Intrinsic value of Johnson&Johnson - JNJ

Previous Close

$125.85

  Intrinsic Value

$126.96

stock screener

  Rating & Target

hold

+1%

Previous close

$125.85

 
Intrinsic value

$126.96

 
Up/down potential

+1%

 
Rating

hold

We calculate the intrinsic value of JNJ 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.59
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
Revenue, $m
  71,890
  81,266
  86,280
  91,503
  96,945
  102,620
  108,538
  114,715
  121,164
  127,900
  134,939
  142,298
  149,994
  158,044
  166,468
  175,287
  184,520
  194,191
  204,321
  214,936
  226,060
  237,721
  249,945
  262,762
  276,203
  290,300
  305,085
  320,596
  336,868
  353,941
  371,854
Variable operating expenses, $m
 
  57,407
  60,423
  63,565
  66,840
  70,254
  73,814
  77,531
  81,411
  85,463
  89,699
  85,612
  90,242
  95,086
  100,154
  105,460
  111,015
  116,833
  122,928
  129,314
  136,007
  143,023
  150,377
  158,088
  166,175
  174,656
  183,552
  192,884
  202,674
  212,945
  223,723
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
  52,087
  57,407
  60,423
  63,565
  66,840
  70,254
  73,814
  77,531
  81,411
  85,463
  89,699
  85,612
  90,242
  95,086
  100,154
  105,460
  111,015
  116,833
  122,928
  129,314
  136,007
  143,023
  150,377
  158,088
  166,175
  174,656
  183,552
  192,884
  202,674
  212,945
  223,723
Operating income, $m
  19,803
  23,860
  25,857
  27,938
  30,106
  32,366
  34,724
  37,184
  39,753
  42,437
  45,241
  56,686
  59,751
  62,958
  66,314
  69,827
  73,505
  77,358
  81,393
  85,622
  90,053
  94,698
  99,568
  104,674
  110,028
  115,643
  121,534
  127,712
  134,194
  140,995
  148,132
EBITDA, $m
  23,557
  41,288
  43,836
  46,489
  49,254
  52,137
  55,144
  58,282
  61,558
  64,981
  68,557
  72,296
  76,206
  80,296
  84,576
  89,056
  93,747
  98,660
  103,807
  109,200
  114,852
  120,776
  126,987
  133,499
  140,327
  147,489
  155,001
  162,882
  171,149
  179,823
  188,924
Interest expense (income), $m
  730
  1,867
  2,202
  2,546
  2,905
  3,279
  3,668
  4,075
  4,499
  4,942
  5,404
  5,887
  6,393
  6,921
  7,474
  8,052
  8,658
  9,292
  9,956
  10,652
  11,381
  12,144
  12,945
  13,785
  14,665
  15,588
  16,556
  17,571
  18,636
  19,753
  20,926
Earnings before tax, $m
  19,803
  21,992
  23,655
  25,391
  27,201
  29,087
  31,056
  33,110
  35,255
  37,495
  39,837
  50,798
  53,358
  56,037
  58,840
  61,775
  64,847
  68,066
  71,437
  74,970
  78,673
  82,554
  86,623
  90,889
  95,363
  100,056
  104,978
  110,141
  115,559
  121,242
  127,206
Tax expense, $m
  3,263
  5,938
  6,387
  6,856
  7,344
  7,854
  8,385
  8,940
  9,519
  10,124
  10,756
  13,716
  14,407
  15,130
  15,887
  16,679
  17,509
  18,378
  19,288
  20,242
  21,242
  22,290
  23,388
  24,540
  25,748
  27,015
  28,344
  29,738
  31,201
  32,735
  34,346
Net income, $m
  16,540
  16,054
  17,268
  18,536
  19,857
  21,234
  22,671
  24,170
  25,736
  27,372
  29,081
  37,083
  38,952
  40,907
  42,953
  45,095
  47,339
  49,688
  52,149
  54,728
  57,431
  60,264
  63,235
  66,349
  69,615
  73,041
  76,634
  80,403
  84,358
  88,507
  92,860

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  41,907
  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
  141,208
  167,215
  177,532
  188,278
  199,476
  211,151
  223,330
  236,039
  249,309
  263,169
  277,653
  292,794
  308,629
  325,193
  342,527
  360,672
  379,671
  399,570
  420,414
  442,255
  465,145
  489,137
  514,290
  540,663
  568,319
  597,324
  627,748
  659,663
  693,144
  728,273
  765,133
Adjusted assets (=assets-cash), $m
  99,301
  167,215
  177,532
  188,278
  199,476
  211,151
  223,330
  236,039
  249,309
  263,169
  277,653
  292,794
  308,629
  325,193
  342,527
  360,672
  379,671
  399,570
  420,414
  442,255
  465,145
  489,137
  514,290
  540,663
  568,319
  597,324
  627,748
  659,663
  693,144
  728,273
  765,133
Revenue / Adjusted assets
  0.724
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
Average production assets, $m
  42,229
  89,149
  94,650
  100,379
  106,349
  112,574
  119,066
  125,842
  132,917
  140,307
  148,029
  156,101
  164,543
  173,374
  182,616
  192,290
  202,419
  213,027
  224,141
  235,785
  247,988
  260,780
  274,190
  288,250
  302,995
  318,459
  334,679
  351,694
  369,544
  388,273
  407,924
Working capital, $m
  38,745
  1,544
  1,639
  1,739
  1,842
  1,950
  2,062
  2,180
  2,302
  2,430
  2,564
  2,704
  2,850
  3,003
  3,163
  3,330
  3,506
  3,690
  3,882
  4,084
  4,295
  4,517
  4,749
  4,992
  5,248
  5,516
  5,797
  6,091
  6,400
  6,725
  7,065
Total debt, $m
  27,126
  40,777
  47,153
  53,794
  60,714
  67,929
  75,456
  83,310
  91,511
  100,077
  109,028
  118,385
  128,170
  138,407
  149,120
  160,334
  172,075
  184,372
  197,254
  210,752
  224,898
  239,725
  255,269
  271,568
  288,659
  306,584
  325,386
  345,109
  365,801
  387,511
  410,290
Total liabilities, $m
  70,790
  103,339
  109,715
  116,356
  123,276
  130,491
  138,018
  145,872
  154,073
  162,639
  171,590
  180,947
  190,732
  200,969
  211,682
  222,896
  234,637
  246,934
  259,816
  273,314
  287,460
  302,287
  317,831
  334,130
  351,221
  369,146
  387,948
  407,671
  428,363
  450,073
  472,852
Total equity, $m
  70,418
  63,876
  67,817
  71,922
  76,200
  80,660
  85,312
  90,167
  95,236
  100,531
  106,064
  111,847
  117,896
  124,224
  130,845
  137,777
  145,035
  152,636
  160,598
  168,942
  177,685
  186,850
  196,459
  206,533
  217,098
  228,178
  239,800
  251,991
  264,781
  278,200
  292,281
Total liabilities and equity, $m
  141,208
  167,215
  177,532
  188,278
  199,476
  211,151
  223,330
  236,039
  249,309
  263,170
  277,654
  292,794
  308,628
  325,193
  342,527
  360,673
  379,672
  399,570
  420,414
  442,256
  465,145
  489,137
  514,290
  540,663
  568,319
  597,324
  627,748
  659,662
  693,144
  728,273
  765,133
Debt-to-equity ratio
  0.385
  0.640
  0.700
  0.750
  0.800
  0.840
  0.880
  0.920
  0.960
  1.000
  1.030
  1.060
  1.090
  1.110
  1.140
  1.160
  1.190
  1.210
  1.230
  1.250
  1.270
  1.280
  1.300
  1.310
  1.330
  1.340
  1.360
  1.370
  1.380
  1.390
  1.400
Adjusted equity ratio
  0.287
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382
  0.382

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16,540
  16,054
  17,268
  18,536
  19,857
  21,234
  22,671
  24,170
  25,736
  27,372
  29,081
  37,083
  38,952
  40,907
  42,953
  45,095
  47,339
  49,688
  52,149
  54,728
  57,431
  60,264
  63,235
  66,349
  69,615
  73,041
  76,634
  80,403
  84,358
  88,507
  92,860
Depreciation, amort., depletion, $m
  3,754
  17,428
  17,978
  18,551
  19,148
  19,771
  20,420
  21,098
  21,805
  22,544
  23,316
  15,610
  16,454
  17,337
  18,262
  19,229
  20,242
  21,303
  22,414
  23,578
  24,799
  26,078
  27,419
  28,825
  30,299
  31,846
  33,468
  35,169
  36,954
  38,827
  40,792
Funds from operations, $m
  16,994
  33,483
  35,247
  37,087
  39,005
  41,005
  43,091
  45,268
  47,541
  49,916
  52,397
  52,693
  55,406
  58,244
  61,215
  64,324
  67,580
  70,991
  74,563
  78,307
  82,230
  86,342
  90,654
  95,174
  99,915
  104,887
  110,102
  115,573
  121,312
  127,334
  133,653
Change in working capital, $m
  -1,773
  92
  95
  99
  103
  108
  112
  117
  123
  128
  134
  140
  146
  153
  160
  168
  175
  184
  192
  202
  211
  222
  232
  244
  255
  268
  281
  295
  309
  324
  340
Cash from operations, $m
  18,767
  33,391
  35,151
  36,988
  38,901
  40,897
  42,978
  45,150
  47,418
  49,788
  52,263
  52,553
  55,260
  58,091
  61,055
  64,157
  67,405
  70,807
  74,371
  78,105
  82,018
  86,121
  90,421
  94,931
  99,659
  104,619
  109,821
  115,278
  121,003
  127,010
  133,312
Maintenance CAPEX, $m
  0
  -8,387
  -8,915
  -9,465
  -10,038
  -10,635
  -11,257
  -11,907
  -12,584
  -13,292
  -14,031
  -14,803
  -15,610
  -16,454
  -17,337
  -18,262
  -19,229
  -20,242
  -21,303
  -22,414
  -23,578
  -24,799
  -26,078
  -27,419
  -28,825
  -30,299
  -31,846
  -33,468
  -35,169
  -36,954
  -38,827
New CAPEX, $m
  -3,226
  -5,283
  -5,501
  -5,729
  -5,970
  -6,225
  -6,493
  -6,776
  -7,075
  -7,390
  -7,722
  -8,072
  -8,442
  -8,831
  -9,242
  -9,674
  -10,129
  -10,609
  -11,113
  -11,644
  -12,203
  -12,791
  -13,410
  -14,060
  -14,745
  -15,464
  -16,220
  -17,015
  -17,851
  -18,729
  -19,651
Cash from investing activities, $m
  -4,761
  -13,670
  -14,416
  -15,194
  -16,008
  -16,860
  -17,750
  -18,683
  -19,659
  -20,682
  -21,753
  -22,875
  -24,052
  -25,285
  -26,579
  -27,936
  -29,358
  -30,851
  -32,416
  -34,058
  -35,781
  -37,590
  -39,488
  -41,479
  -43,570
  -45,763
  -48,066
  -50,483
  -53,020
  -55,683
  -58,478
Free cash flow, $m
  14,006
  19,721
  20,736
  21,794
  22,893
  24,037
  25,228
  26,468
  27,760
  29,106
  30,511
  29,678
  31,208
  32,806
  34,476
  36,221
  38,047
  39,956
  41,955
  44,047
  46,237
  48,530
  50,933
  53,451
  56,090
  58,855
  61,755
  64,795
  67,983
  71,327
  74,834
Issuance/(repayment) of debt, $m
  7,875
  6,196
  6,376
  6,641
  6,920
  7,215
  7,526
  7,854
  8,201
  8,566
  8,951
  9,357
  9,786
  10,237
  10,713
  11,214
  11,741
  12,297
  12,882
  13,498
  14,146
  14,827
  15,544
  16,298
  17,091
  17,925
  18,802
  19,723
  20,692
  21,710
  22,779
Issuance/(repurchase) of shares, $m
  -7,790
  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  
  70
  6,196
  6,376
  6,641
  6,920
  7,215
  7,526
  7,854
  8,201
  8,566
  8,951
  9,357
  9,786
  10,237
  10,713
  11,214
  11,741
  12,297
  12,882
  13,498
  14,146
  14,827
  15,544
  16,298
  17,091
  17,925
  18,802
  19,723
  20,692
  21,710
  22,779
Total cash flow (excl. dividends), $m
  13,861
  25,917
  27,112
  28,435
  29,814
  31,253
  32,754
  34,322
  35,960
  37,672
  39,462
  39,035
  40,993
  43,043
  45,188
  47,435
  49,788
  52,254
  54,837
  57,544
  60,382
  63,358
  66,478
  69,750
  73,181
  76,781
  80,557
  84,518
  88,675
  93,036
  97,613
Retained Cash Flow (-), $m
  732
  -3,716
  -3,941
  -4,105
  -4,278
  -4,460
  -4,652
  -4,855
  -5,069
  -5,295
  -5,533
  -5,784
  -6,049
  -6,328
  -6,622
  -6,931
  -7,258
  -7,601
  -7,963
  -8,343
  -8,744
  -9,165
  -9,608
  -10,074
  -10,565
  -11,080
  -11,622
  -12,191
  -12,790
  -13,419
  -14,080
Prev. year cash balance distribution, $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 flow adjustment, $m
 
  994
  1,056
  1,122
  1,190
  1,260
  1,334
  1,411
  1,491
  1,575
  1,663
  1,754
  1,850
  1,950
  2,055
  2,164
  2,279
  2,399
  2,524
  2,656
  2,794
  2,939
  3,090
  3,249
  3,416
  3,591
  3,774
  3,966
  4,168
  4,379
  4,601
Cash available for distribution, $m
 
  22,201
  23,171
  24,330
  25,536
  26,793
  28,102
  29,467
  30,891
  32,377
  33,929
  33,251
  34,945
  36,715
  38,567
  40,504
  42,531
  44,652
  46,874
  49,201
  51,639
  54,193
  56,869
  59,675
  62,617
  65,701
  68,935
  72,327
  75,885
  79,617
  83,533
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
 
  21,286
  21,212
  21,173
  21,026
  20,768
  20,395
  19,908
  19,308
  18,599
  17,788
  15,790
  14,912
  13,960
  12,948
  11,891
  10,808
  9,716
  8,632
  7,576
  6,562
  5,605
  4,719
  3,911
  3,189
  2,556
  2,011
  1,552
  1,174
  869
  629
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

Johnson & Johnson is a holding company, which is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. It operates through three segments: Consumer, Pharmaceutical and Medical Devices. Its primary focus is products related to human health and well-being. The Consumer segment includes a range of products used in the baby care, oral care, skin care, over-the-counter pharmaceutical, women's health and wound care markets. The Pharmaceutical segment is focused on five therapeutic areas, including immunology, infectious diseases, neuroscience, oncology, and cardiovascular and metabolic diseases. The Medical Devices segment includes a range of products used in the orthopedic, surgery, cardiovascular, diabetes care and vision care fields. Its research facilities are located in the United States, Belgium, Brazil, Canada, China, France, Germany, India, Israel, Japan, the Netherlands, Singapore, Switzerland and the United Kingdom.

FINANCIAL RATIOS  of  Johnson&Johnson (JNJ)

Valuation Ratios
P/E Ratio 20.6
Price to Sales 4.7
Price to Book 4.8
Price to Tangible Book
Price to Cash Flow 18.1
Price to Free Cash Flow 21.9
Growth Rates
Sales Growth Rate 2.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -6.8%
Cap. Spend. - 3 Yr. Gr. Rate -2.1%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 31.9%
Total Debt to Equity 38.5%
Interest Coverage 28
Management Effectiveness
Return On Assets 12.5%
Ret/ On Assets - 3 Yr. Avg. 12.4%
Return On Total Capital 17.5%
Ret/ On T. Cap. - 3 Yr. Avg. 17.6%
Return On Equity 23.4%
Return On Equity - 3 Yr. Avg. 22.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 69.9%
Gross Margin - 3 Yr. Avg. 69.6%
EBITDA Margin 33.8%
EBITDA Margin - 3 Yr. Avg. 33.7%
Operating Margin 27.5%
Oper. Margin - 3 Yr. Avg. 27.5%
Pre-Tax Margin 27.5%
Pre-Tax Margin - 3 Yr. Avg. 27.5%
Net Profit Margin 23%
Net Profit Margin - 3 Yr. Avg. 22.3%
Effective Tax Rate 16.5%
Eff/ Tax Rate - 3 Yr. Avg. 18.9%
Payout Ratio 52.1%

JNJ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the JNJ stock intrinsic value calculation we used $76450 million for the last fiscal year's total revenue generated by Johnson&Johnson. The default revenue input number comes from 2017 income statement of Johnson&Johnson. 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 JNJ stock valuation model: a) initial revenue growth rate of 6.3% 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 JNJ is calculated based on our internal credit rating of Johnson&Johnson, 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 Johnson&Johnson.
    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 JNJ stock the variable cost ratio is equal to 71.3%.

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 JNJ 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 5.4% for Johnson&Johnson.

Corporate tax rate of 27% is the nominal tax rate for Johnson&Johnson. 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 JNJ stock is equal to 1.3%.

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 JNJ are equal to 109.7%.

Life of production assets of 10 years is the average useful life of capital assets used in Johnson&Johnson 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 JNJ is equal to 1.9%. 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 - $60160 million for Johnson&Johnson - 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 2692 million for Johnson&Johnson 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 Johnson&Johnson at the current share price and the inputted number of shares is $338.8 billion.

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COMPANY NEWS

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▶ Johnson & Johnson to Host Earnings Call   [06:30AM  ACCESSWIRE]
▶ Day Ahead: Top 3 Things to Watch   [Jul-16-18 07:23PM  Investing.com]
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Financial statements of JNJ
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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