Intrinsic value of ON Semiconductor - ON

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$14.96

  Intrinsic Value

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  Value-price divergence*

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$14.96

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

We calculate the intrinsic value of ON 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 6.1

 

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, %
  11.76
  50.10
  45.59
  41.53
  37.88
  34.59
  31.63
  28.97
  26.57
  24.41
  22.47
  20.73
  19.15
  17.74
  16.46
  15.32
  14.29
  13.36
  12.52
  11.77
  11.09
  10.48
  9.93
  9.44
  9.00
  8.60
  8.24
  7.91
  7.62
  7.36
  7.12
Revenue, $m
  3,907
  5,864
  8,538
  12,084
  16,661
  22,424
  29,517
  38,068
  48,183
  59,946
  73,417
  88,633
  105,609
  124,342
  144,813
  166,995
  190,851
  216,343
  243,433
  272,083
  302,263
  333,950
  367,127
  401,789
  437,939
  475,590
  514,768
  555,506
  597,850
  641,854
  687,581
Variable operating expenses, $m
 
  4,950
  7,164
  10,101
  13,892
  18,665
  24,539
  31,620
  39,998
  49,740
  60,897
  73,406
  87,465
  102,979
  119,934
  138,305
  158,062
  179,175
  201,610
  225,338
  250,333
  276,576
  304,053
  332,760
  362,699
  393,882
  426,329
  460,068
  495,137
  531,581
  569,452
Fixed operating expenses, $m
 
  271
  277
  284
  291
  299
  306
  314
  322
  330
  338
  346
  355
  364
  373
  382
  392
  402
  412
  422
  433
  443
  454
  466
  478
  489
  502
  514
  527
  540
  554
Total operating expenses, $m
  3,585
  5,221
  7,441
  10,385
  14,183
  18,964
  24,845
  31,934
  40,320
  50,070
  61,235
  73,752
  87,820
  103,343
  120,307
  138,687
  158,454
  179,577
  202,022
  225,760
  250,766
  277,019
  304,507
  333,226
  363,177
  394,371
  426,831
  460,582
  495,664
  532,121
  570,006
Operating income, $m
  322
  644
  1,096
  1,699
  2,478
  3,461
  4,672
  6,133
  7,863
  9,876
  12,182
  14,881
  17,789
  20,998
  24,506
  28,308
  32,397
  36,767
  41,411
  46,323
  51,497
  56,930
  62,619
  68,563
  74,762
  81,219
  87,937
  94,924
  102,186
  109,732
  117,575
EBITDA, $m
  686
  1,091
  1,705
  2,522
  3,577
  4,908
  6,548
  8,526
  10,867
  13,590
  16,710
  20,235
  24,168
  28,509
  33,253
  38,394
  43,924
  49,834
  56,114
  62,757
  69,754
  77,101
  84,794
  92,831
  101,213
  109,944
  119,029
  128,476
  138,296
  148,500
  159,105
Interest expense (income), $m
  107
  107
  187
  295
  438
  623
  856
  1,143
  1,489
  1,898
  2,373
  2,918
  3,533
  4,220
  4,977
  5,805
  6,702
  7,667
  8,698
  9,793
  10,952
  12,172
  13,453
  14,795
  16,197
  17,658
  19,181
  20,765
  22,413
  24,125
  25,904
Earnings before tax, $m
  181
  537
  910
  1,404
  2,040
  2,838
  3,816
  4,990
  6,375
  7,978
  9,809
  11,963
  14,255
  16,778
  19,529
  22,503
  25,695
  29,100
  32,713
  36,530
  40,546
  44,758
  49,166
  53,768
  58,565
  63,560
  68,756
  74,158
  79,773
  85,608
  91,671
Tax expense, $m
  -4
  145
  246
  379
  551
  766
  1,030
  1,347
  1,721
  2,154
  2,648
  3,230
  3,849
  4,530
  5,273
  6,076
  6,938
  7,857
  8,833
  9,863
  10,947
  12,085
  13,275
  14,517
  15,813
  17,161
  18,564
  20,023
  21,539
  23,114
  24,751
Net income, $m
  182
  392
  664
  1,025
  1,489
  2,072
  2,786
  3,643
  4,653
  5,824
  7,161
  8,733
  10,407
  12,248
  14,256
  16,427
  18,757
  21,243
  23,881
  26,667
  29,598
  32,673
  35,891
  39,250
  42,753
  46,399
  50,192
  54,136
  58,234
  62,493
  66,920

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,028
  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
  6,924
  8,845
  12,878
  18,226
  25,130
  33,822
  44,520
  57,417
  72,674
  90,416
  110,735
  133,685
  159,290
  187,544
  218,421
  251,878
  287,860
  326,310
  367,169
  410,382
  455,903
  503,695
  553,736
  606,016
  660,541
  717,331
  776,422
  837,868
  901,735
  968,105
  1,037,076
Adjusted assets (=assets-cash), $m
  5,896
  8,845
  12,878
  18,226
  25,130
  33,822
  44,520
  57,417
  72,674
  90,416
  110,735
  133,685
  159,290
  187,544
  218,421
  251,878
  287,860
  326,310
  367,169
  410,382
  455,903
  503,695
  553,736
  606,016
  660,541
  717,331
  776,422
  837,868
  901,735
  968,105
  1,037,076
Revenue / Adjusted assets
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
  0.663
Average production assets, $m
  2,261
  1,771
  2,578
  3,649
  5,032
  6,772
  8,914
  11,496
  14,551
  18,104
  22,172
  26,767
  31,894
  37,551
  43,734
  50,432
  57,637
  65,336
  73,517
  82,169
  91,284
  100,853
  110,872
  121,340
  132,257
  143,628
  155,460
  167,763
  180,551
  193,840
  207,649
Working capital, $m
  1,366
  1,337
  1,947
  2,755
  3,799
  5,113
  6,730
  8,679
  10,986
  13,668
  16,739
  20,208
  24,079
  28,350
  33,017
  38,075
  43,514
  49,326
  55,503
  62,035
  68,916
  76,141
  83,705
  91,608
  99,850
  108,435
  117,367
  126,655
  136,310
  146,343
  156,768
Total debt, $m
  3,622
  5,329
  8,418
  12,515
  17,803
  24,462
  32,657
  42,536
  54,222
  67,813
  83,377
  100,957
  120,570
  142,213
  165,865
  191,492
  219,055
  248,507
  279,805
  312,906
  347,775
  384,385
  422,716
  462,763
  504,528
  548,029
  593,293
  640,361
  689,283
  740,123
  792,954
Total liabilities, $m
  5,068
  6,775
  9,864
  13,961
  19,249
  25,908
  34,103
  43,982
  55,668
  69,259
  84,823
  102,403
  122,016
  143,659
  167,311
  192,938
  220,501
  249,953
  281,251
  314,352
  349,221
  385,831
  424,162
  464,209
  505,974
  549,475
  594,739
  641,807
  690,729
  741,569
  794,400
Total equity, $m
  1,856
  2,070
  3,013
  4,265
  5,880
  7,914
  10,418
  13,436
  17,006
  21,157
  25,912
  31,282
  37,274
  43,885
  51,111
  58,939
  67,359
  76,357
  85,917
  96,029
  106,681
  117,865
  129,574
  141,808
  154,567
  167,855
  181,683
  196,061
  211,006
  226,537
  242,676
Total liabilities and equity, $m
  6,924
  8,845
  12,877
  18,226
  25,129
  33,822
  44,521
  57,418
  72,674
  90,416
  110,735
  133,685
  159,290
  187,544
  218,422
  251,877
  287,860
  326,310
  367,168
  410,381
  455,902
  503,696
  553,736
  606,017
  660,541
  717,330
  776,422
  837,868
  901,735
  968,106
  1,037,076
Debt-to-equity ratio
  1.952
  2.570
  2.790
  2.930
  3.030
  3.090
  3.130
  3.170
  3.190
  3.210
  3.220
  3.230
  3.230
  3.240
  3.250
  3.250
  3.250
  3.250
  3.260
  3.260
  3.260
  3.260
  3.260
  3.260
  3.260
  3.260
  3.270
  3.270
  3.270
  3.270
  3.270
Adjusted equity ratio
  0.140
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234
  0.234

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  182
  392
  664
  1,025
  1,489
  2,072
  2,786
  3,643
  4,653
  5,824
  7,161
  8,733
  10,407
  12,248
  14,256
  16,427
  18,757
  21,243
  23,881
  26,667
  29,598
  32,673
  35,891
  39,250
  42,753
  46,399
  50,192
  54,136
  58,234
  62,493
  66,920
Depreciation, amort., depletion, $m
  364
  447
  609
  823
  1,099
  1,447
  1,876
  2,392
  3,003
  3,714
  4,527
  5,353
  6,379
  7,510
  8,747
  10,086
  11,527
  13,067
  14,703
  16,434
  18,257
  20,171
  22,174
  24,268
  26,451
  28,726
  31,092
  33,553
  36,110
  38,768
  41,530
Funds from operations, $m
  600
  839
  1,273
  1,848
  2,589
  3,519
  4,661
  6,035
  7,657
  9,538
  11,688
  14,086
  16,785
  19,759
  23,003
  26,513
  30,285
  34,310
  38,584
  43,100
  47,855
  52,844
  58,065
  63,519
  69,204
  75,125
  81,284
  87,688
  94,344
  101,261
  108,450
Change in working capital, $m
  19
  446
  610
  808
  1,044
  1,314
  1,617
  1,950
  2,306
  2,682
  3,071
  3,469
  3,870
  4,271
  4,667
  5,057
  5,439
  5,812
  6,176
  6,532
  6,881
  7,225
  7,564
  7,903
  8,242
  8,585
  8,933
  9,288
  9,654
  10,033
  10,426
Cash from operations, $m
  581
  -29
  663
  1,039
  1,545
  2,205
  3,044
  4,086
  5,350
  6,856
  8,616
  10,617
  12,915
  15,488
  18,335
  21,456
  24,845
  28,498
  32,408
  36,568
  40,974
  45,620
  50,501
  55,616
  60,962
  66,540
  72,351
  78,400
  84,690
  91,229
  98,024
Maintenance CAPEX, $m
  0
  -236
  -354
  -516
  -730
  -1,006
  -1,354
  -1,783
  -2,299
  -2,910
  -3,621
  -4,434
  -5,353
  -6,379
  -7,510
  -8,747
  -10,086
  -11,527
  -13,067
  -14,703
  -16,434
  -18,257
  -20,171
  -22,174
  -24,268
  -26,451
  -28,726
  -31,092
  -33,553
  -36,110
  -38,768
New CAPEX, $m
  -211
  -593
  -807
  -1,071
  -1,382
  -1,740
  -2,142
  -2,582
  -3,055
  -3,553
  -4,068
  -4,595
  -5,127
  -5,657
  -6,182
  -6,699
  -7,205
  -7,699
  -8,181
  -8,652
  -9,114
  -9,569
  -10,020
  -10,468
  -10,917
  -11,371
  -11,832
  -12,303
  -12,788
  -13,289
  -13,810
Cash from investing activities, $m
  -2,435
  -829
  -1,161
  -1,587
  -2,112
  -2,746
  -3,496
  -4,365
  -5,354
  -6,463
  -7,689
  -9,029
  -10,480
  -12,036
  -13,692
  -15,446
  -17,291
  -19,226
  -21,248
  -23,355
  -25,548
  -27,826
  -30,191
  -32,642
  -35,185
  -37,822
  -40,558
  -43,395
  -46,341
  -49,399
  -52,578
Free cash flow, $m
  -1,854
  -857
  -498
  -547
  -567
  -542
  -452
  -279
  -4
  393
  927
  1,587
  2,435
  3,451
  4,643
  6,010
  7,554
  9,272
  11,159
  13,212
  15,426
  17,793
  20,311
  22,973
  25,777
  28,718
  31,794
  35,005
  38,350
  41,829
  45,446
Issuance/(repayment) of debt, $m
  2,258
  2,261
  3,089
  4,097
  5,288
  6,658
  8,195
  9,879
  11,686
  13,591
  15,564
  17,580
  19,613
  21,643
  23,652
  25,628
  27,563
  29,453
  31,298
  33,101
  34,869
  36,609
  38,331
  40,046
  41,766
  43,501
  45,264
  47,067
  48,922
  50,840
  52,831
Issuance/(repurchase) of shares, $m
  30
  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  
  2,265
  2,261
  3,089
  4,097
  5,288
  6,658
  8,195
  9,879
  11,686
  13,591
  15,564
  17,580
  19,613
  21,643
  23,652
  25,628
  27,563
  29,453
  31,298
  33,101
  34,869
  36,609
  38,331
  40,046
  41,766
  43,501
  45,264
  47,067
  48,922
  50,840
  52,831
Total cash flow (excl. dividends), $m
  411
  1,404
  2,591
  3,550
  4,721
  6,117
  7,743
  9,600
  11,683
  13,984
  16,492
  19,167
  22,048
  25,094
  28,294
  31,638
  35,117
  38,724
  42,457
  46,314
  50,295
  54,403
  58,642
  63,020
  67,542
  72,219
  77,058
  82,072
  87,272
  92,669
  98,277
Retained Cash Flow (-), $m
  -248
  -688
  -944
  -1,251
  -1,615
  -2,034
  -2,503
  -3,018
  -3,570
  -4,152
  -4,755
  -5,370
  -5,991
  -6,611
  -7,225
  -7,829
  -8,420
  -8,997
  -9,561
  -10,112
  -10,652
  -11,184
  -11,710
  -12,234
  -12,759
  -13,289
  -13,827
  -14,378
  -14,945
  -15,531
  -16,139
Prev. year cash balance distribution, $m
 
  474
  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
 
  1,191
  1,647
  2,298
  3,106
  4,083
  5,239
  6,582
  8,113
  9,832
  11,737
  13,797
  16,056
  18,483
  21,069
  23,809
  26,697
  29,727
  32,896
  36,202
  39,643
  43,219
  46,933
  50,786
  54,784
  58,930
  63,231
  67,694
  72,327
  77,138
  82,138
Discount rate, %
 
  7.30
  7.67
  8.05
  8.45
  8.87
  9.32
  9.78
  10.27
  10.79
  11.32
  11.89
  12.49
  13.11
  13.77
  14.45
  15.18
  15.93
  16.73
  17.57
  18.45
  19.37
  20.34
  21.35
  22.42
  23.54
  24.72
  25.96
  27.25
  28.62
  30.05
PV of cash for distribution, $m
 
  1,110
  1,421
  1,822
  2,245
  2,669
  3,070
  3,425
  3,711
  3,911
  4,015
  4,009
  3,913
  3,726
  3,464
  3,143
  2,784
  2,407
  2,031
  1,672
  1,342
  1,049
  799
  592
  427
  298
  203
  133
  85
  52
  31
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

ON Semiconductor Corporation manufactures and sells semiconductor components for various electronic devices worldwide. Its Application Products Group segment provides analog, mixed-signal, and advanced logic application specific integrated circuit and application specific standard product solutions; and solutions for voltage and current options, as well as foundry and manufacturing services, including integrated passive devices technology, integrated circuit (IC) design, packaging, and silicon technology offerings. The company’s Image Sensor Group segment offers complementary metal oxide semiconductor and charge-coupled device image sensors, proximity sensors, and image signal processors. Its Standard Products Group segment provides discrete and integrated semiconductor products that perform application functions, such as power switching, signal conditioning, circuit protection, signal amplification, and voltage reference; and develops lower capacitance protection and integrated signal conditioning products to support data transmission rates, micro packages, and switching and rectification technologies. The company’s System Solutions Group segment supplies analog and mixed signal ICs, digital signal processors, analog and digital tuners, intelligent power modules, and memory and discrete semiconductors. ON Semiconductor Corporation’s devices are used in various end-products, such as automotive electronics, smartphones, media tablets, wearable electronics, computers, servers, industrial building and home automation systems, consumer white goods, imaging systems, LED lighting, power supplies, networking and telecom equipment, medical diagnostics, imaging and hearing health, and sensor networks, as well as the Internet-of-Things. The company serves original equipment manufacturers, distributors, and electronic manufacturing service providers. ON Semiconductor Corp. was founded in 1999 and is headquartered in Phoenix, Arizona.

FINANCIAL RATIOS  of  ON Semiconductor (ON)

Valuation Ratios
P/E Ratio 34.4
Price to Sales 1.6
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 10.8
Price to Free Cash Flow 16.9
Growth Rates
Sales Growth Rate 11.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -22.1%
Cap. Spend. - 3 Yr. Gr. Rate 6.4%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 165.3%
Total Debt to Equity 195.2%
Interest Coverage 3
Management Effectiveness
Return On Assets 5.4%
Ret/ On Assets - 3 Yr. Avg. 5.8%
Return On Total Capital 4.3%
Ret/ On T. Cap. - 3 Yr. Avg. 6.2%
Return On Equity 10.5%
Return On Equity - 3 Yr. Avg. 11.8%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 33.2%
Gross Margin - 3 Yr. Avg. 33.9%
EBITDA Margin 16.7%
EBITDA Margin - 3 Yr. Avg. 16.5%
Operating Margin 8.2%
Oper. Margin - 3 Yr. Avg. 7.6%
Pre-Tax Margin 4.6%
Pre-Tax Margin - 3 Yr. Avg. 5.7%
Net Profit Margin 4.7%
Net Profit Margin - 3 Yr. Avg. 5.5%
Effective Tax Rate -2.2%
Eff/ Tax Rate - 3 Yr. Avg. 0.9%
Payout Ratio 0%

ON stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ON stock intrinsic value calculation we used $3907 million for the last fiscal year's total revenue generated by ON Semiconductor. The default revenue input number comes from 2016 income statement of ON Semiconductor. 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 ON stock valuation model: a) initial revenue growth rate of 50.1% 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 7.3%, whose default value for ON is calculated based on our internal credit rating of ON Semiconductor, 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 ON Semiconductor.
    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 ON stock the variable cost ratio is equal to 85.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $264 million in the base year in the intrinsic value calculation for ON 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 ON Semiconductor.

Corporate tax rate of 27% is the nominal tax rate for ON Semiconductor. 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 ON 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 ON are equal to 30.2%.

Life of production assets of 5 years is the average useful life of capital assets used in ON Semiconductor 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 ON is equal to 22.8%. 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 - $1856 million for ON Semiconductor - 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 406.393 million for ON Semiconductor 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 ON Semiconductor at the current share price and the inputted number of shares is $6.1 billion.


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Stock chart of ON Financial statements of ON Annual reports of ON
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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