Intrinsic value of Marsh&McLennan - MMC

Previous Close

$78.15

  Intrinsic Value

$83.10

stock screener

  Rating & Target

hold

+6%

  Value-price divergence*

-24%

Previous close

$78.15

 
Intrinsic value

$83.10

 
Up/down potential

+6%

 
Rating

hold

 
Value-price divergence*

-24%

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

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

We calculate the intrinsic value of MMC 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 40.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.47
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
Revenue, $m
  13,211
  13,872
  14,565
  15,293
  16,058
  16,861
  17,704
  18,589
  19,519
  20,495
  21,519
  22,595
  23,725
  24,911
  26,157
  27,465
  28,838
  30,280
  31,794
  33,384
  35,053
  36,805
  38,646
  40,578
  42,607
  44,737
  46,974
  49,323
  51,789
  54,378
  57,097
Variable operating expenses, $m
 
  3,190
  3,350
  3,517
  3,693
  3,878
  4,072
  4,276
  4,489
  4,714
  4,949
  5,197
  5,457
  5,730
  6,016
  6,317
  6,633
  6,964
  7,313
  7,678
  8,062
  8,465
  8,888
  9,333
  9,800
  10,290
  10,804
  11,344
  11,911
  12,507
  13,132
Fixed operating expenses, $m
 
  7,895
  8,092
  8,294
  8,502
  8,714
  8,932
  9,155
  9,384
  9,619
  9,859
  10,106
  10,358
  10,617
  10,883
  11,155
  11,434
  11,720
  12,012
  12,313
  12,621
  12,936
  13,260
  13,591
  13,931
  14,279
  14,636
  15,002
  15,377
  15,761
  16,155
Total operating expenses, $m
  10,547
  11,085
  11,442
  11,811
  12,195
  12,592
  13,004
  13,431
  13,873
  14,333
  14,808
  15,303
  15,815
  16,347
  16,899
  17,472
  18,067
  18,684
  19,325
  19,991
  20,683
  21,401
  22,148
  22,924
  23,731
  24,569
  25,440
  26,346
  27,288
  28,268
  29,287
Operating income, $m
  2,664
  2,787
  3,123
  3,482
  3,863
  4,269
  4,700
  5,158
  5,645
  6,162
  6,711
  7,293
  7,910
  8,564
  9,258
  9,993
  10,772
  11,596
  12,469
  13,393
  14,370
  15,404
  16,498
  17,654
  18,876
  20,169
  21,534
  22,977
  24,500
  26,110
  27,809
EBITDA, $m
  3,102
  3,247
  3,607
  3,990
  4,397
  4,829
  5,288
  5,776
  6,294
  6,843
  7,425
  8,043
  8,698
  9,392
  10,127
  10,905
  11,729
  12,602
  13,525
  14,501
  15,534
  16,627
  17,781
  19,002
  20,292
  21,654
  23,094
  24,615
  26,221
  27,916
  29,706
Interest expense (income), $m
  178
  175
  198
  222
  247
  273
  301
  330
  361
  393
  426
  462
  499
  538
  579
  622
  667
  714
  764
  816
  871
  929
  989
  1,053
  1,119
  1,189
  1,263
  1,340
  1,421
  1,506
  1,595
Earnings before tax, $m
  2,480
  2,611
  2,925
  3,260
  3,616
  3,995
  4,399
  4,828
  5,284
  5,769
  6,284
  6,831
  7,411
  8,027
  8,679
  9,371
  10,105
  10,882
  11,705
  12,576
  13,499
  14,475
  15,509
  16,601
  17,757
  18,979
  20,271
  21,637
  23,080
  24,604
  26,214
Tax expense, $m
  685
  705
  790
  880
  976
  1,079
  1,188
  1,304
  1,427
  1,558
  1,697
  1,844
  2,001
  2,167
  2,343
  2,530
  2,728
  2,938
  3,160
  3,396
  3,645
  3,908
  4,187
  4,482
  4,794
  5,124
  5,473
  5,842
  6,231
  6,643
  7,078
Net income, $m
  1,768
  1,906
  2,135
  2,380
  2,640
  2,917
  3,211
  3,525
  3,858
  4,212
  4,587
  4,987
  5,410
  5,859
  6,336
  6,841
  7,376
  7,944
  8,545
  9,181
  9,854
  10,567
  11,321
  12,119
  12,963
  13,855
  14,798
  15,795
  16,848
  17,961
  19,136

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,026
  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
  18,190
  18,015
  18,916
  19,862
  20,855
  21,897
  22,992
  24,142
  25,349
  26,616
  27,947
  29,345
  30,812
  32,352
  33,970
  35,668
  37,452
  39,324
  41,291
  43,355
  45,523
  47,799
  50,189
  52,699
  55,334
  58,100
  61,005
  64,055
  67,258
  70,621
  74,152
Adjusted assets (=assets-cash), $m
  17,164
  18,015
  18,916
  19,862
  20,855
  21,897
  22,992
  24,142
  25,349
  26,616
  27,947
  29,345
  30,812
  32,352
  33,970
  35,668
  37,452
  39,324
  41,291
  43,355
  45,523
  47,799
  50,189
  52,699
  55,334
  58,100
  61,005
  64,055
  67,258
  70,621
  74,152
Revenue / Adjusted assets
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
Average production assets, $m
  9,959
  10,459
  10,982
  11,531
  12,108
  12,713
  13,349
  14,016
  14,717
  15,453
  16,226
  17,037
  17,889
  18,783
  19,722
  20,708
  21,744
  22,831
  23,973
  25,171
  26,430
  27,751
  29,139
  30,596
  32,126
  33,732
  35,418
  37,189
  39,049
  41,001
  43,051
Working capital, $m
  802
  97
  102
  107
  112
  118
  124
  130
  137
  143
  151
  158
  166
  174
  183
  192
  202
  212
  223
  234
  245
  258
  271
  284
  298
  313
  329
  345
  363
  381
  400
Total debt, $m
  4,807
  5,077
  5,691
  6,335
  7,011
  7,721
  8,467
  9,250
  10,072
  10,935
  11,841
  12,793
  13,792
  14,841
  15,943
  17,099
  18,314
  19,589
  20,928
  22,334
  23,810
  25,360
  26,988
  28,697
  30,491
  32,375
  34,354
  36,431
  38,612
  40,902
  43,307
Total liabilities, $m
  11,998
  12,268
  12,882
  13,526
  14,202
  14,912
  15,658
  16,441
  17,263
  18,126
  19,032
  19,984
  20,983
  22,032
  23,134
  24,290
  25,505
  26,780
  28,119
  29,525
  31,001
  32,551
  34,179
  35,888
  37,682
  39,566
  41,545
  43,622
  45,803
  48,093
  50,498
Total equity, $m
  6,192
  5,747
  6,034
  6,336
  6,653
  6,985
  7,335
  7,701
  8,086
  8,491
  8,915
  9,361
  9,829
  10,320
  10,836
  11,378
  11,947
  12,545
  13,172
  13,830
  14,522
  15,248
  16,010
  16,811
  17,651
  18,534
  19,461
  20,434
  21,455
  22,528
  23,655
Total liabilities and equity, $m
  18,190
  18,015
  18,916
  19,862
  20,855
  21,897
  22,993
  24,142
  25,349
  26,617
  27,947
  29,345
  30,812
  32,352
  33,970
  35,668
  37,452
  39,325
  41,291
  43,355
  45,523
  47,799
  50,189
  52,699
  55,333
  58,100
  61,006
  64,056
  67,258
  70,621
  74,153
Debt-to-equity ratio
  0.776
  0.880
  0.940
  1.000
  1.050
  1.110
  1.150
  1.200
  1.250
  1.290
  1.330
  1.370
  1.400
  1.440
  1.470
  1.500
  1.530
  1.560
  1.590
  1.610
  1.640
  1.660
  1.690
  1.710
  1.730
  1.750
  1.770
  1.780
  1.800
  1.820
  1.830
Adjusted equity ratio
  0.301
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319
  0.319

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,768
  1,906
  2,135
  2,380
  2,640
  2,917
  3,211
  3,525
  3,858
  4,212
  4,587
  4,987
  5,410
  5,859
  6,336
  6,841
  7,376
  7,944
  8,545
  9,181
  9,854
  10,567
  11,321
  12,119
  12,963
  13,855
  14,798
  15,795
  16,848
  17,961
  19,136
Depreciation, amort., depletion, $m
  438
  461
  484
  508
  533
  560
  588
  617
  648
  681
  715
  751
  788
  827
  869
  912
  958
  1,006
  1,056
  1,109
  1,164
  1,223
  1,284
  1,348
  1,415
  1,486
  1,560
  1,638
  1,720
  1,806
  1,897
Funds from operations, $m
  1,538
  2,367
  2,619
  2,888
  3,173
  3,477
  3,799
  4,142
  4,506
  4,892
  5,302
  5,737
  6,198
  6,687
  7,205
  7,753
  8,334
  8,949
  9,601
  10,290
  11,019
  11,790
  12,605
  13,467
  14,378
  15,341
  16,358
  17,433
  18,568
  19,767
  21,033
Change in working capital, $m
  -469
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
Cash from operations, $m
  2,007
  2,362
  2,614
  2,883
  3,168
  3,471
  3,793
  4,136
  4,500
  4,886
  5,295
  5,730
  6,190
  6,679
  7,196
  7,744
  8,325
  8,939
  9,590
  10,278
  11,007
  11,777
  12,592
  13,453
  14,364
  15,326
  16,343
  17,417
  18,551
  19,749
  21,014
Maintenance CAPEX, $m
  0
  -439
  -461
  -484
  -508
  -533
  -560
  -588
  -617
  -648
  -681
  -715
  -751
  -788
  -827
  -869
  -912
  -958
  -1,006
  -1,056
  -1,109
  -1,164
  -1,223
  -1,284
  -1,348
  -1,415
  -1,486
  -1,560
  -1,638
  -1,720
  -1,806
New CAPEX, $m
  -253
  -500
  -523
  -549
  -577
  -605
  -636
  -667
  -701
  -736
  -773
  -811
  -852
  -894
  -939
  -986
  -1,035
  -1,087
  -1,142
  -1,199
  -1,259
  -1,321
  -1,388
  -1,457
  -1,530
  -1,606
  -1,687
  -1,771
  -1,859
  -1,952
  -2,050
Cash from investing activities, $m
  -1,056
  -939
  -984
  -1,033
  -1,085
  -1,138
  -1,196
  -1,255
  -1,318
  -1,384
  -1,454
  -1,526
  -1,603
  -1,682
  -1,766
  -1,855
  -1,947
  -2,045
  -2,148
  -2,255
  -2,368
  -2,485
  -2,611
  -2,741
  -2,878
  -3,021
  -3,173
  -3,331
  -3,497
  -3,672
  -3,856
Free cash flow, $m
  951
  1,423
  1,631
  1,850
  2,083
  2,332
  2,598
  2,880
  3,181
  3,501
  3,842
  4,203
  4,588
  4,996
  5,429
  5,889
  6,377
  6,894
  7,443
  8,024
  8,639
  9,291
  9,982
  10,713
  11,486
  12,305
  13,170
  14,085
  15,053
  16,076
  17,158
Issuance/(repayment) of debt, $m
  385
  582
  613
  644
  676
  710
  746
  783
  822
  863
  906
  952
  999
  1,049
  1,102
  1,157
  1,215
  1,275
  1,339
  1,406
  1,476
  1,550
  1,628
  1,709
  1,794
  1,884
  1,978
  2,077
  2,181
  2,290
  2,405
Issuance/(repurchase) of shares, $m
  -651
  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  
  -385
  582
  613
  644
  676
  710
  746
  783
  822
  863
  906
  952
  999
  1,049
  1,102
  1,157
  1,215
  1,275
  1,339
  1,406
  1,476
  1,550
  1,628
  1,709
  1,794
  1,884
  1,978
  2,077
  2,181
  2,290
  2,405
Total cash flow (excl. dividends), $m
  334
  2,006
  2,244
  2,494
  2,760
  3,042
  3,343
  3,663
  4,003
  4,364
  4,748
  5,155
  5,587
  6,045
  6,531
  7,046
  7,592
  8,170
  8,782
  9,430
  10,116
  10,842
  11,609
  12,422
  13,281
  14,189
  15,148
  16,163
  17,234
  18,366
  19,562
Retained Cash Flow (-), $m
  321
  -269
  -287
  -302
  -317
  -333
  -349
  -367
  -385
  -404
  -425
  -446
  -468
  -491
  -516
  -542
  -569
  -597
  -627
  -659
  -692
  -726
  -762
  -801
  -841
  -883
  -927
  -973
  -1,022
  -1,073
  -1,126
Prev. year cash balance distribution, $m
 
  714
  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
 
  2,451
  1,957
  2,192
  2,443
  2,710
  2,994
  3,297
  3,618
  3,960
  4,323
  4,709
  5,119
  5,554
  6,015
  6,504
  7,023
  7,572
  8,154
  8,771
  9,424
  10,115
  10,847
  11,621
  12,440
  13,306
  14,222
  15,190
  16,213
  17,294
  18,436
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
 
  2,345
  1,784
  1,896
  1,994
  2,076
  2,142
  2,188
  2,214
  2,219
  2,202
  2,163
  2,103
  2,022
  1,923
  1,808
  1,679
  1,540
  1,393
  1,243
  1,093
  947
  807
  676
  556
  449
  356
  276
  210
  156
  113
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

Marsh & McLennan Companies, Inc., a professional services firm, provides advice and solutions in the areas of risk, strategy, and people worldwide. It operates through two segments, Risk and Insurance Services; and Consulting. The Risk and Insurance Services segment offers risk management services, such as risk advice, risk transfer, risk control, and mitigation solutions, as well as insurance, reinsurance broking, catastrophe and financial modeling services, and related advisory services. This segment serves businesses, public entities, insurance companies, associations, professional services organizations, and private clients. The Consulting segment provides health, retirement, talent, and investments consulting services and products; and specialized management, and economic and brand consulting services. This segment assists public and private sector employers in the design, management, and administration of employee health care programs; provides a range of strategic and compliance-related retirement services and solutions to corporate, governmental, and institutional clients; advises organizations on the engagement, management, and rewarding of employees; and offers investment consulting and other services to the sponsors of pension funds, foundations, endowments, other investors, and wealth management companies. Marsh & McLennan Companies, Inc. was founded in 1871 and is headquartered in New York, New York.

FINANCIAL RATIOS  of  Marsh&McLennan (MMC)

Valuation Ratios
P/E Ratio 22.7
Price to Sales 3
Price to Book 6.5
Price to Tangible Book
Price to Cash Flow 20
Price to Free Cash Flow 22.9
Growth Rates
Sales Growth Rate 2.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -22.2%
Cap. Spend. - 3 Yr. Gr. Rate -8.8%
Financial Strength
Quick Ratio 3
Current Ratio 0.1
LT Debt to Equity 72.6%
Total Debt to Equity 77.6%
Interest Coverage 15
Management Effectiveness
Return On Assets 10.4%
Ret/ On Assets - 3 Yr. Avg. 9.7%
Return On Total Capital 16.1%
Ret/ On T. Cap. - 3 Yr. Avg. 15%
Return On Equity 27.8%
Return On Equity - 3 Yr. Avg. 23.7%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 43.5%
Gross Margin - 3 Yr. Avg. 42.9%
EBITDA Margin 23.4%
EBITDA Margin - 3 Yr. Avg. 22%
Operating Margin 20.2%
Oper. Margin - 3 Yr. Avg. 18.5%
Pre-Tax Margin 18.8%
Pre-Tax Margin - 3 Yr. Avg. 17.5%
Net Profit Margin 13.4%
Net Profit Margin - 3 Yr. Avg. 12.4%
Effective Tax Rate 27.6%
Eff/ Tax Rate - 3 Yr. Avg. 28.4%
Payout Ratio 38.6%

MMC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MMC stock intrinsic value calculation we used $13211 million for the last fiscal year's total revenue generated by Marsh&McLennan. The default revenue input number comes from 2016 income statement of Marsh&McLennan. 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 MMC stock valuation model: a) initial revenue growth rate of 5% 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 MMC is calculated based on our internal credit rating of Marsh&McLennan, 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 Marsh&McLennan.
    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 MMC stock the variable cost ratio is equal to 23%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $7702 million in the base year in the intrinsic value calculation for MMC 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 3.9% for Marsh&McLennan.

Corporate tax rate of 27% is the nominal tax rate for Marsh&McLennan. 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 MMC 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 MMC are equal to 75.4%.

Life of production assets of 22.7 years is the average useful life of capital assets used in Marsh&McLennan 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 MMC is equal to 0.7%. 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 - $6192 million for Marsh&McLennan - 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 515.07 million for Marsh&McLennan 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 Marsh&McLennan at the current share price and the inputted number of shares is $40.3 billion.

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COMPANY NEWS

▶ Why retiring in America has become less attractive   [Aug-06-17 07:55AM  MarketWatch]
▶ Marsh & McLennan meets 2Q profit forecasts   [Jul-27-17 11:46PM  Associated Press]
▶ Rohit Mehrotra Named CEO of Mercer Digital   [Jul-19-17 09:00AM  Business Wire]
▶ Energy Economist Joins NERA Economic Consulting   [Jul-13-17 10:00AM  Business Wire]
▶ Mercer Hosts Job Fairs in Greater Des Moines Area   [Jul-12-17 10:14AM  Business Wire]
▶ Mercer Launches Mercer Digital   [Jul-10-17 10:06AM  Business Wire]
▶ [$$] AIG CEO Taps Peter Zaffino as Key Lieutenant   [Jul-05-17 06:08PM  The Wall Street Journal]
▶ Marsh CEO pays $7.5M for a Nantucket estate called 'Road's End'   [Jun-10-17 08:15AM  American City Business Journals]
▶ What Do Millennials Want from Health Reform? More   [Jun-08-17 02:15PM  Business Wire]
▶ Stocks Hold Record Highs; Amazon.com Nears Major Milestone   [May-25-17 03:00PM  Investor's Business Daily]
▶ Marsh & McLennan Companies Holds 2017 Stockholder Meeting   [May-18-17 12:05PM  Business Wire]
▶ New Study Identifies Winners in Growing InsurTech Space   [May-17-17 05:00AM  Business Wire]
▶ Virgin Pulse Launches Financial Wellbeing Solution   [May-10-17 10:30AM  Marketwired]
▶ Cramer: These Sectors Look Bullish (Part II)   [07:00AM  TheStreet.com]
▶ Marsh & McLennan beats Street 1Q forecasts   [Apr-27-17 07:12AM  Associated Press]
▶ [$$] AIG Considers Greenberg Acolyte as Next CEO   [Apr-22-17 12:08AM  The Wall Street Journal]
▶ [$$] Market Talk: Daily Analysis Roundup   [Apr-21-17 04:48PM  The Wall Street Journal]
▶ [$$] AIG Considers Greenberg Acolyte as Next CEO   [04:04PM  The Wall Street Journal]
▶ Marsh & McLennan Agency Acquires RJF Financial Services   [Apr-05-17 09:00AM  Business Wire]
▶ Top Ranked Growth Stocks to Buy for April 4th   [Apr-04-17 10:42AM  Zacks]
▶ Marsh & McLennan Trades Ex-Dividend Wednesday   [Apr-02-17 10:48AM  Investopedia]
▶ Marsh & McLennan Companies Declares Quarterly Dividend   [Mar-15-17 12:00PM  Business Wire]
▶ Vienna Tops Mercers 19th Quality of Living Ranking   [Mar-14-17 09:22AM  Business Wire]
▶ BusinessWomen First Winner: Sherri Grasak   [Mar-07-17 11:37AM  at bizjournals.com]
Stock chart of MMC Financial statements of MMC
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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