Intrinsic value of Principal Financial Group - PFG

Previous Close

$65.89

  Intrinsic Value

$143.38

stock screener

  Rating & Target

str. buy

+118%

  Value-price divergence*

-60%

Previous close

$65.89

 
Intrinsic value

$143.38

 
Up/down potential

+118%

 
Rating

str. buy

 
Value-price divergence*

-60%

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 18.9

 

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, %
  4.15
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  0
  12,743
  13,036
  13,371
  13,747
  14,164
  14,621
  15,119
  15,658
  16,239
  16,862
  17,529
  18,240
  18,998
  19,803
  20,657
  21,562
  22,520
  23,534
  24,604
  25,735
  26,928
  28,186
  29,512
  30,909
  32,380
  33,930
  35,560
  37,276
  39,082
  40,981
Variable operating expenses, $m
 
  8,625
  8,821
  9,045
  9,297
  9,575
  9,881
  10,214
  10,575
  10,963
  11,380
  11,724
  12,200
  12,706
  13,245
  13,816
  14,421
  15,062
  15,740
  16,456
  17,212
  18,010
  18,851
  19,738
  20,673
  21,657
  22,693
  23,784
  24,931
  26,139
  27,409
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
  11,196
  11,456
  11,746
  12,065
  12,413
  12,790
  13,195
  13,631
  14,095
  14,590
  15,015
  15,573
  16,163
  16,789
  17,448
  18,144
  18,878
  19,652
  20,465
  21,322
  22,222
  23,169
  24,164
  25,209
  26,307
  27,459
  28,669
  29,938
  31,271
  32,670
Operating income, $m
  1,592
  1,547
  1,580
  1,625
  1,682
  1,751
  1,832
  1,924
  2,028
  2,144
  2,272
  2,514
  2,668
  2,834
  3,014
  3,209
  3,418
  3,642
  3,882
  4,139
  4,413
  4,705
  5,017
  5,348
  5,700
  6,074
  6,471
  6,892
  7,338
  7,810
  8,311
EBITDA, $m
  2,064
  1,786
  1,822
  1,870
  1,931
  2,005
  2,090
  2,188
  2,297
  2,419
  2,554
  2,702
  2,863
  3,037
  3,226
  3,430
  3,648
  3,883
  4,134
  4,402
  4,688
  4,993
  5,318
  5,664
  6,031
  6,420
  6,834
  7,272
  7,737
  8,229
  8,749
Interest expense (income), $m
  162
  156
  -298
  -63
  205
  507
  841
  1,208
  1,607
  2,039
  2,505
  3,004
  3,539
  4,109
  4,717
  5,362
  6,047
  6,773
  7,541
  8,354
  9,212
  10,119
  11,075
  12,084
  13,147
  14,267
  15,447
  16,690
  17,997
  19,373
  20,821
Earnings before tax, $m
  1,592
  1,392
  1,879
  1,689
  1,477
  1,244
  991
  716
  421
  105
  -233
  -490
  -871
  -1,275
  -1,702
  -2,154
  -2,630
  -3,131
  -3,659
  -4,215
  -4,799
  -5,413
  -6,059
  -6,736
  -7,447
  -8,194
  -8,977
  -9,798
  -10,659
  -11,563
  -12,510
Tax expense, $m
  230
  376
  507
  456
  399
  336
  267
  193
  114
  28
  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
  1,016
  1,371
  1,233
  1,078
  908
  723
  523
  307
  76
  -233
  -490
  -871
  -1,275
  -1,702
  -2,154
  -2,630
  -3,131
  -3,659
  -4,215
  -4,799
  -5,413
  -6,059
  -6,736
  -7,447
  -8,194
  -8,977
  -9,798
  -10,659
  -11,563
  -12,510

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
  231,688
  237,017
  243,109
  249,947
  257,525
  265,839
  274,893
  284,693
  295,251
  306,582
  318,704
  331,639
  345,411
  360,048
  375,579
  392,038
  409,461
  427,885
  447,353
  467,907
  489,596
  512,469
  536,578
  561,980
  588,735
  616,903
  646,553
  677,752
  710,576
  745,101
Adjusted assets (=assets-cash), $m
  228,014
  231,688
  237,017
  243,109
  249,947
  257,525
  265,839
  274,893
  284,693
  295,251
  306,582
  318,704
  331,639
  345,411
  360,048
  375,579
  392,038
  409,461
  427,885
  447,353
  467,907
  489,596
  512,469
  536,578
  561,980
  588,735
  616,903
  646,553
  677,752
  710,576
  745,101
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
  1,363
  1,395
  1,431
  1,471
  1,516
  1,564
  1,618
  1,675
  1,738
  1,804
  1,876
  1,952
  2,033
  2,119
  2,210
  2,307
  2,410
  2,518
  2,633
  2,754
  2,881
  3,016
  3,158
  3,307
  3,465
  3,630
  3,805
  3,989
  4,182
  4,385
Working capital, $m
  0
  51
  52
  53
  55
  57
  58
  60
  63
  65
  67
  70
  73
  76
  79
  83
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
  136
  142
  149
  156
  164
Total debt, $m
  3,177
  -6,090
  -1,295
  4,188
  10,342
  17,162
  24,645
  32,793
  41,614
  51,116
  61,314
  72,224
  83,865
  96,260
  109,433
  123,411
  138,224
  153,905
  170,487
  188,007
  206,507
  226,026
  246,612
  268,310
  291,172
  315,251
  340,603
  367,287
  395,367
  424,908
  455,981
Total liabilities, $m
  217,787
  208,520
  213,315
  218,798
  224,952
  231,772
  239,255
  247,403
  256,224
  265,726
  275,924
  286,834
  298,475
  310,870
  324,043
  338,021
  352,834
  368,515
  385,097
  402,617
  421,117
  440,636
  461,222
  482,920
  505,782
  529,861
  555,213
  581,897
  609,977
  639,518
  670,591
Total equity, $m
  10,227
  23,169
  23,702
  24,311
  24,995
  25,752
  26,584
  27,489
  28,469
  29,525
  30,658
  31,870
  33,164
  34,541
  36,005
  37,558
  39,204
  40,946
  42,789
  44,735
  46,791
  48,960
  51,247
  53,658
  56,198
  58,873
  61,690
  64,655
  67,775
  71,058
  74,510
Total liabilities and equity, $m
  228,014
  231,689
  237,017
  243,109
  249,947
  257,524
  265,839
  274,892
  284,693
  295,251
  306,582
  318,704
  331,639
  345,411
  360,048
  375,579
  392,038
  409,461
  427,886
  447,352
  467,908
  489,596
  512,469
  536,578
  561,980
  588,734
  616,903
  646,552
  677,752
  710,576
  745,101
Debt-to-equity ratio
  0.311
  -0.260
  -0.050
  0.170
  0.410
  0.670
  0.930
  1.190
  1.460
  1.730
  2.000
  2.270
  2.530
  2.790
  3.040
  3.290
  3.530
  3.760
  3.980
  4.200
  4.410
  4.620
  4.810
  5.000
  5.180
  5.350
  5.520
  5.680
  5.830
  5.980
  6.120
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
  1,016
  1,371
  1,233
  1,078
  908
  723
  523
  307
  76
  -233
  -490
  -871
  -1,275
  -1,702
  -2,154
  -2,630
  -3,131
  -3,659
  -4,215
  -4,799
  -5,413
  -6,059
  -6,736
  -7,447
  -8,194
  -8,977
  -9,798
  -10,659
  -11,563
  -12,510
Depreciation, amort., depletion, $m
  472
  238
  242
  245
  249
  254
  259
  264
  270
  276
  283
  188
  195
  203
  212
  221
  231
  241
  252
  263
  275
  288
  302
  316
  331
  346
  363
  380
  399
  418
  438
Funds from operations, $m
  5,655
  1,254
  1,613
  1,478
  1,327
  1,162
  982
  787
  577
  352
  50
  -302
  -676
  -1,072
  -1,491
  -1,933
  -2,399
  -2,890
  -3,407
  -3,952
  -4,524
  -5,125
  -5,757
  -6,420
  -7,117
  -7,847
  -8,614
  -9,418
  -10,261
  -11,144
  -12,071
Change in working capital, $m
  1,797
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
Cash from operations, $m
  3,858
  1,253
  1,612
  1,476
  1,326
  1,160
  980
  785
  575
  350
  47
  -305
  -679
  -1,075
  -1,494
  -1,936
  -2,402
  -2,894
  -3,411
  -3,956
  -4,528
  -5,130
  -5,762
  -6,426
  -7,122
  -7,853
  -8,620
  -9,424
  -10,267
  -11,152
  -12,079
Maintenance CAPEX, $m
  0
  -134
  -136
  -139
  -143
  -147
  -152
  -156
  -162
  -168
  -174
  -180
  -188
  -195
  -203
  -212
  -221
  -231
  -241
  -252
  -263
  -275
  -288
  -302
  -316
  -331
  -346
  -363
  -380
  -399
  -418
New CAPEX, $m
  -155
  -21
  -31
  -36
  -40
  -45
  -49
  -53
  -58
  -62
  -67
  -71
  -76
  -81
  -86
  -91
  -97
  -103
  -108
  -115
  -121
  -128
  -135
  -142
  -149
  -157
  -166
  -174
  -184
  -193
  -203
Cash from investing activities, $m
  -5,154
  -155
  -167
  -175
  -183
  -192
  -201
  -209
  -220
  -230
  -241
  -251
  -264
  -276
  -289
  -303
  -318
  -334
  -349
  -367
  -384
  -403
  -423
  -444
  -465
  -488
  -512
  -537
  -564
  -592
  -621
Free cash flow, $m
  -1,296
  1,098
  1,444
  1,301
  1,143
  969
  779
  575
  355
  120
  -193
  -557
  -943
  -1,351
  -1,783
  -2,239
  -2,720
  -3,227
  -3,761
  -4,322
  -4,913
  -5,533
  -6,185
  -6,869
  -7,587
  -8,341
  -9,132
  -9,962
  -10,831
  -11,744
  -12,700
Issuance/(repayment) of debt, $m
  -275
  -9,267
  4,796
  5,482
  6,155
  6,820
  7,483
  8,148
  8,820
  9,502
  10,198
  10,910
  11,641
  12,395
  13,173
  13,978
  14,813
  15,680
  16,582
  17,521
  18,499
  19,520
  20,585
  21,698
  22,862
  24,079
  25,352
  26,684
  28,080
  29,541
  31,072
Issuance/(repurchase) of shares, $m
  -240
  11,926
  0
  0
  0
  0
  108
  383
  673
  980
  1,366
  1,702
  2,165
  2,652
  3,166
  3,707
  4,275
  4,873
  5,502
  6,162
  6,855
  7,582
  8,346
  9,147
  9,988
  10,869
  11,794
  12,763
  13,779
  14,845
  15,962
Cash from financing (excl. dividends), $m  
  1,916
  2,659
  4,796
  5,482
  6,155
  6,820
  7,591
  8,531
  9,493
  10,482
  11,564
  12,612
  13,806
  15,047
  16,339
  17,685
  19,088
  20,553
  22,084
  23,683
  25,354
  27,102
  28,931
  30,845
  32,850
  34,948
  37,146
  39,447
  41,859
  44,386
  47,034
Total cash flow (excl. dividends), $m
  620
  3,756
  6,240
  6,783
  7,297
  7,788
  8,371
  9,106
  9,848
  10,602
  11,371
  12,055
  12,863
  13,696
  14,556
  15,446
  16,368
  17,326
  18,323
  19,360
  20,441
  21,569
  22,746
  23,976
  25,262
  26,607
  28,013
  29,486
  31,028
  32,642
  34,334
Retained Cash Flow (-), $m
  -915
  -12,942
  -533
  -609
  -684
  -758
  -831
  -905
  -980
  -1,056
  -1,366
  -1,702
  -2,165
  -2,652
  -3,166
  -3,707
  -4,275
  -4,873
  -5,502
  -6,162
  -6,855
  -7,582
  -8,346
  -9,147
  -9,988
  -10,869
  -11,794
  -12,763
  -13,779
  -14,845
  -15,962
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
 
  -9,186
  5,707
  6,174
  6,614
  7,031
  7,539
  8,200
  8,868
  9,546
  10,004
  10,353
  10,699
  11,044
  11,390
  11,739
  12,093
  12,453
  12,821
  13,198
  13,587
  13,987
  14,401
  14,829
  15,275
  15,738
  16,220
  16,723
  17,248
  17,797
  18,372
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
 
  -8,807
  5,225
  5,373
  5,446
  5,450
  5,471
  5,540
  5,543
  5,484
  5,245
  4,916
  4,566
  4,199
  3,824
  3,446
  3,073
  2,710
  2,361
  2,032
  1,726
  1,447
  1,195
  972
  778
  612
  473
  359
  267
  194
  138
Current shareholders' claim on cash, %
  100
  61.3
  61.3
  61.3
  61.3
  61.3
  61.1
  60.7
  59.9
  58.8
  57.3
  55.7
  53.7
  51.4
  49.0
  46.4
  43.7
  41.0
  38.2
  35.4
  32.7
  30.1
  27.5
  25.1
  22.8
  20.6
  18.6
  16.7
  15.0
  13.4
  12.0

Principal Financial Group, Inc. provides retirement, asset management, and insurance products and services to businesses, individuals, and institutional clients worldwide. It operates through Retirement and Income Solutions, Principal Global Investors, Principal International, and U.S. Insurance Solutions segments. The Retirement and Income Solutions segment provides a portfolio of asset accumulation products and services, including retirement savings and income. It offers products and services for defined contribution pension plans, including 401(k) and 403(b) plans, defined benefit pension plans, nonqualified executive benefit plans, and employee stock ownership plans; individual retirement accounts and payroll deduction plans; investment-only products; and annuities, mutual funds, and bank products. The Principal Global Investors segment provides equity, fixed income, real estate, and other alternative investments, as well as asset allocation, stable value management, and other structured investment strategies. The Principal International segment offers pension accumulation and income annuity products, mutual funds, asset management, and life insurance accumulation products, as well as voluntary savings plans in Brazil, Chile, China, Hong Kong Special Administrative Region, India, Mexico, and the Southeast Asia. The U.S. Insurance Solutions segment provides specialty benefits consisting of group dental and vision insurance, individual and group disability insurance, and group life insurance; and individual life insurance products comprising universal and variable universal life insurance and term life insurance, as well as non-medical fee-for-service claims administration services in the United States. It also provides insurance solutions for small and medium-sized businesses and their owners, as well as executives. Principal Financial Group, Inc. was founded in 1879 and is based in Des Moines, Iowa.

FINANCIAL RATIOS  of  Principal Financial Group (PFG)

Valuation Ratios
P/E Ratio 14.4
Price to Sales 1.5
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 4.9
Price to Free Cash Flow 5.1
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 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 10 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 286.317 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 $18.9 billion.

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COMPANY NEWS

▶ 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]
▶ Eight Dividend Stocks Rewarding Shareholders With A Raise   [Feb-07-17 12:55PM  at Insider Monkey]
▶ Principal to Announce Fourth Quarter 2016 Financial Results   [Jan-04-17 04:30PM  Business Wire]
▶ Fiduciary Focus: A Glimpse into 403(b) Plan Trends   [Dec-14-16 10:33AM  Business Wire]
▶ Is Cabot Oil & Gas Corporation (COG) A Good Stock To Buy?   [Nov-25-16 05:59AM  at Insider Monkey]
Stock chart of PFG Financial statements of PFG Annual reports 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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