Intrinsic value of Northern Trust - NTRS

Previous Close

$87.93

  Intrinsic Value

$85.35

stock screener

  Rating & Target

hold

-3%

  Value-price divergence*

+102%

Previous close

$87.93

 
Intrinsic value

$85.35

 
Up/down potential

-3%

 
Rating

hold

 
Value-price divergence*

+102%

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
  8.60
  8.24
  7.92
  7.62
  7.36
  7.13
  6.91
  6.72
  6.55
  6.39
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
Revenue, $m
  5,117
  5,557
  6,015
  6,491
  6,986
  7,500
  8,035
  8,590
  9,168
  9,768
  10,393
  11,043
  11,720
  12,425
  13,160
  13,926
  14,726
  15,560
  16,432
  17,342
  18,294
  19,288
  20,329
  21,417
  22,556
  23,749
  24,998
  26,306
  27,676
  29,112
  30,617
Variable operating expenses, $m
 
  3,869
  4,183
  4,510
  4,850
  5,204
  5,571
  5,952
  6,349
  6,761
  7,190
  7,585
  8,050
  8,534
  9,039
  9,565
  10,114
  10,688
  11,286
  11,912
  12,565
  13,248
  13,963
  14,711
  15,493
  16,312
  17,170
  18,068
  19,010
  19,996
  21,030
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
  3,869
  4,183
  4,510
  4,850
  5,204
  5,571
  5,952
  6,349
  6,761
  7,190
  7,585
  8,050
  8,534
  9,039
  9,565
  10,114
  10,688
  11,286
  11,912
  12,565
  13,248
  13,963
  14,711
  15,493
  16,312
  17,170
  18,068
  19,010
  19,996
  21,030
Operating income, $m
  1,517
  1,688
  1,832
  1,981
  2,136
  2,297
  2,464
  2,638
  2,819
  3,007
  3,203
  3,458
  3,670
  3,891
  4,121
  4,361
  4,611
  4,873
  5,145
  5,431
  5,728
  6,040
  6,366
  6,707
  7,063
  7,437
  7,828
  8,237
  8,667
  9,116
  9,588
EBITDA, $m
  1,890
  1,795
  1,942
  2,096
  2,256
  2,422
  2,595
  2,774
  2,961
  3,155
  3,356
  3,566
  3,785
  4,013
  4,250
  4,497
  4,756
  5,025
  5,306
  5,600
  5,908
  6,229
  6,565
  6,917
  7,284
  7,670
  8,073
  8,495
  8,938
  9,402
  9,888
Interest expense (income), $m
  182
  3,869
  4,143
  4,495
  4,861
  5,241
  5,636
  6,047
  6,473
  6,917
  7,378
  7,858
  8,358
  8,878
  9,420
  9,984
  10,573
  11,187
  11,828
  12,498
  13,197
  13,928
  14,693
  15,492
  16,328
  17,203
  18,120
  19,079
  20,084
  21,137
  22,240
Earnings before tax, $m
  1,517
  -2,181
  -2,311
  -2,514
  -2,725
  -2,944
  -3,172
  -3,409
  -3,655
  -3,910
  -4,176
  -4,400
  -4,688
  -4,987
  -5,299
  -5,623
  -5,962
  -6,315
  -6,683
  -7,067
  -7,469
  -7,888
  -8,327
  -8,785
  -9,265
  -9,767
  -10,292
  -10,842
  -11,418
  -12,021
  -12,653
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
  -2,181
  -2,311
  -2,514
  -2,725
  -2,944
  -3,172
  -3,409
  -3,655
  -3,910
  -4,176
  -4,400
  -4,688
  -4,987
  -5,299
  -5,623
  -5,962
  -6,315
  -6,683
  -7,067
  -7,469
  -7,888
  -8,327
  -8,785
  -9,265
  -9,767
  -10,292
  -10,842
  -11,418
  -12,021
  -12,653

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
  135,538
  146,706
  158,320
  170,391
  182,935
  195,970
  209,518
  223,602
  238,247
  253,482
  269,338
  285,848
  303,046
  320,972
  339,664
  359,164
  379,519
  400,773
  422,977
  446,183
  470,445
  495,820
  522,369
  550,154
  579,242
  609,701
  641,604
  675,028
  710,051
  746,757
Adjusted assets (=assets-cash), $m
  118,595
  135,538
  146,706
  158,320
  170,391
  182,935
  195,970
  209,518
  223,602
  238,247
  253,482
  269,338
  285,848
  303,046
  320,972
  339,664
  359,164
  379,519
  400,773
  422,977
  446,183
  470,445
  495,820
  522,369
  550,154
  579,242
  609,701
  641,604
  675,028
  710,051
  746,757
Revenue / Adjusted assets
  0.043
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
  0.041
Average production assets, $m
  501
  545
  589
  636
  685
  735
  787
  842
  898
  957
  1,018
  1,082
  1,149
  1,218
  1,290
  1,365
  1,443
  1,525
  1,610
  1,700
  1,793
  1,890
  1,992
  2,099
  2,211
  2,327
  2,450
  2,578
  2,712
  2,853
  3,000
Working capital, $m
  0
  2,779
  3,007
  3,246
  3,493
  3,750
  4,017
  4,295
  4,584
  4,884
  5,196
  5,521
  5,860
  6,212
  6,580
  6,963
  7,363
  7,780
  8,216
  8,671
  9,147
  9,644
  10,164
  10,709
  11,278
  11,874
  12,499
  13,153
  13,838
  14,556
  15,309
Total debt, $m
  110,545
  118,372
  128,424
  138,876
  149,740
  161,029
  172,761
  184,954
  197,629
  210,810
  224,522
  238,792
  253,651
  269,130
  285,262
  302,085
  319,636
  337,955
  357,084
  377,068
  397,953
  419,789
  442,626
  466,520
  491,527
  517,706
  545,119
  573,832
  603,913
  635,434
  668,470
Total liabilities, $m
  114,157
  121,984
  132,036
  142,488
  153,352
  164,641
  176,373
  188,566
  201,241
  214,422
  228,134
  242,404
  257,263
  272,742
  288,874
  305,697
  323,248
  341,567
  360,696
  380,680
  401,565
  423,401
  446,238
  470,132
  495,139
  521,318
  548,731
  577,444
  607,525
  639,046
  672,082
Total equity, $m
  9,770
  13,554
  14,671
  15,832
  17,039
  18,293
  19,597
  20,952
  22,360
  23,825
  25,348
  26,934
  28,585
  30,305
  32,097
  33,966
  35,916
  37,952
  40,077
  42,298
  44,618
  47,045
  49,582
  52,237
  55,015
  57,924
  60,970
  64,160
  67,503
  71,005
  74,676
Total liabilities and equity, $m
  123,927
  135,538
  146,707
  158,320
  170,391
  182,934
  195,970
  209,518
  223,601
  238,247
  253,482
  269,338
  285,848
  303,047
  320,971
  339,663
  359,164
  379,519
  400,773
  422,978
  446,183
  470,446
  495,820
  522,369
  550,154
  579,242
  609,701
  641,604
  675,028
  710,051
  746,758
Debt-to-equity ratio
  11.315
  8.730
  8.750
  8.770
  8.790
  8.800
  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
  8.930
  8.930
  8.930
  8.940
  8.940
  8.940
  8.950
  8.950
  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
  -2,181
  -2,311
  -2,514
  -2,725
  -2,944
  -3,172
  -3,409
  -3,655
  -3,910
  -4,176
  -4,400
  -4,688
  -4,987
  -5,299
  -5,623
  -5,962
  -6,315
  -6,683
  -7,067
  -7,469
  -7,888
  -8,327
  -8,785
  -9,265
  -9,767
  -10,292
  -10,842
  -11,418
  -12,021
  -12,653
Depreciation, amort., depletion, $m
  373
  106
  111
  116
  120
  125
  131
  136
  142
  148
  154
  108
  115
  122
  129
  136
  144
  152
  161
  170
  179
  189
  199
  210
  221
  233
  245
  258
  271
  285
  300
Funds from operations, $m
  1,728
  -2,074
  -2,201
  -2,399
  -2,605
  -2,819
  -3,041
  -3,272
  -3,513
  -3,762
  -4,022
  -4,292
  -4,573
  -4,865
  -5,170
  -5,487
  -5,817
  -6,162
  -6,522
  -6,897
  -7,290
  -7,699
  -8,128
  -8,575
  -9,044
  -9,534
  -10,047
  -10,584
  -11,146
  -11,735
  -12,353
Change in working capital, $m
  218
  220
  229
  238
  247
  257
  267
  278
  289
  300
  312
  325
  338
  353
  367
  383
  400
  417
  436
  455
  476
  497
  520
  544
  570
  596
  624
  654
  685
  718
  752
Cash from operations, $m
  1,510
  -2,294
  -2,429
  -2,637
  -2,852
  -3,076
  -3,308
  -3,550
  -3,801
  -4,063
  -4,334
  -4,617
  -4,911
  -5,218
  -5,537
  -5,870
  -6,217
  -6,579
  -6,958
  -7,353
  -7,765
  -8,197
  -8,648
  -9,120
  -9,613
  -10,130
  -10,671
  -11,238
  -11,831
  -12,453
  -13,105
Maintenance CAPEX, $m
  0
  -50
  -54
  -59
  -64
  -68
  -74
  -79
  -84
  -90
  -96
  -102
  -108
  -115
  -122
  -129
  -136
  -144
  -152
  -161
  -170
  -179
  -189
  -199
  -210
  -221
  -233
  -245
  -258
  -271
  -285
New CAPEX, $m
  -473
  -44
  -45
  -47
  -49
  -50
  -52
  -54
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -82
  -85
  -89
  -93
  -97
  -102
  -107
  -112
  -117
  -122
  -128
  -134
  -141
  -147
Cash from investing activities, $m
  -10,192
  -94
  -99
  -106
  -113
  -118
  -126
  -133
  -141
  -149
  -157
  -166
  -174
  -184
  -194
  -204
  -214
  -226
  -237
  -250
  -263
  -276
  -291
  -306
  -322
  -338
  -355
  -373
  -392
  -412
  -432
Free cash flow, $m
  -8,682
  -2,388
  -2,529
  -2,742
  -2,964
  -3,195
  -3,434
  -3,683
  -3,942
  -4,211
  -4,491
  -4,783
  -5,086
  -5,402
  -5,731
  -6,074
  -6,432
  -6,806
  -7,196
  -7,603
  -8,029
  -8,473
  -8,939
  -9,426
  -9,935
  -10,468
  -11,026
  -11,611
  -12,224
  -12,865
  -13,538
Issuance/(repayment) of debt, $m
  994
  7,827
  10,052
  10,452
  10,864
  11,290
  11,732
  12,193
  12,675
  13,181
  13,712
  14,270
  14,859
  15,479
  16,133
  16,823
  17,551
  18,319
  19,129
  19,984
  20,885
  21,836
  22,838
  23,894
  25,007
  26,179
  27,413
  28,713
  30,081
  31,521
  33,036
Issuance/(repurchase) of shares, $m
  316
  5,965
  3,428
  3,675
  3,932
  4,199
  4,475
  4,763
  5,063
  5,375
  5,699
  5,986
  6,339
  6,707
  7,091
  7,492
  7,912
  8,350
  8,808
  9,288
  9,789
  10,315
  10,864
  11,440
  12,043
  12,675
  13,338
  14,032
  14,760
  15,523
  16,323
Cash from financing (excl. dividends), $m  
  7,893
  13,792
  13,480
  14,127
  14,796
  15,489
  16,207
  16,956
  17,738
  18,556
  19,411
  20,256
  21,198
  22,186
  23,224
  24,315
  25,463
  26,669
  27,937
  29,272
  30,674
  32,151
  33,702
  35,334
  37,050
  38,854
  40,751
  42,745
  44,841
  47,044
  49,359
Total cash flow (excl. dividends), $m
  -731
  11,404
  10,951
  11,385
  11,832
  12,293
  12,773
  13,273
  13,796
  14,344
  14,920
  15,474
  16,112
  16,784
  17,493
  18,241
  19,031
  19,863
  20,742
  21,669
  22,646
  23,677
  24,763
  25,909
  27,115
  28,386
  29,725
  31,134
  32,617
  34,179
  35,821
Retained Cash Flow (-), $m
  -1,064
  -5,965
  -3,428
  -3,675
  -3,932
  -4,199
  -4,475
  -4,763
  -5,063
  -5,375
  -5,699
  -5,986
  -6,339
  -6,707
  -7,091
  -7,492
  -7,912
  -8,350
  -8,808
  -9,288
  -9,789
  -10,315
  -10,864
  -11,440
  -12,043
  -12,675
  -13,338
  -14,032
  -14,760
  -15,523
  -16,323
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
 
  5,439
  7,523
  7,710
  7,900
  8,095
  8,298
  8,510
  8,733
  8,969
  9,220
  9,488
  9,773
  10,077
  10,402
  10,749
  11,119
  11,513
  11,934
  12,381
  12,857
  13,362
  13,899
  14,468
  15,072
  15,711
  16,387
  17,102
  17,857
  18,656
  19,498
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
 
  4,767
  5,708
  4,998
  4,315
  3,670
  3,074
  2,534
  2,053
  1,633
  1,275
  976
  731
  536
  383
  268
  182
  120
  77
  48
  29
  17
  9
  5
  3
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  76.9
  68.4
  60.9
  54.3
  48.4
  43.2
  38.6
  34.5
  30.8
  27.6
  24.7
  22.2
  19.9
  17.8
  16.0
  14.3
  12.9
  11.6
  10.4
  9.3
  8.4
  7.5
  6.7
  6.1
  5.4
  4.9
  4.4
  3.9
  3.5
  3.2

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 19.5
Price to Sales 3.9
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 13.3
Price to Free Cash Flow 19.4
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 8.6% 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 10 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 $19.9 billion.

RELATED COMPANIES Price Int.Val. Rating
SEIC SEI Investment 55.82 33.24  sell
PZN Pzena Investme 9.62 49.13  str.buy

COMPANY NEWS

▶ Two-thirds of U.S. investors think stocks are overvalued   [Jul-21-17 04:51PM  MarketWatch]
▶ Northern Trust misses Street 2Q forecasts   [Jul-19-17 10:47PM  Associated Press]
▶ Why Northern Trust is todays biggest stock loser   [04:52PM  American City Business Journals]
▶ Why Northern Trust is Crashing   [01:18PM  Barrons.com]
▶ Northern Trust Announces Leadership Changes   [Jul-17-17 04:05PM  Business Wire]
▶ Northern Trust Sees Positive U.K. Growth Short-Term   [Jul-04-17 02:36AM  Bloomberg Video]
▶ Going Global With A Real Estate ETF   [Jun-27-17 10:00AM  Benzinga]
▶ 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]
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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