Intrinsic value of Coca-Cola - KO

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$44.39

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$44.39

 
Intrinsic value

$18.06

 
Up/down potential

-59%

 
Rating

str. 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 KO 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 189.8

 

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, %
  -5.49
  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
  41,863
  42,700
  43,682
  44,805
  46,065
  47,462
  48,994
  50,663
  52,469
  54,415
  56,503
  58,737
  61,121
  63,659
  66,357
  69,219
  72,253
  75,464
  78,859
  82,447
  86,236
  90,233
  94,448
  98,892
  103,573
  108,504
  113,696
  119,160
  124,910
  130,959
  137,322
Variable operating expenses, $m
 
  34,267
  35,031
  35,904
  36,884
  37,970
  39,161
  40,459
  41,863
  43,376
  45,000
  45,675
  47,528
  49,502
  51,600
  53,826
  56,184
  58,681
  61,322
  64,112
  67,058
  70,166
  73,444
  76,899
  80,540
  84,374
  88,411
  92,660
  97,131
  101,835
  106,783
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
  33,237
  34,267
  35,031
  35,904
  36,884
  37,970
  39,161
  40,459
  41,863
  43,376
  45,000
  45,675
  47,528
  49,502
  51,600
  53,826
  56,184
  58,681
  61,322
  64,112
  67,058
  70,166
  73,444
  76,899
  80,540
  84,374
  88,411
  92,660
  97,131
  101,835
  106,783
Operating income, $m
  8,626
  8,433
  8,652
  8,901
  9,182
  9,492
  9,833
  10,204
  10,606
  11,038
  11,503
  13,063
  13,593
  14,157
  14,757
  15,394
  16,068
  16,782
  17,538
  18,335
  19,178
  20,067
  21,004
  21,992
  23,034
  24,130
  25,285
  26,500
  27,779
  29,124
  30,539
EBITDA, $m
  10,413
  10,733
  10,979
  11,262
  11,578
  11,929
  12,315
  12,734
  13,188
  13,677
  14,202
  14,764
  15,363
  16,001
  16,679
  17,398
  18,161
  18,968
  19,821
  20,723
  21,675
  22,680
  23,739
  24,856
  26,033
  27,272
  28,577
  29,951
  31,396
  32,916
  34,516
Interest expense (income), $m
  663
  1,039
  1,072
  1,112
  1,157
  1,208
  1,264
  1,326
  1,393
  1,466
  1,544
  1,628
  1,718
  1,814
  1,917
  2,025
  2,141
  2,263
  2,392
  2,529
  2,674
  2,826
  2,987
  3,157
  3,336
  3,524
  3,723
  3,932
  4,152
  4,384
  4,628
Earnings before tax, $m
  8,136
  7,394
  7,579
  7,789
  8,024
  8,284
  8,569
  8,878
  9,212
  9,572
  9,958
  11,434
  11,874
  12,343
  12,840
  13,368
  13,928
  14,520
  15,145
  15,806
  16,504
  17,241
  18,017
  18,836
  19,698
  20,606
  21,562
  22,568
  23,626
  24,740
  25,912
Tax expense, $m
  1,586
  1,996
  2,046
  2,103
  2,167
  2,237
  2,314
  2,397
  2,487
  2,585
  2,689
  3,087
  3,206
  3,333
  3,467
  3,609
  3,760
  3,920
  4,089
  4,268
  4,456
  4,655
  4,865
  5,086
  5,318
  5,564
  5,822
  6,093
  6,379
  6,680
  6,996
Net income, $m
  6,527
  5,398
  5,533
  5,686
  5,858
  6,047
  6,255
  6,481
  6,725
  6,988
  7,270
  8,347
  8,668
  9,010
  9,373
  9,759
  10,167
  10,599
  11,056
  11,539
  12,048
  12,586
  13,153
  13,750
  14,379
  15,042
  15,740
  16,474
  17,247
  18,060
  18,915

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  22,201
  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
  87,270
  66,408
  67,935
  69,681
  71,641
  73,813
  76,196
  78,791
  81,600
  84,627
  87,874
  91,349
  95,056
  99,004
  103,199
  107,651
  112,368
  117,362
  122,643
  128,223
  134,114
  140,331
  146,887
  153,797
  161,078
  168,747
  176,820
  185,319
  194,261
  203,669
  213,565
Adjusted assets (=assets-cash), $m
  65,069
  66,408
  67,935
  69,681
  71,641
  73,813
  76,196
  78,791
  81,600
  84,627
  87,874
  91,349
  95,056
  99,004
  103,199
  107,651
  112,368
  117,362
  122,643
  128,223
  134,114
  140,331
  146,887
  153,797
  161,078
  168,747
  176,820
  185,319
  194,261
  203,669
  213,565
Revenue / Adjusted assets
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
Average production assets, $m
  23,274
  23,741
  24,287
  24,912
  25,612
  26,389
  27,241
  28,169
  29,173
  30,255
  31,416
  32,658
  33,983
  35,395
  36,894
  38,486
  40,173
  41,958
  43,846
  45,841
  47,947
  50,169
  52,513
  54,984
  57,587
  60,328
  63,215
  66,253
  69,450
  72,813
  76,351
Working capital, $m
  7,478
  1,324
  1,354
  1,389
  1,428
  1,471
  1,519
  1,571
  1,627
  1,687
  1,752
  1,821
  1,895
  1,973
  2,057
  2,146
  2,240
  2,339
  2,445
  2,556
  2,673
  2,797
  2,928
  3,066
  3,211
  3,364
  3,525
  3,694
  3,872
  4,060
  4,257
Total debt, $m
  45,709
  30,643
  31,773
  33,065
  34,516
  36,123
  37,886
  39,807
  41,885
  44,125
  46,528
  49,099
  51,843
  54,764
  57,868
  61,162
  64,653
  68,349
  72,257
  76,386
  80,746
  85,346
  90,197
  95,311
  100,699
  106,373
  112,348
  118,637
  125,254
  132,216
  139,539
Total liabilities, $m
  64,208
  49,142
  50,272
  51,564
  53,015
  54,622
  56,385
  58,306
  60,384
  62,624
  65,027
  67,598
  70,342
  73,263
  76,367
  79,661
  83,152
  86,848
  90,756
  94,885
  99,245
  103,845
  108,696
  113,810
  119,198
  124,872
  130,847
  137,136
  143,753
  150,715
  158,038
Total equity, $m
  23,062
  17,266
  17,663
  18,117
  18,627
  19,191
  19,811
  20,486
  21,216
  22,003
  22,847
  23,751
  24,715
  25,741
  26,832
  27,989
  29,216
  30,514
  31,887
  33,338
  34,870
  36,486
  38,191
  39,987
  41,880
  43,874
  45,973
  48,183
  50,508
  52,954
  55,527
Total liabilities and equity, $m
  87,270
  66,408
  67,935
  69,681
  71,642
  73,813
  76,196
  78,792
  81,600
  84,627
  87,874
  91,349
  95,057
  99,004
  103,199
  107,650
  112,368
  117,362
  122,643
  128,223
  134,115
  140,331
  146,887
  153,797
  161,078
  168,746
  176,820
  185,319
  194,261
  203,669
  213,565
Debt-to-equity ratio
  1.982
  1.770
  1.800
  1.830
  1.850
  1.880
  1.910
  1.940
  1.970
  2.010
  2.040
  2.070
  2.100
  2.130
  2.160
  2.190
  2.210
  2.240
  2.270
  2.290
  2.320
  2.340
  2.360
  2.380
  2.400
  2.420
  2.440
  2.460
  2.480
  2.500
  2.510
Adjusted equity ratio
  0.205
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260
  0.260

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6,527
  5,398
  5,533
  5,686
  5,858
  6,047
  6,255
  6,481
  6,725
  6,988
  7,270
  8,347
  8,668
  9,010
  9,373
  9,759
  10,167
  10,599
  11,056
  11,539
  12,048
  12,586
  13,153
  13,750
  14,379
  15,042
  15,740
  16,474
  17,247
  18,060
  18,915
Depreciation, amort., depletion, $m
  1,787
  2,299
  2,328
  2,360
  2,397
  2,437
  2,482
  2,530
  2,582
  2,639
  2,699
  1,701
  1,770
  1,843
  1,922
  2,004
  2,092
  2,185
  2,284
  2,388
  2,497
  2,613
  2,735
  2,864
  2,999
  3,142
  3,292
  3,451
  3,617
  3,792
  3,977
Funds from operations, $m
  8,575
  7,697
  7,861
  8,047
  8,255
  8,485
  8,737
  9,011
  9,307
  9,627
  9,969
  10,048
  10,438
  10,854
  11,295
  11,763
  12,259
  12,785
  13,340
  13,926
  14,545
  15,199
  15,888
  16,614
  17,379
  18,184
  19,032
  19,925
  20,864
  21,853
  22,892
Change in working capital, $m
  -221
  26
  30
  35
  39
  43
  48
  52
  56
  60
  65
  69
  74
  79
  84
  89
  94
  100
  105
  111
  117
  124
  131
  138
  145
  153
  161
  169
  178
  188
  197
Cash from operations, $m
  8,796
  5,531
  7,830
  8,012
  8,216
  8,441
  8,689
  8,959
  9,251
  9,566
  9,904
  9,979
  10,364
  10,775
  11,211
  11,675
  12,165
  12,685
  13,234
  13,815
  14,428
  15,075
  15,757
  16,476
  17,234
  18,031
  18,872
  19,756
  20,686
  21,665
  22,695
Maintenance CAPEX, $m
  0
  -1,212
  -1,237
  -1,265
  -1,297
  -1,334
  -1,374
  -1,419
  -1,467
  -1,519
  -1,576
  -1,636
  -1,701
  -1,770
  -1,843
  -1,922
  -2,004
  -2,092
  -2,185
  -2,284
  -2,388
  -2,497
  -2,613
  -2,735
  -2,864
  -2,999
  -3,142
  -3,292
  -3,451
  -3,617
  -3,792
New CAPEX, $m
  -2,262
  -467
  -546
  -624
  -701
  -776
  -852
  -928
  -1,004
  -1,082
  -1,161
  -1,242
  -1,325
  -1,411
  -1,500
  -1,592
  -1,687
  -1,785
  -1,888
  -1,995
  -2,106
  -2,222
  -2,344
  -2,471
  -2,603
  -2,742
  -2,886
  -3,038
  -3,197
  -3,363
  -3,538
Cash from investing activities, $m
  -999
  -1,679
  -1,783
  -1,889
  -1,998
  -2,110
  -2,226
  -2,347
  -2,471
  -2,601
  -2,737
  -2,878
  -3,026
  -3,181
  -3,343
  -3,514
  -3,691
  -3,877
  -4,073
  -4,279
  -4,494
  -4,719
  -4,957
  -5,206
  -5,467
  -5,741
  -6,028
  -6,330
  -6,648
  -6,980
  -7,330
Free cash flow, $m
  7,797
  3,852
  6,048
  6,123
  6,217
  6,331
  6,463
  6,613
  6,780
  6,965
  7,167
  7,100
  7,338
  7,594
  7,868
  8,162
  8,474
  8,807
  9,161
  9,537
  9,934
  10,355
  10,800
  11,270
  11,767
  12,291
  12,843
  13,425
  14,039
  14,685
  15,365
Issuance/(repayment) of debt, $m
  1,666
  959
  1,130
  1,292
  1,450
  1,607
  1,763
  1,920
  2,079
  2,239
  2,403
  2,571
  2,744
  2,921
  3,104
  3,294
  3,491
  3,695
  3,908
  4,129
  4,360
  4,600
  4,851
  5,114
  5,388
  5,675
  5,975
  6,289
  6,618
  6,962
  7,323
Issuance/(repurchase) of shares, $m
  -2,247
  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  
  -502
  959
  1,130
  1,292
  1,450
  1,607
  1,763
  1,920
  2,079
  2,239
  2,403
  2,571
  2,744
  2,921
  3,104
  3,294
  3,491
  3,695
  3,908
  4,129
  4,360
  4,600
  4,851
  5,114
  5,388
  5,675
  5,975
  6,289
  6,618
  6,962
  7,323
Total cash flow (excl. dividends), $m
  7,289
  4,811
  7,178
  7,415
  7,668
  7,938
  8,226
  8,533
  8,859
  9,204
  9,571
  9,671
  10,081
  10,515
  10,973
  11,456
  11,965
  12,503
  13,069
  13,666
  14,294
  14,955
  15,652
  16,384
  17,155
  17,965
  18,818
  19,714
  20,656
  21,646
  22,687
Retained Cash Flow (-), $m
  2,492
  -380
  -397
  -454
  -510
  -565
  -620
  -675
  -730
  -787
  -844
  -903
  -964
  -1,026
  -1,091
  -1,157
  -1,227
  -1,298
  -1,373
  -1,451
  -1,532
  -1,616
  -1,705
  -1,797
  -1,893
  -1,994
  -2,099
  -2,210
  -2,325
  -2,446
  -2,573
Prev. year cash balance distribution, $m
 
  6,176
  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
 
  10,607
  6,781
  6,961
  7,158
  7,373
  7,607
  7,858
  8,128
  8,417
  8,726
  8,768
  9,117
  9,489
  9,882
  10,298
  10,739
  11,204
  11,696
  12,215
  12,762
  13,339
  13,947
  14,587
  15,262
  15,971
  16,718
  17,504
  18,331
  19,200
  20,115
Discount rate, %
 
  5.70
  5.99
  6.28
  6.60
  6.93
  7.27
  7.64
  8.02
  8.42
  8.84
  9.28
  9.75
  10.24
  10.75
  11.29
  11.85
  12.44
  13.06
  13.72
  14.40
  15.12
  15.88
  16.67
  17.51
  18.38
  19.30
  20.27
  21.28
  22.34
  23.46
PV of cash for distribution, $m
 
  10,035
  6,037
  5,797
  5,544
  5,275
  4,991
  4,694
  4,385
  4,066
  3,740
  3,302
  2,986
  2,673
  2,367
  2,071
  1,790
  1,526
  1,283
  1,062
  865
  693
  545
  420
  318
  235
  170
  120
  83
  55
  36
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

The Coca-Cola Company, a beverage company, manufactures and distributes various nonalcoholic beverages worldwide. The company primarily offers sparkling beverages and still beverages. Its sparkling beverages include nonalcoholic ready-to-drink beverages with carbonation, such as carbonated energy drinks, and carbonated waters and flavored waters. The company’s still beverages comprise nonalcoholic beverages without carbonation, including noncarbonated waters, flavored and enhanced waters, noncarbonated energy drinks, juices and juice drinks, ready-to-drink teas and coffees, and sports drinks. It also provides flavoring ingredients, sweeteners, beverage ingredients, and fountain syrups, as well as powders for purified water products. The Coca-Cola Company sells its products primarily under the Coca-Cola, Diet Coke/Coca-Cola Light, Coca-Cola Zero, Fanta, Sprite, Minute Maid, Georgia, Powerade, Del Valle, Schweppes, Aquarius, Minute Maid Pulpy, Dasani, Simply, Glacéau Vitaminwater, Gold Peak, FUZE TEA, Glacéau Smartwater, Ice Dew, I LOHAS, and Ayataka brand names. The company offers its beverage products through a network of company-owned or controlled bottling and distribution operators, as well as through independent bottling partners, distributors, wholesalers, and retailers. The Coca-Cola Company was founded in 1886 and is headquartered in Atlanta, Georgia.

FINANCIAL RATIOS  of  Coca-Cola (KO)

Valuation Ratios
P/E Ratio 29.2
Price to Sales 4.5
Price to Book 8.3
Price to Tangible Book
Price to Cash Flow 21.6
Price to Free Cash Flow 29.1
Growth Rates
Sales Growth Rate -5.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.4%
Cap. Spend. - 3 Yr. Gr. Rate -2.4%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 128.7%
Total Debt to Equity 198.2%
Interest Coverage 13
Management Effectiveness
Return On Assets 8%
Ret/ On Assets - 3 Yr. Avg. 8.2%
Return On Total Capital 9.4%
Ret/ On T. Cap. - 3 Yr. Avg. 9.9%
Return On Equity 26.9%
Return On Equity - 3 Yr. Avg. 25.2%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 60.7%
Gross Margin - 3 Yr. Avg. 60.8%
EBITDA Margin 25.3%
EBITDA Margin - 3 Yr. Avg. 26.1%
Operating Margin 20.6%
Oper. Margin - 3 Yr. Avg. 20.4%
Pre-Tax Margin 19.4%
Pre-Tax Margin - 3 Yr. Avg. 20.5%
Net Profit Margin 15.6%
Net Profit Margin - 3 Yr. Avg. 15.9%
Effective Tax Rate 19.5%
Eff/ Tax Rate - 3 Yr. Avg. 22.1%
Payout Ratio 92.6%

KO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KO stock intrinsic value calculation we used $41863 million for the last fiscal year's total revenue generated by Coca-Cola. The default revenue input number comes from 2016 income statement of Coca-Cola. 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 KO 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 5.7%, whose default value for KO is calculated based on our internal credit rating of Coca-Cola, 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 Coca-Cola.
    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 KO stock the variable cost ratio is equal to 80.3%.

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 KO 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 Coca-Cola.

Corporate tax rate of 27% is the nominal tax rate for Coca-Cola. 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 KO 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 KO are equal to 55.6%.

Life of production assets of 19.2 years is the average useful life of capital assets used in Coca-Cola 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 KO is equal to 3.1%. 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 - $23062 million for Coca-Cola - 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 4275.92 million for Coca-Cola 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 Coca-Cola at the current share price and the inputted number of shares is $189.8 billion.


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Stock chart of KO Financial statements of KO Annual reports of KO
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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