Intrinsic value of Ingersoll-Rand - IR

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$88.75

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$88.75

 
Intrinsic value

$99.36

 
Up/down potential

+12%

 
Rating

hold

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

We calculate the intrinsic value of IR 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 23.1

 

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, %
  1.56
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  13,509
  13,779
  14,096
  14,458
  14,865
  15,316
  15,810
  16,349
  16,932
  17,559
  18,233
  18,954
  19,724
  20,543
  21,413
  22,337
  23,316
  24,352
  25,448
  26,605
  27,828
  29,118
  30,478
  31,912
  33,423
  35,014
  36,689
  38,452
  40,308
  42,260
  44,313
Variable operating expenses, $m
 
  6,148
  6,276
  6,423
  6,588
  6,770
  6,971
  7,189
  7,425
  7,679
  7,952
  7,679
  7,990
  8,322
  8,675
  9,049
  9,446
  9,865
  10,309
  10,778
  11,274
  11,796
  12,347
  12,928
  13,540
  14,185
  14,863
  15,578
  16,329
  17,120
  17,952
Fixed operating expenses, $m
 
  6,194
  6,349
  6,508
  6,670
  6,837
  7,008
  7,183
  7,363
  7,547
  7,736
  7,929
  8,127
  8,330
  8,539
  8,752
  8,971
  9,195
  9,425
  9,661
  9,902
  10,150
  10,403
  10,664
  10,930
  11,203
  11,483
  11,771
  12,065
  12,366
  12,676
Total operating expenses, $m
  11,936
  12,342
  12,625
  12,931
  13,258
  13,607
  13,979
  14,372
  14,788
  15,226
  15,688
  15,608
  16,117
  16,652
  17,214
  17,801
  18,417
  19,060
  19,734
  20,439
  21,176
  21,946
  22,750
  23,592
  24,470
  25,388
  26,346
  27,349
  28,394
  29,486
  30,628
Operating income, $m
  1,573
  1,437
  1,471
  1,528
  1,607
  1,708
  1,831
  1,977
  2,144
  2,333
  2,545
  3,347
  3,606
  3,890
  4,200
  4,536
  4,899
  5,291
  5,713
  6,166
  6,652
  7,172
  7,727
  8,320
  8,952
  9,626
  10,342
  11,104
  11,914
  12,773
  13,686
EBITDA, $m
  1,925
  2,163
  2,201
  2,262
  2,346
  2,452
  2,581
  2,733
  2,907
  3,103
  3,323
  3,567
  3,836
  4,129
  4,449
  4,796
  5,171
  5,575
  6,009
  6,476
  6,976
  7,511
  8,082
  8,692
  9,341
  10,033
  10,769
  11,552
  12,383
  13,265
  14,201
Interest expense (income), $m
  170
  152
  161
  171
  182
  195
  210
  225
  242
  261
  280
  302
  324
  349
  375
  402
  431
  462
  495
  529
  566
  605
  645
  688
  734
  781
  831
  884
  940
  999
  1,060
Earnings before tax, $m
  1,741
  1,285
  1,310
  1,357
  1,424
  1,513
  1,622
  1,751
  1,902
  2,073
  2,265
  3,045
  3,282
  3,541
  3,825
  4,134
  4,468
  4,829
  5,218
  5,637
  6,086
  6,567
  7,082
  7,632
  8,219
  8,845
  9,511
  10,220
  10,974
  11,775
  12,625
Tax expense, $m
  281
  347
  354
  366
  385
  408
  438
  473
  513
  560
  612
  822
  886
  956
  1,033
  1,116
  1,206
  1,304
  1,409
  1,522
  1,643
  1,773
  1,912
  2,061
  2,219
  2,388
  2,568
  2,759
  2,963
  3,179
  3,409
Net income, $m
  1,476
  938
  956
  990
  1,040
  1,104
  1,184
  1,279
  1,388
  1,513
  1,653
  2,223
  2,396
  2,585
  2,792
  3,018
  3,262
  3,525
  3,809
  4,115
  4,443
  4,794
  5,170
  5,571
  6,000
  6,456
  6,943
  7,460
  8,011
  8,596
  9,217

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,715
  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
  17,397
  16,004
  16,372
  16,793
  17,265
  17,788
  18,363
  18,988
  19,665
  20,394
  21,177
  22,014
  22,908
  23,859
  24,870
  25,943
  27,080
  28,283
  29,556
  30,901
  32,320
  33,818
  35,398
  37,064
  38,818
  40,666
  42,612
  44,660
  46,815
  49,082
  51,467
Adjusted assets (=assets-cash), $m
  15,682
  16,004
  16,372
  16,793
  17,265
  17,788
  18,363
  18,988
  19,665
  20,394
  21,177
  22,014
  22,908
  23,859
  24,870
  25,943
  27,080
  28,283
  29,556
  30,901
  32,320
  33,818
  35,398
  37,064
  38,818
  40,666
  42,612
  44,660
  46,815
  49,082
  51,467
Revenue / Adjusted assets
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
Average production assets, $m
  4,611
  4,699
  4,807
  4,930
  5,069
  5,223
  5,391
  5,575
  5,774
  5,988
  6,218
  6,463
  6,726
  7,005
  7,302
  7,617
  7,951
  8,304
  8,678
  9,072
  9,489
  9,929
  10,393
  10,882
  11,397
  11,940
  12,511
  13,112
  13,745
  14,411
  15,111
Working capital, $m
  1,989
  648
  663
  680
  699
  720
  743
  768
  796
  825
  857
  891
  927
  966
  1,006
  1,050
  1,096
  1,145
  1,196
  1,250
  1,308
  1,369
  1,432
  1,500
  1,571
  1,646
  1,724
  1,807
  1,894
  1,986
  2,083
Total debt, $m
  4,070
  3,927
  4,171
  4,450
  4,764
  5,111
  5,491
  5,906
  6,355
  6,838
  7,357
  7,912
  8,505
  9,136
  9,806
  10,517
  11,271
  12,069
  12,913
  13,804
  14,745
  15,739
  16,786
  17,890
  19,054
  20,279
  21,569
  22,927
  24,355
  25,859
  27,440
Total liabilities, $m
  10,754
  10,610
  10,854
  11,133
  11,447
  11,794
  12,174
  12,589
  13,038
  13,521
  14,040
  14,595
  15,188
  15,819
  16,489
  17,200
  17,954
  18,752
  19,596
  20,487
  21,428
  22,422
  23,469
  24,573
  25,737
  26,962
  28,252
  29,610
  31,038
  32,542
  34,123
Total equity, $m
  6,644
  5,393
  5,517
  5,659
  5,818
  5,995
  6,188
  6,399
  6,627
  6,873
  7,137
  7,419
  7,720
  8,040
  8,381
  8,743
  9,126
  9,531
  9,960
  10,413
  10,892
  11,397
  11,929
  12,490
  13,082
  13,705
  14,360
  15,050
  15,777
  16,541
  17,344
Total liabilities and equity, $m
  17,398
  16,003
  16,371
  16,792
  17,265
  17,789
  18,362
  18,988
  19,665
  20,394
  21,177
  22,014
  22,908
  23,859
  24,870
  25,943
  27,080
  28,283
  29,556
  30,900
  32,320
  33,819
  35,398
  37,063
  38,819
  40,667
  42,612
  44,660
  46,815
  49,083
  51,467
Debt-to-equity ratio
  0.613
  0.730
  0.760
  0.790
  0.820
  0.850
  0.890
  0.920
  0.960
  0.990
  1.030
  1.070
  1.100
  1.140
  1.170
  1.200
  1.240
  1.270
  1.300
  1.330
  1.350
  1.380
  1.410
  1.430
  1.460
  1.480
  1.500
  1.520
  1.540
  1.560
  1.580
Adjusted equity ratio
  0.315
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337
  0.337

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,476
  938
  956
  990
  1,040
  1,104
  1,184
  1,279
  1,388
  1,513
  1,653
  2,223
  2,396
  2,585
  2,792
  3,018
  3,262
  3,525
  3,809
  4,115
  4,443
  4,794
  5,170
  5,571
  6,000
  6,456
  6,943
  7,460
  8,011
  8,596
  9,217
Depreciation, amort., depletion, $m
  352
  726
  730
  734
  739
  744
  750
  756
  763
  770
  778
  221
  230
  239
  249
  260
  271
  283
  296
  310
  324
  339
  355
  371
  389
  407
  427
  448
  469
  492
  516
Funds from operations, $m
  1,461
  1,664
  1,686
  1,724
  1,779
  1,848
  1,934
  2,035
  2,151
  2,283
  2,431
  2,443
  2,625
  2,824
  3,042
  3,278
  3,533
  3,809
  4,106
  4,425
  4,767
  5,133
  5,525
  5,943
  6,389
  6,864
  7,370
  7,908
  8,480
  9,087
  9,732
Change in working capital, $m
  -39
  13
  15
  17
  19
  21
  23
  25
  27
  30
  32
  34
  36
  38
  41
  43
  46
  49
  52
  54
  57
  61
  64
  67
  71
  75
  79
  83
  87
  92
  97
Cash from operations, $m
  1,500
  2,337
  1,671
  1,707
  1,759
  1,827
  1,911
  2,009
  2,124
  2,254
  2,400
  2,410
  2,589
  2,786
  3,001
  3,234
  3,487
  3,760
  4,054
  4,370
  4,709
  5,072
  5,461
  5,875
  6,318
  6,789
  7,291
  7,825
  8,393
  8,996
  9,636
Maintenance CAPEX, $m
  0
  -157
  -160
  -164
  -168
  -173
  -178
  -184
  -190
  -197
  -204
  -212
  -221
  -230
  -239
  -249
  -260
  -271
  -283
  -296
  -310
  -324
  -339
  -355
  -371
  -389
  -407
  -427
  -448
  -469
  -492
New CAPEX, $m
  -183
  -88
  -108
  -124
  -139
  -154
  -169
  -184
  -199
  -214
  -230
  -246
  -262
  -279
  -297
  -315
  -334
  -353
  -374
  -395
  -417
  -440
  -464
  -489
  -515
  -543
  -571
  -601
  -633
  -666
  -700
Cash from investing activities, $m
  240
  -245
  -268
  -288
  -307
  -327
  -347
  -368
  -389
  -411
  -434
  -458
  -483
  -509
  -536
  -564
  -594
  -624
  -657
  -691
  -727
  -764
  -803
  -844
  -886
  -932
  -978
  -1,028
  -1,081
  -1,135
  -1,192
Free cash flow, $m
  1,740
  2,091
  1,403
  1,420
  1,453
  1,501
  1,564
  1,642
  1,735
  1,842
  1,966
  1,952
  2,106
  2,277
  2,465
  2,670
  2,893
  3,135
  3,397
  3,679
  3,983
  4,309
  4,658
  5,032
  5,431
  5,858
  6,312
  6,797
  7,312
  7,861
  8,444
Issuance/(repayment) of debt, $m
  -151
  218
  244
  279
  313
  347
  381
  415
  449
  484
  519
  555
  592
  631
  670
  711
  754
  798
  844
  892
  941
  993
  1,047
  1,104
  1,163
  1,225
  1,290
  1,358
  1,429
  1,503
  1,581
Issuance/(repurchase) of shares, $m
  -187
  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 from financing (excl. dividends), $m  
  -356
  218
  244
  279
  313
  347
  381
  415
  449
  484
  519
  555
  592
  631
  670
  711
  754
  798
  844
  892
  941
  993
  1,047
  1,104
  1,163
  1,225
  1,290
  1,358
  1,429
  1,503
  1,581
Total cash flow (excl. dividends), $m
  1,327
  2,310
  1,647
  1,699
  1,766
  1,848
  1,944
  2,056
  2,183
  2,326
  2,485
  2,507
  2,698
  2,908
  3,135
  3,381
  3,647
  3,933
  4,241
  4,571
  4,924
  5,302
  5,705
  6,136
  6,595
  7,083
  7,602
  8,155
  8,741
  9,364
  10,025
Retained Cash Flow (-), $m
  -827
  -103
  -124
  -142
  -159
  -176
  -194
  -211
  -228
  -246
  -264
  -282
  -301
  -321
  -341
  -362
  -383
  -406
  -429
  -453
  -478
  -505
  -532
  -561
  -591
  -623
  -656
  -690
  -726
  -764
  -804
Prev. year cash balance distribution, $m
 
  1,354
  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
 
  3,561
  1,523
  1,557
  1,607
  1,671
  1,751
  1,846
  1,955
  2,080
  2,221
  2,224
  2,397
  2,587
  2,794
  3,020
  3,264
  3,528
  3,812
  4,118
  4,446
  4,797
  5,173
  5,575
  6,003
  6,460
  6,947
  7,464
  8,015
  8,600
  9,221
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
 
  3,414
  1,394
  1,355
  1,323
  1,295
  1,271
  1,247
  1,222
  1,195
  1,164
  1,056
  1,023
  984
  938
  887
  829
  768
  702
  634
  565
  496
  429
  365
  306
  251
  203
  160
  124
  94
  69
Current shareholders' claim on cash, %
  100
  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
  100.0

Ingersoll-Rand plc designs, manufactures, sells, and services industrial and commercial products. It operates through Climate and Industrial segments. The Climate segment offers building management, bus and rail HVAC, control, container and cryogenic refrigeration, diesel-powered refrigeration, ductless, geothermal, package heating and cooling, rail and self-powered truck refrigeration, temporary heating and cooling, trailer refrigeration, unitary, and vehicle-powered truck refrigeration systems. This segment also provides aftermarket and OEM parts and supplies, air conditioners, air exchangers and handlers, airside and terminal devices, auxiliary power units, chillers, coils and condensers, gensets, furnaces, heat pumps, home automation, humidifiers, hybrid and non-diesel transport refrigeration solutions, indoor air quality, industrial refrigeration, motor replacements, performance contracting, refrigerant reclamation, thermostats/controls, transport heater products, and water source heat pumps. In addition, this segment offers energy and facility management, installation contracting, rental, and repair and maintenance services; and service agreements. The Industrial segment provides air treatment and separation, engine starting, ergonomic material handling, fluid handling, precision fastening, and mobile golf information systems; and compressors, airends, blowers, dryers, filters, golf vehicles, hoists, fluid power components, power tools, pumps, rough terrain vehicles, utility and low-speed vehicles, and winches, as well as aftermarket controls, parts, accessories, and consumables. The company markets and sells its products under the American Standard, ARO, Club Car, Nexia, Thermo King, and Trane brand names through sales offices, distributors, and dealers in the United States; and through subsidiary sales and service companies with a supporting chain of distributors worldwide. Ingersoll-Rand plc was founded in 1872 and is headquartered in Swords, Ireland.

FINANCIAL RATIOS  of  Ingersoll-Rand (IR)

Valuation Ratios
P/E Ratio 15.6
Price to Sales 1.7
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 15.3
Price to Free Cash Flow 17.5
Growth Rates
Sales Growth Rate 1.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -26.8%
Cap. Spend. - 3 Yr. Gr. Rate -5.4%
Financial Strength
Quick Ratio 5
Current Ratio 0.1
LT Debt to Equity 55.8%
Total Debt to Equity 61.3%
Interest Coverage 11
Management Effectiveness
Return On Assets 9.5%
Ret/ On Assets - 3 Yr. Avg. 6.7%
Return On Total Capital 14.2%
Ret/ On T. Cap. - 3 Yr. Avg. 9.9%
Return On Equity 23.7%
Return On Equity - 3 Yr. Avg. 16.4%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 31%
Gross Margin - 3 Yr. Avg. 30.5%
EBITDA Margin 16.8%
EBITDA Margin - 3 Yr. Avg. 14.5%
Operating Margin 11.6%
Oper. Margin - 3 Yr. Avg. 11.2%
Pre-Tax Margin 12.9%
Pre-Tax Margin - 3 Yr. Avg. 10.5%
Net Profit Margin 10.9%
Net Profit Margin - 3 Yr. Avg. 7.7%
Effective Tax Rate 16.1%
Eff/ Tax Rate - 3 Yr. Avg. 27.9%
Payout Ratio 23.6%

IR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IR stock intrinsic value calculation we used $13509 million for the last fiscal year's total revenue generated by Ingersoll-Rand. The default revenue input number comes from 2016 income statement of Ingersoll-Rand. 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 IR stock valuation model: a) initial revenue growth rate of 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 IR is calculated based on our internal credit rating of Ingersoll-Rand, 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 Ingersoll-Rand.
    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 IR stock the variable cost ratio is equal to 44.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $6043 million in the base year in the intrinsic value calculation for IR 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 Ingersoll-Rand.

Corporate tax rate of 27% is the nominal tax rate for Ingersoll-Rand. 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 IR 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 IR are equal to 34.1%.

Life of production assets of 29.3 years is the average useful life of capital assets used in Ingersoll-Rand 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 IR is equal to 4.7%. 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 - $6644 million for Ingersoll-Rand - 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 260.821 million for Ingersoll-Rand 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 Ingersoll-Rand at the current share price and the inputted number of shares is $23.1 billion.


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COMPANY NEWS

▶ Ingersoll-Rand beats Street 1Q forecasts   [06:42AM  Associated Press]
▶ ETFs with exposure to Ingersoll-Rand Plc : April 17, 2017   [Apr-17-17 12:56PM  Capital Cube]
▶ Ingersoll Rand Declares Quarterly Dividend   [Apr-05-17 06:52AM  Business Wire]
▶ 3 Commercial Construction Stocks to Buy in 2017   [Apr-03-17 10:11AM  Motley Fool]
▶ Why You're Smart to Buy Ingersoll-Rand Plc   [Mar-27-17 04:48PM  Motley Fool]
▶ Emerson Electric Sees Growth Ahead   [Feb-08-17 02:03PM  at Motley Fool]
▶ Planes, Trains and Caution Flags   [Feb-03-17 08:32AM  at Bloomberg]
▶ [$$] Ingersoll-Rand Shares Could Cool   [Jan-28-17 12:01AM  at Barrons.com]
▶ The Best Industrial Stocks for 2017   [Dec-17-16 08:51AM  at Motley Fool]
▶ Ingersoll-Rand Is Still a Good Value   [01:17PM  at Motley Fool]
▶ Trane Gives Public First Look at Chiller (IR)   [Nov-28-16 05:07PM  at Investopedia]
▶ 5 Favorite Dividend Growers; Nike and Mastercard Top List   [Nov-14-16 07:07PM  at Barrons.com]
▶ Jefferies Adds Top Financial Stock to Franchise Picks Portfolio   [Oct-28-16 09:50AM  at 24/7 Wall St.]
Stock chart of IR Financial statements of IR
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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