Intrinsic value of Micron Technology - MU

Previous Close

$42.75

  Intrinsic Value

$2,467

stock screener

  Rating & Target

str. buy

+999%

Previous close

$42.75

 
Intrinsic value

$2,467

 
Up/down potential

+999%

 
Rating

str. buy

We calculate the intrinsic value of MU 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
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  63.90
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  20,322
  32,515
  50,236
  75,128
  109,007
  153,793
  211,430
  283,801
  372,648
  479,508
  605,657
  752,089
  919,500
  1,108,307
  1,318,667
  1,550,518
  1,803,624
  2,077,624
  2,372,074
  2,686,498
  3,020,421
  3,373,409
  3,745,092
  4,135,190
  4,543,524
  4,970,032
  5,414,772
  5,877,930
  6,359,817
  6,860,869
  7,381,648
Variable operating expenses, $m
 
  9,161
  14,086
  21,005
  30,422
  42,871
  58,891
  79,007
  103,703
  133,405
  168,470
  209,048
  255,582
  308,062
  366,533
  430,978
  501,331
  577,491
  659,335
  746,732
  839,548
  937,664
  1,040,976
  1,149,406
  1,262,906
  1,381,457
  1,505,075
  1,633,813
  1,767,757
  1,907,029
  2,051,783
Fixed operating expenses, $m
 
  9,158
  9,387
  9,622
  9,863
  10,109
  10,362
  10,621
  10,886
  11,159
  11,438
  11,723
  12,017
  12,317
  12,625
  12,941
  13,264
  13,596
  13,936
  14,284
  14,641
  15,007
  15,382
  15,767
  16,161
  16,565
  16,979
  17,404
  17,839
  18,285
  18,742
Total operating expenses, $m
  14,483
  18,319
  23,473
  30,627
  40,285
  52,980
  69,253
  89,628
  114,589
  144,564
  179,908
  220,771
  267,599
  320,379
  379,158
  443,919
  514,595
  591,087
  673,271
  761,016
  854,189
  952,671
  1,056,358
  1,165,173
  1,279,067
  1,398,022
  1,522,054
  1,651,217
  1,785,596
  1,925,314
  2,070,525
Operating income, $m
  5,839
  14,196
  26,762
  44,501
  68,722
  100,813
  142,177
  194,172
  258,059
  334,944
  425,750
  531,317
  651,902
  787,928
  939,509
  1,106,599
  1,289,030
  1,486,538
  1,698,803
  1,925,482
  2,166,232
  2,420,738
  2,688,734
  2,970,017
  3,264,458
  3,572,010
  3,892,718
  4,226,713
  4,574,220
  4,935,556
  5,311,124
EBITDA, $m
  9,700
  19,912
  35,526
  57,546
  87,594
  127,388
  178,665
  243,109
  322,277
  417,542
  530,046
  660,676
  810,056
  978,557
  1,166,319
  1,373,289
  1,599,253
  1,843,889
  2,106,800
  2,387,560
  2,685,744
  3,000,964
  3,332,890
  3,681,270
  4,045,944
  4,426,856
  4,824,059
  5,237,717
  5,668,109
  6,115,625
  6,580,767
Interest expense (income), $m
  468
  435
  845
  1,438
  2,272
  3,407
  4,908
  6,839
  9,263
  12,240
  15,820
  20,046
  24,952
  30,561
  36,886
  43,934
  51,701
  60,181
  69,360
  79,225
  89,759
  100,946
  112,772
  125,224
  138,293
  151,973
  166,262
  181,162
  196,679
  212,823
  229,610
Earnings before tax, $m
  5,196
  13,761
  25,918
  43,062
  66,450
  97,406
  137,269
  187,334
  248,795
  322,704
  409,930
  511,270
  626,950
  757,367
  902,623
  1,062,666
  1,237,329
  1,426,357
  1,629,443
  1,846,257
  2,076,473
  2,319,792
  2,575,962
  2,844,793
  3,126,164
  3,420,037
  3,726,455
  4,045,551
  4,377,541
  4,722,733
  5,081,514
Tax expense, $m
  114
  3,715
  6,998
  11,627
  17,941
  26,300
  37,063
  50,580
  67,175
  87,130
  110,681
  138,043
  169,276
  204,489
  243,708
  286,920
  334,079
  385,116
  439,950
  498,489
  560,648
  626,344
  695,510
  768,094
  844,064
  923,410
  1,006,143
  1,092,299
  1,181,936
  1,275,138
  1,372,009
Net income, $m
  5,089
  10,045
  18,920
  31,436
  48,508
  71,106
  100,206
  136,754
  181,621
  235,574
  299,249
  373,227
  457,673
  552,878
  658,915
  775,746
  903,250
  1,041,241
  1,189,493
  1,347,768
  1,515,825
  1,693,448
  1,880,453
  2,076,699
  2,282,100
  2,496,627
  2,720,312
  2,953,252
  3,195,605
  3,447,595
  3,709,505

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  5,428
  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
  35,336
  47,887
  73,985
  110,645
  160,540
  226,499
  311,384
  417,968
  548,819
  706,197
  891,984
  1,107,641
  1,354,198
  1,632,264
  1,942,072
  2,283,531
  2,656,295
  3,059,829
  3,493,482
  3,956,550
  4,448,337
  4,968,201
  5,515,600
  6,090,118
  6,691,494
  7,319,635
  7,974,628
  8,656,745
  9,366,446
  10,104,373
  10,871,352
Adjusted assets (=assets-cash), $m
  29,908
  47,887
  73,985
  110,645
  160,540
  226,499
  311,384
  417,968
  548,819
  706,197
  891,984
  1,107,641
  1,354,198
  1,632,264
  1,942,072
  2,283,531
  2,656,295
  3,059,829
  3,493,482
  3,956,550
  4,448,337
  4,968,201
  5,515,600
  6,090,118
  6,691,494
  7,319,635
  7,974,628
  8,656,745
  9,366,446
  10,104,373
  10,871,352
Revenue / Adjusted assets
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
Average production assets, $m
  17,484
  27,963
  43,203
  64,610
  93,746
  132,262
  181,830
  244,068
  320,477
  412,376
  520,865
  646,796
  790,770
  953,144
  1,134,053
  1,333,445
  1,551,117
  1,786,757
  2,039,984
  2,310,388
  2,597,562
  2,901,132
  3,220,779
  3,556,264
  3,907,431
  4,274,228
  4,656,704
  5,055,020
  5,469,442
  5,900,347
  6,348,217
Working capital, $m
  7,123
  4,747
  7,334
  10,969
  15,915
  22,454
  30,869
  41,435
  54,407
  70,008
  88,426
  109,805
  134,247
  161,813
  192,525
  226,376
  263,329
  303,333
  346,323
  392,229
  440,981
  492,518
  546,783
  603,738
  663,355
  725,625
  790,557
  858,178
  928,533
  1,001,687
  1,077,721
Total debt, $m
  11,155
  19,198
  32,690
  51,643
  77,439
  111,540
  155,426
  210,530
  278,179
  359,544
  455,596
  567,091
  694,560
  838,320
  998,491
  1,175,026
  1,367,745
  1,576,372
  1,800,570
  2,039,976
  2,294,230
  2,563,000
  2,846,005
  3,143,031
  3,453,942
  3,778,691
  4,117,323
  4,469,977
  4,836,892
  5,218,401
  5,614,929
Total liabilities, $m
  16,715
  24,758
  38,250
  57,203
  82,999
  117,100
  160,986
  216,090
  283,739
  365,104
  461,156
  572,651
  700,120
  843,880
  1,004,051
  1,180,586
  1,373,305
  1,581,932
  1,806,130
  2,045,536
  2,299,790
  2,568,560
  2,851,565
  3,148,591
  3,459,502
  3,784,251
  4,122,883
  4,475,537
  4,842,452
  5,223,961
  5,620,489
Total equity, $m
  18,621
  23,129
  35,735
  53,442
  77,541
  109,399
  150,398
  201,879
  265,080
  341,093
  430,828
  534,991
  654,078
  788,383
  938,021
  1,102,946
  1,282,991
  1,477,898
  1,687,352
  1,911,014
  2,148,547
  2,399,641
  2,664,035
  2,941,527
  3,231,992
  3,535,384
  3,851,745
  4,181,208
  4,523,993
  4,880,412
  5,250,863
Total liabilities and equity, $m
  35,336
  47,887
  73,985
  110,645
  160,540
  226,499
  311,384
  417,969
  548,819
  706,197
  891,984
  1,107,642
  1,354,198
  1,632,263
  1,942,072
  2,283,532
  2,656,296
  3,059,830
  3,493,482
  3,956,550
  4,448,337
  4,968,201
  5,515,600
  6,090,118
  6,691,494
  7,319,635
  7,974,628
  8,656,745
  9,366,445
  10,104,373
  10,871,352
Debt-to-equity ratio
  0.599
  0.830
  0.910
  0.970
  1.000
  1.020
  1.030
  1.040
  1.050
  1.050
  1.060
  1.060
  1.060
  1.060
  1.060
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
Adjusted equity ratio
  0.441
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,089
  10,045
  18,920
  31,436
  48,508
  71,106
  100,206
  136,754
  181,621
  235,574
  299,249
  373,227
  457,673
  552,878
  658,915
  775,746
  903,250
  1,041,241
  1,189,493
  1,347,768
  1,515,825
  1,693,448
  1,880,453
  2,076,699
  2,282,100
  2,496,627
  2,720,312
  2,953,252
  3,195,605
  3,447,595
  3,709,505
Depreciation, amort., depletion, $m
  3,861
  5,715
  8,763
  13,045
  18,872
  26,575
  36,489
  48,936
  64,218
  82,598
  104,296
  129,359
  158,154
  190,629
  226,811
  266,689
  310,223
  357,351
  407,997
  462,078
  519,512
  580,226
  644,156
  711,253
  781,486
  854,846
  931,341
  1,011,004
  1,093,888
  1,180,069
  1,269,643
Funds from operations, $m
  7,138
  15,761
  27,683
  44,480
  67,380
  97,681
  136,695
  185,690
  245,839
  318,172
  403,545
  502,587
  615,828
  743,507
  885,725
  1,042,435
  1,213,473
  1,398,592
  1,597,490
  1,809,845
  2,035,337
  2,273,674
  2,524,608
  2,787,952
  3,063,586
  3,351,472
  3,651,653
  3,964,256
  4,289,494
  4,627,664
  4,979,149
Change in working capital, $m
  -1,015
  1,780
  2,587
  3,634
  4,946
  6,539
  8,415
  10,566
  12,972
  15,601
  18,418
  21,379
  24,442
  27,566
  30,712
  33,850
  36,954
  40,004
  42,990
  45,906
  48,753
  51,536
  54,266
  56,954
  59,617
  62,270
  64,932
  67,621
  70,355
  73,154
  76,034
Cash from operations, $m
  8,153
  13,981
  25,096
  40,846
  62,434
  91,143
  128,280
  175,124
  232,867
  302,570
  385,127
  481,208
  591,385
  715,941
  855,013
  1,008,585
  1,176,520
  1,358,588
  1,554,500
  1,763,939
  1,986,585
  2,222,138
  2,470,343
  2,730,997
  3,003,969
  3,289,202
  3,586,721
  3,896,635
  4,219,138
  4,554,511
  4,903,115
Maintenance CAPEX, $m
  0
  -3,497
  -5,593
  -8,641
  -12,922
  -18,749
  -26,452
  -36,366
  -48,814
  -64,095
  -82,475
  -104,173
  -129,359
  -158,154
  -190,629
  -226,811
  -266,689
  -310,223
  -357,351
  -407,997
  -462,078
  -519,512
  -580,226
  -644,156
  -711,253
  -781,486
  -854,846
  -931,341
  -1,011,004
  -1,093,888
  -1,180,069
New CAPEX, $m
  -4,734
  -10,479
  -15,240
  -21,407
  -29,136
  -38,516
  -49,568
  -62,239
  -76,409
  -91,899
  -108,489
  -125,931
  -143,974
  -162,374
  -180,909
  -199,392
  -217,672
  -235,640
  -253,227
  -270,404
  -287,174
  -303,570
  -319,648
  -335,484
  -351,167
  -366,797
  -382,477
  -398,316
  -414,422
  -430,905
  -447,870
Cash from investing activities, $m
  -7,537
  -13,976
  -20,833
  -30,048
  -42,058
  -57,265
  -76,020
  -98,605
  -125,223
  -155,994
  -190,964
  -230,104
  -273,333
  -320,528
  -371,538
  -426,203
  -484,361
  -545,863
  -610,578
  -678,401
  -749,252
  -823,082
  -899,874
  -979,640
  -1,062,420
  -1,148,283
  -1,237,323
  -1,329,657
  -1,425,426
  -1,524,793
  -1,627,939
Free cash flow, $m
  616
  5
  4,264
  10,798
  20,376
  33,877
  52,260
  76,519
  107,645
  146,576
  194,163
  251,103
  318,052
  395,413
  483,475
  582,382
  692,159
  812,725
  943,922
  1,085,539
  1,237,333
  1,399,056
  1,570,468
  1,751,357
  1,941,549
  2,140,920
  2,349,399
  2,566,979
  2,793,712
  3,029,717
  3,275,175
Issuance/(repayment) of debt, $m
  753
  9,305
  13,493
  18,953
  25,796
  34,101
  43,886
  55,104
  67,650
  81,364
  96,052
  111,495
  127,470
  143,760
  160,171
  176,535
  192,719
  208,627
  224,198
  239,406
  254,254
  268,770
  283,005
  297,026
  310,911
  324,749
  338,631
  352,655
  366,915
  381,508
  396,528
Issuance/(repurchase) of shares, $m
  107
  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  
  349
  9,305
  13,493
  18,953
  25,796
  34,101
  43,886
  55,104
  67,650
  81,364
  96,052
  111,495
  127,470
  143,760
  160,171
  176,535
  192,719
  208,627
  224,198
  239,406
  254,254
  268,770
  283,005
  297,026
  310,911
  324,749
  338,631
  352,655
  366,915
  381,508
  396,528
Total cash flow (excl. dividends), $m
  953
  9,309
  17,756
  29,752
  46,172
  67,978
  96,145
  131,623
  175,294
  227,940
  290,215
  362,598
  445,522
  539,173
  643,645
  758,917
  884,878
  1,021,352
  1,168,120
  1,324,945
  1,491,587
  1,667,826
  1,853,473
  2,048,383
  2,252,461
  2,465,668
  2,688,030
  2,919,633
  3,160,627
  3,411,225
  3,671,704
Retained Cash Flow (-), $m
  -6,541
  -8,674
  -12,606
  -17,707
  -24,099
  -31,858
  -40,999
  -51,480
  -63,201
  -76,013
  -89,735
  -104,163
  -119,087
  -134,306
  -149,637
  -164,925
  -180,045
  -194,907
  -209,454
  -223,662
  -237,533
  -251,095
  -264,394
  -277,492
  -290,465
  -303,392
  -316,362
  -329,463
  -342,785
  -356,419
  -370,451
Prev. year cash balance distribution, $m
 
  4,166
  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
 
  4,801
  5,151
  12,045
  22,073
  36,120
  55,146
  80,143
  112,093
  151,927
  200,480
  258,436
  326,435
  404,868
  494,008
  593,992
  704,833
  826,445
  958,666
  1,101,283
  1,254,054
  1,416,732
  1,589,080
  1,770,891
  1,961,996
  2,162,276
  2,371,669
  2,590,170
  2,817,842
  3,054,806
  3,301,253
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
 
  4,603
  4,716
  10,482
  18,175
  27,997
  40,022
  54,143
  70,061
  87,274
  105,104
  122,727
  139,301
  153,938
  165,847
  174,386
  179,113
  179,821
  176,548
  169,566
  159,352
  146,537
  131,852
  116,066
  99,928
  84,115
  69,193
  55,592
  43,596
  33,346
  24,857
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

Micron Technology, Inc. is engaged in semiconductor systems. The Company's portfolio of memory technologies, including dynamic random-access memory (DRAM), negative-AND (NAND) Flash and NOR Flash are the basis for solid-state drives, modules, multi-chip packages and other system solutions. Its business segments include Compute and Networking Business Unit (CNBU), which includes memory products sold into compute, networking, graphics and cloud server markets; Mobile Business Unit (MBU), which includes memory products sold into smartphone, tablet and other mobile-device markets; Storage Business Unit (SBU), which includes memory products sold into enterprise, client, cloud and removable storage markets, and SBU also includes products sold to Intel through its Intel/Micron Flash Technology (IMFT) joint venture, and Embedded Business Unit (EBU), which includes memory products sold into automotive, industrial, connected home and consumer electronics markets.

FINANCIAL RATIOS  of  Micron Technology (MU)

Valuation Ratios
P/E Ratio 9.3
Price to Sales 2.3
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 5.8
Price to Free Cash Flow 13.9
Growth Rates
Sales Growth Rate 63.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -18.6%
Cap. Spend. - 3 Yr. Gr. Rate 8.8%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 53.1%
Total Debt to Equity 59.9%
Interest Coverage 12
Management Effectiveness
Return On Assets 17.6%
Ret/ On Assets - 3 Yr. Avg. 10.3%
Return On Total Capital 19.7%
Ret/ On T. Cap. - 3 Yr. Avg. 11.3%
Return On Equity 33.2%
Return On Equity - 3 Yr. Avg. 18.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 41.5%
Gross Margin - 3 Yr. Avg. 31.3%
EBITDA Margin 46.9%
EBITDA Margin - 3 Yr. Avg. 34.9%
Operating Margin 28.7%
Oper. Margin - 3 Yr. Avg. 16.1%
Pre-Tax Margin 25.6%
Pre-Tax Margin - 3 Yr. Avg. 13.1%
Net Profit Margin 25%
Net Profit Margin - 3 Yr. Avg. 13.6%
Effective Tax Rate 2.2%
Eff/ Tax Rate - 3 Yr. Avg. 0.5%
Payout Ratio 0%

MU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MU stock intrinsic value calculation we used $20322 million for the last fiscal year's total revenue generated by Micron Technology. The default revenue input number comes from 2017 income statement of Micron Technology. 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 MU stock valuation model: a) initial revenue growth rate of 60% 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 MU is calculated based on our internal credit rating of Micron Technology, 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 Micron Technology.
    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 MU stock the variable cost ratio is equal to 28.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $8935 million in the base year in the intrinsic value calculation for MU 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 4.4% for Micron Technology.

Corporate tax rate of 27% is the nominal tax rate for Micron Technology. 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 MU 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 MU are equal to 86%.

Life of production assets of 4.7 years is the average useful life of capital assets used in Micron Technology 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 MU is equal to 14.6%. 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 - $18621 million for Micron Technology - 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 1176.8 million for Micron Technology 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 Micron Technology at the current share price and the inputted number of shares is $50.3 billion.

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Financial statements of MU
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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