Intrinsic value of Microchip Technology - MCHP

Previous Close

$80.88

  Intrinsic Value

$586.43

stock screener

  Rating & Target

str. buy

+625%

  Value-price divergence*

+1372%

Previous close

$80.88

 
Intrinsic value

$586.43

 
Up/down potential

+625%

 
Rating

str. buy

 
Value-price divergence*

+1372%

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

We calculate the intrinsic value of MCHP 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 17.4

 

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, %
  56.83
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  3,408
  5,453
  8,425
  12,599
  18,280
  25,791
  35,457
  47,593
  62,493
  80,413
  101,569
  126,125
  154,200
  185,863
  221,140
  260,022
  302,468
  348,418
  397,797
  450,526
  506,525
  565,721
  628,052
  693,472
  761,949
  833,475
  908,057
  985,729
  1,066,541
  1,150,568
  1,237,903
Variable operating expenses, $m
 
  4,569
  7,060
  10,558
  15,319
  21,613
  29,713
  39,883
  52,369
  67,386
  85,115
  105,693
  129,220
  155,753
  185,316
  217,898
  253,468
  291,974
  333,354
  377,541
  424,468
  474,074
  526,308
  581,129
  638,513
  698,452
  760,952
  826,041
  893,762
  964,176
  1,037,362
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
  3,132
  4,569
  7,060
  10,558
  15,319
  21,613
  29,713
  39,883
  52,369
  67,386
  85,115
  105,693
  129,220
  155,753
  185,316
  217,898
  253,468
  291,974
  333,354
  377,541
  424,468
  474,074
  526,308
  581,129
  638,513
  698,452
  760,952
  826,041
  893,762
  964,176
  1,037,362
Operating income, $m
  276
  883
  1,365
  2,041
  2,961
  4,178
  5,744
  7,710
  10,124
  13,027
  16,454
  20,432
  24,980
  30,110
  35,825
  42,124
  49,000
  56,444
  64,443
  72,985
  82,057
  91,647
  101,744
  112,342
  123,436
  135,023
  147,105
  159,688
  172,780
  186,392
  200,540
EBITDA, $m
  559
  980
  1,515
  2,265
  3,287
  4,637
  6,375
  8,557
  11,236
  14,458
  18,262
  22,677
  27,725
  33,418
  39,761
  46,752
  54,384
  62,645
  71,524
  81,005
  91,073
  101,717
  112,924
  124,686
  136,998
  149,859
  163,269
  177,234
  191,764
  206,872
  222,575
Interest expense (income), $m
  53
  102
  193
  326
  513
  767
  1,103
  1,536
  2,079
  2,745
  3,547
  4,494
  5,593
  6,849
  8,266
  9,844
  11,584
  13,484
  15,540
  17,749
  20,109
  22,615
  25,264
  28,053
  30,980
  34,044
  37,245
  40,582
  44,058
  47,674
  51,434
Earnings before tax, $m
  90
  782
  1,172
  1,715
  2,449
  3,411
  4,641
  6,175
  8,045
  10,282
  12,907
  15,938
  19,388
  23,261
  27,559
  32,279
  37,415
  42,960
  48,903
  55,236
  61,948
  69,032
  76,481
  84,290
  92,456
  100,978
  109,860
  119,106
  128,722
  138,718
  149,106
Tax expense, $m
  -81
  211
  316
  463
  661
  921
  1,253
  1,667
  2,172
  2,776
  3,485
  4,303
  5,235
  6,280
  7,441
  8,715
  10,102
  11,599
  13,204
  14,914
  16,726
  18,639
  20,650
  22,758
  24,963
  27,264
  29,662
  32,159
  34,755
  37,454
  40,259
Net income, $m
  165
  571
  855
  1,252
  1,788
  2,490
  3,388
  4,507
  5,873
  7,506
  9,422
  11,635
  14,153
  16,980
  20,118
  23,564
  27,313
  31,361
  35,699
  40,322
  45,222
  50,393
  55,831
  61,531
  67,493
  73,714
  80,198
  86,947
  93,967
  101,264
  108,847

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,303
  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
  7,679
  10,192
  15,747
  23,549
  34,169
  48,208
  66,274
  88,960
  116,810
  150,305
  189,848
  235,748
  288,225
  347,408
  413,347
  486,022
  565,361
  651,248
  743,546
  842,104
  946,775
  1,057,422
  1,173,929
  1,296,208
  1,424,204
  1,557,896
  1,697,304
  1,842,484
  1,993,535
  2,150,594
  2,313,837
Adjusted assets (=assets-cash), $m
  6,376
  10,192
  15,747
  23,549
  34,169
  48,208
  66,274
  88,960
  116,810
  150,305
  189,848
  235,748
  288,225
  347,408
  413,347
  486,022
  565,361
  651,248
  743,546
  842,104
  946,775
  1,057,422
  1,173,929
  1,296,208
  1,424,204
  1,557,896
  1,697,304
  1,842,484
  1,993,535
  2,150,594
  2,313,837
Revenue / Adjusted assets
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
  0.535
Average production assets, $m
  608
  971
  1,500
  2,243
  3,254
  4,591
  6,311
  8,472
  11,124
  14,314
  18,079
  22,450
  27,448
  33,084
  39,363
  46,284
  53,839
  62,018
  70,808
  80,194
  90,161
  100,698
  111,793
  123,438
  135,627
  148,358
  161,634
  175,460
  189,844
  204,801
  220,347
Working capital, $m
  1,601
  556
  859
  1,285
  1,865
  2,631
  3,617
  4,855
  6,374
  8,202
  10,360
  12,865
  15,728
  18,958
  22,556
  26,522
  30,852
  35,539
  40,575
  45,954
  51,666
  57,704
  64,061
  70,734
  77,719
  85,014
  92,622
  100,544
  108,787
  117,358
  126,266
Total debt, $m
  2,950
  5,513
  9,313
  14,650
  21,914
  31,516
  43,874
  59,390
  78,440
  101,351
  128,398
  159,794
  195,688
  236,169
  281,271
  330,981
  385,249
  443,996
  507,127
  574,541
  646,136
  721,819
  801,510
  885,149
  972,698
  1,064,143
  1,159,498
  1,258,801
  1,362,120
  1,469,548
  1,581,206
Total liabilities, $m
  4,408
  6,971
  10,771
  16,108
  23,372
  32,974
  45,332
  60,848
  79,898
  102,809
  129,856
  161,252
  197,146
  237,627
  282,729
  332,439
  386,707
  445,454
  508,585
  575,999
  647,594
  723,277
  802,968
  886,607
  974,156
  1,065,601
  1,160,956
  1,260,259
  1,363,578
  1,471,006
  1,582,664
Total equity, $m
  3,271
  3,221
  4,976
  7,442
  10,797
  15,234
  20,943
  28,111
  36,912
  47,497
  59,992
  74,496
  91,079
  109,781
  130,618
  153,583
  178,654
  205,794
  234,960
  266,105
  299,181
  334,145
  370,962
  409,602
  450,048
  492,295
  536,348
  582,225
  629,957
  679,588
  731,172
Total liabilities and equity, $m
  7,679
  10,192
  15,747
  23,550
  34,169
  48,208
  66,275
  88,959
  116,810
  150,306
  189,848
  235,748
  288,225
  347,408
  413,347
  486,022
  565,361
  651,248
  743,545
  842,104
  946,775
  1,057,422
  1,173,930
  1,296,209
  1,424,204
  1,557,896
  1,697,304
  1,842,484
  1,993,535
  2,150,594
  2,313,836
Debt-to-equity ratio
  0.902
  1.710
  1.870
  1.970
  2.030
  2.070
  2.090
  2.110
  2.130
  2.130
  2.140
  2.140
  2.150
  2.150
  2.150
  2.160
  2.160
  2.160
  2.160
  2.160
  2.160
  2.160
  2.160
  2.160
  2.160
  2.160
  2.160
  2.160
  2.160
  2.160
  2.160
Adjusted equity ratio
  0.309
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  165
  571
  855
  1,252
  1,788
  2,490
  3,388
  4,507
  5,873
  7,506
  9,422
  11,635
  14,153
  16,980
  20,118
  23,564
  27,313
  31,361
  35,699
  40,322
  45,222
  50,393
  55,831
  61,531
  67,493
  73,714
  80,198
  86,947
  93,967
  101,264
  108,847
Depreciation, amort., depletion, $m
  283
  97
  150
  224
  325
  459
  631
  847
  1,112
  1,431
  1,808
  2,245
  2,745
  3,308
  3,936
  4,628
  5,384
  6,202
  7,081
  8,019
  9,016
  10,070
  11,179
  12,344
  13,563
  14,836
  16,163
  17,546
  18,984
  20,480
  22,035
Funds from operations, $m
  823
  668
  1,005
  1,476
  2,113
  2,949
  4,019
  5,355
  6,985
  8,937
  11,230
  13,880
  16,898
  20,289
  24,054
  28,192
  32,697
  37,563
  42,780
  48,341
  54,238
  60,463
  67,010
  73,875
  81,055
  88,550
  96,361
  104,493
  112,951
  121,744
  130,882
Change in working capital, $m
  79
  209
  303
  426
  580
  766
  986
  1,238
  1,520
  1,828
  2,158
  2,505
  2,864
  3,230
  3,598
  3,966
  4,329
  4,687
  5,037
  5,378
  5,712
  6,038
  6,358
  6,673
  6,985
  7,296
  7,607
  7,922
  8,243
  8,571
  8,908
Cash from operations, $m
  744
  459
  702
  1,050
  1,533
  2,183
  3,033
  4,117
  5,466
  7,109
  9,072
  11,375
  14,034
  17,059
  20,456
  24,226
  28,368
  32,876
  37,743
  42,963
  48,526
  54,425
  60,653
  67,202
  74,071
  81,255
  88,754
  96,571
  104,708
  113,173
  121,974
Maintenance CAPEX, $m
  0
  -61
  -97
  -150
  -224
  -325
  -459
  -631
  -847
  -1,112
  -1,431
  -1,808
  -2,245
  -2,745
  -3,308
  -3,936
  -4,628
  -5,384
  -6,202
  -7,081
  -8,019
  -9,016
  -10,070
  -11,179
  -12,344
  -13,563
  -14,836
  -16,163
  -17,546
  -18,984
  -20,480
New CAPEX, $m
  -98
  -363
  -529
  -743
  -1,011
  -1,337
  -1,720
  -2,160
  -2,652
  -3,190
  -3,766
  -4,371
  -4,997
  -5,636
  -6,279
  -6,921
  -7,555
  -8,179
  -8,790
  -9,386
  -9,968
  -10,537
  -11,095
  -11,645
  -12,189
  -12,732
  -13,276
  -13,826
  -14,385
  -14,957
  -15,546
Cash from investing activities, $m
  800
  -424
  -626
  -893
  -1,235
  -1,662
  -2,179
  -2,791
  -3,499
  -4,302
  -5,197
  -6,179
  -7,242
  -8,381
  -9,587
  -10,857
  -12,183
  -13,563
  -14,992
  -16,467
  -17,987
  -19,553
  -21,165
  -22,824
  -24,533
  -26,295
  -28,112
  -29,989
  -31,931
  -33,941
  -36,026
Free cash flow, $m
  1,544
  35
  76
  157
  298
  521
  854
  1,325
  1,966
  2,807
  3,875
  5,196
  6,792
  8,678
  10,868
  13,369
  16,184
  19,313
  22,752
  26,497
  30,539
  34,872
  39,488
  44,378
  49,538
  54,960
  60,642
  66,582
  72,778
  79,232
  85,948
Issuance/(repayment) of debt, $m
  589
  2,613
  3,799
  5,337
  7,264
  9,602
  12,358
  15,517
  19,049
  22,911
  27,047
  31,396
  35,894
  40,481
  45,102
  49,710
  54,267
  58,747
  63,132
  67,414
  71,595
  75,682
  79,691
  83,639
  87,549
  91,445
  95,355
  99,303
  103,319
  107,428
  111,658
Issuance/(repurchase) of shares, $m
  -335
  632
  900
  1,214
  1,568
  1,946
  2,321
  2,661
  2,928
  3,079
  3,073
  2,869
  2,430
  1,721
  719
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  231
  3,245
  4,699
  6,551
  8,832
  11,548
  14,679
  18,178
  21,977
  25,990
  30,120
  34,265
  38,324
  42,202
  45,821
  49,710
  54,267
  58,747
  63,132
  67,414
  71,595
  75,682
  79,691
  83,639
  87,549
  91,445
  95,355
  99,303
  103,319
  107,428
  111,658
Total cash flow (excl. dividends), $m
  1,776
  3,281
  4,776
  6,708
  9,130
  12,069
  15,532
  19,503
  23,943
  28,797
  33,996
  39,461
  45,115
  50,881
  56,689
  63,079
  70,451
  78,060
  85,884
  93,911
  102,134
  110,555
  119,179
  128,017
  137,087
  146,406
  155,997
  165,885
  176,097
  186,661
  197,606
Retained Cash Flow (-), $m
  -1,120
  -1,203
  -1,755
  -2,466
  -3,356
  -4,436
  -5,709
  -7,169
  -8,801
  -10,585
  -12,495
  -14,504
  -16,583
  -18,702
  -20,837
  -22,965
  -25,071
  -27,140
  -29,166
  -31,144
  -33,076
  -34,964
  -36,816
  -38,640
  -40,447
  -42,247
  -44,053
  -45,877
  -47,732
  -49,631
  -51,585
Prev. year cash balance distribution, $m
 
  1,253
  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
 
  3,331
  3,020
  4,242
  5,774
  7,633
  9,823
  12,334
  15,143
  18,213
  21,500
  24,957
  28,533
  32,179
  35,852
  40,114
  45,380
  50,919
  56,718
  62,766
  69,058
  75,590
  82,362
  89,377
  96,640
  104,159
  111,944
  120,008
  128,365
  137,030
  146,021
Discount rate, %
 
  5.20
  5.46
  5.73
  6.02
  6.32
  6.64
  6.97
  7.32
  7.68
  8.07
  8.47
  8.89
  9.34
  9.81
  10.30
  10.81
  11.35
  11.92
  12.51
  13.14
  13.80
  14.49
  15.21
  15.97
  16.77
  17.61
  18.49
  19.41
  20.38
  21.40
PV of cash for distribution, $m
 
  3,166
  2,716
  3,589
  4,570
  5,618
  6,681
  7,697
  8,607
  9,355
  9,897
  10,204
  10,264
  10,082
  9,678
  9,224
  8,782
  8,186
  7,473
  6,680
  5,846
  5,008
  4,198
  3,442
  2,759
  2,160
  1,650
  1,230
  893
  631
  434
Current shareholders' claim on cash, %
  100
  94.4
  89.7
  85.8
  82.5
  79.8
  77.6
  75.7
  74.3
  73.1
  72.3
  71.6
  71.2
  70.9
  70.8
  70.8
  70.8
  70.8
  70.8
  70.8
  70.8
  70.8
  70.8
  70.8
  70.8
  70.8
  70.8
  70.8
  70.8
  70.8
  70.8

Microchip Technology Incorporated develops, manufactures, and sells semiconductor products for various embedded control applications. The company offers microcontrollers, such as 8-bit, 16-bit, and 32-bit microcontrollers under the PIC brand name; and microcontrollers for automotive networking, computing, lighting, power supplies, motor control, wired connectivity, and wireless connectivity. It also provides development tools that enable system designers to program PIC microcontrollers for specific applications; analog, interface, mixed signal, and timing products comprising power management, linear, mixed-signal, high-voltage, thermal management, RF, drivers, safety and security, USB, Ethernet, wireless, and other interface products; and memory products consisting of serial electrically erasable programmable read-only memory, serial flash memories, parallel flash memories, and serial SRAM memories for the production of very small footprint devices. In addition, the company licenses its SuperFlash embedded flash and Smartbits one time programmable NVM technologies to foundries, integrated device manufacturers, and design partners for use in the manufacture of microcontroller products, gate array, RF, and analog products that require embedded non-volatile memory, as well as provides engineering services. It serves automotive, communications, computing, consumer, office automation, telecommunication, aerospace, defense, safety, security, medical, and industrial control markets. The company sells its products through a network of direct sales personnel and distributors in the Americas, Europe, and Asia. Microchip Technology Incorporated was founded in 1989 and is headquartered in Chandler, Arizona.

FINANCIAL RATIOS  of  Microchip Technology (MCHP)

Valuation Ratios
P/E Ratio 106.1
Price to Sales 5.1
Price to Book 5.4
Price to Tangible Book
Price to Cash Flow 23.5
Price to Free Cash Flow 27.1
Growth Rates
Sales Growth Rate 56.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -34.2%
Cap. Spend. - 3 Yr. Gr. Rate 14%
Financial Strength
Quick Ratio 26
Current Ratio 0.2
LT Debt to Equity 88.7%
Total Debt to Equity 90.2%
Interest Coverage 3
Management Effectiveness
Return On Assets 4%
Ret/ On Assets - 3 Yr. Avg. 6.8%
Return On Total Capital 3%
Ret/ On T. Cap. - 3 Yr. Avg. 7.1%
Return On Equity 6.1%
Return On Equity - 3 Yr. Avg. 13.1%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 51.6%
Gross Margin - 3 Yr. Avg. 54.8%
EBITDA Margin 12.5%
EBITDA Margin - 3 Yr. Avg. 22.2%
Operating Margin 8.1%
Oper. Margin - 3 Yr. Avg. 13.9%
Pre-Tax Margin 2.6%
Pre-Tax Margin - 3 Yr. Avg. 10.6%
Net Profit Margin 4.8%
Net Profit Margin - 3 Yr. Avg. 12.3%
Effective Tax Rate -90%
Eff/ Tax Rate - 3 Yr. Avg. -36.9%
Payout Ratio 176.4%

MCHP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MCHP stock intrinsic value calculation we used $3408 million for the last fiscal year's total revenue generated by Microchip Technology. The default revenue input number comes from 2017 income statement of Microchip Technology. 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 MCHP stock valuation model: a) initial revenue growth rate of 60% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.2%, whose default value for MCHP is calculated based on our internal credit rating of Microchip Technology, 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 Microchip Technology.
    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 MCHP stock the variable cost ratio is equal to 83.8%.

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 MCHP 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 Microchip Technology.

Corporate tax rate of 27% is the nominal tax rate for Microchip Technology. 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 MCHP 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 MCHP are equal to 17.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Microchip Technology 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 MCHP is equal to 10.2%. 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 - $3271 million for Microchip Technology - 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 214.693 million for Microchip Technology 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 Microchip Technology at the current share price and the inputted number of shares is $17.4 billion.

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COMPANY NEWS

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▶ Story Stocks from Briefing.com   [09:12AM  Briefing.com]
▶ Microchip Technology Rises On Accelerating Earnings Growth   [04:11PM  Investor's Business Daily]
▶ Microchip reports record sales for its latest quarter, year   [May-09-17 06:00PM  American City Business Journals]
▶ Nvidia Rockets On Q1 Beat; MaxLinear, Microchip Top Views   [05:51PM  Investor's Business Daily]
▶ Microchip Tech beats Street 4Q forecasts   [04:46PM  Associated Press]
▶ Why You Should Consider Amazon, Netflix, Alibaba For Your Portfolio   [May-01-17 04:02PM  Investor's Business Daily]
▶ 3 Chip-Related Stocks on the Move   [Apr-28-17 02:18PM  Zacks]
▶ Cramer: These Three Chip Stocks Are Off The Charts   [Apr-20-17 06:10AM  TheStreet.com]
▶ Charting the semiconductors' turnaround   [Apr-19-17 07:22PM  CNBC Videos]
▶ Chip Industry's Boom Cycle Remains in Full Swing   [Apr-06-17 08:00AM  TheStreet.com]
▶ Microchip, Quantenna Rated Buy; Skyworks Gets Price Hike   [Apr-04-17 04:45PM  Investor's Business Daily]
▶ Focused on transportation and the Permian: Pro   [Mar-31-17 03:40PM  CNBC Videos]
▶ Will A Market Rebound Unleash These Potential Breakout Stocks?   [Mar-27-17 01:06PM  Investor's Business Daily]
▶ These 5 High-Growth Chip Stocks Are Forming Bases Or Are In Buy Range   [Mar-26-17 10:58AM  Investor's Business Daily]
▶ Where Jefferies Thinks Semiconductors Can Run From Here   [Mar-20-17 10:20AM  24/7 Wall St.]
Stock chart of MCHP Financial statements of MCHP Annual reports of MCHP
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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