Intrinsic value of Luxottica Group ADR - LUX

Previous Close

$60.90

  Intrinsic Value

$38.60

stock screener

  Rating & Target

sell

-37%

  Value-price divergence*

-22%

Previous close

$60.90

 
Intrinsic value

$38.60

 
Up/down potential

-37%

 
Rating

sell

 
Value-price divergence*

-22%

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

We calculate the intrinsic value of LUX 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 29.4

 

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, %
  2.82
  2.80
  3.02
  3.22
  3.40
  3.56
  3.70
  3.83
  3.95
  4.05
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
Revenue, $m
  9,589
  9,857
  10,155
  10,482
  10,838
  11,223
  11,639
  12,085
  12,562
  13,071
  13,613
  14,189
  14,801
  15,449
  16,135
  16,860
  17,627
  18,437
  19,291
  20,192
  21,141
  22,142
  23,195
  24,305
  25,473
  26,702
  27,995
  29,355
  30,785
  32,289
  33,870
Variable operating expenses, $m
 
  8,308
  8,547
  8,809
  9,094
  9,403
  9,736
  10,093
  10,475
  10,883
  11,318
  11,371
  11,861
  12,380
  12,930
  13,512
  14,126
  14,775
  15,459
  16,181
  16,942
  17,744
  18,589
  19,478
  20,414
  21,398
  22,435
  23,524
  24,671
  25,876
  27,143
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
  8,169
  8,308
  8,547
  8,809
  9,094
  9,403
  9,736
  10,093
  10,475
  10,883
  11,318
  11,371
  11,861
  12,380
  12,930
  13,512
  14,126
  14,775
  15,459
  16,181
  16,942
  17,744
  18,589
  19,478
  20,414
  21,398
  22,435
  23,524
  24,671
  25,876
  27,143
Operating income, $m
  1,420
  1,549
  1,608
  1,673
  1,744
  1,821
  1,903
  1,992
  2,086
  2,187
  2,295
  2,818
  2,940
  3,068
  3,205
  3,349
  3,501
  3,662
  3,831
  4,010
  4,199
  4,398
  4,607
  4,827
  5,059
  5,303
  5,560
  5,830
  6,114
  6,413
  6,727
EBITDA, $m
  1,961
  2,206
  2,272
  2,345
  2,425
  2,511
  2,604
  2,704
  2,811
  2,925
  3,046
  3,175
  3,312
  3,457
  3,610
  3,773
  3,944
  4,125
  4,317
  4,518
  4,731
  4,954
  5,190
  5,439
  5,700
  5,975
  6,264
  6,568
  6,888
  7,225
  7,579
Interest expense (income), $m
  0
  62
  66
  71
  76
  82
  88
  95
  102
  110
  118
  127
  136
  146
  156
  167
  179
  191
  204
  218
  232
  247
  263
  280
  298
  317
  336
  357
  379
  402
  426
Earnings before tax, $m
  1,392
  1,487
  1,542
  1,602
  1,667
  1,738
  1,815
  1,897
  1,984
  2,078
  2,177
  2,691
  2,804
  2,923
  3,048
  3,182
  3,322
  3,471
  3,627
  3,793
  3,967
  4,150
  4,344
  4,547
  4,761
  4,987
  5,224
  5,473
  5,735
  6,011
  6,301
Tax expense, $m
  492
  402
  416
  433
  450
  469
  490
  512
  536
  561
  588
  727
  757
  789
  823
  859
  897
  937
  979
  1,024
  1,071
  1,121
  1,173
  1,228
  1,286
  1,346
  1,410
  1,478
  1,549
  1,623
  1,701
Net income, $m
  898
  1,086
  1,126
  1,169
  1,217
  1,269
  1,325
  1,384
  1,448
  1,517
  1,589
  1,965
  2,047
  2,134
  2,225
  2,323
  2,425
  2,534
  2,648
  2,769
  2,896
  3,030
  3,171
  3,319
  3,476
  3,640
  3,813
  3,995
  4,187
  4,388
  4,600

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  915
  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
  10,871
  10,236
  10,545
  10,885
  11,254
  11,655
  12,086
  12,549
  13,044
  13,573
  14,136
  14,734
  15,369
  16,042
  16,755
  17,508
  18,304
  19,145
  20,032
  20,967
  21,953
  22,992
  24,087
  25,239
  26,451
  27,728
  29,070
  30,482
  31,968
  33,529
  35,171
Adjusted assets (=assets-cash), $m
  9,956
  10,236
  10,545
  10,885
  11,254
  11,655
  12,086
  12,549
  13,044
  13,573
  14,136
  14,734
  15,369
  16,042
  16,755
  17,508
  18,304
  19,145
  20,032
  20,967
  21,953
  22,992
  24,087
  25,239
  26,451
  27,728
  29,070
  30,482
  31,968
  33,529
  35,171
Revenue / Adjusted assets
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
  0.963
Average production assets, $m
  3,181
  3,273
  3,372
  3,480
  3,598
  3,726
  3,864
  4,012
  4,170
  4,340
  4,520
  4,711
  4,914
  5,129
  5,357
  5,598
  5,852
  6,121
  6,405
  6,704
  7,019
  7,351
  7,701
  8,069
  8,457
  8,865
  9,294
  9,746
  10,221
  10,720
  11,245
Working capital, $m
  856
  335
  345
  356
  368
  382
  396
  411
  427
  444
  463
  482
  503
  525
  549
  573
  599
  627
  656
  687
  719
  753
  789
  826
  866
  908
  952
  998
  1,047
  1,098
  1,152
Total debt, $m
  2,157
  1,899
  2,036
  2,185
  2,348
  2,525
  2,715
  2,919
  3,138
  3,371
  3,619
  3,883
  4,163
  4,460
  4,774
  5,106
  5,457
  5,828
  6,219
  6,632
  7,066
  7,525
  8,007
  8,515
  9,050
  9,613
  10,205
  10,828
  11,483
  12,171
  12,895
Total liabilities, $m
  4,772
  4,514
  4,651
  4,800
  4,963
  5,140
  5,330
  5,534
  5,753
  5,986
  6,234
  6,498
  6,778
  7,075
  7,389
  7,721
  8,072
  8,443
  8,834
  9,247
  9,681
  10,140
  10,622
  11,130
  11,665
  12,228
  12,820
  13,443
  14,098
  14,786
  15,510
Total equity, $m
  6,099
  5,722
  5,895
  6,085
  6,291
  6,515
  6,756
  7,015
  7,292
  7,587
  7,902
  8,237
  8,591
  8,968
  9,366
  9,787
  10,232
  10,702
  11,198
  11,721
  12,272
  12,853
  13,464
  14,108
  14,786
  15,500
  16,250
  17,040
  17,870
  18,743
  19,660
Total liabilities and equity, $m
  10,871
  10,236
  10,546
  10,885
  11,254
  11,655
  12,086
  12,549
  13,045
  13,573
  14,136
  14,735
  15,369
  16,043
  16,755
  17,508
  18,304
  19,145
  20,032
  20,968
  21,953
  22,993
  24,086
  25,238
  26,451
  27,728
  29,070
  30,483
  31,968
  33,529
  35,170
Debt-to-equity ratio
  0.354
  0.330
  0.350
  0.360
  0.370
  0.390
  0.400
  0.420
  0.430
  0.440
  0.460
  0.470
  0.480
  0.500
  0.510
  0.520
  0.530
  0.540
  0.560
  0.570
  0.580
  0.590
  0.590
  0.600
  0.610
  0.620
  0.630
  0.640
  0.640
  0.650
  0.660
Adjusted equity ratio
  0.543
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559
  0.559

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  898
  1,086
  1,126
  1,169
  1,217
  1,269
  1,325
  1,384
  1,448
  1,517
  1,589
  1,965
  2,047
  2,134
  2,225
  2,323
  2,425
  2,534
  2,648
  2,769
  2,896
  3,030
  3,171
  3,319
  3,476
  3,640
  3,813
  3,995
  4,187
  4,388
  4,600
Depreciation, amort., depletion, $m
  541
  657
  664
  672
  681
  691
  701
  713
  725
  737
  751
  357
  372
  389
  406
  424
  443
  464
  485
  508
  532
  557
  583
  611
  641
  672
  704
  738
  774
  812
  852
Funds from operations, $m
  761
  1,742
  1,790
  1,842
  1,898
  1,960
  2,026
  2,097
  2,173
  2,254
  2,340
  2,322
  2,419
  2,522
  2,631
  2,747
  2,869
  2,997
  3,133
  3,276
  3,427
  3,587
  3,754
  3,931
  4,116
  4,312
  4,517
  4,734
  4,961
  5,200
  5,452
Change in working capital, $m
  -623
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  49
  51
  54
Cash from operations, $m
  1,384
  1,733
  1,779
  1,831
  1,886
  1,947
  2,012
  2,082
  2,157
  2,237
  2,322
  2,302
  2,398
  2,500
  2,608
  2,722
  2,842
  2,970
  3,104
  3,246
  3,395
  3,553
  3,718
  3,893
  4,077
  4,270
  4,473
  4,687
  4,912
  5,149
  5,398
Maintenance CAPEX, $m
  0
  -241
  -248
  -255
  -264
  -273
  -282
  -293
  -304
  -316
  -329
  -342
  -357
  -372
  -389
  -406
  -424
  -443
  -464
  -485
  -508
  -532
  -557
  -583
  -611
  -641
  -672
  -704
  -738
  -774
  -812
New CAPEX, $m
  -695
  -92
  -99
  -108
  -118
  -128
  -138
  -148
  -158
  -169
  -180
  -191
  -203
  -215
  -228
  -241
  -255
  -269
  -284
  -299
  -315
  -332
  -350
  -368
  -388
  -408
  -429
  -451
  -475
  -499
  -525
Cash from investing activities, $m
  -806
  -333
  -347
  -363
  -382
  -401
  -420
  -441
  -462
  -485
  -509
  -533
  -560
  -587
  -617
  -647
  -679
  -712
  -748
  -784
  -823
  -864
  -907
  -951
  -999
  -1,049
  -1,101
  -1,155
  -1,213
  -1,273
  -1,337
Free cash flow, $m
  578
  1,400
  1,433
  1,467
  1,505
  1,546
  1,592
  1,641
  1,694
  1,752
  1,813
  1,768
  1,838
  1,913
  1,992
  2,075
  2,164
  2,258
  2,357
  2,462
  2,572
  2,689
  2,812
  2,941
  3,078
  3,221
  3,373
  3,532
  3,699
  3,875
  4,061
Issuance/(repayment) of debt, $m
  85
  125
  136
  150
  163
  177
  190
  204
  218
  233
  248
  264
  280
  297
  314
  332
  351
  371
  391
  413
  435
  458
  483
  508
  535
  563
  592
  623
  655
  689
  724
Issuance/(repurchase) of shares, $m
  -221
  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  
  -150
  125
  136
  150
  163
  177
  190
  204
  218
  233
  248
  264
  280
  297
  314
  332
  351
  371
  391
  413
  435
  458
  483
  508
  535
  563
  592
  623
  655
  689
  724
Total cash flow (excl. dividends), $m
  456
  1,526
  1,569
  1,616
  1,668
  1,723
  1,782
  1,845
  1,913
  1,985
  2,061
  2,032
  2,118
  2,209
  2,306
  2,408
  2,515
  2,628
  2,748
  2,874
  3,007
  3,147
  3,294
  3,449
  3,612
  3,784
  3,965
  4,155
  4,354
  4,564
  4,785
Retained Cash Flow (-), $m
  -387
  -155
  -173
  -190
  -207
  -224
  -241
  -259
  -277
  -296
  -315
  -334
  -355
  -376
  -398
  -421
  -445
  -470
  -496
  -523
  -551
  -581
  -612
  -644
  -678
  -713
  -751
  -789
  -830
  -873
  -918
Prev. year cash balance distribution, $m
 
  532
  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
 
  1,902
  1,396
  1,427
  1,461
  1,499
  1,541
  1,586
  1,636
  1,689
  1,747
  1,698
  1,763
  1,833
  1,907
  1,986
  2,070
  2,159
  2,252
  2,351
  2,456
  2,566
  2,682
  2,805
  2,934
  3,071
  3,214
  3,365
  3,524
  3,691
  3,867
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
 
  1,824
  1,278
  1,242
  1,203
  1,162
  1,118
  1,072
  1,023
  970
  916
  806
  752
  697
  640
  583
  526
  470
  415
  362
  312
  265
  223
  184
  149
  119
  94
  72
  55
  40
  29
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

Luxottica Group S.p.A., together with its subsidiaries, provides fashion, luxury, sports, and performance eyewear worldwide. It operates through two segments, Manufacturing and Wholesale Distribution, and Retail Distribution. The Manufacturing and Wholesale Distribution segment engages in the design, manufacture, wholesale distribution, and marketing of proprietary brands and designer lines of prescription frames and sunglasses, as well as performance optics products. This segment offers its products under proprietary brands, such as Ray-Ban, Oakley, Vogue Eyewear, Persol, Oliver Peoples, Alain Mikli, and Arnette; and licensed brands, including Giorgio Armani, Emporio Armani, Armani Exchange, Brooks Brothers, Burberry, Bulgari, Chanel, Coach, Dolce&Gabbana, DKNY, Michael Kors, Paul Smith Spectacles, Prada, Miu Miu, Ralph Lauren, Polo Ralph Lauren, Ralph, Starck Eyes, Tiffany & Co, Tory Burch, Valentino, and Versace. The Retail Distribution segment operates prescription eyewear stores primarily under its retail brands, including LensCrafters, Sunglass Hut, OPSM, Laubman & Pank, Oakley ‘O’ Stores and Vaults, David Clulow, and GMO; and licensed brands, such as Sears Optical and Target Optical. As of December 31, 2015, it owned and operated 6,589 retail stores and franchised 676 stores. The company was founded in 1961 and is headquartered in Milan, Italy. Luxottica Group S.p.A. operates as a subsidiary of Delfin S.a.r.l.

FINANCIAL RATIOS  of  Luxottica Group ADR (LUX)

Valuation Ratios
P/E Ratio 32.3
Price to Sales 3
Price to Book 4.8
Price to Tangible Book
Price to Cash Flow 21
Price to Free Cash Flow 42.1
Growth Rates
Sales Growth Rate 2.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 41.8%
Cap. Spend. - 3 Yr. Gr. Rate 11.9%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 29.1%
Total Debt to Equity 35.4%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.5%
Ret/ On Assets - 3 Yr. Avg. 8.3%
Return On Total Capital 11.3%
Ret/ On T. Cap. - 3 Yr. Avg. 10.6%
Return On Equity 15.2%
Return On Equity - 3 Yr. Avg. 15%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 65.3%
Gross Margin - 3 Yr. Avg. 66.5%
EBITDA Margin 20.2%
EBITDA Margin - 3 Yr. Avg. 20%
Operating Margin 14.8%
Oper. Margin - 3 Yr. Avg. 15.2%
Pre-Tax Margin 14.5%
Pre-Tax Margin - 3 Yr. Avg. 14.3%
Net Profit Margin 9.4%
Net Profit Margin - 3 Yr. Avg. 9%
Effective Tax Rate 35.3%
Eff/ Tax Rate - 3 Yr. Avg. 37.1%
Payout Ratio 50.6%

LUX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LUX stock intrinsic value calculation we used $9589 million for the last fiscal year's total revenue generated by Luxottica Group ADR. The default revenue input number comes from 2016 income statement of Luxottica Group ADR. 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 LUX stock valuation model: a) initial revenue growth rate of 2.8% 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 LUX is calculated based on our internal credit rating of Luxottica Group ADR, 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 Luxottica Group ADR.
    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 LUX stock the variable cost ratio is equal to 84.4%.

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 LUX 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 Luxottica Group ADR.

Corporate tax rate of 27% is the nominal tax rate for Luxottica Group ADR. 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 LUX 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 LUX are equal to 33.2%.

Life of production assets of 13.2 years is the average useful life of capital assets used in Luxottica Group ADR 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 LUX is equal to 3.4%. 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 - $6099 million for Luxottica Group ADR - 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 483.456 million for Luxottica Group ADR 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 Luxottica Group ADR at the current share price and the inputted number of shares is $29.4 billion.

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Financial statements of LUX
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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