Intrinsic value of GlaxoSmithKline ADR - GSK

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$40.78

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$40.78

 
Intrinsic value

$106.53

 
Up/down potential

+161%

 
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 GSK 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 98.3

 

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, %
  16.58
  20.70
  19.13
  17.72
  16.45
  15.30
  14.27
  13.34
  12.51
  11.76
  11.08
  10.47
  9.93
  9.43
  8.99
  8.59
  8.23
  7.91
  7.62
  7.36
  7.12
  6.91
  6.72
  6.55
  6.39
  6.25
  6.13
  6.01
  5.91
  5.82
  5.74
Revenue, $m
  33,905
  40,923
  48,752
  57,389
  66,827
  77,052
  88,048
  99,797
  112,281
  125,483
  139,390
  153,990
  169,276
  185,246
  201,901
  219,248
  237,297
  256,066
  275,573
  295,846
  316,913
  338,807
  361,568
  385,237
  409,859
  435,485
  462,167
  489,964
  518,935
  549,146
  580,664
Variable operating expenses, $m
 
  21,662
  25,667
  30,086
  34,915
  40,146
  45,772
  51,782
  58,169
  64,924
  72,039
  78,783
  86,604
  94,774
  103,295
  112,169
  121,404
  131,006
  140,986
  151,358
  162,136
  173,338
  184,982
  197,091
  209,688
  222,799
  236,450
  250,671
  265,493
  280,949
  297,074
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
  30,746
  21,662
  25,667
  30,086
  34,915
  40,146
  45,772
  51,782
  58,169
  64,924
  72,039
  78,783
  86,604
  94,774
  103,295
  112,169
  121,404
  131,006
  140,986
  151,358
  162,136
  173,338
  184,982
  197,091
  209,688
  222,799
  236,450
  250,671
  265,493
  280,949
  297,074
Operating income, $m
  3,158
  19,261
  23,085
  27,303
  31,912
  36,906
  42,277
  48,015
  54,112
  60,559
  67,351
  75,207
  82,673
  90,472
  98,606
  107,078
  115,893
  125,060
  134,587
  144,488
  154,777
  165,470
  176,586
  188,145
  200,171
  212,686
  225,718
  239,293
  253,442
  268,197
  283,590
EBITDA, $m
  5,315
  22,158
  26,397
  31,074
  36,184
  41,721
  47,674
  54,036
  60,795
  67,944
  75,474
  83,379
  91,656
  100,303
  109,321
  118,713
  128,486
  138,649
  149,211
  160,188
  171,595
  183,450
  195,774
  208,589
  221,921
  235,797
  250,244
  265,295
  280,982
  297,339
  314,405
Interest expense (income), $m
  890
  731
  974
  1,534
  2,152
  2,827
  3,558
  4,344
  5,184
  6,077
  7,021
  8,016
  9,060
  10,153
  11,295
  12,486
  13,727
  15,017
  16,359
  17,754
  19,204
  20,711
  22,276
  23,904
  25,597
  27,357
  29,190
  31,098
  33,086
  35,158
  37,318
Earnings before tax, $m
  2,357
  18,531
  22,110
  25,769
  29,761
  34,080
  38,719
  43,670
  48,927
  54,482
  60,330
  67,191
  73,613
  80,319
  87,311
  94,592
  102,167
  110,042
  118,228
  126,734
  135,573
  144,759
  154,310
  164,241
  174,574
  185,329
  196,528
  208,195
  220,356
  233,039
  246,272
Tax expense, $m
  1,066
  5,003
  5,970
  6,958
  8,035
  9,202
  10,454
  11,791
  13,210
  14,710
  16,289
  18,142
  19,875
  21,686
  23,574
  25,540
  27,585
  29,711
  31,921
  34,218
  36,605
  39,085
  41,664
  44,345
  47,135
  50,039
  53,062
  56,213
  59,496
  62,921
  66,493
Net income, $m
  1,109
  13,527
  16,141
  18,811
  21,725
  24,878
  28,265
  31,879
  35,717
  39,772
  44,041
  49,050
  53,737
  58,633
  63,737
  69,052
  74,582
  80,331
  86,306
  92,515
  98,968
  105,674
  112,646
  119,896
  127,439
  135,290
  143,465
  151,982
  160,860
  170,119
  179,779

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,061
  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
  71,825
  79,309
  94,481
  111,220
  129,510
  149,326
  170,636
  193,405
  217,599
  243,185
  270,135
  298,430
  328,055
  359,004
  391,281
  424,899
  459,878
  496,251
  534,057
  573,345
  614,172
  656,604
  700,713
  746,583
  794,300
  843,963
  895,673
  949,542
  1,005,688
  1,064,236
  1,125,318
Adjusted assets (=assets-cash), $m
  65,764
  79,309
  94,481
  111,220
  129,510
  149,326
  170,636
  193,405
  217,599
  243,185
  270,135
  298,430
  328,055
  359,004
  391,281
  424,899
  459,878
  496,251
  534,057
  573,345
  614,172
  656,604
  700,713
  746,583
  794,300
  843,963
  895,673
  949,542
  1,005,688
  1,064,236
  1,125,318
Revenue / Adjusted assets
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
Average production assets, $m
  33,994
  41,046
  48,898
  57,562
  67,028
  77,283
  88,312
  100,096
  112,618
  125,860
  139,808
  154,452
  169,784
  185,802
  202,507
  219,905
  238,009
  256,834
  276,400
  296,734
  317,863
  339,824
  362,653
  386,392
  411,089
  436,791
  463,554
  491,434
  520,492
  550,793
  582,406
Working capital, $m
  -2,783
  -4,624
  -5,509
  -6,485
  -7,551
  -8,707
  -9,949
  -11,277
  -12,688
  -14,180
  -15,751
  -17,401
  -19,128
  -20,933
  -22,815
  -24,775
  -26,815
  -28,935
  -31,140
  -33,431
  -35,811
  -38,285
  -40,857
  -43,532
  -46,314
  -49,210
  -52,225
  -55,366
  -58,640
  -62,053
  -65,615
Total debt, $m
  22,843
  23,762
  37,417
  52,482
  68,943
  86,778
  105,956
  126,449
  148,223
  171,250
  195,506
  220,971
  247,633
  275,488
  304,537
  334,793
  366,274
  399,010
  433,035
  468,394
  505,139
  543,327
  583,026
  624,308
  667,254
  711,950
  758,490
  806,972
  857,504
  910,197
  965,170
Total liabilities, $m
  70,458
  71,378
  85,033
  100,098
  116,559
  134,394
  153,572
  174,065
  195,839
  218,866
  243,122
  268,587
  295,249
  323,104
  352,153
  382,409
  413,890
  446,626
  480,651
  516,010
  552,755
  590,943
  630,642
  671,924
  714,870
  759,566
  806,106
  854,588
  905,120
  957,813
  1,012,786
Total equity, $m
  1,366
  7,931
  9,448
  11,122
  12,951
  14,933
  17,064
  19,341
  21,760
  24,318
  27,014
  29,843
  32,805
  35,900
  39,128
  42,490
  45,988
  49,625
  53,406
  57,334
  61,417
  65,660
  70,071
  74,658
  79,430
  84,396
  89,567
  94,954
  100,569
  106,424
  112,532
Total liabilities and equity, $m
  71,824
  79,309
  94,481
  111,220
  129,510
  149,327
  170,636
  193,406
  217,599
  243,184
  270,136
  298,430
  328,054
  359,004
  391,281
  424,899
  459,878
  496,251
  534,057
  573,344
  614,172
  656,603
  700,713
  746,582
  794,300
  843,962
  895,673
  949,542
  1,005,689
  1,064,237
  1,125,318
Debt-to-equity ratio
  16.723
  3.000
  3.960
  4.720
  5.320
  5.810
  6.210
  6.540
  6.810
  7.040
  7.240
  7.400
  7.550
  7.670
  7.780
  7.880
  7.960
  8.040
  8.110
  8.170
  8.220
  8.270
  8.320
  8.360
  8.400
  8.440
  8.470
  8.500
  8.530
  8.550
  8.580
Adjusted equity ratio
  -0.045
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,109
  13,527
  16,141
  18,811
  21,725
  24,878
  28,265
  31,879
  35,717
  39,772
  44,041
  49,050
  53,737
  58,633
  63,737
  69,052
  74,582
  80,331
  86,306
  92,515
  98,968
  105,674
  112,646
  119,896
  127,439
  135,290
  143,465
  151,982
  160,860
  170,119
  179,779
Depreciation, amort., depletion, $m
  2,157
  2,897
  3,312
  3,771
  4,272
  4,814
  5,398
  6,021
  6,684
  7,384
  8,122
  8,172
  8,983
  9,831
  10,715
  11,635
  12,593
  13,589
  14,624
  15,700
  16,818
  17,980
  19,188
  20,444
  21,751
  23,111
  24,527
  26,002
  27,539
  29,143
  30,815
Funds from operations, $m
  10,354
  16,424
  19,453
  22,582
  25,997
  29,692
  33,662
  37,901
  42,401
  47,157
  52,163
  57,222
  62,721
  68,464
  74,452
  80,687
  87,175
  93,920
  100,931
  108,216
  115,786
  123,654
  131,834
  140,340
  149,190
  158,401
  167,992
  177,984
  188,399
  199,261
  210,594
Change in working capital, $m
  2,456
  -793
  -885
  -976
  -1,066
  -1,155
  -1,243
  -1,328
  -1,411
  -1,492
  -1,571
  -1,650
  -1,727
  -1,805
  -1,882
  -1,960
  -2,040
  -2,121
  -2,204
  -2,291
  -2,381
  -2,474
  -2,572
  -2,675
  -2,782
  -2,896
  -3,015
  -3,141
  -3,274
  -3,414
  -3,562
Cash from operations, $m
  7,898
  19,189
  20,338
  23,558
  27,063
  30,848
  34,905
  39,228
  43,811
  48,648
  53,735
  58,872
  64,448
  70,268
  76,334
  82,648
  89,214
  96,041
  103,135
  110,506
  118,167
  126,128
  134,406
  143,015
  151,972
  161,296
  171,007
  181,125
  191,673
  202,675
  214,155
Maintenance CAPEX, $m
  0
  -1,799
  -2,172
  -2,587
  -3,046
  -3,546
  -4,089
  -4,673
  -5,296
  -5,959
  -6,659
  -7,397
  -8,172
  -8,983
  -9,831
  -10,715
  -11,635
  -12,593
  -13,589
  -14,624
  -15,700
  -16,818
  -17,980
  -19,188
  -20,444
  -21,751
  -23,111
  -24,527
  -26,002
  -27,539
  -29,143
New CAPEX, $m
  -2,859
  -7,052
  -7,852
  -8,663
  -9,466
  -10,256
  -11,029
  -11,784
  -12,521
  -13,242
  -13,948
  -14,644
  -15,332
  -16,018
  -16,705
  -17,399
  -18,104
  -18,825
  -19,566
  -20,333
  -21,130
  -21,960
  -22,829
  -23,740
  -24,696
  -25,703
  -26,763
  -27,880
  -29,058
  -30,301
  -31,613
Cash from investing activities, $m
  -1,543
  -8,851
  -10,024
  -11,250
  -12,512
  -13,802
  -15,118
  -16,457
  -17,817
  -19,201
  -20,607
  -22,041
  -23,504
  -25,001
  -26,536
  -28,114
  -29,739
  -31,418
  -33,155
  -34,957
  -36,830
  -38,778
  -40,809
  -42,928
  -45,140
  -47,454
  -49,874
  -52,407
  -55,060
  -57,840
  -60,756
Free cash flow, $m
  6,355
  10,339
  10,314
  12,308
  14,552
  17,046
  19,787
  22,772
  25,994
  29,448
  33,127
  36,830
  40,944
  45,267
  49,798
  54,534
  59,476
  64,623
  69,979
  75,549
  81,337
  87,350
  93,597
  100,087
  106,832
  113,843
  121,134
  128,719
  136,613
  144,834
  153,400
Issuance/(repayment) of debt, $m
  158
  5,939
  13,655
  15,065
  16,461
  17,834
  19,179
  20,492
  21,774
  23,027
  24,256
  25,465
  26,662
  27,854
  29,049
  30,256
  31,482
  32,736
  34,025
  35,359
  36,744
  38,188
  39,699
  41,282
  42,946
  44,696
  46,539
  48,482
  50,531
  52,693
  54,974
Issuance/(repurchase) of shares, $m
  108
  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  
  -1,875
  5,939
  13,655
  15,065
  16,461
  17,834
  19,179
  20,492
  21,774
  23,027
  24,256
  25,465
  26,662
  27,854
  29,049
  30,256
  31,482
  32,736
  34,025
  35,359
  36,744
  38,188
  39,699
  41,282
  42,946
  44,696
  46,539
  48,482
  50,531
  52,693
  54,974
Total cash flow (excl. dividends), $m
  4,825
  16,278
  23,968
  27,373
  31,013
  34,880
  38,966
  43,264
  47,768
  52,475
  57,383
  62,296
  67,606
  73,122
  78,848
  84,790
  90,957
  97,359
  104,005
  110,908
  118,081
  125,538
  133,296
  141,370
  149,778
  158,539
  167,673
  177,201
  187,145
  197,527
  208,374
Retained Cash Flow (-), $m
  4,851
  -7,606
  -1,517
  -1,674
  -1,829
  -1,982
  -2,131
  -2,277
  -2,419
  -2,559
  -2,695
  -2,829
  -2,962
  -3,095
  -3,228
  -3,362
  -3,498
  -3,637
  -3,781
  -3,929
  -4,083
  -4,243
  -4,411
  -4,587
  -4,772
  -4,966
  -5,171
  -5,387
  -5,615
  -5,855
  -6,108
Prev. year cash balance distribution, $m
 
  1,041
  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
 
  9,713
  22,451
  25,699
  29,184
  32,898
  36,835
  40,987
  45,349
  49,917
  54,688
  59,466
  64,644
  70,027
  75,620
  81,428
  87,459
  93,721
  100,224
  106,979
  113,998
  121,295
  128,885
  136,783
  145,006
  153,573
  162,502
  171,814
  181,530
  191,673
  202,265
Discount rate, %
 
  8.60
  9.03
  9.48
  9.96
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.42
  27.74
  29.12
  30.58
  32.11
  33.71
  35.40
PV of cash for distribution, $m
 
  8,944
  18,886
  19,584
  19,965
  20,012
  19,719
  19,100
  18,184
  17,011
  15,632
  14,059
  12,455
  10,825
  9,223
  7,699
  6,293
  5,031
  3,931
  3,000
  2,233
  1,619
  1,143
  784
  523
  338
  211
  128
  75
  42
  23
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

GlaxoSmithKline plc creates, discovers, develops, manufactures, and markets pharmaceutical products, including vaccines, over-the-counter medicines, and health-related consumer products worldwide. The company operates through five segments: Global Pharmaceuticals, HIV, Pharmaceuticals R&D, Vaccines, and Consumer Healthcare. It offers pharmaceutical products in the therapeutic areas, including respiratory, anti-virals, central nervous system, cardiovascular and urogenital, metabolic, anti-bacterials, and emesis, dermatology, rare diseases, immuno-inflammation, vaccines, and HIV. The company also provides consumer healthcare products in wellness, oral health, nutrition, and skin health areas under the Sensodyne, Horlicks, Parodontax, Poligrip, Voltaren, Panadol, Otrivin, Tums, Flonase, Eno, and Theraflu brand names. GlaxoSmithKline plc offers its consumer healthcare products in the form of tablets, caplets, infant syrup drops, topical gels, nasal sprays, effervescents, lozenges, gum and trans-dermal patches, malted drinks and foods, and creams. The company has a strategic collaboration with Miltenyi Biotec GmbH to develop a cell and gene therapy automation and processing technology; and a partnership with Fimbrion Therapeutics for the development of a small molecule drug to treat prevent urinary tract infections. GlaxoSmithKline plc was founded in 1935 and is headquartered in Brentford, the United Kingdom.

FINANCIAL RATIOS  of  GlaxoSmithKline ADR (GSK)

Valuation Ratios
P/E Ratio 180.6
Price to Sales 5.9
Price to Book 146.6
Price to Tangible Book
Price to Cash Flow 25.4
Price to Free Cash Flow 39.7
Growth Rates
Sales Growth Rate 16.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 23.7%
Cap. Spend. - 3 Yr. Gr. Rate 6.7%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 1304.8%
Total Debt to Equity 1672.3%
Interest Coverage 4
Management Effectiveness
Return On Assets 2.3%
Ret/ On Assets - 3 Yr. Avg. 9.9%
Return On Total Capital 4.4%
Ret/ On T. Cap. - 3 Yr. Avg. 17.8%
Return On Equity 29.2%
Return On Equity - 3 Yr. Avg. 85.9%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 68.1%
Gross Margin - 3 Yr. Avg. 68%
EBITDA Margin 15.9%
EBITDA Margin - 3 Yr. Avg. 30.8%
Operating Margin 9.3%
Oper. Margin - 3 Yr. Avg. 23.9%
Pre-Tax Margin 7%
Pre-Tax Margin - 3 Yr. Avg. 21.3%
Net Profit Margin 3.3%
Net Profit Margin - 3 Yr. Avg. 16.8%
Effective Tax Rate 45.2%
Eff/ Tax Rate - 3 Yr. Avg. 23.4%
Payout Ratio 531.7%

GSK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GSK stock intrinsic value calculation we used $33905 million for the last fiscal year's total revenue generated by GlaxoSmithKline ADR. The default revenue input number comes from 2016 income statement of GlaxoSmithKline ADR. 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 GSK stock valuation model: a) initial revenue growth rate of 20.7% 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 8.6%, whose default value for GSK is calculated based on our internal credit rating of GlaxoSmithKline ADR, 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 GlaxoSmithKline ADR.
    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 GSK stock the variable cost ratio is equal to 53.3%.

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 GSK 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 4.1% for GlaxoSmithKline ADR.

Corporate tax rate of 27% is the nominal tax rate for GlaxoSmithKline ADR. 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 GSK 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 GSK are equal to 100.3%.

Life of production assets of 18.9 years is the average useful life of capital assets used in GlaxoSmithKline ADR 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 GSK is equal to -11.3%. 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 - $1366 million for GlaxoSmithKline ADR - 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 2409.63 million for GlaxoSmithKline ADR 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 GlaxoSmithKline ADR at the current share price and the inputted number of shares is $98.3 billion.


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Stock chart of GSK Financial statements of GSK
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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