Intrinsic value of Ingersoll-Rand - IR

Previous Close

$86.74

  Intrinsic Value

$129.99

stock screener

  Rating & Target

buy

+50%

  Value-price divergence*

-37%

Previous close

$86.74

 
Intrinsic value

$129.99

 
Up/down potential

+50%

 
Rating

buy

 
Value-price divergence*

-37%

*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 22.0

 

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
  3.70
  3.83
  3.95
  4.05
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
Revenue, $m
  13,509
  14,009
  14,545
  15,119
  15,732
  16,385
  17,078
  17,814
  18,594
  19,420
  20,293
  21,215
  22,190
  23,218
  24,302
  25,445
  26,649
  27,917
  29,252
  30,658
  32,137
  33,693
  35,330
  37,051
  38,861
  40,763
  42,764
  44,866
  47,075
  49,397
  51,837
Variable operating expenses, $m
 
  6,241
  6,458
  6,691
  6,939
  7,203
  7,484
  7,783
  8,098
  8,433
  8,787
  8,595
  8,989
  9,406
  9,845
  10,308
  10,796
  11,310
  11,851
  12,420
  13,019
  13,650
  14,313
  15,010
  15,743
  16,514
  17,324
  18,176
  19,071
  20,012
  21,000
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
  12,435
  12,807
  13,199
  13,609
  14,040
  14,492
  14,966
  15,461
  15,980
  16,523
  16,524
  17,116
  17,736
  18,384
  19,060
  19,767
  20,505
  21,276
  22,081
  22,921
  23,800
  24,716
  25,674
  26,673
  27,717
  28,807
  29,947
  31,136
  32,378
  33,676
Operating income, $m
  1,573
  1,574
  1,738
  1,921
  2,123
  2,344
  2,586
  2,848
  3,133
  3,440
  3,770
  4,692
  5,073
  5,481
  5,918
  6,384
  6,882
  7,412
  7,977
  8,577
  9,215
  9,894
  10,614
  11,377
  12,187
  13,046
  13,956
  14,919
  15,939
  17,019
  18,161
EBITDA, $m
  1,925
  2,303
  2,473
  2,663
  2,872
  3,101
  3,350
  3,621
  3,915
  4,231
  4,572
  4,939
  5,331
  5,752
  6,201
  6,681
  7,192
  7,737
  8,317
  8,934
  9,590
  10,286
  11,025
  11,809
  12,640
  13,521
  14,454
  15,442
  16,487
  17,594
  18,764
Interest expense (income), $m
  170
  152
  168
  185
  203
  223
  243
  265
  288
  313
  339
  367
  396
  427
  459
  493
  529
  567
  607
  650
  694
  741
  790
  841
  896
  953
  1,013
  1,076
  1,142
  1,212
  1,286
Earnings before tax, $m
  1,741
  1,422
  1,570
  1,736
  1,919
  2,121
  2,342
  2,583
  2,844
  3,127
  3,431
  4,325
  4,677
  5,055
  5,459
  5,891
  6,353
  6,845
  7,369
  7,928
  8,522
  9,153
  9,824
  10,536
  11,292
  12,093
  12,943
  13,843
  14,797
  15,807
  16,876
Tax expense, $m
  281
  384
  424
  469
  518
  573
  632
  697
  768
  844
  926
  1,168
  1,263
  1,365
  1,474
  1,591
  1,715
  1,848
  1,990
  2,140
  2,301
  2,471
  2,652
  2,845
  3,049
  3,265
  3,495
  3,738
  3,995
  4,268
  4,556
Net income, $m
  1,476
  1,038
  1,146
  1,267
  1,401
  1,549
  1,710
  1,886
  2,076
  2,282
  2,505
  3,157
  3,414
  3,690
  3,985
  4,301
  4,637
  4,997
  5,380
  5,787
  6,221
  6,682
  7,171
  7,691
  8,243
  8,828
  9,448
  10,106
  10,802
  11,539
  12,319

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
  16,270
  16,894
  17,560
  18,272
  19,030
  19,835
  20,690
  21,596
  22,555
  23,569
  24,640
  25,772
  26,966
  28,225
  29,552
  30,951
  32,424
  33,975
  35,607
  37,325
  39,132
  41,033
  43,032
  45,134
  47,344
  49,667
  52,109
  54,675
  57,372
  60,205
Adjusted assets (=assets-cash), $m
  15,682
  16,270
  16,894
  17,560
  18,272
  19,030
  19,835
  20,690
  21,596
  22,555
  23,569
  24,640
  25,772
  26,966
  28,225
  29,552
  30,951
  32,424
  33,975
  35,607
  37,325
  39,132
  41,033
  43,032
  45,134
  47,344
  49,667
  52,109
  54,675
  57,372
  60,205
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
  4,777
  4,960
  5,156
  5,365
  5,587
  5,824
  6,075
  6,341
  6,622
  6,920
  7,234
  7,567
  7,917
  8,287
  8,677
  9,087
  9,520
  9,975
  10,454
  10,959
  11,489
  12,047
  12,634
  13,251
  13,900
  14,582
  15,299
  16,053
  16,844
  17,676
Working capital, $m
  1,989
  658
  684
  711
  739
  770
  803
  837
  874
  913
  954
  997
  1,043
  1,091
  1,142
  1,196
  1,252
  1,312
  1,375
  1,441
  1,510
  1,584
  1,660
  1,741
  1,826
  1,916
  2,010
  2,109
  2,213
  2,322
  2,436
Total debt, $m
  4,070
  4,104
  4,517
  4,960
  5,431
  5,934
  6,468
  7,034
  7,635
  8,271
  8,943
  9,654
  10,404
  11,195
  12,030
  12,910
  13,837
  14,814
  15,842
  16,925
  18,063
  19,262
  20,522
  21,847
  23,241
  24,706
  26,246
  27,865
  29,567
  31,354
  33,233
Total liabilities, $m
  10,754
  10,787
  11,200
  11,643
  12,114
  12,617
  13,151
  13,717
  14,318
  14,954
  15,626
  16,337
  17,087
  17,878
  18,713
  19,593
  20,520
  21,497
  22,525
  23,608
  24,746
  25,945
  27,205
  28,530
  29,924
  31,389
  32,929
  34,548
  36,250
  38,037
  39,916
Total equity, $m
  6,644
  5,483
  5,693
  5,918
  6,158
  6,413
  6,684
  6,972
  7,278
  7,601
  7,943
  8,304
  8,685
  9,087
  9,512
  9,959
  10,430
  10,927
  11,449
  12,000
  12,579
  13,188
  13,828
  14,502
  15,210
  15,955
  16,738
  17,561
  18,425
  19,334
  20,289
Total liabilities and equity, $m
  17,398
  16,270
  16,893
  17,561
  18,272
  19,030
  19,835
  20,689
  21,596
  22,555
  23,569
  24,641
  25,772
  26,965
  28,225
  29,552
  30,950
  32,424
  33,974
  35,608
  37,325
  39,133
  41,033
  43,032
  45,134
  47,344
  49,667
  52,109
  54,675
  57,371
  60,205
Debt-to-equity ratio
  0.613
  0.750
  0.790
  0.840
  0.880
  0.930
  0.970
  1.010
  1.050
  1.090
  1.130
  1.160
  1.200
  1.230
  1.260
  1.300
  1.330
  1.360
  1.380
  1.410
  1.440
  1.460
  1.480
  1.510
  1.530
  1.550
  1.570
  1.590
  1.600
  1.620
  1.640
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
  1,038
  1,146
  1,267
  1,401
  1,549
  1,710
  1,886
  2,076
  2,282
  2,505
  3,157
  3,414
  3,690
  3,985
  4,301
  4,637
  4,997
  5,380
  5,787
  6,221
  6,682
  7,171
  7,691
  8,243
  8,828
  9,448
  10,106
  10,802
  11,539
  12,319
Depreciation, amort., depletion, $m
  352
  729
  735
  742
  749
  756
  765
  773
  782
  792
  802
  247
  258
  270
  283
  296
  310
  325
  340
  357
  374
  392
  411
  431
  452
  474
  498
  522
  548
  575
  603
Funds from operations, $m
  1,461
  1,767
  1,881
  2,009
  2,150
  2,305
  2,474
  2,659
  2,858
  3,074
  3,307
  3,404
  3,673
  3,960
  4,268
  4,597
  4,948
  5,322
  5,720
  6,144
  6,595
  7,074
  7,583
  8,122
  8,695
  9,302
  9,946
  10,628
  11,350
  12,114
  12,922
Change in working capital, $m
  -39
  23
  25
  27
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
  66
  70
  73
  77
  81
  85
  89
  94
  99
  104
  109
  115
Cash from operations, $m
  1,500
  1,743
  1,856
  1,982
  2,121
  2,274
  2,442
  2,624
  2,822
  3,035
  3,266
  3,361
  3,627
  3,912
  4,217
  4,543
  4,891
  5,262
  5,657
  6,078
  6,525
  7,001
  7,506
  8,042
  8,610
  9,213
  9,852
  10,529
  11,246
  12,005
  12,808
Maintenance CAPEX, $m
  0
  -157
  -163
  -169
  -176
  -183
  -191
  -199
  -207
  -216
  -226
  -236
  -247
  -258
  -270
  -283
  -296
  -310
  -325
  -340
  -357
  -374
  -392
  -411
  -431
  -452
  -474
  -498
  -522
  -548
  -575
New CAPEX, $m
  -183
  -166
  -183
  -196
  -209
  -222
  -236
  -251
  -266
  -282
  -298
  -315
  -332
  -351
  -370
  -390
  -411
  -432
  -455
  -479
  -504
  -531
  -558
  -587
  -617
  -649
  -682
  -717
  -753
  -792
  -832
Cash from investing activities, $m
  240
  -323
  -346
  -365
  -385
  -405
  -427
  -450
  -473
  -498
  -524
  -551
  -579
  -609
  -640
  -673
  -707
  -742
  -780
  -819
  -861
  -905
  -950
  -998
  -1,048
  -1,101
  -1,156
  -1,215
  -1,275
  -1,340
  -1,407
Free cash flow, $m
  1,740
  1,420
  1,510
  1,617
  1,736
  1,869
  2,015
  2,174
  2,349
  2,538
  2,742
  2,810
  3,048
  3,303
  3,577
  3,870
  4,184
  4,519
  4,877
  5,258
  5,664
  6,096
  6,555
  7,043
  7,562
  8,112
  8,696
  9,314
  9,970
  10,665
  11,401
Issuance/(repayment) of debt, $m
  -151
  395
  413
  442
  472
  502
  534
  567
  601
  636
  672
  710
  750
  792
  835
  880
  927
  977
  1,028
  1,082
  1,139
  1,198
  1,260
  1,325
  1,394
  1,465
  1,540
  1,619
  1,701
  1,788
  1,879
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
  395
  413
  442
  472
  502
  534
  567
  601
  636
  672
  710
  750
  792
  835
  880
  927
  977
  1,028
  1,082
  1,139
  1,198
  1,260
  1,325
  1,394
  1,465
  1,540
  1,619
  1,701
  1,788
  1,879
Total cash flow (excl. dividends), $m
  1,327
  1,815
  1,923
  2,059
  2,208
  2,371
  2,549
  2,741
  2,949
  3,173
  3,414
  3,521
  3,798
  4,095
  4,412
  4,750
  5,111
  5,496
  5,905
  6,340
  6,803
  7,294
  7,816
  8,369
  8,955
  9,577
  10,236
  10,933
  11,672
  12,453
  13,280
Retained Cash Flow (-), $m
  -827
  -193
  -210
  -225
  -240
  -255
  -271
  -288
  -305
  -323
  -342
  -361
  -381
  -402
  -424
  -447
  -471
  -496
  -523
  -550
  -579
  -609
  -641
  -674
  -708
  -745
  -783
  -823
  -865
  -909
  -955
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
 
  2,976
  1,713
  1,834
  1,968
  2,116
  2,277
  2,453
  2,644
  2,850
  3,073
  3,159
  3,417
  3,692
  3,988
  4,303
  4,640
  5,000
  5,383
  5,790
  6,224
  6,685
  7,175
  7,695
  8,247
  8,832
  9,453
  10,110
  10,807
  11,544
  12,325
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
 
  2,853
  1,568
  1,596
  1,621
  1,640
  1,653
  1,657
  1,652
  1,637
  1,611
  1,500
  1,458
  1,404
  1,339
  1,263
  1,179
  1,088
  991
  892
  791
  691
  595
  504
  420
  344
  276
  217
  167
  126
  93
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 15.2
Price to Sales 1.7
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 15
Price to Free Cash Flow 17.1
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 3.7% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 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 254.074 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 $22.0 billion.

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COMPANY NEWS

▶ What's Going Wrong With the HVAC Sector?   [09:32AM  Motley Fool]
▶ Ingersoll-Rand beats Street 2Q forecasts   [Jul-26-17 08:35PM  Associated Press]
▶ Why Ingersoll-Rand is Tanking   [02:13PM  Barrons.com]
▶ Is Ingersoll-Rand Heading For A Breakup?   [Jul-10-17 11:20AM  Barrons.com]
▶ Stocks To Buy And Watch: Top IPOs, Big And Small Caps, Growth Stocks   [Jun-19-17 08:36AM  Investor's Business Daily]
▶ Ingersoll-Rand Is on the Run   [Jun-16-17 03:14PM  TheStreet.com]
▶ Four stocks that will float your portfolio's boat   [May-26-17 05:24PM  CNBC Videos]
▶ ETFs with exposure to Ingersoll-Rand Plc : May 19, 2017   [May-19-17 01:57PM  Capital Cube]
▶ [$$] Air Conditioning Is Hot; The Best Stock to Own   [May-04-17 11:56AM  Barrons.com]
▶ ETFs with exposure to Ingersoll-Rand Plc : May 1, 2017   [May-01-17 04:01PM  Capital Cube]
▶ Ingersoll-Rand beats Street 1Q forecasts   [06:42AM  Associated Press]
▶ ETFs with exposure to Ingersoll-Rand Plc : April 17, 2017   [Apr-17-17 12:56PM  Capital Cube]
▶ Ingersoll Rand Declares Quarterly Dividend   [Apr-05-17 06:52AM  Business Wire]
▶ 3 Commercial Construction Stocks to Buy in 2017   [Apr-03-17 10:11AM  Motley Fool]
▶ Why You're Smart to Buy Ingersoll-Rand Plc   [Mar-27-17 04:48PM  Motley Fool]
▶ Emerson Electric Sees Growth Ahead   [Feb-08-17 02:03PM  at Motley Fool]
▶ Planes, Trains and Caution Flags   [Feb-03-17 08:32AM  at Bloomberg]
▶ [$$] Ingersoll-Rand Shares Could Cool   [Jan-28-17 12:01AM  at Barrons.com]
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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