Intrinsic value of Nokia ADR - NOK

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$5.73

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$5.73

 
Intrinsic value

$208.44

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence* premium content

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

We calculate the intrinsic value of NOK 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 33.7

 

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, %
  88.93
  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
  24,923
  39,877
  61,610
  92,137
  133,687
  188,612
  259,298
  348,054
  457,017
  588,070
  742,781
  922,365
  1,127,680
  1,359,233
  1,617,219
  1,901,563
  2,211,974
  2,548,008
  2,909,123
  3,294,734
  3,704,259
  4,137,165
  4,593,000
  5,071,417
  5,572,200
  6,095,272
  6,640,703
  7,208,722
  7,799,710
  8,414,203
  9,052,889
Variable operating expenses, $m
 
  34,091
  52,342
  77,977
  112,869
  158,993
  218,353
  292,887
  384,390
  494,443
  624,363
  774,567
  946,982
  1,141,431
  1,358,078
  1,596,859
  1,857,530
  2,139,719
  2,442,969
  2,766,790
  3,110,693
  3,474,231
  3,857,024
  4,258,780
  4,679,319
  5,118,573
  5,576,606
  6,053,606
  6,549,895
  7,065,923
  7,602,267
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
  26,084
  34,091
  52,342
  77,977
  112,869
  158,993
  218,353
  292,887
  384,390
  494,443
  624,363
  774,567
  946,982
  1,141,431
  1,358,078
  1,596,859
  1,857,530
  2,139,719
  2,442,969
  2,766,790
  3,110,693
  3,474,231
  3,857,024
  4,258,780
  4,679,319
  5,118,573
  5,576,606
  6,053,606
  6,549,895
  7,065,923
  7,602,267
Operating income, $m
  -1,161
  5,786
  9,268
  14,160
  20,818
  29,619
  40,946
  55,168
  72,628
  93,628
  118,418
  147,799
  180,698
  217,802
  259,141
  304,704
  354,444
  408,289
  466,154
  527,944
  593,565
  662,934
  735,976
  812,637
  892,882
  976,698
  1,064,097
  1,155,116
  1,249,815
  1,348,281
  1,450,623
EBITDA, $m
  521
  7,778
  12,016
  17,970
  26,074
  36,787
  50,573
  67,884
  89,136
  114,696
  144,871
  179,897
  219,941
  265,103
  315,420
  370,878
  431,420
  496,960
  567,392
  642,600
  722,474
  806,907
  895,812
  989,122
  1,086,794
  1,188,814
  1,295,194
  1,405,979
  1,521,245
  1,641,095
  1,765,663
Interest expense (income), $m
  326
  370
  1,844
  3,983
  6,988
  11,078
  16,485
  23,444
  32,181
  42,907
  55,808
  71,037
  88,716
  108,927
  131,721
  157,117
  185,107
  215,664
  248,743
  284,291
  322,250
  362,564
  405,179
  450,051
  497,146
  546,443
  597,934
  651,626
  707,541
  765,718
  826,208
Earnings before tax, $m
  -1,445
  5,415
  7,424
  10,177
  13,829
  18,540
  24,460
  31,724
  40,447
  50,721
  62,610
  76,761
  91,982
  108,875
  127,420
  147,587
  169,336
  192,625
  217,411
  243,653
  271,315
  300,370
  330,797
  362,586
  395,736
  430,255
  466,164
  503,490
  542,274
  582,563
  624,415
Tax expense, $m
  -482
  1,462
  2,005
  2,748
  3,734
  5,006
  6,604
  8,565
  10,921
  13,695
  16,905
  20,726
  24,835
  29,396
  34,404
  39,849
  45,721
  52,009
  58,701
  65,786
  73,255
  81,100
  89,315
  97,898
  106,849
  116,169
  125,864
  135,942
  146,414
  157,292
  168,592
Net income, $m
  -808
  3,953
  5,420
  7,429
  10,095
  13,535
  17,856
  23,159
  29,526
  37,026
  45,706
  56,036
  67,147
  79,479
  93,017
  107,739
  123,616
  140,617
  158,710
  177,866
  198,060
  219,270
  241,482
  264,688
  288,887
  314,086
  340,299
  367,548
  395,860
  425,271
  455,823

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  10,155
  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
  47,390
  59,607
  92,092
  137,724
  199,830
  281,932
  387,591
  520,261
  683,135
  879,029
  1,110,285
  1,378,722
  1,685,620
  2,031,739
  2,417,368
  2,842,395
  3,306,388
  3,808,682
  4,348,466
  4,924,864
  5,537,009
  6,184,103
  6,865,470
  7,580,594
  8,329,149
  9,111,019
  9,926,313
  10,775,369
  11,658,759
  12,577,284
  13,531,972
Adjusted assets (=assets-cash), $m
  37,235
  59,607
  92,092
  137,724
  199,830
  281,932
  387,591
  520,261
  683,135
  879,029
  1,110,285
  1,378,722
  1,685,620
  2,031,739
  2,417,368
  2,842,395
  3,306,388
  3,808,682
  4,348,466
  4,924,864
  5,537,009
  6,184,103
  6,865,470
  7,580,594
  8,329,149
  9,111,019
  9,926,313
  10,775,369
  11,658,759
  12,577,284
  13,531,972
Revenue / Adjusted assets
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
  0.669
Average production assets, $m
  4,346
  6,939
  10,720
  16,032
  23,261
  32,819
  45,118
  60,561
  79,521
  102,324
  129,244
  160,492
  196,216
  236,507
  281,396
  330,872
  384,883
  443,353
  506,187
  573,284
  644,541
  719,867
  799,182
  882,427
  969,563
  1,060,577
  1,155,482
  1,254,318
  1,357,150
  1,464,071
  1,575,203
Working capital, $m
  8,517
  -1,595
  -2,464
  -3,685
  -5,347
  -7,544
  -10,372
  -13,922
  -18,281
  -23,523
  -29,711
  -36,895
  -45,107
  -54,369
  -64,689
  -76,063
  -88,479
  -101,920
  -116,365
  -131,789
  -148,170
  -165,487
  -183,720
  -202,857
  -222,888
  -243,811
  -265,628
  -288,349
  -311,988
  -336,568
  -362,116
Total debt, $m
  4,499
  19,207
  41,492
  72,796
  115,401
  171,722
  244,204
  335,216
  446,948
  581,331
  739,972
  924,120
  1,134,652
  1,372,090
  1,636,631
  1,928,200
  2,246,499
  2,591,073
  2,961,364
  3,356,773
  3,776,705
  4,220,612
  4,688,030
  5,178,605
  5,692,113
  6,228,476
  6,787,767
  7,370,220
  7,976,226
  8,606,334
  9,261,250
Total liabilities, $m
  26,182
  40,890
  63,175
  94,479
  137,084
  193,405
  265,887
  356,899
  468,631
  603,014
  761,655
  945,803
  1,156,335
  1,393,773
  1,658,314
  1,949,883
  2,268,182
  2,612,756
  2,983,047
  3,378,456
  3,798,388
  4,242,295
  4,709,713
  5,200,288
  5,713,796
  6,250,159
  6,809,450
  7,391,903
  7,997,909
  8,628,017
  9,282,933
Total equity, $m
  21,208
  18,716
  28,917
  43,245
  62,747
  88,527
  121,704
  163,362
  214,504
  276,015
  348,629
  432,919
  529,285
  637,966
  759,054
  892,512
  1,038,206
  1,195,926
  1,365,418
  1,546,407
  1,738,621
  1,941,808
  2,155,758
  2,380,307
  2,615,353
  2,860,860
  3,116,862
  3,383,466
  3,660,850
  3,949,267
  4,249,039
Total liabilities and equity, $m
  47,390
  59,606
  92,092
  137,724
  199,831
  281,932
  387,591
  520,261
  683,135
  879,029
  1,110,284
  1,378,722
  1,685,620
  2,031,739
  2,417,368
  2,842,395
  3,306,388
  3,808,682
  4,348,465
  4,924,863
  5,537,009
  6,184,103
  6,865,471
  7,580,595
  8,329,149
  9,111,019
  9,926,312
  10,775,369
  11,658,759
  12,577,284
  13,531,972
Debt-to-equity ratio
  0.212
  1.030
  1.430
  1.680
  1.840
  1.940
  2.010
  2.050
  2.080
  2.110
  2.120
  2.130
  2.140
  2.150
  2.160
  2.160
  2.160
  2.170
  2.170
  2.170
  2.170
  2.170
  2.170
  2.180
  2.180
  2.180
  2.180
  2.180
  2.180
  2.180
  2.180
Adjusted equity ratio
  0.307
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314
  0.314

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -808
  3,953
  5,420
  7,429
  10,095
  13,535
  17,856
  23,159
  29,526
  37,026
  45,706
  56,036
  67,147
  79,479
  93,017
  107,739
  123,616
  140,617
  158,710
  177,866
  198,060
  219,270
  241,482
  264,688
  288,887
  314,086
  340,299
  367,548
  395,860
  425,271
  455,823
Depreciation, amort., depletion, $m
  1,682
  1,992
  2,748
  3,810
  5,256
  7,168
  9,628
  12,716
  16,508
  21,069
  26,453
  32,098
  39,243
  47,301
  56,279
  66,174
  76,977
  88,671
  101,237
  114,657
  128,908
  143,973
  159,836
  176,485
  193,913
  212,115
  231,096
  250,864
  271,430
  292,814
  315,041
Funds from operations, $m
  -4,263
  5,945
  8,168
  11,239
  15,352
  20,702
  27,484
  35,875
  46,035
  58,095
  72,158
  88,134
  106,390
  126,780
  149,296
  173,913
  200,592
  229,287
  259,948
  292,523
  326,968
  363,243
  401,318
  441,173
  482,800
  526,202
  571,396
  618,411
  667,290
  718,085
  770,863
Change in working capital, $m
  -2,728
  -598
  -869
  -1,221
  -1,662
  -2,197
  -2,827
  -3,550
  -4,359
  -5,242
  -6,188
  -7,183
  -8,213
  -9,262
  -10,319
  -11,374
  -12,416
  -13,441
  -14,445
  -15,424
  -16,381
  -17,316
  -18,233
  -19,137
  -20,031
  -20,923
  -21,817
  -22,721
  -23,640
  -24,580
  -25,547
Cash from operations, $m
  -1,535
  9,814
  9,037
  12,460
  17,014
  22,899
  30,311
  39,425
  50,393
  63,337
  78,347
  95,317
  114,603
  136,042
  159,616
  185,287
  213,009
  242,729
  274,392
  307,948
  343,349
  380,560
  419,552
  460,310
  502,831
  547,125
  593,213
  641,132
  690,929
  742,665
  796,411
Maintenance CAPEX, $m
  0
  -869
  -1,388
  -2,144
  -3,206
  -4,652
  -6,564
  -9,024
  -12,112
  -15,904
  -20,465
  -25,849
  -32,098
  -39,243
  -47,301
  -56,279
  -66,174
  -76,977
  -88,671
  -101,237
  -114,657
  -128,908
  -143,973
  -159,836
  -176,485
  -193,913
  -212,115
  -231,096
  -250,864
  -271,430
  -292,814
New CAPEX, $m
  -503
  -2,593
  -3,782
  -5,312
  -7,230
  -9,557
  -12,299
  -15,444
  -18,960
  -22,803
  -26,920
  -31,248
  -35,725
  -40,290
  -44,890
  -49,476
  -54,012
  -58,470
  -62,834
  -67,096
  -71,257
  -75,326
  -79,315
  -83,245
  -87,136
  -91,014
  -94,905
  -98,835
  -102,832
  -106,922
  -111,131
Cash from investing activities, $m
  7,215
  -3,462
  -5,170
  -7,456
  -10,436
  -14,209
  -18,863
  -24,468
  -31,072
  -38,707
  -47,385
  -57,097
  -67,823
  -79,533
  -92,191
  -105,755
  -120,186
  -135,447
  -151,505
  -168,333
  -185,914
  -204,234
  -223,288
  -243,081
  -263,621
  -284,927
  -307,020
  -329,931
  -353,696
  -378,352
  -403,945
Free cash flow, $m
  5,680
  6,352
  3,868
  5,005
  6,578
  8,690
  11,448
  14,958
  19,321
  24,630
  30,962
  38,221
  46,780
  56,509
  67,425
  79,532
  92,823
  107,282
  122,887
  139,614
  157,435
  176,326
  196,263
  217,229
  239,210
  262,198
  286,193
  311,200
  337,234
  364,313
  392,465
Issuance/(repayment) of debt, $m
  -2,611
  15,348
  22,285
  31,303
  42,605
  56,322
  72,482
  91,011
  111,732
  134,383
  158,642
  184,148
  210,532
  237,438
  264,542
  291,569
  318,299
  344,573
  370,292
  395,409
  419,931
  443,907
  467,418
  490,575
  513,508
  536,363
  559,292
  582,453
  606,006
  630,108
  654,916
Issuance/(repurchase) of shares, $m
  -222
  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  
  -3,597
  15,348
  22,285
  31,303
  42,605
  56,322
  72,482
  91,011
  111,732
  134,383
  158,642
  184,148
  210,532
  237,438
  264,542
  291,569
  318,299
  344,573
  370,292
  395,409
  419,931
  443,907
  467,418
  490,575
  513,508
  536,363
  559,292
  582,453
  606,006
  630,108
  654,916
Total cash flow (excl. dividends), $m
  2,129
  21,700
  26,153
  36,308
  49,183
  65,011
  83,930
  105,969
  131,053
  159,013
  189,604
  222,369
  257,312
  293,946
  331,966
  371,101
  411,122
  451,855
  493,179
  535,023
  577,367
  620,233
  663,681
  707,804
  752,718
  798,561
  845,484
  893,653
  943,240
  994,421
  1,047,381
Retained Cash Flow (-), $m
  -10,123
  -7,023
  -10,200
  -14,328
  -19,501
  -25,780
  -33,177
  -41,658
  -51,143
  -61,511
  -72,614
  -84,289
  -96,366
  -108,681
  -121,088
  -133,459
  -145,694
  -157,720
  -169,492
  -180,989
  -192,214
  -203,188
  -213,949
  -224,549
  -235,046
  -245,507
  -256,002
  -266,604
  -277,385
  -288,417
  -299,772
Prev. year cash balance distribution, $m
 
  9,515
  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
 
  24,192
  15,953
  21,980
  29,681
  39,232
  50,753
  64,311
  79,911
  97,502
  116,990
  138,079
  160,946
  185,265
  210,879
  237,642
  265,428
  294,135
  323,687
  354,034
  385,153
  417,045
  449,732
  483,255
  517,672
  553,053
  589,482
  627,049
  665,855
  706,005
  747,609
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
 
  23,195
  14,604
  19,128
  24,440
  30,409
  36,834
  43,448
  49,946
  56,010
  61,333
  65,572
  68,681
  70,441
  70,796
  69,768
  67,451
  63,999
  59,610
  54,511
  48,941
  43,136
  37,316
  31,673
  26,366
  21,515
  17,198
  13,458
  10,302
  7,707
  5,629
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

Nokia Corporation, together with its subsidiaries, provides network infrastructure and related services worldwide. It operates in five business groups: Mobile Networks, Fixed Networks, IP/Optical Networks, Applications & Analytics, and Nokia Technologies. It offers mobile networking solutions, such as hardware, software, and services for telecommunications operators, enterprises, and related markets/verticals; macro radio access network solutions; subscriber data management and IP multimedia subsystem solutions; small cell access, and back haul and front haul solutions; and network planning and optimization, network implementation, systems integration, managed, and care services. The company also provides fixed networking solutions, including copper based solutions, such as very high rate digital subscriber line and vectoring technologies; digital home devices; copper and fiber broadband evolution, public switched telephone network transformation, site implementation and outside plant, and multi-vendor maintenance services; and develops copper technologies, gigabit passive optical networks, and fiber access technologies. In addition, it offers IP/optical networking solutions, such as IP routing and optical transport systems, software, and services; and packet-optimized and optical transport solutions. Further, the company provides software applications and platforms comprising customer and network operations software; network management and self-organizing networks, communication and collaboration, policy and charging, automated and predictive security, and CloudBand Cloud management and orchestration solutions; analytics solutions and algorithms; and IoT platforms. It has a collaboration agreement with BT to develop 5G technologies; and a strategic alliance with Access Technologies, Federated Wireless, Inc., Intel, Qualcomm Incorporated, and Ruckus Wireless. The company was founded in 1865 and is headquartered in Espoo, Finland.

FINANCIAL RATIOS  of  Nokia ADR (NOK)

Valuation Ratios
P/E Ratio -40.6
Price to Sales 1.3
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow -21.4
Price to Free Cash Flow -16.1
Growth Rates
Sales Growth Rate 88.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 52%
Cap. Spend. - 3 Yr. Gr. Rate 3.2%
Financial Strength
Quick Ratio 16
Current Ratio 0
LT Debt to Equity 18.2%
Total Debt to Equity 21.2%
Interest Coverage -3
Management Effectiveness
Return On Assets -1.7%
Ret/ On Assets - 3 Yr. Avg. 9.8%
Return On Total Capital -4.1%
Ret/ On T. Cap. - 3 Yr. Avg. 14.8%
Return On Equity -5%
Return On Equity - 3 Yr. Avg. 22.2%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 35.8%
Gross Margin - 3 Yr. Avg. 40.8%
EBITDA Margin 2.3%
EBITDA Margin - 3 Yr. Avg. 10.6%
Operating Margin -4.7%
Oper. Margin - 3 Yr. Avg. 7%
Pre-Tax Margin -5.8%
Pre-Tax Margin - 3 Yr. Avg. 5%
Net Profit Margin -3.2%
Net Profit Margin - 3 Yr. Avg. 15.3%
Effective Tax Rate 33.4%
Eff/ Tax Rate - 3 Yr. Avg. -38.8%
Payout Ratio -197.9%

NOK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NOK stock intrinsic value calculation we used $24923 million for the last fiscal year's total revenue generated by Nokia ADR. The default revenue input number comes from 2016 income statement of Nokia ADR. 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 NOK 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 NOK is calculated based on our internal credit rating of Nokia ADR, 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 Nokia ADR.
    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 NOK stock the variable cost ratio is equal to 86.4%.

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 NOK 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 9.6% for Nokia ADR.

Corporate tax rate of 27% is the nominal tax rate for Nokia ADR. 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 NOK 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 NOK are equal to 17.4%.

Life of production assets of 4.5 years is the average useful life of capital assets used in Nokia ADR 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 NOK is equal to -4%. 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 - $21208 million for Nokia ADR - 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 5878.23 million for Nokia ADR 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 Nokia ADR at the current share price and the inputted number of shares is $33.7 billion.


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COMPANY NEWS

▶ Nokia's Margins Rise as Revenue Slump Slows   [Apr-28-17 11:37AM  Motley Fool]
▶ [$$] Nokia slows decline in networks business   [11:52AM  Financial Times]
▶ [$$] Nokia: still buffering   [08:24AM  Financial Times]
▶ [$$] Nokia Pegs Comeback to New Gadgets   [05:52AM  The Wall Street Journal]
▶ Nokia reports 1Q loss   [05:01AM  Associated Press]
▶ Nokia Q1 loss slightly down, sales stagnant   [02:22AM  Associated Press]
▶ Nokia Corporation Interim Report for Q1 2017   [01:02AM  GlobeNewswire]
▶ Nokia eyes APAC opportunities in IoT, 5G   [Apr-19-17 08:48PM  ZDNet]
▶ What Analysts Expect from Nokia in 1Q17   [03:26PM  Market Realist]
▶ Next Up for Smartphone Market: Foldable Phones   [Apr-05-17 02:30PM  Investopedia]
▶ What Nokias 2017 Performance Depends on Most   [Apr-04-17 03:06PM  Market Realist]
▶ A Look at Nokias 5G Network Push   [07:35AM  Market Realist]
▶ How Qualcomm Can Make Big Money From Cheap Phones   [Apr-01-17 05:38PM  at Motley Fool]
▶ Nokia Study: Smartphone Malware Spiked 400% in '16   [Mar-27-17 03:38PM  at Investopedia]
▶ American Release Confirmed For New Nokia Smartphones   [Mar-23-17 08:09PM  at Forbes]
▶ [$$] Nokia Mobile Networks Chief to Leave in Strategic Shake-Up   [06:21AM  at The Wall Street Journal]
▶ New Nokia 8 Leak Delivers Bad News   [Mar-15-17 11:41AM  at Forbes]
▶ Should Investors Bet on a Nokia Recovery?   [01:39PM  at Motley Fool]
Stock chart of NOK Financial statements of NOK
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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