Intrinsic value of Eli Lilly - LLY

Previous Close

$82.19

  Intrinsic Value

$94.86

stock screener

  Rating & Target

hold

+15%

  Value-price divergence*

+174%

Previous close

$82.19

 
Intrinsic value

$94.86

 
Up/down potential

+15%

 
Rating

hold

 
Value-price divergence*

+174%

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

We calculate the intrinsic value of LLY 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 90.4

 

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, %
  6.33
  7.50
  7.25
  7.02
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.78
  5.71
  5.64
  5.57
  5.51
  5.46
  5.42
  5.38
  5.34
  5.30
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
Revenue, $m
  21,222
  22,814
  24,468
  26,186
  27,973
  29,831
  31,762
  33,773
  35,865
  38,044
  40,315
  42,682
  45,151
  47,727
  50,417
  53,226
  56,162
  59,230
  62,438
  65,794
  69,306
  72,982
  76,831
  80,862
  85,084
  89,508
  94,144
  99,003
  104,097
  109,438
  115,039
Variable operating expenses, $m
 
  5,879
  6,276
  6,689
  7,119
  7,565
  8,029
  8,512
  9,015
  9,539
  10,084
  10,256
  10,849
  11,468
  12,114
  12,789
  13,494
  14,232
  15,003
  15,809
  16,653
  17,536
  18,461
  19,429
  20,444
  21,507
  22,621
  23,788
  25,012
  26,296
  27,641
Fixed operating expenses, $m
 
  12,889
  13,212
  13,542
  13,880
  14,227
  14,583
  14,948
  15,321
  15,704
  16,097
  16,499
  16,912
  17,335
  17,768
  18,212
  18,668
  19,134
  19,613
  20,103
  20,606
  21,121
  21,649
  22,190
  22,745
  23,313
  23,896
  24,494
  25,106
  25,734
  26,377
Total operating expenses, $m
  17,763
  18,768
  19,488
  20,231
  20,999
  21,792
  22,612
  23,460
  24,336
  25,243
  26,181
  26,755
  27,761
  28,803
  29,882
  31,001
  32,162
  33,366
  34,616
  35,912
  37,259
  38,657
  40,110
  41,619
  43,189
  44,820
  46,517
  48,282
  50,118
  52,030
  54,018
Operating income, $m
  3,459
  4,045
  4,980
  5,955
  6,974
  8,038
  9,150
  10,313
  11,529
  12,801
  14,134
  15,927
  17,390
  18,925
  20,535
  22,225
  23,999
  25,864
  27,823
  29,882
  32,048
  34,325
  36,721
  39,242
  41,895
  44,688
  47,627
  50,721
  53,979
  57,409
  61,021
EBITDA, $m
  4,956
  5,666
  6,689
  7,757
  8,871
  10,035
  11,251
  12,521
  13,849
  15,239
  16,693
  18,216
  19,812
  21,484
  23,239
  25,079
  27,011
  29,040
  31,171
  33,411
  35,765
  38,239
  40,842
  43,579
  46,458
  49,488
  52,676
  56,031
  59,562
  63,278
  67,190
Interest expense (income), $m
  146
  293
  353
  415
  480
  547
  617
  690
  766
  845
  927
  1,013
  1,102
  1,195
  1,292
  1,393
  1,499
  1,610
  1,726
  1,847
  1,973
  2,106
  2,244
  2,389
  2,541
  2,700
  2,867
  3,042
  3,225
  3,417
  3,619
Earnings before tax, $m
  3,374
  3,752
  4,627
  5,540
  6,494
  7,491
  8,533
  9,622
  10,763
  11,956
  13,207
  14,914
  16,288
  17,730
  19,243
  20,831
  22,500
  24,254
  26,097
  28,036
  30,075
  32,220
  34,477
  36,853
  39,354
  41,987
  44,760
  47,679
  50,754
  53,992
  57,402
Tax expense, $m
  636
  1,013
  1,249
  1,496
  1,753
  2,023
  2,304
  2,598
  2,906
  3,228
  3,566
  4,027
  4,398
  4,787
  5,196
  5,624
  6,075
  6,549
  7,046
  7,570
  8,120
  8,699
  9,309
  9,950
  10,626
  11,337
  12,085
  12,873
  13,704
  14,578
  15,499
Net income, $m
  2,738
  2,739
  3,378
  4,044
  4,741
  5,468
  6,229
  7,024
  7,857
  8,728
  9,641
  10,887
  11,890
  12,943
  14,047
  15,207
  16,425
  17,705
  19,051
  20,466
  21,955
  23,520
  25,168
  26,903
  28,729
  30,651
  32,675
  34,806
  37,050
  39,414
  41,904

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,039
  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
  38,806
  35,206
  37,759
  40,411
  43,168
  46,035
  49,016
  52,118
  55,347
  58,710
  62,214
  65,867
  69,678
  73,653
  77,804
  82,139
  86,669
  91,404
  96,355
  101,535
  106,954
  112,627
  118,566
  124,787
  131,303
  138,130
  145,284
  152,783
  160,644
  168,886
  177,530
Adjusted assets (=assets-cash), $m
  32,767
  35,206
  37,759
  40,411
  43,168
  46,035
  49,016
  52,118
  55,347
  58,710
  62,214
  65,867
  69,678
  73,653
  77,804
  82,139
  86,669
  91,404
  96,355
  101,535
  106,954
  112,627
  118,566
  124,787
  131,303
  138,130
  145,284
  152,783
  160,644
  168,886
  177,530
Revenue / Adjusted assets
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
Average production assets, $m
  12,850
  13,825
  14,827
  15,869
  16,952
  18,077
  19,248
  20,466
  21,734
  23,055
  24,431
  25,865
  27,362
  28,923
  30,553
  32,255
  34,034
  35,893
  37,838
  39,871
  42,000
  44,227
  46,560
  49,002
  51,561
  54,242
  57,051
  59,996
  63,083
  66,320
  69,714
Working capital, $m
  4,114
  23
  24
  26
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  90
  94
  99
  104
  109
  115
Total debt, $m
  10,305
  10,081
  11,863
  13,714
  15,638
  17,639
  19,720
  21,885
  24,139
  26,487
  28,933
  31,482
  34,142
  36,917
  39,814
  42,840
  46,002
  49,307
  52,763
  56,378
  60,161
  64,121
  68,266
  72,608
  77,156
  81,921
  86,915
  92,149
  97,637
  103,390
  109,423
Total liabilities, $m
  24,798
  24,574
  26,356
  28,207
  30,131
  32,132
  34,213
  36,378
  38,632
  40,980
  43,426
  45,975
  48,635
  51,410
  54,307
  57,333
  60,495
  63,800
  67,256
  70,871
  74,654
  78,614
  82,759
  87,101
  91,649
  96,414
  101,408
  106,642
  112,130
  117,883
  123,916
Total equity, $m
  14,008
  10,632
  11,403
  12,204
  13,037
  13,903
  14,803
  15,740
  16,715
  17,730
  18,789
  19,892
  21,043
  22,243
  23,497
  24,806
  26,174
  27,604
  29,099
  30,663
  32,300
  34,013
  35,807
  37,686
  39,653
  41,715
  43,876
  46,140
  48,514
  51,004
  53,614
Total liabilities and equity, $m
  38,806
  35,206
  37,759
  40,411
  43,168
  46,035
  49,016
  52,118
  55,347
  58,710
  62,215
  65,867
  69,678
  73,653
  77,804
  82,139
  86,669
  91,404
  96,355
  101,534
  106,954
  112,627
  118,566
  124,787
  131,302
  138,129
  145,284
  152,782
  160,644
  168,887
  177,530
Debt-to-equity ratio
  0.736
  0.950
  1.040
  1.120
  1.200
  1.270
  1.330
  1.390
  1.440
  1.490
  1.540
  1.580
  1.620
  1.660
  1.690
  1.730
  1.760
  1.790
  1.810
  1.840
  1.860
  1.890
  1.910
  1.930
  1.950
  1.960
  1.980
  2.000
  2.010
  2.030
  2.040
Adjusted equity ratio
  0.283
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,738
  2,739
  3,378
  4,044
  4,741
  5,468
  6,229
  7,024
  7,857
  8,728
  9,641
  10,887
  11,890
  12,943
  14,047
  15,207
  16,425
  17,705
  19,051
  20,466
  21,955
  23,520
  25,168
  26,903
  28,729
  30,651
  32,675
  34,806
  37,050
  39,414
  41,904
Depreciation, amort., depletion, $m
  1,497
  1,621
  1,709
  1,802
  1,897
  1,997
  2,101
  2,208
  2,321
  2,438
  2,559
  2,289
  2,421
  2,560
  2,704
  2,854
  3,012
  3,176
  3,348
  3,528
  3,717
  3,914
  4,120
  4,336
  4,563
  4,800
  5,049
  5,309
  5,583
  5,869
  6,169
Funds from operations, $m
  4,367
  4,360
  5,087
  5,846
  6,638
  7,465
  8,330
  9,233
  10,177
  11,166
  12,200
  13,176
  14,312
  15,502
  16,751
  18,061
  19,437
  20,882
  22,399
  23,995
  25,671
  27,434
  29,289
  31,239
  33,291
  35,451
  37,723
  40,115
  42,633
  45,283
  48,073
Change in working capital, $m
  -484
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
Cash from operations, $m
  4,851
  4,358
  5,085
  5,844
  6,636
  7,463
  8,328
  9,231
  10,175
  11,164
  12,198
  13,174
  14,309
  15,500
  16,748
  18,058
  19,434
  20,879
  22,396
  23,991
  25,668
  27,431
  29,285
  31,235
  33,287
  35,446
  37,719
  40,110
  42,628
  45,278
  48,067
Maintenance CAPEX, $m
  0
  -1,137
  -1,223
  -1,312
  -1,404
  -1,500
  -1,600
  -1,703
  -1,811
  -1,923
  -2,040
  -2,162
  -2,289
  -2,421
  -2,560
  -2,704
  -2,854
  -3,012
  -3,176
  -3,348
  -3,528
  -3,717
  -3,914
  -4,120
  -4,336
  -4,563
  -4,800
  -5,049
  -5,309
  -5,583
  -5,869
New CAPEX, $m
  -1,092
  -975
  -1,002
  -1,042
  -1,083
  -1,126
  -1,171
  -1,218
  -1,268
  -1,321
  -1,376
  -1,435
  -1,496
  -1,561
  -1,630
  -1,702
  -1,779
  -1,859
  -1,944
  -2,034
  -2,128
  -2,228
  -2,332
  -2,443
  -2,559
  -2,681
  -2,809
  -2,945
  -3,087
  -3,237
  -3,394
Cash from investing activities, $m
  -3,139
  -2,112
  -2,225
  -2,354
  -2,487
  -2,626
  -2,771
  -2,921
  -3,079
  -3,244
  -3,416
  -3,597
  -3,785
  -3,982
  -4,190
  -4,406
  -4,633
  -4,871
  -5,120
  -5,382
  -5,656
  -5,945
  -6,246
  -6,563
  -6,895
  -7,244
  -7,609
  -7,994
  -8,396
  -8,820
  -9,263
Free cash flow, $m
  1,712
  2,246
  2,860
  3,490
  4,149
  4,838
  5,557
  6,309
  7,096
  7,920
  8,782
  9,578
  10,524
  11,517
  12,559
  13,652
  14,801
  16,007
  17,275
  18,609
  20,011
  21,486
  23,039
  24,672
  26,392
  28,203
  30,109
  32,117
  34,231
  36,458
  38,804
Issuance/(repayment) of debt, $m
  2,500
  1,713
  1,782
  1,851
  1,924
  2,001
  2,081
  2,165
  2,254
  2,347
  2,446
  2,550
  2,659
  2,775
  2,897
  3,026
  3,162
  3,305
  3,456
  3,615
  3,783
  3,960
  4,146
  4,342
  4,548
  4,765
  4,994
  5,234
  5,487
  5,753
  6,033
Issuance/(repurchase) of shares, $m
  -600
  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  
  1,599
  1,713
  1,782
  1,851
  1,924
  2,001
  2,081
  2,165
  2,254
  2,347
  2,446
  2,550
  2,659
  2,775
  2,897
  3,026
  3,162
  3,305
  3,456
  3,615
  3,783
  3,960
  4,146
  4,342
  4,548
  4,765
  4,994
  5,234
  5,487
  5,753
  6,033
Total cash flow (excl. dividends), $m
  3,075
  3,959
  4,641
  5,342
  6,074
  6,839
  7,638
  8,475
  9,350
  10,267
  11,228
  12,127
  13,184
  14,292
  15,456
  16,678
  17,963
  19,312
  20,731
  22,224
  23,794
  25,446
  27,184
  29,014
  30,940
  32,968
  35,103
  37,351
  39,718
  42,212
  44,837
Retained Cash Flow (-), $m
  563
  -726
  -771
  -801
  -833
  -866
  -900
  -937
  -975
  -1,016
  -1,058
  -1,103
  -1,151
  -1,201
  -1,254
  -1,309
  -1,368
  -1,430
  -1,495
  -1,564
  -1,637
  -1,713
  -1,794
  -1,879
  -1,968
  -2,062
  -2,161
  -2,265
  -2,374
  -2,489
  -2,610
Prev. year cash balance distribution, $m
 
  4,102
  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
 
  7,335
  3,870
  4,541
  5,241
  5,973
  6,738
  7,538
  8,375
  9,251
  10,169
  11,024
  12,033
  13,091
  14,202
  15,369
  16,595
  17,882
  19,236
  20,660
  22,157
  23,733
  25,391
  27,135
  28,972
  30,906
  32,942
  35,086
  37,344
  39,722
  42,227
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  7,032
  3,543
  3,952
  4,315
  4,630
  4,890
  5,092
  5,235
  5,314
  5,331
  5,235
  5,135
  4,978
  4,768
  4,512
  4,217
  3,891
  3,543
  3,181
  2,816
  2,455
  2,107
  1,778
  1,476
  1,202
  961
  753
  578
  434
  318
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

Eli Lilly and Company discovers, develops, manufactures, and markets pharmaceutical products worldwide. It operates through two segments, Human Pharmaceutical Products and Animal Health Products. The company offers endocrinology products to treat diabetes; osteoporosis in postmenopausal women and men; human growth hormone deficiency and pediatric growth conditions; and testosterone deficiency. It also provides neuroscience products for the treatment of depressive disorders, diabetic peripheral neuropathic pain, anxiety disorders, fibromyalgia, and chronic musculoskeletal pain; schizophrenia; attention-deficit hyperactivity disorders; depressive, obsessive-compulsive, bulimia nervosa, and panic disorders; and positron emission tomography imaging of beta-amyloid neurotic plaques in adult brains. In addition, the company offers products for the treatment of non-small cell lung, colorectal, head and neck, pancreatic, metastatic breast, ovarian, bladder, and metastatic gastric cancers, as well as malignant pleural mesothelioma; and cardiovascular products for the treatment of erectile dysfunction and benign prostatic hyperplasia, as well as for the reduction of thrombotic cardiovascular events. Further, it provides animal health products, such as cattle feed additives; protein supplements for cows; leanness and performance enhancers for swine and cattle; antibiotics to treat respiratory and other diseases in cattle, swine, and poultry; anticoccidial agents for poultry; and chewable tablets that kill fleas and prevent flea infestations, and heartworm diseases, as well as controls intestinal parasite infections. Additionally, the company offers vaccinev to prevent Lyme disease, bronchial infections, rabies, and various infectious diseases in dogs, cats, and horses. It has collaboration agreements with Daiichi Sankyo Co., Ltd., Incyte Corporation, Pfizer Inc., and AstraZeneca. Eli Lilly and Company was founded in 1876 and is headquartered in Indianapolis, Indiana.

FINANCIAL RATIOS  of  Eli Lilly (LLY)

Valuation Ratios
P/E Ratio 33
Price to Sales 4.3
Price to Book 6.5
Price to Tangible Book
Price to Cash Flow 18.7
Price to Free Cash Flow 24.1
Growth Rates
Sales Growth Rate 6.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -32.8%
Cap. Spend. - 3 Yr. Gr. Rate -0%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 59.7%
Total Debt to Equity 73.6%
Interest Coverage 24
Management Effectiveness
Return On Assets 7.7%
Ret/ On Assets - 3 Yr. Avg. 7.2%
Return On Total Capital 11.7%
Ret/ On T. Cap. - 3 Yr. Avg. 10.8%
Return On Equity 19.2%
Return On Equity - 3 Yr. Avg. 16.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 73.4%
Gross Margin - 3 Yr. Avg. 74.3%
EBITDA Margin 23.6%
EBITDA Margin - 3 Yr. Avg. 22.8%
Operating Margin 16.3%
Oper. Margin - 3 Yr. Avg. 14.2%
Pre-Tax Margin 15.9%
Pre-Tax Margin - 3 Yr. Avg. 15.1%
Net Profit Margin 12.9%
Net Profit Margin - 3 Yr. Avg. 12.4%
Effective Tax Rate 18.9%
Eff/ Tax Rate - 3 Yr. Avg. 17.6%
Payout Ratio 78.9%

LLY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LLY stock intrinsic value calculation we used $21222 million for the last fiscal year's total revenue generated by Eli Lilly. The default revenue input number comes from 2016 income statement of Eli Lilly. 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 LLY stock valuation model: a) initial revenue growth rate of 7.5% 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 LLY is calculated based on our internal credit rating of Eli Lilly, 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 Eli Lilly.
    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 LLY stock the variable cost ratio is equal to 25.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $12575 million in the base year in the intrinsic value calculation for LLY 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 Eli Lilly.

Corporate tax rate of 27% is the nominal tax rate for Eli Lilly. 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 LLY 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 LLY are equal to 60.6%.

Life of production assets of 11.3 years is the average useful life of capital assets used in Eli Lilly 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 LLY is equal to 0.1%. 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 - $14008 million for Eli Lilly - 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 1100.06 million for Eli Lilly 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 Eli Lilly at the current share price and the inputted number of shares is $90.4 billion.

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COMPANY NEWS

▶ Lilly beats Street 2Q forecasts   [Jul-25-17 09:39PM  Associated Press]
▶ Eli Lilly Tumbles On Arthritis Drug Delay   [04:02PM  Investor's Business Daily]
▶ Eli Lilly beats on earnings as stock dips   [12:55PM  CNBC Videos]
▶ Eli Lilly: What the Heck Just Happened?   [12:10PM  Barrons.com]
▶ Lilly Reports Second-Quarter Results   [06:25AM  PR Newswire]
▶ Could This Small Biotech Break Out On A Tie-Up With Eli Lilly?   [Jul-24-17 04:29PM  Investor's Business Daily]
▶ Why Eli Lilly Expects 2Q17 Revenue Growth   [11:05AM  Market Realist]
▶ "Fast Money" final trades: UAL, DAL, and more   [Jul-12-17 05:59PM  CNBC Videos]
▶ Why Eli Lilly Is Gouging Diabetes Drug Share From Dow's J&J, Others   [Jul-10-17 05:33PM  Investor's Business Daily]
▶ Whats News: Business & Finance   [12:27AM  The Wall Street Journal]
▶ [$$] U.K. Court Says Generics Infringe on Lilly's Alimta Patents   [Jul-07-17 12:47PM  The Wall Street Journal]
▶ Better Buy: Pfizer Inc. vs. Eli Lilly and Company   [Jul-01-17 02:04PM  Motley Fool]
▶ The Crazy Math Behind Drug Prices   [Jun-29-17 12:00PM  Bloomberg]
▶ Better Buy: Eli Lilly and Co. vs. Merck & Co., Inc.   [Jun-27-17 05:49PM  Motley Fool]
▶ This Biotech Crashed 28% Despite Positive Migraine Drug Tests   [04:08PM  Investor's Business Daily]
▶ Tanezumab Receives FDA Fast Track Designation   [07:38AM  Market Realist]
▶ ETFs with exposure to Eli Lilly & Co. : June 26, 2017   [Jun-26-17 04:22PM  Capital Cube]
▶ Health-Care Stocks Get a Boost From Senate Bill Rollout   [Jun-22-17 12:22PM  The Wall Street Journal]
▶ Analyzing Eli Lillys Collaboration with KeyBioscience AG   [Jun-20-17 09:06AM  Market Realist]
▶ Key Updates on Eli Lillys Jardiance   [07:36AM  Market Realist]
▶ Lilly Declares Third-Quarter 2017 Dividend   [Jun-19-17 01:05PM  PR Newswire]
Stock chart of LLY Financial statements of LLY Annual reports of LLY
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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