Intrinsic value of Oracle - ORCL

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$45.26

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$45.26

 
Intrinsic value

$53.82

 
Up/down potential

+19%

 
Rating

hold

 
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*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 187.4

 

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
  1,150
  1,198
  1,252
  1,313
  1,380
  1,454
  1,534
  1,620
  1,713
  1,813
  1,920
  2,033
  2,154
  2,283
  2,419
  2,563
  2,716
  2,877
  3,048
  3,228
  3,418
  3,618
  3,829
  4,052
  4,286
  4,532
  4,792
  5,065
  5,352
Earnings before tax, $m
  11,442
  12,278
  13,066
  13,487
  13,956
  14,473
  15,038
  15,652
  16,315
  17,028
  17,792
  22,068
  22,938
  23,863
  24,846
  25,889
  26,993
  28,161
  29,396
  30,700
  32,077
  33,530
  35,061
  36,675
  38,375
  40,165
  42,049
  44,033
  46,120
  48,315
  50,624
Tax expense, $m
  2,541
  3,315
  3,528
  3,641
  3,768
  3,908
  4,060
  4,226
  4,405
  4,598
  4,804
  5,958
  6,193
  6,443
  6,709
  6,990
  7,288
  7,604
  7,937
  8,289
  8,661
  9,053
  9,466
  9,902
  10,361
  10,845
  11,353
  11,889
  12,452
  13,045
  13,668
Net income, $m
  8,901
  8,963
  9,538
  9,845
  10,188
  10,565
  10,978
  11,426
  11,910
  12,431
  12,988
  16,109
  16,745
  17,420
  18,138
  18,899
  19,705
  20,558
  21,459
  22,411
  23,416
  24,477
  25,594
  26,773
  28,014
  29,320
  30,696
  32,144
  33,667
  35,270
  36,956

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
  57,224
  58,592
  60,145
  61,881
  63,797
  65,895
  68,174
  70,637
  73,287
  76,128
  79,164
  82,402
  85,847
  89,507
  93,388
  97,500
  101,851
  106,451
  111,311
  116,440
  121,851
  127,557
  133,571
  139,906
  146,578
  153,602
  160,994
  168,772
  176,955
  185,561
Adjusted assets (=assets-cash), $m
  56,055
  57,224
  58,592
  60,145
  61,881
  63,797
  65,895
  68,174
  70,637
  73,287
  76,128
  79,164
  82,402
  85,847
  89,507
  93,388
  97,500
  101,851
  106,451
  111,311
  116,440
  121,851
  127,557
  133,571
  139,906
  146,578
  153,602
  160,994
  168,772
  176,955
  185,561
Revenue / Adjusted assets
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
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
  -5,371
  -5,500
  -5,645
  -5,808
  -5,988
  -6,185
  -6,399
  -6,630
  -6,879
  -7,146
  -7,431
  -7,734
  -8,058
  -8,401
  -8,766
  -9,152
  -9,560
  -9,992
  -10,448
  -10,929
  -11,437
  -11,973
  -12,537
  -13,132
  -13,758
  -14,417
  -15,111
  -15,841
  -16,609
  -17,417
Total debt, $m
  42,864
  29,474
  30,705
  32,103
  33,665
  35,390
  37,278
  39,329
  41,546
  43,931
  46,488
  49,221
  52,135
  55,236
  58,529
  62,023
  65,723
  69,639
  73,779
  78,152
  82,769
  87,639
  92,775
  98,187
  103,889
  109,893
  116,214
  122,867
  129,868
  137,232
  144,977
Total liabilities, $m
  64,891
  51,501
  52,732
  54,130
  55,692
  57,417
  59,305
  61,356
  63,573
  65,958
  68,515
  71,248
  74,162
  77,263
  80,556
  84,050
  87,750
  91,666
  95,806
  100,179
  104,796
  109,666
  114,802
  120,214
  125,916
  131,920
  138,241
  144,894
  151,895
  159,259
  167,004
Total equity, $m
  47,289
  5,722
  5,859
  6,014
  6,188
  6,380
  6,589
  6,817
  7,064
  7,329
  7,613
  7,916
  8,240
  8,585
  8,951
  9,339
  9,750
  10,185
  10,645
  11,131
  11,644
  12,185
  12,756
  13,357
  13,991
  14,658
  15,360
  16,099
  16,877
  17,695
  18,556
Total liabilities and equity, $m
  112,180
  57,223
  58,591
  60,144
  61,880
  63,797
  65,894
  68,173
  70,637
  73,287
  76,128
  79,164
  82,402
  85,848
  89,507
  93,389
  97,500
  101,851
  106,451
  111,310
  116,440
  121,851
  127,558
  133,571
  139,907
  146,578
  153,601
  160,993
  168,772
  176,954
  185,560
Debt-to-equity ratio
  0.906
  5.150
  5.240
  5.340
  5.440
  5.550
  5.660
  5.770
  5.880
  5.990
  6.110
  6.220
  6.330
  6.430
  6.540
  6.640
  6.740
  6.840
  6.930
  7.020
  7.110
  7.190
  7.270
  7.350
  7.430
  7.500
  7.570
  7.630
  7.690
  7.760
  7.810
Adjusted equity ratio
  -0.158
  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
  8,901
  8,963
  9,538
  9,845
  10,188
  10,565
  10,978
  11,426
  11,910
  12,431
  12,988
  16,109
  16,745
  17,420
  18,138
  18,899
  19,705
  20,558
  21,459
  22,411
  23,416
  24,477
  25,594
  26,773
  28,014
  29,320
  30,696
  32,144
  33,667
  35,270
  36,956
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
  13,477
  13,797
  14,154
  14,547
  14,977
  15,444
  15,948
  16,490
  17,071
  16,758
  17,420
  18,124
  18,871
  19,664
  20,504
  21,392
  22,331
  23,323
  24,370
  25,475
  26,640
  27,867
  29,160
  30,521
  31,955
  33,463
  35,050
  36,720
  38,476
Change in working capital, $m
  759
  -110
  -128
  -146
  -163
  -180
  -197
  -214
  -231
  -249
  -267
  -285
  -304
  -323
  -343
  -364
  -386
  -408
  -432
  -456
  -481
  -508
  -536
  -564
  -595
  -626
  -659
  -694
  -730
  -768
  -808
Cash from operations, $m
  13,561
  14,270
  13,606
  13,943
  14,317
  14,727
  15,174
  15,658
  16,179
  16,739
  17,338
  17,043
  17,724
  18,447
  19,215
  20,028
  20,890
  21,801
  22,763
  23,779
  24,852
  25,983
  27,175
  28,431
  29,754
  31,148
  32,614
  34,157
  35,780
  37,488
  39,284
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
  13,655
  12,950
  13,250
  13,586
  13,958
  14,364
  14,806
  15,284
  15,798
  16,349
  16,004
  16,632
  17,300
  18,011
  18,764
  19,562
  20,406
  21,299
  22,242
  23,238
  24,288
  25,396
  26,563
  27,793
  29,088
  30,452
  31,887
  33,397
  34,986
  36,656
Issuance/(repayment) of debt, $m
  1,750
  -9,640
  1,231
  1,398
  1,562
  1,725
  1,888
  2,051
  2,217
  2,385
  2,557
  2,733
  2,914
  3,101
  3,294
  3,493
  3,701
  3,916
  4,140
  4,373
  4,617
  4,870
  5,135
  5,412
  5,702
  6,005
  6,321
  6,653
  7,000
  7,364
  7,745
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
  -9,640
  1,231
  1,398
  1,562
  1,725
  1,888
  2,051
  2,217
  2,385
  2,557
  2,733
  2,914
  3,101
  3,294
  3,493
  3,701
  3,916
  4,140
  4,373
  4,617
  4,870
  5,135
  5,412
  5,702
  6,005
  6,321
  6,653
  7,000
  7,364
  7,745
Total cash flow (excl. dividends), $m
  977
  4,015
  14,181
  14,648
  15,149
  15,683
  16,252
  16,857
  17,500
  18,183
  18,905
  18,737
  19,546
  20,401
  21,304
  22,257
  23,263
  24,322
  25,439
  26,616
  27,855
  29,159
  30,531
  31,976
  33,495
  35,093
  36,773
  38,540
  40,397
  42,350
  44,402
Retained Cash Flow (-), $m
  1,374
  -10,808
  -137
  -155
  -174
  -192
  -210
  -228
  -246
  -265
  -284
  -304
  -324
  -345
  -366
  -388
  -411
  -435
  -460
  -486
  -513
  -541
  -571
  -601
  -634
  -667
  -702
  -739
  -778
  -818
  -861
Prev. year cash balance distribution, $m
 
  52,375
  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
 
  45,582
  14,044
  14,493
  14,975
  15,491
  16,042
  16,629
  17,254
  17,918
  18,621
  18,433
  19,222
  20,057
  20,938
  21,869
  22,851
  23,887
  24,979
  26,130
  27,342
  28,618
  29,961
  31,374
  32,861
  34,426
  36,071
  37,801
  39,620
  41,531
  43,541
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
 
  43,703
  12,857
  12,613
  12,330
  12,007
  11,642
  11,235
  10,784
  10,293
  9,762
  8,754
  8,203
  7,626
  7,029
  6,420
  5,807
  5,197
  4,600
  4,023
  3,474
  2,960
  2,486
  2,056
  1,674
  1,339
  1,052
  811
  613
  453
  328
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 21
Price to Sales 5
Price to Book 4
Price to Tangible Book
Price to Cash Flow 13.8
Price to Free Cash Flow 15.1
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 -14.2%. 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 4139.6 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 $187.4 billion.


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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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