Intrinsic value of McKesson - MCK

Previous Close

$167.63

  Intrinsic Value

$1,266

stock screener

  Rating & Target

str. buy

+655%

  Value-price divergence*

-3%

Previous close

$167.63

 
Intrinsic value

$1,266

 
Up/down potential

+655%

 
Rating

str. buy

 
Value-price divergence*

-3%

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

We calculate the intrinsic value of MCK 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 35.2

 

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, %
  4.01
  4.40
  4.46
  4.51
  4.56
  4.61
  4.65
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
Revenue, $m
  198,533
  207,268
  216,513
  226,286
  236,611
  247,510
  259,008
  271,133
  283,911
  297,374
  311,551
  326,477
  342,186
  358,715
  376,104
  394,393
  413,625
  433,847
  455,105
  477,450
  500,936
  525,617
  551,553
  578,805
  607,437
  637,518
  669,120
  702,316
  737,187
  773,815
  812,287
Variable operating expenses, $m
 
  110,842
  115,738
  120,915
  126,384
  132,156
  138,247
  144,669
  151,437
  158,568
  166,077
  172,924
  181,245
  190,000
  199,210
  208,897
  219,084
  229,795
  241,054
  252,890
  265,330
  278,403
  292,140
  306,574
  321,740
  337,673
  354,411
  371,994
  390,464
  409,865
  430,242
Fixed operating expenses, $m
 
  89,458
  91,694
  93,987
  96,336
  98,745
  101,213
  103,744
  106,337
  108,996
  111,721
  114,514
  117,377
  120,311
  123,319
  126,402
  129,562
  132,801
  136,121
  139,524
  143,012
  146,587
  150,252
  154,008
  157,858
  161,805
  165,850
  169,996
  174,246
  178,602
  183,067
Total operating expenses, $m
  191,434
  200,300
  207,432
  214,902
  222,720
  230,901
  239,460
  248,413
  257,774
  267,564
  277,798
  287,438
  298,622
  310,311
  322,529
  335,299
  348,646
  362,596
  377,175
  392,414
  408,342
  424,990
  442,392
  460,582
  479,598
  499,478
  520,261
  541,990
  564,710
  588,467
  613,309
Operating income, $m
  7,099
  6,969
  9,080
  11,384
  13,891
  16,608
  19,548
  22,720
  26,137
  29,810
  33,753
  39,039
  43,564
  48,404
  53,575
  59,094
  64,980
  71,251
  77,930
  85,036
  92,594
  100,627
  109,161
  118,222
  127,839
  138,041
  148,859
  160,326
  172,477
  185,348
  198,977
EBITDA, $m
  8,009
  8,361
  10,487
  12,807
  15,330
  18,065
  21,023
  24,215
  27,652
  31,347
  35,313
  39,564
  44,115
  48,982
  54,180
  59,729
  65,645
  71,949
  78,662
  85,805
  93,400
  101,473
  110,049
  119,154
  128,816
  139,066
  149,935
  161,456
  173,663
  186,593
  200,284
Interest expense (income), $m
  315
  278
  359
  445
  536
  633
  734
  841
  954
  1,073
  1,198
  1,330
  1,469
  1,615
  1,769
  1,931
  2,102
  2,281
  2,469
  2,667
  2,875
  3,094
  3,323
  3,565
  3,819
  4,085
  4,365
  4,659
  4,969
  5,293
  5,634
Earnings before tax, $m
  6,891
  6,691
  8,721
  10,939
  13,354
  15,976
  18,814
  21,879
  25,183
  28,737
  32,555
  37,709
  42,095
  46,789
  51,806
  57,163
  62,878
  68,971
  75,461
  82,370
  89,719
  97,534
  105,838
  114,658
  124,020
  133,955
  144,493
  155,666
  167,508
  180,055
  193,343
Tax expense, $m
  1,614
  1,807
  2,355
  2,954
  3,606
  4,313
  5,080
  5,907
  6,799
  7,759
  8,790
  10,181
  11,366
  12,633
  13,988
  15,434
  16,977
  18,622
  20,374
  22,240
  24,224
  26,334
  28,576
  30,958
  33,485
  36,168
  39,013
  42,030
  45,227
  48,615
  52,203
Net income, $m
  5,070
  4,884
  6,366
  7,985
  9,749
  11,662
  13,734
  15,972
  18,383
  20,978
  23,765
  27,527
  30,730
  34,156
  37,818
  41,729
  45,901
  50,349
  55,086
  60,130
  65,495
  71,200
  77,262
  83,700
  90,535
  97,787
  105,480
  113,636
  122,281
  131,440
  141,140

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,783
  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
  60,969
  60,747
  63,456
  66,321
  69,347
  72,541
  75,911
  79,464
  83,210
  87,155
  91,310
  95,685
  100,289
  105,133
  110,230
  115,590
  121,227
  127,153
  133,384
  139,933
  146,816
  154,050
  161,651
  169,638
  178,030
  186,846
  196,108
  205,837
  216,057
  226,792
  238,068
Adjusted assets (=assets-cash), $m
  58,186
  60,747
  63,456
  66,321
  69,347
  72,541
  75,911
  79,464
  83,210
  87,155
  91,310
  95,685
  100,289
  105,133
  110,230
  115,590
  121,227
  127,153
  133,384
  139,933
  146,816
  154,050
  161,651
  169,638
  178,030
  186,846
  196,108
  205,837
  216,057
  226,792
  238,068
Revenue / Adjusted assets
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
Average production assets, $m
  5,628
  5,804
  6,062
  6,336
  6,625
  6,930
  7,252
  7,592
  7,950
  8,326
  8,723
  9,141
  9,581
  10,044
  10,531
  11,043
  11,582
  12,148
  12,743
  13,369
  14,026
  14,717
  15,443
  16,207
  17,008
  17,851
  18,735
  19,665
  20,641
  21,667
  22,744
Working capital, $m
  1,336
  -207
  -217
  -226
  -237
  -248
  -259
  -271
  -284
  -297
  -312
  -326
  -342
  -359
  -376
  -394
  -414
  -434
  -455
  -477
  -501
  -526
  -552
  -579
  -607
  -638
  -669
  -702
  -737
  -774
  -812
Total debt, $m
  8,545
  9,455
  11,720
  14,115
  16,645
  19,315
  22,133
  25,103
  28,234
  31,533
  35,006
  38,664
  42,513
  46,563
  50,823
  55,304
  60,016
  64,971
  70,180
  75,655
  81,409
  87,456
  93,811
  100,488
  107,504
  114,874
  122,617
  130,751
  139,295
  148,269
  157,696
Total liabilities, $m
  49,874
  50,784
  53,049
  55,444
  57,974
  60,644
  63,462
  66,432
  69,563
  72,862
  76,335
  79,993
  83,842
  87,892
  92,152
  96,633
  101,345
  106,300
  111,509
  116,984
  122,738
  128,785
  135,140
  141,817
  148,833
  156,203
  163,946
  172,080
  180,624
  189,598
  199,025
Total equity, $m
  11,095
  9,962
  10,407
  10,877
  11,373
  11,897
  12,449
  13,032
  13,646
  14,293
  14,975
  15,692
  16,447
  17,242
  18,078
  18,957
  19,881
  20,853
  21,875
  22,949
  24,078
  25,264
  26,511
  27,821
  29,197
  30,643
  32,162
  33,757
  35,433
  37,194
  39,043
Total liabilities and equity, $m
  60,969
  60,746
  63,456
  66,321
  69,347
  72,541
  75,911
  79,464
  83,209
  87,155
  91,310
  95,685
  100,289
  105,134
  110,230
  115,590
  121,226
  127,153
  133,384
  139,933
  146,816
  154,049
  161,651
  169,638
  178,030
  186,846
  196,108
  205,837
  216,057
  226,792
  238,068
Debt-to-equity ratio
  0.770
  0.950
  1.130
  1.300
  1.460
  1.620
  1.780
  1.930
  2.070
  2.210
  2.340
  2.460
  2.580
  2.700
  2.810
  2.920
  3.020
  3.120
  3.210
  3.300
  3.380
  3.460
  3.540
  3.610
  3.680
  3.750
  3.810
  3.870
  3.930
  3.990
  4.040
Adjusted equity ratio
  0.146
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,070
  4,884
  6,366
  7,985
  9,749
  11,662
  13,734
  15,972
  18,383
  20,978
  23,765
  27,527
  30,730
  34,156
  37,818
  41,729
  45,901
  50,349
  55,086
  60,130
  65,495
  71,200
  77,262
  83,700
  90,535
  97,787
  105,480
  113,636
  122,281
  131,440
  141,140
Depreciation, amort., depletion, $m
  910
  1,392
  1,407
  1,423
  1,439
  1,457
  1,475
  1,495
  1,515
  1,537
  1,560
  525
  551
  577
  605
  635
  666
  698
  732
  768
  806
  846
  888
  931
  977
  1,026
  1,077
  1,130
  1,186
  1,245
  1,307
Funds from operations, $m
  6,066
  6,277
  7,773
  9,408
  11,188
  13,119
  15,210
  17,467
  19,899
  22,515
  25,325
  28,053
  31,280
  34,733
  38,423
  42,363
  46,567
  51,047
  55,819
  60,898
  66,301
  72,046
  78,149
  84,631
  91,512
  98,813
  106,557
  114,767
  123,467
  132,685
  142,448
Change in working capital, $m
  1,322
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -38
Cash from operations, $m
  4,744
  6,285
  7,782
  9,418
  11,198
  13,130
  15,221
  17,479
  19,912
  22,529
  25,339
  28,068
  31,296
  34,750
  38,441
  42,382
  46,586
  51,067
  55,840
  60,920
  66,325
  72,070
  78,175
  84,659
  91,541
  98,843
  106,588
  114,800
  123,502
  132,722
  142,486
Maintenance CAPEX, $m
  0
  -323
  -334
  -348
  -364
  -381
  -398
  -417
  -436
  -457
  -479
  -501
  -525
  -551
  -577
  -605
  -635
  -666
  -698
  -732
  -768
  -806
  -846
  -888
  -931
  -977
  -1,026
  -1,077
  -1,130
  -1,186
  -1,245
New CAPEX, $m
  -562
  -176
  -259
  -274
  -289
  -305
  -322
  -339
  -358
  -377
  -397
  -418
  -440
  -463
  -487
  -512
  -539
  -566
  -595
  -626
  -658
  -691
  -726
  -763
  -802
  -842
  -885
  -930
  -976
  -1,026
  -1,077
Cash from investing activities, $m
  -3,796
  -499
  -593
  -622
  -653
  -686
  -720
  -756
  -794
  -834
  -876
  -919
  -965
  -1,014
  -1,064
  -1,117
  -1,174
  -1,232
  -1,293
  -1,358
  -1,426
  -1,497
  -1,572
  -1,651
  -1,733
  -1,819
  -1,911
  -2,007
  -2,106
  -2,212
  -2,322
Free cash flow, $m
  948
  5,786
  7,190
  8,796
  10,545
  12,444
  14,501
  16,722
  19,118
  21,695
  24,464
  27,148
  30,331
  33,736
  37,377
  41,264
  45,413
  49,835
  54,547
  59,562
  64,899
  70,573
  76,603
  83,008
  89,808
  97,024
  104,678
  112,793
  121,396
  130,510
  140,164
Issuance/(repayment) of debt, $m
  393
  2,150
  2,265
  2,395
  2,530
  2,670
  2,817
  2,971
  3,131
  3,298
  3,474
  3,657
  3,849
  4,050
  4,261
  4,481
  4,712
  4,955
  5,209
  5,475
  5,754
  6,047
  6,355
  6,677
  7,015
  7,370
  7,743
  8,134
  8,544
  8,974
  9,426
Issuance/(repurchase) of shares, $m
  -2,191
  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  
  -1,816
  2,150
  2,265
  2,395
  2,530
  2,670
  2,817
  2,971
  3,131
  3,298
  3,474
  3,657
  3,849
  4,050
  4,261
  4,481
  4,712
  4,955
  5,209
  5,475
  5,754
  6,047
  6,355
  6,677
  7,015
  7,370
  7,743
  8,134
  8,544
  8,974
  9,426
Total cash flow (excl. dividends), $m
  -1,012
  7,937
  9,455
  11,190
  13,075
  15,115
  17,318
  19,693
  22,248
  24,993
  27,937
  30,805
  34,180
  37,786
  41,637
  45,746
  50,125
  54,790
  59,755
  65,037
  70,653
  76,620
  82,958
  89,685
  96,823
  104,394
  112,421
  120,927
  129,939
  139,484
  149,590
Retained Cash Flow (-), $m
  -2,171
  -410
  -444
  -470
  -496
  -524
  -553
  -583
  -614
  -647
  -681
  -717
  -755
  -794
  -836
  -879
  -924
  -972
  -1,022
  -1,074
  -1,129
  -1,186
  -1,247
  -1,310
  -1,376
  -1,446
  -1,519
  -1,596
  -1,676
  -1,761
  -1,849
Prev. year cash balance distribution, $m
 
  1,543
  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
 
  9,069
  9,011
  10,721
  12,578
  14,591
  16,765
  19,110
  21,634
  24,346
  27,256
  30,088
  33,425
  36,992
  40,801
  44,866
  49,200
  53,818
  58,733
  63,963
  69,524
  75,434
  81,711
  88,375
  95,447
  102,948
  110,902
  119,332
  128,263
  137,724
  147,741
Discount rate, %
 
  4.50
  4.73
  4.96
  5.21
  5.47
  5.74
  6.03
  6.33
  6.65
  6.98
  7.33
  7.70
  8.08
  8.49
  8.91
  9.36
  9.82
  10.31
  10.83
  11.37
  11.94
  12.54
  13.16
  13.82
  14.51
  15.24
  16.00
  16.80
  17.64
  18.52
PV of cash for distribution, $m
 
  8,679
  8,216
  9,271
  10,266
  11,180
  11,992
  12,684
  13,238
  13,641
  13,880
  13,818
  13,729
  13,469
  13,046
  12,472
  11,764
  10,943
  10,035
  9,067
  8,066
  7,061
  6,079
  5,141
  4,269
  3,477
  2,776
  2,169
  1,658
  1,238
  903
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

McKesson Corporation operates as a pharmaceutical distribution services and information technology company in the United States and internationally. It offers pharmaceuticals and medical supplies, and services for healthcare operations. The company operates in two segments, McKesson Distribution Solutions and McKesson Technology Solutions. The McKesson Distribution Solutions segment distributes branded and generic pharmaceutical drugs and other healthcare-related products; and provides practice management, technology, clinical support, and business solutions to community-based oncology and other specialty practices. This segment also provides specialty pharmaceutical solutions for pharmaceutical manufacturers; and medical-surgical supply distribution, equipment, logistics, and other services to healthcare providers. In addition, this segment operates retail pharmacies in Europe and supports independent pharmacy networks in North America; sells financial, operational, and clinical solutions to pharmacies; and provides consulting, outsourcing, and other services. The McKesson Technology Solutions segment delivers enterprise-wide clinical, patient care, financial, supply chain, and strategic management technology solutions; and connectivity, outsourcing, and other services, including remote hosting and managed services to healthcare organizations. This segmentÂ’s product portfolio addresses various healthcare clinical and business performance needs ranging from medication safety and information access to revenue cycle management, resource utilization, and physician adoption of electronic health records. This segment serves integrated delivery networks, hospitals, physician practices, home healthcare providers, retail pharmacies, and payers. McKesson Corporation was founded in 1833 and is headquartered in San Francisco, California.

FINANCIAL RATIOS  of  McKesson (MCK)

Valuation Ratios
P/E Ratio 7
Price to Sales 0.2
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 7.5
Price to Free Cash Flow 8.5
Growth Rates
Sales Growth Rate 4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -17%
Cap. Spend. - 3 Yr. Gr. Rate 6.3%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 65.8%
Total Debt to Equity 77%
Interest Coverage 23
Management Effectiveness
Return On Assets 9%
Ret/ On Assets - 3 Yr. Avg. 5.6%
Return On Total Capital 27.6%
Ret/ On T. Cap. - 3 Yr. Avg. 16.2%
Return On Equity 50.7%
Return On Equity - 3 Yr. Avg. 31.7%
Asset Turnover 3.4
Profitability Ratios
Gross Margin 5.7%
Gross Margin - 3 Yr. Avg. 6%
EBITDA Margin 4.1%
EBITDA Margin - 3 Yr. Avg. 2.9%
Operating Margin 3.6%
Oper. Margin - 3 Yr. Avg. 2.4%
Pre-Tax Margin 3.5%
Pre-Tax Margin - 3 Yr. Avg. 2.2%
Net Profit Margin 2.6%
Net Profit Margin - 3 Yr. Avg. 1.5%
Effective Tax Rate 23.4%
Eff/ Tax Rate - 3 Yr. Avg. 27.3%
Payout Ratio 5%

MCK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MCK stock intrinsic value calculation we used $198533 million for the last fiscal year's total revenue generated by McKesson. The default revenue input number comes from 2017 income statement of McKesson. 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 MCK stock valuation model: a) initial revenue growth rate of 4.4% 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 4.5%, whose default value for MCK is calculated based on our internal credit rating of McKesson, 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 McKesson.
    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 MCK stock the variable cost ratio is equal to 53.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $87276 million in the base year in the intrinsic value calculation for MCK 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 3.8% for McKesson.

Corporate tax rate of 27% is the nominal tax rate for McKesson. 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 MCK 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 MCK are equal to 2.8%.

Life of production assets of 17.4 years is the average useful life of capital assets used in McKesson 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 MCK 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 - $11095 million for McKesson - 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 210.177 million for McKesson 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 McKesson at the current share price and the inputted number of shares is $35.2 billion.

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COMPANY NEWS

▶ Drug wholesaler to make board change after opioid protest   [Jul-26-17 02:16PM  Associated Press]
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▶ McCormick mustard merger on National Hotdog Day   [01:28PM  Yahoo Finance Video]
▶ Execution drug challenge survives, but Arkansas lacks doses   [Jul-12-17 07:29PM  Associated Press]
▶ 3 Lowest P/E Stocks Today   [Jul-07-17 08:30PM  Motley Fool]
▶ Celgene Enters PD1 Market with BeiGene Deal   [Jul-06-17 04:42PM  TheStreet.com]
▶ McKesson Reaffirms Fiscal 2018 Guidance   [Jun-28-17 08:30AM  Business Wire]
▶ McKesson Corporation to Webcast Investor Day   [Jun-21-17 04:24PM  Business Wire]
▶ Here are the 10 highest-paid Bay Area CEOs over the past five years   [Jun-19-17 11:50AM  American City Business Journals]
▶ McKesson CEO slashes price on Orinda home by $6 million after a year on the market   [Jun-08-17 01:29PM  American City Business Journals]
▶ ETFs with exposure to McKesson Corp. : June 5, 2017   [Jun-05-17 02:30PM  Capital Cube]
▶ [$$] McKesson's Comeback Should Continue   [May-27-17 12:47AM  Barrons.com]
▶ ETFs with exposure to McKesson Corp. : May 26, 2017   [May-26-17 01:16PM  Capital Cube]
▶ McKesson Upgraded at JPMorgan   [May-23-17 10:11AM  TheStreet.com]
▶ Spike In McKesson Prompts Vetr Downgrade To Hold   [May-22-17 05:01PM  Benzinga]
▶ These Stocks Are Changing Direction   [01:00PM  TheStreet.com]
▶ US stocks close broadly higher; oil rises   [May-19-17 05:00PM  Associated Press]
▶ McKesson beats 4Q profit forecasts   [04:36PM  Associated Press]
▶ Eyes Are on McKesson's Guidance   [May-17-17 05:48PM  TheStreet.com]
▶ McKesson Corp. Value Analysis (NYSE:MCK) : May 15, 2017   [May-15-17 05:19PM  Capital Cube]
▶ What's the Next Berkshire Hathaway Acquisition?   [May-02-17 04:40PM  GuruFocus.com]
▶ McKesson: Bears Still Have the Upper Hand   [May-01-17 10:47AM  TheStreet.com]
▶ Arkansas will face challenges replenishing execution supply   [Apr-29-17 03:15AM  Associated Press]
▶ Jerome Dodson Keeps Buying McKesson, Axalta, Pentair   [Apr-25-17 04:47PM  GuruFocus.com]
▶ Drugmaker asked Arkansas not to use drug in executions   [Apr-21-17 03:09PM  Associated Press]
▶ Arkansas carries out first execution since 2005   [01:11AM  Associated Press]
▶ Arkansas suffers 2 setbacks to multiple execution plan   [Apr-19-17 11:13PM  Associated Press]
Stock chart of MCK Financial statements of MCK Annual reports of MCK
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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