Intrinsic value of Johnson&Johnson - JNJ

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$127.52

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$127.52

 
Intrinsic value

$95.01

 
Up/down potential

-25%

 
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 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

Revenue (in 2017), $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 345.4

 

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
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  71,890
  73,328
  75,014
  76,942
  79,107
  81,505
  84,136
  87,002
  90,103
  93,445
  97,031
  100,868
  104,961
  109,320
  113,953
  118,868
  124,077
  129,592
  135,423
  141,584
  148,089
  154,954
  162,193
  169,823
  177,863
  186,331
  195,246
  204,630
  214,504
  224,893
  235,819
Variable operating expenses, $m
 
  48,791
  49,860
  51,083
  52,456
  53,977
  55,646
  57,464
  59,431
  61,551
  63,825
  63,978
  66,575
  69,339
  72,278
  75,395
  78,700
  82,197
  85,896
  89,804
  93,930
  98,284
  102,875
  107,715
  112,815
  118,185
  123,840
  129,792
  136,055
  142,644
  149,575
Fixed operating expenses, $m
 
  4,440
  4,551
  4,665
  4,782
  4,901
  5,024
  5,149
  5,278
  5,410
  5,545
  5,684
  5,826
  5,972
  6,121
  6,274
  6,431
  6,592
  6,756
  6,925
  7,098
  7,276
  7,458
  7,644
  7,835
  8,031
  8,232
  8,438
  8,649
  8,865
  9,087
Total operating expenses, $m
  52,087
  53,231
  54,411
  55,748
  57,238
  58,878
  60,670
  62,613
  64,709
  66,961
  69,370
  69,662
  72,401
  75,311
  78,399
  81,669
  85,131
  88,789
  92,652
  96,729
  101,028
  105,560
  110,333
  115,359
  120,650
  126,216
  132,072
  138,230
  144,704
  151,509
  158,662
Operating income, $m
  19,803
  20,097
  20,603
  21,194
  21,869
  22,626
  23,466
  24,389
  25,394
  26,484
  27,661
  31,206
  32,561
  34,009
  35,554
  37,199
  38,947
  40,803
  42,771
  44,855
  47,061
  49,394
  51,860
  54,464
  57,213
  60,114
  63,174
  66,400
  69,800
  73,383
  77,158
EBITDA, $m
  23,557
  24,880
  25,443
  26,100
  26,849
  27,688
  28,618
  29,638
  30,750
  31,954
  33,253
  34,648
  36,143
  37,740
  39,443
  41,255
  43,181
  45,226
  47,392
  49,687
  52,115
  54,682
  57,395
  60,260
  63,283
  66,473
  69,837
  73,383
  77,121
  81,058
  85,206
Interest expense (income), $m
  730
  785
  833
  887
  949
  1,019
  1,096
  1,181
  1,273
  1,373
  1,480
  1,596
  1,719
  1,851
  1,991
  2,141
  2,299
  2,467
  2,644
  2,832
  3,030
  3,240
  3,461
  3,694
  3,939
  4,198
  4,471
  4,758
  5,060
  5,378
  5,712
Earnings before tax, $m
  19,803
  19,311
  19,770
  20,307
  20,920
  21,608
  22,370
  23,208
  24,121
  25,112
  26,180
  29,610
  30,841
  32,158
  33,563
  35,058
  36,648
  38,336
  40,127
  42,023
  44,031
  46,154
  48,399
  50,770
  53,274
  55,916
  58,703
  61,642
  64,740
  68,005
  71,445
Tax expense, $m
  3,263
  5,214
  5,338
  5,483
  5,648
  5,834
  6,040
  6,266
  6,513
  6,780
  7,069
  7,995
  8,327
  8,683
  9,062
  9,466
  9,895
  10,351
  10,834
  11,346
  11,888
  12,462
  13,068
  13,708
  14,384
  15,097
  15,850
  16,643
  17,480
  18,361
  19,290
Net income, $m
  16,540
  14,097
  14,432
  14,824
  15,271
  15,774
  16,330
  16,942
  17,609
  18,331
  19,112
  21,615
  22,514
  23,475
  24,501
  25,592
  26,753
  27,985
  29,292
  30,677
  32,143
  33,693
  35,331
  37,062
  38,890
  40,818
  42,853
  44,998
  47,260
  49,644
  52,155

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
  101,281
  103,611
  106,274
  109,263
  112,576
  116,210
  120,168
  124,452
  129,068
  134,021
  139,320
  144,974
  150,995
  157,393
  164,183
  171,378
  178,994
  187,048
  195,558
  204,543
  214,025
  224,023
  234,563
  245,667
  257,363
  269,676
  282,638
  296,276
  310,625
  325,717
Adjusted assets (=assets-cash), $m
  99,301
  101,281
  103,611
  106,274
  109,263
  112,576
  116,210
  120,168
  124,452
  129,068
  134,021
  139,320
  144,974
  150,995
  157,393
  164,183
  171,378
  178,994
  187,048
  195,558
  204,543
  214,025
  224,023
  234,563
  245,667
  257,363
  269,676
  282,638
  296,276
  310,625
  325,717
Revenue / Adjusted assets
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
Average production assets, $m
  42,229
  43,043
  44,033
  45,165
  46,436
  47,843
  49,388
  51,070
  52,891
  54,852
  56,957
  59,209
  61,612
  64,171
  66,890
  69,776
  72,833
  76,070
  79,493
  83,110
  86,929
  90,958
  95,207
  99,686
  104,406
  109,376
  114,609
  120,118
  125,914
  132,012
  138,426
Working capital, $m
  38,745
  1,540
  1,575
  1,616
  1,661
  1,712
  1,767
  1,827
  1,892
  1,962
  2,038
  2,118
  2,204
  2,296
  2,393
  2,496
  2,606
  2,721
  2,844
  2,973
  3,110
  3,254
  3,406
  3,566
  3,735
  3,913
  4,100
  4,297
  4,505
  4,723
  4,952
Total debt, $m
  27,126
  23,789
  25,341
  27,114
  29,105
  31,311
  33,732
  36,368
  39,221
  42,295
  45,594
  49,123
  52,889
  56,899
  61,160
  65,682
  70,473
  75,546
  80,910
  86,578
  92,562
  98,876
  105,536
  112,555
  119,950
  127,739
  135,941
  144,573
  153,656
  163,212
  173,264
Total liabilities, $m
  70,790
  67,453
  69,005
  70,778
  72,769
  74,975
  77,396
  80,032
  82,885
  85,959
  89,258
  92,787
  96,553
  100,563
  104,824
  109,346
  114,137
  119,210
  124,574
  130,242
  136,226
  142,540
  149,200
  156,219
  163,614
  171,403
  179,605
  188,237
  197,320
  206,876
  216,928
Total equity, $m
  70,418
  33,828
  34,606
  35,495
  36,494
  37,600
  38,814
  40,136
  41,567
  43,109
  44,763
  46,533
  48,421
  50,432
  52,569
  54,837
  57,240
  59,784
  62,474
  65,316
  68,318
  71,484
  74,824
  78,344
  82,053
  85,959
  90,072
  94,401
  98,956
  103,749
  108,790
Total liabilities and equity, $m
  141,208
  101,281
  103,611
  106,273
  109,263
  112,575
  116,210
  120,168
  124,452
  129,068
  134,021
  139,320
  144,974
  150,995
  157,393
  164,183
  171,377
  178,994
  187,048
  195,558
  204,544
  214,024
  224,024
  234,563
  245,667
  257,362
  269,677
  282,638
  296,276
  310,625
  325,718
Debt-to-equity ratio
  0.385
  0.700
  0.730
  0.760
  0.800
  0.830
  0.870
  0.910
  0.940
  0.980
  1.020
  1.060
  1.090
  1.130
  1.160
  1.200
  1.230
  1.260
  1.300
  1.330
  1.350
  1.380
  1.410
  1.440
  1.460
  1.490
  1.510
  1.530
  1.550
  1.570
  1.590
Adjusted equity ratio
  0.287
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16,540
  14,097
  14,432
  14,824
  15,271
  15,774
  16,330
  16,942
  17,609
  18,331
  19,112
  21,615
  22,514
  23,475
  24,501
  25,592
  26,753
  27,985
  29,292
  30,677
  32,143
  33,693
  35,331
  37,062
  38,890
  40,818
  42,853
  44,998
  47,260
  49,644
  52,155
Depreciation, amort., depletion, $m
  3,754
  4,783
  4,841
  4,906
  4,980
  5,062
  5,152
  5,250
  5,356
  5,470
  5,592
  3,442
  3,582
  3,731
  3,889
  4,057
  4,235
  4,423
  4,622
  4,832
  5,054
  5,288
  5,535
  5,796
  6,070
  6,359
  6,663
  6,984
  7,321
  7,675
  8,048
Funds from operations, $m
  16,994
  18,880
  19,273
  19,730
  20,252
  20,836
  21,482
  22,191
  22,964
  23,801
  24,704
  25,058
  26,096
  27,206
  28,390
  29,649
  30,988
  32,408
  33,914
  35,509
  37,197
  38,981
  40,867
  42,858
  44,960
  47,177
  49,516
  51,982
  54,581
  57,319
  60,203
Change in working capital, $m
  -1,773
  30
  35
  40
  45
  50
  55
  60
  65
  70
  75
  81
  86
  92
  97
  103
  109
  116
  122
  129
  137
  144
  152
  160
  169
  178
  187
  197
  207
  218
  229
Cash from operations, $m
  18,767
  19,410
  19,237
  19,690
  20,206
  20,785
  21,427
  22,131
  22,899
  23,731
  24,628
  24,977
  26,010
  27,115
  28,292
  29,546
  30,878
  32,292
  33,792
  35,380
  37,060
  38,837
  40,715
  42,698
  44,791
  47,000
  49,329
  51,785
  54,373
  57,101
  59,974
Maintenance CAPEX, $m
  0
  -2,455
  -2,503
  -2,560
  -2,626
  -2,700
  -2,782
  -2,871
  -2,969
  -3,075
  -3,189
  -3,311
  -3,442
  -3,582
  -3,731
  -3,889
  -4,057
  -4,235
  -4,423
  -4,622
  -4,832
  -5,054
  -5,288
  -5,535
  -5,796
  -6,070
  -6,359
  -6,663
  -6,984
  -7,321
  -7,675
New CAPEX, $m
  -3,226
  -815
  -990
  -1,132
  -1,270
  -1,408
  -1,545
  -1,682
  -1,821
  -1,962
  -2,105
  -2,252
  -2,403
  -2,559
  -2,719
  -2,885
  -3,058
  -3,237
  -3,423
  -3,617
  -3,819
  -4,029
  -4,249
  -4,479
  -4,719
  -4,970
  -5,233
  -5,508
  -5,796
  -6,098
  -6,414
Cash from investing activities, $m
  -4,761
  -3,270
  -3,493
  -3,692
  -3,896
  -4,108
  -4,327
  -4,553
  -4,790
  -5,037
  -5,294
  -5,563
  -5,845
  -6,141
  -6,450
  -6,774
  -7,115
  -7,472
  -7,846
  -8,239
  -8,651
  -9,083
  -9,537
  -10,014
  -10,515
  -11,040
  -11,592
  -12,171
  -12,780
  -13,419
  -14,089
Free cash flow, $m
  14,006
  16,140
  15,745
  15,998
  16,310
  16,678
  17,101
  17,578
  18,109
  18,694
  19,334
  19,413
  20,165
  20,974
  21,842
  22,772
  23,764
  24,821
  25,946
  27,141
  28,409
  29,753
  31,177
  32,683
  34,276
  35,959
  37,737
  39,613
  41,594
  43,682
  45,884
Issuance/(repayment) of debt, $m
  7,875
  1,347
  1,551
  1,773
  1,991
  2,206
  2,421
  2,636
  2,853
  3,074
  3,299
  3,529
  3,766
  4,010
  4,261
  4,522
  4,792
  5,072
  5,364
  5,668
  5,984
  6,314
  6,659
  7,019
  7,396
  7,789
  8,201
  8,632
  9,083
  9,556
  10,051
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
  1,347
  1,551
  1,773
  1,991
  2,206
  2,421
  2,636
  2,853
  3,074
  3,299
  3,529
  3,766
  4,010
  4,261
  4,522
  4,792
  5,072
  5,364
  5,668
  5,984
  6,314
  6,659
  7,019
  7,396
  7,789
  8,201
  8,632
  9,083
  9,556
  10,051
Total cash flow (excl. dividends), $m
  13,861
  17,487
  17,296
  17,772
  18,301
  18,884
  19,521
  20,214
  20,962
  21,768
  22,633
  22,943
  23,931
  24,984
  26,104
  27,293
  28,556
  29,893
  31,310
  32,809
  34,394
  36,068
  37,836
  39,702
  41,672
  43,748
  45,938
  48,245
  50,677
  53,238
  55,936
Retained Cash Flow (-), $m
  732
  -633
  -778
  -889
  -998
  -1,106
  -1,214
  -1,322
  -1,431
  -1,542
  -1,654
  -1,770
  -1,889
  -2,011
  -2,137
  -2,268
  -2,403
  -2,544
  -2,690
  -2,842
  -3,001
  -3,167
  -3,340
  -3,520
  -3,709
  -3,906
  -4,113
  -4,329
  -4,555
  -4,792
  -5,041
Prev. year cash balance distribution, $m
 
  37,223
  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
 
  54,077
  16,518
  16,882
  17,302
  17,778
  18,307
  18,892
  19,531
  20,227
  20,979
  21,173
  22,042
  22,973
  23,967
  25,026
  26,152
  27,350
  28,620
  29,966
  31,392
  32,901
  34,497
  36,182
  37,963
  39,842
  41,825
  43,916
  46,122
  48,446
  50,895
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
 
  51,848
  15,122
  14,692
  14,247
  13,780
  13,286
  12,763
  12,208
  11,619
  10,998
  10,055
  9,406
  8,735
  8,046
  7,347
  6,646
  5,951
  5,271
  4,614
  3,989
  3,403
  2,862
  2,371
  1,934
  1,550
  1,220
  943
  714
  529
  383
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, together with its subsidiaries, researches and develops, manufactures, and sells various products in the health care field worldwide. It operates through three segments: Consumer, Pharmaceutical, and Medical Devices. The Consumer segment offers baby care products under the JOHNSON’S brand; oral care products under the LISTERINE brand; beauty products under the AVEENO, CLEAN & CLEAR, DABAO, JOHNSON’S Adult, LE PETITE MARSEILLAIS, NEUTROGENA, RoC, and OGX brands; over-the-counter medicines, including acetaminophen products under the TYLENOL brand; cold, flu, and allergy products under the SUDAFED brand; allergy products under the BENADRYL and ZYRTEC brands; ibuprofen products under the MOTRIN IB brand; and acid reflux products under the PEPCID brand. This segment also provides women’s health products, such as sanitary pads under the STAYFREE and CAREFREE brands, and tampons under the o.b. brand; wound care products comprising brand adhesive bandages under the BAND-AID brand and first aid products under the NEOSPORIN brand. The Pharmaceutical segment offers various products in the areas of immunology, infectious diseases and vaccines, neuroscience, oncology, and cardiovascular and metabolic diseases. The Medical Devices segment provides orthopaedic products; general surgery, biosurgical, endomechanical, and energy products; electrophysiology products to treat cardiovascular disease; sterilization and disinfection products to reduce surgical infection; diabetes care products that include blood glucose monitoring and insulin delivery products; and disposable contact lenses. The company markets its products to general public, retail outlets and distributors, wholesalers, hospitals, and health care professionals for prescription use, as well as for use in the professional fields by physicians, nurses, hospitals, eye care professionals, and clinics. Johnson & Johnson was founded in 1885 and is based in New Brunswick, New Jersey.

FINANCIAL RATIOS  of  Johnson&Johnson (JNJ)

Valuation Ratios
P/E Ratio 20.9
Price to Sales 4.8
Price to Book 4.9
Price to Tangible Book
Price to Cash Flow 18.4
Price to Free Cash Flow 22.2
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 69.8%
Gross Margin - 3 Yr. Avg. 69.5%
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 $71890 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 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 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 66.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $4332 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 3.5% 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 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 JNJ are equal to 58.7%.

Life of production assets of 17.2 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 2.1%. 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 - $70418 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 2708.47 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 $345.4 billion.


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Stock chart of JNJ Financial statements of JNJ Annual reports 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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