Intrinsic value of Merck&Co - MRK

Previous Close

$74.09

  Intrinsic Value

$29.45

stock screener

  Rating & Target

str. sell

-60%

Previous close

$74.09

 
Intrinsic value

$29.45

 
Up/down potential

-60%

 
Rating

str. sell

We calculate the intrinsic value of MRK 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  0.78
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.15
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
Revenue, $m
  39,807
  42,289
  44,555
  46,927
  49,411
  52,011
  54,734
  57,587
  60,577
  63,710
  66,994
  70,437
  74,048
  77,834
  81,804
  85,969
  90,339
  94,923
  99,732
  104,779
  110,074
  115,631
  121,464
  127,585
  134,009
  140,752
  147,830
  155,260
  163,059
  171,246
  179,841
Variable operating expenses, $m
 
  36,404
  38,182
  40,041
  41,989
  44,027
  46,163
  48,400
  50,744
  53,200
  55,775
  55,228
  58,059
  61,028
  64,141
  67,407
  70,833
  74,427
  78,198
  82,155
  86,307
  90,664
  95,237
  100,036
  105,074
  110,361
  115,911
  121,736
  127,851
  134,271
  141,009
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
  34,936
  36,404
  38,182
  40,041
  41,989
  44,027
  46,163
  48,400
  50,744
  53,200
  55,775
  55,228
  58,059
  61,028
  64,141
  67,407
  70,833
  74,427
  78,198
  82,155
  86,307
  90,664
  95,237
  100,036
  105,074
  110,361
  115,911
  121,736
  127,851
  134,271
  141,009
Operating income, $m
  4,871
  5,884
  6,374
  6,886
  7,422
  7,984
  8,572
  9,188
  9,833
  10,510
  11,219
  15,209
  15,988
  16,806
  17,663
  18,563
  19,506
  20,496
  21,534
  22,624
  23,767
  24,967
  26,226
  27,548
  28,935
  30,391
  31,920
  33,524
  35,208
  36,976
  38,831
EBITDA, $m
  10,312
  12,210
  12,864
  13,549
  14,266
  15,017
  15,803
  16,627
  17,490
  18,394
  19,343
  20,337
  21,379
  22,472
  23,619
  24,821
  26,083
  27,406
  28,795
  30,252
  31,781
  33,385
  35,069
  36,836
  38,691
  40,638
  42,682
  44,827
  47,079
  49,442
  51,924
Interest expense (income), $m
  686
  1,318
  1,470
  1,633
  1,804
  1,983
  2,170
  2,366
  2,571
  2,786
  3,012
  3,248
  3,496
  3,756
  4,028
  4,314
  4,614
  4,928
  5,258
  5,604
  5,967
  6,348
  6,748
  7,168
  7,608
  8,071
  8,556
  9,065
  9,600
  10,161
  10,750
Earnings before tax, $m
  4,659
  4,566
  4,903
  5,252
  5,618
  6,001
  6,402
  6,822
  7,262
  7,723
  8,207
  11,961
  12,492
  13,050
  13,635
  14,249
  14,892
  15,568
  16,276
  17,020
  17,800
  18,619
  19,478
  20,380
  21,327
  22,321
  23,364
  24,459
  25,608
  26,815
  28,081
Tax expense, $m
  718
  1,233
  1,324
  1,418
  1,517
  1,620
  1,728
  1,842
  1,961
  2,085
  2,216
  3,229
  3,373
  3,524
  3,681
  3,847
  4,021
  4,203
  4,395
  4,595
  4,806
  5,027
  5,259
  5,503
  5,758
  6,027
  6,308
  6,604
  6,914
  7,240
  7,582
Net income, $m
  3,920
  3,333
  3,579
  3,834
  4,101
  4,381
  4,673
  4,980
  5,301
  5,638
  5,991
  8,731
  9,120
  9,527
  9,954
  10,402
  10,871
  11,364
  11,882
  12,425
  12,994
  13,592
  14,219
  14,878
  15,569
  16,294
  17,056
  17,855
  18,694
  19,575
  20,499

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  14,341
  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
  95,377
  92,535
  97,495
  102,686
  108,119
  113,809
  119,768
  126,011
  132,553
  139,409
  146,596
  154,130
  162,030
  170,314
  179,003
  188,117
  197,678
  207,708
  218,232
  229,275
  240,862
  253,023
  265,785
  279,179
  293,236
  307,992
  323,480
  339,737
  356,803
  374,718
  393,525
Adjusted assets (=assets-cash), $m
  81,036
  92,535
  97,495
  102,686
  108,119
  113,809
  119,768
  126,011
  132,553
  139,409
  146,596
  154,130
  162,030
  170,314
  179,003
  188,117
  197,678
  207,708
  218,232
  229,275
  240,862
  253,023
  265,785
  279,179
  293,236
  307,992
  323,480
  339,737
  356,803
  374,718
  393,525
Revenue / Adjusted assets
  0.491
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
Average production assets, $m
  32,220
  30,786
  32,436
  34,163
  35,971
  37,864
  39,846
  41,924
  44,100
  46,381
  48,772
  51,278
  53,907
  56,663
  59,554
  62,586
  65,767
  69,104
  72,605
  76,279
  80,134
  84,180
  88,425
  92,882
  97,559
  102,468
  107,620
  113,029
  118,707
  124,667
  130,924
Working capital, $m
  13,410
  761
  802
  845
  889
  936
  985
  1,037
  1,090
  1,147
  1,206
  1,268
  1,333
  1,401
  1,472
  1,547
  1,626
  1,709
  1,795
  1,886
  1,981
  2,081
  2,186
  2,297
  2,412
  2,534
  2,661
  2,795
  2,935
  3,082
  3,237
Total debt, $m
  24,842
  27,228
  30,249
  33,410
  36,719
  40,184
  43,813
  47,615
  51,599
  55,774
  60,151
  64,739
  69,550
  74,595
  79,887
  85,437
  91,260
  97,368
  103,777
  110,502
  117,559
  124,965
  132,737
  140,894
  149,455
  158,441
  167,873
  177,774
  188,167
  199,077
  210,531
Total liabilities, $m
  55,289
  56,354
  59,375
  62,536
  65,845
  69,310
  72,939
  76,741
  80,725
  84,900
  89,277
  93,865
  98,676
  103,721
  109,013
  114,563
  120,386
  126,494
  132,903
  139,628
  146,685
  154,091
  161,863
  170,020
  178,581
  187,567
  196,999
  206,900
  217,293
  228,203
  239,657
Total equity, $m
  40,088
  36,181
  38,121
  40,150
  42,275
  44,499
  46,829
  49,270
  51,828
  54,509
  57,319
  60,265
  63,354
  66,593
  69,990
  73,554
  77,292
  81,214
  85,329
  89,646
  94,177
  98,932
  103,922
  109,159
  114,655
  120,425
  126,481
  132,837
  139,510
  146,515
  153,868
Total liabilities and equity, $m
  95,377
  92,535
  97,496
  102,686
  108,120
  113,809
  119,768
  126,011
  132,553
  139,409
  146,596
  154,130
  162,030
  170,314
  179,003
  188,117
  197,678
  207,708
  218,232
  229,274
  240,862
  253,023
  265,785
  279,179
  293,236
  307,992
  323,480
  339,737
  356,803
  374,718
  393,525
Debt-to-equity ratio
  0.620
  0.750
  0.790
  0.830
  0.870
  0.900
  0.940
  0.970
  1.000
  1.020
  1.050
  1.070
  1.100
  1.120
  1.140
  1.160
  1.180
  1.200
  1.220
  1.230
  1.250
  1.260
  1.280
  1.290
  1.300
  1.320
  1.330
  1.340
  1.350
  1.360
  1.370
Adjusted equity ratio
  0.318
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391
  0.391

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,920
  3,333
  3,579
  3,834
  4,101
  4,381
  4,673
  4,980
  5,301
  5,638
  5,991
  8,731
  9,120
  9,527
  9,954
  10,402
  10,871
  11,364
  11,882
  12,425
  12,994
  13,592
  14,219
  14,878
  15,569
  16,294
  17,056
  17,855
  18,694
  19,575
  20,499
Depreciation, amort., depletion, $m
  5,441
  6,325
  6,490
  6,663
  6,844
  7,033
  7,231
  7,439
  7,657
  7,885
  8,124
  5,128
  5,391
  5,666
  5,955
  6,259
  6,577
  6,910
  7,260
  7,628
  8,013
  8,418
  8,843
  9,288
  9,756
  10,247
  10,762
  11,303
  11,871
  12,467
  13,092
Funds from operations, $m
  7,775
  9,659
  10,070
  10,497
  10,945
  11,414
  11,905
  12,419
  12,958
  13,523
  14,115
  13,859
  14,510
  15,193
  15,909
  16,660
  17,448
  18,275
  19,142
  20,052
  21,008
  22,010
  23,062
  24,166
  25,325
  26,541
  27,818
  29,158
  30,565
  32,041
  33,592
Change in working capital, $m
  -2,601
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  79
  83
  87
  91
  95
  100
  105
  110
  116
  121
  127
  134
  140
  147
  155
Cash from operations, $m
  10,376
  9,620
  10,029
  10,455
  10,900
  11,367
  11,856
  12,368
  12,904
  13,466
  14,056
  13,797
  14,445
  15,125
  15,838
  16,585
  17,369
  18,192
  19,056
  19,962
  20,912
  21,910
  22,957
  24,056
  25,209
  26,420
  27,690
  29,024
  30,424
  31,894
  33,437
Maintenance CAPEX, $m
  0
  -2,922
  -3,079
  -3,244
  -3,416
  -3,597
  -3,786
  -3,985
  -4,192
  -4,410
  -4,638
  -4,877
  -5,128
  -5,391
  -5,666
  -5,955
  -6,259
  -6,577
  -6,910
  -7,260
  -7,628
  -8,013
  -8,418
  -8,843
  -9,288
  -9,756
  -10,247
  -10,762
  -11,303
  -11,871
  -12,467
New CAPEX, $m
  -1,614
  -1,570
  -1,650
  -1,727
  -1,808
  -1,893
  -1,983
  -2,077
  -2,176
  -2,281
  -2,391
  -2,507
  -2,628
  -2,756
  -2,891
  -3,032
  -3,181
  -3,337
  -3,501
  -3,674
  -3,855
  -4,046
  -4,246
  -4,456
  -4,677
  -4,909
  -5,153
  -5,409
  -5,678
  -5,960
  -6,257
Cash from investing activities, $m
  -3,210
  -4,492
  -4,729
  -4,971
  -5,224
  -5,490
  -5,769
  -6,062
  -6,368
  -6,691
  -7,029
  -7,384
  -7,756
  -8,147
  -8,557
  -8,987
  -9,440
  -9,914
  -10,411
  -10,934
  -11,483
  -12,059
  -12,664
  -13,299
  -13,965
  -14,665
  -15,400
  -16,171
  -16,981
  -17,831
  -18,724
Free cash flow, $m
  7,166
  5,128
  5,300
  5,484
  5,676
  5,877
  6,086
  6,306
  6,535
  6,775
  7,027
  6,413
  6,689
  6,978
  7,280
  7,598
  7,930
  8,279
  8,644
  9,027
  9,429
  9,851
  10,293
  10,757
  11,244
  11,755
  12,291
  12,853
  13,444
  14,063
  14,713
Issuance/(repayment) of debt, $m
  -1,307
  2,818
  3,021
  3,161
  3,309
  3,465
  3,629
  3,802
  3,984
  4,175
  4,377
  4,588
  4,811
  5,045
  5,292
  5,550
  5,823
  6,109
  6,409
  6,725
  7,057
  7,406
  7,772
  8,157
  8,561
  8,986
  9,432
  9,901
  10,393
  10,910
  11,453
Issuance/(repurchase) of shares, $m
  -2,495
  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  
  -3,920
  2,818
  3,021
  3,161
  3,309
  3,465
  3,629
  3,802
  3,984
  4,175
  4,377
  4,588
  4,811
  5,045
  5,292
  5,550
  5,823
  6,109
  6,409
  6,725
  7,057
  7,406
  7,772
  8,157
  8,561
  8,986
  9,432
  9,901
  10,393
  10,910
  11,453
Total cash flow (excl. dividends), $m
  3,115
  7,946
  8,321
  8,645
  8,985
  9,342
  9,716
  10,108
  10,519
  10,951
  11,403
  11,002
  11,500
  12,023
  12,572
  13,148
  13,753
  14,387
  15,053
  15,752
  16,486
  17,256
  18,065
  18,914
  19,805
  20,741
  21,723
  22,754
  23,837
  24,973
  26,167
Retained Cash Flow (-), $m
  4,588
  -1,845
  -1,939
  -2,030
  -2,125
  -2,225
  -2,330
  -2,441
  -2,558
  -2,681
  -2,810
  -2,946
  -3,089
  -3,239
  -3,397
  -3,564
  -3,738
  -3,922
  -4,115
  -4,318
  -4,531
  -4,755
  -4,990
  -5,237
  -5,497
  -5,769
  -6,056
  -6,357
  -6,673
  -7,005
  -7,353
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
 
  6,101
  6,382
  6,616
  6,861
  7,117
  7,386
  7,667
  7,961
  8,270
  8,593
  8,056
  8,411
  8,784
  9,175
  9,584
  10,014
  10,465
  10,938
  11,435
  11,955
  12,502
  13,075
  13,677
  14,308
  14,971
  15,667
  16,397
  17,164
  17,969
  18,813
Discount rate, %
 
  4.90
  5.15
  5.40
  5.67
  5.96
  6.25
  6.57
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
PV of cash for distribution, $m
 
  5,816
  5,772
  5,650
  5,502
  5,329
  5,132
  4,912
  4,670
  4,409
  4,130
  3,462
  3,202
  2,934
  2,662
  2,390
  2,121
  1,860
  1,610
  1,375
  1,158
  960
  783
  628
  495
  382
  289
  215
  155
  110
  76
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

Merck & Co., Inc. is a global healthcare company. The Company offers health solutions through its prescription medicines, vaccines, biologic therapies and animal health products. It operates through four segments: Pharmaceutical, Animal Health, Healthcare Services and Alliances. The Company's Pharmaceutical segment includes human health pharmaceutical and vaccine products marketed either directly by the Company or through joint ventures. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells its human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed healthcare providers, such as health maintenance organizations, pharmacy benefit managers and other institutions. Vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered at physician offices.

FINANCIAL RATIOS  of  Merck&Co (MRK)

Valuation Ratios
P/E Ratio 52
Price to Sales 5.1
Price to Book 5.1
Price to Tangible Book
Price to Cash Flow 19.6
Price to Free Cash Flow 23.2
Growth Rates
Sales Growth Rate 0.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 25.8%
Cap. Spend. - 3 Yr. Gr. Rate 0.8%
Financial Strength
Quick Ratio 25
Current Ratio 0.3
LT Debt to Equity 60.6%
Total Debt to Equity 62%
Interest Coverage 8
Management Effectiveness
Return On Assets 4.6%
Ret/ On Assets - 3 Yr. Avg. 7.3%
Return On Total Capital 5.8%
Ret/ On T. Cap. - 3 Yr. Avg. 9.5%
Return On Equity 9.2%
Return On Equity - 3 Yr. Avg. 14.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 66.4%
Gross Margin - 3 Yr. Avg. 64.6%
EBITDA Margin 27.1%
EBITDA Margin - 3 Yr. Avg. 39.1%
Operating Margin 12.2%
Oper. Margin - 3 Yr. Avg. 22%
Pre-Tax Margin 11.7%
Pre-Tax Margin - 3 Yr. Avg. 22.1%
Net Profit Margin 9.8%
Net Profit Margin - 3 Yr. Avg. 16.4%
Effective Tax Rate 15.4%
Eff/ Tax Rate - 3 Yr. Avg. 21.3%
Payout Ratio 130.7%

MRK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MRK stock intrinsic value calculation we used $40122 million for the last fiscal year's total revenue generated by Merck&Co. The default revenue input number comes from 2016 income statement of Merck&Co. 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 MRK stock valuation model: a) initial revenue growth rate of 5.4% 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 4.9%, whose default value for MRK is calculated based on our internal credit rating of Merck&Co, 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 Merck&Co.
    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 MRK stock the variable cost ratio is equal to 86.5%.

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 MRK 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 5.4% for Merck&Co.

Corporate tax rate of 27% is the nominal tax rate for Merck&Co. 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 MRK 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 MRK are equal to 72.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Merck&Co 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 MRK is equal to 1.8%. 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 - $34336 million for Merck&Co - 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 2659.52 million for Merck&Co 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 Merck&Co at the current share price and the inputted number of shares is $197.0 billion.

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Financial statements of MRK
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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