Intrinsic value of Houlihan Lokey Cl A - HLI

Previous Close

$35.43

  Intrinsic Value

$289.39

stock screener

  Rating & Target

str. buy

+717%

  Value-price divergence*

+163%

Previous close

$35.43

 
Intrinsic value

$289.39

 
Up/down potential

+717%

 
Rating

str. buy

 
Value-price divergence*

+163%

Our model is not good at valuating stocks of financial companies, such as HLI.

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

We calculate the intrinsic value of HLI 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 2017), $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 2.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  25.65
  39.70
  36.23
  33.11
  30.30
  27.77
  25.49
  23.44
  21.60
  19.94
  18.44
  17.10
  15.89
  14.80
  13.82
  12.94
  12.14
  11.43
  10.79
  10.21
  9.69
  9.22
  8.80
  8.42
  8.08
  7.77
  7.49
  7.24
  7.02
  6.82
  6.63
Revenue, $m
  872
  1,218
  1,660
  2,209
  2,878
  3,677
  4,615
  5,696
  6,927
  8,308
  9,840
  11,522
  13,353
  15,330
  17,448
  19,706
  22,099
  24,625
  27,281
  30,066
  32,979
  36,019
  39,187
  42,486
  45,917
  49,483
  53,190
  57,042
  61,046
  65,206
  69,532
Variable operating expenses, $m
 
  843
  1,148
  1,529
  1,992
  2,545
  3,193
  3,942
  4,793
  5,749
  6,809
  7,974
  9,240
  10,608
  12,074
  13,636
  15,292
  17,040
  18,878
  20,806
  22,821
  24,925
  27,118
  29,400
  31,774
  34,243
  36,808
  39,473
  42,243
  45,123
  48,116
Fixed operating expenses, $m
 
  91
  94
  96
  98
  101
  103
  106
  108
  111
  114
  117
  120
  123
  126
  129
  132
  135
  139
  142
  146
  149
  153
  157
  161
  165
  169
  173
  178
  182
  187
Total operating expenses, $m
  690
  934
  1,242
  1,625
  2,090
  2,646
  3,296
  4,048
  4,901
  5,860
  6,923
  8,091
  9,360
  10,731
  12,200
  13,765
  15,424
  17,175
  19,017
  20,948
  22,967
  25,074
  27,271
  29,557
  31,935
  34,408
  36,977
  39,646
  42,421
  45,305
  48,303
Operating income, $m
  182
  284
  418
  585
  788
  1,032
  1,318
  1,649
  2,025
  2,448
  2,917
  3,432
  3,993
  4,599
  5,248
  5,940
  6,674
  7,449
  8,264
  9,118
  10,012
  10,944
  11,916
  12,929
  13,981
  15,076
  16,214
  17,396
  18,624
  19,901
  21,229
EBITDA, $m
  190
  306
  448
  625
  841
  1,100
  1,403
  1,754
  2,152
  2,600
  3,098
  3,644
  4,239
  4,881
  5,569
  6,303
  7,081
  7,902
  8,766
  9,671
  10,618
  11,607
  12,638
  13,710
  14,826
  15,986
  17,192
  18,445
  19,748
  21,101
  22,509
Interest expense (income), $m
  1
  1
  10
  22
  36
  54
  75
  99
  128
  160
  196
  237
  281
  329
  381
  437
  496
  559
  625
  695
  768
  845
  925
  1,008
  1,094
  1,185
  1,278
  1,376
  1,477
  1,582
  1,691
Earnings before tax, $m
  178
  283
  407
  563
  752
  978
  1,243
  1,549
  1,897
  2,287
  2,720
  3,195
  3,712
  4,270
  4,867
  5,504
  6,178
  6,890
  7,639
  8,423
  9,243
  10,100
  10,992
  11,921
  12,887
  13,891
  14,935
  16,020
  17,147
  18,319
  19,538
Tax expense, $m
  70
  76
  110
  152
  203
  264
  336
  418
  512
  618
  734
  863
  1,002
  1,153
  1,314
  1,486
  1,668
  1,860
  2,062
  2,274
  2,496
  2,727
  2,968
  3,219
  3,479
  3,751
  4,033
  4,325
  4,630
  4,946
  5,275
Net income, $m
  108
  206
  297
  411
  549
  714
  908
  1,131
  1,385
  1,670
  1,986
  2,333
  2,710
  3,117
  3,553
  4,018
  4,510
  5,030
  5,576
  6,149
  6,748
  7,373
  8,024
  8,702
  9,407
  10,141
  10,903
  11,695
  12,518
  13,373
  14,263

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  300
  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
  1,382
  1,511
  2,059
  2,741
  3,571
  4,562
  5,725
  7,068
  8,594
  10,307
  12,208
  14,296
  16,567
  19,019
  21,648
  24,449
  27,418
  30,552
  33,847
  37,303
  40,916
  44,688
  48,620
  52,712
  56,969
  61,394
  65,993
  70,772
  75,739
  80,901
  86,269
Adjusted assets (=assets-cash), $m
  1,082
  1,511
  2,059
  2,741
  3,571
  4,562
  5,725
  7,068
  8,594
  10,307
  12,208
  14,296
  16,567
  19,019
  21,648
  24,449
  27,418
  30,552
  33,847
  37,303
  40,916
  44,688
  48,620
  52,712
  56,969
  61,394
  65,993
  70,772
  75,739
  80,901
  86,269
Revenue / Adjusted assets
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
Average production assets, $m
  482
  672
  916
  1,219
  1,589
  2,030
  2,547
  3,144
  3,824
  4,586
  5,432
  6,360
  7,371
  8,462
  9,631
  10,878
  12,199
  13,593
  15,059
  16,596
  18,204
  19,882
  21,631
  23,452
  25,346
  27,315
  29,361
  31,487
  33,697
  35,994
  38,382
Working capital, $m
  0
  -122
  -166
  -221
  -288
  -368
  -461
  -570
  -693
  -831
  -984
  -1,152
  -1,335
  -1,533
  -1,745
  -1,971
  -2,210
  -2,462
  -2,728
  -3,007
  -3,298
  -3,602
  -3,919
  -4,249
  -4,592
  -4,948
  -5,319
  -5,704
  -6,105
  -6,521
  -6,953
Total debt, $m
  33
  292
  624
  1,036
  1,538
  2,138
  2,842
  3,654
  4,577
  5,614
  6,764
  8,027
  9,401
  10,885
  12,475
  14,170
  15,966
  17,862
  19,856
  21,946
  24,132
  26,414
  28,793
  31,269
  33,844
  36,521
  39,304
  42,195
  45,200
  48,323
  51,570
Total liabilities, $m
  656
  914
  1,246
  1,658
  2,160
  2,760
  3,464
  4,276
  5,199
  6,236
  7,386
  8,649
  10,023
  11,507
  13,097
  14,792
  16,588
  18,484
  20,478
  22,568
  24,754
  27,036
  29,415
  31,891
  34,466
  37,143
  39,926
  42,817
  45,822
  48,945
  52,192
Total equity, $m
  727
  597
  813
  1,083
  1,411
  1,802
  2,262
  2,792
  3,395
  4,071
  4,822
  5,647
  6,544
  7,513
  8,551
  9,657
  10,830
  12,068
  13,370
  14,735
  16,162
  17,652
  19,205
  20,821
  22,503
  24,251
  26,067
  27,955
  29,917
  31,956
  34,076
Total liabilities and equity, $m
  1,383
  1,511
  2,059
  2,741
  3,571
  4,562
  5,726
  7,068
  8,594
  10,307
  12,208
  14,296
  16,567
  19,020
  21,648
  24,449
  27,418
  30,552
  33,848
  37,303
  40,916
  44,688
  48,620
  52,712
  56,969
  61,394
  65,993
  70,772
  75,739
  80,901
  86,268
Debt-to-equity ratio
  0.045
  0.490
  0.770
  0.960
  1.090
  1.190
  1.260
  1.310
  1.350
  1.380
  1.400
  1.420
  1.440
  1.450
  1.460
  1.470
  1.470
  1.480
  1.490
  1.490
  1.490
  1.500
  1.500
  1.500
  1.500
  1.510
  1.510
  1.510
  1.510
  1.510
  1.510
Adjusted equity ratio
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395
  0.395

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  108
  206
  297
  411
  549
  714
  908
  1,131
  1,385
  1,670
  1,986
  2,333
  2,710
  3,117
  3,553
  4,018
  4,510
  5,030
  5,576
  6,149
  6,748
  7,373
  8,024
  8,702
  9,407
  10,141
  10,903
  11,695
  12,518
  13,373
  14,263
Depreciation, amort., depletion, $m
  8
  22
  31
  41
  53
  68
  85
  105
  127
  153
  181
  212
  246
  282
  321
  363
  407
  453
  502
  553
  607
  663
  721
  782
  845
  910
  979
  1,050
  1,123
  1,200
  1,279
Funds from operations, $m
  -83
  229
  328
  451
  602
  782
  993
  1,236
  1,512
  1,823
  2,167
  2,545
  2,956
  3,399
  3,874
  4,380
  4,917
  5,483
  6,078
  6,702
  7,355
  8,036
  8,745
  9,484
  10,252
  11,051
  11,881
  12,744
  13,641
  14,573
  15,542
Change in working capital, $m
  -97
  -35
  -44
  -55
  -67
  -80
  -94
  -108
  -123
  -138
  -153
  -168
  -183
  -198
  -212
  -226
  -239
  -253
  -266
  -278
  -291
  -304
  -317
  -330
  -343
  -357
  -371
  -385
  -400
  -416
  -433
Cash from operations, $m
  14
  263
  372
  506
  669
  862
  1,086
  1,344
  1,635
  1,961
  2,320
  2,713
  3,139
  3,597
  4,086
  4,606
  5,156
  5,736
  6,344
  6,981
  7,646
  8,340
  9,062
  9,814
  10,595
  11,408
  12,252
  13,129
  14,041
  14,989
  15,975
Maintenance CAPEX, $m
  0
  -16
  -22
  -31
  -41
  -53
  -68
  -85
  -105
  -127
  -153
  -181
  -212
  -246
  -282
  -321
  -363
  -407
  -453
  -502
  -553
  -607
  -663
  -721
  -782
  -845
  -910
  -979
  -1,050
  -1,123
  -1,200
New CAPEX, $m
  -9
  -191
  -244
  -303
  -369
  -441
  -517
  -597
  -679
  -762
  -846
  -929
  -1,011
  -1,091
  -1,169
  -1,246
  -1,321
  -1,394
  -1,466
  -1,537
  -1,608
  -1,678
  -1,749
  -1,821
  -1,894
  -1,969
  -2,046
  -2,126
  -2,210
  -2,297
  -2,388
Cash from investing activities, $m
  180
  -207
  -266
  -334
  -410
  -494
  -585
  -682
  -784
  -889
  -999
  -1,110
  -1,223
  -1,337
  -1,451
  -1,567
  -1,684
  -1,801
  -1,919
  -2,039
  -2,161
  -2,285
  -2,412
  -2,542
  -2,676
  -2,814
  -2,956
  -3,105
  -3,260
  -3,420
  -3,588
Free cash flow, $m
  194
  57
  106
  173
  259
  367
  501
  662
  851
  1,071
  1,321
  1,603
  1,916
  2,260
  2,635
  3,039
  3,473
  3,935
  4,424
  4,941
  5,485
  6,055
  6,650
  7,272
  7,920
  8,594
  9,295
  10,024
  10,782
  11,569
  12,387
Issuance/(repayment) of debt, $m
  -3
  259
  331
  412
  502
  600
  704
  812
  923
  1,037
  1,150
  1,263
  1,374
  1,483
  1,590
  1,695
  1,796
  1,896
  1,994
  2,090
  2,186
  2,282
  2,378
  2,476
  2,575
  2,677
  2,782
  2,891
  3,005
  3,123
  3,247
Issuance/(repurchase) of shares, $m
  3
  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  
  -2
  259
  331
  412
  502
  600
  704
  812
  923
  1,037
  1,150
  1,263
  1,374
  1,483
  1,590
  1,695
  1,796
  1,896
  1,994
  2,090
  2,186
  2,282
  2,378
  2,476
  2,575
  2,677
  2,782
  2,891
  3,005
  3,123
  3,247
Total cash flow (excl. dividends), $m
  192
  316
  437
  585
  761
  967
  1,205
  1,474
  1,775
  2,108
  2,472
  2,866
  3,290
  3,743
  4,225
  4,733
  5,269
  5,831
  6,418
  7,032
  7,671
  8,337
  9,029
  9,748
  10,495
  11,271
  12,078
  12,916
  13,787
  14,692
  15,634
Retained Cash Flow (-), $m
  -76
  -170
  -216
  -269
  -328
  -392
  -459
  -530
  -603
  -677
  -751
  -825
  -897
  -969
  -1,038
  -1,106
  -1,173
  -1,238
  -1,302
  -1,365
  -1,427
  -1,490
  -1,553
  -1,616
  -1,681
  -1,748
  -1,817
  -1,888
  -1,962
  -2,039
  -2,120
Prev. year cash balance distribution, $m
 
  300
  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
 
  446
  221
  316
  433
  576
  745
  944
  1,172
  1,431
  1,721
  2,041
  2,393
  2,775
  3,187
  3,627
  4,096
  4,593
  5,116
  5,667
  6,244
  6,847
  7,476
  8,131
  8,814
  9,523
  10,261
  11,028
  11,825
  12,653
  13,514
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
 
  428
  202
  275
  357
  446
  541
  638
  733
  822
  902
  969
  1,021
  1,055
  1,070
  1,065
  1,041
  999
  942
  873
  793
  708
  620
  533
  449
  370
  299
  237
  183
  138
  102
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

Houlihan Lokey, Inc., an investment banking company, provides mergers and acquisitions (M&A), financings, financial restructurings, and financial advisory services in the United States, Canada, Europe, Asia, Australia, the Middle East, Latin America, and Africa. Its Corporate Finance segment offers general advisory services on M&A and capital markets offerings; advises public and private institutions on buy-side and sell-side transactions, leveraged loans, private mezzanine debt, high-yield debt, initial public offerings, follow-ons, convertibles, equity private placements, private equity, and liability management transactions; and advises financial sponsors on various transactions. The company also provides financing solutions and capital-raising advisory services for publicly-held and multinational corporations, financial sponsors, and privately-held companies. The company’s Financial Restructuring segment advises creditors and debtors in connection with recapitalization/deleveraging transactions. It also provides a range of advisory services, including structuring, negotiation, and confirmation on plans of reorganization; structuring and analysis of exchange offers; corporate viability assessment; litigation support and expert testimony; and procuring debtor-in-possession financing. Its Financial Advisory segment provides valuations of various assets and liabilities, including companies, illiquid debt and equity securities, and intellectual property. The company’s financial advisory services also provides fairness opinions in connection with M&A and other transactions, and solvency opinions in connection with corporate spin-offs and dividend recapitalizations; and strategic consulting services and dispute resolution services. It serves corporations, financial sponsors, and government agencies. The company was founded in 1972 and is headquartered in Los Angeles, California.

FINANCIAL RATIOS  of  Houlihan Lokey Cl A (HLI)

Valuation Ratios
P/E Ratio 19.4
Price to Sales 2.4
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 149.6
Price to Free Cash Flow 418.9
Growth Rates
Sales Growth Rate 25.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 80%
Cap. Spend. - 3 Yr. Gr. Rate 5.2%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 4.5%
Total Debt to Equity 4.5%
Interest Coverage 179
Management Effectiveness
Return On Assets 8.9%
Ret/ On Assets - 3 Yr. Avg. 7.3%
Return On Total Capital 14.5%
Ret/ On T. Cap. - 3 Yr. Avg. 11.3%
Return On Equity 15.7%
Return On Equity - 3 Yr. Avg. 11.9%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 21.4%
EBITDA Margin - 3 Yr. Avg. 20.2%
Operating Margin 20.9%
Oper. Margin - 3 Yr. Avg. 19.4%
Pre-Tax Margin 20.4%
Pre-Tax Margin - 3 Yr. Avg. 19.3%
Net Profit Margin 12.4%
Net Profit Margin - 3 Yr. Avg. 11.4%
Effective Tax Rate 39.3%
Eff/ Tax Rate - 3 Yr. Avg. 41.1%
Payout Ratio 105.6%

HLI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HLI stock intrinsic value calculation we used $872 million for the last fiscal year's total revenue generated by Houlihan Lokey Cl A. The default revenue input number comes from 2017 income statement of Houlihan Lokey 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 HLI stock valuation model: a) initial revenue growth rate of 39.7% 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 4.3%, whose default value for HLI is calculated based on our internal credit rating of Houlihan Lokey 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 Houlihan Lokey 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 HLI stock the variable cost ratio is equal to 69.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $89 million in the base year in the intrinsic value calculation for HLI 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 Houlihan Lokey Cl A.

Corporate tax rate of 27% is the nominal tax rate for Houlihan Lokey 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 HLI 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 HLI are equal to 55.2%.

Life of production assets of 92.6 years is the average useful life of capital assets used in Houlihan Lokey 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 HLI 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 - $727 million for Houlihan Lokey 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 65.757 million for Houlihan Lokey 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 Houlihan Lokey Cl A at the current share price and the inputted number of shares is $2.3 billion.

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COMPANY NEWS

▶ MOVES- HSBC, Lazard, Baird   [Aug-14-17 04:02PM  Reuters]
▶ Houlihan Lokey posts 1Q profit   [Jul-25-17 11:05PM  Associated Press]
▶ Houlihan Lokey posts 4Q profit   [May-09-17 07:28PM  Associated Press]
▶ Stocks, Oil Rise; Earnings Fuel Breakout For Constellation Brands   [Apr-06-17 02:56PM  Investor's Business Daily]
▶ [$$] KRG Selling PAS International to StandardAero   [Mar-29-17 01:36PM  at The Wall Street Journal]
▶ White Oak Acquires Capital Business Credit   [Dec-15-16 01:00PM  Business Wire]
▶ Should You Buy Houlihan Lokey Inc (HLI)?   [Dec-09-16 07:37PM  at Insider Monkey]
▶ [$$] Broadview Networks Nears End of Auction   [Dec-02-16 07:30AM  at The Wall Street Journal]
▶ [$$] Riverside Sells Independent Doctors of Optometric Care   [Nov-10-16 07:04PM  at The Wall Street Journal]
▶ MOVES-Houlihan Lokey, Credit Suisse, AXA   [Sep-19-16 04:50PM  Reuters]
▶ The Business of Fantasy Sports   [Sep-06-16 03:10PM  at MarketWatch]
Stock chart of HLI Financial statements of HLI
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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