Intrinsic value of McKesson - MCK

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$165.57

  Intrinsic Value

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  Value-price divergence*

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$165.57

 
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*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 34.8

 

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
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
Revenue, $m
  198,533
  199,856
  209,309
  219,266
  229,749
  240,785
  252,397
  264,615
  277,466
  290,981
  305,192
  320,132
  335,837
  352,344
  369,693
  387,924
  407,080
  427,208
  448,355
  470,571
  493,908
  518,424
  544,175
  571,223
  599,632
  629,470
  660,808
  693,720
  728,285
  764,585
  802,706
Variable operating expenses, $m
 
  190,017
  198,958
  208,376
  218,292
  228,730
  239,714
  251,271
  263,426
  276,209
  289,651
  302,804
  317,659
  333,273
  349,683
  366,927
  385,046
  404,085
  424,087
  445,100
  467,175
  490,363
  514,720
  540,304
  567,176
  595,399
  625,041
  656,172
  688,866
  723,201
  759,259
Fixed operating expenses, $m
 
  6,050
  6,201
  6,356
  6,515
  6,678
  6,845
  7,016
  7,191
  7,371
  7,555
  7,744
  7,938
  8,136
  8,339
  8,548
  8,762
  8,981
  9,205
  9,435
  9,671
  9,913
  10,161
  10,415
  10,675
  10,942
  11,216
  11,496
  11,783
  12,078
  12,380
Total operating expenses, $m
  191,434
  196,067
  205,159
  214,732
  224,807
  235,408
  246,559
  258,287
  270,617
  283,580
  297,206
  310,548
  325,597
  341,409
  358,022
  375,475
  393,808
  413,066
  433,292
  454,535
  476,846
  500,276
  524,881
  550,719
  577,851
  606,341
  636,257
  667,668
  700,649
  735,279
  771,639
Operating income, $m
  7,099
  3,789
  4,150
  4,534
  4,942
  5,377
  5,838
  6,328
  6,849
  7,400
  7,985
  9,584
  10,240
  10,935
  11,671
  12,449
  13,272
  14,143
  15,063
  16,035
  17,063
  18,148
  19,294
  20,504
  21,781
  23,129
  24,552
  26,053
  27,636
  29,307
  31,068
EBITDA, $m
  8,009
  5,044
  5,418
  5,816
  6,239
  6,688
  7,166
  7,673
  8,211
  8,782
  9,386
  10,027
  10,705
  11,423
  12,182
  12,986
  13,836
  14,734
  15,683
  16,686
  17,746
  18,865
  20,047
  21,294
  22,611
  24,000
  25,466
  27,013
  28,644
  30,364
  32,179
Interest expense (income), $m
  315
  247
  328
  414
  506
  602
  703
  809
  921
  1,038
  1,162
  1,292
  1,429
  1,572
  1,723
  1,882
  2,049
  2,224
  2,408
  2,602
  2,805
  3,019
  3,243
  3,479
  3,726
  3,986
  4,259
  4,546
  4,847
  5,163
  5,495
Earnings before tax, $m
  6,891
  3,542
  3,822
  4,119
  4,437
  4,775
  5,136
  5,520
  5,928
  6,362
  6,824
  8,292
  8,812
  9,363
  9,948
  10,567
  11,224
  11,919
  12,655
  13,433
  14,257
  15,129
  16,051
  17,025
  18,055
  19,143
  20,293
  21,507
  22,789
  24,143
  25,573
Tax expense, $m
  1,614
  956
  1,032
  1,112
  1,198
  1,289
  1,387
  1,490
  1,601
  1,718
  1,842
  2,239
  2,379
  2,528
  2,686
  2,853
  3,030
  3,218
  3,417
  3,627
  3,850
  4,085
  4,334
  4,597
  4,875
  5,169
  5,479
  5,807
  6,153
  6,519
  6,905
Net income, $m
  5,070
  2,586
  2,790
  3,007
  3,239
  3,486
  3,749
  4,029
  4,328
  4,644
  4,981
  6,053
  6,433
  6,835
  7,262
  7,714
  8,193
  8,701
  9,238
  9,806
  10,408
  11,044
  11,717
  12,428
  13,180
  13,975
  14,814
  15,700
  16,636
  17,625
  18,668

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
  54,936
  57,534
  60,271
  63,153
  66,186
  69,378
  72,736
  76,269
  79,984
  83,890
  87,997
  92,314
  96,851
  101,620
  106,631
  111,897
  117,429
  123,242
  129,349
  135,764
  142,502
  149,581
  157,016
  164,825
  173,026
  181,640
  190,687
  200,188
  210,166
  220,645
Adjusted assets (=assets-cash), $m
  58,186
  54,936
  57,534
  60,271
  63,153
  66,186
  69,378
  72,736
  76,269
  79,984
  83,890
  87,997
  92,314
  96,851
  101,620
  106,631
  111,897
  117,429
  123,242
  129,349
  135,764
  142,502
  149,581
  157,016
  164,825
  173,026
  181,640
  190,687
  200,188
  210,166
  220,645
Revenue / Adjusted assets
  3.412
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
  3.638
Average production assets, $m
  5,628
  4,397
  4,605
  4,824
  5,054
  5,297
  5,553
  5,822
  6,104
  6,402
  6,714
  7,043
  7,388
  7,752
  8,133
  8,534
  8,956
  9,399
  9,864
  10,353
  10,866
  11,405
  11,972
  12,567
  13,192
  13,848
  14,538
  15,262
  16,022
  16,821
  17,660
Working capital, $m
  1,336
  999
  1,047
  1,096
  1,149
  1,204
  1,262
  1,323
  1,387
  1,455
  1,526
  1,601
  1,679
  1,762
  1,848
  1,940
  2,035
  2,136
  2,242
  2,353
  2,470
  2,592
  2,721
  2,856
  2,998
  3,147
  3,304
  3,469
  3,641
  3,823
  4,014
Total debt, $m
  8,545
  8,632
  10,908
  13,305
  15,830
  18,487
  21,283
  24,225
  27,319
  30,574
  33,996
  37,593
  41,375
  45,350
  49,527
  53,917
  58,530
  63,376
  68,468
  73,817
  79,437
  85,340
  91,541
  98,054
  104,894
  112,079
  119,625
  127,550
  135,873
  144,614
  153,793
Total liabilities, $m
  49,874
  48,124
  50,400
  52,797
  55,322
  57,979
  60,775
  63,717
  66,811
  70,066
  73,488
  77,085
  80,867
  84,842
  89,019
  93,409
  98,022
  102,868
  107,960
  113,309
  118,929
  124,832
  131,033
  137,546
  144,386
  151,571
  159,117
  167,042
  175,365
  184,106
  193,285
Total equity, $m
  11,095
  6,812
  7,134
  7,474
  7,831
  8,207
  8,603
  9,019
  9,457
  9,918
  10,402
  10,912
  11,447
  12,010
  12,601
  13,222
  13,875
  14,561
  15,282
  16,039
  16,835
  17,670
  18,548
  19,470
  20,438
  21,455
  22,523
  23,645
  24,823
  26,061
  27,360
Total liabilities and equity, $m
  60,969
  54,936
  57,534
  60,271
  63,153
  66,186
  69,378
  72,736
  76,268
  79,984
  83,890
  87,997
  92,314
  96,852
  101,620
  106,631
  111,897
  117,429
  123,242
  129,348
  135,764
  142,502
  149,581
  157,016
  164,824
  173,026
  181,640
  190,687
  200,188
  210,167
  220,645
Debt-to-equity ratio
  0.770
  1.270
  1.530
  1.780
  2.020
  2.250
  2.470
  2.690
  2.890
  3.080
  3.270
  3.450
  3.610
  3.780
  3.930
  4.080
  4.220
  4.350
  4.480
  4.600
  4.720
  4.830
  4.940
  5.040
  5.130
  5.220
  5.310
  5.390
  5.470
  5.550
  5.620
Adjusted equity ratio
  0.146
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,070
  2,586
  2,790
  3,007
  3,239
  3,486
  3,749
  4,029
  4,328
  4,644
  4,981
  6,053
  6,433
  6,835
  7,262
  7,714
  8,193
  8,701
  9,238
  9,806
  10,408
  11,044
  11,717
  12,428
  13,180
  13,975
  14,814
  15,700
  16,636
  17,625
  18,668
Depreciation, amort., depletion, $m
  910
  1,255
  1,268
  1,282
  1,296
  1,312
  1,328
  1,345
  1,363
  1,381
  1,401
  443
  465
  488
  512
  537
  563
  591
  620
  651
  683
  717
  753
  790
  830
  871
  914
  960
  1,008
  1,058
  1,111
Funds from operations, $m
  6,066
  3,841
  4,058
  4,289
  4,535
  4,798
  5,077
  5,374
  5,690
  6,026
  6,382
  6,496
  6,897
  7,323
  7,773
  8,251
  8,756
  9,292
  9,858
  10,457
  11,091
  11,762
  12,470
  13,219
  14,010
  14,845
  15,728
  16,660
  17,644
  18,683
  19,779
Change in working capital, $m
  1,322
  45
  47
  50
  52
  55
  58
  61
  64
  68
  71
  75
  79
  83
  87
  91
  96
  101
  106
  111
  117
  123
  129
  135
  142
  149
  157
  165
  173
  181
  191
Cash from operations, $m
  4,744
  2,564
  4,011
  4,239
  4,483
  4,742
  5,019
  5,313
  5,626
  5,958
  6,311
  6,421
  6,819
  7,240
  7,687
  8,160
  8,661
  9,191
  9,752
  10,346
  10,975
  11,639
  12,341
  13,083
  13,868
  14,696
  15,571
  16,495
  17,471
  18,501
  19,588
Maintenance CAPEX, $m
  0
  -268
  -277
  -290
  -303
  -318
  -333
  -349
  -366
  -384
  -403
  -422
  -443
  -465
  -488
  -512
  -537
  -563
  -591
  -620
  -651
  -683
  -717
  -753
  -790
  -830
  -871
  -914
  -960
  -1,008
  -1,058
New CAPEX, $m
  -562
  -143
  -208
  -219
  -231
  -243
  -255
  -269
  -283
  -297
  -313
  -329
  -346
  -363
  -382
  -401
  -421
  -443
  -465
  -489
  -513
  -539
  -567
  -595
  -625
  -656
  -689
  -724
  -760
  -799
  -839
Cash from investing activities, $m
  -3,796
  -411
  -485
  -509
  -534
  -561
  -588
  -618
  -649
  -681
  -716
  -751
  -789
  -828
  -870
  -913
  -958
  -1,006
  -1,056
  -1,109
  -1,164
  -1,222
  -1,284
  -1,348
  -1,415
  -1,486
  -1,560
  -1,638
  -1,720
  -1,807
  -1,897
Free cash flow, $m
  948
  2,153
  3,526
  3,731
  3,949
  4,182
  4,430
  4,695
  4,977
  5,277
  5,596
  5,670
  6,030
  6,412
  6,817
  7,247
  7,702
  8,185
  8,696
  9,237
  9,810
  10,416
  11,057
  11,735
  12,452
  13,210
  14,011
  14,857
  15,751
  16,695
  17,692
Issuance/(repayment) of debt, $m
  393
  2,135
  2,276
  2,398
  2,524
  2,657
  2,796
  2,942
  3,094
  3,254
  3,422
  3,598
  3,782
  3,975
  4,177
  4,390
  4,613
  4,847
  5,092
  5,349
  5,620
  5,903
  6,201
  6,513
  6,841
  7,185
  7,546
  7,925
  8,323
  8,741
  9,179
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
  2,135
  2,276
  2,398
  2,524
  2,657
  2,796
  2,942
  3,094
  3,254
  3,422
  3,598
  3,782
  3,975
  4,177
  4,390
  4,613
  4,847
  5,092
  5,349
  5,620
  5,903
  6,201
  6,513
  6,841
  7,185
  7,546
  7,925
  8,323
  8,741
  9,179
Total cash flow (excl. dividends), $m
  -1,012
  4,287
  5,803
  6,128
  6,473
  6,839
  7,227
  7,637
  8,071
  8,531
  9,018
  9,268
  9,812
  10,387
  10,995
  11,637
  12,315
  13,032
  13,788
  14,587
  15,430
  16,319
  17,258
  18,248
  19,293
  20,395
  21,557
  22,782
  24,074
  25,436
  26,871
Retained Cash Flow (-), $m
  -2,171
  -326
  -322
  -339
  -357
  -376
  -396
  -416
  -438
  -461
  -484
  -509
  -535
  -563
  -591
  -621
  -653
  -686
  -721
  -757
  -795
  -836
  -878
  -922
  -968
  -1,017
  -1,068
  -1,122
  -1,178
  -1,237
  -1,299
Prev. year cash balance distribution, $m
 
  2,438
  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
 
  6,399
  5,480
  5,789
  6,116
  6,463
  6,831
  7,220
  7,633
  8,071
  8,533
  8,759
  9,277
  9,824
  10,403
  11,015
  11,662
  12,346
  13,067
  13,829
  14,634
  15,484
  16,380
  17,326
  18,325
  19,378
  20,489
  21,660
  22,896
  24,198
  25,571
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
 
  6,136
  5,017
  5,038
  5,036
  5,010
  4,957
  4,878
  4,771
  4,636
  4,474
  4,159
  3,959
  3,735
  3,493
  3,234
  2,964
  2,686
  2,406
  2,129
  1,860
  1,602
  1,359
  1,136
  933
  754
  598
  465
  354
  264
  193
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 6.9
Price to Sales 0.2
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 7.4
Price to Free Cash Flow 8.4
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 $190884 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 4.7% 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 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 95.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $5902 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 2.2%.

Life of production assets of 15.9 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 0.5%. 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 - $8924 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 $34.8 billion.


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COMPANY NEWS

▶ 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]
▶ [$$] McKesson's Comeback Should Continue   [May-27-17 12:47AM  Barrons.com]
▶ ETFs with exposure to McKesson Corp. : May 26, 2017   [May-26-17 01:16PM  Capital Cube]
▶ McKesson Upgraded at JPMorgan   [May-23-17 10:11AM  TheStreet.com]
▶ Spike In McKesson Prompts Vetr Downgrade To Hold   [May-22-17 05:01PM  Benzinga]
▶ These Stocks Are Changing Direction   [01:00PM  TheStreet.com]
▶ US stocks close broadly higher; oil rises   [May-19-17 05:00PM  Associated Press]
▶ McKesson beats 4Q profit forecasts   [04:36PM  Associated Press]
▶ Eyes Are on McKesson's Guidance   [May-17-17 05:48PM  TheStreet.com]
▶ McKesson Corp. Value Analysis (NYSE:MCK) : May 15, 2017   [May-15-17 05:19PM  Capital Cube]
▶ What's the Next Berkshire Hathaway Acquisition?   [May-02-17 04:40PM  GuruFocus.com]
▶ McKesson: Bears Still Have the Upper Hand   [May-01-17 10:47AM  TheStreet.com]
▶ Arkansas will face challenges replenishing execution supply   [Apr-29-17 03:15AM  Associated Press]
▶ Jerome Dodson Keeps Buying McKesson, Axalta, Pentair   [Apr-25-17 04:47PM  GuruFocus.com]
▶ Drugmaker asked Arkansas not to use drug in executions   [Apr-21-17 03:09PM  Associated Press]
▶ Arkansas carries out first execution since 2005   [01:11AM  Associated Press]
▶ Arkansas suffers 2 setbacks to multiple execution plan   [Apr-19-17 11:13PM  Associated Press]
▶ Judge halts Arkansas plan to execute 8 inmates in 11 days   [Apr-15-17 06:23PM  Associated Press]
▶ Arkansas' multiple execution plan unravels after rulings   [Apr-14-17 09:19PM  Associated Press]
▶ McKesson's $157M Irving campus prescribes health for up to 2,500 workers   [Apr-12-17 05:05PM  American City Business Journals]
▶ Drug epidemic: 1 small-town mayor takes on pill distributors   [Apr-07-17 03:15PM  Associated Press]
▶ [$$] Hammond Kennedy Whitney Sells GMD Distribution to McKesson   [Apr-06-17 06:16PM  The Wall Street Journal]
▶ 3 Stocks for Warren Buffett Fans   [01:27PM  Motley Fool]
▶ McCormick Stock Higher on JPMorgan Upgrade   [Apr-05-17 10:27AM  TheStreet.com]
▶ McKesson Completes Acquisition of CoverMyMeds   [Apr-03-17 04:10PM  Business Wire]
▶ Is The Market Expensive? Buffett Says No   [Mar-20-17 02:55PM  Forbes]
▶ 3 Profitable Healthcare Services Firms at Good Prices   [Mar-10-17 06:00AM  at Morningstar]
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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