Intrinsic value of Kroger - KR

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$22.60

  Intrinsic Value

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  Value-price divergence*

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

We calculate the intrinsic value of KR 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 20.9

 

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, %
  5.01
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
Revenue, $m
  115,337
  116,310
  123,068
  130,118
  137,478
  145,163
  153,193
  161,585
  170,360
  179,538
  189,141
  199,192
  209,714
  220,733
  232,274
  244,366
  257,037
  270,318
  284,240
  298,836
  314,141
  330,191
  347,026
  364,685
  383,210
  402,646
  423,038
  444,436
  466,890
  490,455
  515,186
Variable operating expenses, $m
 
  78,842
  83,407
  88,170
  93,141
  98,333
  103,757
  109,427
  115,354
  121,554
  128,041
  134,558
  141,666
  149,109
  156,906
  165,074
  173,634
  182,605
  192,009
  201,869
  212,208
  223,051
  234,423
  246,352
  258,866
  271,995
  285,771
  300,225
  315,394
  331,312
  348,018
Fixed operating expenses, $m
 
  33,355
  34,188
  35,043
  35,919
  36,817
  37,738
  38,681
  39,648
  40,639
  41,655
  42,697
  43,764
  44,858
  45,980
  47,129
  48,307
  49,515
  50,753
  52,022
  53,322
  54,655
  56,022
  57,422
  58,858
  60,329
  61,837
  63,383
  64,968
  66,592
  68,257
Total operating expenses, $m
  111,901
  112,197
  117,595
  123,213
  129,060
  135,150
  141,495
  148,108
  155,002
  162,193
  169,696
  177,255
  185,430
  193,967
  202,886
  212,203
  221,941
  232,120
  242,762
  253,891
  265,530
  277,706
  290,445
  303,774
  317,724
  332,324
  347,608
  363,608
  380,362
  397,904
  416,275
Operating income, $m
  3,436
  4,113
  5,472
  6,905
  8,417
  10,013
  11,698
  13,478
  15,358
  17,345
  19,445
  21,937
  24,284
  26,765
  29,389
  32,163
  35,096
  38,198
  41,477
  44,945
  48,610
  52,485
  56,581
  60,911
  65,486
  70,321
  75,430
  80,827
  86,529
  92,551
  98,911
EBITDA, $m
  5,776
  6,195
  7,659
  9,202
  10,828
  12,544
  14,354
  16,264
  18,281
  20,410
  22,660
  25,036
  27,546
  30,199
  33,002
  35,964
  39,095
  42,403
  45,899
  49,593
  53,497
  57,622
  61,980
  66,584
  71,447
  76,585
  82,011
  87,741
  93,792
  100,180
  106,925
Interest expense (income), $m
  505
  472
  535
  601
  670
  742
  817
  895
  977
  1,062
  1,152
  1,246
  1,344
  1,446
  1,554
  1,667
  1,785
  1,908
  2,038
  2,174
  2,316
  2,465
  2,622
  2,786
  2,959
  3,139
  3,329
  3,528
  3,737
  3,956
  4,186
Earnings before tax, $m
  2,914
  3,641
  4,937
  6,304
  7,747
  9,272
  10,882
  12,583
  14,381
  16,283
  18,293
  20,691
  22,940
  25,319
  27,835
  30,496
  33,312
  36,290
  39,439
  42,771
  46,294
  50,020
  53,959
  58,124
  62,528
  67,182
  72,101
  77,299
  82,792
  88,595
  94,725
Tax expense, $m
  957
  983
  1,333
  1,702
  2,092
  2,503
  2,938
  3,397
  3,883
  4,396
  4,939
  5,587
  6,194
  6,836
  7,515
  8,234
  8,994
  9,798
  10,649
  11,548
  12,499
  13,505
  14,569
  15,694
  16,882
  18,139
  19,467
  20,871
  22,354
  23,921
  25,576
Net income, $m
  1,975
  2,658
  3,604
  4,602
  5,656
  6,768
  7,944
  9,186
  10,498
  11,886
  13,354
  15,105
  16,746
  18,483
  20,319
  22,262
  24,317
  26,491
  28,791
  31,223
  33,795
  36,514
  39,390
  42,431
  45,645
  49,043
  52,634
  56,428
  60,438
  64,674
  69,149

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  322
  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
  36,505
  35,601
  37,670
  39,828
  42,081
  44,433
  46,891
  49,460
  52,146
  54,955
  57,894
  60,971
  64,192
  67,564
  71,097
  74,798
  78,677
  82,742
  87,003
  91,471
  96,156
  101,069
  106,222
  111,627
  117,297
  123,246
  129,488
  136,038
  142,911
  150,124
  157,694
Adjusted assets (=assets-cash), $m
  36,183
  35,601
  37,670
  39,828
  42,081
  44,433
  46,891
  49,460
  52,146
  54,955
  57,894
  60,971
  64,192
  67,564
  71,097
  74,798
  78,677
  82,742
  87,003
  91,471
  96,156
  101,069
  106,222
  111,627
  117,297
  123,246
  129,488
  136,038
  142,911
  150,124
  157,694
Revenue / Adjusted assets
  3.188
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
  3.267
Average production assets, $m
  21,421
  11,398
  12,061
  12,752
  13,473
  14,226
  15,013
  15,835
  16,695
  17,595
  18,536
  19,521
  20,552
  21,632
  22,763
  23,948
  25,190
  26,491
  27,855
  29,286
  30,786
  32,359
  34,009
  35,739
  37,555
  39,459
  41,458
  43,555
  45,755
  48,065
  50,488
Working capital, $m
  -2,520
  -1,047
  -1,108
  -1,171
  -1,237
  -1,306
  -1,379
  -1,454
  -1,533
  -1,616
  -1,702
  -1,793
  -1,887
  -1,987
  -2,090
  -2,199
  -2,313
  -2,433
  -2,558
  -2,690
  -2,827
  -2,972
  -3,123
  -3,282
  -3,449
  -3,624
  -3,807
  -4,000
  -4,202
  -4,414
  -4,637
Total debt, $m
  14,077
  13,375
  15,024
  16,744
  18,539
  20,414
  22,373
  24,421
  26,561
  28,800
  31,143
  33,595
  36,162
  38,850
  41,665
  44,615
  47,706
  50,946
  54,343
  57,903
  61,637
  65,553
  69,660
  73,968
  78,487
  83,228
  88,203
  93,423
  98,901
  104,650
  110,683
Total liabilities, $m
  29,807
  28,374
  30,023
  31,743
  33,538
  35,413
  37,372
  39,420
  41,560
  43,799
  46,142
  48,594
  51,161
  53,849
  56,664
  59,614
  62,705
  65,945
  69,342
  72,902
  76,636
  80,552
  84,659
  88,967
  93,486
  98,227
  103,202
  108,422
  113,900
  119,649
  125,682
Total equity, $m
  6,698
  7,227
  7,647
  8,085
  8,542
  9,020
  9,519
  10,040
  10,586
  11,156
  11,753
  12,377
  13,031
  13,716
  14,433
  15,184
  15,971
  16,797
  17,662
  18,569
  19,520
  20,517
  21,563
  22,660
  23,811
  25,019
  26,286
  27,616
  29,011
  30,475
  32,012
Total liabilities and equity, $m
  36,505
  35,601
  37,670
  39,828
  42,080
  44,433
  46,891
  49,460
  52,146
  54,955
  57,895
  60,971
  64,192
  67,565
  71,097
  74,798
  78,676
  82,742
  87,004
  91,471
  96,156
  101,069
  106,222
  111,627
  117,297
  123,246
  129,488
  136,038
  142,911
  150,124
  157,694
Debt-to-equity ratio
  2.102
  1.850
  1.960
  2.070
  2.170
  2.260
  2.350
  2.430
  2.510
  2.580
  2.650
  2.710
  2.780
  2.830
  2.890
  2.940
  2.990
  3.030
  3.080
  3.120
  3.160
  3.200
  3.230
  3.260
  3.300
  3.330
  3.360
  3.380
  3.410
  3.430
  3.460
Adjusted equity ratio
  0.176
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,975
  2,658
  3,604
  4,602
  5,656
  6,768
  7,944
  9,186
  10,498
  11,886
  13,354
  15,105
  16,746
  18,483
  20,319
  22,262
  24,317
  26,491
  28,791
  31,223
  33,795
  36,514
  39,390
  42,431
  45,645
  49,043
  52,634
  56,428
  60,438
  64,674
  69,149
Depreciation, amort., depletion, $m
  2,340
  2,082
  2,187
  2,296
  2,411
  2,530
  2,655
  2,786
  2,922
  3,065
  3,215
  3,099
  3,262
  3,434
  3,613
  3,801
  3,998
  4,205
  4,422
  4,649
  4,887
  5,136
  5,398
  5,673
  5,961
  6,263
  6,581
  6,913
  7,263
  7,629
  8,014
Funds from operations, $m
  3,794
  4,740
  5,791
  6,899
  8,067
  9,299
  10,599
  11,971
  13,421
  14,951
  16,568
  18,203
  20,009
  21,916
  23,933
  26,064
  28,316
  30,696
  33,212
  35,871
  38,681
  41,651
  44,788
  48,104
  51,606
  55,306
  59,214
  63,342
  67,701
  72,303
  77,163
Change in working capital, $m
  -478
  -58
  -61
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -86
  -90
  -95
  -99
  -104
  -109
  -114
  -120
  -125
  -131
  -138
  -144
  -152
  -159
  -167
  -175
  -184
  -193
  -202
  -212
  -223
Cash from operations, $m
  4,272
  14,756
  5,852
  6,962
  8,133
  9,368
  10,671
  12,047
  13,500
  15,034
  16,655
  18,294
  20,103
  22,016
  24,036
  26,172
  28,430
  30,816
  33,338
  36,003
  38,819
  41,795
  44,940
  48,263
  51,773
  55,481
  59,398
  63,534
  67,903
  72,516
  77,386
Maintenance CAPEX, $m
  0
  -1,701
  -1,809
  -1,914
  -2,024
  -2,139
  -2,258
  -2,383
  -2,514
  -2,650
  -2,793
  -2,942
  -3,099
  -3,262
  -3,434
  -3,613
  -3,801
  -3,998
  -4,205
  -4,422
  -4,649
  -4,887
  -5,136
  -5,398
  -5,673
  -5,961
  -6,263
  -6,581
  -6,913
  -7,263
  -7,629
New CAPEX, $m
  -3,699
  -684
  -662
  -691
  -721
  -753
  -787
  -822
  -860
  -899
  -941
  -985
  -1,031
  -1,080
  -1,131
  -1,185
  -1,242
  -1,301
  -1,364
  -1,430
  -1,500
  -1,573
  -1,650
  -1,731
  -1,815
  -1,905
  -1,998
  -2,097
  -2,201
  -2,309
  -2,424
Cash from investing activities, $m
  -3,875
  -2,385
  -2,471
  -2,605
  -2,745
  -2,892
  -3,045
  -3,205
  -3,374
  -3,549
  -3,734
  -3,927
  -4,130
  -4,342
  -4,565
  -4,798
  -5,043
  -5,299
  -5,569
  -5,852
  -6,149
  -6,460
  -6,786
  -7,129
  -7,488
  -7,866
  -8,261
  -8,678
  -9,114
  -9,572
  -10,053
Free cash flow, $m
  397
  12,371
  3,380
  4,357
  5,388
  6,476
  7,626
  8,842
  10,126
  11,485
  12,921
  14,367
  15,974
  17,673
  19,472
  21,374
  23,387
  25,516
  27,768
  30,151
  32,671
  35,336
  38,154
  41,134
  44,285
  47,615
  51,136
  54,857
  58,789
  62,943
  67,333
Issuance/(repayment) of debt, $m
  1,861
  1,574
  1,649
  1,720
  1,795
  1,875
  1,959
  2,047
  2,141
  2,239
  2,343
  2,452
  2,567
  2,688
  2,816
  2,950
  3,091
  3,240
  3,396
  3,561
  3,734
  3,916
  4,107
  4,308
  4,519
  4,741
  4,975
  5,220
  5,478
  5,749
  6,033
Issuance/(repurchase) of shares, $m
  -1,698
  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  
  77
  1,574
  1,649
  1,720
  1,795
  1,875
  1,959
  2,047
  2,141
  2,239
  2,343
  2,452
  2,567
  2,688
  2,816
  2,950
  3,091
  3,240
  3,396
  3,561
  3,734
  3,916
  4,107
  4,308
  4,519
  4,741
  4,975
  5,220
  5,478
  5,749
  6,033
Total cash flow (excl. dividends), $m
  474
  13,945
  5,029
  6,077
  7,183
  8,351
  9,585
  10,889
  12,267
  13,724
  15,264
  16,819
  18,540
  20,362
  22,287
  24,324
  26,478
  28,756
  31,165
  33,711
  36,404
  39,251
  42,261
  45,442
  48,804
  52,357
  56,111
  60,077
  64,267
  68,692
  73,366
Retained Cash Flow (-), $m
  122
  -407
  -420
  -438
  -457
  -478
  -499
  -521
  -545
  -570
  -597
  -625
  -654
  -685
  -717
  -751
  -787
  -825
  -865
  -907
  -951
  -997
  -1,046
  -1,097
  -1,151
  -1,208
  -1,267
  -1,330
  -1,395
  -1,464
  -1,537
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
 
  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
 
  13,538
  4,609
  5,639
  6,726
  7,874
  9,086
  10,367
  11,722
  13,153
  14,667
  16,194
  17,887
  19,677
  21,570
  23,573
  25,691
  27,931
  30,300
  32,805
  35,453
  38,254
  41,215
  44,345
  47,653
  51,149
  54,844
  58,747
  62,872
  67,228
  71,829
Discount rate, %
 
  7.30
  7.67
  8.05
  8.45
  8.87
  9.32
  9.78
  10.27
  10.79
  11.32
  11.89
  12.49
  13.11
  13.77
  14.45
  15.18
  15.93
  16.73
  17.57
  18.45
  19.37
  20.34
  21.35
  22.42
  23.54
  24.72
  25.96
  27.25
  28.62
  30.05
PV of cash for distribution, $m
 
  12,617
  3,976
  4,470
  4,862
  5,147
  5,324
  5,394
  5,361
  5,232
  5,017
  4,706
  4,359
  3,967
  3,546
  3,112
  2,679
  2,262
  1,871
  1,515
  1,200
  929
  702
  517
  371
  259
  176
  116
  74
  45
  27
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 Kroger Co., together with its subsidiaries, operates as a retailer in the United States. It also manufactures and processes food for sale in its supermarkets. The company operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores. Its combination food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce; multi-department stores provide general merchandise items, such as apparel, home fashion and furnishings, outdoor living, electronics, automotive products, toys, and fine jewelry; and price impact warehouse stores offer grocery, and health and beauty care items, as well as meat, dairy, baked goods, and fresh produce items. The company’s marketplace stores comprise full-service grocery, pharmacy, health and beauty departments, and perishable goods, as well as general merchandise, including apparel, home goods, and toys. It operates under the banner brands, such as Kroger, Ralphs, Fred Meyer, King Soopers, etc., as well as Simple Truth and Simple Truth Organic brands. As of January 30, 2016, the company operated 2,778 retail food stores, including 1,387 fuel centers; 784 convenience stores; and 323 fine jewelry stores and an online retail store, as well as franchised 78 convenience stores. The Kroger Co. was founded in 1883 and is headquartered in Cincinnati, Ohio.

FINANCIAL RATIOS  of  Kroger (KR)

Valuation Ratios
P/E Ratio 10.6
Price to Sales 0.2
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 4.9
Price to Free Cash Flow 36.4
Growth Rates
Sales Growth Rate 5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 10.5%
Cap. Spend. - 3 Yr. Gr. Rate 9.7%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 176.5%
Total Debt to Equity 210.2%
Interest Coverage 7
Management Effectiveness
Return On Assets 6.6%
Ret/ On Assets - 3 Yr. Avg. 6.9%
Return On Total Capital 10%
Ret/ On T. Cap. - 3 Yr. Avg. 10.5%
Return On Equity 29.2%
Return On Equity - 3 Yr. Avg. 31.5%
Asset Turnover 3.3
Profitability Ratios
Gross Margin 22.4%
Gross Margin - 3 Yr. Avg. 21.9%
EBITDA Margin 5%
EBITDA Margin - 3 Yr. Avg. 4.9%
Operating Margin 3%
Oper. Margin - 3 Yr. Avg. 3%
Pre-Tax Margin 2.5%
Pre-Tax Margin - 3 Yr. Avg. 2.6%
Net Profit Margin 1.7%
Net Profit Margin - 3 Yr. Avg. 1.7%
Effective Tax Rate 32.8%
Eff/ Tax Rate - 3 Yr. Avg. 33.6%
Payout Ratio 21.7%

KR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KR stock intrinsic value calculation we used $109830 million for the last fiscal year's total revenue generated by Kroger. The default revenue input number comes from 2017 income statement of Kroger. 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 KR stock valuation model: a) initial revenue growth rate of 5.9% 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 7.3%, whose default value for KR is calculated based on our internal credit rating of Kroger, 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 Kroger.
    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 KR stock the variable cost ratio is equal to 67.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $32541 million in the base year in the intrinsic value calculation for KR 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% for Kroger.

Corporate tax rate of 27% is the nominal tax rate for Kroger. 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 KR 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 KR are equal to 9.8%.

Life of production assets of 6.3 years is the average useful life of capital assets used in Kroger 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 KR is equal to -0.9%. 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 - $6820 million for Kroger - 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 925.764 million for Kroger 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 Kroger at the current share price and the inputted number of shares is $20.9 billion.


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Stock chart of KR Financial statements of KR Annual reports of KR
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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