Intrinsic value of Eli Lilly - LLY

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$84.31

  Intrinsic Value

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  Value-price divergence*

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$84.31

 
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*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 92.7

 

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
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
Revenue, $m
  21,222
  22,750
  24,338
  25,989
  27,705
  29,490
  31,347
  33,281
  35,296
  37,395
  39,583
  41,866
  44,248
  46,736
  49,334
  52,049
  54,887
  57,855
  60,960
  64,209
  67,611
  71,172
  74,902
  78,809
  82,903
  87,194
  91,691
  96,406
  101,350
  106,534
  111,971
Variable operating expenses, $m
 
  5,864
  6,245
  6,642
  7,054
  7,483
  7,929
  8,394
  8,878
  9,382
  9,908
  10,059
  10,632
  11,230
  11,854
  12,506
  13,188
  13,901
  14,647
  15,428
  16,245
  17,101
  17,997
  18,936
  19,920
  20,951
  22,032
  23,164
  24,352
  25,598
  26,904
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
  18,753
  19,457
  20,184
  20,934
  21,710
  22,512
  23,342
  24,199
  25,086
  26,005
  26,558
  27,544
  28,565
  29,622
  30,718
  31,856
  33,035
  34,260
  35,531
  36,851
  38,222
  39,646
  41,126
  42,665
  44,264
  45,928
  47,658
  49,458
  51,332
  53,281
Operating income, $m
  3,459
  3,997
  4,881
  5,805
  6,770
  7,779
  8,835
  9,940
  11,096
  12,308
  13,578
  15,307
  16,704
  18,171
  19,712
  21,330
  23,031
  24,819
  26,700
  28,678
  30,760
  32,950
  35,256
  37,683
  40,239
  42,930
  45,764
  48,748
  51,892
  55,203
  58,690
EBITDA, $m
  4,956
  5,614
  6,584
  7,596
  8,653
  9,758
  10,913
  12,122
  13,386
  14,710
  16,098
  17,552
  19,077
  20,678
  22,357
  24,121
  25,975
  27,922
  29,969
  32,122
  34,385
  36,767
  39,273
  41,910
  44,685
  47,606
  50,681
  53,919
  57,327
  60,916
  64,695
Interest expense (income), $m
  146
  293
  350
  410
  473
  537
  605
  675
  747
  823
  903
  985
  1,071
  1,161
  1,255
  1,353
  1,455
  1,562
  1,674
  1,791
  1,913
  2,042
  2,176
  2,317
  2,464
  2,618
  2,780
  2,950
  3,127
  3,314
  3,509
Earnings before tax, $m
  3,374
  3,704
  4,531
  5,395
  6,298
  7,242
  8,230
  9,265
  10,349
  11,484
  12,675
  14,322
  15,633
  17,010
  18,457
  19,978
  21,576
  23,257
  25,026
  26,887
  28,846
  30,908
  33,080
  35,367
  37,775
  40,312
  42,984
  45,799
  48,765
  51,889
  55,181
Tax expense, $m
  636
  1,000
  1,223
  1,457
  1,700
  1,955
  2,222
  2,502
  2,794
  3,101
  3,422
  3,867
  4,221
  4,593
  4,983
  5,394
  5,826
  6,279
  6,757
  7,260
  7,788
  8,345
  8,932
  9,549
  10,199
  10,884
  11,606
  12,366
  13,166
  14,010
  14,899
Net income, $m
  2,738
  2,704
  3,307
  3,938
  4,597
  5,287
  6,008
  6,763
  7,555
  8,384
  9,253
  10,455
  11,412
  12,418
  13,474
  14,584
  15,751
  16,978
  18,269
  19,628
  21,058
  22,563
  24,148
  25,818
  27,576
  29,427
  31,378
  33,433
  35,598
  37,879
  40,282

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
  35,108
  37,559
  40,106
  42,754
  45,509
  48,376
  51,360
  54,469
  57,708
  61,085
  64,608
  68,284
  72,123
  76,132
  80,322
  84,702
  89,282
  94,074
  99,088
  104,337
  109,833
  115,589
  121,619
  127,937
  134,559
  141,499
  148,775
  156,404
  164,405
  172,795
Adjusted assets (=assets-cash), $m
  32,767
  35,108
  37,559
  40,106
  42,754
  45,509
  48,376
  51,360
  54,469
  57,708
  61,085
  64,608
  68,284
  72,123
  76,132
  80,322
  84,702
  89,282
  94,074
  99,088
  104,337
  109,833
  115,589
  121,619
  127,937
  134,559
  141,499
  148,775
  156,404
  164,405
  172,795
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
  13,786
  14,749
  15,749
  16,789
  17,871
  18,997
  20,169
  21,389
  22,661
  23,987
  25,371
  26,814
  28,322
  29,896
  31,542
  33,261
  35,060
  36,942
  38,911
  40,972
  43,130
  45,391
  47,758
  50,239
  52,840
  55,565
  58,422
  61,418
  64,560
  67,855
Working capital, $m
  4,114
  23
  24
  26
  28
  29
  31
  33
  35
  37
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
  71
  75
  79
  83
  87
  92
  96
  101
  107
  112
Total debt, $m
  10,305
  10,012
  11,723
  13,501
  15,349
  17,272
  19,273
  21,356
  23,526
  25,787
  28,144
  30,603
  33,169
  35,849
  38,647
  41,572
  44,629
  47,826
  51,171
  54,671
  58,335
  62,171
  66,188
  70,397
  74,807
  79,429
  84,273
  89,352
  94,677
  100,261
  106,118
Total liabilities, $m
  24,798
  24,505
  26,216
  27,994
  29,842
  31,765
  33,766
  35,849
  38,019
  40,280
  42,637
  45,096
  47,662
  50,342
  53,140
  56,065
  59,122
  62,319
  65,664
  69,164
  72,828
  76,664
  80,681
  84,890
  89,300
  93,922
  98,766
  103,845
  109,170
  114,754
  120,611
Total equity, $m
  14,008
  10,603
  11,343
  12,112
  12,912
  13,744
  14,609
  15,511
  16,450
  17,428
  18,448
  19,512
  20,622
  21,781
  22,992
  24,257
  25,580
  26,963
  28,410
  29,925
  31,510
  33,170
  34,908
  36,729
  38,637
  40,637
  42,733
  44,930
  47,234
  49,650
  52,184
Total liabilities and equity, $m
  38,806
  35,108
  37,559
  40,106
  42,754
  45,509
  48,375
  51,360
  54,469
  57,708
  61,085
  64,608
  68,284
  72,123
  76,132
  80,322
  84,702
  89,282
  94,074
  99,089
  104,338
  109,834
  115,589
  121,619
  127,937
  134,559
  141,499
  148,775
  156,404
  164,404
  172,795
Debt-to-equity ratio
  0.736
  0.940
  1.030
  1.110
  1.190
  1.260
  1.320
  1.380
  1.430
  1.480
  1.530
  1.570
  1.610
  1.650
  1.680
  1.710
  1.740
  1.770
  1.800
  1.830
  1.850
  1.870
  1.900
  1.920
  1.940
  1.950
  1.970
  1.990
  2.000
  2.020
  2.030
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
  2,704
  3,307
  3,938
  4,597
  5,287
  6,008
  6,763
  7,555
  8,384
  9,253
  10,455
  11,412
  12,418
  13,474
  14,584
  15,751
  16,978
  18,269
  19,628
  21,058
  22,563
  24,148
  25,818
  27,576
  29,427
  31,378
  33,433
  35,598
  37,879
  40,282
Depreciation, amort., depletion, $m
  1,497
  1,617
  1,703
  1,791
  1,883
  1,979
  2,078
  2,182
  2,290
  2,403
  2,520
  2,245
  2,373
  2,506
  2,646
  2,791
  2,943
  3,103
  3,269
  3,443
  3,626
  3,817
  4,017
  4,226
  4,446
  4,676
  4,917
  5,170
  5,435
  5,713
  6,005
Funds from operations, $m
  4,367
  4,321
  5,010
  5,729
  6,480
  7,266
  8,087
  8,946
  9,845
  10,786
  11,773
  12,700
  13,785
  14,924
  16,119
  17,375
  18,694
  20,081
  21,538
  23,071
  24,684
  26,380
  28,165
  30,044
  32,022
  34,104
  36,295
  38,603
  41,033
  43,592
  46,287
Change in working capital, $m
  -484
  2
  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
Cash from operations, $m
  4,851
  4,081
  5,008
  5,727
  6,479
  7,264
  8,085
  8,944
  9,843
  10,784
  11,771
  12,698
  13,783
  14,921
  16,117
  17,372
  18,691
  20,078
  21,535
  23,068
  24,680
  26,376
  28,161
  30,040
  32,018
  34,099
  36,291
  38,599
  41,028
  43,587
  46,281
Maintenance CAPEX, $m
  0
  -1,137
  -1,220
  -1,305
  -1,394
  -1,486
  -1,581
  -1,681
  -1,785
  -1,893
  -2,005
  -2,123
  -2,245
  -2,373
  -2,506
  -2,646
  -2,791
  -2,943
  -3,103
  -3,269
  -3,443
  -3,626
  -3,817
  -4,017
  -4,226
  -4,446
  -4,676
  -4,917
  -5,170
  -5,435
  -5,713
New CAPEX, $m
  -1,092
  -936
  -962
  -1,000
  -1,040
  -1,082
  -1,126
  -1,172
  -1,221
  -1,272
  -1,326
  -1,383
  -1,444
  -1,507
  -1,574
  -1,645
  -1,720
  -1,799
  -1,882
  -1,969
  -2,061
  -2,158
  -2,260
  -2,368
  -2,481
  -2,600
  -2,725
  -2,857
  -2,996
  -3,142
  -3,295
Cash from investing activities, $m
  -3,139
  -2,073
  -2,182
  -2,305
  -2,434
  -2,568
  -2,707
  -2,853
  -3,006
  -3,165
  -3,331
  -3,506
  -3,689
  -3,880
  -4,080
  -4,291
  -4,511
  -4,742
  -4,985
  -5,238
  -5,504
  -5,784
  -6,077
  -6,385
  -6,707
  -7,046
  -7,401
  -7,774
  -8,166
  -8,577
  -9,008
Free cash flow, $m
  1,712
  2,007
  2,826
  3,422
  4,045
  4,696
  5,378
  6,091
  6,837
  7,619
  8,439
  9,192
  10,094
  11,041
  12,036
  13,081
  14,180
  15,335
  16,551
  17,830
  19,176
  20,592
  22,084
  23,655
  25,310
  27,053
  28,889
  30,824
  32,862
  35,010
  37,273
Issuance/(repayment) of debt, $m
  2,500
  1,644
  1,710
  1,778
  1,849
  1,923
  2,001
  2,083
  2,170
  2,261
  2,357
  2,459
  2,566
  2,679
  2,799
  2,924
  3,057
  3,197
  3,345
  3,500
  3,664
  3,836
  4,018
  4,209
  4,410
  4,622
  4,844
  5,079
  5,325
  5,584
  5,857
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
  1,644
  1,710
  1,778
  1,849
  1,923
  2,001
  2,083
  2,170
  2,261
  2,357
  2,459
  2,566
  2,679
  2,799
  2,924
  3,057
  3,197
  3,345
  3,500
  3,664
  3,836
  4,018
  4,209
  4,410
  4,622
  4,844
  5,079
  5,325
  5,584
  5,857
Total cash flow (excl. dividends), $m
  3,075
  3,652
  4,536
  5,200
  5,894
  6,619
  7,378
  8,174
  9,007
  9,880
  10,797
  11,651
  12,660
  13,720
  14,835
  16,006
  17,237
  18,533
  19,895
  21,330
  22,839
  24,429
  26,102
  27,864
  29,720
  31,675
  33,734
  35,903
  38,188
  40,594
  43,130
Retained Cash Flow (-), $m
  563
  -697
  -740
  -769
  -800
  -832
  -866
  -901
  -939
  -978
  -1,020
  -1,064
  -1,110
  -1,159
  -1,211
  -1,265
  -1,323
  -1,383
  -1,447
  -1,514
  -1,585
  -1,660
  -1,738
  -1,821
  -1,908
  -2,000
  -2,096
  -2,197
  -2,304
  -2,416
  -2,534
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
 
  7,057
  3,796
  4,431
  5,094
  5,787
  6,513
  7,272
  8,068
  8,902
  9,777
  10,587
  11,550
  12,561
  13,624
  14,740
  15,914
  17,149
  18,448
  19,815
  21,254
  22,769
  24,364
  26,043
  27,812
  29,675
  31,638
  33,705
  35,884
  38,178
  40,596
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
 
  6,766
  3,475
  3,856
  4,194
  4,486
  4,727
  4,913
  5,043
  5,114
  5,125
  5,028
  4,929
  4,776
  4,574
  4,328
  4,044
  3,731
  3,397
  3,051
  2,701
  2,355
  2,022
  1,707
  1,417
  1,154
  923
  723
  555
  417
  306
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 33.9
Price to Sales 4.4
Price to Book 6.6
Price to Tangible Book
Price to Cash Flow 19.1
Price to Free Cash Flow 24.7
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 7.2% 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 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 $92.7 billion.


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COMPANY NEWS

▶ 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]
▶ Eli Lilly & Co. Value Analysis (NYSE:LLY) : June 15, 2017   [Jun-15-17 04:22PM  Capital Cube]
▶ Analyzing Incytes Revenue Streams in 1Q17   [07:37AM  Market Realist]
▶ 5 Things You Didn't Know About Eli Lilly and Co   [Jun-14-17 02:51PM  Motley Fool]
▶ Company News for June 14, 2017   [10:28AM  Zacks]
▶ Dow's J&J Hosted A Diabetes Study And Lilly Will Benefit Most   [04:03PM  Investor's Business Daily]
▶ Biotech Stocks To Watch And Pharma Industry News   [03:18PM  Investor's Business Daily]
▶ Merck: A Speed Bump For Keytruda?   [09:18AM  Barrons.com]
▶ How This Small Biotech Could Ruffle The Market In Migraine Drugs   [Jun-08-17 04:20PM  Investor's Business Daily]
▶ Tesaro Crashes Despite Beating AstraZeneca With 'Stronger' Data   [Jun-05-17 05:14PM  Investor's Business Daily]
▶ Performance of Elanco in 1Q17   [10:36AM  Market Realist]
▶ Performance of Eli Lillys Endocrine Products in 1Q17   [Jun-02-17 10:36AM  Market Realist]
▶ Eli Lilly & Co.s Revenues in 1Q17   [09:09AM  Market Realist]
▶ Teva Pharma Ran A Migraine Trial And Lilly, Amgen Benefited   [May-31-17 04:25PM  Investor's Business Daily]
▶ Eli Lilly Begins to Lift   [01:46PM  TheStreet.com]
▶ Lilly Is Wilting   [May-30-17 01:51PM  TheStreet.com]
▶ Top Presentations to Look for at ASCO   [May-27-17 08:40AM  24/7 Wall St.]
▶ Novo Nordisk Diabetes Lead Unscathed Following AstraZeneca Trial   [May-23-17 04:21PM  Investor's Business Daily]
▶ Here's Why Radius Health Gained as Much as 20.2% Today   [May-22-17 01:23PM  Motley Fool]
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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