Intrinsic value of Manulife Financial - MFC

Previous Close

$19.47

  Intrinsic Value

$37.22

stock screener

  Rating & Target

str. buy

+91%

  Value-price divergence*

+5000%

Previous close

$19.47

 
Intrinsic value

$37.22

 
Up/down potential

+91%

 
Rating

str. buy

 
Value-price divergence*

+5000%

Our model is not good at valuating stocks of financial companies, such as MFC.

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

We calculate the intrinsic value of MFC 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 37.5

 

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, %
  54.92
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  0
  40,267
  41,193
  42,251
  43,440
  44,757
  46,202
  47,775
  49,479
  51,313
  53,283
  55,390
  57,638
  60,031
  62,575
  65,274
  68,135
  71,163
  74,365
  77,748
  81,320
  85,090
  89,065
  93,255
  97,670
  102,320
  107,215
  112,368
  117,791
  123,495
  129,496
Variable operating expenses, $m
 
  35,909
  36,725
  37,658
  38,705
  39,865
  41,138
  42,524
  44,025
  45,641
  47,376
  48,796
  50,777
  52,885
  55,126
  57,504
  60,025
  62,692
  65,513
  68,494
  71,641
  74,961
  78,464
  82,155
  86,044
  90,140
  94,453
  98,993
  103,770
  108,795
  114,082
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
  36,264
  35,909
  36,725
  37,658
  38,705
  39,865
  41,138
  42,524
  44,025
  45,641
  47,376
  48,796
  50,777
  52,885
  55,126
  57,504
  60,025
  62,692
  65,513
  68,494
  71,641
  74,961
  78,464
  82,155
  86,044
  90,140
  94,453
  98,993
  103,770
  108,795
  114,082
Operating income, $m
  3,214
  4,357
  4,468
  4,594
  4,735
  4,892
  5,064
  5,251
  5,454
  5,672
  5,907
  6,593
  6,861
  7,146
  7,448
  7,770
  8,110
  8,471
  8,852
  9,254
  9,680
  10,128
  10,602
  11,100
  11,626
  12,179
  12,762
  13,375
  14,021
  14,700
  15,414
EBITDA, $m
  3,727
  5,004
  5,119
  5,251
  5,399
  5,562
  5,742
  5,938
  6,149
  6,377
  6,622
  6,884
  7,163
  7,461
  7,777
  8,112
  8,468
  8,844
  9,242
  9,663
  10,107
  10,575
  11,069
  11,590
  12,138
  12,716
  13,325
  13,965
  14,639
  15,348
  16,094
Interest expense (income), $m
  728
  839
  -265
  727
  1,860
  3,132
  4,541
  6,088
  7,772
  9,595
  11,559
  13,666
  15,921
  18,327
  20,889
  23,611
  26,500
  29,562
  32,803
  36,230
  39,851
  43,674
  47,708
  51,963
  56,448
  61,173
  66,149
  71,389
  76,904
  82,707
  88,813
Earnings before tax, $m
  2,464
  3,519
  4,732
  3,867
  2,876
  1,760
  523
  -836
  -2,318
  -3,922
  -5,652
  -7,073
  -9,060
  -11,181
  -13,440
  -15,842
  -18,390
  -21,091
  -23,951
  -26,975
  -30,171
  -33,546
  -37,107
  -40,863
  -44,822
  -48,993
  -53,387
  -58,013
  -62,883
  -68,007
  -73,399
Tax expense, $m
  145
  950
  1,278
  1,044
  776
  475
  141
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  2,213
  2,569
  3,455
  2,823
  2,099
  1,285
  382
  -836
  -2,318
  -3,922
  -5,652
  -7,073
  -9,060
  -11,181
  -13,440
  -15,842
  -18,390
  -21,091
  -23,951
  -26,975
  -30,171
  -33,546
  -37,107
  -40,863
  -44,822
  -48,993
  -53,387
  -58,013
  -62,883
  -68,007
  -73,399

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  533,411
  544,142
  556,658
  570,964
  587,025
  604,822
  624,349
  645,612
  668,629
  693,426
  720,037
  748,507
  778,886
  811,231
  845,606
  882,083
  920,739
  961,658
  1,004,929
  1,050,651
  1,098,925
  1,149,863
  1,203,582
  1,260,205
  1,319,865
  1,382,700
  1,448,857
  1,518,491
  1,591,767
  1,668,856
  1,749,941
Adjusted assets (=assets-cash), $m
  533,411
  544,142
  556,658
  570,964
  587,025
  604,822
  624,349
  645,612
  668,629
  693,426
  720,037
  748,507
  778,886
  811,231
  845,606
  882,083
  920,739
  961,658
  1,004,929
  1,050,651
  1,098,925
  1,149,863
  1,203,582
  1,260,205
  1,319,865
  1,382,700
  1,448,857
  1,518,491
  1,591,767
  1,668,856
  1,749,941
Revenue / Adjusted assets
  0.000
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
  0.074
Average production assets, $m
  2,932
  2,980
  3,048
  3,127
  3,215
  3,312
  3,419
  3,535
  3,661
  3,797
  3,943
  4,099
  4,265
  4,442
  4,631
  4,830
  5,042
  5,266
  5,503
  5,753
  6,018
  6,297
  6,591
  6,901
  7,228
  7,572
  7,934
  8,315
  8,717
  9,139
  9,583
Working capital, $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
  0
Total debt, $m
  9,530
  -3,008
  8,256
  21,131
  35,587
  51,604
  69,178
  88,315
  109,030
  131,347
  155,298
  180,921
  208,262
  237,372
  268,310
  301,139
  335,929
  372,756
  411,700
  452,850
  496,297
  542,141
  590,488
  641,449
  695,143
  751,694
  811,235
  873,906
  939,854
  1,009,235
  1,082,211
Total liabilities, $m
  502,266
  489,728
  500,992
  513,867
  528,323
  544,340
  561,914
  581,051
  601,766
  624,083
  648,034
  673,657
  700,998
  730,108
  761,046
  793,875
  828,665
  865,492
  904,436
  945,586
  989,033
  1,034,877
  1,083,224
  1,134,185
  1,187,879
  1,244,430
  1,303,971
  1,366,642
  1,432,590
  1,501,971
  1,574,947
Total equity, $m
  31,145
  54,414
  55,666
  57,096
  58,703
  60,482
  62,435
  64,561
  66,863
  69,343
  72,004
  74,851
  77,889
  81,123
  84,561
  88,208
  92,074
  96,166
  100,493
  105,065
  109,893
  114,986
  120,358
  126,021
  131,987
  138,270
  144,886
  151,849
  159,177
  166,886
  174,994
Total liabilities and equity, $m
  533,411
  544,142
  556,658
  570,963
  587,026
  604,822
  624,349
  645,612
  668,629
  693,426
  720,038
  748,508
  778,887
  811,231
  845,607
  882,083
  920,739
  961,658
  1,004,929
  1,050,651
  1,098,926
  1,149,863
  1,203,582
  1,260,206
  1,319,866
  1,382,700
  1,448,857
  1,518,491
  1,591,767
  1,668,857
  1,749,941
Debt-to-equity ratio
  0.306
  -0.060
  0.150
  0.370
  0.610
  0.850
  1.110
  1.370
  1.630
  1.890
  2.160
  2.420
  2.670
  2.930
  3.170
  3.410
  3.650
  3.880
  4.100
  4.310
  4.520
  4.710
  4.910
  5.090
  5.270
  5.440
  5.600
  5.760
  5.900
  6.050
  6.180
Adjusted equity ratio
  0.058
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,213
  2,569
  3,455
  2,823
  2,099
  1,285
  382
  -836
  -2,318
  -3,922
  -5,652
  -7,073
  -9,060
  -11,181
  -13,440
  -15,842
  -18,390
  -21,091
  -23,951
  -26,975
  -30,171
  -33,546
  -37,107
  -40,863
  -44,822
  -48,993
  -53,387
  -58,013
  -62,883
  -68,007
  -73,399
Depreciation, amort., depletion, $m
  513
  647
  652
  657
  663
  670
  678
  686
  695
  705
  715
  291
  302
  315
  328
  343
  358
  373
  390
  408
  427
  447
  467
  489
  513
  537
  563
  590
  618
  648
  680
Funds from operations, $m
  11,231
  3,216
  4,106
  3,480
  2,763
  1,955
  1,060
  -150
  -1,623
  -3,217
  -4,937
  -6,782
  -8,758
  -10,866
  -13,112
  -15,499
  -18,032
  -20,718
  -23,560
  -26,567
  -29,744
  -33,099
  -36,639
  -40,373
  -44,309
  -48,456
  -52,824
  -57,424
  -62,265
  -67,359
  -72,719
Change in working capital, $m
  -1,378
  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 operations, $m
  12,609
  3,216
  4,106
  3,480
  2,763
  1,955
  1,060
  -150
  -1,623
  -3,217
  -4,937
  -6,782
  -8,758
  -10,866
  -13,112
  -15,499
  -18,032
  -20,718
  -23,560
  -26,567
  -29,744
  -33,099
  -36,639
  -40,373
  -44,309
  -48,456
  -52,824
  -57,424
  -62,265
  -67,359
  -72,719
Maintenance CAPEX, $m
  0
  -208
  -211
  -216
  -222
  -228
  -235
  -242
  -251
  -260
  -269
  -280
  -291
  -302
  -315
  -328
  -343
  -358
  -373
  -390
  -408
  -427
  -447
  -467
  -489
  -513
  -537
  -563
  -590
  -618
  -648
New CAPEX, $m
  0
  -48
  -69
  -78
  -88
  -97
  -107
  -116
  -126
  -136
  -146
  -156
  -166
  -177
  -188
  -200
  -212
  -224
  -237
  -250
  -264
  -279
  -294
  -310
  -327
  -344
  -362
  -381
  -401
  -422
  -444
Cash from investing activities, $m
  -16,830
  -256
  -280
  -294
  -310
  -325
  -342
  -358
  -377
  -396
  -415
  -436
  -457
  -479
  -503
  -528
  -555
  -582
  -610
  -640
  -672
  -706
  -741
  -777
  -816
  -857
  -899
  -944
  -991
  -1,040
  -1,092
Free cash flow, $m
  -4,221
  2,960
  3,826
  3,186
  2,453
  1,630
  718
  -509
  -1,999
  -3,613
  -5,352
  -7,218
  -9,215
  -11,346
  -13,615
  -16,027
  -18,587
  -21,299
  -24,171
  -27,208
  -30,417
  -33,805
  -37,380
  -41,151
  -45,125
  -49,313
  -53,724
  -58,368
  -63,256
  -68,400
  -73,811
Issuance/(repayment) of debt, $m
  15
  -12,538
  11,264
  12,875
  14,455
  16,017
  17,574
  19,137
  20,715
  22,317
  23,951
  25,623
  27,341
  29,110
  30,938
  32,829
  34,790
  36,827
  38,944
  41,149
  43,447
  45,844
  48,347
  50,961
  53,694
  56,551
  59,541
  62,671
  65,948
  69,380
  72,976
Issuance/(repurchase) of shares, $m
  703
  20,700
  0
  0
  0
  495
  1,571
  2,963
  4,619
  6,402
  8,313
  9,920
  12,098
  14,416
  16,878
  19,489
  22,256
  25,183
  28,278
  31,547
  34,999
  38,640
  42,479
  46,525
  50,788
  55,277
  60,003
  64,977
  70,210
  75,716
  81,507
Cash from financing (excl. dividends), $m  
  3,611
  8,162
  11,264
  12,875
  14,455
  16,512
  19,145
  22,100
  25,334
  28,719
  32,264
  35,543
  39,439
  43,526
  47,816
  52,318
  57,046
  62,010
  67,222
  72,696
  78,446
  84,484
  90,826
  97,486
  104,482
  111,828
  119,544
  127,648
  136,158
  145,096
  154,483
Total cash flow (excl. dividends), $m
  -867
  11,123
  15,090
  16,061
  16,908
  18,142
  19,863
  21,591
  23,335
  25,106
  26,912
  28,325
  30,224
  32,180
  34,201
  36,291
  38,459
  40,710
  43,051
  45,489
  48,029
  50,679
  53,445
  56,335
  59,356
  62,515
  65,820
  69,280
  72,903
  76,697
  80,672
Retained Cash Flow (-), $m
  -543
  -23,269
  -1,252
  -1,431
  -1,606
  -1,780
  -1,953
  -2,963
  -4,619
  -6,402
  -8,313
  -9,920
  -12,098
  -14,416
  -16,878
  -19,489
  -22,256
  -25,183
  -28,278
  -31,547
  -34,999
  -38,640
  -42,479
  -46,525
  -50,788
  -55,277
  -60,003
  -64,977
  -70,210
  -75,716
  -81,507
Prev. year cash balance distribution, $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 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
 
  -12,147
  13,839
  14,631
  15,302
  16,362
  17,910
  18,628
  18,716
  18,704
  18,599
  18,405
  18,126
  17,764
  17,323
  16,802
  16,203
  15,527
  14,774
  13,942
  13,031
  12,039
  10,967
  9,810
  8,568
  7,238
  5,818
  4,303
  2,692
  981
  -835
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
 
  -11,646
  12,669
  12,733
  12,600
  12,683
  12,998
  12,585
  11,698
  10,745
  9,751
  8,740
  7,735
  6,754
  5,816
  4,933
  4,118
  3,378
  2,721
  2,147
  1,656
  1,245
  910
  643
  436
  282
  170
  92
  42
  11
  -6
Current shareholders' claim on cash, %
  100
  64.4
  64.4
  64.4
  64.4
  64.0
  62.6
  60.3
  56.9
  52.7
  47.9
  43.0
  37.9
  32.9
  28.0
  23.5
  19.5
  15.9
  12.7
  10.1
  7.9
  6.1
  4.7
  3.6
  2.7
  2.0
  1.5
  1.1
  0.8
  0.5
  0.4

Manulife Financial Corporation, together with its subsidiaries, provides financial advice, insurance, and wealth and asset management solutions for individuals, groups, and institutions in Asia, Canada, and the United States. It offers various individual life, and individual and group long-term care insurance through insurance agents, brokers, banks, financial planners, and direct marketing. The company also provides pension contracts and mutual fund products and services; various retirement products to group benefit plans; and annuities, single premium, and banking products, such as deposit and credit products to Canadian customers, as well as non-guaranteed, partially guaranteed, and fully guaranteed investment options through general and separate account products. It distributes wealth and asset management products through insurance agents and brokers affiliated with the company, securities brokerage firms, financial planners, pension plan sponsors, pension plan consultants, and banks. In addition, the company is involved in the asset management business; property and casualty reinsurance business; and run-off reinsurance operations, including variable annuities, and accident and health. Further, it manages timberland and agricultural portfolios; and insurance agency, investment counseling, portfolio and mutual fund management, mutual fund dealer, life and financial reinsurance, and mutual funds marketing businesses, as well as investment management, advisory, and dealer activities. Additionally, the company holds and manages oil and gas properties; holds oil and gas royalties, and foreign bonds and equities; and develops and operates hydro-electric power projects. Manulife Financial Corporation was founded in 1887 and is headquartered in Toronto, Canada.

FINANCIAL RATIOS  of  Manulife Financial (MFC)

Valuation Ratios
P/E Ratio 17.4
Price to Sales 1
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 3
Price to Free Cash Flow 3
Growth Rates
Sales Growth Rate 54.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 30.6%
Total Debt to Equity 30.6%
Interest Coverage 4
Management Effectiveness
Return On Assets 0.5%
Ret/ On Assets - 3 Yr. Avg. 0.6%
Return On Total Capital 5.6%
Ret/ On T. Cap. - 3 Yr. Avg. 6.4%
Return On Equity 7.2%
Return On Equity - 3 Yr. Avg. 8.1%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 9.4%
EBITDA Margin - 3 Yr. Avg. 10.8%
Operating Margin 8.1%
Oper. Margin - 3 Yr. Avg. 9.6%
Pre-Tax Margin 6.2%
Pre-Tax Margin - 3 Yr. Avg. 7.2%
Net Profit Margin 5.6%
Net Profit Margin - 3 Yr. Avg. 6.2%
Effective Tax Rate 5.9%
Eff/ Tax Rate - 3 Yr. Avg. 11.4%
Payout Ratio 53.3%

MFC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MFC stock intrinsic value calculation we used $39477 million for the last fiscal year's total revenue generated by Manulife Financial. The default revenue input number comes from 2016 income statement of Manulife Financial. 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 MFC stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for MFC is calculated based on our internal credit rating of Manulife Financial, 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 Manulife Financial.
    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 MFC stock the variable cost ratio is equal to 89.2%.

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 MFC 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 8.8% for Manulife Financial.

Corporate tax rate of 27% is the nominal tax rate for Manulife Financial. 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 MFC 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 MFC are equal to 7.4%.

Life of production assets of 14.1 years is the average useful life of capital assets used in Manulife Financial 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 MFC is equal to 0%. 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 - $31145 million for Manulife Financial - 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 1927.08 million for Manulife Financial 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 Manulife Financial at the current share price and the inputted number of shares is $37.5 billion.

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COMPANY NEWS

▶ Manulife completes Subordinated Debenture offering   [Aug-18-17 08:09AM  CNW Group]
▶ John Hancock Closed-End Funds Release Earnings Data   [Aug-15-17 05:45PM  PR Newswire]
▶ Cronk Says Gold Is on High-End of Range   [Aug-11-17 09:59AM  Bloomberg Video]
▶ U.S. July Core CPI Shows Inflation Is Subduded   [09:45AM  Bloomberg Video]
▶ Manulife beats 2Q profit forecasts   [Aug-09-17 10:59PM  Associated Press]
▶ What Unchanged CPI Means for the Fed   [10:15AM  Bloomberg Video]
▶ John Hancock Investments lowers fund expenses   [Jul-10-17 11:26AM  PR Newswire]
▶ Manulife's Investor Day 2017   [Jun-20-17 07:00PM  PR Newswire]
▶ U.S. Jobless Claims Point to Labor Market Strength   [Jun-15-17 09:18AM  Bloomberg Video]
▶ Manulife's Investor Day 2017   [08:30AM  CNW Group]
▶ John Hancock Closed-End Funds Release Earnings Data   [May-24-17 04:20PM  PR Newswire]
▶ Greene Says China Is Booming But Has Downside Risks   [May-19-17 09:07AM  Bloomberg Video]
Stock chart of MFC Financial statements of MFC
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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