Intrinsic value of Merck & Company, Inc. - MRK

Previous Close

$82.29

  Intrinsic Value

$39.89

stock screener

  Rating & Target

str. sell

-52%

Previous close

$82.29

 
Intrinsic value

$39.89

 
Up/down potential

-52%

 
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
  44,578
  46,967
  49,468
  52,085
  54,826
  57,697
  60,705
  63,856
  67,159
  70,621
  74,250
  78,056
  82,047
  86,233
  90,623
  95,229
  100,061
  105,131
  110,451
  116,033
  121,891
  128,039
  134,491
  141,264
  148,372
  155,833
  163,665
  171,886
  180,517
  189,576
Variable operating expenses, $m
 
  37,731
  39,594
  41,544
  43,585
  45,723
  47,962
  50,307
  52,764
  55,340
  58,040
  57,902
  60,869
  63,982
  67,246
  70,670
  74,261
  78,029
  81,983
  86,131
  90,484
  95,053
  99,847
  104,878
  110,160
  115,703
  121,521
  127,628
  134,040
  140,770
  147,835
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
  37,731
  39,594
  41,544
  43,585
  45,723
  47,962
  50,307
  52,764
  55,340
  58,040
  57,902
  60,869
  63,982
  67,246
  70,670
  74,261
  78,029
  81,983
  86,131
  90,484
  95,053
  99,847
  104,878
  110,160
  115,703
  121,521
  127,628
  134,040
  140,770
  147,835
Operating income, $m
  4,871
  6,847
  7,373
  7,924
  8,500
  9,104
  9,736
  10,398
  11,092
  11,819
  12,581
  16,349
  17,187
  18,066
  18,987
  19,954
  20,968
  22,032
  23,148
  24,320
  25,549
  26,839
  28,192
  29,613
  31,104
  32,669
  34,312
  36,037
  37,847
  39,747
  41,742
EBITDA, $m
  10,312
  12,904
  13,595
  14,319
  15,077
  15,870
  16,701
  17,572
  18,484
  19,440
  20,442
  21,493
  22,594
  23,750
  24,961
  26,232
  27,565
  28,964
  30,432
  31,971
  33,587
  35,283
  37,063
  38,930
  40,891
  42,948
  45,108
  47,375
  49,755
  52,253
  54,875
Interest expense (income), $m
  686
  1,356
  1,519
  1,689
  1,868
  2,055
  2,250
  2,455
  2,670
  2,895
  3,131
  3,378
  3,637
  3,909
  4,194
  4,493
  4,806
  5,135
  5,480
  5,842
  6,222
  6,621
  7,039
  7,478
  7,939
  8,422
  8,930
  9,462
  10,022
  10,609
  11,225
Earnings before tax, $m
  4,659
  5,491
  5,855
  6,234
  6,632
  7,049
  7,485
  7,943
  8,422
  8,924
  9,450
  12,971
  13,550
  14,157
  14,793
  15,461
  16,162
  16,897
  17,668
  18,477
  19,327
  20,218
  21,153
  22,135
  23,166
  24,247
  25,382
  26,574
  27,825
  29,138
  30,517
Tax expense, $m
  718
  1,483
  1,581
  1,683
  1,791
  1,903
  2,021
  2,144
  2,274
  2,409
  2,552
  3,502
  3,658
  3,822
  3,994
  4,174
  4,364
  4,562
  4,770
  4,989
  5,218
  5,459
  5,711
  5,976
  6,255
  6,547
  6,853
  7,175
  7,513
  7,867
  8,240
Net income, $m
  3,920
  4,008
  4,274
  4,551
  4,842
  5,146
  5,464
  5,798
  6,148
  6,514
  6,899
  9,469
  9,891
  10,334
  10,799
  11,287
  11,798
  12,335
  12,898
  13,488
  14,108
  14,759
  15,442
  16,159
  16,911
  17,700
  18,529
  19,399
  20,312
  21,271
  22,277

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
  87,066
  91,733
  96,617
  101,729
  107,083
  112,690
  118,564
  124,719
  131,170
  137,931
  145,020
  152,453
  160,248
  168,424
  176,999
  185,995
  195,432
  205,334
  215,724
  226,627
  238,069
  250,076
  262,678
  275,906
  289,789
  304,361
  319,658
  335,715
  352,572
  370,267
Adjusted assets (=assets-cash), $m
  81,036
  87,066
  91,733
  96,617
  101,729
  107,083
  112,690
  118,564
  124,719
  131,170
  137,931
  145,020
  152,453
  160,248
  168,424
  176,999
  185,995
  195,432
  205,334
  215,724
  226,627
  238,069
  250,076
  262,678
  275,906
  289,789
  304,361
  319,658
  335,715
  352,572
  370,267
Revenue / Adjusted assets
  0.491
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
Average production assets, $m
  32,220
  29,956
  31,562
  33,242
  35,001
  36,843
  38,773
  40,794
  42,911
  45,131
  47,457
  49,896
  52,454
  55,136
  57,949
  60,899
  63,994
  67,241
  70,648
  74,223
  77,974
  81,911
  86,042
  90,378
  94,929
  99,706
  104,720
  109,983
  115,508
  121,307
  127,395
Working capital, $m
  13,410
  134
  141
  148
  156
  164
  173
  182
  192
  201
  212
  223
  234
  246
  259
  272
  286
  300
  315
  331
  348
  366
  384
  403
  424
  445
  467
  491
  516
  542
  569
Total debt, $m
  24,842
  28,122
  31,281
  34,588
  38,049
  41,673
  45,469
  49,446
  53,613
  57,980
  62,558
  67,357
  72,389
  77,666
  83,201
  89,006
  95,096
  101,486
  108,189
  115,223
  122,604
  130,350
  138,480
  147,011
  155,966
  165,365
  175,231
  185,587
  196,457
  207,869
  219,848
Total liabilities, $m
  55,289
  58,944
  62,103
  65,410
  68,871
  72,495
  76,291
  80,268
  84,435
  88,802
  93,380
  98,179
  103,211
  108,488
  114,023
  119,828
  125,918
  132,308
  139,011
  146,045
  153,426
  161,172
  169,302
  177,833
  186,788
  196,187
  206,053
  216,409
  227,279
  238,691
  250,670
Total equity, $m
  40,088
  28,122
  29,630
  31,207
  32,859
  34,588
  36,399
  38,296
  40,284
  42,368
  44,552
  46,842
  49,242
  51,760
  54,401
  57,171
  60,076
  63,125
  66,323
  69,679
  73,201
  76,896
  80,775
  84,845
  89,117
  93,602
  98,309
  103,250
  108,436
  113,881
  119,596
Total liabilities and equity, $m
  95,377
  87,066
  91,733
  96,617
  101,730
  107,083
  112,690
  118,564
  124,719
  131,170
  137,932
  145,021
  152,453
  160,248
  168,424
  176,999
  185,994
  195,433
  205,334
  215,724
  226,627
  238,068
  250,077
  262,678
  275,905
  289,789
  304,362
  319,659
  335,715
  352,572
  370,266
Debt-to-equity ratio
  0.620
  1.000
  1.060
  1.110
  1.160
  1.200
  1.250
  1.290
  1.330
  1.370
  1.400
  1.440
  1.470
  1.500
  1.530
  1.560
  1.580
  1.610
  1.630
  1.650
  1.670
  1.700
  1.710
  1.730
  1.750
  1.770
  1.780
  1.800
  1.810
  1.830
  1.840
Adjusted equity ratio
  0.318
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,920
  4,008
  4,274
  4,551
  4,842
  5,146
  5,464
  5,798
  6,148
  6,514
  6,899
  9,469
  9,891
  10,334
  10,799
  11,287
  11,798
  12,335
  12,898
  13,488
  14,108
  14,759
  15,442
  16,159
  16,911
  17,700
  18,529
  19,399
  20,312
  21,271
  22,277
Depreciation, amort., depletion, $m
  5,441
  6,057
  6,222
  6,395
  6,577
  6,767
  6,966
  7,174
  7,392
  7,621
  7,861
  5,144
  5,408
  5,684
  5,974
  6,278
  6,597
  6,932
  7,283
  7,652
  8,039
  8,444
  8,870
  9,317
  9,787
  10,279
  10,796
  11,338
  11,908
  12,506
  13,134
Funds from operations, $m
  7,775
  10,065
  10,496
  10,947
  11,418
  11,912
  12,430
  12,972
  13,540
  14,135
  14,760
  14,613
  15,299
  16,018
  16,773
  17,565
  18,395
  19,267
  20,181
  21,140
  22,147
  23,204
  24,312
  25,476
  26,697
  27,979
  29,325
  30,738
  32,220
  33,777
  35,411
Change in working capital, $m
  -2,601
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  25
  26
  27
Cash from operations, $m
  10,376
  10,058
  10,489
  10,939
  11,411
  11,904
  12,421
  12,963
  13,531
  14,126
  14,749
  14,602
  15,287
  16,006
  16,761
  17,552
  18,382
  19,252
  20,166
  21,124
  22,130
  23,186
  24,294
  25,457
  26,677
  27,958
  29,303
  30,714
  32,196
  33,751
  35,384
Maintenance CAPEX, $m
  0
  -2,928
  -3,088
  -3,254
  -3,427
  -3,608
  -3,798
  -3,997
  -4,206
  -4,424
  -4,653
  -4,892
  -5,144
  -5,408
  -5,684
  -5,974
  -6,278
  -6,597
  -6,932
  -7,283
  -7,652
  -8,039
  -8,444
  -8,870
  -9,317
  -9,787
  -10,279
  -10,796
  -11,338
  -11,908
  -12,506
New CAPEX, $m
  -1,614
  -1,554
  -1,606
  -1,680
  -1,759
  -1,842
  -1,929
  -2,021
  -2,118
  -2,219
  -2,326
  -2,439
  -2,557
  -2,682
  -2,813
  -2,950
  -3,095
  -3,247
  -3,407
  -3,575
  -3,751
  -3,937
  -4,131
  -4,336
  -4,551
  -4,777
  -5,014
  -5,263
  -5,525
  -5,800
  -6,088
Cash from investing activities, $m
  -3,210
  -4,482
  -4,694
  -4,934
  -5,186
  -5,450
  -5,727
  -6,018
  -6,324
  -6,643
  -6,979
  -7,331
  -7,701
  -8,090
  -8,497
  -8,924
  -9,373
  -9,844
  -10,339
  -10,858
  -11,403
  -11,976
  -12,575
  -13,206
  -13,868
  -14,564
  -15,293
  -16,059
  -16,863
  -17,708
  -18,594
Free cash flow, $m
  7,166
  5,576
  5,795
  6,005
  6,224
  6,454
  6,694
  6,945
  7,207
  7,482
  7,770
  7,270
  7,586
  7,917
  8,264
  8,627
  9,008
  9,408
  9,827
  10,266
  10,727
  11,211
  11,718
  12,250
  12,809
  13,395
  14,010
  14,655
  15,332
  16,043
  16,790
Issuance/(repayment) of debt, $m
  -1,307
  3,008
  3,159
  3,306
  3,461
  3,624
  3,796
  3,977
  4,167
  4,367
  4,578
  4,799
  5,032
  5,277
  5,535
  5,805
  6,090
  6,389
  6,704
  7,034
  7,381
  7,746
  8,129
  8,532
  8,955
  9,399
  9,866
  10,356
  10,871
  11,412
  11,980
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
  3,008
  3,159
  3,306
  3,461
  3,624
  3,796
  3,977
  4,167
  4,367
  4,578
  4,799
  5,032
  5,277
  5,535
  5,805
  6,090
  6,389
  6,704
  7,034
  7,381
  7,746
  8,129
  8,532
  8,955
  9,399
  9,866
  10,356
  10,871
  11,412
  11,980
Total cash flow (excl. dividends), $m
  3,115
  8,584
  8,954
  9,311
  9,686
  10,078
  10,490
  10,921
  11,374
  11,849
  12,348
  12,069
  12,618
  13,194
  13,798
  14,433
  15,098
  15,797
  16,530
  17,300
  18,108
  18,957
  19,847
  20,782
  21,763
  22,794
  23,875
  25,011
  26,203
  27,455
  28,769
Retained Cash Flow (-), $m
  4,588
  -1,421
  -1,507
  -1,577
  -1,651
  -1,729
  -1,811
  -1,897
  -1,988
  -2,084
  -2,184
  -2,290
  -2,401
  -2,518
  -2,641
  -2,770
  -2,906
  -3,048
  -3,198
  -3,356
  -3,522
  -3,696
  -3,878
  -4,071
  -4,272
  -4,484
  -4,707
  -4,941
  -5,186
  -5,445
  -5,715
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
 
  7,163
  7,447
  7,734
  8,034
  8,349
  8,679
  9,024
  9,386
  9,766
  10,164
  9,780
  10,217
  10,676
  11,158
  11,663
  12,193
  12,749
  13,332
  13,944
  14,587
  15,261
  15,969
  16,711
  17,491
  18,309
  19,168
  20,070
  21,017
  22,010
  23,054
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
 
  6,868
  6,817
  6,730
  6,615
  6,471
  6,298
  6,097
  5,867
  5,610
  5,328
  4,644
  4,360
  4,059
  3,746
  3,424
  3,098
  2,774
  2,455
  2,147
  1,854
  1,578
  1,325
  1,095
  891
  712
  559
  431
  325
  240
  174
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 & Company, Inc. (MRK)

Valuation Ratios
P/E Ratio 57.7
Price to Sales 5.7
Price to Book 5.6
Price to Tangible Book
Price to Cash Flow 21.8
Price to Free Cash Flow 25.8
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 $42294 million for the last fiscal year's total revenue generated by Merck & Company, Inc.. The default revenue input number comes from 2016 income statement of Merck & Company, Inc.. 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 4.3%, whose default value for MRK is calculated based on our internal credit rating of Merck & Company, Inc., 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 & Company, Inc..
    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 85%.

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 & Company, Inc..

Corporate tax rate of 27% is the nominal tax rate for Merck & Company, Inc.. 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 67.2%.

Life of production assets of 9.7 years is the average useful life of capital assets used in Merck & Company, Inc. 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 0.3%. 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 - $26701 million for Merck & Company, Inc. - 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 2581.219 million for Merck & Company, Inc. 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 & Company, Inc. at the current share price and the inputted number of shares is $212.4 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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