Intrinsic value of Interactive Brokers Group - IBKR

Previous Close

$49.39

  Intrinsic Value

$169.01

stock screener

  Rating & Target

str. buy

+242%

  Value-price divergence*

+1171%

Previous close

$49.39

 
Intrinsic value

$169.01

 
Up/down potential

+242%

 
Rating

str. buy

 
Value-price divergence*

+1171%

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

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

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 20.5

 

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
  13.20
  12.38
  11.64
  10.98
  10.38
  9.84
  9.36
  8.92
  8.53
  8.18
  7.86
  7.57
  7.32
  7.08
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
  5.65
  5.59
  5.53
  5.48
  5.43
  5.39
Revenue, $m
  1,475
  1,670
  1,876
  2,095
  2,325
  2,566
  2,819
  3,082
  3,357
  3,644
  3,942
  4,252
  4,574
  4,908
  5,256
  5,617
  5,993
  6,384
  6,790
  7,213
  7,654
  8,113
  8,591
  9,090
  9,611
  10,154
  10,722
  11,315
  11,934
  12,582
  13,260
Variable operating expenses, $m
 
  1,060
  1,192
  1,330
  1,476
  1,630
  1,790
  1,957
  2,132
  2,314
  2,503
  2,700
  2,904
  3,117
  3,338
  3,567
  3,806
  4,054
  4,312
  4,580
  4,860
  5,152
  5,455
  5,772
  6,103
  6,448
  6,808
  7,185
  7,578
  7,990
  8,420
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
  1,060
  1,192
  1,330
  1,476
  1,630
  1,790
  1,957
  2,132
  2,314
  2,503
  2,700
  2,904
  3,117
  3,338
  3,567
  3,806
  4,054
  4,312
  4,580
  4,860
  5,152
  5,455
  5,772
  6,103
  6,448
  6,808
  7,185
  7,578
  7,990
  8,420
Operating income, $m
  761
  609
  685
  765
  849
  937
  1,029
  1,125
  1,225
  1,330
  1,439
  1,552
  1,669
  1,792
  1,918
  2,050
  2,187
  2,330
  2,478
  2,633
  2,794
  2,961
  3,136
  3,318
  3,508
  3,706
  3,913
  4,130
  4,356
  4,593
  4,840
EBITDA, $m
  786
  618
  694
  775
  860
  949
  1,043
  1,141
  1,242
  1,348
  1,458
  1,573
  1,692
  1,816
  1,945
  2,078
  2,217
  2,362
  2,512
  2,669
  2,832
  3,002
  3,179
  3,363
  3,556
  3,757
  3,967
  4,186
  4,416
  4,655
  4,906
Interest expense (income), $m
  77
  0
  -50,276
  -42,685
  -34,663
  -26,218
  -17,356
  -8,081
  1,606
  11,706
  22,223
  33,165
  44,542
  56,366
  68,654
  81,423
  94,695
  108,492
  122,840
  137,768
  153,305
  169,484
  186,340
  203,910
  222,233
  241,351
  261,307
  282,147
  303,920
  326,677
  350,471
Earnings before tax, $m
  761
  609
  50,961
  43,450
  35,512
  27,154
  18,384
  9,206
  -380
  -10,376
  -20,784
  -31,613
  -42,872
  -54,575
  -66,735
  -79,373
  -92,507
  -106,162
  -120,362
  -135,135
  -150,512
  -166,523
  -183,205
  -200,592
  -218,725
  -237,644
  -257,393
  -278,017
  -299,564
  -322,084
  -345,631
Tax expense, $m
  62
  165
  13,760
  11,731
  9,588
  7,332
  4,964
  2,486
  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
  445
  37,202
  31,718
  25,923
  19,823
  13,421
  6,720
  -380
  -10,376
  -20,784
  -31,613
  -42,872
  -54,575
  -66,735
  -79,373
  -92,507
  -106,162
  -120,362
  -135,135
  -150,512
  -166,523
  -183,205
  -200,592
  -218,725
  -237,644
  -257,393
  -278,017
  -299,564
  -322,084
  -345,631

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
  32,739
  36,792
  41,076
  45,585
  50,317
  55,269
  60,441
  65,833
  71,449
  77,291
  83,365
  89,679
  96,240
  103,058
  110,144
  117,511
  125,172
  133,142
  141,438
  150,076
  159,076
  168,457
  178,241
  188,448
  199,103
  210,230
  221,856
  234,006
  246,711
  259,999
Adjusted assets (=assets-cash), $m
  28,731
  32,739
  36,792
  41,076
  45,585
  50,317
  55,269
  60,441
  65,833
  71,449
  77,291
  83,365
  89,679
  96,240
  103,058
  110,144
  117,511
  125,172
  133,142
  141,438
  150,076
  159,076
  168,457
  178,241
  188,448
  199,103
  210,230
  221,856
  234,006
  246,711
  259,999
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
  42
  47
  52
  58
  64
  70
  77
  84
  91
  99
  106
  114
  123
  131
  140
  150
  160
  170
  180
  191
  203
  215
  227
  240
  254
  268
  283
  298
  315
  331
Working capital, $m
  0
  -29,283
  -32,908
  -36,740
  -40,773
  -45,005
  -49,435
  -54,061
  -58,884
  -63,906
  -69,132
  -74,565
  -80,212
  -86,080
  -92,179
  -98,517
  -105,106
  -111,958
  -119,087
  -126,507
  -134,234
  -142,284
  -150,675
  -159,425
  -168,555
  -178,085
  -188,038
  -198,436
  -209,304
  -220,668
  -232,553
Total debt, $m
  74
  -24,160
  -20,512
  -16,657
  -12,599
  -8,340
  -3,883
  772
  5,625
  10,679
  15,937
  21,404
  27,086
  32,991
  39,127
  45,504
  52,135
  59,030
  66,203
  73,669
  81,444
  89,544
  97,987
  106,792
  115,978
  125,568
  135,582
  146,045
  156,981
  168,415
  180,374
Total liabilities, $m
  53,699
  29,465
  33,113
  36,968
  41,026
  45,285
  49,742
  54,397
  59,250
  64,304
  69,562
  75,029
  80,711
  86,616
  92,752
  99,129
  105,760
  112,655
  119,828
  127,294
  135,069
  143,169
  151,612
  160,417
  169,603
  179,193
  189,207
  199,670
  210,606
  222,040
  233,999
Total equity, $m
  974
  3,274
  3,679
  4,108
  4,558
  5,032
  5,527
  6,044
  6,583
  7,145
  7,729
  8,337
  8,968
  9,624
  10,306
  11,014
  11,751
  12,517
  13,314
  14,144
  15,008
  15,908
  16,846
  17,824
  18,845
  19,910
  21,023
  22,186
  23,401
  24,671
  26,000
Total liabilities and equity, $m
  54,673
  32,739
  36,792
  41,076
  45,584
  50,317
  55,269
  60,441
  65,833
  71,449
  77,291
  83,366
  89,679
  96,240
  103,058
  110,143
  117,511
  125,172
  133,142
  141,438
  150,077
  159,077
  168,458
  178,241
  188,448
  199,103
  210,230
  221,856
  234,007
  246,711
  259,999
Debt-to-equity ratio
  0.076
  -7.380
  -5.580
  -4.060
  -2.760
  -1.660
  -0.700
  0.130
  0.850
  1.490
  2.060
  2.570
  3.020
  3.430
  3.800
  4.130
  4.440
  4.720
  4.970
  5.210
  5.430
  5.630
  5.820
  5.990
  6.150
  6.310
  6.450
  6.580
  6.710
  6.830
  6.940
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
  445
  37,202
  31,718
  25,923
  19,823
  13,421
  6,720
  -380
  -10,376
  -20,784
  -31,613
  -42,872
  -54,575
  -66,735
  -79,373
  -92,507
  -106,162
  -120,362
  -135,135
  -150,512
  -166,523
  -183,205
  -200,592
  -218,725
  -237,644
  -257,393
  -278,017
  -299,564
  -322,084
  -345,631
Depreciation, amort., depletion, $m
  25
  8
  9
  10
  12
  13
  14
  15
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
  34
  36
  38
  41
  43
  45
  48
  51
  54
  57
  60
  63
  66
Funds from operations, $m
  279
  453
  37,211
  31,729
  25,935
  19,835
  13,435
  6,736
  -364
  -10,357
  -20,764
  -31,592
  -42,849
  -54,550
  -66,709
  -79,345
  -92,477
  -106,130
  -120,328
  -135,099
  -150,473
  -166,483
  -183,162
  -200,547
  -218,677
  -237,594
  -257,339
  -277,960
  -299,504
  -322,021
  -345,565
Change in working capital, $m
  -265
  -3,415
  -3,625
  -3,831
  -4,033
  -4,232
  -4,429
  -4,626
  -4,823
  -5,023
  -5,226
  -5,433
  -5,647
  -5,868
  -6,098
  -6,338
  -6,589
  -6,852
  -7,129
  -7,420
  -7,727
  -8,050
  -8,391
  -8,750
  -9,130
  -9,530
  -9,953
  -10,398
  -10,868
  -11,363
  -11,886
Cash from operations, $m
  544
  3,868
  40,836
  35,560
  29,968
  24,068
  17,864
  11,362
  4,460
  -5,335
  -15,539
  -26,158
  -37,202
  -48,682
  -60,611
  -73,007
  -85,888
  -99,278
  -113,199
  -127,679
  -142,747
  -158,433
  -174,771
  -191,797
  -209,547
  -228,063
  -247,387
  -267,562
  -288,636
  -310,658
  -333,679
Maintenance CAPEX, $m
  0
  -8
  -8
  -9
  -10
  -12
  -13
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -25
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -63
New CAPEX, $m
  -27
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
Cash from investing activities, $m
  -6
  -12
  -13
  -14
  -16
  -18
  -19
  -21
  -22
  -24
  -25
  -28
  -29
  -31
  -34
  -35
  -37
  -40
  -42
  -45
  -47
  -49
  -53
  -55
  -58
  -62
  -65
  -69
  -72
  -76
  -80
Free cash flow, $m
  538
  3,856
  40,823
  35,545
  29,952
  24,050
  17,845
  11,341
  4,437
  -5,359
  -15,564
  -26,186
  -37,232
  -48,713
  -60,644
  -73,042
  -85,926
  -99,317
  -113,241
  -127,724
  -142,794
  -158,482
  -174,823
  -191,852
  -209,606
  -228,125
  -247,452
  -267,631
  -288,708
  -310,734
  -333,759
Issuance/(repayment) of debt, $m
  74
  -24,160
  3,648
  3,855
  4,058
  4,259
  4,457
  4,655
  4,853
  5,054
  5,258
  5,467
  5,682
  5,905
  6,136
  6,378
  6,630
  6,895
  7,173
  7,466
  7,775
  8,100
  8,443
  8,805
  9,187
  9,590
  10,015
  10,463
  10,936
  11,434
  11,960
Issuance/(repurchase) of shares, $m
  -1
  27,723
  0
  0
  0
  0
  0
  0
  920
  10,937
  21,368
  32,220
  43,503
  55,231
  67,417
  80,081
  93,244
  106,928
  121,159
  135,965
  151,375
  167,423
  184,143
  201,571
  219,746
  238,710
  258,506
  279,179
  300,779
  323,355
  346,960
Cash from financing (excl. dividends), $m  
  -163
  3,563
  3,648
  3,855
  4,058
  4,259
  4,457
  4,655
  5,773
  15,991
  26,626
  37,687
  49,185
  61,136
  73,553
  86,459
  99,874
  113,823
  128,332
  143,431
  159,150
  175,523
  192,586
  210,376
  228,933
  248,300
  268,521
  289,642
  311,715
  334,789
  358,920
Total cash flow (excl. dividends), $m
  350
  7,419
  44,471
  39,400
  34,010
  28,309
  22,302
  15,996
  10,210
  10,632
  11,062
  11,501
  11,954
  12,422
  12,909
  13,417
  13,948
  14,506
  15,091
  15,707
  16,356
  17,041
  17,762
  18,524
  19,327
  20,174
  21,068
  22,012
  23,006
  24,055
  25,161
Retained Cash Flow (-), $m
  -111
  -28,168
  -405
  -428
  -451
  -473
  -495
  -517
  -920
  -10,937
  -21,368
  -32,220
  -43,503
  -55,231
  -67,417
  -80,081
  -93,244
  -106,928
  -121,159
  -135,965
  -151,375
  -167,423
  -184,143
  -201,571
  -219,746
  -238,710
  -258,506
  -279,179
  -300,779
  -323,355
  -346,960
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
 
  5,120
  44,065
  38,972
  33,559
  27,835
  21,807
  15,479
  9,291
  -305
  -10,306
  -20,719
  -31,549
  -42,808
  -54,508
  -66,664
  -79,296
  -92,422
  -106,068
  -120,257
  -135,019
  -150,383
  -166,380
  -183,047
  -200,419
  -218,536
  -237,437
  -257,168
  -277,773
  -299,300
  -321,800
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
 
  4,908
  40,340
  33,916
  27,633
  21,576
  15,826
  10,457
  5,807
  -175
  -5,403
  -9,839
  -13,463
  -16,276
  -18,299
  -19,572
  -20,151
  -20,110
  -19,533
  -18,516
  -17,157
  -15,555
  -13,805
  -11,997
  -10,208
  -8,501
  -6,927
  -5,520
  -4,298
  -3,267
  -2,423
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  49.3
  42.2
  32.5
  22.9
  15.1
  9.3
  5.5
  3.1
  1.7
  0.9
  0.4
  0.2
  0.1
  0.1
  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 40
Price to Sales 2.3
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 6.2
Price to Free Cash Flow 6.5
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 13.2% 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 415.783 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 $20.5 billion.

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COMPANY NEWS

▶ 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]
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▶ 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]
▶ [$$] Interactive Brokers Challenges Big Banks   [Aug-26-17 01:11AM  Barrons.com]
▶ Interactive Brokers posts 2Q profit   [Jul-18-17 09:07PM  Associated Press]
▶ Interactive Brokers posts 2Q profit   [04:07PM  Associated Press]
▶ How to Trade Morgan Stanley Ahead of Earnings   [Jul-14-17 03:51PM  Bloomberg Video]
▶ Zeke Ashton's Centaur Mutual Funds Semi-Annual 2017 Report   [Jul-05-17 06:01PM  GuruFocus.com]
▶ [$$] Market Makers in Equity Options Are Vanishing   [Jun-02-17 11:09PM  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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