Intrinsic value of Northern Trust - NTRS

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$94.01

  Intrinsic Value

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  Value-price divergence*

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$94.01

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

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

We calculate the intrinsic value of NTRS 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 21.2

 

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, %
  5.90
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.57
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
Revenue, $m
  5,117
  5,561
  5,994
  6,444
  6,912
  7,398
  7,903
  8,429
  8,975
  9,544
  10,135
  10,752
  11,394
  12,063
  12,762
  13,490
  14,251
  15,045
  15,875
  16,743
  17,650
  18,599
  19,592
  20,632
  21,720
  22,860
  24,054
  25,304
  26,615
  27,989
  29,430
Variable operating expenses, $m
 
  3,872
  4,169
  4,478
  4,800
  5,134
  5,481
  5,842
  6,217
  6,608
  7,014
  7,386
  7,827
  8,287
  8,766
  9,267
  9,789
  10,335
  10,905
  11,501
  12,124
  12,776
  13,458
  14,172
  14,920
  15,703
  16,523
  17,382
  18,282
  19,226
  20,215
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
  3,600
  3,872
  4,169
  4,478
  4,800
  5,134
  5,481
  5,842
  6,217
  6,608
  7,014
  7,386
  7,827
  8,287
  8,766
  9,267
  9,789
  10,335
  10,905
  11,501
  12,124
  12,776
  13,458
  14,172
  14,920
  15,703
  16,523
  17,382
  18,282
  19,226
  20,215
Operating income, $m
  1,517
  1,689
  1,825
  1,966
  2,112
  2,264
  2,423
  2,587
  2,758
  2,936
  3,121
  3,366
  3,567
  3,777
  3,996
  4,224
  4,462
  4,711
  4,970
  5,242
  5,526
  5,823
  6,134
  6,460
  6,800
  7,157
  7,531
  7,923
  8,333
  8,763
  9,214
EBITDA, $m
  1,890
  1,794
  1,934
  2,079
  2,230
  2,387
  2,550
  2,720
  2,896
  3,080
  3,271
  3,469
  3,677
  3,893
  4,118
  4,353
  4,599
  4,855
  5,123
  5,403
  5,696
  6,002
  6,322
  6,658
  7,009
  7,377
  7,762
  8,165
  8,588
  9,032
  9,497
Interest expense (income), $m
  182
  3,682
  3,947
  4,264
  4,594
  4,937
  5,293
  5,663
  6,048
  6,448
  6,865
  7,298
  7,750
  8,220
  8,711
  9,222
  9,756
  10,313
  10,895
  11,503
  12,139
  12,803
  13,499
  14,226
  14,988
  15,785
  16,620
  17,494
  18,411
  19,371
  20,377
Earnings before tax, $m
  1,517
  -1,993
  -2,122
  -2,299
  -2,482
  -2,673
  -2,871
  -3,076
  -3,290
  -3,512
  -3,743
  -3,932
  -4,183
  -4,443
  -4,715
  -4,999
  -5,294
  -5,603
  -5,925
  -6,261
  -6,613
  -6,980
  -7,364
  -7,767
  -8,187
  -8,628
  -9,089
  -9,572
  -10,078
  -10,608
  -11,163
Tax expense, $m
  484
  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
Net income, $m
  1,033
  -1,993
  -2,122
  -2,299
  -2,482
  -2,673
  -2,871
  -3,076
  -3,290
  -3,512
  -3,743
  -3,932
  -4,183
  -4,443
  -4,715
  -4,999
  -5,294
  -5,603
  -5,925
  -6,261
  -6,613
  -6,980
  -7,364
  -7,767
  -8,187
  -8,628
  -9,089
  -9,572
  -10,078
  -10,608
  -11,163

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  5,332
  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
  123,927
  129,318
  139,392
  149,861
  160,741
  172,047
  183,799
  196,017
  208,724
  221,946
  235,709
  250,042
  264,977
  280,545
  296,783
  313,727
  331,416
  349,891
  369,194
  389,372
  410,471
  432,541
  455,636
  479,808
  505,117
  531,622
  559,386
  588,476
  618,960
  650,913
  684,409
Adjusted assets (=assets-cash), $m
  118,595
  129,318
  139,392
  149,861
  160,741
  172,047
  183,799
  196,017
  208,724
  221,946
  235,709
  250,042
  264,977
  280,545
  296,783
  313,727
  331,416
  349,891
  369,194
  389,372
  410,471
  432,541
  455,636
  479,808
  505,117
  531,622
  559,386
  588,476
  618,960
  650,913
  684,409
Revenue / Adjusted assets
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
  0.043
Average production assets, $m
  501
  267
  288
  309
  332
  355
  379
  405
  431
  458
  487
  516
  547
  579
  613
  648
  684
  722
  762
  804
  847
  893
  940
  990
  1,043
  1,097
  1,155
  1,215
  1,278
  1,343
  1,413
Working capital, $m
  0
  2,780
  2,997
  3,222
  3,456
  3,699
  3,952
  4,214
  4,488
  4,772
  5,068
  5,376
  5,697
  6,032
  6,381
  6,745
  7,125
  7,523
  7,938
  8,371
  8,825
  9,300
  9,796
  10,316
  10,860
  11,430
  12,027
  12,652
  13,308
  13,995
  14,715
Total debt, $m
  110,545
  112,774
  121,840
  131,263
  141,055
  151,231
  161,807
  172,804
  184,240
  196,139
  208,526
  221,426
  234,867
  248,879
  263,493
  278,743
  294,662
  311,290
  328,663
  346,822
  365,812
  385,675
  406,460
  428,215
  450,993
  474,848
  499,835
  526,016
  553,452
  582,209
  612,356
Total liabilities, $m
  114,157
  116,386
  125,452
  134,875
  144,667
  154,843
  165,419
  176,416
  187,852
  199,751
  212,138
  225,038
  238,479
  252,491
  267,105
  282,355
  298,274
  314,902
  332,275
  350,434
  369,424
  389,287
  410,072
  431,827
  454,605
  478,460
  503,447
  529,628
  557,064
  585,821
  615,968
Total equity, $m
  9,770
  12,932
  13,939
  14,986
  16,074
  17,205
  18,380
  19,602
  20,872
  22,195
  23,571
  25,004
  26,498
  28,055
  29,678
  31,373
  33,142
  34,989
  36,919
  38,937
  41,047
  43,254
  45,564
  47,981
  50,512
  53,162
  55,939
  58,848
  61,896
  65,091
  68,441
Total liabilities and equity, $m
  123,927
  129,318
  139,391
  149,861
  160,741
  172,048
  183,799
  196,018
  208,724
  221,946
  235,709
  250,042
  264,977
  280,546
  296,783
  313,728
  331,416
  349,891
  369,194
  389,371
  410,471
  432,541
  455,636
  479,808
  505,117
  531,622
  559,386
  588,476
  618,960
  650,912
  684,409
Debt-to-equity ratio
  11.315
  8.720
  8.740
  8.760
  8.780
  8.790
  8.800
  8.820
  8.830
  8.840
  8.850
  8.860
  8.860
  8.870
  8.880
  8.880
  8.890
  8.900
  8.900
  8.910
  8.910
  8.920
  8.920
  8.920
  8.930
  8.930
  8.940
  8.940
  8.940
  8.940
  8.950
Adjusted equity ratio
  0.082
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,033
  -1,993
  -2,122
  -2,299
  -2,482
  -2,673
  -2,871
  -3,076
  -3,290
  -3,512
  -3,743
  -3,932
  -4,183
  -4,443
  -4,715
  -4,999
  -5,294
  -5,603
  -5,925
  -6,261
  -6,613
  -6,980
  -7,364
  -7,767
  -8,187
  -8,628
  -9,089
  -9,572
  -10,078
  -10,608
  -11,163
Depreciation, amort., depletion, $m
  373
  105
  109
  114
  118
  123
  128
  133
  138
  144
  149
  103
  109
  116
  123
  130
  137
  144
  152
  161
  169
  179
  188
  198
  209
  219
  231
  243
  256
  269
  283
Funds from operations, $m
  1,728
  -1,888
  -2,013
  -2,185
  -2,364
  -2,550
  -2,743
  -2,943
  -3,152
  -3,369
  -3,594
  -3,829
  -4,073
  -4,328
  -4,593
  -4,869
  -5,157
  -5,458
  -5,772
  -6,100
  -6,443
  -6,802
  -7,176
  -7,568
  -7,979
  -8,408
  -8,858
  -9,329
  -9,822
  -10,339
  -10,881
Change in working capital, $m
  218
  208
  217
  225
  234
  243
  253
  263
  273
  284
  296
  308
  321
  335
  349
  364
  380
  397
  415
  434
  454
  475
  497
  520
  544
  570
  597
  625
  655
  687
  720
Cash from operations, $m
  1,510
  -2,343
  -2,230
  -2,410
  -2,598
  -2,793
  -2,995
  -3,206
  -3,425
  -3,653
  -3,890
  -4,137
  -4,394
  -4,662
  -4,942
  -5,233
  -5,538
  -5,855
  -6,187
  -6,534
  -6,897
  -7,276
  -7,673
  -8,088
  -8,523
  -8,978
  -9,455
  -9,954
  -10,478
  -11,026
  -11,601
Maintenance CAPEX, $m
  0
  -49
  -53
  -58
  -62
  -66
  -71
  -76
  -81
  -86
  -92
  -97
  -103
  -109
  -116
  -123
  -130
  -137
  -144
  -152
  -161
  -169
  -179
  -188
  -198
  -209
  -219
  -231
  -243
  -256
  -269
New CAPEX, $m
  -473
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
Cash from investing activities, $m
  -10,192
  -69
  -74
  -80
  -84
  -89
  -95
  -101
  -107
  -113
  -120
  -127
  -134
  -141
  -150
  -158
  -167
  -175
  -184
  -194
  -205
  -215
  -227
  -238
  -250
  -264
  -276
  -291
  -306
  -322
  -338
Free cash flow, $m
  -8,682
  -2,413
  -2,304
  -2,489
  -2,682
  -2,882
  -3,091
  -3,307
  -3,532
  -3,766
  -4,010
  -4,264
  -4,528
  -4,804
  -5,091
  -5,391
  -5,704
  -6,030
  -6,372
  -6,728
  -7,101
  -7,491
  -7,899
  -8,326
  -8,773
  -9,241
  -9,732
  -10,245
  -10,783
  -11,347
  -11,939
Issuance/(repayment) of debt, $m
  994
  7,561
  9,066
  9,423
  9,792
  10,176
  10,577
  10,996
  11,437
  11,899
  12,387
  12,900
  13,441
  14,012
  14,614
  15,250
  15,920
  16,627
  17,373
  18,160
  18,989
  19,863
  20,785
  21,755
  22,778
  23,854
  24,988
  26,181
  27,436
  28,757
  30,146
Issuance/(repurchase) of shares, $m
  316
  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  
  7,893
  7,561
  9,066
  9,423
  9,792
  10,176
  10,577
  10,996
  11,437
  11,899
  12,387
  12,900
  13,441
  14,012
  14,614
  15,250
  15,920
  16,627
  17,373
  18,160
  18,989
  19,863
  20,785
  21,755
  22,778
  23,854
  24,988
  26,181
  27,436
  28,757
  30,146
Total cash flow (excl. dividends), $m
  -731
  5,148
  6,763
  6,933
  7,110
  7,293
  7,486
  7,689
  7,904
  8,133
  8,376
  8,636
  8,913
  9,208
  9,523
  9,859
  10,216
  10,597
  11,001
  11,432
  11,888
  12,372
  12,886
  13,429
  14,005
  14,613
  15,256
  15,936
  16,653
  17,410
  18,208
Retained Cash Flow (-), $m
  -1,064
  -3,162
  -1,007
  -1,047
  -1,088
  -1,131
  -1,175
  -1,222
  -1,271
  -1,322
  -1,376
  -1,433
  -1,493
  -1,557
  -1,624
  -1,694
  -1,769
  -1,847
  -1,930
  -2,018
  -2,110
  -2,207
  -2,309
  -2,417
  -2,531
  -2,650
  -2,776
  -2,909
  -3,048
  -3,195
  -3,350
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
 
  1,986
  5,755
  5,887
  6,022
  6,163
  6,311
  6,467
  6,634
  6,811
  7,000
  7,203
  7,419
  7,651
  7,899
  8,164
  8,447
  8,749
  9,071
  9,414
  9,778
  10,165
  10,576
  11,012
  11,474
  11,963
  12,480
  13,027
  13,604
  14,214
  14,858
Discount rate, %
 
  14.10
  14.81
  15.55
  16.32
  17.14
  18.00
  18.90
  19.84
  20.83
  21.87
  22.97
  24.12
  25.32
  26.59
  27.92
  29.31
  30.78
  32.32
  33.93
  35.63
  37.41
  39.28
  41.25
  43.31
  45.47
  47.75
  50.13
  52.64
  55.27
  58.04
PV of cash for distribution, $m
 
  1,741
  4,367
  3,816
  3,289
  2,794
  2,338
  1,926
  1,559
  1,240
  968
  741
  555
  407
  291
  203
  138
  91
  59
  37
  22
  13
  7
  4
  2
  1
  0
  0
  0
  0
  0
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

Northern Trust Corporation, a financial holding company, provides asset servicing, fund administration, asset management, fiduciary, and banking solutions for corporations, institutions, families, and individuals worldwide. It operates through two segments, Corporate & Institutional Services (C&IS) and Wealth Management. The C&IS segment offers asset servicing and related services, including global custody, fund administration, investment operations outsourcing, investment management, investment risk and analytical services, employee benefit services, securities lending, foreign exchange, treasury management, brokerage services, transition management services, banking, and cash management services. This segment provides services to corporate and public retirement funds, foundations, endowments, fund managers, insurance companies, sovereign wealth funds, and other institutional investors. The Wealth Management segment offers trust, investment management, custody, and philanthropic services; financial consulting; guardianship and estate administration; family business consulting; family financial education; brokerage services; and private and business banking. This segment serves high-net-worth individuals and families, business owners, executives, professionals, retirees, and established privately-held businesses. The company also provides asset management services, such as active, passive, and engineered equity; active and passive fixed income; cash management; alternative asset classes comprising private equity and hedge funds of funds; and multi-manager advisory services and products through separately managed accounts, bank common and collective funds, registered investment companies, exchange traded funds, non-U.S. collective investment funds, and unregistered private investment funds. In addition, it offers overlay services and other risk management services. Northern Trust Corporation was founded in 1889 and is based in Chicago, Illinois.

FINANCIAL RATIOS  of  Northern Trust (NTRS)

Valuation Ratios
P/E Ratio 20.8
Price to Sales 4.2
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 14.2
Price to Free Cash Flow 20.7
Growth Rates
Sales Growth Rate 5.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 9%
Cap. Spend. - 3 Yr. Gr. Rate 4.2%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 31.8%
Total Debt to Equity 1131.5%
Interest Coverage 9
Management Effectiveness
Return On Assets 1%
Ret/ On Assets - 3 Yr. Avg. 0.9%
Return On Total Capital 0.9%
Ret/ On T. Cap. - 3 Yr. Avg. 0.9%
Return On Equity 11.2%
Return On Equity - 3 Yr. Avg. 10.8%
Asset Turnover 0
Profitability Ratios
Gross Margin 97%
Gross Margin - 3 Yr. Avg. 97%
EBITDA Margin 40.5%
EBITDA Margin - 3 Yr. Avg. 39.9%
Operating Margin 29.6%
Oper. Margin - 3 Yr. Avg. 28.9%
Pre-Tax Margin 29.6%
Pre-Tax Margin - 3 Yr. Avg. 28.9%
Net Profit Margin 20.2%
Net Profit Margin - 3 Yr. Avg. 19.5%
Effective Tax Rate 31.9%
Eff/ Tax Rate - 3 Yr. Avg. 32.4%
Payout Ratio 34.5%

NTRS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NTRS stock intrinsic value calculation we used $5144 million for the last fiscal year's total revenue generated by Northern Trust. The default revenue input number comes from 2016 income statement of Northern Trust. 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 NTRS stock valuation model: a) initial revenue growth rate of 8.1% 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 14.1%, whose default value for NTRS is calculated based on our internal credit rating of Northern Trust, 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 Northern Trust.
    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 NTRS stock the variable cost ratio is equal to 69.7%.

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 NTRS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Northern Trust.

Corporate tax rate of 27% is the nominal tax rate for Northern Trust. 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 NTRS 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 NTRS are equal to 4.8%.

Life of production assets of 2.1 years is the average useful life of capital assets used in Northern Trust 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 NTRS is equal to 50%. 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 - $9770 million for Northern Trust - 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 225.926 million for Northern Trust 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 Northern Trust at the current share price and the inputted number of shares is $21.2 billion.


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COMPANY NEWS

▶ Nixon Says Second Half of Year Will Be Stronger   [Jun-23-17 11:23AM  Bloomberg Video]
▶ Northern Trust Discloses Dodd-Frank Act Stress Test Results   [Jun-22-17 05:12PM  Business Wire]
▶ Northern Trust Strengthens Wealth Advisory Team in D.C.   [Jun-19-17 08:00AM  Business Wire]
▶ Northern Trust Raises Prime Rate   [Jun-14-17 05:06PM  Business Wire]
▶ Another step (or spoke) in the regions core moving east   [May-18-17 05:32PM  American City Business Journals]
▶ Avoiding the Pitfalls of Overseas Property   [May-17-17 01:37PM  Barrons.com]
▶ Mobile growth leads the way for Weibo   [May-16-17 07:28PM  CNBC Videos]
▶ Growth outlook for Asian EMs   [May-10-17 08:32PM  CNBC Videos]
▶ ETFs with exposure to Northern Trust Corp. : May 5, 2017   [May-05-17 04:24PM  Capital Cube]
▶ Time to Buy Northern Short Bond Fund (BSBAX)   [May-02-17 06:04AM  Zacks]
▶ Northern Trust Hits New Highs, New Resistance   [Apr-25-17 02:34PM  TheStreet.com]
▶ Northern Trust beats 1Q profit forecasts   [07:52AM  Associated Press]
▶ [$$] Regulators Give Passing Grade to Living Wills for Regional Banks   [Mar-24-17 10:58PM  The Wall Street Journal]
▶ [$$] RPC hits 6-month low after Northern Trust attack   [Mar-22-17 02:41PM  at Financial Times]
▶ Northern Trust Raises Prime Rate   [10:17AM  Business Wire]
Stock chart of NTRS Financial statements of NTRS Annual reports of NTRS
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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