Intrinsic value of Honda Motor ADR - HMC

Previous Close

$27.72

  Intrinsic Value

$8.85

stock screener

  Rating & Target

str. sell

-68%

  Value-price divergence*

+5000%

Previous close

$27.72

 
Intrinsic value

$8.85

 
Up/down potential

-68%

 
Rating

str. sell

 
Value-price divergence*

+5000%

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

We calculate the intrinsic value of HMC 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 49.7

 

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, %
  -4.12
  2.90
  3.11
  3.30
  3.47
  3.62
  3.76
  3.88
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
Revenue, $m
  121,870
  125,404
  129,304
  133,570
  138,204
  143,210
  148,594
  154,366
  160,534
  167,109
  174,105
  181,535
  189,416
  197,763
  206,596
  215,933
  225,796
  236,207
  247,190
  258,771
  270,975
  283,832
  297,371
  311,625
  326,626
  342,410
  359,015
  376,478
  394,842
  414,151
  434,448
Variable operating expenses, $m
 
  121,140
  124,908
  129,029
  133,505
  138,341
  143,542
  149,117
  155,075
  161,427
  168,185
  175,363
  182,976
  191,039
  199,571
  208,591
  218,119
  228,176
  238,786
  249,972
  261,762
  274,182
  287,261
  301,030
  315,521
  330,768
  346,808
  363,678
  381,418
  400,069
  419,677
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
  114,551
  121,140
  124,908
  129,029
  133,505
  138,341
  143,542
  149,117
  155,075
  161,427
  168,185
  175,363
  182,976
  191,039
  199,571
  208,591
  218,119
  228,176
  238,786
  249,972
  261,762
  274,182
  287,261
  301,030
  315,521
  330,768
  346,808
  363,678
  381,418
  400,069
  419,677
Operating income, $m
  7,319
  4,264
  4,396
  4,541
  4,699
  4,869
  5,052
  5,248
  5,458
  5,682
  5,920
  6,172
  6,440
  6,724
  7,024
  7,342
  7,677
  8,031
  8,404
  8,798
  9,213
  9,650
  10,111
  10,595
  11,105
  11,642
  12,206
  12,800
  13,425
  14,081
  14,771
EBITDA, $m
  13,189
  8,038
  8,288
  8,562
  8,859
  9,180
  9,525
  9,895
  10,290
  10,712
  11,160
  11,636
  12,142
  12,677
  13,243
  13,841
  14,474
  15,141
  15,845
  16,587
  17,369
  18,194
  19,062
  19,975
  20,937
  21,949
  23,013
  24,132
  25,309
  26,547
  27,848
Interest expense (income), $m
  867
  1,438
  1,521
  1,613
  1,713
  1,822
  1,939
  2,066
  2,202
  2,347
  2,501
  2,666
  2,841
  3,026
  3,222
  3,430
  3,650
  3,881
  4,126
  4,385
  4,657
  4,944
  5,246
  5,564
  5,900
  6,252
  6,624
  7,014
  7,425
  7,856
  8,310
Earnings before tax, $m
  8,766
  2,825
  2,876
  2,929
  2,986
  3,047
  3,113
  3,182
  3,256
  3,335
  3,418
  3,506
  3,599
  3,698
  3,802
  3,912
  4,028
  4,150
  4,278
  4,414
  4,556
  4,706
  4,865
  5,031
  5,206
  5,390
  5,583
  5,786
  6,000
  6,225
  6,461
Tax expense, $m
  2,852
  763
  776
  791
  806
  823
  840
  859
  879
  900
  923
  947
  972
  998
  1,027
  1,056
  1,087
  1,120
  1,155
  1,192
  1,230
  1,271
  1,313
  1,358
  1,406
  1,455
  1,507
  1,562
  1,620
  1,681
  1,744
Net income, $m
  5,368
  2,063
  2,099
  2,138
  2,180
  2,225
  2,272
  2,323
  2,377
  2,434
  2,495
  2,560
  2,628
  2,700
  2,775
  2,856
  2,940
  3,029
  3,123
  3,222
  3,326
  3,436
  3,551
  3,672
  3,800
  3,934
  4,076
  4,224
  4,380
  4,544
  4,716

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  19,634
  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
  165,040
  149,647
  154,301
  159,391
  164,921
  170,895
  177,320
  184,207
  191,567
  199,414
  207,762
  216,629
  226,033
  235,994
  246,534
  257,676
  269,446
  281,870
  294,976
  308,795
  323,359
  338,702
  354,858
  371,867
  389,769
  408,604
  428,418
  449,258
  471,172
  494,213
  518,435
Adjusted assets (=assets-cash), $m
  145,406
  149,647
  154,301
  159,391
  164,921
  170,895
  177,320
  184,207
  191,567
  199,414
  207,762
  216,629
  226,033
  235,994
  246,534
  257,676
  269,446
  281,870
  294,976
  308,795
  323,359
  338,702
  354,858
  371,867
  389,769
  408,604
  428,418
  449,258
  471,172
  494,213
  518,435
Revenue / Adjusted assets
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
  0.838
Average production assets, $m
  36,654
  37,747
  38,921
  40,205
  41,599
  43,106
  44,727
  46,464
  48,321
  50,300
  52,406
  54,642
  57,014
  59,527
  62,185
  64,996
  67,965
  71,098
  74,404
  77,890
  81,563
  85,433
  89,509
  93,799
  98,314
  103,066
  108,063
  113,320
  118,848
  124,659
  130,769
Working capital, $m
  9,808
  15,926
  16,422
  16,963
  17,552
  18,188
  18,871
  19,604
  20,388
  21,223
  22,111
  23,055
  24,056
  25,116
  26,238
  27,423
  28,676
  29,998
  31,393
  32,864
  34,414
  36,047
  37,766
  39,576
  41,482
  43,486
  45,595
  47,813
  50,145
  52,597
  55,175
Total debt, $m
  60,731
  43,451
  46,072
  48,937
  52,050
  55,414
  59,031
  62,909
  67,052
  71,470
  76,170
  81,162
  86,457
  92,065
  97,999
  104,272
  110,898
  117,893
  125,272
  133,052
  141,251
  149,889
  158,985
  168,561
  178,640
  189,244
  200,400
  212,132
  224,470
  237,442
  251,079
Total liabilities, $m
  101,531
  84,251
  86,872
  89,737
  92,850
  96,214
  99,831
  103,709
  107,852
  112,270
  116,970
  121,962
  127,257
  132,865
  138,799
  145,072
  151,698
  158,693
  166,072
  173,852
  182,051
  190,689
  199,785
  209,361
  219,440
  230,044
  241,200
  252,932
  265,270
  278,242
  291,879
Total equity, $m
  63,509
  65,396
  67,430
  69,654
  72,070
  74,681
  77,489
  80,499
  83,715
  87,144
  90,792
  94,667
  98,776
  103,129
  107,735
  112,605
  117,748
  123,177
  128,905
  134,944
  141,308
  148,013
  155,073
  162,506
  170,329
  178,560
  187,219
  196,326
  205,902
  215,971
  226,556
Total liabilities and equity, $m
  165,040
  149,647
  154,302
  159,391
  164,920
  170,895
  177,320
  184,208
  191,567
  199,414
  207,762
  216,629
  226,033
  235,994
  246,534
  257,677
  269,446
  281,870
  294,977
  308,796
  323,359
  338,702
  354,858
  371,867
  389,769
  408,604
  428,419
  449,258
  471,172
  494,213
  518,435
Debt-to-equity ratio
  0.956
  0.660
  0.680
  0.700
  0.720
  0.740
  0.760
  0.780
  0.800
  0.820
  0.840
  0.860
  0.880
  0.890
  0.910
  0.930
  0.940
  0.960
  0.970
  0.990
  1.000
  1.010
  1.030
  1.040
  1.050
  1.060
  1.070
  1.080
  1.090
  1.100
  1.110
Adjusted equity ratio
  0.302
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,368
  2,063
  2,099
  2,138
  2,180
  2,225
  2,272
  2,323
  2,377
  2,434
  2,495
  2,560
  2,628
  2,700
  2,775
  2,856
  2,940
  3,029
  3,123
  3,222
  3,326
  3,436
  3,551
  3,672
  3,800
  3,934
  4,076
  4,224
  4,380
  4,544
  4,716
Depreciation, amort., depletion, $m
  5,870
  3,775
  3,892
  4,020
  4,160
  4,311
  4,473
  4,646
  4,832
  5,030
  5,241
  5,464
  5,701
  5,953
  6,219
  6,500
  6,796
  7,110
  7,440
  7,789
  8,156
  8,543
  8,951
  9,380
  9,831
  10,307
  10,806
  11,332
  11,885
  12,466
  13,077
Funds from operations, $m
  5,940
  5,837
  5,991
  6,159
  6,340
  6,535
  6,745
  6,970
  7,209
  7,464
  7,736
  8,024
  8,329
  8,652
  8,994
  9,355
  9,737
  10,139
  10,564
  11,011
  11,482
  11,979
  12,502
  13,052
  13,632
  14,241
  14,882
  15,556
  16,265
  17,010
  17,793
Change in working capital, $m
  -1,765
  449
  495
  542
  588
  636
  684
  733
  783
  835
  888
  944
  1,001
  1,060
  1,122
  1,186
  1,253
  1,322
  1,395
  1,471
  1,550
  1,633
  1,720
  1,810
  1,905
  2,005
  2,109
  2,218
  2,332
  2,452
  2,578
Cash from operations, $m
  7,705
  5,388
  5,496
  5,617
  5,751
  5,899
  6,061
  6,237
  6,426
  6,629
  6,847
  7,080
  7,328
  7,592
  7,872
  8,169
  8,484
  8,817
  9,169
  9,540
  9,933
  10,346
  10,782
  11,242
  11,726
  12,236
  12,773
  13,338
  13,933
  14,558
  15,215
Maintenance CAPEX, $m
  0
  -3,665
  -3,775
  -3,892
  -4,020
  -4,160
  -4,311
  -4,473
  -4,646
  -4,832
  -5,030
  -5,241
  -5,464
  -5,701
  -5,953
  -6,219
  -6,500
  -6,796
  -7,110
  -7,440
  -7,789
  -8,156
  -8,543
  -8,951
  -9,380
  -9,831
  -10,307
  -10,806
  -11,332
  -11,885
  -12,466
New CAPEX, $m
  -5,549
  -1,093
  -1,174
  -1,284
  -1,395
  -1,507
  -1,621
  -1,737
  -1,857
  -1,979
  -2,106
  -2,237
  -2,372
  -2,513
  -2,659
  -2,811
  -2,969
  -3,134
  -3,306
  -3,486
  -3,674
  -3,870
  -4,075
  -4,290
  -4,515
  -4,751
  -4,998
  -5,257
  -5,528
  -5,812
  -6,110
Cash from investing activities, $m
  -5,664
  -4,758
  -4,949
  -5,176
  -5,415
  -5,667
  -5,932
  -6,210
  -6,503
  -6,811
  -7,136
  -7,478
  -7,836
  -8,214
  -8,612
  -9,030
  -9,469
  -9,930
  -10,416
  -10,926
  -11,463
  -12,026
  -12,618
  -13,241
  -13,895
  -14,582
  -15,305
  -16,063
  -16,860
  -17,697
  -18,576
Free cash flow, $m
  2,041
  630
  547
  441
  336
  233
  130
  27
  -77
  -182
  -288
  -397
  -508
  -622
  -739
  -860
  -984
  -1,113
  -1,247
  -1,386
  -1,530
  -1,680
  -1,836
  -1,999
  -2,169
  -2,346
  -2,531
  -2,725
  -2,927
  -3,139
  -3,360
Issuance/(repayment) of debt, $m
  3,117
  2,354
  2,620
  2,866
  3,113
  3,363
  3,618
  3,877
  4,144
  4,418
  4,700
  4,992
  5,294
  5,608
  5,934
  6,273
  6,626
  6,995
  7,379
  7,780
  8,199
  8,638
  9,096
  9,576
  10,078
  10,604
  11,155
  11,733
  12,338
  12,972
  13,637
Issuance/(repurchase) of shares, $m
  0
  0
  0
  86
  237
  386
  536
  687
  839
  995
  1,153
  1,315
  1,482
  1,653
  1,831
  2,014
  2,203
  2,400
  2,604
  2,817
  3,038
  3,269
  3,509
  3,761
  4,023
  4,297
  4,583
  4,883
  5,197
  5,525
  5,869
Cash from financing (excl. dividends), $m  
  2,417
  2,354
  2,620
  2,952
  3,350
  3,749
  4,154
  4,564
  4,983
  5,413
  5,853
  6,307
  6,776
  7,261
  7,765
  8,287
  8,829
  9,395
  9,983
  10,597
  11,237
  11,907
  12,605
  13,337
  14,101
  14,901
  15,738
  16,616
  17,535
  18,497
  19,506
Total cash flow (excl. dividends), $m
  4,446
  2,985
  3,168
  3,393
  3,686
  3,982
  4,283
  4,591
  4,906
  5,230
  5,565
  5,910
  6,268
  6,640
  7,026
  7,427
  7,845
  8,281
  8,736
  9,211
  9,708
  10,227
  10,769
  11,338
  11,932
  12,555
  13,207
  13,891
  14,607
  15,358
  16,145
Retained Cash Flow (-), $m
  -4,647
  -1,887
  -2,034
  -2,225
  -2,416
  -2,611
  -2,808
  -3,010
  -3,216
  -3,429
  -3,648
  -3,875
  -4,109
  -4,353
  -4,606
  -4,869
  -5,143
  -5,429
  -5,727
  -6,039
  -6,364
  -6,705
  -7,061
  -7,433
  -7,823
  -8,231
  -8,659
  -9,107
  -9,577
  -10,069
  -10,585
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
 
  1,098
  1,134
  1,169
  1,269
  1,371
  1,475
  1,581
  1,690
  1,801
  1,916
  2,035
  2,159
  2,287
  2,420
  2,558
  2,702
  2,852
  3,009
  3,172
  3,343
  3,522
  3,709
  3,905
  4,109
  4,324
  4,549
  4,784
  5,031
  5,289
  5,560
Discount rate, %
 
  6.50
  6.83
  7.17
  7.52
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
  19.01
  19.96
  20.96
  22.01
  23.11
  24.27
  25.48
  26.75
PV of cash for distribution, $m
 
  1,031
  993
  949
  950
  938
  914
  881
  839
  789
  733
  673
  609
  544
  479
  416
  356
  299
  247
  200
  160
  125
  95
  71
  52
  37
  26
  17
  11
  7
  5
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  99.8
  99.4
  98.7
  97.8
  96.7
  95.5
  94.0
  92.5
  90.8
  89.0
  87.2
  85.2
  83.2
  81.2
  79.2
  77.1
  75.0
  72.9
  70.8
  68.7
  66.6
  64.6
  62.6
  60.6
  58.6
  56.7
  54.9
  53.0

Honda Motor Co., Ltd. develops, manufactures, and distributes motorcycles, automobiles, power products, and other products worldwide. The company operates through four segments: Motorcycle Business, Automobile Business, Financial Services Business, and Power Product and Other Businesses. The Motorcycle Business segment produces sports models, including trial and moto-cross racing vehicles; business and commuter models; all-terrain vehicles; and side-by-side models. The Automobile Business segment offers passenger cars, light trucks, and mini vehicles, as well as vehicles powered with alternative fuel, such as ethanol, battery electric and fuel cell vehicles. The Financial Services Business segment provides various financial services, including retail lending, leasing, and other financial services comprising wholesale financing to dealers and customers. The Power Product and Other Businesses segment engages in the manufacture and sale of various power products consisting of general-purpose engines, generators, water pumps, lawn mowers, riding mowers, grass cutters, brush cutters, tillers, snow blowers, outboard marine engines, power carriers, sprayers, pressure washers, and cogeneration units. This segment also offers HondaJet aircraft. The company sells its products through independent retail dealers, outlets, and authorized dealerships. Honda Motor Co., Ltd. was founded in 1946 and is based in Tokyo, Japan.

FINANCIAL RATIOS  of  Honda Motor ADR (HMC)

Valuation Ratios
P/E Ratio 9.3
Price to Sales 0.4
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 6.5
Price to Free Cash Flow 23.2
Growth Rates
Sales Growth Rate -4.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -26.9%
Cap. Spend. - 3 Yr. Gr. Rate -7.2%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 55.8%
Total Debt to Equity 95.6%
Interest Coverage 11
Management Effectiveness
Return On Assets 3.7%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital 4.5%
Ret/ On T. Cap. - 3 Yr. Avg. 3.6%
Return On Equity 8.8%
Return On Equity - 3 Yr. Avg. 7.1%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 22.4%
Gross Margin - 3 Yr. Avg. 22.4%
EBITDA Margin 12.7%
EBITDA Margin - 3 Yr. Avg. 11.2%
Operating Margin 6%
Oper. Margin - 3 Yr. Avg. 4.8%
Pre-Tax Margin 7.2%
Pre-Tax Margin - 3 Yr. Avg. 5.9%
Net Profit Margin 4.4%
Net Profit Margin - 3 Yr. Avg. 3.5%
Effective Tax Rate 32.5%
Eff/ Tax Rate - 3 Yr. Avg. 33%
Payout Ratio 26.3%

HMC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HMC stock intrinsic value calculation we used $121870 million for the last fiscal year's total revenue generated by Honda Motor ADR. The default revenue input number comes from 2017 income statement of Honda Motor 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 HMC stock valuation model: a) initial revenue growth rate of 2.9% 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 6.5%, whose default value for HMC is calculated based on our internal credit rating of Honda Motor 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 Honda Motor 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 HMC stock the variable cost ratio is equal to 96.6%.

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 HMC 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 Honda Motor ADR.

Corporate tax rate of 27% is the nominal tax rate for Honda Motor 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 HMC 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 HMC are equal to 30.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Honda Motor 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 HMC is equal to 12.7%. 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 - $63509 million for Honda Motor 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 1794.18 million for Honda Motor 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 Honda Motor ADR at the current share price and the inputted number of shares is $49.7 billion.

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COMPANY NEWS

▶ 10 Vehicles That Will Become Classic Cars in 20 Years   [Aug-17-17 10:11PM  The Cheat Sheet]
▶ Why Honda Motors US Sales Fell in July 2017   [Aug-15-17 07:36AM  Market Realist]
▶ 10 of the Most Reliable Cars You Can Buy   [02:15AM  The Cheat Sheet]
▶ 10 Popular Cars We Wish Never Existed   [01:04AM  The Cheat Sheet]
▶ Watch two Acura NSXs scorch the Nurburgring   [Aug-11-17 06:08PM  Autoblog]
▶ The 10 Most Affordable Vehicles to Insure   [12:07AM  The Cheat Sheet]
▶ ETFs in Focus Post Automobile Earnings   [Aug-07-17 02:00PM  Zacks]
▶ Honda sales take slight dip in July despite Acura rebound   [06:10AM  American City Business Journals]
▶ 15 Risky Vehicles Automakers Gambled On   [01:32AM  The Cheat Sheet]
▶ Honda Profit Rises 19% on Strong China Sales   [Aug-02-17 04:06PM  Motley Fool]
▶ 35% upside for Honda stock?   [12:01AM  CNBC Videos]
▶ Honda posts 1Q profit   [Aug-01-17 10:57PM  Associated Press]
▶ Honda sales take slight dip in July despite Acura rebound   [05:40PM  American City Business Journals]
▶ U.S. auto sales edged higher in July   [03:35PM  MarketWatch]
▶ Story Stocks from Briefing.com   [09:58AM  Briefing.com]
▶ This 50cc Japanese Icon May Be About to Go Extinct   [Jul-30-17 05:00PM  Bloomberg]
▶ Luxury Car Companies Dominate Best Auto Website Ranks   [Jul-22-17 09:31AM  24/7 Wall St.]
▶ Death in Australia likely is 18th due to Takata air bags   [Jul-21-17 08:14PM  Associated Press]
▶ Honda-Waymo Talks Stuck in Slow Lane, CEO Says   [09:06AM  The Wall Street Journal]
▶ Acura rebound helps Honda buck industry in June   [05:15PM  American City Business Journals]
▶ 7 Things You Never Knew About Honda   [05:05PM  The Cheat Sheet]
▶ Honda set to debut fully redesigned Accord   [06:25AM  American City Business Journals]
▶ Honda unveils new Accord as midsize cars fall out of favor   [Jul-14-17 06:30PM  Associated Press]
▶ 6 Most Important Things in Business Today   [04:54AM  24/7 Wall St.]
Stock chart of HMC Financial statements of HMC
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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