Intrinsic value of Principal Financial Group - PFG

Previous Close

$63.12

  Intrinsic Value

$213.65

stock screener

  Rating & Target

str. buy

+238%

  Value-price divergence*

+52%

Previous close

$63.12

 
Intrinsic value

$213.65

 
Up/down potential

+238%

 
Rating

str. buy

 
Value-price divergence*

+52%

Our model is not good at valuating stocks of financial companies, such as PFG.

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

We calculate the intrinsic value of PFG 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 18.3

 

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, %
  4.15
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
  5.01
  5.01
  5.01
  5.01
Revenue, $m
  0
  13,143
  13,823
  14,537
  15,285
  16,069
  16,892
  17,754
  18,659
  19,608
  20,604
  21,648
  22,744
  23,894
  25,101
  26,368
  27,697
  29,092
  30,556
  32,093
  33,707
  35,400
  37,178
  39,044
  41,003
  43,060
  45,219
  47,486
  49,866
  52,364
  54,987
Variable operating expenses, $m
 
  8,892
  9,348
  9,825
  10,325
  10,850
  11,400
  11,977
  12,582
  13,216
  13,882
  14,479
  15,212
  15,981
  16,788
  17,635
  18,524
  19,458
  20,437
  21,465
  22,544
  23,677
  24,866
  26,114
  27,424
  28,800
  30,244
  31,760
  33,352
  35,023
  36,777
Fixed operating expenses, $m
 
  2,571
  2,635
  2,701
  2,768
  2,838
  2,909
  2,981
  3,056
  3,132
  3,210
  3,291
  3,373
  3,457
  3,544
  3,632
  3,723
  3,816
  3,912
  4,009
  4,110
  4,212
  4,318
  4,426
  4,536
  4,650
  4,766
  4,885
  5,007
  5,132
  5,261
Total operating expenses, $m
  10,901
  11,463
  11,983
  12,526
  13,093
  13,688
  14,309
  14,958
  15,638
  16,348
  17,092
  17,770
  18,585
  19,438
  20,332
  21,267
  22,247
  23,274
  24,349
  25,474
  26,654
  27,889
  29,184
  30,540
  31,960
  33,450
  35,010
  36,645
  38,359
  40,155
  42,038
Operating income, $m
  1,592
  1,680
  1,841
  2,011
  2,192
  2,382
  2,583
  2,796
  3,022
  3,259
  3,511
  3,879
  4,159
  4,456
  4,769
  5,100
  5,449
  5,818
  6,208
  6,619
  7,053
  7,511
  7,995
  8,505
  9,043
  9,611
  10,209
  10,841
  11,507
  12,209
  12,950
EBITDA, $m
  2,064
  2,063
  2,239
  2,425
  2,621
  2,828
  3,047
  3,278
  3,523
  3,781
  4,054
  4,342
  4,646
  4,967
  5,306
  5,664
  6,042
  6,441
  6,862
  7,306
  7,774
  8,269
  8,790
  9,340
  9,920
  10,532
  11,177
  11,857
  12,574
  13,330
  14,126
Interest expense (income), $m
  162
  156
  22
  568
  1,140
  1,740
  2,369
  3,028
  3,720
  4,445
  5,206
  6,004
  6,842
  7,721
  8,643
  9,611
  10,626
  11,692
  12,811
  13,985
  15,217
  16,511
  17,869
  19,294
  20,790
  22,361
  24,010
  25,742
  27,559
  29,467
  31,471
Earnings before tax, $m
  1,592
  1,524
  1,819
  1,443
  1,051
  642
  215
  -232
  -698
  -1,186
  -1,695
  -2,126
  -2,683
  -3,265
  -3,874
  -4,511
  -5,177
  -5,874
  -6,603
  -7,366
  -8,164
  -9,000
  -9,874
  -10,789
  -11,748
  -12,751
  -13,801
  -14,901
  -16,052
  -17,258
  -18,521
Tax expense, $m
  230
  411
  491
  390
  284
  173
  58
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  1,317
  1,113
  1,328
  1,054
  768
  469
  157
  -232
  -698
  -1,186
  -1,695
  -2,126
  -2,683
  -3,265
  -3,874
  -4,511
  -5,177
  -5,874
  -6,603
  -7,366
  -8,164
  -9,000
  -9,874
  -10,789
  -11,748
  -12,751
  -13,801
  -14,901
  -16,052
  -17,258
  -18,521

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  228,014
  238,957
  251,335
  264,309
  277,910
  292,170
  307,123
  322,806
  339,255
  356,510
  374,612
  393,604
  413,531
  434,441
  456,384
  479,412
  503,580
  528,945
  555,569
  583,514
  612,848
  643,639
  675,962
  709,893
  745,514
  782,908
  822,166
  863,381
  906,650
  952,077
  999,771
Adjusted assets (=assets-cash), $m
  228,014
  238,957
  251,335
  264,309
  277,910
  292,170
  307,123
  322,806
  339,255
  356,510
  374,612
  393,604
  413,531
  434,441
  456,384
  479,412
  503,580
  528,945
  555,569
  583,514
  612,848
  643,639
  675,962
  709,893
  745,514
  782,908
  822,166
  863,381
  906,650
  952,077
  999,771
Revenue / Adjusted assets
  0.000
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
  0.055
Average production assets, $m
  1,342
  1,406
  1,479
  1,555
  1,635
  1,719
  1,807
  1,900
  1,997
  2,098
  2,205
  2,316
  2,434
  2,557
  2,686
  2,821
  2,964
  3,113
  3,270
  3,434
  3,607
  3,788
  3,978
  4,178
  4,387
  4,607
  4,838
  5,081
  5,336
  5,603
  5,884
Working capital, $m
  0
  53
  55
  58
  61
  64
  68
  71
  75
  78
  82
  87
  91
  96
  100
  105
  111
  116
  122
  128
  135
  142
  149
  156
  164
  172
  181
  190
  199
  209
  220
Total debt, $m
  3,177
  451
  11,591
  23,268
  35,509
  48,343
  61,801
  75,915
  90,720
  106,249
  122,541
  139,633
  157,568
  176,387
  196,135
  216,861
  238,612
  261,441
  285,402
  310,553
  336,953
  364,665
  393,756
  424,294
  456,352
  490,007
  525,339
  562,432
  601,375
  642,260
  685,184
Total liabilities, $m
  217,787
  215,061
  226,201
  237,878
  250,119
  262,953
  276,411
  290,525
  305,330
  320,859
  337,151
  354,243
  372,178
  390,997
  410,745
  431,471
  453,222
  476,051
  500,012
  525,163
  551,563
  579,275
  608,366
  638,904
  670,962
  704,617
  739,949
  777,042
  815,985
  856,870
  899,794
Total equity, $m
  10,227
  23,896
  25,133
  26,431
  27,791
  29,217
  30,712
  32,281
  33,926
  35,651
  37,461
  39,360
  41,353
  43,444
  45,638
  47,941
  50,358
  52,895
  55,557
  58,351
  61,285
  64,364
  67,596
  70,989
  74,551
  78,291
  82,217
  86,338
  90,665
  95,208
  99,977
Total liabilities and equity, $m
  228,014
  238,957
  251,334
  264,309
  277,910
  292,170
  307,123
  322,806
  339,256
  356,510
  374,612
  393,603
  413,531
  434,441
  456,383
  479,412
  503,580
  528,946
  555,569
  583,514
  612,848
  643,639
  675,962
  709,893
  745,513
  782,908
  822,166
  863,380
  906,650
  952,078
  999,771
Debt-to-equity ratio
  0.311
  0.020
  0.460
  0.880
  1.280
  1.650
  2.010
  2.350
  2.670
  2.980
  3.270
  3.550
  3.810
  4.060
  4.300
  4.520
  4.740
  4.940
  5.140
  5.320
  5.500
  5.670
  5.830
  5.980
  6.120
  6.260
  6.390
  6.510
  6.630
  6.750
  6.850
Adjusted equity ratio
  0.045
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,317
  1,113
  1,328
  1,054
  768
  469
  157
  -232
  -698
  -1,186
  -1,695
  -2,126
  -2,683
  -3,265
  -3,874
  -4,511
  -5,177
  -5,874
  -6,603
  -7,366
  -8,164
  -9,000
  -9,874
  -10,789
  -11,748
  -12,751
  -13,801
  -14,901
  -16,052
  -17,258
  -18,521
Depreciation, amort., depletion, $m
  472
  383
  398
  413
  429
  446
  464
  482
  501
  522
  543
  463
  487
  511
  537
  564
  593
  623
  654
  687
  721
  758
  796
  836
  877
  921
  968
  1,016
  1,067
  1,121
  1,177
Funds from operations, $m
  5,655
  1,496
  1,726
  1,467
  1,197
  915
  620
  250
  -197
  -664
  -1,152
  -1,663
  -2,196
  -2,754
  -3,337
  -3,946
  -4,584
  -5,251
  -5,949
  -6,679
  -7,443
  -8,242
  -9,078
  -9,954
  -10,870
  -11,829
  -12,833
  -13,884
  -14,985
  -16,138
  -17,344
Change in working capital, $m
  1,797
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  10
Cash from operations, $m
  3,858
  1,493
  1,723
  1,464
  1,194
  912
  617
  247
  -201
  -668
  -1,156
  -1,667
  -2,200
  -2,758
  -3,342
  -3,952
  -4,589
  -5,257
  -5,955
  -6,685
  -7,449
  -8,249
  -9,085
  -9,961
  -10,878
  -11,837
  -12,842
  -13,894
  -14,995
  -16,148
  -17,355
Maintenance CAPEX, $m
  0
  -268
  -281
  -296
  -311
  -327
  -344
  -361
  -380
  -399
  -420
  -441
  -463
  -487
  -511
  -537
  -564
  -593
  -623
  -654
  -687
  -721
  -758
  -796
  -836
  -877
  -921
  -968
  -1,016
  -1,067
  -1,121
New CAPEX, $m
  -155
  -64
  -73
  -76
  -80
  -84
  -88
  -92
  -97
  -102
  -107
  -112
  -117
  -123
  -129
  -136
  -142
  -149
  -157
  -164
  -173
  -181
  -190
  -200
  -210
  -220
  -231
  -243
  -255
  -267
  -281
Cash from investing activities, $m
  -5,154
  -332
  -354
  -372
  -391
  -411
  -432
  -453
  -477
  -501
  -527
  -553
  -580
  -610
  -640
  -673
  -706
  -742
  -780
  -818
  -860
  -902
  -948
  -996
  -1,046
  -1,097
  -1,152
  -1,211
  -1,271
  -1,334
  -1,402
Free cash flow, $m
  -1,296
  1,161
  1,369
  1,092
  803
  501
  185
  -207
  -677
  -1,169
  -1,682
  -2,220
  -2,781
  -3,368
  -3,982
  -4,624
  -5,296
  -5,999
  -6,734
  -7,503
  -8,309
  -9,151
  -10,033
  -10,957
  -11,923
  -12,935
  -13,994
  -15,104
  -16,265
  -17,482
  -18,756
Issuance/(repayment) of debt, $m
  -275
  -2,726
  11,140
  11,677
  12,241
  12,834
  13,458
  14,114
  14,804
  15,529
  16,292
  17,093
  17,934
  18,819
  19,749
  20,725
  21,751
  22,829
  23,961
  25,151
  26,400
  27,712
  29,091
  30,538
  32,058
  33,655
  35,332
  37,093
  38,942
  40,885
  42,924
Issuance/(repurchase) of shares, $m
  -240
  12,556
  0
  244
  593
  957
  1,339
  1,800
  2,343
  2,911
  3,506
  4,025
  4,675
  5,356
  6,068
  6,814
  7,594
  8,410
  9,265
  10,160
  11,097
  12,079
  13,106
  14,182
  15,310
  16,490
  17,727
  19,022
  20,379
  21,801
  23,290
Cash from financing (excl. dividends), $m  
  1,916
  9,830
  11,140
  11,921
  12,834
  13,791
  14,797
  15,914
  17,147
  18,440
  19,798
  21,118
  22,609
  24,175
  25,817
  27,539
  29,345
  31,239
  33,226
  35,311
  37,497
  39,791
  42,197
  44,720
  47,368
  50,145
  53,059
  56,115
  59,321
  62,686
  66,214
Total cash flow (excl. dividends), $m
  620
  10,991
  12,509
  13,012
  13,636
  14,292
  14,982
  15,707
  16,470
  17,272
  18,115
  18,898
  19,829
  20,807
  21,835
  22,915
  24,049
  25,241
  26,492
  27,808
  29,189
  30,640
  32,164
  33,764
  35,445
  37,210
  39,064
  41,011
  43,056
  45,204
  47,459
Retained Cash Flow (-), $m
  -915
  -13,669
  -1,238
  -1,297
  -1,360
  -1,426
  -1,495
  -1,800
  -2,343
  -2,911
  -3,506
  -4,025
  -4,675
  -5,356
  -6,068
  -6,814
  -7,594
  -8,410
  -9,265
  -10,160
  -11,097
  -12,079
  -13,106
  -14,182
  -15,310
  -16,490
  -17,727
  -19,022
  -20,379
  -21,801
  -23,290
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -2,678
  11,271
  11,715
  12,276
  12,866
  13,487
  13,907
  14,127
  14,361
  14,609
  14,873
  15,154
  15,451
  15,767
  16,101
  16,455
  16,830
  17,227
  17,647
  18,091
  18,561
  19,057
  19,582
  20,135
  20,720
  21,338
  21,989
  22,677
  23,403
  24,168
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
 
  -2,567
  10,318
  10,195
  10,108
  9,973
  9,788
  9,396
  8,830
  8,249
  7,659
  7,063
  6,467
  5,875
  5,293
  4,727
  4,182
  3,662
  3,173
  2,717
  2,299
  1,920
  1,581
  1,283
  1,026
  806
  623
  472
  351
  255
  182
Current shareholders' claim on cash, %
  100
  59.3
  59.3
  59.0
  58.3
  57.2
  55.8
  54.0
  51.9
  49.5
  46.9
  44.3
  41.5
  38.7
  35.9
  33.2
  30.5
  27.9
  25.4
  23.0
  20.8
  18.8
  16.8
  15.1
  13.5
  12.0
  10.6
  9.4
  8.3
  7.3
  6.5

Principal Financial Group, Inc. is an investment management company. The Company offers a range of financial products and services, including retirement, asset management and insurance. Its segments include Retirement and Income Solutions; Principal Global Investors, Principal International; U.S. Insurance Solutions, and Corporate. The Company offers a portfolio of products and services for retirement savings and retirement income. The Company's Principal Global Investors segment manages assets for investors around the world. The Company offers pension accumulation products and services, mutual funds, asset management, income annuities and life insurance accumulation products. The Company's U.S. Insurance Solutions segment provides group and individual insurance solutions. It focuses on small and medium-sized businesses, providing a range of retirement and employee benefit solutions, and individual insurance solutions to meet the needs of the business owners and their employees.

FINANCIAL RATIOS  of  Principal Financial Group (PFG)

Valuation Ratios
P/E Ratio 13.8
Price to Sales 1.5
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 4.7
Price to Free Cash Flow 4.9
Growth Rates
Sales Growth Rate 4.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 14%
Cap. Spend. - 3 Yr. Gr. Rate 21.3%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 30.6%
Total Debt to Equity 31.1%
Interest Coverage 11
Management Effectiveness
Return On Assets 0.7%
Ret/ On Assets - 3 Yr. Avg. 0.6%
Return On Total Capital 10.1%
Ret/ On T. Cap. - 3 Yr. Avg. 9.6%
Return On Equity 13.5%
Return On Equity - 3 Yr. Avg. 12.6%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 17.8%
EBITDA Margin - 3 Yr. Avg. 18.5%
Operating Margin 12.7%
Oper. Margin - 3 Yr. Avg. 12.9%
Pre-Tax Margin 12.7%
Pre-Tax Margin - 3 Yr. Avg. 12.9%
Net Profit Margin 10.5%
Net Profit Margin - 3 Yr. Avg. 10.6%
Effective Tax Rate 14.4%
Eff/ Tax Rate - 3 Yr. Avg. 16.1%
Payout Ratio 35.3%

PFG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PFG stock intrinsic value calculation we used $12493 million for the last fiscal year's total revenue generated by Principal Financial Group. The default revenue input number comes from 2016 income statement of Principal Financial Group. 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 PFG stock valuation model: a) initial revenue growth rate of 5.2% 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 PFG is calculated based on our internal credit rating of Principal Financial Group, 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 Principal Financial Group.
    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 PFG stock the variable cost ratio is equal to 67.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2508 million in the base year in the intrinsic value calculation for PFG 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 4.9% for Principal Financial Group.

Corporate tax rate of 27% is the nominal tax rate for Principal Financial Group. 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 PFG 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 PFG are equal to 10.7%.

Life of production assets of 5 years is the average useful life of capital assets used in Principal Financial Group 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 PFG is equal to 0.4%. 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 - $10227 million for Principal Financial Group - 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 290.226 million for Principal Financial Group 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 Principal Financial Group at the current share price and the inputted number of shares is $18.3 billion.

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COMPANY NEWS

▶ Principal® Announces Real Estate Exchange Agreement   [Sep-20-17 02:54PM  Business Wire]
▶ [$$] Germany Votes as Market Prospects Brighten   [Sep-15-17 10:57PM  Barrons.com]
▶ Voluntary Pensions Help Enable Financial Security   [Sep-13-17 10:00AM  Business Wire]
▶ Post Advisory Group to Launch CLO Business   [Sep-12-17 10:20AM  Business Wire]
▶ Principal Financial beats 2Q profit forecasts   [Jul-27-17 05:30PM  Associated Press]
▶ 5 Top Habits of the Best Retirement Savers   [Jul-14-17 08:02AM  Motley Fool]
▶ Britannia No Longer Rules for Investors   [Jun-19-17 12:00AM  The Wall Street Journal]
▶ Britannia No Longer Rules for Investors   [Jun-18-17 02:00PM  The Wall Street Journal]
▶ Sixteen Years Running, Principal IT Still Rocks   [Jun-13-17 02:14PM  Business Wire]
▶ Principal Financial beats 1Q profit forecasts   [Apr-27-17 07:00PM  Associated Press]
▶ Retro-modern is the design world's comfort food at Milan   [Apr-11-17 10:56AM  Associated Press]
▶ Principal Launches Two New Variable Annuities   [Apr-06-17 01:00PM  Business Wire]
▶ Principal to Announce First Quarter 2017 Financial Results   [Apr-03-17 04:15PM  Business Wire]
▶ 4 Top-Rated Principal Mutual Funds to Consider   [Mar-21-17 09:06AM  Zacks]
▶ Principal Again Named a Top Company for Executive Women   [Feb-28-17 02:03PM  Business Wire]
▶ 4 Legendary Investor Picks For The Trump Rally   [Feb-21-17 10:47AM  at Forbes]
▶ Principal Asia Chair to Retire   [Feb-13-17 06:00PM  Business Wire]
Financial statements of PFG
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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