Intrinsic value of Illinois Tool Works - ITW

Previous Close

$147.29

  Intrinsic Value

$100.85

stock screener

  Rating & Target

sell

-32%

  Value-price divergence*

-53%

Previous close

$147.29

 
Intrinsic value

$100.85

 
Up/down potential

-32%

 
Rating

sell

 
Value-price divergence*

-53%

*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 51.1

 

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, %
  1.45
  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
  295
  319
  343
  369
  396
  424
  453
  483
  515
  549
  584
  620
  659
  699
  741
  785
  831
  879
  930
  983
  1,039
  1,098
  1,159
  1,224
  1,291
  1,362
  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
  4,626
  4,893
  5,629
  5,922
  6,229
  6,550
  6,887
  7,240
  7,609
  7,997
  8,403
  8,829
  9,275
  9,743
  10,234
  10,749
  11,290
  11,857
  12,452
  13,076
  13,731
  14,418
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
  1,860
  1,955
  2,055
  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
  5,028
  5,285
  5,555
  5,838
  6,134
  6,445
  6,771
  7,113
  7,471
  7,847
  8,242
  8,655
  9,090
  9,545
  10,024
  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
  13,676
  14,483
  15,325
  16,203
  17,119
  18,076
  19,076
  20,121
  21,214
  22,357
  23,553
  24,804
  26,114
  27,486
  28,924
  30,429
  32,007
  33,661
  35,395
  37,212
  39,118
  41,117
  43,213
  45,412
  47,719
  50,139
  52,678
  55,343
  58,139
  61,073
Adjusted assets (=assets-cash), $m
  12,729
  13,676
  14,483
  15,325
  16,203
  17,119
  18,076
  19,076
  20,121
  21,214
  22,357
  23,553
  24,804
  26,114
  27,486
  28,924
  30,429
  32,007
  33,661
  35,395
  37,212
  39,118
  41,117
  43,213
  45,412
  47,719
  50,139
  52,678
  55,343
  58,139
  61,073
Revenue / Adjusted assets
  1.068
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
  1.054
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
  7,796
  8,440
  9,111
  9,812
  10,543
  11,307
  12,105
  12,939
  13,811
  14,723
  15,677
  16,676
  17,721
  18,816
  19,963
  21,165
  22,424
  23,743
  25,127
  26,577
  28,098
  29,693
  31,366
  33,121
  34,961
  36,893
  38,919
  41,045
  43,277
  45,618
Total liabilities, $m
  10,947
  10,914
  11,558
  12,229
  12,930
  13,661
  14,425
  15,223
  16,057
  16,929
  17,841
  18,795
  19,794
  20,839
  21,934
  23,081
  24,283
  25,542
  26,861
  28,245
  29,695
  31,216
  32,811
  34,484
  36,239
  38,079
  40,011
  42,037
  44,163
  46,395
  48,736
Total equity, $m
  4,254
  2,763
  2,926
  3,096
  3,273
  3,458
  3,651
  3,853
  4,064
  4,285
  4,516
  4,758
  5,010
  5,275
  5,552
  5,843
  6,147
  6,465
  6,800
  7,150
  7,517
  7,902
  8,306
  8,729
  9,173
  9,639
  10,128
  10,641
  11,179
  11,744
  12,337
Total liabilities and equity, $m
  15,201
  13,677
  14,484
  15,325
  16,203
  17,119
  18,076
  19,076
  20,121
  21,214
  22,357
  23,553
  24,804
  26,114
  27,486
  28,924
  30,430
  32,007
  33,661
  35,395
  37,212
  39,118
  41,117
  43,213
  45,412
  47,718
  50,139
  52,678
  55,342
  58,139
  61,073
Debt-to-equity ratio
  1.840
  2.820
  2.880
  2.940
  3.000
  3.050
  3.100
  3.140
  3.180
  3.220
  3.260
  3.300
  3.330
  3.360
  3.390
  3.420
  3.440
  3.470
  3.490
  3.510
  3.540
  3.560
  3.580
  3.590
  3.610
  3.630
  3.640
  3.660
  3.670
  3.680
  3.700
Adjusted equity ratio
  0.140
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202

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
  5,028
  5,285
  5,555
  5,838
  6,134
  6,445
  6,771
  7,113
  7,471
  7,847
  8,242
  8,655
  9,090
  9,545
  10,024
  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
  3,753
  3,947
  4,150
  4,362
  4,462
  4,694
  4,938
  5,193
  5,460
  5,740
  6,034
  6,341
  6,664
  7,002
  7,356
  7,728
  8,118
  8,527
  8,956
  9,406
  9,878
  10,374
  10,894
  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
  2,657
  2,803
  2,955
  3,114
  3,280
  3,453
  3,633
  3,822
  4,020
  4,226
  4,319
  4,545
  4,782
  5,030
  5,289
  5,561
  5,846
  6,144
  6,457
  6,785
  7,129
  7,490
  7,868
  8,265
  8,681
  9,117
  9,576
  10,056
  10,560
  11,090
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
  2,274
  2,403
  2,534
  2,672
  2,815
  2,965
  3,121
  3,284
  3,454
  3,632
  3,695
  3,890
  4,093
  4,306
  4,530
  4,763
  5,008
  5,265
  5,533
  5,815
  6,110
  6,420
  6,745
  7,085
  7,442
  7,817
  8,210
  8,622
  9,055
  9,508
Issuance/(repayment) of debt, $m
  465
  619
  644
  672
  701
  731
  764
  798
  834
  872
  912
  954
  999
  1,046
  1,095
  1,147
  1,202
  1,259
  1,320
  1,383
  1,450
  1,521
  1,595
  1,673
  1,755
  1,841
  1,931
  2,026
  2,126
  2,231
  2,342
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
  619
  644
  672
  701
  731
  764
  798
  834
  872
  912
  954
  999
  1,046
  1,095
  1,147
  1,202
  1,259
  1,320
  1,383
  1,450
  1,521
  1,595
  1,673
  1,755
  1,841
  1,931
  2,026
  2,126
  2,231
  2,342
Total cash flow (excl. dividends), $m
  203
  2,893
  3,046
  3,206
  3,372
  3,546
  3,728
  3,919
  4,118
  4,326
  4,544
  4,649
  4,888
  5,139
  5,401
  5,676
  5,965
  6,267
  6,584
  6,917
  7,265
  7,631
  8,015
  8,417
  8,840
  9,283
  9,748
  10,236
  10,748
  11,286
  11,850
Retained Cash Flow (-), $m
  970
  -153
  -163
  -170
  -177
  -185
  -193
  -202
  -211
  -221
  -231
  -242
  -253
  -265
  -277
  -290
  -304
  -319
  -334
  -350
  -367
  -385
  -404
  -423
  -444
  -466
  -489
  -513
  -538
  -565
  -593
Prev. year cash balance distribution, $m
 
  1,645
  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
 
  4,384
  2,883
  3,036
  3,195
  3,361
  3,535
  3,717
  3,906
  4,105
  4,313
  4,408
  4,635
  4,874
  5,124
  5,386
  5,661
  5,948
  6,250
  6,566
  6,898
  7,246
  7,611
  7,994
  8,396
  8,817
  9,259
  9,723
  10,210
  10,721
  11,257
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
 
  4,136
  2,552
  2,505
  2,442
  2,364
  2,270
  2,163
  2,043
  1,911
  1,771
  1,580
  1,435
  1,289
  1,143
  1,000
  863
  734
  615
  506
  410
  326
  254
  194
  145
  106
  76
  53
  36
  23
  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 25.1
Price to Sales 3.8
Price to Book 12
Price to Tangible Book
Price to Cash Flow 22.2
Price to Free Cash Flow 25.2
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 346.872 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 $51.1 billion.

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COMPANY NEWS

▶ Illinois Tool Works tops 2Q profit forecasts   [Jul-24-17 11:11PM  Associated Press]
▶ ITW Reports Second-Quarter 2017 Results   [08:00AM  GlobeNewswire]
▶ ITW Schedules Second Quarter 2017 Earnings Conference Call   [Jun-26-17 08:00AM  GlobeNewswire]
▶ 5 Companies Reach 52-Week Highs   [Jun-21-17 01:14PM  GuruFocus.com]
▶ Breakout Watch: 2016 IPO Stock Tests New Buy Zone   [Jun-19-17 01:37PM  Investor's Business Daily]
▶ Seven iQ100 members hit all-time highs   [Jun-14-17 03:48PM  CNBC Videos]
▶ Two iQ100 members hitting 52-week highs   [Jun-12-17 04:50PM  CNBC Videos]
▶ Nine members of iQ100 hit all time highs   [03:14PM  CNBC Videos]
▶ Is it a Good Time To Buy 3M Co Stock?   [09:23AM  Motley Fool]
▶ UnitedHealth, ITW, Northrop Grumman Look Rocket-Ready   [May-22-17 12:12PM  TheStreet.com]
▶ If You Like Dividends, You Should Love These 4 Stocks   [May-10-17 08:45AM  Motley Fool]
▶ 4 Key Takeaways From Illinois Tool Works' Earnings   [May-08-17 12:19PM  Motley Fool]
▶ ITW to Present at Upcoming Investor Events   [08:00AM  GlobeNewswire]
▶ ITW Board of Directors Declares Quarterly Dividend   [May-05-17 12:43PM  GlobeNewswire]
▶ Illinois Tool Works Easily Beats Guidance   [03:34PM  Motley Fool]
▶ Company News for April 25, 2017   [09:40AM  Zacks]
▶ Illinois Tool Works Is Still Pointed Higher   [09:31AM  TheStreet.com]
▶ Illinois Tool Works: Cramer's Top Takeaways   [06:26AM  TheStreet.com]
▶ French Presidential Election In Focus   [Apr-24-17 10:56AM  Zacks]
▶ Illinois Tool Works tops Street 1Q forecasts   [08:06AM  Associated Press]
▶ ITW Reports First-Quarter 2017 Results   [08:00AM  GlobeNewswire]
▶ 3 Stocks You Don't Have to Babysit   [Apr-21-17 10:35AM  Motley Fool]
▶ 3 of the Safest Stocks You Can Buy Right Now   [Apr-04-17 09:38AM  Motley Fool]
▶ 3 Stocks to Help Fund Your Retirement   [Apr-02-17 09:42AM  Motley Fool]
▶ Illinois Tool Works Stock Trades Ex-Dividend Wednesday   [Mar-28-17 09:00AM  Investopedia]
▶ ITW Schedules First Quarter 2017 Earnings Conference Call   [Mar-27-17 08:00AM  GlobeNewswire]
▶ Better Buy: Caterpillar Inc. vs. Illinois Tool Works   [Mar-24-17 11:09AM  Motley Fool]
▶ [$$] Welbilt Cooks Up a Winning Strategy   [Mar-18-17 01:22AM  at Barrons.com]
▶ How Reliable Is 3M Co. Stock for Income Investors?   [Mar-14-17 05:30PM  Motley Fool]
▶ 5 Key Takeaways From 3M Co.'s Earnings   [Feb-28-17 10:41AM  at Motley Fool]
▶ These 3 Stocks Could Boost Their Dividends in 2017   [Feb-17-17 10:16AM  at Motley Fool]
▶ ITW to Present at Upcoming Investor Events   [Feb-14-17 08:00AM  GlobeNewswire]
▶ Paslode Introduces Powermaster Pro Framing Nailer   [Feb-07-17 10:17AM  PR Newswire]
▶ For Illinois Tool Works, Another Impressive Quarter   [Jan-26-17 09:26PM  at Motley Fool]
▶ [$$] Illinois Tool Works Profit, Sales Rise   [09:52AM  at The Wall Street Journal]
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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