Intrinsic value of GlaxoSmithKline ADR - GSK

Previous Close

$40.85

  Intrinsic Value

$96.05

stock screener

  Rating & Target

str. buy

+135%

  Value-price divergence*

+114%

Previous close

$40.85

 
Intrinsic value

$96.05

 
Up/down potential

+135%

 
Rating

str. buy

 
Value-price divergence*

+114%

*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 98.9

 

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
  18.50
  17.15
  15.94
  14.84
  13.86
  12.97
  12.17
  11.46
  10.81
  10.23
  9.71
  9.24
  8.81
  8.43
  8.09
  7.78
  7.50
  7.25
  7.03
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.79
  5.71
  5.64
Revenue, $m
  33,905
  40,177
  47,068
  54,568
  62,667
  71,351
  80,606
  90,420
  100,779
  111,674
  123,099
  135,048
  147,522
  160,523
  174,057
  188,136
  202,772
  217,983
  233,790
  250,216
  267,290
  285,042
  303,504
  322,715
  342,712
  363,538
  385,238
  407,860
  431,455
  456,076
  481,779
Variable operating expenses, $m
 
  21,280
  24,806
  28,643
  32,786
  37,229
  41,964
  46,985
  52,285
  57,859
  63,704
  69,092
  75,474
  82,125
  89,050
  96,252
  103,740
  111,522
  119,609
  128,013
  136,749
  145,830
  155,276
  165,104
  175,335
  185,990
  197,092
  208,665
  220,737
  233,333
  246,484
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
  21,280
  24,806
  28,643
  32,786
  37,229
  41,964
  46,985
  52,285
  57,859
  63,704
  69,092
  75,474
  82,125
  89,050
  96,252
  103,740
  111,522
  119,609
  128,013
  136,749
  145,830
  155,276
  165,104
  175,335
  185,990
  197,092
  208,665
  220,737
  233,333
  246,484
Operating income, $m
  3,158
  18,897
  22,262
  25,925
  29,881
  34,122
  38,642
  43,435
  48,494
  53,815
  59,395
  65,956
  72,048
  78,398
  85,008
  91,883
  99,032
  106,460
  114,180
  122,203
  130,542
  139,211
  148,228
  157,610
  167,377
  177,548
  188,146
  199,194
  210,718
  222,742
  235,296
EBITDA, $m
  5,315
  21,754
  25,485
  29,546
  33,931
  38,633
  43,645
  48,958
  54,568
  60,467
  66,653
  73,123
  79,877
  86,916
  94,245
  101,868
  109,792
  118,029
  126,587
  135,482
  144,726
  154,338
  164,335
  174,736
  185,564
  196,840
  208,590
  220,839
  233,615
  246,946
  260,863
Interest expense (income), $m
  890
  937
  1,189
  1,727
  2,314
  2,947
  3,626
  4,349
  5,117
  5,926
  6,778
  7,671
  8,606
  9,581
  10,597
  11,655
  12,756
  13,900
  15,089
  16,325
  17,609
  18,944
  20,332
  21,775
  23,277
  24,840
  26,468
  28,165
  29,933
  31,778
  33,703
Earnings before tax, $m
  2,357
  17,960
  21,073
  24,198
  27,567
  31,175
  35,016
  39,085
  43,378
  47,889
  52,617
  58,285
  63,443
  68,817
  74,411
  80,228
  86,276
  92,560
  99,091
  105,878
  112,933
  120,267
  127,897
  135,835
  144,100
  152,708
  161,678
  171,029
  180,784
  190,964
  201,593
Tax expense, $m
  1,066
  4,849
  5,690
  6,533
  7,443
  8,417
  9,454
  10,553
  11,712
  12,930
  14,207
  15,737
  17,129
  18,581
  20,091
  21,662
  23,294
  24,991
  26,755
  28,587
  30,492
  32,472
  34,532
  36,675
  38,907
  41,231
  43,653
  46,178
  48,812
  51,560
  54,430
Net income, $m
  1,109
  13,111
  15,384
  17,664
  20,124
  22,758
  25,562
  28,532
  31,666
  34,959
  38,410
  42,548
  46,313
  50,236
  54,320
  58,567
  62,981
  67,569
  72,337
  77,291
  82,441
  87,795
  93,364
  99,160
  105,193
  111,477
  118,025
  124,852
  131,973
  139,404
  147,163

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
  85,122
  99,720
  115,610
  132,769
  151,167
  170,776
  191,567
  213,515
  236,598
  260,803
  286,119
  312,547
  340,091
  368,765
  398,593
  429,601
  461,828
  495,317
  530,119
  566,293
  603,902
  643,018
  683,717
  726,084
  770,207
  816,182
  864,110
  914,099
  966,262
  1,020,719
Adjusted assets (=assets-cash), $m
  65,764
  85,122
  99,720
  115,610
  132,769
  151,167
  170,776
  191,567
  213,515
  236,598
  260,803
  286,119
  312,547
  340,091
  368,765
  398,593
  429,601
  461,828
  495,317
  530,119
  566,293
  603,902
  643,018
  683,717
  726,084
  770,207
  816,182
  864,110
  914,099
  966,262
  1,020,719
Revenue / Adjusted assets
  0.516
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
  0.472
Average production assets, $m
  33,994
  40,298
  47,209
  54,732
  62,855
  71,565
  80,848
  90,691
  101,081
  112,009
  123,468
  135,453
  147,965
  161,004
  174,579
  188,700
  203,380
  218,637
  234,491
  250,967
  268,092
  285,897
  304,415
  323,683
  343,740
  364,628
  386,393
  409,083
  432,749
  457,444
  483,225
Working capital, $m
  -2,783
  -4,018
  -4,707
  -5,457
  -6,267
  -7,135
  -8,061
  -9,042
  -10,078
  -11,167
  -12,310
  -13,505
  -14,752
  -16,052
  -17,406
  -18,814
  -20,277
  -21,798
  -23,379
  -25,022
  -26,729
  -28,504
  -30,350
  -32,271
  -34,271
  -36,354
  -38,524
  -40,786
  -43,145
  -45,608
  -48,178
Total debt, $m
  22,843
  28,993
  42,132
  56,433
  71,876
  88,434
  106,082
  124,794
  144,547
  165,322
  187,106
  209,891
  233,676
  258,466
  284,273
  311,117
  339,025
  368,029
  398,169
  429,492
  462,048
  495,896
  531,100
  567,729
  605,859
  645,570
  686,947
  730,083
  775,073
  822,020
  871,031
Total liabilities, $m
  70,458
  76,609
  89,748
  104,049
  119,492
  136,050
  153,698
  172,410
  192,163
  212,938
  234,722
  257,507
  281,292
  306,082
  331,889
  358,733
  386,641
  415,645
  445,785
  477,108
  509,664
  543,512
  578,716
  615,345
  653,475
  693,186
  734,563
  777,699
  822,689
  869,636
  918,647
Total equity, $m
  1,366
  8,512
  9,972
  11,561
  13,277
  15,117
  17,078
  19,157
  21,351
  23,660
  26,080
  28,612
  31,255
  34,009
  36,877
  39,859
  42,960
  46,183
  49,532
  53,012
  56,629
  60,390
  64,302
  68,372
  72,608
  77,021
  81,618
  86,411
  91,410
  96,626
  102,072
Total liabilities and equity, $m
  71,824
  85,121
  99,720
  115,610
  132,769
  151,167
  170,776
  191,567
  213,514
  236,598
  260,802
  286,119
  312,547
  340,091
  368,766
  398,592
  429,601
  461,828
  495,317
  530,120
  566,293
  603,902
  643,018
  683,717
  726,083
  770,207
  816,181
  864,110
  914,099
  966,262
  1,020,719
Debt-to-equity ratio
  16.723
  3.410
  4.230
  4.880
  5.410
  5.850
  6.210
  6.510
  6.770
  6.990
  7.170
  7.340
  7.480
  7.600
  7.710
  7.810
  7.890
  7.970
  8.040
  8.100
  8.160
  8.210
  8.260
  8.300
  8.340
  8.380
  8.420
  8.450
  8.480
  8.510
  8.530
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
  13,111
  15,384
  17,664
  20,124
  22,758
  25,562
  28,532
  31,666
  34,959
  38,410
  42,548
  46,313
  50,236
  54,320
  58,567
  62,981
  67,569
  72,337
  77,291
  82,441
  87,795
  93,364
  99,160
  105,193
  111,477
  118,025
  124,852
  131,973
  139,404
  147,163
Depreciation, amort., depletion, $m
  2,157
  2,857
  3,223
  3,621
  4,051
  4,512
  5,003
  5,524
  6,073
  6,652
  7,258
  7,167
  7,829
  8,519
  9,237
  9,984
  10,761
  11,568
  12,407
  13,279
  14,185
  15,127
  16,107
  17,126
  18,187
  19,292
  20,444
  21,645
  22,897
  24,203
  25,567
Funds from operations, $m
  10,354
  15,969
  18,607
  21,286
  24,175
  27,269
  30,565
  34,056
  37,739
  41,611
  45,668
  49,715
  54,142
  58,755
  63,557
  68,551
  73,742
  79,137
  84,743
  90,570
  96,626
  102,922
  109,471
  116,286
  123,380
  130,769
  138,469
  146,496
  154,869
  163,607
  172,730
Change in working capital, $m
  2,456
  -627
  -689
  -750
  -810
  -868
  -926
  -981
  -1,036
  -1,090
  -1,142
  -1,195
  -1,247
  -1,300
  -1,353
  -1,408
  -1,464
  -1,521
  -1,581
  -1,643
  -1,707
  -1,775
  -1,846
  -1,921
  -2,000
  -2,083
  -2,170
  -2,262
  -2,359
  -2,462
  -2,570
Cash from operations, $m
  7,898
  16,596
  19,296
  22,036
  24,985
  28,138
  31,490
  35,037
  38,775
  42,700
  46,811
  50,910
  55,389
  60,055
  64,910
  69,959
  75,206
  80,658
  86,324
  92,212
  98,333
  104,697
  111,317
  118,207
  125,380
  132,852
  140,639
  148,758
  157,229
  166,070
  175,301
Maintenance CAPEX, $m
  0
  -1,799
  -2,132
  -2,498
  -2,896
  -3,326
  -3,787
  -4,278
  -4,798
  -5,348
  -5,926
  -6,533
  -7,167
  -7,829
  -8,519
  -9,237
  -9,984
  -10,761
  -11,568
  -12,407
  -13,279
  -14,185
  -15,127
  -16,107
  -17,126
  -18,187
  -19,292
  -20,444
  -21,645
  -22,897
  -24,203
New CAPEX, $m
  -2,859
  -6,304
  -6,911
  -7,523
  -8,123
  -8,710
  -9,283
  -9,843
  -10,390
  -10,928
  -11,459
  -11,985
  -12,511
  -13,040
  -13,575
  -14,121
  -14,680
  -15,257
  -15,854
  -16,476
  -17,125
  -17,805
  -18,518
  -19,268
  -20,057
  -20,889
  -21,765
  -22,690
  -23,666
  -24,695
  -25,781
Cash from investing activities, $m
  -1,543
  -8,103
  -9,043
  -10,021
  -11,019
  -12,036
  -13,070
  -14,121
  -15,188
  -16,276
  -17,385
  -18,518
  -19,678
  -20,869
  -22,094
  -23,358
  -24,664
  -26,018
  -27,422
  -28,883
  -30,404
  -31,990
  -33,645
  -35,375
  -37,183
  -39,076
  -41,057
  -43,134
  -45,311
  -47,592
  -49,984
Free cash flow, $m
  6,355
  8,493
  10,252
  12,015
  13,966
  16,102
  18,421
  20,917
  23,586
  26,424
  29,425
  32,392
  35,711
  39,187
  42,816
  46,601
  50,542
  54,641
  58,902
  63,329
  67,929
  72,708
  77,673
  82,832
  88,197
  93,776
  99,581
  105,624
  111,919
  118,478
  125,316
Issuance/(repayment) of debt, $m
  158
  6,150
  13,139
  14,301
  15,442
  16,558
  17,648
  18,712
  19,753
  20,775
  21,784
  22,785
  23,785
  24,790
  25,807
  26,844
  27,908
  29,004
  30,140
  31,322
  32,556
  33,848
  35,204
  36,629
  38,130
  39,711
  41,377
  43,135
  44,990
  46,947
  49,012
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
  6,150
  13,139
  14,301
  15,442
  16,558
  17,648
  18,712
  19,753
  20,775
  21,784
  22,785
  23,785
  24,790
  25,807
  26,844
  27,908
  29,004
  30,140
  31,322
  32,556
  33,848
  35,204
  36,629
  38,130
  39,711
  41,377
  43,135
  44,990
  46,947
  49,012
Total cash flow (excl. dividends), $m
  4,825
  14,644
  23,391
  26,316
  29,408
  32,660
  36,069
  39,629
  43,339
  47,199
  51,209
  55,177
  59,496
  63,976
  68,624
  73,445
  78,449
  83,645
  89,042
  94,652
  100,485
  106,556
  112,877
  119,462
  126,327
  133,487
  140,958
  148,760
  156,909
  165,425
  174,328
Retained Cash Flow (-), $m
  4,851
  -7,146
  -1,460
  -1,589
  -1,716
  -1,840
  -1,961
  -2,079
  -2,195
  -2,308
  -2,420
  -2,532
  -2,643
  -2,754
  -2,867
  -2,983
  -3,101
  -3,223
  -3,349
  -3,480
  -3,617
  -3,761
  -3,912
  -4,070
  -4,237
  -4,412
  -4,597
  -4,793
  -4,999
  -5,216
  -5,446
Prev. year cash balance distribution, $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 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
 
  7,497
  21,931
  24,727
  27,692
  30,821
  34,108
  37,550
  41,144
  44,891
  48,789
  52,645
  56,853
  61,222
  65,756
  70,463
  75,349
  80,422
  85,693
  91,171
  96,868
  102,795
  108,965
  115,392
  122,090
  129,074
  136,361
  143,967
  151,910
  160,208
  168,882
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
 
  6,904
  18,449
  18,843
  18,945
  18,748
  18,259
  17,499
  16,498
  15,298
  13,946
  12,447
  10,954
  9,464
  8,020
  6,663
  5,421
  4,317
  3,361
  2,556
  1,897
  1,372
  966
  662
  440
  284
  177
  107
  62
  35
  19
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 180.9
Price to Sales 5.9
Price to Book 146.8
Price to Tangible Book
Price to Cash Flow 25.4
Price to Free Cash Flow 39.8
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 18.5% 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 -10%. 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 2421.94 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 $98.9 billion.

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COMPANY NEWS

▶ [$$] Glaxo Slashes R&D Projects to Focus on Top Prospects   [Jul-27-17 01:09AM  The Wall Street Journal]
▶ Glaxo reports 2Q loss   [Jul-26-17 09:58PM  Associated Press]
▶ [$$] Glaxo Slashes R&D Projects to Focus on Top Prospects   [11:22AM  The Wall Street Journal]
▶ Glaxo Looks Beyond the Lab   [09:46AM  Bloomberg]
▶ GSK Stock Falls on Reduced Guidance   [07:10AM  TheStreet.com]
▶ Unpacking GlaxoSmithKlines 2Q17 Revenue Expectations   [Jul-25-17 06:06PM  Market Realist]
▶ GSK-backed ViiV Healthcare pushing forward in HIV treatments   [Jul-24-17 06:05PM  American City Business Journals]
▶ Gilead's HIV Drug Matches Glaxo Rival In Late-Stage Trials   [04:45PM  Investor's Business Daily]
▶ [$$] GlaxoSmithKline to Sell Its U.K. Horlicks Brand   [Jul-19-17 12:18PM  The Wall Street Journal]
▶ 3 Value Stocks for Conservative Investors   [Jul-17-17 09:33PM  Motley Fool]
▶ GlaxoSmithKlines Performance in 2Q17   [Jul-07-17 04:07PM  Market Realist]
▶ Tesla's Stock Is Only Worth This Much: Goldman   [Jul-05-17 04:14PM  Investor's Business Daily]
▶ 3 Top High-Yield Pharmaceutical Stocks to Buy Now   [Jul-03-17 03:11PM  Motley Fool]
▶ Better Buy: GlaxoSmithKline plc vs. Bristol-Myers Squibb   [Jul-02-17 09:47AM  Motley Fool]
▶ 5 Biotech Stocks With Major Catalysts in July   [Jun-28-17 04:22PM  Motley Fool]
▶ Dupixent May Prove Effective in Multiple Diseases   [Jun-20-17 02:06PM  Market Realist]
▶ Why GlaxoSmithKline Stock Had a Breakout May   [Jun-09-17 06:22PM  Motley Fool]
▶ Deed records reveal sale price, billionaire buyer of GSKs RTP campus   [Jun-01-17 04:15PM  American City Business Journals]
▶ GlaxoSmithKlines Vaccines Segment in 1Q17   [09:08AM  Market Realist]
▶ GlaxoSmithKlines Segment Performances in 1Q17   [May-31-17 05:35PM  Market Realist]
▶ GlaxoSmithKline Surges to New Highs   [03:17PM  TheStreet.com]
▶ Gilead's HIV Combo Passes Muster, But Can It Stand Up To Glaxo, Merck?   [May-30-17 04:21PM  Investor's Business Daily]
▶ Biotech And Pharma Industry And Stock News   [11:21AM  Investor's Business Daily]
▶ [$$] GSK among biggest gainers as weak pound lifts FTSE 100   [May-26-17 05:44PM  Financial Times]
▶ Gardasil and Mercks Vaccines Business in 1Q17   [May-24-17 09:06AM  Market Realist]
▶ A Close Look at Merck & Co.s Valuation after 1Q17 Earnings   [May-23-17 08:14AM  Market Realist]
▶ Better Buy: Celldex Therapeutics, Inc. vs. Agenus Inc.   [May-21-17 06:41AM  Motley Fool]
Stock chart of GSK Financial statements of GSK Annual reports 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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