Intrinsic value of Interactive Brokers Group - IBKR

Previous Close

$60.89

  Intrinsic Value

$95.15

stock screener

  Rating & Target

str. buy

+56%

Previous close

$60.89

 
Intrinsic value

$95.15

 
Up/down potential

+56%

 
Rating

str. buy

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

We calculate the intrinsic value of IBKR 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 25.1

 

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, %
  17.44
  33.10
  30.29
  27.76
  25.48
  23.44
  21.59
  19.93
  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
  8.07
  7.77
  7.49
  7.24
  7.02
  6.82
  6.63
  6.47
  6.32
Revenue, $m
  1,475
  1,963
  2,558
  3,268
  4,101
  5,062
  6,155
  7,382
  8,743
  10,238
  11,864
  13,620
  15,502
  17,507
  19,633
  21,877
  24,236
  26,710
  29,297
  31,998
  34,812
  37,742
  40,790
  43,958
  47,251
  50,672
  54,228
  57,924
  61,767
  65,763
  69,922
Variable operating expenses, $m
 
  1,247
  1,624
  2,075
  2,604
  3,214
  3,908
  4,687
  5,552
  6,501
  7,534
  8,649
  9,844
  11,117
  12,467
  13,892
  15,390
  16,961
  18,604
  20,319
  22,106
  23,966
  25,901
  27,913
  30,004
  32,177
  34,435
  36,782
  39,222
  41,760
  44,400
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
  714
  1,247
  1,624
  2,075
  2,604
  3,214
  3,908
  4,687
  5,552
  6,501
  7,534
  8,649
  9,844
  11,117
  12,467
  13,892
  15,390
  16,961
  18,604
  20,319
  22,106
  23,966
  25,901
  27,913
  30,004
  32,177
  34,435
  36,782
  39,222
  41,760
  44,400
Operating income, $m
  761
  717
  934
  1,193
  1,497
  1,848
  2,247
  2,694
  3,191
  3,737
  4,330
  4,971
  5,658
  6,390
  7,166
  7,985
  8,846
  9,749
  10,693
  11,679
  12,706
  13,776
  14,888
  16,045
  17,246
  18,495
  19,793
  21,142
  22,545
  24,004
  25,521
EBITDA, $m
  786
  726
  946
  1,209
  1,517
  1,873
  2,277
  2,731
  3,235
  3,788
  4,390
  5,039
  5,736
  6,478
  7,264
  8,094
  8,967
  9,883
  10,840
  11,839
  12,881
  13,965
  15,092
  16,264
  17,483
  18,749
  20,064
  21,432
  22,854
  24,332
  25,871
Interest expense (income), $m
  77
  0
  -39,497
  -17,659
  8,418
  39,003
  74,297
  114,437
  159,492
  209,481
  264,372
  324,100
  388,573
  457,687
  531,330
  609,398
  691,796
  778,446
  869,292
  964,304
  1,063,476
  1,166,834
  1,274,431
  1,386,348
  1,502,696
  1,623,614
  1,749,268
  1,879,850
  2,015,578
  2,156,695
  2,303,467
Earnings before tax, $m
  761
  717
  40,431
  18,852
  -6,921
  -37,155
  -72,051
  -111,742
  -156,301
  -205,744
  -260,042
  -319,129
  -382,915
  -451,297
  -524,164
  -601,413
  -682,950
  -768,697
  -858,599
  -952,625
  -1,050,770
  -1,153,058
  -1,259,542
  -1,370,303
  -1,485,449
  -1,605,119
  -1,729,475
  -1,858,708
  -1,993,033
  -2,132,691
  -2,277,945
Tax expense, $m
  62
  193
  10,916
  5,090
  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
Net income, $m
  84
  523
  29,514
  13,762
  -6,921
  -37,155
  -72,051
  -111,742
  -156,301
  -205,744
  -260,042
  -319,129
  -382,915
  -451,297
  -524,164
  -601,413
  -682,950
  -768,697
  -858,599
  -952,625
  -1,050,770
  -1,153,058
  -1,259,542
  -1,370,303
  -1,485,449
  -1,605,119
  -1,729,475
  -1,858,708
  -1,993,033
  -2,132,691
  -2,277,945

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  25,942
  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
  54,673
  38,495
  50,155
  64,078
  80,408
  99,253
  120,685
  144,741
  171,432
  200,740
  232,630
  267,055
  303,957
  343,277
  384,960
  428,955
  475,220
  523,726
  574,455
  627,407
  682,593
  740,042
  799,798
  861,920
  926,482
  993,572
  1,063,294
  1,135,764
  1,211,110
  1,289,476
  1,371,017
Adjusted assets (=assets-cash), $m
  28,731
  38,495
  50,155
  64,078
  80,408
  99,253
  120,685
  144,741
  171,432
  200,740
  232,630
  267,055
  303,957
  343,277
  384,960
  428,955
  475,220
  523,726
  574,455
  627,407
  682,593
  740,042
  799,798
  861,920
  926,482
  993,572
  1,063,294
  1,135,764
  1,211,110
  1,289,476
  1,371,017
Revenue / Adjusted assets
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
  0.051
Average production assets, $m
  38
  49
  64
  82
  103
  127
  154
  185
  219
  256
  297
  340
  388
  438
  491
  547
  606
  668
  732
  800
  870
  944
  1,020
  1,099
  1,181
  1,267
  1,356
  1,448
  1,544
  1,644
  1,748
Working capital, $m
  0
  -34,431
  -44,860
  -57,314
  -71,920
  -88,776
  -107,945
  -129,462
  -153,335
  -179,549
  -208,074
  -238,864
  -271,870
  -307,040
  -344,323
  -383,674
  -425,055
  -468,440
  -513,815
  -561,176
  -610,537
  -661,921
  -715,369
  -770,934
  -828,680
  -888,689
  -951,051
  -1,015,870
  -1,083,263
  -1,153,357
  -1,226,290
Total debt, $m
  74
  -18,980
  -8,486
  4,045
  18,742
  35,703
  54,991
  76,642
  100,664
  127,041
  155,742
  186,724
  219,936
  255,325
  292,839
  332,434
  374,073
  417,728
  463,385
  511,041
  560,708
  612,413
  666,193
  722,103
  780,208
  840,590
  903,340
  968,562
  1,036,374
  1,106,904
  1,180,290
Total liabilities, $m
  53,699
  34,645
  45,139
  57,670
  72,367
  89,328
  108,616
  130,267
  154,289
  180,666
  209,367
  240,349
  273,561
  308,950
  346,464
  386,059
  427,698
  471,353
  517,010
  564,666
  614,333
  666,038
  719,818
  775,728
  833,833
  894,215
  956,965
  1,022,187
  1,089,999
  1,160,529
  1,233,915
Total equity, $m
  974
  3,849
  5,015
  6,408
  8,041
  9,925
  12,068
  14,474
  17,143
  20,074
  23,263
  26,705
  30,396
  34,328
  38,496
  42,895
  47,522
  52,373
  57,446
  62,741
  68,259
  74,004
  79,980
  86,192
  92,648
  99,357
  106,329
  113,576
  121,111
  128,948
  137,102
Total liabilities and equity, $m
  54,673
  38,494
  50,154
  64,078
  80,408
  99,253
  120,684
  144,741
  171,432
  200,740
  232,630
  267,054
  303,957
  343,278
  384,960
  428,954
  475,220
  523,726
  574,456
  627,407
  682,592
  740,042
  799,798
  861,920
  926,481
  993,572
  1,063,294
  1,135,763
  1,211,110
  1,289,477
  1,371,017
Debt-to-equity ratio
  0.076
  -4.930
  -1.690
  0.630
  2.330
  3.600
  4.560
  5.300
  5.870
  6.330
  6.690
  6.990
  7.240
  7.440
  7.610
  7.750
  7.870
  7.980
  8.070
  8.150
  8.210
  8.280
  8.330
  8.380
  8.420
  8.460
  8.500
  8.530
  8.560
  8.580
  8.610
Adjusted equity ratio
  -0.866
  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
  84
  523
  29,514
  13,762
  -6,921
  -37,155
  -72,051
  -111,742
  -156,301
  -205,744
  -260,042
  -319,129
  -382,915
  -451,297
  -524,164
  -601,413
  -682,950
  -768,697
  -858,599
  -952,625
  -1,050,770
  -1,153,058
  -1,259,542
  -1,370,303
  -1,485,449
  -1,605,119
  -1,729,475
  -1,858,708
  -1,993,033
  -2,132,691
  -2,277,945
Depreciation, amort., depletion, $m
  25
  10
  13
  16
  21
  25
  31
  37
  44
  51
  59
  68
  78
  88
  98
  109
  121
  134
  146
  160
  174
  189
  204
  220
  236
  253
  271
  290
  309
  329
  350
Funds from operations, $m
  279
  533
  29,527
  13,778
  -6,901
  -37,130
  -72,020
  -111,705
  -156,257
  -205,693
  -259,982
  -319,061
  -382,838
  -451,209
  -524,066
  -601,304
  -682,829
  -768,563
  -858,452
  -952,465
  -1,050,596
  -1,152,870
  -1,259,338
  -1,370,083
  -1,485,213
  -1,604,865
  -1,729,203
  -1,858,418
  -1,992,724
  -2,132,362
  -2,277,596
Change in working capital, $m
  -265
  -8,562
  -10,429
  -12,454
  -14,606
  -16,856
  -19,169
  -21,517
  -23,873
  -26,214
  -28,524
  -30,790
  -33,006
  -35,170
  -37,283
  -39,351
  -41,381
  -43,385
  -45,374
  -47,362
  -49,360
  -51,385
  -53,448
  -55,564
  -57,747
  -60,008
  -62,362
  -64,819
  -67,393
  -70,094
  -72,933
Cash from operations, $m
  544
  9,095
  39,956
  26,232
  7,706
  -20,275
  -52,851
  -90,188
  -132,384
  -179,479
  -231,458
  -288,270
  -349,831
  -416,039
  -486,783
  -561,954
  -641,447
  -725,178
  -813,078
  -905,103
  -1,001,235
  -1,101,485
  -1,205,890
  -1,314,519
  -1,427,466
  -1,544,857
  -1,666,842
  -1,793,599
  -1,925,331
  -2,062,269
  -2,204,663
Maintenance CAPEX, $m
  0
  -8
  -10
  -13
  -16
  -21
  -25
  -31
  -37
  -44
  -51
  -59
  -68
  -78
  -88
  -98
  -109
  -121
  -134
  -146
  -160
  -174
  -189
  -204
  -220
  -236
  -253
  -271
  -290
  -309
  -329
New CAPEX, $m
  -27
  -12
  -15
  -18
  -21
  -24
  -27
  -31
  -34
  -37
  -41
  -44
  -47
  -50
  -53
  -56
  -59
  -62
  -65
  -68
  -70
  -73
  -76
  -79
  -82
  -86
  -89
  -92
  -96
  -100
  -104
Cash from investing activities, $m
  -6
  -20
  -25
  -31
  -37
  -45
  -52
  -62
  -71
  -81
  -92
  -103
  -115
  -128
  -141
  -154
  -168
  -183
  -199
  -214
  -230
  -247
  -265
  -283
  -302
  -322
  -342
  -363
  -386
  -409
  -433
Free cash flow, $m
  538
  9,076
  39,932
  26,201
  7,668
  -20,319
  -52,904
  -90,250
  -132,455
  -179,560
  -231,550
  -288,373
  -349,946
  -416,167
  -486,924
  -562,108
  -641,616
  -725,361
  -813,276
  -905,317
  -1,001,466
  -1,101,732
  -1,206,155
  -1,314,802
  -1,427,768
  -1,545,179
  -1,667,184
  -1,793,962
  -1,925,717
  -2,062,677
  -2,205,095
Issuance/(repayment) of debt, $m
  74
  -18,980
  10,494
  12,531
  14,697
  16,960
  19,288
  21,651
  24,021
  26,377
  28,702
  30,982
  33,212
  35,389
  37,515
  39,595
  41,639
  43,655
  45,657
  47,656
  49,667
  51,704
  53,780
  55,910
  58,106
  60,382
  62,750
  65,223
  67,812
  70,530
  73,387
Issuance/(repurchase) of shares, $m
  -1
  28,220
  0
  0
  8,554
  39,040
  74,194
  114,148
  158,970
  208,675
  263,231
  322,571
  386,605
  455,229
  528,333
  605,813
  687,576
  773,548
  863,672
  957,920
  1,056,288
  1,158,803
  1,265,518
  1,376,515
  1,491,905
  1,611,828
  1,736,447
  1,865,955
  2,000,568
  2,140,528
  2,286,099
Cash from financing (excl. dividends), $m  
  -163
  9,240
  10,494
  12,531
  23,251
  56,000
  93,482
  135,799
  182,991
  235,052
  291,933
  353,553
  419,817
  490,618
  565,848
  645,408
  729,215
  817,203
  909,329
  1,005,576
  1,105,955
  1,210,507
  1,319,298
  1,432,425
  1,550,011
  1,672,210
  1,799,197
  1,931,178
  2,068,380
  2,211,058
  2,359,486
Total cash flow (excl. dividends), $m
  350
  18,317
  50,426
  38,732
  30,920
  35,681
  40,579
  45,549
  50,536
  55,493
  60,382
  65,180
  69,871
  74,450
  78,923
  83,300
  87,599
  91,841
  96,052
  100,259
  104,490
  108,775
  113,143
  117,623
  122,243
  127,031
  132,013
  137,215
  142,663
  148,380
  154,391
Retained Cash Flow (-), $m
  -111
  -28,743
  -1,166
  -1,392
  -8,554
  -39,040
  -74,194
  -114,148
  -158,970
  -208,675
  -263,231
  -322,571
  -386,605
  -455,229
  -528,333
  -605,813
  -687,576
  -773,548
  -863,672
  -957,920
  -1,056,288
  -1,158,803
  -1,265,518
  -1,376,515
  -1,491,905
  -1,611,828
  -1,736,447
  -1,865,955
  -2,000,568
  -2,140,528
  -2,286,099
Prev. year cash balance distribution, $m
 
  25,868
  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
 
  15,441
  49,260
  37,340
  22,366
  -3,359
  -33,615
  -68,599
  -108,434
  -153,182
  -202,849
  -257,392
  -316,735
  -380,778
  -449,410
  -522,513
  -599,977
  -681,706
  -767,620
  -857,661
  -951,798
  -1,050,028
  -1,152,375
  -1,258,892
  -1,369,663
  -1,484,797
  -1,604,434
  -1,728,740
  -1,857,905
  -1,992,148
  -2,131,709
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
 
  14,805
  45,096
  32,496
  18,416
  -2,603
  -24,396
  -46,344
  -67,774
  -87,995
  -106,346
  -122,231
  -135,162
  -144,779
  -150,875
  -153,401
  -152,467
  -148,328
  -141,365
  -132,055
  -120,945
  -108,608
  -95,617
  -82,509
  -69,760
  -57,761
  -46,809
  -37,104
  -28,745
  -21,746
  -16,051
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  44.1
  29.7
  17.0
  8.7
  4.2
  1.9
  0.8
  0.3
  0.1
  0.1
  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
  0.0
  0.0

Interactive Brokers Group, Inc. (IBG, Inc.) is a holding company. The Company is an automated global electronic broker and market maker specializing in routing orders, and executing and processing trades in securities, futures, foreign exchange instruments, bonds and mutual funds on over 120 electronic exchanges and market centers around the world and offering custody, prime brokerage, securities and margin lending services to customers. It operates in two segments: electronic brokerage and market making. It conducts its electronic brokerage business through its Interactive Brokers (IB) subsidiaries. It conducts its market making business through its Timber Hill (TH) subsidiaries. In the United States, it conducts its business from Greenwich, Connecticut and Chicago, Illinois. Outside the United States, it conducts business in Canada, England, Switzerland, Liechtenstein, China (Hong Kong and Shanghai), India, Australia and Japan.

FINANCIAL RATIOS  of  Interactive Brokers Group (IBKR)

Valuation Ratios
P/E Ratio 49.3
Price to Sales 2.8
Price to Book 4.3
Price to Tangible Book
Price to Cash Flow 7.6
Price to Free Cash Flow 8
Growth Rates
Sales Growth Rate 17.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -10%
Cap. Spend. - 3 Yr. Gr. Rate 9.7%
Financial Strength
Quick Ratio 351
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 7.6%
Interest Coverage 11
Management Effectiveness
Return On Assets 0.3%
Ret/ On Assets - 3 Yr. Avg. 0.3%
Return On Total Capital 8.8%
Ret/ On T. Cap. - 3 Yr. Avg. 6.9%
Return On Equity 9.1%
Return On Equity - 3 Yr. Avg. 7.1%
Asset Turnover 0
Profitability Ratios
Gross Margin 94.6%
Gross Margin - 3 Yr. Avg. 94.3%
EBITDA Margin 58.5%
EBITDA Margin - 3 Yr. Avg. 51.9%
Operating Margin 51.6%
Oper. Margin - 3 Yr. Avg. 44.5%
Pre-Tax Margin 51.6%
Pre-Tax Margin - 3 Yr. Avg. 44.5%
Net Profit Margin 5.7%
Net Profit Margin - 3 Yr. Avg. 4.5%
Effective Tax Rate 8.1%
Eff/ Tax Rate - 3 Yr. Avg. 8.9%
Payout Ratio 31%

IBKR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IBKR stock intrinsic value calculation we used $1475 million for the last fiscal year's total revenue generated by Interactive Brokers Group. The default revenue input number comes from 2016 income statement of Interactive Brokers Group. 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 IBKR stock valuation model: a) initial revenue growth rate of 33.1% 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 IBKR is calculated based on our internal credit rating of Interactive Brokers Group, 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 Interactive Brokers Group.
    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 IBKR stock the variable cost ratio is equal to 63.5%.

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 IBKR 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 208.1% for Interactive Brokers Group.

Corporate tax rate of 27% is the nominal tax rate for Interactive Brokers Group. 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 IBKR 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 IBKR are equal to 2.5%.

Life of production assets of 1.5 years is the average useful life of capital assets used in Interactive Brokers Group 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 IBKR is equal to -1753.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $974 million for Interactive Brokers Group - 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 412.837 million for Interactive Brokers Group 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 Interactive Brokers Group at the current share price and the inputted number of shares is $25.1 billion.

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COMPANY NEWS

▶ Why Interactive Brokers CEO Is Concerned About Bitcoin   [Dec-11-17 02:42PM  Bloomberg Video]
▶ This new way to trade bitcoin could kill its rally   [Dec-06-17 05:03AM  MarketWatch]
▶ Wall Street Analysts Ratings on Interactive Brokers   [Nov-30-17 07:35AM  Market Realist]
▶ Why Going into Debt Is the Pathway to Financial Health   [Nov-27-17 04:17PM  TheStreet.com]
▶ Is It Too Late To Invest In Surging Biotech, Chip Stocks?   [Nov-24-17 10:01AM  Investor's Business Daily]
▶ These 3 Online Brokers Are Buys; TD Ameritrade Growth Accelerates   [Oct-24-17 04:03PM  Investor's Business Daily]
▶ Interactive Brokers posts 3Q profit   [Oct-17-17 04:10PM  Associated Press]
▶ Interactive Brokers Adds Eris Swap Futures   [Oct-11-17 08:00AM  PR Newswire]
▶ 3 Hedge-Fund Stocks to Buy and Forget About   [Sep-27-17 07:03PM  Motley Fool]
▶ TD Ameritrade: Projected Total Dividends in Fiscal 2017   [Sep-13-17 10:37AM  Market Realist]
▶ A Look at E*TRADEs Valuations in 2Q17   [10:37AM  Market Realist]
▶ E*TRADEs Commission Revenues Fell in 2Q17   [07:38AM  Market Realist]
▶ Whats behind Charles Schwabs Fair Valuations?   [07:36AM  Market Realist]
▶ TD Ameritrade Witnessed Rise in Fee-Based Revenues   [Sep-12-17 01:05PM  Market Realist]
▶ Why TD Ameritrades Net Revenues Rose   [11:36AM  Market Realist]
▶ Why Charles Schwabs Total Expenses Rose   [09:06AM  Market Realist]
▶ Why Charles Schwabs Investor Services Net Revenues Rose   [Sep-11-17 10:36AM  Market Realist]
▶ [$$] Interactive Brokers Challenges Big Banks   [Aug-26-17 01:11AM  Barrons.com]
Financial statements of IBKR
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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