Intrinsic value of Open Text - OTEX

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$32.55

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$32.55

 
Intrinsic value

$206.86

 
Up/down potential

+535%

 
Rating

str. buy

 
Value-price divergence* premium content

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

We calculate the intrinsic value of OTEX 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 8.6

 

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, %
  -1.51
  34.50
  31.55
  28.90
  26.51
  24.35
  22.42
  20.68
  19.11
  17.70
  16.43
  15.29
  14.26
  13.33
  12.50
  11.75
  11.07
  10.47
  9.92
  9.43
  8.99
  8.59
  8.23
  7.91
  7.61
  7.35
  7.12
  6.91
  6.72
  6.54
  6.39
Revenue, $m
  1,824
  2,453
  3,227
  4,160
  5,262
  6,544
  8,011
  9,668
  11,515
  13,553
  15,780
  18,192
  20,786
  23,557
  26,501
  29,615
  32,894
  36,337
  39,941
  43,707
  47,634
  51,724
  55,980
  60,405
  65,005
  69,785
  74,752
  79,914
  85,281
  90,861
  96,667
Variable operating expenses, $m
 
  1,909
  2,438
  3,076
  3,829
  4,705
  5,708
  6,840
  8,103
  9,496
  11,018
  12,434
  14,207
  16,101
  18,113
  20,241
  22,482
  24,835
  27,299
  29,873
  32,557
  35,352
  38,261
  41,286
  44,429
  47,696
  51,091
  54,620
  58,287
  62,102
  66,070
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
  1,456
  1,909
  2,438
  3,076
  3,829
  4,705
  5,708
  6,840
  8,103
  9,496
  11,018
  12,434
  14,207
  16,101
  18,113
  20,241
  22,482
  24,835
  27,299
  29,873
  32,557
  35,352
  38,261
  41,286
  44,429
  47,696
  51,091
  54,620
  58,287
  62,102
  66,070
Operating income, $m
  369
  544
  789
  1,084
  1,433
  1,839
  2,303
  2,827
  3,412
  4,057
  4,762
  5,758
  6,579
  7,456
  8,388
  9,374
  10,412
  11,501
  12,642
  13,834
  15,077
  16,372
  17,719
  19,120
  20,575
  22,088
  23,661
  25,295
  26,993
  28,760
  30,597
EBITDA, $m
  611
  865
  1,138
  1,467
  1,855
  2,307
  2,825
  3,409
  4,060
  4,779
  5,564
  6,414
  7,329
  8,306
  9,344
  10,442
  11,598
  12,812
  14,083
  15,410
  16,795
  18,237
  19,738
  21,298
  22,920
  24,605
  26,356
  28,176
  30,069
  32,036
  34,083
Interest expense (income), $m
  72
  83
  126
  178
  241
  316
  403
  502
  614
  739
  877
  1,028
  1,191
  1,367
  1,555
  1,754
  1,965
  2,187
  2,420
  2,664
  2,919
  3,184
  3,461
  3,749
  4,049
  4,360
  4,684
  5,020
  5,370
  5,733
  6,111
Earnings before tax, $m
  291
  461
  663
  906
  1,192
  1,523
  1,900
  2,325
  2,798
  3,318
  3,885
  4,730
  5,388
  6,089
  6,834
  7,620
  8,447
  9,315
  10,223
  11,171
  12,159
  13,187
  14,258
  15,370
  16,527
  17,728
  18,977
  20,274
  21,624
  23,027
  24,487
Tax expense, $m
  6
  124
  179
  245
  322
  411
  513
  628
  755
  896
  1,049
  1,277
  1,455
  1,644
  1,845
  2,057
  2,281
  2,515
  2,760
  3,016
  3,283
  3,561
  3,850
  4,150
  4,462
  4,787
  5,124
  5,474
  5,838
  6,217
  6,611
Net income, $m
  284
  336
  484
  661
  870
  1,112
  1,387
  1,697
  2,042
  2,422
  2,836
  3,453
  3,933
  4,445
  4,989
  5,562
  6,166
  6,800
  7,463
  8,155
  8,876
  9,627
  10,408
  11,220
  12,064
  12,942
  13,853
  14,800
  15,785
  16,810
  17,875

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,296
  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
  5,154
  5,187
  6,823
  8,795
  11,126
  13,835
  16,937
  20,439
  24,345
  28,654
  33,361
  38,461
  43,944
  49,803
  56,028
  62,610
  69,543
  76,822
  84,443
  92,404
  100,706
  109,353
  118,351
  127,706
  137,431
  147,536
  158,037
  168,951
  180,297
  192,096
  204,370
Adjusted assets (=assets-cash), $m
  3,858
  5,187
  6,823
  8,795
  11,126
  13,835
  16,937
  20,439
  24,345
  28,654
  33,361
  38,461
  43,944
  49,803
  56,028
  62,610
  69,543
  76,822
  84,443
  92,404
  100,706
  109,353
  118,351
  127,706
  137,431
  147,536
  158,037
  168,951
  180,297
  192,096
  204,370
Revenue / Adjusted assets
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
  0.473
Average production assets, $m
  835
  1,124
  1,478
  1,905
  2,410
  2,997
  3,669
  4,428
  5,274
  6,207
  7,227
  8,332
  9,520
  10,789
  12,137
  13,563
  15,065
  16,642
  18,293
  20,018
  21,816
  23,690
  25,639
  27,666
  29,772
  31,961
  34,236
  36,601
  39,059
  41,614
  44,273
Working capital, $m
  1,001
  -385
  -507
  -653
  -826
  -1,027
  -1,258
  -1,518
  -1,808
  -2,128
  -2,477
  -2,856
  -3,263
  -3,698
  -4,161
  -4,649
  -5,164
  -5,705
  -6,271
  -6,862
  -7,479
  -8,121
  -8,789
  -9,484
  -10,206
  -10,956
  -11,736
  -12,547
  -13,389
  -14,265
  -15,177
Total debt, $m
  2,146
  3,229
  4,573
  6,191
  8,105
  10,330
  12,876
  15,752
  18,958
  22,496
  26,361
  30,547
  35,049
  39,859
  44,970
  50,374
  56,066
  62,042
  68,298
  74,834
  81,651
  88,750
  96,137
  103,818
  111,802
  120,098
  128,720
  137,680
  146,995
  156,682
  166,758
Total liabilities, $m
  3,175
  4,258
  5,602
  7,220
  9,134
  11,359
  13,905
  16,781
  19,987
  23,525
  27,390
  31,576
  36,078
  40,888
  45,999
  51,403
  57,095
  63,071
  69,327
  75,863
  82,680
  89,779
  97,166
  104,847
  112,831
  121,127
  129,749
  138,709
  148,024
  157,711
  167,787
Total equity, $m
  1,979
  928
  1,221
  1,574
  1,991
  2,477
  3,032
  3,659
  4,358
  5,129
  5,972
  6,884
  7,866
  8,915
  10,029
  11,207
  12,448
  13,751
  15,115
  16,540
  18,026
  19,574
  21,185
  22,859
  24,600
  26,409
  28,289
  30,242
  32,273
  34,385
  36,582
Total liabilities and equity, $m
  5,154
  5,186
  6,823
  8,794
  11,125
  13,836
  16,937
  20,440
  24,345
  28,654
  33,362
  38,460
  43,944
  49,803
  56,028
  62,610
  69,543
  76,822
  84,442
  92,403
  100,706
  109,353
  118,351
  127,706
  137,431
  147,536
  158,038
  168,951
  180,297
  192,096
  204,369
Debt-to-equity ratio
  1.084
  3.480
  3.740
  3.930
  4.070
  4.170
  4.250
  4.310
  4.350
  4.390
  4.410
  4.440
  4.460
  4.470
  4.480
  4.490
  4.500
  4.510
  4.520
  4.520
  4.530
  4.530
  4.540
  4.540
  4.540
  4.550
  4.550
  4.550
  4.550
  4.560
  4.560
Adjusted equity ratio
  0.177
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179
  0.179

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  284
  336
  484
  661
  870
  1,112
  1,387
  1,697
  2,042
  2,422
  2,836
  3,453
  3,933
  4,445
  4,989
  5,562
  6,166
  6,800
  7,463
  8,155
  8,876
  9,627
  10,408
  11,220
  12,064
  12,942
  13,853
  14,800
  15,785
  16,810
  17,875
Depreciation, amort., depletion, $m
  242
  321
  349
  383
  422
  469
  522
  581
  648
  721
  802
  656
  750
  850
  956
  1,068
  1,186
  1,310
  1,440
  1,576
  1,718
  1,865
  2,019
  2,178
  2,344
  2,517
  2,696
  2,882
  3,075
  3,277
  3,486
Funds from operations, $m
  533
  657
  833
  1,044
  1,292
  1,580
  1,909
  2,279
  2,690
  3,143
  3,638
  4,109
  4,683
  5,295
  5,944
  6,630
  7,353
  8,110
  8,903
  9,731
  10,594
  11,492
  12,427
  13,399
  14,409
  15,458
  16,549
  17,682
  18,861
  20,086
  21,361
Change in working capital, $m
  7
  -99
  -122
  -146
  -173
  -201
  -230
  -260
  -290
  -320
  -350
  -379
  -407
  -435
  -462
  -489
  -515
  -541
  -566
  -591
  -617
  -642
  -668
  -695
  -722
  -750
  -780
  -810
  -843
  -876
  -911
Cash from operations, $m
  526
  751
  954
  1,190
  1,465
  1,781
  2,139
  2,539
  2,980
  3,463
  3,987
  4,488
  5,090
  5,730
  6,407
  7,119
  7,868
  8,651
  9,469
  10,322
  11,210
  12,134
  13,095
  14,093
  15,131
  16,209
  17,329
  18,493
  19,703
  20,962
  22,273
Maintenance CAPEX, $m
  0
  -66
  -88
  -116
  -150
  -190
  -236
  -289
  -349
  -415
  -489
  -569
  -656
  -750
  -850
  -956
  -1,068
  -1,186
  -1,310
  -1,440
  -1,576
  -1,718
  -1,865
  -2,019
  -2,178
  -2,344
  -2,517
  -2,696
  -2,882
  -3,075
  -3,277
New CAPEX, $m
  -70
  -289
  -354
  -427
  -505
  -587
  -672
  -759
  -846
  -933
  -1,020
  -1,105
  -1,188
  -1,269
  -1,348
  -1,426
  -1,502
  -1,577
  -1,651
  -1,725
  -1,799
  -1,873
  -1,949
  -2,027
  -2,107
  -2,189
  -2,275
  -2,364
  -2,458
  -2,556
  -2,659
Cash from investing activities, $m
  -361
  -355
  -442
  -543
  -655
  -777
  -908
  -1,048
  -1,195
  -1,348
  -1,509
  -1,674
  -1,844
  -2,019
  -2,198
  -2,382
  -2,570
  -2,763
  -2,961
  -3,165
  -3,375
  -3,591
  -3,814
  -4,046
  -4,285
  -4,533
  -4,792
  -5,060
  -5,340
  -5,631
  -5,936
Free cash flow, $m
  165
  397
  512
  647
  810
  1,005
  1,231
  1,491
  1,786
  2,115
  2,479
  2,814
  3,246
  3,711
  4,209
  4,738
  5,298
  5,888
  6,508
  7,157
  7,835
  8,543
  9,281
  10,048
  10,846
  11,675
  12,537
  13,433
  14,363
  15,331
  16,337
Issuance/(repayment) of debt, $m
  592
  1,091
  1,343
  1,619
  1,914
  2,225
  2,547
  2,875
  3,207
  3,537
  3,865
  4,187
  4,502
  4,810
  5,110
  5,404
  5,692
  5,976
  6,256
  6,536
  6,816
  7,099
  7,387
  7,681
  7,984
  8,297
  8,622
  8,960
  9,315
  9,687
  10,077
Issuance/(repurchase) of shares, $m
  -56
  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  
  529
  1,091
  1,343
  1,619
  1,914
  2,225
  2,547
  2,875
  3,207
  3,537
  3,865
  4,187
  4,502
  4,810
  5,110
  5,404
  5,692
  5,976
  6,256
  6,536
  6,816
  7,099
  7,387
  7,681
  7,984
  8,297
  8,622
  8,960
  9,315
  9,687
  10,077
Total cash flow (excl. dividends), $m
  683
  1,488
  1,855
  2,265
  2,724
  3,229
  3,778
  4,366
  4,992
  5,652
  6,343
  7,001
  7,748
  8,521
  9,319
  10,142
  10,990
  11,863
  12,764
  13,693
  14,652
  15,643
  16,667
  17,729
  18,829
  19,972
  21,159
  22,393
  23,678
  25,018
  26,414
Retained Cash Flow (-), $m
  -150
  -237
  -293
  -353
  -417
  -485
  -555
  -627
  -699
  -771
  -843
  -913
  -982
  -1,049
  -1,114
  -1,178
  -1,241
  -1,303
  -1,364
  -1,425
  -1,486
  -1,548
  -1,611
  -1,675
  -1,741
  -1,809
  -1,880
  -1,954
  -2,031
  -2,112
  -2,197
Prev. year cash balance distribution, $m
 
  1,288
  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
 
  2,539
  1,562
  1,912
  2,307
  2,744
  3,222
  3,740
  4,293
  4,881
  5,501
  6,088
  6,766
  7,472
  8,205
  8,964
  9,749
  10,561
  11,400
  12,268
  13,166
  14,095
  15,057
  16,054
  17,089
  18,163
  19,279
  20,440
  21,647
  22,906
  24,217
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
 
  2,434
  1,430
  1,664
  1,899
  2,127
  2,339
  2,526
  2,683
  2,804
  2,884
  2,891
  2,887
  2,841
  2,754
  2,632
  2,477
  2,298
  2,099
  1,889
  1,673
  1,458
  1,249
  1,052
  870
  707
  562
  439
  335
  250
  182
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

Open Text Corporation provides a suite of software products and services that assist organizations in finding, utilizing, and sharing business information from various devices. The company offers enterprise content management products that provide content and records management, archiving, and email management and capture solutions, as well as Core, a software as a multi-tenant cloud solution; business process management for analyzing, automating, monitoring, and optimizing structured business processes; and customer experience management products, which offer Web content management, digital asset management, customer communications management, social software, and portal. Its products also comprise business network solutions comprising business-to-business integration, fax solutions, and secure messaging; analytics solutions, including embedded reporting and visualization, and big data analysis; and discovery solutions consisting of search, semantic navigation, and auto classification, as well as InfoFusion to deal with the issue of ‘information silos’ resulting from disconnected information sources across the enterprise. In addition, the company provides customer support programs that include access to software upgrades, a knowledge base, discussions, product information, and an online mechanism to post and review trouble tickets. Further, it offers professional services, such as consulting and learning services relating to the implementation, training, and integration of its product offerings into the customer’s systems; and cloud services that allow its customers to make use of its OpenText software, services, and content over Internet enabled networks. The company serves organizations, mid-market companies, and government agencies worldwide. It has strategic partnerships with SAP AG, Microsoft Corporation, Oracle Corporation, Accenture plc, Deloitte Consulting LLP, and others. Open Text Corporation was founded in 1991 and is headquartered in Waterloo, Canada.

FINANCIAL RATIOS  of  Open Text (OTEX)

Valuation Ratios
P/E Ratio 27.8
Price to Sales 4.3
Price to Book 4
Price to Tangible Book
Price to Cash Flow 15
Price to Free Cash Flow 17.3
Growth Rates
Sales Growth Rate -1.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -9.1%
Cap. Spend. - 3 Yr. Gr. Rate 24.9%
Financial Strength
Quick Ratio 162
Current Ratio 0
LT Debt to Equity 108%
Total Debt to Equity 108.4%
Interest Coverage 5
Management Effectiveness
Return On Assets 7.5%
Ret/ On Assets - 3 Yr. Avg. 7.1%
Return On Total Capital 7.6%
Ret/ On T. Cap. - 3 Yr. Avg. 8%
Return On Equity 14.9%
Return On Equity - 3 Yr. Avg. 14.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 68.5%
Gross Margin - 3 Yr. Avg. 68.3%
EBITDA Margin 33.2%
EBITDA Margin - 3 Yr. Avg. 30.8%
Operating Margin 20.2%
Oper. Margin - 3 Yr. Avg. 19.2%
Pre-Tax Margin 16%
Pre-Tax Margin - 3 Yr. Avg. 15.8%
Net Profit Margin 15.6%
Net Profit Margin - 3 Yr. Avg. 13.9%
Effective Tax Rate 2.1%
Eff/ Tax Rate - 3 Yr. Avg. 11.8%
Payout Ratio 34.9%

OTEX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OTEX stock intrinsic value calculation we used $1824 million for the last fiscal year's total revenue generated by Open Text. The default revenue input number comes from 2016 income statement of Open Text. 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 OTEX stock valuation model: a) initial revenue growth rate of 34.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for OTEX is calculated based on our internal credit rating of Open Text, 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 Open Text.
    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 OTEX stock the variable cost ratio is equal to 81.1%.

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 OTEX 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 Open Text.

Corporate tax rate of 27% is the nominal tax rate for Open Text. 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 OTEX 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 OTEX are equal to 45.8%.

Life of production assets of 12.7 years is the average useful life of capital assets used in Open Text 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 OTEX is equal to -15.7%. 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 - $1979 million for Open Text - 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 264.534 million for Open Text 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 Open Text at the current share price and the inputted number of shares is $8.6 billion.


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COMPANY NEWS

▶ Open Text posts 3Q profit   [04:12PM  Associated Press]
▶ Trimfoot Moves B2B integration to the OpenText Cloud   [Apr-25-17 09:00AM  PR Newswire]
▶ 3 Top Cloud-Computing Stocks to Buy in 2017   [Apr-21-17 11:00AM  Motley Fool]
▶ A Potentially Intriguing Blend of Capital Gains and Income   [Mar-08-17 02:47PM  GuruFocus.com]
▶ B. Braun Drives Digital Transformation with OpenText   [Feb-14-17 09:00AM  PR Newswire]
▶ OpenText Starts 2017 Strong   [Feb-02-17 06:26PM  at Motley Fool]
▶ OpenText Buys Documentum   [08:45AM  PR Newswire]
▶ OpenText Announces 2-For-1 Share Split   [Dec-21-16 04:01PM  PR Newswire]
▶ Is Comerica Incorporated (CMA) Going to Burn These Hedge Funds?   [Nov-28-16 09:58AM  at Insider Monkey]
▶ Is Alaska Air Group, Inc. (ALK) A Good Stock To Buy?   [Nov-24-16 12:44PM  at Insider Monkey]
▶ OpenText Looks Forward to a Brighter Future   [Nov-04-16 09:08AM  at Motley Fool]
Stock chart of OTEX Financial statements of OTEX Annual reports of OTEX
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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