Intrinsic value of JD.com ADR - JD

Previous Close

$40.80

  Intrinsic Value

$237.40

stock screener

  Rating & Target

str. buy

+482%

  Value-price divergence*

+5000%

Previous close

$40.80

 
Intrinsic value

$237.40

 
Up/down potential

+482%

 
Rating

str. buy

 
Value-price divergence*

+5000%

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

We calculate the intrinsic value of JD 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 57.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  43.49
  41.20
  37.58
  34.32
  31.39
  28.75
  26.38
  24.24
  22.31
  20.58
  19.02
  17.62
  16.36
  15.22
  14.20
  13.28
  12.45
  11.71
  11.04
  10.43
  9.89
  9.40
  8.96
  8.56
  8.21
  7.89
  7.60
  7.34
  7.11
  6.89
  6.71
Revenue, $m
  37,632
  53,136
  73,105
  98,196
  129,020
  166,114
  209,928
  260,810
  319,008
  384,670
  457,852
  538,535
  626,639
  722,038
  824,579
  934,095
  1,050,420
  1,173,402
  1,302,912
  1,438,851
  1,581,154
  1,729,800
  1,884,806
  2,046,238
  2,214,201
  2,388,847
  2,570,370
  2,759,007
  2,955,036
  3,158,771
  3,370,569
Variable operating expenses, $m
 
  50,175
  68,995
  92,643
  121,694
  156,655
  197,949
  245,905
  300,756
  362,641
  431,613
  507,562
  590,599
  680,511
  777,154
  880,371
  990,006
  1,105,915
  1,227,977
  1,356,097
  1,490,216
  1,630,312
  1,776,404
  1,928,551
  2,086,854
  2,251,455
  2,422,538
  2,600,326
  2,785,080
  2,977,098
  3,176,714
Fixed operating expenses, $m
 
  2,493
  2,555
  2,619
  2,684
  2,752
  2,820
  2,891
  2,963
  3,037
  3,113
  3,191
  3,271
  3,353
  3,436
  3,522
  3,610
  3,701
  3,793
  3,888
  3,985
  4,085
  4,187
  4,292
  4,399
  4,509
  4,622
  4,737
  4,855
  4,977
  5,101
Total operating expenses, $m
  37,943
  52,668
  71,550
  95,262
  124,378
  159,407
  200,769
  248,796
  303,719
  365,678
  434,726
  510,753
  593,870
  683,864
  780,590
  883,893
  993,616
  1,109,616
  1,231,770
  1,359,985
  1,494,201
  1,634,397
  1,780,591
  1,932,843
  2,091,253
  2,255,964
  2,427,160
  2,605,063
  2,789,935
  2,982,075
  3,181,815
Operating income, $m
  -310
  469
  1,555
  2,934
  4,641
  6,708
  9,159
  12,015
  15,290
  18,992
  23,125
  27,782
  32,770
  38,175
  43,988
  50,201
  56,803
  63,786
  71,142
  78,866
  86,953
  95,403
  104,216
  113,395
  122,948
  132,883
  143,210
  153,944
  165,100
  176,696
  188,753
EBITDA, $m
  216
  919
  2,139
  3,687
  5,600
  7,915
  10,660
  13,857
  17,522
  21,664
  26,287
  31,390
  36,968
  43,012
  49,513
  56,460
  63,841
  71,648
  79,872
  88,506
  97,547
  106,992
  116,844
  127,105
  137,783
  148,888
  160,432
  172,429
  184,899
  197,860
  211,336
Interest expense (income), $m
  106
  66
  339
  690
  1,131
  1,672
  2,324
  3,093
  3,987
  5,010
  6,163
  7,449
  8,867
  10,414
  12,090
  13,892
  15,816
  17,860
  20,020
  22,295
  24,684
  27,184
  29,795
  32,518
  35,354
  38,305
  41,373
  44,563
  47,877
  51,320
  54,900
Earnings before tax, $m
  -468
  402
  1,216
  2,244
  3,511
  5,036
  6,835
  8,921
  11,302
  13,982
  16,962
  20,333
  23,903
  27,760
  31,898
  36,309
  40,987
  45,927
  51,122
  56,570
  62,269
  68,219
  74,420
  80,877
  87,594
  94,578
  101,837
  109,381
  117,223
  125,376
  133,853
Tax expense, $m
  26
  109
  328
  606
  948
  1,360
  1,845
  2,409
  3,052
  3,775
  4,580
  5,490
  6,454
  7,495
  8,612
  9,803
  11,067
  12,400
  13,803
  15,274
  16,813
  18,419
  20,094
  21,837
  23,650
  25,536
  27,496
  29,533
  31,650
  33,851
  36,140
Net income, $m
  -551
  294
  888
  1,638
  2,563
  3,676
  4,990
  6,512
  8,251
  10,207
  12,382
  14,843
  17,449
  20,265
  23,285
  26,506
  29,921
  33,527
  37,319
  41,296
  45,457
  49,800
  54,327
  59,040
  63,944
  69,042
  74,341
  79,848
  85,573
  91,524
  97,713

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  5,561
  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
  23,202
  27,305
  37,567
  50,461
  66,300
  85,362
  107,877
  134,024
  163,930
  197,672
  235,278
  276,739
  322,014
  371,037
  423,730
  480,007
  539,784
  602,982
  669,534
  739,389
  812,515
  888,900
  968,554
  1,051,510
  1,137,822
  1,227,568
  1,320,848
  1,417,784
  1,518,518
  1,623,212
  1,732,050
Adjusted assets (=assets-cash), $m
  17,641
  27,305
  37,567
  50,461
  66,300
  85,362
  107,877
  134,024
  163,930
  197,672
  235,278
  276,739
  322,014
  371,037
  423,730
  480,007
  539,784
  602,982
  669,534
  739,389
  812,515
  888,900
  968,554
  1,051,510
  1,137,822
  1,227,568
  1,320,848
  1,417,784
  1,518,518
  1,623,212
  1,732,050
Revenue / Adjusted assets
  2.133
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
  1.946
Average production assets, $m
  2,531
  3,560
  4,898
  6,579
  8,644
  11,130
  14,065
  17,474
  21,374
  25,773
  30,676
  36,082
  41,985
  48,377
  55,247
  62,584
  70,378
  78,618
  87,295
  96,403
  105,937
  115,897
  126,282
  137,098
  148,351
  160,053
  172,215
  184,854
  197,987
  211,638
  225,828
Working capital, $m
  317
  -3,773
  -5,190
  -6,972
  -9,160
  -11,794
  -14,905
  -18,518
  -22,650
  -27,312
  -32,507
  -38,236
  -44,491
  -51,265
  -58,545
  -66,321
  -74,580
  -83,312
  -92,507
  -102,158
  -112,262
  -122,816
  -133,821
  -145,283
  -157,208
  -169,608
  -182,496
  -195,890
  -209,808
  -224,273
  -239,310
Total debt, $m
  4,142
  8,070
  16,422
  26,918
  39,811
  55,327
  73,654
  94,938
  119,282
  146,748
  177,360
  211,109
  247,962
  287,867
  330,759
  376,569
  425,227
  476,670
  530,843
  587,706
  647,230
  709,408
  774,246
  841,772
  912,030
  985,083
  1,061,013
  1,139,919
  1,221,916
  1,307,138
  1,395,731
Total liabilities, $m
  18,298
  22,227
  30,579
  41,075
  53,968
  69,484
  87,811
  109,095
  133,439
  160,905
  191,517
  225,266
  262,119
  302,024
  344,916
  390,726
  439,384
  490,827
  545,000
  601,863
  661,387
  723,565
  788,403
  855,929
  926,187
  999,240
  1,075,170
  1,154,076
  1,236,073
  1,321,295
  1,409,888
Total equity, $m
  4,903
  5,079
  6,987
  9,386
  12,332
  15,877
  20,065
  24,928
  30,491
  36,767
  43,762
  51,474
  59,895
  69,013
  78,814
  89,281
  100,400
  112,155
  124,533
  137,526
  151,128
  165,335
  180,151
  195,581
  211,635
  228,328
  245,678
  263,708
  282,444
  301,917
  322,161
Total liabilities and equity, $m
  23,201
  27,306
  37,566
  50,461
  66,300
  85,361
  107,876
  134,023
  163,930
  197,672
  235,279
  276,740
  322,014
  371,037
  423,730
  480,007
  539,784
  602,982
  669,533
  739,389
  812,515
  888,900
  968,554
  1,051,510
  1,137,822
  1,227,568
  1,320,848
  1,417,784
  1,518,517
  1,623,212
  1,732,049
Debt-to-equity ratio
  0.845
  1.590
  2.350
  2.870
  3.230
  3.480
  3.670
  3.810
  3.910
  3.990
  4.050
  4.100
  4.140
  4.170
  4.200
  4.220
  4.240
  4.250
  4.260
  4.270
  4.280
  4.290
  4.300
  4.300
  4.310
  4.310
  4.320
  4.320
  4.330
  4.330
  4.330
Adjusted equity ratio
  0.108
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -551
  294
  888
  1,638
  2,563
  3,676
  4,990
  6,512
  8,251
  10,207
  12,382
  14,843
  17,449
  20,265
  23,285
  26,506
  29,921
  33,527
  37,319
  41,296
  45,457
  49,800
  54,327
  59,040
  63,944
  69,042
  74,341
  79,848
  85,573
  91,524
  97,713
Depreciation, amort., depletion, $m
  526
  451
  584
  753
  959
  1,208
  1,501
  1,842
  2,232
  2,672
  3,162
  3,608
  4,198
  4,838
  5,525
  6,258
  7,038
  7,862
  8,730
  9,640
  10,594
  11,590
  12,628
  13,710
  14,835
  16,005
  17,221
  18,485
  19,799
  21,164
  22,583
Funds from operations, $m
  1,740
  744
  1,472
  2,391
  3,522
  4,884
  6,491
  8,355
  10,483
  12,879
  15,544
  18,451
  21,648
  25,103
  28,810
  32,764
  36,959
  41,388
  46,049
  50,937
  56,050
  61,390
  66,955
  72,750
  78,779
  85,047
  91,562
  98,334
  105,372
  112,688
  120,296
Change in working capital, $m
  472
  -1,101
  -1,418
  -1,781
  -2,188
  -2,634
  -3,111
  -3,613
  -4,132
  -4,662
  -5,196
  -5,729
  -6,255
  -6,773
  -7,280
  -7,776
  -8,259
  -8,732
  -9,195
  -9,652
  -10,104
  -10,554
  -11,005
  -11,462
  -11,925
  -12,400
  -12,888
  -13,393
  -13,918
  -14,465
  -15,038
Cash from operations, $m
  1,268
  1,845
  2,890
  4,172
  5,710
  7,517
  9,601
  11,967
  14,615
  17,541
  20,740
  24,180
  27,903
  31,876
  36,091
  40,540
  45,218
  50,120
  55,244
  60,588
  66,154
  71,943
  77,961
  84,212
  90,704
  97,447
  104,451
  111,727
  119,290
  127,153
  135,333
Maintenance CAPEX, $m
  0
  -253
  -356
  -490
  -658
  -864
  -1,113
  -1,407
  -1,747
  -2,137
  -2,577
  -3,068
  -3,608
  -4,198
  -4,838
  -5,525
  -6,258
  -7,038
  -7,862
  -8,730
  -9,640
  -10,594
  -11,590
  -12,628
  -13,710
  -14,835
  -16,005
  -17,221
  -18,485
  -19,799
  -21,164
New CAPEX, $m
  -449
  -1,030
  -1,338
  -1,681
  -2,065
  -2,485
  -2,936
  -3,409
  -3,899
  -4,399
  -4,903
  -5,406
  -5,903
  -6,392
  -6,870
  -7,338
  -7,794
  -8,240
  -8,677
  -9,108
  -9,534
  -9,959
  -10,385
  -10,816
  -11,254
  -11,701
  -12,162
  -12,639
  -13,134
  -13,650
  -14,190
Cash from investing activities, $m
  -6,983
  -1,283
  -1,694
  -2,171
  -2,723
  -3,349
  -4,049
  -4,816
  -5,646
  -6,536
  -7,480
  -8,474
  -9,511
  -10,590
  -11,708
  -12,863
  -14,052
  -15,278
  -16,539
  -17,838
  -19,174
  -20,553
  -21,975
  -23,444
  -24,964
  -26,536
  -28,167
  -29,860
  -31,619
  -33,449
  -35,354
Free cash flow, $m
  -5,715
  562
  1,196
  2,001
  2,987
  4,167
  5,553
  7,152
  8,968
  11,004
  13,260
  15,706
  18,392
  21,286
  24,383
  27,678
  31,166
  34,842
  38,705
  42,751
  46,979
  51,390
  55,985
  60,768
  65,741
  70,910
  76,283
  81,867
  87,671
  93,704
  99,979
Issuance/(repayment) of debt, $m
  3,151
  6,492
  8,353
  10,495
  12,893
  15,516
  18,327
  21,284
  24,344
  27,466
  30,612
  33,749
  36,853
  39,905
  42,892
  45,810
  48,658
  51,443
  54,173
  56,862
  59,525
  62,178
  64,838
  67,526
  70,258
  73,053
  75,930
  78,906
  81,997
  85,221
  88,594
Issuance/(repurchase) of shares, $m
  196
  1,186
  1,021
  760
  383
  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  
  5,888
  7,678
  9,374
  11,255
  13,276
  15,516
  18,327
  21,284
  24,344
  27,466
  30,612
  33,749
  36,853
  39,905
  42,892
  45,810
  48,658
  51,443
  54,173
  56,862
  59,525
  62,178
  64,838
  67,526
  70,258
  73,053
  75,930
  78,906
  81,997
  85,221
  88,594
Total cash flow (excl. dividends), $m
  276
  8,240
  10,570
  13,257
  16,264
  19,684
  23,880
  28,435
  33,312
  38,470
  43,871
  49,456
  55,245
  61,191
  67,275
  73,487
  79,824
  86,285
  92,878
  99,613
  106,504
  113,568
  120,824
  128,293
  135,999
  143,964
  152,213
  160,773
  169,668
  178,925
  188,573
Retained Cash Flow (-), $m
  -478
  -1,479
  -1,909
  -2,398
  -2,946
  -3,545
  -4,188
  -4,863
  -5,563
  -6,276
  -6,995
  -7,712
  -8,421
  -9,118
  -9,801
  -10,468
  -11,118
  -11,755
  -12,379
  -12,993
  -13,601
  -14,208
  -14,816
  -15,430
  -16,054
  -16,693
  -17,350
  -18,030
  -18,736
  -19,473
  -20,244
Prev. year cash balance distribution, $m
 
  1,304
  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
 
  8,064
  8,661
  10,859
  13,318
  16,138
  19,692
  23,572
  27,749
  32,194
  36,876
  41,744
  46,824
  52,072
  57,474
  63,020
  68,705
  74,530
  80,500
  86,620
  92,903
  99,360
  106,008
  112,864
  119,945
  127,271
  134,863
  142,743
  150,931
  159,452
  168,329
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
 
  7,731
  7,929
  9,450
  10,966
  12,509
  14,291
  15,925
  17,344
  18,494
  19,333
  19,824
  19,982
  19,799
  19,295
  18,502
  17,459
  16,217
  14,825
  13,337
  11,805
  10,277
  8,796
  7,397
  6,109
  4,951
  3,935
  3,064
  2,335
  1,741
  1,267
Current shareholders' claim on cash, %
  100
  96.8
  94.9
  93.9
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5
  93.5

JD.com, Inc., through its subsidiaries, operates as an online direct sales company in the People's Republic of China. It primarily offers electronics and home appliances products; and general merchandise products, including audio and video products, and books. The company sells its products directly to customers through its Website jd.com and mobile applications. It also provides an online marketplace for third-party sellers to sell products to customers through its Website and mobile applications; and services, such as advertising, transaction processing, and financing, as well as offers a suite of value-added fulfillment and other services for third-party sellers. As of June 21, 2016, the company operated 7 fulfillment centers and 213 warehouses, and total 5,367 delivery stations and pickup stations in 2,356 counties and districts across the People's Republic of China. The company is headquartered in Beijing, the People's Republic of China.

FINANCIAL RATIOS  of  JD.com ADR (JD)

Valuation Ratios
P/E Ratio -210
Price to Sales 3.1
Price to Book 23.6
Price to Tangible Book
Price to Cash Flow 91.3
Price to Free Cash Flow 141.3
Growth Rates
Sales Growth Rate 43.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -17.5%
Cap. Spend. - 3 Yr. Gr. Rate 41.2%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 32.2%
Total Debt to Equity 84.5%
Interest Coverage -3
Management Effectiveness
Return On Assets -2.5%
Ret/ On Assets - 3 Yr. Avg. -8.4%
Return On Total Capital -7.7%
Ret/ On T. Cap. - 3 Yr. Avg. -17.2%
Return On Equity -11.8%
Return On Equity - 3 Yr. Avg. -20%
Asset Turnover 2.1
Profitability Ratios
Gross Margin 15.2%
Gross Margin - 3 Yr. Avg. 13.4%
EBITDA Margin 0.4%
EBITDA Margin - 3 Yr. Avg. -2%
Operating Margin -0.8%
Oper. Margin - 3 Yr. Avg. -3.1%
Pre-Tax Margin -1.2%
Pre-Tax Margin - 3 Yr. Avg. -3.5%
Net Profit Margin -1.5%
Net Profit Margin - 3 Yr. Avg. -3.6%
Effective Tax Rate -5.6%
Eff/ Tax Rate - 3 Yr. Avg. -1.9%
Payout Ratio 0%

JD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the JD stock intrinsic value calculation we used $37632 million for the last fiscal year's total revenue generated by JD.com ADR. The default revenue input number comes from 2016 income statement of JD.com ADR. 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 JD stock valuation model: a) initial revenue growth rate of 41.2% 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 JD is calculated based on our internal credit rating of JD.com ADR, 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 JD.com ADR.
    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 JD stock the variable cost ratio is equal to 94.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2432 million in the base year in the intrinsic value calculation for JD 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 4.2% for JD.com ADR.

Corporate tax rate of 27% is the nominal tax rate for JD.com ADR. 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 JD 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 JD are equal to 6.7%.

Life of production assets of 10 years is the average useful life of capital assets used in JD.com ADR 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 JD is equal to -7.1%. 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 - $4903 million for JD.com ADR - 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 1409.85 million for JD.com ADR 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 JD.com ADR at the current share price and the inputted number of shares is $57.5 billion.

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Stock chart of JD Financial statements of JD
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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