74,197
  79,478
  84,967
  90,673
  96,608
  102,783
  109,210
  115,904
  122,878
  130,148
  137,729
Net income, $m
  19,478
  21,572
  26,373
  31,722
  37,615
  44,048
  51,010
  58,490
  66,477
  74,957
  83,920
  94,559
  104,462
  114,827
  125,654
  136,942
  148,699
  160,930
  173,649
  186,869
  200,607
  214,885
  229,725
  245,154
  261,200
  277,895
  295,273
  313,370
  332,225
  351,880
  372,379

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
  99,113
  119,411
  142,018
  166,926
  194,110
  223,530
  255,139
  288,885
  324,719
  362,593
  402,468
  444,315
  488,114
  533,860
  581,560
  631,233
  682,913
  736,648
  792,498
  850,536
  910,849
  973,533
  1,038,700
  1,106,469
  1,176,973
  1,250,355
  1,326,768
  1,406,376
  1,489,354
  1,575,888
Adjusted assets (=assets-cash), $m
  81,107
  99,113
  119,411
  142,018
  166,926
  194,110
  223,530
  255,139
  288,885
  324,719
  362,593
  402,468
  444,315
  488,114
  533,860
  581,560
  631,233
  682,913
  736,648
  792,498
  850,536
  910,849
  973,533
  1,038,700
  1,106,469
  1,176,973
  1,250,355
  1,326,768
  1,406,376
  1,489,354
  1,575,888
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
  43,022
  51,833
  61,646
  72,458
  84,257
  97,028
  110,748
  125,396
  140,951
  157,391
  174,699
  192,864
  211,876
  231,733
  252,438
  273,999
  296,432
  319,757
  344,000
  369,192
  395,372
  422,582
  450,868
  480,285
  510,889
  542,741
  575,910
  610,466
  646,484
  684,046
Working capital, $m
  88,652
  2,758
  3,323
  3,952
  4,645
  5,401
  6,220
  7,099
  8,038
  9,035
  10,089
  11,199
  12,363
  13,582
  14,855
  16,182
  17,564
  19,002
  20,497
  22,051
  23,666
  25,344
  27,089
  28,902
  30,787
  32,749
  34,791
  36,917
  39,132
  41,441
  43,849
Total debt, $m
  3,935
  10,263
  17,387
  25,322
  34,065
  43,607
  53,933
  65,028
  76,873
  89,450
  102,744
  116,740
  131,428
  146,802
  162,859
  179,602
  197,037
  215,176
  234,037
  253,641
  274,012
  295,182
  317,184
  340,058
  363,845
  388,591
  414,348
  441,169
  469,112
  498,237
  528,611
Total liabilities, $m
  28,461
  34,789
  41,913
  49,848
  58,591
  68,133
  78,459
  89,554
  101,399
  113,976
  127,270
  141,266
  155,954
  171,328
  187,385
  204,128
  221,563
  239,702
  258,563
  278,167
  298,538
  319,708
  341,710
  364,584
  388,371
  413,117
  438,874
  465,695
  493,638
  522,763
  553,137
Total equity, $m
  139,036
  64,324
  77,498
  92,170
  108,335
  125,977
  145,071
  165,585
  187,487
  210,742
  235,323
  261,202
  288,360
  316,786
  346,475
  377,432
  409,670
  443,211
  478,084
  514,331
  551,998
  591,141
  631,823
  674,116
  718,098
  763,855
  811,480
  861,072
  912,738
  966,591
  1,022,751
Total liabilities and equity, $m
  167,497
  99,113
  119,411
  142,018
  166,926
  194,110
  223,530
  255,139
  288,886
  324,718
  362,593
  402,468
  444,314
  488,114
  533,860
  581,560
  631,233
  682,913
  736,647
  792,498
  850,536
  910,849
  973,533
  1,038,700
  1,106,469
  1,176,972
  1,250,354
  1,326,767
  1,406,376
  1,489,354
  1,575,888
Debt-to-equity ratio
  0.028
  0.160
  0.220
  0.270
  0.310
  0.350
  0.370
  0.390
  0.410
  0.420
  0.440
  0.450
  0.460
  0.460
  0.470
  0.480
  0.480
  0.490
  0.490
  0.490
  0.500
  0.500
  0.500
  0.500
  0.510
  0.510
  0.510
  0.510
  0.510
  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
  21,572
  26,373
  31,722
  37,615
  44,048
  51,010
  58,490
  66,477
  74,957
  83,920
  94,559
  104,462
  114,827
  125,654
  136,942
  148,699
  160,930
  173,649
  186,869
  200,607
  214,885
  229,725
  245,154
  261,200
  277,895
  295,273
  313,370
  332,225
  351,880
  372,379
Depreciation, amort., depletion, $m
  6,144
  6,768
  7,817
  8,986
  10,273
  11,677
  13,198
  14,831
  16,575
  18,427
  20,384
  20,798
  22,960
  25,223
  27,587
  30,052
  32,619
  35,290
  38,066
  40,952
  43,951
  47,068
  50,307
  53,675
  57,177
  60,820
  64,612
  68,561
  72,674
  76,962
  81,434
Funds from operations, $m
  39,336
  28,341
  34,191
  40,707
  47,888
  55,725
  64,208
  73,321
  83,052
  93,383
  104,304
  115,356
  127,422
  140,051
  153,241
  166,995
  181,318
  196,220
  211,715
  227,821
  244,558
  261,953
  280,032
  298,828
  318,377
  338,715
  359,885
  381,930
  404,900
  428,843
  453,813
Change in working capital, $m
  3,300
  501
  565
  629
  693
  756
  819
  880
  939
  997
  1,054
  1,110
  1,164
  1,219
  1,273
  1,327
  1,382
  1,438
  1,495
  1,554
  1,615
  1,678
  1,744
  1,813
  1,886
  1,962
  2,042
  2,126
  2,215
  2,309
  2,408
Cash from operations, $m
  36,036
  30,179
  33,626
  40,078
  47,195
  54,969
  63,389
  72,442
  82,113
  92,386
  103,250
  114,247
  126,257
  138,832
  151,968
  165,667
  179,935
  194,782
  210,220
  226,267
  242,944
  260,275
  278,288
  297,015
  316,491
  336,753
  357,843
  379,804
  402,685
  426,534
  451,406
Maintenance CAPEX, $m
  0
  -4,191
  -5,122
  -6,171
  -7,339
  -8,626
  -10,031
  -11,551
  -13,184
  -14,928
  -16,780
  -18,737
  -20,798
  -22,960
  -25,223
  -27,587
  -30,052
  -32,619
  -35,290
  -38,066
  -40,952
  -43,951
  -47,068
  -50,307
  -53,675
  -57,177
  -60,820
  -64,612
  -68,561
  -72,674
  -76,962
New CAPEX, $m
  -10,212
  -7,820
  -8,811
  -9,813
  -10,812
  -11,800
  -12,770
  -13,720
  -14,648
  -15,554
  -16,440
  -17,309
  -18,164
  -19,012
  -19,857
  -20,705
  -21,562
  -22,433
  -23,325
  -24,243
  -25,193
  -26,180
  -27,210
  -28,287
  -29,417
  -30,604
  -31,853
  -33,169
  -34,556
  -36,018
  -37,562
Cash from investing activities, $m
  -31,165
  -12,011
  -13,933
  -15,984
  -18,151
  -20,426
  -22,801
  -25,271
  -27,832
  -30,482
  -33,220
  -36,046
  -38,962
  -41,972
  -45,080
  -48,292
  -51,614
  -55,052
  -58,615
  -62,309
  -66,145
  -70,131
  -74,278
  -78,594
  -83,092
  -87,781
  -92,673
  -97,781
  -103,117
  -108,692
  -114,524
Free cash flow, $m
  4,871
  18,168
  19,693
  24,095
  29,044
  34,543
  40,588
  47,171
  54,280
  61,904
  70,030
  78,201
  87,296
  96,860
  106,888
  117,375
  128,322
  139,730
  151,606
  163,958
  176,799
  190,143
  204,010
  218,421
  233,400
  248,973
  265,170
  282,024
  299,568
  317,841
  336,882
Issuance/(repayment) of debt, $m
  -1,335
  6,328
  7,125
  7,935
  8,743
  9,542
  10,326
  11,095
  11,845
  12,578
  13,294
  13,996
  14,688
  15,374
  16,057
  16,742
  17,435
  18,140
  18,861
  19,603
  20,371
  21,170
  22,002
  22,873
  23,787
  24,747
  25,757
  26,821
  27,943
  29,125
  30,373
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
  6,328
  7,125
  7,935
  8,743
  9,542
  10,326
  11,095
  11,845
  12,578
  13,294
  13,996
  14,688
  15,374
  16,057
  16,742
  17,435
  18,140
  18,861
  19,603
  20,371
  21,170
  22,002
  22,873
  23,787
  24,747
  25,757
  26,821
  27,943
  29,125
  30,373
Total cash flow (excl. dividends), $m
  -3,631
  24,496
  26,818
  32,030
  37,787
  44,085
  50,915
  58,265
  66,125
  74,482
  83,324
  92,197
  101,984
  112,234
  122,945
  134,118
  145,757
  157,870
  170,467
  183,561
  197,170
  211,313
  226,013
  241,295
  257,187
  273,720
  290,927
  308,845
  327,511
  346,966
  367,255
Retained Cash Flow (-), $m
  -18,705
  -11,678
  -13,174
  -14,672
  -16,165
  -17,642
  -19,094
  -20,514
  -21,901
  -23,256
  -24,580
  -25,879
  -27,159
  -28,426
  -29,689
  -30,957
  -32,238
  -33,540
  -34,874
  -36,247
  -37,667
  -39,143
  -40,682
  -42,293
  -43,982
  -45,757
  -47,625
  -49,592
  -51,666
  -53,853
  -56,160
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
 
  99,208
  13,644
  17,358
  21,622
  26,443
  31,821
  37,751
  44,223
  51,226
  58,744
  66,318
  74,825
  83,808
  93,255
  103,161
  113,519
  124,329
  135,593
  147,314
  159,503
  172,170
  185,330
  199,002
  213,204
  227,963
  243,302
  259,253
  275,845
  293,113
  311,095
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
 
  95,118
  12,491
  15,106
  17,803
  20,496
  23,094
  25,504
  27,641
  29,426
  30,797
  31,494
  31,931
  31,865
  31,307
  30,286
  28,848
  27,052
  24,971
  22,682
  20,268
  17,808
  15,378
  13,043
  10,859
  8,868
  7,098
  5,564
  4,268
  3,200
  2,342
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., through its subsidiaries, provides online advertising services in the United States, the United Kingdom, and rest of the world. The company offers performance and brand advertising services. It operates through Google and Other Bets segments. The Google segment includes principal Internet products, such as Search, Ads, Commerce, Maps, YouTube, Google Cloud, Android, Chrome, and Google Play, as well as technical infrastructure and newer efforts, including Virtual Reality. This segment also sells digital contents, apps and cloud offerings, and hardware products. The Other Bets segment includes businesses, such as Access, Calico, CapitalG, GV, Nest, Verily, Waymo, X, and Google Fiber. Alphabet Inc. was founded in 1998 and is headquartered in Mountain View, California.

FINANCIAL RATIOS  of  Alphabet Cl A (GOOGL)

Valuation Ratios
P/E Ratio 35
Price to Sales 7.6
Price to Book 4.9
Price to Tangible Book
Price to Cash Flow 18.9
Price to Free Cash Flow 26.4
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 22.2% 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 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 678.693 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 $669.3 billion.


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Stock chart of GOOGL Financial statements of GOOGL Annual reports 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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