Intrinsic value of Alphabet Cl A - GOOGL

Previous Close

$926.18

  Intrinsic Value

$981.76

stock screener

  Rating & Target

hold

+6%

  Value-price divergence*

+75%

Previous close

$926.18

 
Intrinsic value

$981.76

 
Up/down potential

+6%

 
Rating

hold

 
Value-price divergence*

+75%

*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 628.6

 

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
  35,638
  43,317
  51,874
  61,307
  71,604
  82,753
  94,733
  107,526
  121,113
  135,475
  150,598
  166,471
  183,085
  200,440
  218,536
  237,383
  256,992
  277,382
  298,576
  320,601
  343,490
  367,281
  392,015
  417,739
  444,501
  472,358
  501,367
  531,590
  563,095
  595,952
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
  5,949
  6,830
  7,811
  8,893
  10,073
  11,350
  12,722
  14,186
  15,742
  17,386
  17,470
  19,286
  21,188
  23,173
  25,244
  27,400
  29,643
  31,976
  34,400
  36,919
  39,537
  42,258
  45,087
  48,028
  51,089
  54,274
  57,591
  61,047
  64,648
  68,405
Funds from operations, $m
  39,336
  27,521
  33,203
  39,533
  46,508
  54,120
  62,360
  71,212
  80,663
  90,699
  101,306
  112,029
  123,748
  136,015
  148,827
  162,186
  176,099
  190,573
  205,624
  221,268
  237,526
  254,422
  271,983
  290,241
  309,228
  328,984
  349,547
  370,961
  393,272
  416,529
  440,784
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
  27,020
  32,639
  38,904
  45,815
  53,364
  61,541
  70,332
  79,724
  89,702
  100,252
  110,919
  122,584
  134,796
  147,554
  160,859
  174,716
  189,135
  204,129
  219,714
  235,911
  252,744
  270,239
  288,427
  307,343
  327,022
  347,505
  368,835
  391,057
  414,220
  438,376
Maintenance CAPEX, $m
  0
  -3,520
  -4,302
  -5,183
  -6,165
  -7,246
  -8,426
  -9,703
  -11,075
  -12,540
  -14,095
  -15,739
  -17,470
  -19,286
  -21,188
  -23,173
  -25,244
  -27,400
  -29,643
  -31,976
  -34,400
  -36,919
  -39,537
  -42,258
  -45,087
  -48,028
  -51,089
  -54,274
  -57,591
  -61,047
  -64,648
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
  -11,340
  -13,113
  -14,996
  -16,977
  -19,046
  -21,196
  -23,423
  -25,723
  -28,094
  -30,535
  -33,048
  -35,634
  -38,298
  -41,045
  -43,878
  -46,806
  -49,833
  -52,968
  -56,219
  -59,593
  -63,099
  -66,747
  -70,545
  -74,504
  -78,632
  -82,942
  -87,443
  -92,147
  -97,065
  -102,210
Free cash flow, $m
  4,871
  15,680
  19,526
  23,908
  28,838
  34,319
  40,345
  46,909
  54,001
  61,608
  69,717
  77,871
  86,950
  96,498
  106,509
  116,981
  127,911
  139,303
  151,161
  163,496
  176,319
  189,645
  203,492
  217,882
  232,839
  248,390
  264,563
  281,392
  298,910
  317,155
  336,166
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
  22,008
  26,650
  31,843
  37,581
  43,860
  50,671
  58,004
  65,846
  74,185
  83,011
  91,868
  101,638
  111,871
  122,566
  133,723
  145,346
  157,442
  170,022
  183,099
  196,690
  210,814
  225,494
  240,756
  256,626
  273,137
  290,320
  308,213
  326,853
  346,280
  366,539
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
 
  96,720
  13,477
  17,171
  21,416
  26,218
  31,578
  37,490
  43,944
  50,929
  58,430
  65,988
  74,479
  83,445
  92,877
  102,766
  113,109
  123,902
  135,148
  146,853
  159,023
  171,671
  184,812
  198,463
  212,644
  227,380
  242,696
  258,621
  275,187
  292,427
  310,379
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
 
  92,732
  12,337
  14,943
  17,634
  20,322
  22,917
  25,328
  27,466
  29,256
  30,633
  31,337
  31,783
  31,728
  31,180
  30,170
  28,743
  26,959
  24,889
  22,611
  20,207
  17,757
  15,335
  13,007
  10,830
  8,845
  7,081
  5,551
  4,258
  3,192
  2,337
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 32.9
Price to Sales 7.1
Price to Book 4.6
Price to Tangible Book
Price to Cash Flow 17.8
Price to Free Cash Flow 24.8
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 10 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 $628.6 billion.

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Stock chart of GOOGL 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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