Intrinsic value of HP - HPQ

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$18.82

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$18.82

 
Intrinsic value

$17.76

 
Up/down potential

-6%

 
Rating

hold

 
Value-price divergence* premium content

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

We calculate the intrinsic value of HPQ 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 32.2

 

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, %
  -6.27
  3.60
  3.74
  3.87
  3.98
  4.08
  4.17
  4.26
  4.33
  4.40
  4.46
  4.51
  4.56
  4.60
  4.64
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
Revenue, $m
  48,238
  49,975
  51,844
  53,848
  55,991
  58,276
  60,708
  63,292
  66,032
  68,936
  72,009
  75,258
  78,690
  82,314
  86,136
  90,167
  94,416
  98,892
  103,605
  108,568
  113,791
  119,287
  125,068
  131,149
  137,544
  144,268
  151,336
  158,766
  166,575
  174,782
  183,406
Variable operating expenses, $m
 
  44,207
  45,840
  47,590
  49,461
  51,457
  53,581
  55,838
  58,231
  60,767
  63,451
  65,726
  68,724
  71,888
  75,227
  78,747
  82,458
  86,367
  90,483
  94,817
  99,379
  104,179
  109,228
  114,539
  120,124
  125,996
  132,169
  138,658
  145,478
  152,645
  160,177
Fixed operating expenses, $m
 
  2,101
  2,154
  2,208
  2,263
  2,319
  2,377
  2,437
  2,498
  2,560
  2,624
  2,690
  2,757
  2,826
  2,897
  2,969
  3,043
  3,119
  3,197
  3,277
  3,359
  3,443
  3,529
  3,617
  3,708
  3,801
  3,896
  3,993
  4,093
  4,195
  4,300
Total operating expenses, $m
  44,689
  46,308
  47,994
  49,798
  51,724
  53,776
  55,958
  58,275
  60,729
  63,327
  66,075
  68,416
  71,481
  74,714
  78,124
  81,716
  85,501
  89,486
  93,680
  98,094
  102,738
  107,622
  112,757
  118,156
  123,832
  129,797
  136,065
  142,651
  149,571
  156,840
  164,477
Operating income, $m
  3,549
  3,666
  3,850
  4,050
  4,266
  4,499
  4,749
  5,017
  5,303
  5,609
  5,934
  6,842
  7,209
  7,599
  8,013
  8,451
  8,915
  9,406
  9,925
  10,473
  11,053
  11,665
  12,311
  12,993
  13,713
  14,472
  15,272
  16,115
  17,005
  17,942
  18,929
EBITDA, $m
  3,881
  4,304
  4,491
  4,694
  4,913
  5,149
  5,403
  5,675
  5,965
  6,275
  6,605
  6,955
  7,328
  7,723
  8,143
  8,587
  9,057
  9,555
  10,081
  10,637
  11,224
  11,845
  12,500
  13,191
  13,920
  14,689
  15,500
  16,355
  17,256
  18,205
  19,206
Interest expense (income), $m
  318
  276
  -201
  -168
  -134
  -96
  -57
  -14
  30
  78
  128
  182
  238
  298
  361
  427
  497
  571
  649
  730
  817
  907
  1,003
  1,103
  1,209
  1,320
  1,437
  1,559
  1,688
  1,824
  1,966
Earnings before tax, $m
  3,761
  3,390
  4,051
  4,219
  4,400
  4,596
  4,806
  5,032
  5,273
  5,531
  5,805
  6,660
  6,971
  7,302
  7,652
  8,024
  8,418
  8,835
  9,276
  9,743
  10,236
  10,758
  11,308
  11,890
  12,504
  13,152
  13,835
  14,556
  15,316
  16,118
  16,963
Tax expense, $m
  1,095
  915
  1,094
  1,139
  1,188
  1,241
  1,298
  1,359
  1,424
  1,493
  1,567
  1,798
  1,882
  1,971
  2,066
  2,166
  2,273
  2,385
  2,505
  2,631
  2,764
  2,905
  3,053
  3,210
  3,376
  3,551
  3,736
  3,930
  4,135
  4,352
  4,580
Net income, $m
  2,496
  2,475
  2,957
  3,080
  3,212
  3,355
  3,508
  3,673
  3,849
  4,037
  4,238
  4,862
  5,089
  5,330
  5,586
  5,857
  6,145
  6,449
  6,772
  7,112
  7,473
  7,853
  8,255
  8,680
  9,128
  9,601
  10,100
  10,626
  11,181
  11,766
  12,383

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,288
  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
  28,987
  23,517
  24,397
  25,340
  26,349
  27,424
  28,568
  29,784
  31,074
  32,441
  33,887
  35,416
  37,031
  38,736
  40,535
  42,432
  44,431
  46,537
  48,755
  51,091
  53,549
  56,135
  58,856
  61,717
  64,727
  67,891
  71,217
  74,713
  78,388
  82,250
  86,309
Adjusted assets (=assets-cash), $m
  22,699
  23,517
  24,397
  25,340
  26,349
  27,424
  28,568
  29,784
  31,074
  32,441
  33,887
  35,416
  37,031
  38,736
  40,535
  42,432
  44,431
  46,537
  48,755
  51,091
  53,549
  56,135
  58,856
  61,717
  64,727
  67,891
  71,217
  74,713
  78,388
  82,250
  86,309
Revenue / Adjusted assets
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
  2.125
Average production assets, $m
  1,614
  1,649
  1,711
  1,777
  1,848
  1,923
  2,003
  2,089
  2,179
  2,275
  2,376
  2,484
  2,597
  2,716
  2,843
  2,976
  3,116
  3,263
  3,419
  3,583
  3,755
  3,936
  4,127
  4,328
  4,539
  4,761
  4,994
  5,239
  5,497
  5,768
  6,052
Working capital, $m
  -340
  -6,797
  -7,051
  -7,323
  -7,615
  -7,926
  -8,256
  -8,608
  -8,980
  -9,375
  -9,793
  -10,235
  -10,702
  -11,195
  -11,715
  -12,263
  -12,841
  -13,449
  -14,090
  -14,765
  -15,476
  -16,223
  -17,009
  -17,836
  -18,706
  -19,620
  -20,582
  -21,592
  -22,654
  -23,770
  -24,943
Total debt, $m
  6,813
  -4,897
  -4,106
  -3,257
  -2,349
  -1,381
  -351
  743
  1,904
  3,133
  4,435
  5,811
  7,265
  8,799
  10,418
  12,126
  13,925
  15,821
  17,817
  19,919
  22,131
  24,458
  26,907
  29,483
  32,191
  35,039
  38,032
  41,179
  44,486
  47,962
  51,615
Total liabilities, $m
  32,876
  21,166
  21,957
  22,806
  23,714
  24,682
  25,712
  26,806
  27,967
  29,196
  30,498
  31,874
  33,328
  34,862
  36,481
  38,189
  39,988
  41,884
  43,880
  45,982
  48,194
  50,521
  52,970
  55,546
  58,254
  61,102
  64,095
  67,242
  70,549
  74,025
  77,678
Total equity, $m
  -3,889
  2,352
  2,440
  2,534
  2,635
  2,742
  2,857
  2,978
  3,107
  3,244
  3,389
  3,542
  3,703
  3,874
  4,053
  4,243
  4,443
  4,654
  4,876
  5,109
  5,355
  5,613
  5,886
  6,172
  6,473
  6,789
  7,122
  7,471
  7,839
  8,225
  8,631
Total liabilities and equity, $m
  28,987
  23,518
  24,397
  25,340
  26,349
  27,424
  28,569
  29,784
  31,074
  32,440
  33,887
  35,416
  37,031
  38,736
  40,534
  42,432
  44,431
  46,538
  48,756
  51,091
  53,549
  56,134
  58,856
  61,718
  64,727
  67,891
  71,217
  74,713
  78,388
  82,250
  86,309
Debt-to-equity ratio
  -1.752
  -2.080
  -1.680
  -1.290
  -0.890
  -0.500
  -0.120
  0.250
  0.610
  0.970
  1.310
  1.640
  1.960
  2.270
  2.570
  2.860
  3.130
  3.400
  3.650
  3.900
  4.130
  4.360
  4.570
  4.780
  4.970
  5.160
  5.340
  5.510
  5.680
  5.830
  5.980
Adjusted equity ratio
  -0.447
  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
  2,496
  2,475
  2,957
  3,080
  3,212
  3,355
  3,508
  3,673
  3,849
  4,037
  4,238
  4,862
  5,089
  5,330
  5,586
  5,857
  6,145
  6,449
  6,772
  7,112
  7,473
  7,853
  8,255
  8,680
  9,128
  9,601
  10,100
  10,626
  11,181
  11,766
  12,383
Depreciation, amort., depletion, $m
  332
  638
  640
  643
  647
  650
  654
  658
  662
  666
  671
  113
  119
  124
  130
  136
  142
  149
  156
  164
  171
  180
  188
  198
  207
  217
  228
  239
  251
  263
  276
Funds from operations, $m
  2,893
  3,112
  3,598
  3,723
  3,859
  4,005
  4,162
  4,331
  4,511
  4,703
  4,909
  4,975
  5,208
  5,454
  5,716
  5,993
  6,287
  6,598
  6,928
  7,276
  7,644
  8,033
  8,444
  8,877
  9,335
  9,818
  10,328
  10,865
  11,432
  12,029
  12,659
Change in working capital, $m
  -337
  -236
  -254
  -273
  -291
  -311
  -331
  -351
  -373
  -395
  -418
  -442
  -467
  -493
  -520
  -548
  -578
  -609
  -641
  -675
  -710
  -747
  -786
  -827
  -870
  -914
  -961
  -1,010
  -1,062
  -1,116
  -1,173
Cash from operations, $m
  3,230
  3,470
  3,852
  3,995
  4,150
  4,316
  4,493
  4,682
  4,884
  5,098
  5,327
  5,417
  5,674
  5,947
  6,236
  6,542
  6,865
  7,207
  7,569
  7,951
  8,354
  8,780
  9,230
  9,704
  10,205
  10,733
  11,289
  11,876
  12,494
  13,146
  13,832
Maintenance CAPEX, $m
  0
  -74
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -100
  -104
  -109
  -113
  -119
  -124
  -130
  -136
  -142
  -149
  -156
  -164
  -171
  -180
  -188
  -198
  -207
  -217
  -228
  -239
  -251
  -263
New CAPEX, $m
  -433
  -35
  -62
  -66
  -71
  -75
  -80
  -85
  -90
  -96
  -101
  -107
  -113
  -120
  -126
  -133
  -140
  -148
  -156
  -164
  -172
  -181
  -191
  -201
  -211
  -222
  -233
  -245
  -258
  -271
  -285
Cash from investing activities, $m
  48
  -109
  -137
  -144
  -152
  -159
  -168
  -176
  -185
  -196
  -205
  -216
  -226
  -239
  -250
  -263
  -276
  -290
  -305
  -320
  -336
  -352
  -371
  -389
  -409
  -429
  -450
  -473
  -497
  -522
  -548
Free cash flow, $m
  3,278
  3,361
  3,715
  3,851
  3,998
  4,156
  4,325
  4,505
  4,698
  4,903
  5,121
  5,201
  5,448
  5,709
  5,986
  6,279
  6,589
  6,917
  7,264
  7,631
  8,018
  8,428
  8,859
  9,315
  9,796
  10,303
  10,838
  11,402
  11,997
  12,624
  13,284
Issuance/(repayment) of debt, $m
  -2,087
  -11,632
  792
  849
  908
  968
  1,030
  1,094
  1,161
  1,230
  1,301
  1,376
  1,454
  1,535
  1,619
  1,707
  1,799
  1,896
  1,996
  2,102
  2,212
  2,328
  2,449
  2,575
  2,708
  2,848
  2,994
  3,147
  3,307
  3,476
  3,652
Issuance/(repurchase) of shares, $m
  -1,113
  14,512
  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  
  -13,565
  2,880
  792
  849
  908
  968
  1,030
  1,094
  1,161
  1,230
  1,301
  1,376
  1,454
  1,535
  1,619
  1,707
  1,799
  1,896
  1,996
  2,102
  2,212
  2,328
  2,449
  2,575
  2,708
  2,848
  2,994
  3,147
  3,307
  3,476
  3,652
Total cash flow (excl. dividends), $m
  -10,287
  -8,271
  4,506
  4,700
  4,906
  5,124
  5,355
  5,600
  5,859
  6,133
  6,423
  6,577
  6,901
  7,243
  7,605
  7,986
  8,388
  8,813
  9,261
  9,733
  10,230
  10,755
  11,308
  11,891
  12,505
  13,151
  13,832
  14,549
  15,304
  16,099
  16,936
Retained Cash Flow (-), $m
  31,657
  -12,451
  -88
  -94
  -101
  -108
  -114
  -122
  -129
  -137
  -145
  -153
  -162
  -171
  -180
  -190
  -200
  -211
  -222
  -234
  -246
  -259
  -272
  -286
  -301
  -316
  -333
  -350
  -367
  -386
  -406
Prev. year cash balance distribution, $m
 
  6,210
  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
 
  0
  4,418
  4,606
  4,805
  5,016
  5,240
  5,478
  5,730
  5,996
  6,278
  6,425
  6,740
  7,073
  7,425
  7,796
  8,188
  8,602
  9,039
  9,499
  9,985
  10,497
  11,036
  11,605
  12,204
  12,835
  13,499
  14,200
  14,937
  15,713
  16,531
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
 
  0
  4,045
  4,008
  3,956
  3,888
  3,803
  3,701
  3,581
  3,444
  3,291
  3,051
  2,876
  2,689
  2,493
  2,289
  2,081
  1,872
  1,665
  1,463
  1,269
  1,086
  916
  761
  622
  499
  394
  305
  231
  172
  124
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

HP Inc. provides products, technologies, software, solutions, and services to individual consumers, small- and medium-sized businesses, and large enterprises, including customers in the government, health, and education sectors worldwide. It operates through Personal Systems and Printing segments. The Personal Systems segment offers commercial personal computers (PCs), consumer PCs, workstations, thin clients, commercial tablets and mobility devices, retail point-of-sale systems, displays and other related accessories, software, support, and services for the commercial and consumer markets. The Printing segment provides consumer and commercial printer hardware, supplies, media, solutions, and services, as well as scanning devices; and laserJet and enterprise, inkjet and printing, graphics, and 3D printing solutions. The company was formerly known as Hewlett-Packard Company and changed its name to HP Inc. in October 2015. HP Inc. was founded in 1939 and is headquartered in Palo Alto, California.

FINANCIAL RATIOS  of  HP (HPQ)

Valuation Ratios
P/E Ratio 12.9
Price to Sales 0.7
Price to Book -8.3
Price to Tangible Book
Price to Cash Flow 10
Price to Free Cash Flow 11.5
Growth Rates
Sales Growth Rate -6.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -88%
Cap. Spend. - 3 Yr. Gr. Rate -33%
Financial Strength
Quick Ratio 81
Current Ratio 0.1
LT Debt to Equity -173.2%
Total Debt to Equity -175.2%
Interest Coverage 13
Management Effectiveness
Return On Assets 4%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 12.6%
Ret/ On T. Cap. - 3 Yr. Avg. 11.3%
Return On Equity 20.9%
Return On Equity - 3 Yr. Avg. 18.7%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 18.7%
Gross Margin - 3 Yr. Avg. 19.3%
EBITDA Margin 9.1%
EBITDA Margin - 3 Yr. Avg. 13.5%
Operating Margin 7.4%
Oper. Margin - 3 Yr. Avg. 7.5%
Pre-Tax Margin 7.8%
Pre-Tax Margin - 3 Yr. Avg. 7.2%
Net Profit Margin 5.2%
Net Profit Margin - 3 Yr. Avg. 7.6%
Effective Tax Rate 29.1%
Eff/ Tax Rate - 3 Yr. Avg. 16.1%
Payout Ratio 34.4%

HPQ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HPQ stock intrinsic value calculation we used $48238 million for the last fiscal year's total revenue generated by HP. The default revenue input number comes from 2016 income statement of HP. 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 HPQ stock valuation model: a) initial revenue growth rate of 3.6% 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 HPQ is calculated based on our internal credit rating of HP, 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 HP.
    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 HPQ stock the variable cost ratio is equal to 88.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2050 million in the base year in the intrinsic value calculation for HPQ stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.1% for HP.

Corporate tax rate of 27% is the nominal tax rate for HP. 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 HPQ 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 HPQ are equal to 3.3%.

Life of production assets of 21.9 years is the average useful life of capital assets used in HP 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 HPQ is equal to -13.6%. 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 - $-3889 million for HP - 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 1713.09 million for HP 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 HP at the current share price and the inputted number of shares is $32.2 billion.


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Stock chart of HPQ Financial statements of HPQ
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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