Intrinsic value of Illinois Tool Works - ITW

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$140.37

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$140.37

 
Intrinsic value

$101.55

 
Up/down potential

-28%

 
Rating

sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of ITW 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 48.7

 

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, %
  1.45
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
Revenue, $m
  13,599
  14,415
  15,265
  16,152
  17,078
  18,044
  19,052
  20,106
  21,208
  22,359
  23,564
  24,824
  26,143
  27,524
  28,971
  30,485
  32,073
  33,736
  35,479
  37,306
  39,221
  41,230
  43,337
  45,546
  47,864
  50,295
  52,846
  55,523
  58,331
  61,278
  64,371
Variable operating expenses, $m
 
  11,303
  11,943
  12,610
  13,306
  14,033
  14,792
  15,585
  16,414
  17,281
  18,187
  18,680
  19,673
  20,712
  21,800
  22,940
  24,134
  25,385
  26,697
  28,072
  29,513
  31,025
  32,610
  34,273
  36,017
  37,846
  39,766
  41,780
  43,893
  46,111
  48,438
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
  10,535
  11,303
  11,943
  12,610
  13,306
  14,033
  14,792
  15,585
  16,414
  17,281
  18,187
  18,680
  19,673
  20,712
  21,800
  22,940
  24,134
  25,385
  26,697
  28,072
  29,513
  31,025
  32,610
  34,273
  36,017
  37,846
  39,766
  41,780
  43,893
  46,111
  48,438
Operating income, $m
  3,064
  3,112
  3,323
  3,542
  3,771
  4,010
  4,260
  4,521
  4,793
  5,079
  5,377
  6,144
  6,471
  6,813
  7,171
  7,546
  7,939
  8,350
  8,782
  9,234
  9,708
  10,205
  10,727
  11,274
  11,847
  12,449
  13,080
  13,743
  14,438
  15,167
  15,933
EBITDA, $m
  3,534
  3,773
  3,995
  4,227
  4,469
  4,722
  4,986
  5,262
  5,550
  5,852
  6,167
  6,497
  6,842
  7,204
  7,582
  7,978
  8,394
  8,829
  9,285
  9,763
  10,265
  10,791
  11,342
  11,920
  12,527
  13,163
  13,831
  14,531
  15,266
  16,037
  16,847
Interest expense (income), $m
  212
  251
  273
  296
  319
  344
  369
  396
  424
  453
  484
  516
  549
  584
  621
  659
  699
  741
  785
  831
  880
  931
  984
  1,040
  1,098
  1,160
  1,224
  1,292
  1,363
  1,437
  1,515
Earnings before tax, $m
  2,908
  2,861
  3,050
  3,247
  3,452
  3,667
  3,891
  4,125
  4,370
  4,625
  4,893
  5,629
  5,922
  6,229
  6,550
  6,887
  7,239
  7,609
  7,996
  8,402
  8,828
  9,274
  9,743
  10,234
  10,749
  11,289
  11,856
  12,451
  13,075
  13,730
  14,417
Tax expense, $m
  873
  772
  823
  877
  932
  990
  1,051
  1,114
  1,180
  1,249
  1,321
  1,520
  1,599
  1,682
  1,769
  1,859
  1,955
  2,054
  2,159
  2,269
  2,384
  2,504
  2,631
  2,763
  2,902
  3,048
  3,201
  3,362
  3,530
  3,707
  3,893
Net income, $m
  2,035
  2,088
  2,226
  2,370
  2,520
  2,677
  2,840
  3,011
  3,190
  3,377
  3,572
  4,109
  4,323
  4,547
  4,782
  5,027
  5,285
  5,555
  5,837
  6,134
  6,444
  6,770
  7,112
  7,471
  7,847
  8,241
  8,655
  9,089
  9,545
  10,023
  10,525

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,472
  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
  15,201
  13,497
  14,293
  15,124
  15,990
  16,895
  17,839
  18,826
  19,857
  20,936
  22,064
  23,244
  24,479
  25,772
  27,126
  28,544
  30,030
  31,588
  33,220
  34,931
  36,724
  38,605
  40,578
  42,646
  44,817
  47,093
  49,482
  51,988
  54,617
  57,377
  60,273
Adjusted assets (=assets-cash), $m
  12,729
  13,497
  14,293
  15,124
  15,990
  16,895
  17,839
  18,826
  19,857
  20,936
  22,064
  23,244
  24,479
  25,772
  27,126
  28,544
  30,030
  31,588
  33,220
  34,931
  36,724
  38,605
  40,578
  42,646
  44,817
  47,093
  49,482
  51,988
  54,617
  57,377
  60,273
Revenue / Adjusted assets
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
  1.068
Average production assets, $m
  3,126
  3,315
  3,511
  3,715
  3,928
  4,150
  4,382
  4,624
  4,878
  5,143
  5,420
  5,710
  6,013
  6,331
  6,663
  7,012
  7,377
  7,759
  8,160
  8,580
  9,021
  9,483
  9,967
  10,476
  11,009
  11,568
  12,155
  12,770
  13,416
  14,094
  14,805
Working capital, $m
  3,363
  1,629
  1,725
  1,825
  1,930
  2,039
  2,153
  2,272
  2,396
  2,527
  2,663
  2,805
  2,954
  3,110
  3,274
  3,445
  3,624
  3,812
  4,009
  4,216
  4,432
  4,659
  4,897
  5,147
  5,409
  5,683
  5,972
  6,274
  6,591
  6,924
  7,274
Total debt, $m
  7,829
  7,801
  8,445
  9,117
  9,818
  10,550
  11,314
  12,112
  12,947
  13,819
  14,732
  15,686
  16,685
  17,732
  18,827
  19,974
  21,177
  22,436
  23,757
  25,141
  26,592
  28,114
  29,709
  31,383
  33,139
  34,980
  36,913
  38,940
  41,067
  43,300
  45,643
Total liabilities, $m
  10,947
  10,919
  11,563
  12,235
  12,936
  13,668
  14,432
  15,230
  16,065
  16,937
  17,850
  18,804
  19,803
  20,850
  21,945
  23,092
  24,295
  25,554
  26,875
  28,259
  29,710
  31,232
  32,827
  34,501
  36,257
  38,098
  40,031
  42,058
  44,185
  46,418
  48,761
Total equity, $m
  4,254
  2,578
  2,730
  2,889
  3,054
  3,227
  3,407
  3,596
  3,793
  3,999
  4,214
  4,440
  4,675
  4,922
  5,181
  5,452
  5,736
  6,033
  6,345
  6,672
  7,014
  7,374
  7,750
  8,145
  8,560
  8,995
  9,451
  9,930
  10,432
  10,959
  11,512
Total liabilities and equity, $m
  15,201
  13,497
  14,293
  15,124
  15,990
  16,895
  17,839
  18,826
  19,858
  20,936
  22,064
  23,244
  24,478
  25,772
  27,126
  28,544
  30,031
  31,587
  33,220
  34,931
  36,724
  38,606
  40,577
  42,646
  44,817
  47,093
  49,482
  51,988
  54,617
  57,377
  60,273
Debt-to-equity ratio
  1.840
  3.030
  3.090
  3.160
  3.210
  3.270
  3.320
  3.370
  3.410
  3.460
  3.500
  3.530
  3.570
  3.600
  3.630
  3.660
  3.690
  3.720
  3.740
  3.770
  3.790
  3.810
  3.830
  3.850
  3.870
  3.890
  3.910
  3.920
  3.940
  3.950
  3.960
Adjusted equity ratio
  0.140
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,035
  2,088
  2,226
  2,370
  2,520
  2,677
  2,840
  3,011
  3,190
  3,377
  3,572
  4,109
  4,323
  4,547
  4,782
  5,027
  5,285
  5,555
  5,837
  6,134
  6,444
  6,770
  7,112
  7,471
  7,847
  8,241
  8,655
  9,089
  9,545
  10,023
  10,525
Depreciation, amort., depletion, $m
  470
  660
  673
  685
  698
  712
  726
  741
  757
  773
  790
  352
  371
  391
  411
  433
  455
  479
  504
  530
  557
  585
  615
  647
  680
  714
  750
  788
  828
  870
  914
Funds from operations, $m
  2,339
  2,749
  2,899
  3,055
  3,218
  3,389
  3,567
  3,752
  3,947
  4,150
  4,362
  4,462
  4,694
  4,938
  5,193
  5,460
  5,740
  6,033
  6,341
  6,663
  7,001
  7,356
  7,727
  8,117
  8,526
  8,955
  9,405
  9,877
  10,373
  10,893
  11,439
Change in working capital, $m
  37
  92
  96
  100
  105
  109
  114
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
  206
  216
  227
  238
  250
  262
  275
  288
  302
  317
  333
  349
Cash from operations, $m
  2,302
  2,646
  2,803
  2,955
  3,114
  3,279
  3,453
  3,633
  3,822
  4,020
  4,226
  4,319
  4,545
  4,782
  5,029
  5,289
  5,561
  5,846
  6,144
  6,457
  6,785
  7,129
  7,489
  7,868
  8,264
  8,680
  9,117
  9,575
  10,056
  10,560
  11,089
Maintenance CAPEX, $m
  0
  -193
  -205
  -217
  -229
  -242
  -256
  -270
  -285
  -301
  -317
  -335
  -352
  -371
  -391
  -411
  -433
  -455
  -479
  -504
  -530
  -557
  -585
  -615
  -647
  -680
  -714
  -750
  -788
  -828
  -870
New CAPEX, $m
  -273
  -189
  -196
  -204
  -213
  -222
  -232
  -242
  -253
  -265
  -277
  -290
  -303
  -318
  -333
  -348
  -365
  -383
  -401
  -420
  -441
  -462
  -485
  -508
  -533
  -559
  -587
  -616
  -646
  -678
  -711
Cash from investing activities, $m
  -532
  -382
  -401
  -421
  -442
  -464
  -488
  -512
  -538
  -566
  -594
  -625
  -655
  -689
  -724
  -759
  -798
  -838
  -880
  -924
  -971
  -1,019
  -1,070
  -1,123
  -1,180
  -1,239
  -1,301
  -1,366
  -1,434
  -1,506
  -1,581
Free cash flow, $m
  1,770
  2,263
  2,402
  2,534
  2,672
  2,815
  2,964
  3,120
  3,283
  3,454
  3,632
  3,695
  3,889
  4,093
  4,306
  4,529
  4,763
  5,008
  5,264
  5,533
  5,815
  6,110
  6,419
  6,744
  7,085
  7,442
  7,816
  8,209
  8,621
  9,054
  9,508
Issuance/(repayment) of debt, $m
  465
  624
  644
  672
  701
  732
  764
  798
  834
  872
  912
  955
  999
  1,046
  1,095
  1,147
  1,202
  1,260
  1,320
  1,384
  1,451
  1,522
  1,596
  1,674
  1,756
  1,842
  1,932
  2,027
  2,127
  2,232
  2,343
Issuance/(repurchase) of shares, $m
  -1,916
  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  
  -1,434
  624
  644
  672
  701
  732
  764
  798
  834
  872
  912
  955
  999
  1,046
  1,095
  1,147
  1,202
  1,260
  1,320
  1,384
  1,451
  1,522
  1,596
  1,674
  1,756
  1,842
  1,932
  2,027
  2,127
  2,232
  2,343
Total cash flow (excl. dividends), $m
  203
  2,888
  3,047
  3,206
  3,373
  3,547
  3,728
  3,919
  4,118
  4,326
  4,544
  4,649
  4,889
  5,139
  5,402
  5,677
  5,965
  6,267
  6,585
  6,917
  7,266
  7,631
  8,015
  8,418
  8,840
  9,283
  9,748
  10,237
  10,749
  11,286
  11,851
Retained Cash Flow (-), $m
  970
  -144
  -152
  -159
  -165
  -173
  -180
  -188
  -197
  -206
  -215
  -225
  -236
  -247
  -259
  -271
  -284
  -297
  -312
  -327
  -343
  -359
  -377
  -395
  -414
  -435
  -456
  -479
  -502
  -527
  -553
Prev. year cash balance distribution, $m
 
  1,820
  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
 
  4,564
  2,895
  3,047
  3,207
  3,374
  3,548
  3,730
  3,921
  4,120
  4,329
  4,424
  4,653
  4,892
  5,143
  5,406
  5,681
  5,970
  6,273
  6,590
  6,923
  7,272
  7,638
  8,023
  8,426
  8,849
  9,292
  9,758
  10,246
  10,759
  11,297
Discount rate, %
 
  6.00
  6.30
  6.62
  6.95
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.78
  11.31
  11.88
  12.47
  13.10
  13.75
  14.44
  15.16
  15.92
  16.72
  17.55
  18.43
  19.35
  20.32
  21.33
  22.40
  23.52
  24.70
PV of cash for distribution, $m
 
  4,305
  2,562
  2,515
  2,452
  2,373
  2,279
  2,171
  2,050
  1,918
  1,778
  1,586
  1,441
  1,293
  1,147
  1,004
  866
  737
  617
  508
  411
  327
  255
  195
  145
  106
  76
  53
  36
  24
  15
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

Illinois Tool Works Inc. manufactures and sells industrial products and equipment worldwide. It operates through seven segments: Automotive OEM; Test & Measurement and Electronics; Food Equipment; Polymers & Fluids; Welding; Construction Products; and Specialty Products. The Automotive OEM segment produces components and fasteners for automotive-related applications. The Test & Measurement and Electronics segment provides equipment, consumables, and related software for testing and measuring of materials and structures. This segment also offers equipment and consumables used in the production of electronic subassemblies and microelectronics. The Food Equipment segment provides commercial food equipment and related services. The Polymers & Fluids segment produces adhesives, sealants, lubrication and cutting fluids, and fluids and polymers for auto aftermarket maintenance and appearance. The Welding segment produces arc welding equipment, consumables, and accessories for various industrial and commercial applications. The Construction Products segment produces engineered fastening systems and solutions. The Specialty Products segment provides beverage packaging equipment and consumables, product coding and marking equipment and consumables, and appliance components and fasteners. The company distributes its products directly to industrial manufacturers, as well as through independent distributors. Illinois Tool Works Inc. was founded in 1912 and is headquartered in Glenview, Illinois.

FINANCIAL RATIOS  of  Illinois Tool Works (ITW)

Valuation Ratios
P/E Ratio 23.9
Price to Sales 3.6
Price to Book 11.4
Price to Tangible Book
Price to Cash Flow 21.2
Price to Free Cash Flow 24
Growth Rates
Sales Growth Rate 1.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3.9%
Cap. Spend. - 3 Yr. Gr. Rate -5.8%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 168.7%
Total Debt to Equity 184%
Interest Coverage 15
Management Effectiveness
Return On Assets 14.1%
Ret/ On Assets - 3 Yr. Avg. 14.3%
Return On Total Capital 16.5%
Ret/ On T. Cap. - 3 Yr. Avg. 16.7%
Return On Equity 42.9%
Return On Equity - 3 Yr. Avg. 36.7%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 41.9%
Gross Margin - 3 Yr. Avg. 41.1%
EBITDA Margin 26.4%
EBITDA Margin - 3 Yr. Avg. 25.2%
Operating Margin 22.5%
Oper. Margin - 3 Yr. Avg. 21.3%
Pre-Tax Margin 21.4%
Pre-Tax Margin - 3 Yr. Avg. 20.1%
Net Profit Margin 15%
Net Profit Margin - 3 Yr. Avg. 16.5%
Effective Tax Rate 30%
Eff/ Tax Rate - 3 Yr. Avg. 30.1%
Payout Ratio 40.3%

ITW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ITW stock intrinsic value calculation we used $13599 million for the last fiscal year's total revenue generated by Illinois Tool Works. The default revenue input number comes from 2016 income statement of Illinois Tool Works. 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 ITW stock valuation model: a) initial revenue growth rate of 6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 6%, whose default value for ITW is calculated based on our internal credit rating of Illinois Tool Works, 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 Illinois Tool Works.
    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 ITW stock the variable cost ratio is equal to 78.6%.

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 ITW 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 3.5% for Illinois Tool Works.

Corporate tax rate of 27% is the nominal tax rate for Illinois Tool Works. 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 ITW 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 ITW are equal to 23%.

Life of production assets of 16.2 years is the average useful life of capital assets used in Illinois Tool Works 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 ITW is equal to 11.3%. 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 - $4254 million for Illinois Tool Works - 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 347.26 million for Illinois Tool Works 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 Illinois Tool Works at the current share price and the inputted number of shares is $48.7 billion.


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COMPANY NEWS

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▶ ITW Board of Directors Declares Quarterly Dividend   [May-05-17 12:43PM  GlobeNewswire]
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▶ For Illinois Tool Works, Another Impressive Quarter   [Jan-26-17 09:26PM  at Motley Fool]
▶ [$$] Illinois Tool Works Profit, Sales Rise   [09:52AM  at The Wall Street Journal]
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Stock chart of ITW Financial statements of ITW Annual reports of ITW
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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