Intrinsic value of Honda Motor ADR - HMC

Previous Close

$33.66

  Intrinsic Value

$8.72

stock screener

  Rating & Target

str. sell

-74%

Previous close

$33.66

 
Intrinsic value

$8.72

 
Up/down potential

-74%

 
Rating

str. sell

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 61.3

 

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, %
  -4.12
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.77
  5.70
  5.63
  5.56
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
Revenue, $m
  121,870
  130,401
  139,268
  148,488
  158,077
  168,055
  178,443
  189,261
  200,535
  212,288
  224,547
  237,341
  250,697
  264,648
  279,226
  294,465
  310,401
  327,071
  344,516
  362,776
  381,895
  401,918
  422,893
  444,871
  467,903
  492,045
  517,353
  543,890
  571,717
  600,901
  631,512
Variable operating expenses, $m
 
  125,967
  134,533
  143,439
  152,702
  162,341
  172,376
  182,827
  193,717
  205,070
  216,913
  229,271
  242,174
  255,650
  269,732
  284,453
  299,847
  315,951
  332,802
  350,441
  368,910
  388,253
  408,515
  429,745
  451,994
  475,315
  499,763
  525,397
  552,278
  580,470
  610,041
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
  125,967
  134,533
  143,439
  152,702
  162,341
  172,376
  182,827
  193,717
  205,070
  216,913
  229,271
  242,174
  255,650
  269,732
  284,453
  299,847
  315,951
  332,802
  350,441
  368,910
  388,253
  408,515
  429,745
  451,994
  475,315
  499,763
  525,397
  552,278
  580,470
  610,041
Operating income, $m
  7,319
  4,434
  4,735
  5,049
  5,375
  5,714
  6,067
  6,435
  6,818
  7,218
  7,635
  8,070
  8,524
  8,998
  9,494
  10,012
  10,554
  11,120
  11,714
  12,334
  12,984
  13,665
  14,378
  15,126
  15,909
  16,730
  17,590
  18,492
  19,438
  20,431
  21,471
EBITDA, $m
  13,189
  10,697
  11,425
  12,181
  12,968
  13,786
  14,638
  15,526
  16,451
  17,415
  18,421
  19,470
  20,566
  21,710
  22,906
  24,156
  25,463
  26,831
  28,262
  29,760
  31,328
  32,971
  34,692
  36,495
  38,384
  40,364
  42,441
  44,618
  46,900
  49,294
  51,806
Interest expense (income), $m
  867
  1,438
  1,638
  1,847
  2,064
  2,289
  2,524
  2,768
  3,022
  3,287
  3,564
  3,852
  4,153
  4,467
  4,795
  5,138
  5,496
  5,871
  6,263
  6,673
  7,102
  7,552
  8,023
  8,516
  9,033
  9,574
  10,142
  10,737
  11,361
  12,016
  12,702
Earnings before tax, $m
  8,766
  2,995
  3,097
  3,202
  3,311
  3,425
  3,543
  3,667
  3,796
  3,930
  4,071
  4,218
  4,371
  4,531
  4,699
  4,874
  5,057
  5,250
  5,451
  5,661
  5,882
  6,113
  6,356
  6,610
  6,876
  7,155
  7,448
  7,755
  8,077
  8,415
  8,770
Tax expense, $m
  2,852
  809
  836
  864
  894
  925
  957
  990
  1,025
  1,061
  1,099
  1,139
  1,180
  1,223
  1,269
  1,316
  1,366
  1,417
  1,472
  1,529
  1,588
  1,651
  1,716
  1,785
  1,856
  1,932
  2,011
  2,094
  2,181
  2,272
  2,368
Net income, $m
  5,368
  2,187
  2,261
  2,337
  2,417
  2,500
  2,587
  2,677
  2,771
  2,869
  2,972
  3,079
  3,191
  3,308
  3,430
  3,558
  3,692
  3,832
  3,979
  4,133
  4,294
  4,463
  4,640
  4,825
  5,019
  5,223
  5,437
  5,661
  5,896
  6,143
  6,402

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
  155,610
  166,191
  177,193
  188,636
  200,543
  212,939
  225,849
  239,302
  253,327
  267,956
  283,223
  299,162
  315,809
  333,205
  351,390
  370,407
  390,300
  411,117
  432,907
  455,721
  479,616
  504,646
  530,872
  558,357
  587,165
  617,367
  649,033
  682,239
  717,065
  753,594
Adjusted assets (=assets-cash), $m
  145,406
  155,610
  166,191
  177,193
  188,636
  200,543
  212,939
  225,849
  239,302
  253,327
  267,956
  283,223
  299,162
  315,809
  333,205
  351,390
  370,407
  390,300
  411,117
  432,907
  455,721
  479,616
  504,646
  530,872
  558,357
  587,165
  617,367
  649,033
  682,239
  717,065
  753,594
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
  68,451
  73,285
  78,269
  83,450
  88,839
  94,447
  100,285
  106,365
  112,701
  119,306
  126,196
  133,385
  140,892
  148,732
  156,925
  165,489
  174,445
  183,814
  193,618
  203,880
  214,625
  225,878
  237,666
  250,017
  262,962
  276,529
  290,753
  305,666
  321,305
  337,706
  354,910
Working capital, $m
  9,808
  16,561
  17,687
  18,858
  20,076
  21,343
  22,662
  24,036
  25,468
  26,961
  28,518
  30,142
  31,839
  33,610
  35,462
  37,397
  39,421
  41,538
  43,753
  46,073
  48,501
  51,044
  53,707
  56,499
  59,424
  62,490
  65,704
  69,074
  72,608
  76,314
  80,202
Total debt, $m
  60,731
  46,808
  52,766
  58,960
  65,402
  72,106
  79,084
  86,353
  93,927
  101,823
  110,059
  118,654
  127,628
  137,001
  146,795
  157,033
  167,739
  178,939
  190,659
  202,926
  215,771
  229,224
  243,316
  258,081
  273,555
  289,774
  306,778
  324,606
  343,301
  362,908
  383,474
Total liabilities, $m
  101,531
  87,608
  93,566
  99,760
  106,202
  112,906
  119,884
  127,153
  134,727
  142,623
  150,859
  159,454
  168,428
  177,801
  187,595
  197,833
  208,539
  219,739
  231,459
  243,726
  256,571
  270,024
  284,116
  298,881
  314,355
  330,574
  347,578
  365,406
  384,101
  403,708
  424,274
Total equity, $m
  63,509
  68,001
  72,626
  77,433
  82,434
  87,637
  93,054
  98,696
  104,575
  110,704
  117,097
  123,768
  130,734
  138,009
  145,611
  153,558
  161,868
  170,561
  179,658
  189,180
  199,150
  209,592
  220,530
  231,991
  244,002
  256,591
  269,789
  283,627
  298,139
  313,358
  329,321
Total liabilities and equity, $m
  165,040
  155,609
  166,192
  177,193
  188,636
  200,543
  212,938
  225,849
  239,302
  253,327
  267,956
  283,222
  299,162
  315,810
  333,206
  351,391
  370,407
  390,300
  411,117
  432,906
  455,721
  479,616
  504,646
  530,872
  558,357
  587,165
  617,367
  649,033
  682,240
  717,066
  753,595
Debt-to-equity ratio
  0.956
  0.690
  0.730
  0.760
  0.790
  0.820
  0.850
  0.870
  0.900
  0.920
  0.940
  0.960
  0.980
  0.990
  1.010
  1.020
  1.040
  1.050
  1.060
  1.070
  1.080
  1.090
  1.100
  1.110
  1.120
  1.130
  1.140
  1.140
  1.150
  1.160
  1.160
Adjusted equity ratio
  0.371
  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
  2,187
  2,261
  2,337
  2,417
  2,500
  2,587
  2,677
  2,771
  2,869
  2,972
  3,079
  3,191
  3,308
  3,430
  3,558
  3,692
  3,832
  3,979
  4,133
  4,294
  4,463
  4,640
  4,825
  5,019
  5,223
  5,437
  5,661
  5,896
  6,143
  6,402
Depreciation, amort., depletion, $m
  5,870
  6,264
  6,690
  7,132
  7,593
  8,072
  8,571
  9,091
  9,633
  10,197
  10,786
  11,400
  12,042
  12,712
  13,412
  14,144
  14,910
  15,711
  16,549
  17,426
  18,344
  19,306
  20,313
  21,369
  22,475
  23,635
  24,851
  26,125
  27,462
  28,864
  30,334
Funds from operations, $m
  5,940
  8,450
  8,950
  9,470
  10,010
  10,573
  11,158
  11,768
  12,403
  13,066
  13,758
  14,479
  15,233
  16,020
  16,842
  17,702
  18,602
  19,543
  20,528
  21,558
  22,638
  23,768
  24,953
  26,194
  27,495
  28,858
  30,288
  31,786
  33,358
  35,007
  36,736
Change in working capital, $m
  -1,765
  1,083
  1,126
  1,171
  1,218
  1,267
  1,319
  1,374
  1,432
  1,493
  1,557
  1,625
  1,696
  1,772
  1,851
  1,935
  2,024
  2,117
  2,215
  2,319
  2,428
  2,543
  2,664
  2,791
  2,925
  3,066
  3,214
  3,370
  3,534
  3,706
  3,888
Cash from operations, $m
  7,705
  7,367
  7,824
  8,299
  8,792
  9,305
  9,839
  10,394
  10,972
  11,574
  12,201
  12,855
  13,536
  14,248
  14,991
  15,767
  16,578
  17,426
  18,312
  19,239
  20,210
  21,225
  22,289
  23,403
  24,570
  25,792
  27,073
  28,416
  29,824
  31,300
  32,848
Maintenance CAPEX, $m
  0
  -5,851
  -6,264
  -6,690
  -7,132
  -7,593
  -8,072
  -8,571
  -9,091
  -9,633
  -10,197
  -10,786
  -11,400
  -12,042
  -12,712
  -13,412
  -14,144
  -14,910
  -15,711
  -16,549
  -17,426
  -18,344
  -19,306
  -20,313
  -21,369
  -22,475
  -23,635
  -24,851
  -26,125
  -27,462
  -28,864
New CAPEX, $m
  -5,549
  -4,834
  -4,983
  -5,181
  -5,389
  -5,608
  -5,838
  -6,080
  -6,336
  -6,605
  -6,890
  -7,190
  -7,506
  -7,840
  -8,193
  -8,564
  -8,956
  -9,369
  -9,804
  -10,262
  -10,745
  -11,253
  -11,788
  -12,351
  -12,944
  -13,568
  -14,223
  -14,913
  -15,639
  -16,402
  -17,203
Cash from investing activities, $m
  -5,664
  -10,685
  -11,247
  -11,871
  -12,521
  -13,201
  -13,910
  -14,651
  -15,427
  -16,238
  -17,087
  -17,976
  -18,906
  -19,882
  -20,905
  -21,976
  -23,100
  -24,279
  -25,515
  -26,811
  -28,171
  -29,597
  -31,094
  -32,664
  -34,313
  -36,043
  -37,858
  -39,764
  -41,764
  -43,864
  -46,067
Free cash flow, $m
  2,041
  -3,318
  -3,423
  -3,572
  -3,729
  -3,896
  -4,071
  -4,258
  -4,455
  -4,664
  -4,886
  -5,121
  -5,370
  -5,634
  -5,914
  -6,210
  -6,522
  -6,853
  -7,202
  -7,571
  -7,961
  -8,372
  -8,805
  -9,262
  -9,743
  -10,251
  -10,785
  -11,348
  -11,940
  -12,563
  -13,219
Issuance/(repayment) of debt, $m
  3,117
  5,711
  5,957
  6,194
  6,442
  6,704
  6,979
  7,268
  7,574
  7,896
  8,236
  8,595
  8,973
  9,373
  9,794
  10,238
  10,706
  11,200
  11,720
  12,268
  12,845
  13,452
  14,092
  14,765
  15,474
  16,219
  17,003
  17,828
  18,695
  19,607
  20,566
Issuance/(repurchase) of shares, $m
  0
  2,306
  2,363
  2,471
  2,584
  2,703
  2,830
  2,965
  3,108
  3,260
  3,421
  3,593
  3,775
  3,967
  4,172
  4,389
  4,618
  4,861
  5,118
  5,389
  5,676
  5,979
  6,299
  6,636
  6,991
  7,366
  7,761
  8,177
  8,615
  9,076
  9,561
Cash from financing (excl. dividends), $m  
  2,417
  8,017
  8,320
  8,665
  9,026
  9,407
  9,809
  10,233
  10,682
  11,156
  11,657
  12,188
  12,748
  13,340
  13,966
  14,627
  15,324
  16,061
  16,838
  17,657
  18,521
  19,431
  20,391
  21,401
  22,465
  23,585
  24,764
  26,005
  27,310
  28,683
  30,127
Total cash flow (excl. dividends), $m
  4,446
  4,699
  4,898
  5,092
  5,297
  5,511
  5,738
  5,976
  6,227
  6,492
  6,771
  7,066
  7,378
  7,706
  8,052
  8,417
  8,802
  9,208
  9,635
  10,086
  10,560
  11,060
  11,586
  12,139
  12,722
  13,335
  13,979
  14,657
  15,370
  16,120
  16,908
Retained Cash Flow (-), $m
  -4,647
  -4,492
  -4,624
  -4,808
  -5,001
  -5,203
  -5,417
  -5,642
  -5,879
  -6,129
  -6,393
  -6,671
  -6,965
  -7,275
  -7,602
  -7,947
  -8,310
  -8,693
  -9,097
  -9,522
  -9,970
  -10,442
  -10,938
  -11,461
  -12,011
  -12,589
  -13,198
  -13,838
  -14,511
  -15,219
  -15,963
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
 
  207
  274
  285
  296
  308
  321
  334
  348
  363
  378
  395
  412
  431
  450
  470
  492
  515
  539
  564
  590
  618
  648
  678
  711
  745
  781
  819
  859
  901
  945
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
 
  194
  240
  231
  221
  211
  199
  186
  173
  159
  145
  131
  116
  103
  89
  77
  65
  54
  44
  36
  28
  22
  17
  12
  9
  6
  4
  3
  2
  1
  1
Current shareholders' claim on cash, %
  100
  96.4
  93.0
  89.9
  86.9
  84.0
  81.3
  78.7
  76.2
  73.8
  71.5
  69.3
  67.2
  65.1
  63.2
  61.3
  59.4
  57.6
  55.9
  54.2
  52.6
  51.0
  49.4
  47.9
  46.5
  45.1
  43.7
  42.4
  41.1
  39.8
  38.6

Honda Motor Co., Ltd. (Honda) develops, manufactures and markets motorcycles, automobiles and power products across the world. The Company's segments include Motorcycle Business, Automobile business, Financial services business, and Power product and other businesses. The Company produces a range of motorcycles, with engine displacement ranging from the 50 cubic centimeters class to the 1,800 cubic centimeters class. Its automobiles use gasoline engines of three, four or six cylinder, diesel engines, gasoline-electric hybrid systems and gasoline-electric plug-in hybrid systems. Honda offers a range of financial services to its customers and dealers through finance subsidiaries in countries, including Japan, the United States, Canada, the United Kingdom, Germany, Brazil and Thailand. Honda manufactures a range of power products, including general-purpose engines, generators, water pumps, lawn mowers, riding mowers, grass cutters, brush cutters, tillers and snow blowers.

FINANCIAL RATIOS  of  Honda Motor ADR (HMC)

Valuation Ratios
P/E Ratio 11.3
Price to Sales 0.5
Price to Book 1
Price to Tangible Book
Price to Cash Flow 7.9
Price to Free Cash Flow 28.1
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 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 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 56.2%.

Life of production assets of 11.7 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 1820.71 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 $61.3 billion.

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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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