Intrinsic value of Northern Trust - NTRS

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$87.36

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$87.36

 
Intrinsic value

$102.08

 
Up/down potential

+17%

 
Rating

hold

 
Value-price divergence* premium content

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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 19.9

 

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
  7.50
  7.25
  7.02
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.78
  5.71
  5.64
  5.57
  5.51
  5.46
  5.42
  5.38
  5.34
  5.30
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
Revenue, $m
  5,117
  5,501
  5,900
  6,314
  6,745
  7,193
  7,658
  8,143
  8,648
  9,173
  9,721
  10,291
  10,887
  11,508
  12,156
  12,834
  13,542
  14,281
  15,055
  15,864
  16,711
  17,597
  18,525
  19,497
  20,515
  21,582
  22,700
  23,871
  25,100
  26,388
  27,738
Variable operating expenses, $m
 
  3,830
  4,104
  4,389
  4,685
  4,992
  5,312
  5,645
  5,992
  6,353
  6,729
  7,069
  7,478
  7,904
  8,350
  8,815
  9,301
  9,809
  10,341
  10,896
  11,478
  12,087
  12,724
  13,392
  14,091
  14,824
  15,592
  16,396
  17,240
  18,124
  19,052
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
  3,830
  4,104
  4,389
  4,685
  4,992
  5,312
  5,645
  5,992
  6,353
  6,729
  7,069
  7,478
  7,904
  8,350
  8,815
  9,301
  9,809
  10,341
  10,896
  11,478
  12,087
  12,724
  13,392
  14,091
  14,824
  15,592
  16,396
  17,240
  18,124
  19,052
Operating income, $m
  1,517
  1,671
  1,796
  1,925
  2,060
  2,200
  2,346
  2,498
  2,656
  2,821
  2,992
  3,223
  3,409
  3,604
  3,807
  4,019
  4,240
  4,472
  4,714
  4,968
  5,233
  5,510
  5,801
  6,105
  6,424
  6,758
  7,108
  7,475
  7,860
  8,263
  8,686
EBITDA, $m
  1,890
  1,830
  1,963
  2,101
  2,244
  2,393
  2,548
  2,710
  2,877
  3,052
  3,234
  3,424
  3,622
  3,829
  4,045
  4,270
  4,506
  4,752
  5,009
  5,279
  5,560
  5,855
  6,164
  6,488
  6,826
  7,181
  7,553
  7,943
  8,352
  8,780
  9,230
Interest expense (income), $m
  182
  3,682
  3,903
  4,195
  4,499
  4,815
  5,143
  5,484
  5,839
  6,209
  6,593
  6,995
  7,413
  7,849
  8,304
  8,779
  9,275
  9,794
  10,336
  10,902
  11,495
  12,115
  12,765
  13,444
  14,156
  14,902
  15,684
  16,502
  17,361
  18,261
  19,204
Earnings before tax, $m
  1,517
  -2,012
  -2,108
  -2,270
  -2,439
  -2,614
  -2,796
  -2,986
  -3,183
  -3,388
  -3,601
  -3,772
  -4,004
  -4,245
  -4,497
  -4,760
  -5,035
  -5,321
  -5,621
  -5,934
  -6,262
  -6,605
  -6,964
  -7,339
  -7,732
  -8,144
  -8,575
  -9,027
  -9,501
  -9,998
  -10,518
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
  -2,012
  -2,108
  -2,270
  -2,439
  -2,614
  -2,796
  -2,986
  -3,183
  -3,388
  -3,601
  -3,772
  -4,004
  -4,245
  -4,497
  -4,760
  -5,035
  -5,321
  -5,621
  -5,934
  -6,262
  -6,605
  -6,964
  -7,339
  -7,732
  -8,144
  -8,575
  -9,027
  -9,501
  -9,998
  -10,518

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
  127,925
  137,200
  146,838
  156,856
  167,271
  178,104
  189,376
  201,109
  213,329
  226,061
  239,335
  253,180
  267,626
  282,708
  298,460
  314,920
  332,125
  350,115
  368,935
  388,628
  409,240
  430,822
  453,423
  477,099
  501,906
  527,902
  555,150
  583,714
  613,664
  645,069
Adjusted assets (=assets-cash), $m
  118,595
  127,925
  137,200
  146,838
  156,856
  167,271
  178,104
  189,376
  201,109
  213,329
  226,061
  239,335
  253,180
  267,626
  282,708
  298,460
  314,920
  332,125
  350,115
  368,935
  388,628
  409,240
  430,822
  453,423
  477,099
  501,906
  527,902
  555,150
  583,714
  613,664
  645,069
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
  539
  578
  619
  661
  705
  751
  798
  847
  899
  953
  1,009
  1,067
  1,128
  1,191
  1,258
  1,327
  1,400
  1,475
  1,555
  1,638
  1,725
  1,815
  1,911
  2,010
  2,115
  2,225
  2,339
  2,460
  2,586
  2,718
Working capital, $m
  0
  2,750
  2,950
  3,157
  3,372
  3,596
  3,829
  4,072
  4,324
  4,587
  4,860
  5,146
  5,443
  5,754
  6,078
  6,417
  6,771
  7,141
  7,527
  7,932
  8,355
  8,799
  9,263
  9,749
  10,258
  10,791
  11,350
  11,936
  12,550
  13,194
  13,869
Total debt, $m
  110,545
  111,521
  119,868
  128,542
  137,558
  146,932
  156,682
  166,826
  177,386
  188,384
  199,843
  211,790
  224,250
  237,252
  250,825
  265,002
  279,816
  295,300
  311,492
  328,429
  346,153
  364,704
  384,128
  404,469
  425,777
  448,103
  471,500
  496,023
  521,731
  548,685
  576,950
Total liabilities, $m
  114,157
  115,133
  123,480
  132,154
  141,170
  150,544
  160,294
  170,438
  180,998
  191,996
  203,455
  215,402
  227,862
  240,864
  254,437
  268,614
  283,428
  298,912
  315,104
  332,041
  349,765
  368,316
  387,740
  408,081
  429,389
  451,715
  475,112
  499,635
  525,343
  552,297
  580,562
Total equity, $m
  9,770
  12,793
  13,720
  14,684
  15,686
  16,727
  17,810
  18,938
  20,111
  21,333
  22,606
  23,934
  25,318
  26,763
  28,271
  29,846
  31,492
  33,212
  35,012
  36,893
  38,863
  40,924
  43,082
  45,342
  47,710
  50,191
  52,790
  55,515
  58,371
  61,366
  64,507
Total liabilities and equity, $m
  123,927
  127,926
  137,200
  146,838
  156,856
  167,271
  178,104
  189,376
  201,109
  213,329
  226,061
  239,336
  253,180
  267,627
  282,708
  298,460
  314,920
  332,124
  350,116
  368,934
  388,628
  409,240
  430,822
  453,423
  477,099
  501,906
  527,902
  555,150
  583,714
  613,663
  645,069
Debt-to-equity ratio
  11.315
  8.720
  8.740
  8.750
  8.770
  8.780
  8.800
  8.810
  8.820
  8.830
  8.840
  8.850
  8.860
  8.870
  8.870
  8.880
  8.890
  8.890
  8.900
  8.900
  8.910
  8.910
  8.920
  8.920
  8.920
  8.930
  8.930
  8.930
  8.940
  8.940
  8.940
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
  -2,012
  -2,108
  -2,270
  -2,439
  -2,614
  -2,796
  -2,986
  -3,183
  -3,388
  -3,601
  -3,772
  -4,004
  -4,245
  -4,497
  -4,760
  -5,035
  -5,321
  -5,621
  -5,934
  -6,262
  -6,605
  -6,964
  -7,339
  -7,732
  -8,144
  -8,575
  -9,027
  -9,501
  -9,998
  -10,518
Depreciation, amort., depletion, $m
  373
  160
  168
  176
  184
  193
  202
  212
  221
  232
  242
  202
  213
  226
  238
  252
  265
  280
  295
  311
  328
  345
  363
  382
  402
  423
  445
  468
  492
  517
  544
Funds from operations, $m
  1,728
  -1,852
  -1,940
  -2,094
  -2,255
  -2,421
  -2,594
  -2,774
  -2,961
  -3,156
  -3,359
  -3,570
  -3,790
  -4,020
  -4,259
  -4,509
  -4,769
  -5,042
  -5,326
  -5,624
  -5,935
  -6,260
  -6,600
  -6,957
  -7,330
  -7,721
  -8,130
  -8,559
  -9,009
  -9,480
  -9,974
Change in working capital, $m
  218
  192
  199
  207
  215
  224
  233
  242
  252
  263
  274
  285
  298
  311
  324
  339
  354
  370
  387
  405
  423
  443
  464
  486
  509
  533
  559
  586
  614
  644
  675
Cash from operations, $m
  1,510
  -2,037
  -2,140
  -2,302
  -2,470
  -2,645
  -2,827
  -3,017
  -3,214
  -3,419
  -3,633
  -3,856
  -4,088
  -4,330
  -4,583
  -4,847
  -5,123
  -5,411
  -5,713
  -6,028
  -6,358
  -6,703
  -7,064
  -7,443
  -7,839
  -8,254
  -8,689
  -9,145
  -9,623
  -10,124
  -10,650
Maintenance CAPEX, $m
  0
  -100
  -108
  -116
  -124
  -132
  -141
  -150
  -160
  -169
  -180
  -191
  -202
  -213
  -226
  -238
  -252
  -265
  -280
  -295
  -311
  -328
  -345
  -363
  -382
  -402
  -423
  -445
  -468
  -492
  -517
New CAPEX, $m
  -473
  -38
  -39
  -41
  -42
  -44
  -46
  -47
  -49
  -51
  -54
  -56
  -58
  -61
  -64
  -66
  -69
  -73
  -76
  -79
  -83
  -87
  -91
  -95
  -100
  -105
  -110
  -115
  -120
  -126
  -132
Cash from investing activities, $m
  -10,192
  -138
  -147
  -157
  -166
  -176
  -187
  -197
  -209
  -220
  -234
  -247
  -260
  -274
  -290
  -304
  -321
  -338
  -356
  -374
  -394
  -415
  -436
  -458
  -482
  -507
  -533
  -560
  -588
  -618
  -649
Free cash flow, $m
  -8,682
  -2,175
  -2,286
  -2,458
  -2,636
  -2,821
  -3,014
  -3,214
  -3,423
  -3,640
  -3,866
  -4,102
  -4,348
  -4,604
  -4,872
  -5,152
  -5,444
  -5,749
  -6,069
  -6,403
  -6,752
  -7,118
  -7,500
  -7,901
  -8,321
  -8,761
  -9,222
  -9,705
  -10,211
  -10,742
  -11,299
Issuance/(repayment) of debt, $m
  994
  6,308
  8,347
  8,674
  9,016
  9,374
  9,750
  10,144
  10,560
  10,998
  11,459
  11,946
  12,460
  13,002
  13,574
  14,177
  14,813
  15,484
  16,192
  16,938
  17,723
  18,551
  19,423
  20,342
  21,308
  22,326
  23,396
  24,523
  25,708
  26,954
  28,265
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
  6,308
  8,347
  8,674
  9,016
  9,374
  9,750
  10,144
  10,560
  10,998
  11,459
  11,946
  12,460
  13,002
  13,574
  14,177
  14,813
  15,484
  16,192
  16,938
  17,723
  18,551
  19,423
  20,342
  21,308
  22,326
  23,396
  24,523
  25,708
  26,954
  28,265
Total cash flow (excl. dividends), $m
  -731
  4,132
  6,061
  6,217
  6,380
  6,553
  6,736
  6,930
  7,137
  7,358
  7,593
  7,844
  8,112
  8,398
  8,702
  9,025
  9,369
  9,735
  10,123
  10,535
  10,972
  11,434
  11,923
  12,440
  12,987
  13,565
  14,175
  14,818
  15,497
  16,212
  16,966
Retained Cash Flow (-), $m
  -1,064
  -3,023
  -927
  -964
  -1,002
  -1,042
  -1,083
  -1,127
  -1,173
  -1,222
  -1,273
  -1,327
  -1,384
  -1,445
  -1,508
  -1,575
  -1,646
  -1,720
  -1,799
  -1,882
  -1,969
  -2,061
  -2,158
  -2,260
  -2,368
  -2,481
  -2,600
  -2,725
  -2,856
  -2,995
  -3,141
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
 
  1,110
  5,133
  5,253
  5,378
  5,511
  5,652
  5,803
  5,964
  6,136
  6,320
  6,517
  6,728
  6,953
  7,193
  7,450
  7,723
  8,015
  8,324
  8,653
  9,002
  9,373
  9,765
  10,180
  10,620
  11,084
  11,575
  12,093
  12,640
  13,217
  13,825
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
 
  973
  3,895
  3,405
  2,938
  2,499
  2,094
  1,728
  1,402
  1,117
  874
  670
  503
  370
  265
  185
  126
  84
  54
  34
  20
  12
  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 19.3
Price to Sales 3.9
Price to Book 2
Price to Tangible Book
Price to Cash Flow 13.2
Price to Free Cash Flow 19.3
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 $5117 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 7.5% 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 9.8%.

Life of production assets of 2.7 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 227.882 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 $19.9 billion.


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COMPANY NEWS

▶ [$$] Regulators Give Passing Grade to Living Wills for Regional Banks   [Mar-24-17 10:58PM  The Wall Street Journal]
▶ [$$] 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]
▶ Northern Trust Deploys Blockchain for Private Equity   [05:09PM  at The Wall Street Journal]
▶ Three Key Trends Driving ETF Growth   [09:00AM  Business Wire]
▶ Northern Trust Appointed by Alpine Global Master Fund   [Feb-12-17 08:48PM  Business Wire]
▶ Former Missouri Treasurer Zweifel joins wealth management firm   [Feb-01-17 12:02PM  at bizjournals.com]
▶ Zhuzhou CRRC: Why This Money Manager Says Buy   [12:28AM  at Barrons.com]
▶ Finance Watch   [12:29AM  at The Wall Street Journal]
▶ [$$] Finance Watch   [07:47PM  at The Wall Street Journal]
▶ [$$] Northern Trust's Profit, Revenue Grow   [08:24AM  at The Wall Street Journal]
▶ Northern Trust Announces Leadership Changes   [04:08PM  Business Wire]
▶ Northern Trust Sells TripAdvisor Shares (TRIP)   [Jan-16-17 03:53PM  at Investopedia]
▶ Northern Trust Expands European Transition Management Team   [Jan-09-17 05:12AM  Business Wire]
Stock chart of NTRS Financial statements 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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