Intrinsic value of HCA Healthcare - HCA

Previous Close

$75.19

  Intrinsic Value

$33.51

stock screener

  Rating & Target

str. sell

-55%

  Value-price divergence*

-12%

Previous close

$75.19

 
Intrinsic value

$33.51

 
Up/down potential

-55%

 
Rating

str. sell

 
Value-price divergence*

-12%

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

We calculate the intrinsic value of HCA 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 27.2

 

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, %
  4.57
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
Revenue, $m
  41,490
  43,150
  44,919
  46,801
  48,800
  50,920
  53,165
  55,541
  58,052
  60,705
  63,505
  66,458
  69,573
  72,855
  76,313
  79,954
  83,787
  87,821
  92,065
  96,530
  101,226
  106,165
  111,357
  116,815
  122,552
  128,582
  134,919
  141,578
  148,574
  155,925
  163,648
Variable operating expenses, $m
 
  22,670
  23,572
  24,531
  25,551
  26,631
  27,776
  28,987
  30,268
  31,620
  33,048
  33,883
  35,471
  37,145
  38,907
  40,764
  42,718
  44,775
  46,939
  49,215
  51,609
  54,127
  56,774
  59,557
  62,482
  65,557
  68,787
  72,182
  75,749
  79,497
  83,435
Fixed operating expenses, $m
 
  13,899
  14,246
  14,603
  14,968
  15,342
  15,725
  16,119
  16,522
  16,935
  17,358
  17,792
  18,237
  18,693
  19,160
  19,639
  20,130
  20,633
  21,149
  21,678
  22,220
  22,775
  23,345
  23,928
  24,526
  25,139
  25,768
  26,412
  27,072
  27,749
  28,443
Total operating expenses, $m
  35,050
  36,569
  37,818
  39,134
  40,519
  41,973
  43,501
  45,106
  46,790
  48,555
  50,406
  51,675
  53,708
  55,838
  58,067
  60,403
  62,848
  65,408
  68,088
  70,893
  73,829
  76,902
  80,119
  83,485
  87,008
  90,696
  94,555
  98,594
  102,821
  107,246
  111,878
Operating income, $m
  6,440
  6,581
  7,100
  7,667
  8,281
  8,946
  9,663
  10,435
  11,263
  12,150
  13,099
  14,783
  15,865
  17,018
  18,245
  19,551
  20,939
  22,413
  23,978
  25,637
  27,397
  29,262
  31,238
  33,330
  35,544
  37,886
  40,364
  42,983
  45,752
  48,679
  51,770
EBITDA, $m
  8,406
  8,682
  9,260
  9,889
  10,570
  11,305
  12,097
  12,947
  13,858
  14,833
  15,875
  16,987
  18,172
  19,434
  20,776
  22,202
  23,717
  25,325
  27,030
  28,838
  30,754
  32,783
  34,930
  37,203
  39,607
  42,150
  44,837
  47,678
  50,679
  53,849
  57,197
Interest expense (income), $m
  1,666
  1,683
  1,151
  1,219
  1,292
  1,370
  1,452
  1,539
  1,631
  1,729
  1,832
  1,940
  2,055
  2,176
  2,303
  2,437
  2,578
  2,727
  2,883
  3,048
  3,221
  3,403
  3,595
  3,796
  4,008
  4,230
  4,464
  4,710
  4,968
  5,240
  5,525
Earnings before tax, $m
  4,810
  4,898
  5,950
  6,447
  6,989
  7,576
  8,211
  8,895
  9,631
  10,421
  11,267
  12,843
  13,810
  14,842
  15,942
  17,114
  18,361
  19,686
  21,094
  22,589
  24,176
  25,859
  27,643
  29,533
  31,536
  33,656
  35,899
  38,273
  40,784
  43,439
  46,245
Tax expense, $m
  1,378
  1,322
  1,606
  1,741
  1,887
  2,046
  2,217
  2,402
  2,600
  2,814
  3,042
  3,468
  3,729
  4,007
  4,304
  4,621
  4,957
  5,315
  5,695
  6,099
  6,528
  6,982
  7,464
  7,974
  8,515
  9,087
  9,693
  10,334
  11,012
  11,728
  12,486
Net income, $m
  2,890
  3,576
  4,343
  4,707
  5,102
  5,531
  5,994
  6,494
  7,031
  7,607
  8,225
  9,375
  10,081
  10,835
  11,638
  12,493
  13,403
  14,371
  15,399
  16,490
  17,649
  18,877
  20,179
  21,559
  23,021
  24,569
  26,206
  27,939
  29,772
  31,710
  33,759

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  646
  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
  33,758
  34,437
  35,849
  37,351
  38,946
  40,638
  42,430
  44,326
  46,330
  48,447
  50,682
  53,039
  55,525
  58,144
  60,904
  63,810
  66,869
  70,088
  73,476
  77,039
  80,787
  84,728
  88,872
  93,228
  97,807
  102,619
  107,677
  112,991
  118,575
  124,441
  130,605
Adjusted assets (=assets-cash), $m
  33,112
  34,437
  35,849
  37,351
  38,946
  40,638
  42,430
  44,326
  46,330
  48,447
  50,682
  53,039
  55,525
  58,144
  60,904
  63,810
  66,869
  70,088
  73,476
  77,039
  80,787
  84,728
  88,872
  93,228
  97,807
  102,619
  107,677
  112,991
  118,575
  124,441
  130,605
Revenue / Adjusted assets
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
Average production assets, $m
  15,683
  16,311
  16,979
  17,691
  18,446
  19,248
  20,096
  20,994
  21,944
  22,946
  24,005
  25,121
  26,299
  27,539
  28,846
  30,222
  31,671
  33,196
  34,801
  36,488
  38,264
  40,130
  42,093
  44,156
  46,325
  48,604
  50,999
  53,516
  56,161
  58,940
  61,859
Working capital, $m
  3,252
  2,934
  3,054
  3,182
  3,318
  3,463
  3,615
  3,777
  3,948
  4,128
  4,318
  4,519
  4,731
  4,954
  5,189
  5,437
  5,697
  5,972
  6,260
  6,564
  6,883
  7,219
  7,572
  7,943
  8,334
  8,744
  9,174
  9,627
  10,103
  10,603
  11,128
Total debt, $m
  31,376
  21,309
  22,580
  23,932
  25,368
  26,890
  28,503
  30,209
  32,013
  33,919
  35,930
  38,052
  40,288
  42,646
  45,129
  47,745
  50,498
  53,396
  56,444
  59,651
  63,025
  66,572
  70,301
  74,221
  78,342
  82,673
  87,225
  92,008
  97,033
  102,313
  107,860
Total liabilities, $m
  41,060
  30,993
  32,264
  33,616
  35,052
  36,574
  38,187
  39,893
  41,697
  43,603
  45,614
  47,736
  49,972
  52,330
  54,813
  57,429
  60,182
  63,080
  66,128
  69,335
  72,709
  76,256
  79,985
  83,905
  88,026
  92,357
  96,909
  101,692
  106,717
  111,997
  117,544
Total equity, $m
  -7,302
  3,444
  3,585
  3,735
  3,895
  4,064
  4,243
  4,433
  4,633
  4,845
  5,068
  5,304
  5,552
  5,814
  6,090
  6,381
  6,687
  7,009
  7,348
  7,704
  8,079
  8,473
  8,887
  9,323
  9,781
  10,262
  10,768
  11,299
  11,857
  12,444
  13,060
Total liabilities and equity, $m
  33,758
  34,437
  35,849
  37,351
  38,947
  40,638
  42,430
  44,326
  46,330
  48,448
  50,682
  53,040
  55,524
  58,144
  60,903
  63,810
  66,869
  70,089
  73,476
  77,039
  80,788
  84,729
  88,872
  93,228
  97,807
  102,619
  107,677
  112,991
  118,574
  124,441
  130,604
Debt-to-equity ratio
  -4.297
  6.190
  6.300
  6.410
  6.510
  6.620
  6.720
  6.820
  6.910
  7.000
  7.090
  7.170
  7.260
  7.330
  7.410
  7.480
  7.550
  7.620
  7.680
  7.740
  7.800
  7.860
  7.910
  7.960
  8.010
  8.060
  8.100
  8.140
  8.180
  8.220
  8.260
Adjusted equity ratio
  -0.240
  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
  2,890
  3,576
  4,343
  4,707
  5,102
  5,531
  5,994
  6,494
  7,031
  7,607
  8,225
  9,375
  10,081
  10,835
  11,638
  12,493
  13,403
  14,371
  15,399
  16,490
  17,649
  18,877
  20,179
  21,559
  23,021
  24,569
  26,206
  27,939
  29,772
  31,710
  33,759
Depreciation, amort., depletion, $m
  1,966
  2,101
  2,160
  2,222
  2,288
  2,359
  2,433
  2,512
  2,595
  2,683
  2,776
  2,204
  2,307
  2,416
  2,530
  2,651
  2,778
  2,912
  3,053
  3,201
  3,356
  3,520
  3,692
  3,873
  4,064
  4,264
  4,474
  4,694
  4,926
  5,170
  5,426
Funds from operations, $m
  2,438
  5,677
  6,503
  6,929
  7,391
  7,890
  8,427
  9,006
  9,626
  10,291
  11,001
  11,579
  12,388
  13,251
  14,168
  15,144
  16,181
  17,283
  18,451
  19,691
  21,005
  22,397
  23,872
  25,433
  27,085
  28,832
  30,680
  32,634
  34,699
  36,881
  39,185
Change in working capital, $m
  -3,215
  113
  120
  128
  136
  144
  153
  162
  171
  180
  190
  201
  212
  223
  235
  248
  261
  274
  289
  304
  319
  336
  353
  371
  390
  410
  431
  453
  476
  500
  525
Cash from operations, $m
  5,653
  5,564
  6,383
  6,801
  7,255
  7,745
  8,275
  8,844
  9,455
  10,110
  10,811
  11,378
  12,177
  13,027
  13,933
  14,897
  15,921
  17,008
  18,163
  19,387
  20,686
  22,061
  23,519
  25,062
  26,694
  28,422
  30,249
  32,181
  34,223
  36,381
  38,660
Maintenance CAPEX, $m
  0
  -1,376
  -1,431
  -1,489
  -1,552
  -1,618
  -1,688
  -1,763
  -1,842
  -1,925
  -2,013
  -2,106
  -2,204
  -2,307
  -2,416
  -2,530
  -2,651
  -2,778
  -2,912
  -3,053
  -3,201
  -3,356
  -3,520
  -3,692
  -3,873
  -4,064
  -4,264
  -4,474
  -4,694
  -4,926
  -5,170
New CAPEX, $m
  -2,760
  -628
  -669
  -711
  -756
  -801
  -849
  -898
  -949
  -1,003
  -1,058
  -1,117
  -1,177
  -1,241
  -1,307
  -1,376
  -1,449
  -1,525
  -1,604
  -1,688
  -1,775
  -1,867
  -1,963
  -2,063
  -2,169
  -2,279
  -2,395
  -2,517
  -2,645
  -2,779
  -2,919
Cash from investing activities, $m
  -3,240
  -2,004
  -2,100
  -2,200
  -2,308
  -2,419
  -2,537
  -2,661
  -2,791
  -2,928
  -3,071
  -3,223
  -3,381
  -3,548
  -3,723
  -3,906
  -4,100
  -4,303
  -4,516
  -4,741
  -4,976
  -5,223
  -5,483
  -5,755
  -6,042
  -6,343
  -6,659
  -6,991
  -7,339
  -7,705
  -8,089
Free cash flow, $m
  2,413
  3,561
  4,283
  4,600
  4,947
  5,326
  5,738
  6,183
  6,664
  7,183
  7,740
  8,156
  8,796
  9,480
  10,211
  10,990
  11,821
  12,705
  13,646
  14,647
  15,710
  16,838
  18,036
  19,306
  20,652
  22,079
  23,590
  25,190
  26,884
  28,676
  30,571
Issuance/(repayment) of debt, $m
  815
  -9,851
  1,271
  1,352
  1,436
  1,523
  1,613
  1,706
  1,804
  1,905
  2,011
  2,122
  2,237
  2,357
  2,483
  2,615
  2,753
  2,898
  3,049
  3,207
  3,373
  3,547
  3,729
  3,920
  4,121
  4,331
  4,552
  4,783
  5,025
  5,280
  5,547
Issuance/(repurchase) of shares, $m
  -2,751
  7,600
  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  
  -2,508
  -2,251
  1,271
  1,352
  1,436
  1,523
  1,613
  1,706
  1,804
  1,905
  2,011
  2,122
  2,237
  2,357
  2,483
  2,615
  2,753
  2,898
  3,049
  3,207
  3,373
  3,547
  3,729
  3,920
  4,121
  4,331
  4,552
  4,783
  5,025
  5,280
  5,547
Total cash flow (excl. dividends), $m
  -95
  1,310
  5,554
  5,952
  6,383
  6,849
  7,350
  7,890
  8,468
  9,088
  9,751
  10,278
  11,033
  11,837
  12,694
  13,605
  14,574
  15,603
  16,695
  17,854
  19,083
  20,385
  21,765
  23,227
  24,773
  26,410
  28,142
  29,973
  31,909
  33,956
  36,118
Retained Cash Flow (-), $m
  -297
  -11,176
  -141
  -150
  -160
  -169
  -179
  -190
  -200
  -212
  -223
  -236
  -249
  -262
  -276
  -291
  -306
  -322
  -339
  -356
  -375
  -394
  -414
  -436
  -458
  -481
  -506
  -531
  -558
  -587
  -616
Prev. year cash balance distribution, $m
 
  430
  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
 
  -9,436
  5,413
  5,802
  6,223
  6,679
  7,171
  7,700
  8,268
  8,876
  9,527
  10,042
  10,784
  11,575
  12,418
  13,315
  14,268
  15,281
  16,356
  17,498
  18,708
  19,991
  21,351
  22,791
  24,315
  25,929
  27,636
  29,442
  31,351
  33,369
  35,502
Discount rate, %
 
  12.20
  12.81
  13.45
  14.12
  14.83
  15.57
  16.35
  17.17
  18.02
  18.93
  19.87
  20.87
  21.91
  23.00
  24.16
  25.36
  26.63
  27.96
  29.36
  30.83
  32.37
  33.99
  35.69
  37.47
  39.35
  41.31
  43.38
  45.55
  47.83
  50.22
PV of cash for distribution, $m
 
  -8,410
  4,253
  3,973
  3,669
  3,346
  3,010
  2,668
  2,328
  1,997
  1,683
  1,367
  1,110
  881
  684
  519
  383
  276
  193
  131
  87
  55
  34
  20
  12
  6
  3
  2
  1
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

HCA Healthcare, Inc., formerly HCA Holdings, Inc., is a holding company. The Company, through its subsidiaries, owns and operates hospitals and related healthcare entities. As of December 31, 2016, the Company operated in two geographically organized groups, including the National and American Groups. As of December 31, 2016, the National Group included 84 hospitals, which were located in Alaska, California, Florida, southern Georgia, Idaho, Indiana, northern Kentucky, Nevada, New Hampshire, South Carolina, Utah and Virginia. As of December 31, 2016, the American Group included 80 hospitals, which were located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Mississippi, Missouri, Oklahoma, Tennessee and Texas. As of December 31, 2016, the Company operated six hospitals in England. The Company owns, manages or operates hospitals, freestanding surgery centers and freestanding emergency care facilities, walk-in clinics, diagnostic and imaging centers, among others.

FINANCIAL RATIOS  of  HCA Healthcare (HCA)

Valuation Ratios
P/E Ratio 9.6
Price to Sales 0.7
Price to Book -3.8
Price to Tangible Book
Price to Cash Flow 4.9
Price to Free Cash Flow 9.6
Growth Rates
Sales Growth Rate 4.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 16.2%
Cap. Spend. - 3 Yr. Gr. Rate 7.3%
Financial Strength
Quick Ratio 3
Current Ratio 0.2
LT Debt to Equity -426.7%
Total Debt to Equity -429.7%
Interest Coverage 4
Management Effectiveness
Return On Assets 12.3%
Ret/ On Assets - 3 Yr. Avg. 10.9%
Return On Total Capital 12.3%
Ret/ On T. Cap. - 3 Yr. Avg. 10.3%
Return On Equity -38.8%
Return On Equity - 3 Yr. Avg. -29.8%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 83.3%
Gross Margin - 3 Yr. Avg. 83.2%
EBITDA Margin 20.3%
EBITDA Margin - 3 Yr. Avg. 19.5%
Operating Margin 15.5%
Oper. Margin - 3 Yr. Avg. 14.5%
Pre-Tax Margin 11.6%
Pre-Tax Margin - 3 Yr. Avg. 10.3%
Net Profit Margin 7%
Net Profit Margin - 3 Yr. Avg. 5.8%
Effective Tax Rate 28.6%
Eff/ Tax Rate - 3 Yr. Avg. 30.8%
Payout Ratio 0%

HCA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HCA stock intrinsic value calculation we used $41490 million for the last fiscal year's total revenue generated by HCA Healthcare. The default revenue input number comes from 2016 income statement of HCA Healthcare. 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 HCA stock valuation model: a) initial revenue growth rate of 4% 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 12.2%, whose default value for HCA is calculated based on our internal credit rating of HCA Healthcare, 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 HCA Healthcare.
    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 HCA stock the variable cost ratio is equal to 52.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $13560 million in the base year in the intrinsic value calculation for HCA 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 5.4% for HCA Healthcare.

Corporate tax rate of 27% is the nominal tax rate for HCA Healthcare. 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 HCA 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 HCA are equal to 37.8%.

Life of production assets of 11.4 years is the average useful life of capital assets used in HCA Healthcare 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 HCA is equal to 6.8%. 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 - $-7302 million for HCA Healthcare - 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 362.344 million for HCA Healthcare 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 HCA Healthcare at the current share price and the inputted number of shares is $27.2 billion.

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COMPANY NEWS

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▶ HCA Reports Second Quarter 2017 Results   [08:30AM  Business Wire]
▶ HCA 2nd Quarter 2017 Earnings Conference Call   [Jul-10-17 04:45PM  Business Wire]
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▶ ETFs with exposure to HCA Healthcare, Inc. : June 8, 2017   [Jun-08-17 01:38PM  Capital Cube]
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▶ Healthcare Sector Updates for May 2226, 2017   [May-31-17 12:01PM  Market Realist]
▶ S&P 500, Nasdaq Jump to New Records as Crude Oil Slides   [May-25-17 04:31PM  TheStreet.com]
▶ The 3 Best Hospital Stocks to Buy in 2017   [May-17-17 04:42PM  Motley Fool]
▶ Major health care system scoops up four Houston hospitals   [09:21AM  American City Business Journals]
▶ Hospital giant HCA acquires 231-bed hospital in Waycross, Ga.   [07:00AM  American City Business Journals]
Financial statements of HCA
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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