Intrinsic value of Oracle - ORCL

Previous Close

$50.80

  Intrinsic Value

$53.68

stock screener

  Rating & Target

hold

+6%

  Value-price divergence*

-29%

Previous close

$50.80

 
Intrinsic value

$53.68

 
Up/down potential

+6%

 
Rating

hold

 
Value-price divergence*

-29%

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

We calculate the intrinsic value of ORCL 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 207.9

 

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, %
  -3.08
  2.10
  2.39
  2.65
  2.89
  3.10
  3.29
  3.46
  3.61
  3.75
  3.88
  3.99
  4.09
  4.18
  4.26
  4.34
  4.40
  4.46
  4.52
  4.56
  4.61
  4.65
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
Revenue, $m
  37,047
  37,825
  38,729
  39,756
  40,903
  42,170
  43,556
  45,063
  46,691
  48,443
  50,320
  52,328
  54,468
  56,745
  59,164
  61,730
  64,448
  67,324
  70,364
  73,576
  76,967
  80,544
  84,315
  88,290
  92,478
  96,888
  101,531
  106,417
  111,558
  116,967
  122,656
Variable operating expenses, $m
 
  24,022
  24,513
  25,071
  25,695
  26,384
  27,138
  27,957
  28,842
  29,794
  30,815
  28,447
  29,610
  30,848
  32,163
  33,558
  35,036
  36,599
  38,252
  39,998
  41,842
  43,786
  45,837
  47,997
  50,274
  52,671
  55,195
  57,852
  60,647
  63,587
  66,679
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
  24,443
  24,022
  24,513
  25,071
  25,695
  26,384
  27,138
  27,957
  28,842
  29,794
  30,815
  28,447
  29,610
  30,848
  32,163
  33,558
  35,036
  36,599
  38,252
  39,998
  41,842
  43,786
  45,837
  47,997
  50,274
  52,671
  55,195
  57,852
  60,647
  63,587
  66,679
Operating income, $m
  12,604
  13,803
  14,216
  14,684
  15,208
  15,786
  16,419
  17,106
  17,849
  18,649
  19,506
  23,881
  24,857
  25,897
  27,001
  28,171
  29,412
  30,724
  32,112
  33,578
  35,125
  36,758
  38,479
  40,293
  42,204
  44,217
  46,335
  48,565
  50,912
  53,380
  55,976
EBITDA, $m
  15,113
  17,731
  18,155
  18,636
  19,174
  19,768
  20,418
  21,124
  21,887
  22,708
  23,588
  24,529
  25,533
  26,600
  27,734
  28,937
  30,211
  31,559
  32,984
  34,490
  36,079
  37,756
  39,524
  41,387
  43,350
  45,418
  47,594
  49,884
  52,294
  54,830
  57,496
Interest expense (income), $m
  1,616
  1,525
  1,576
  1,635
  1,701
  1,775
  1,856
  1,946
  2,043
  2,147
  2,260
  2,381
  2,510
  2,648
  2,795
  2,951
  3,116
  3,291
  3,476
  3,672
  3,879
  4,097
  4,327
  4,570
  4,826
  5,096
  5,380
  5,678
  5,993
  6,324
  6,672
Earnings before tax, $m
  11,442
  12,278
  12,639
  13,050
  13,507
  14,011
  14,562
  15,161
  15,807
  16,501
  17,245
  21,500
  22,347
  23,249
  24,206
  25,221
  26,296
  27,434
  28,636
  29,906
  31,247
  32,661
  34,152
  35,723
  37,378
  39,121
  40,956
  42,887
  44,919
  47,056
  49,304
Tax expense, $m
  2,541
  3,315
  3,413
  3,523
  3,647
  3,783
  3,932
  4,093
  4,268
  4,455
  4,656
  5,805
  6,034
  6,277
  6,536
  6,810
  7,100
  7,407
  7,732
  8,075
  8,437
  8,818
  9,221
  9,645
  10,092
  10,563
  11,058
  11,579
  12,128
  12,705
  13,312
Net income, $m
  8,901
  8,963
  9,227
  9,526
  9,860
  10,228
  10,631
  11,067
  11,539
  12,046
  12,589
  15,695
  16,313
  16,971
  17,670
  18,411
  19,196
  20,027
  20,904
  21,831
  22,810
  23,842
  24,931
  26,078
  27,286
  28,558
  29,898
  31,307
  32,791
  34,351
  35,992

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  56,125
  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
  112,180
  77,194
  79,039
  81,134
  83,476
  86,061
  88,890
  91,965
  95,288
  98,862
  102,695
  106,791
  111,159
  115,806
  120,743
  125,979
  131,526
  137,395
  143,601
  150,156
  157,075
  164,375
  172,072
  180,184
  188,731
  197,731
  207,205
  217,177
  227,670
  238,708
  250,317
Adjusted assets (=assets-cash), $m
  56,055
  77,194
  79,039
  81,134
  83,476
  86,061
  88,890
  91,965
  95,288
  98,862
  102,695
  106,791
  111,159
  115,806
  120,743
  125,979
  131,526
  137,395
  143,601
  150,156
  157,075
  164,375
  172,072
  180,184
  188,731
  197,731
  207,205
  217,177
  227,670
  238,708
  250,317
Revenue / Adjusted assets
  0.661
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
Average production assets, $m
  7,675
  7,830
  8,017
  8,229
  8,467
  8,729
  9,016
  9,328
  9,665
  10,028
  10,416
  10,832
  11,275
  11,746
  12,247
  12,778
  13,341
  13,936
  14,565
  15,230
  15,932
  16,673
  17,453
  18,276
  19,143
  20,056
  21,017
  22,028
  23,093
  24,212
  25,390
Working capital, $m
  47,105
  -3,782
  -3,873
  -3,976
  -4,090
  -4,217
  -4,356
  -4,506
  -4,669
  -4,844
  -5,032
  -5,233
  -5,447
  -5,675
  -5,916
  -6,173
  -6,445
  -6,732
  -7,036
  -7,358
  -7,697
  -8,054
  -8,432
  -8,829
  -9,248
  -9,689
  -10,153
  -10,642
  -11,156
  -11,697
  -12,266
Total debt, $m
  42,864
  40,423
  41,915
  43,610
  45,505
  47,596
  49,885
  52,373
  55,061
  57,953
  61,053
  64,367
  67,900
  71,660
  75,654
  79,890
  84,377
  89,126
  94,146
  99,449
  105,047
  110,952
  117,179
  123,742
  130,656
  137,937
  145,602
  153,670
  162,158
  171,088
  180,480
Total liabilities, $m
  64,891
  62,450
  63,942
  65,637
  67,532
  69,623
  71,912
  74,400
  77,088
  79,980
  83,080
  86,394
  89,927
  93,687
  97,681
  101,917
  106,404
  111,153
  116,173
  121,476
  127,074
  132,979
  139,206
  145,769
  152,683
  159,964
  167,629
  175,697
  184,185
  193,115
  202,507
Total equity, $m
  47,289
  14,744
  15,096
  15,497
  15,944
  16,438
  16,978
  17,565
  18,200
  18,883
  19,615
  20,397
  21,231
  22,119
  23,062
  24,062
  25,121
  26,243
  27,428
  28,680
  30,001
  31,396
  32,866
  34,415
  36,048
  37,767
  39,576
  41,481
  43,485
  45,593
  47,811
Total liabilities and equity, $m
  112,180
  77,194
  79,038
  81,134
  83,476
  86,061
  88,890
  91,965
  95,288
  98,863
  102,695
  106,791
  111,158
  115,806
  120,743
  125,979
  131,525
  137,396
  143,601
  150,156
  157,075
  164,375
  172,072
  180,184
  188,731
  197,731
  207,205
  217,178
  227,670
  238,708
  250,318
Debt-to-equity ratio
  0.906
  2.740
  2.780
  2.810
  2.850
  2.900
  2.940
  2.980
  3.030
  3.070
  3.110
  3.160
  3.200
  3.240
  3.280
  3.320
  3.360
  3.400
  3.430
  3.470
  3.500
  3.530
  3.570
  3.600
  3.620
  3.650
  3.680
  3.700
  3.730
  3.750
  3.770
Adjusted equity ratio
  -0.158
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191
  0.191

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  8,901
  8,963
  9,227
  9,526
  9,860
  10,228
  10,631
  11,067
  11,539
  12,046
  12,589
  15,695
  16,313
  16,971
  17,670
  18,411
  19,196
  20,027
  20,904
  21,831
  22,810
  23,842
  24,931
  26,078
  27,286
  28,558
  29,898
  31,307
  32,791
  34,351
  35,992
Depreciation, amort., depletion, $m
  2,509
  3,928
  3,939
  3,952
  3,966
  3,982
  3,999
  4,018
  4,038
  4,059
  4,083
  649
  675
  703
  733
  765
  799
  834
  872
  912
  954
  998
  1,045
  1,094
  1,146
  1,201
  1,258
  1,319
  1,383
  1,450
  1,520
Funds from operations, $m
  14,320
  12,891
  13,166
  13,478
  13,826
  14,210
  14,629
  15,085
  15,577
  16,105
  16,672
  16,343
  16,988
  17,675
  18,404
  19,176
  19,995
  20,861
  21,777
  22,743
  23,764
  24,841
  25,976
  27,172
  28,432
  29,759
  31,156
  32,626
  34,173
  35,801
  37,512
Change in working capital, $m
  759
  -78
  -90
  -103
  -115
  -127
  -139
  -151
  -163
  -175
  -188
  -201
  -214
  -228
  -242
  -257
  -272
  -288
  -304
  -321
  -339
  -358
  -377
  -397
  -419
  -441
  -464
  -489
  -514
  -541
  -569
Cash from operations, $m
  13,561
  12,968
  13,256
  13,581
  13,941
  14,337
  14,768
  15,236
  15,739
  16,281
  16,860
  16,544
  17,203
  17,903
  18,646
  19,433
  20,267
  21,149
  22,081
  23,065
  24,103
  25,198
  26,353
  27,570
  28,851
  30,200
  31,620
  33,115
  34,687
  36,341
  38,081
Maintenance CAPEX, $m
  0
  -460
  -469
  -480
  -493
  -507
  -523
  -540
  -559
  -579
  -600
  -624
  -649
  -675
  -703
  -733
  -765
  -799
  -834
  -872
  -912
  -954
  -998
  -1,045
  -1,094
  -1,146
  -1,201
  -1,258
  -1,319
  -1,383
  -1,450
New CAPEX, $m
  -1,189
  -155
  -187
  -213
  -237
  -262
  -287
  -312
  -337
  -363
  -389
  -415
  -443
  -471
  -501
  -531
  -563
  -595
  -629
  -665
  -702
  -740
  -781
  -823
  -867
  -913
  -961
  -1,011
  -1,064
  -1,120
  -1,178
Cash from investing activities, $m
  -5,154
  -615
  -656
  -693
  -730
  -769
  -810
  -852
  -896
  -942
  -989
  -1,039
  -1,092
  -1,146
  -1,204
  -1,264
  -1,328
  -1,394
  -1,463
  -1,537
  -1,614
  -1,694
  -1,779
  -1,868
  -1,961
  -2,059
  -2,162
  -2,269
  -2,383
  -2,503
  -2,628
Free cash flow, $m
  8,407
  12,354
  12,600
  12,888
  13,211
  13,567
  13,958
  14,384
  14,844
  15,339
  15,871
  15,505
  16,111
  16,756
  17,441
  18,169
  18,939
  19,754
  20,617
  21,528
  22,489
  23,504
  24,574
  25,702
  26,890
  28,141
  29,459
  30,845
  32,304
  33,839
  35,453
Issuance/(repayment) of debt, $m
  1,750
  1,309
  1,493
  1,695
  1,894
  2,092
  2,289
  2,487
  2,688
  2,892
  3,100
  3,314
  3,533
  3,760
  3,994
  4,236
  4,487
  4,748
  5,020
  5,303
  5,598
  5,906
  6,227
  6,563
  6,914
  7,281
  7,665
  8,067
  8,489
  8,930
  9,392
Issuance/(repurchase) of shares, $m
  -9,104
  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  
  -7,315
  1,309
  1,493
  1,695
  1,894
  2,092
  2,289
  2,487
  2,688
  2,892
  3,100
  3,314
  3,533
  3,760
  3,994
  4,236
  4,487
  4,748
  5,020
  5,303
  5,598
  5,906
  6,227
  6,563
  6,914
  7,281
  7,665
  8,067
  8,489
  8,930
  9,392
Total cash flow (excl. dividends), $m
  977
  13,662
  14,093
  14,583
  15,105
  15,659
  16,247
  16,871
  17,532
  18,231
  18,971
  18,819
  19,644
  20,516
  21,435
  22,405
  23,426
  24,503
  25,637
  26,831
  28,087
  29,410
  30,801
  32,264
  33,804
  35,422
  37,124
  38,912
  40,793
  42,769
  44,845
Retained Cash Flow (-), $m
  1,374
  -278
  -352
  -400
  -447
  -494
  -540
  -587
  -635
  -683
  -732
  -782
  -834
  -888
  -943
  -1,000
  -1,059
  -1,121
  -1,185
  -1,252
  -1,322
  -1,394
  -1,470
  -1,549
  -1,632
  -1,719
  -1,810
  -1,905
  -2,004
  -2,108
  -2,217
Prev. year cash balance distribution, $m
 
  32,823
  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
 
  46,207
  13,740
  14,183
  14,658
  15,165
  15,707
  16,284
  16,897
  17,548
  18,239
  18,036
  18,810
  19,628
  20,492
  21,404
  22,367
  23,382
  24,452
  25,579
  26,766
  28,015
  29,331
  30,715
  32,171
  33,703
  35,314
  37,008
  38,789
  40,661
  42,628
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  44,302
  12,579
  12,343
  12,069
  11,755
  11,399
  11,001
  10,561
  10,081
  9,562
  8,565
  8,027
  7,463
  6,880
  6,284
  5,684
  5,088
  4,503
  3,938
  3,401
  2,898
  2,434
  2,013
  1,639
  1,311
  1,030
  794
  600
  444
  321
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

Oracle Corporation develops, manufactures, markets, sells, hosts, and supports database and middleware software, application software, cloud infrastructure, hardware systems, and related services worldwide. It offers services in three primary layers of the cloud: Software as a Service, Platform as a Service, and Infrastructure as a Service. The company licenses its Oracle Database software, which enables storage, retrieval, and manipulation of various forms of data; and Oracle Fusion Middleware software to build, deploy, secure, access, and integrate business applications, as well as automate their business processes. It also provides a range of software for mobile computing to address the development needs of businesses; and Java, a software development language. In addition, the company offers application software, such as human capital and talent management, customer experience and customer relationship management, financial management and governance, risk and compliance, procurement, project portfolio management, supply chain management, business analytics and enterprise performance management, and industry-specific application software. Further, it offers hardware systems products, such as Oracle Engineered Systems, servers, storage, networking, industry specific hardware, virtualization software, operating systems, management software, and related hardware services. Additionally, the company offers customers with rights to software product upgrades and maintenance releases, patches released, and Internet access to technical content, as well as Internet and telephone access to technical support personnel. The company also provides consulting services, such as IT strategy alignment, enterprise architecture planning and design, initial product implementation and integration, and ongoing product enhancement and upgrade; customer support services; and education services. Oracle Corporation was founded in 1977 and is headquartered in Redwood City, California.

FINANCIAL RATIOS  of  Oracle (ORCL)

Valuation Ratios
P/E Ratio 23.6
Price to Sales 5.7
Price to Book 4.4
Price to Tangible Book
Price to Cash Flow 15.5
Price to Free Cash Flow 17
Growth Rates
Sales Growth Rate -3.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -14.5%
Cap. Spend. - 3 Yr. Gr. Rate 12.8%
Financial Strength
Quick Ratio 15
Current Ratio 0
LT Debt to Equity 82.7%
Total Debt to Equity 90.6%
Interest Coverage 8
Management Effectiveness
Return On Assets 9.1%
Ret/ On Assets - 3 Yr. Avg. 11.1%
Return On Total Capital 9.9%
Ret/ On T. Cap. - 3 Yr. Avg. 12.9%
Return On Equity 18.6%
Return On Equity - 3 Yr. Avg. 21.1%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 79.8%
Gross Margin - 3 Yr. Avg. 80.4%
EBITDA Margin 42%
EBITDA Margin - 3 Yr. Avg. 43.8%
Operating Margin 34%
Oper. Margin - 3 Yr. Avg. 36.3%
Pre-Tax Margin 30.9%
Pre-Tax Margin - 3 Yr. Avg. 33.4%
Net Profit Margin 24%
Net Profit Margin - 3 Yr. Avg. 26.2%
Effective Tax Rate 22.2%
Eff/ Tax Rate - 3 Yr. Avg. 21.6%
Payout Ratio 28.5%

ORCL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ORCL stock intrinsic value calculation we used $37047 million for the last fiscal year's total revenue generated by Oracle. The default revenue input number comes from 2016 income statement of Oracle. 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 ORCL stock valuation model: a) initial revenue growth rate of 2.1% 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 4.3%, whose default value for ORCL is calculated based on our internal credit rating of Oracle, 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 Oracle.
    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 ORCL stock the variable cost ratio is equal to 63.7%.

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 ORCL 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 3.9% for Oracle.

Corporate tax rate of 27% is the nominal tax rate for Oracle. 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 ORCL 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 ORCL are equal to 20.7%.

Life of production assets of 16.7 years is the average useful life of capital assets used in Oracle 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 ORCL is equal to -10%. 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 - $47289 million for Oracle - 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 4091.8 million for Oracle 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 Oracle at the current share price and the inputted number of shares is $207.9 billion.

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COMPANY NEWS

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▶ [$$] Oracle's Cloud Revenue Could Double   [06:02AM  Barrons.com]
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▶ DBaaS Growth Benefits Oracle   [09:07AM  Market Realist]
▶ [$$] Oracle Stock Has Even More Upside   [06:50AM  Barrons.com]
▶ [$$] Oracle Floats Our Boat   [Jul-05-17 05:00PM  Barrons.com]
▶ Tesla's Stock Is Only Worth This Much: Goldman   [04:14PM  Investor's Business Daily]
▶ Oracles Cloud Offerings Dominated Its Fiscal 4Q17 Results   [Jul-04-17 10:39AM  Market Realist]
▶ Better Buy: Microsoft Corporation vs. Oracle   [Jul-01-17 03:34PM  Motley Fool]
▶ ETFs with exposure to Oracle Corp. : June 30, 2017   [Jun-30-17 03:15PM  Capital Cube]
▶ Oracle Breakout Could Yield Healthy Gains   [11:55AM  Investopedia]
▶ Oracle Rose 11.4% in the Week Ending June 23   [Jun-27-17 09:06AM  Market Realist]
Stock chart of ORCL Financial statements of ORCL Annual reports of ORCL
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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