Intrinsic value of Procter&Gamble - PG

Previous Close

$78.68

  Intrinsic Value

$67.31

stock screener

  Rating & Target

hold

-14%

Previous close

$78.68

 
Intrinsic value

$67.31

 
Up/down potential

-14%

 
Rating

hold

We calculate the intrinsic value of PG 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -0.37
  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
  65,058
  66,359
  67,885
  69,630
  71,589
  73,759
  76,140
  78,734
  81,540
  84,565
  87,810
  91,282
  94,987
  98,931
  103,123
  107,572
  112,286
  117,276
  122,553
  128,129
  134,016
  140,228
  146,779
  153,684
  160,960
  168,623
  176,691
  185,183
  194,119
  203,520
  213,408
Variable operating expenses, $m
 
  52,551
  53,602
  54,802
  56,150
  57,643
  59,282
  61,066
  62,998
  65,079
  67,312
  62,812
  65,362
  68,076
  70,961
  74,022
  77,266
  80,699
  84,331
  88,167
  92,219
  96,493
  101,001
  105,753
  110,759
  116,032
  121,584
  127,427
  133,576
  140,045
  146,850
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
  51,103
  52,551
  53,602
  54,802
  56,150
  57,643
  59,282
  61,066
  62,998
  65,079
  67,312
  62,812
  65,362
  68,076
  70,961
  74,022
  77,266
  80,699
  84,331
  88,167
  92,219
  96,493
  101,001
  105,753
  110,759
  116,032
  121,584
  127,427
  133,576
  140,045
  146,850
Operating income, $m
  13,955
  13,808
  14,284
  14,828
  15,439
  16,116
  16,858
  17,667
  18,543
  19,486
  20,498
  28,469
  29,625
  30,855
  32,162
  33,550
  35,020
  36,576
  38,222
  39,961
  41,797
  43,735
  45,778
  47,932
  50,201
  52,591
  55,107
  57,756
  60,543
  63,475
  66,559
EBITDA, $m
  16,775
  29,728
  30,412
  31,193
  32,071
  33,043
  34,110
  35,271
  36,529
  37,884
  39,337
  40,893
  42,552
  44,320
  46,198
  48,190
  50,302
  52,538
  54,902
  57,400
  60,037
  62,820
  65,755
  68,848
  72,107
  75,540
  79,155
  82,959
  86,962
  91,174
  95,604
Interest expense (income), $m
  518
  1,706
  1,780
  1,862
  1,955
  2,060
  2,177
  2,305
  2,444
  2,595
  2,757
  2,931
  3,118
  3,317
  3,529
  3,754
  3,993
  4,246
  4,514
  4,797
  5,097
  5,413
  5,746
  6,098
  6,469
  6,860
  7,271
  7,704
  8,160
  8,640
  9,145
Earnings before tax, $m
  13,257
  12,102
  12,504
  12,966
  13,484
  14,055
  14,681
  15,362
  16,099
  16,891
  17,741
  25,538
  26,507
  27,538
  28,634
  29,796
  31,027
  32,331
  33,709
  35,164
  36,701
  38,322
  40,032
  41,834
  43,732
  45,731
  47,836
  50,051
  52,382
  54,834
  57,414
Tax expense, $m
  3,063
  3,267
  3,376
  3,501
  3,641
  3,795
  3,964
  4,148
  4,347
  4,561
  4,790
  6,895
  7,157
  7,435
  7,731
  8,045
  8,377
  8,729
  9,101
  9,494
  9,909
  10,347
  10,809
  11,295
  11,808
  12,347
  12,916
  13,514
  14,143
  14,805
  15,502
Net income, $m
  15,326
  8,834
  9,128
  9,465
  9,843
  10,260
  10,717
  11,215
  11,752
  12,330
  12,951
  18,643
  19,350
  20,103
  20,903
  21,751
  22,650
  23,601
  24,607
  25,670
  26,792
  27,975
  29,223
  30,539
  31,924
  33,384
  34,920
  36,537
  38,239
  40,029
  41,912

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  15,137
  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
  120,406
  122,887
  125,714
  128,945
  132,572
  136,591
  141,001
  145,803
  151,001
  156,601
  162,611
  169,040
  175,901
  183,206
  190,969
  199,207
  207,937
  217,178
  226,950
  237,275
  248,178
  259,681
  271,813
  284,601
  298,074
  312,264
  327,205
  342,931
  359,479
  376,889
  395,201
Adjusted assets (=assets-cash), $m
  105,269
  122,887
  125,714
  128,945
  132,572
  136,591
  141,001
  145,803
  151,001
  156,601
  162,611
  169,040
  175,901
  183,206
  190,969
  199,207
  207,937
  217,178
  226,950
  237,275
  248,178
  259,681
  271,813
  284,601
  298,074
  312,264
  327,205
  342,931
  359,479
  376,889
  395,201
Revenue / Adjusted assets
  0.618
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
Average production assets, $m
  43,996
  90,315
  92,392
  94,767
  97,432
  100,386
  103,627
  107,156
  110,977
  115,092
  119,509
  124,235
  129,277
  134,645
  140,351
  146,405
  152,821
  159,612
  166,795
  174,383
  182,396
  190,850
  199,766
  209,164
  219,066
  229,496
  240,476
  252,034
  264,196
  276,991
  290,449
Working capital, $m
  -3,716
  -5,110
  -5,227
  -5,362
  -5,512
  -5,679
  -5,863
  -6,062
  -6,279
  -6,511
  -6,761
  -7,029
  -7,314
  -7,618
  -7,940
  -8,283
  -8,646
  -9,030
  -9,437
  -9,866
  -10,319
  -10,798
  -11,302
  -11,834
  -12,394
  -12,984
  -13,605
  -14,259
  -14,947
  -15,671
  -16,432
Total debt, $m
  31,592
  32,954
  34,472
  36,207
  38,155
  40,313
  42,681
  45,260
  48,051
  51,059
  54,286
  57,739
  61,423
  65,345
  69,514
  73,938
  78,626
  83,588
  88,836
  94,381
  100,235
  106,413
  112,928
  119,795
  127,030
  134,650
  142,673
  151,118
  160,004
  169,353
  179,187
Total liabilities, $m
  65,222
  65,990
  67,508
  69,243
  71,191
  73,349
  75,717
  78,296
  81,087
  84,095
  87,322
  90,775
  94,459
  98,381
  102,550
  106,974
  111,662
  116,624
  121,872
  127,417
  133,271
  139,449
  145,964
  152,831
  160,066
  167,686
  175,709
  184,154
  193,040
  202,389
  212,223
Total equity, $m
  55,184
  56,897
  58,205
  59,701
  61,381
  63,242
  65,283
  67,507
  69,913
  72,506
  75,289
  78,266
  81,442
  84,824
  88,419
  92,233
  96,275
  100,553
  105,078
  109,859
  114,906
  120,232
  125,849
  131,770
  138,008
  144,578
  151,496
  158,777
  166,439
  174,500
  182,978
Total liabilities and equity, $m
  120,406
  122,887
  125,713
  128,944
  132,572
  136,591
  141,000
  145,803
  151,000
  156,601
  162,611
  169,041
  175,901
  183,205
  190,969
  199,207
  207,937
  217,177
  226,950
  237,276
  248,177
  259,681
  271,813
  284,601
  298,074
  312,264
  327,205
  342,931
  359,479
  376,889
  395,201
Debt-to-equity ratio
  0.572
  0.580
  0.590
  0.610
  0.620
  0.640
  0.650
  0.670
  0.690
  0.700
  0.720
  0.740
  0.750
  0.770
  0.790
  0.800
  0.820
  0.830
  0.850
  0.860
  0.870
  0.890
  0.900
  0.910
  0.920
  0.930
  0.940
  0.950
  0.960
  0.970
  0.980
Adjusted equity ratio
  0.493
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463
  0.463

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15,326
  8,834
  9,128
  9,465
  9,843
  10,260
  10,717
  11,215
  11,752
  12,330
  12,951
  18,643
  19,350
  20,103
  20,903
  21,751
  22,650
  23,601
  24,607
  25,670
  26,792
  27,975
  29,223
  30,539
  31,924
  33,384
  34,920
  36,537
  38,239
  40,029
  41,912
Depreciation, amort., depletion, $m
  2,820
  15,920
  16,128
  16,365
  16,632
  16,927
  17,251
  17,604
  17,986
  18,398
  18,840
  12,423
  12,928
  13,465
  14,035
  14,641
  15,282
  15,961
  16,679
  17,438
  18,240
  19,085
  19,977
  20,916
  21,907
  22,950
  24,048
  25,203
  26,420
  27,699
  29,045
Funds from operations, $m
  12,472
  24,754
  25,256
  25,831
  26,475
  27,188
  27,969
  28,819
  29,738
  30,728
  31,790
  31,066
  32,278
  33,567
  34,938
  36,392
  37,932
  39,563
  41,287
  43,108
  45,031
  47,060
  49,200
  51,455
  53,831
  56,333
  58,968
  61,741
  64,659
  67,728
  70,957
Change in working capital, $m
  -281
  -100
  -118
  -134
  -151
  -167
  -183
  -200
  -216
  -233
  -250
  -267
  -285
  -304
  -323
  -343
  -363
  -384
  -406
  -429
  -453
  -478
  -504
  -532
  -560
  -590
  -621
  -654
  -688
  -724
  -761
Cash from operations, $m
  12,753
  24,855
  25,373
  25,965
  26,626
  27,355
  28,152
  29,018
  29,954
  30,961
  32,040
  31,333
  32,563
  33,871
  35,261
  36,734
  38,295
  39,947
  41,693
  43,537
  45,485
  47,539
  49,704
  51,987
  54,391
  56,923
  59,589
  62,395
  65,347
  68,452
  71,718
Maintenance CAPEX, $m
  0
  -8,852
  -9,031
  -9,239
  -9,477
  -9,743
  -10,039
  -10,363
  -10,716
  -11,098
  -11,509
  -11,951
  -12,423
  -12,928
  -13,465
  -14,035
  -14,641
  -15,282
  -15,961
  -16,679
  -17,438
  -18,240
  -19,085
  -19,977
  -20,916
  -21,907
  -22,950
  -24,048
  -25,203
  -26,420
  -27,699
New CAPEX, $m
  -3,384
  -1,794
  -2,077
  -2,374
  -2,666
  -2,954
  -3,241
  -3,529
  -3,820
  -4,116
  -4,417
  -4,725
  -5,042
  -5,368
  -5,706
  -6,054
  -6,416
  -6,792
  -7,182
  -7,589
  -8,012
  -8,455
  -8,916
  -9,398
  -9,902
  -10,429
  -10,981
  -11,558
  -12,162
  -12,795
  -13,458
Cash from investing activities, $m
  -5,689
  -10,646
  -11,108
  -11,613
  -12,143
  -12,697
  -13,280
  -13,892
  -14,536
  -15,214
  -15,926
  -16,676
  -17,465
  -18,296
  -19,171
  -20,089
  -21,057
  -22,074
  -23,143
  -24,268
  -25,450
  -26,695
  -28,001
  -29,375
  -30,818
  -32,336
  -33,931
  -35,606
  -37,365
  -39,215
  -41,157
Free cash flow, $m
  7,064
  14,208
  14,265
  14,351
  14,483
  14,658
  14,873
  15,126
  15,418
  15,748
  16,114
  14,657
  15,097
  15,575
  16,091
  16,645
  17,239
  17,873
  18,550
  19,269
  20,034
  20,844
  21,703
  22,612
  23,573
  24,588
  25,659
  26,789
  27,981
  29,238
  30,561
Issuance/(repayment) of debt, $m
  1,399
  1,362
  1,518
  1,735
  1,948
  2,158
  2,368
  2,579
  2,791
  3,007
  3,227
  3,453
  3,684
  3,923
  4,169
  4,424
  4,688
  4,962
  5,248
  5,545
  5,854
  6,177
  6,515
  6,867
  7,235
  7,620
  8,023
  8,445
  8,886
  9,349
  9,833
Issuance/(repurchase) of shares, $m
  -2,731
  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  
  -1,332
  1,362
  1,518
  1,735
  1,948
  2,158
  2,368
  2,579
  2,791
  3,007
  3,227
  3,453
  3,684
  3,923
  4,169
  4,424
  4,688
  4,962
  5,248
  5,545
  5,854
  6,177
  6,515
  6,867
  7,235
  7,620
  8,023
  8,445
  8,886
  9,349
  9,833
Total cash flow (excl. dividends), $m
  5,703
  15,571
  15,782
  16,086
  16,431
  16,816
  17,241
  17,705
  18,210
  18,755
  19,341
  18,110
  18,782
  19,498
  20,259
  21,069
  21,927
  22,836
  23,797
  24,814
  25,888
  27,022
  28,218
  29,479
  30,808
  32,208
  33,682
  35,234
  36,868
  38,586
  40,394
Retained Cash Flow (-), $m
  2,157
  -1,119
  -1,309
  -1,496
  -1,679
  -1,861
  -2,042
  -2,223
  -2,407
  -2,593
  -2,783
  -2,977
  -3,176
  -3,382
  -3,594
  -3,814
  -4,042
  -4,279
  -4,525
  -4,781
  -5,048
  -5,326
  -5,617
  -5,921
  -6,238
  -6,570
  -6,918
  -7,281
  -7,662
  -8,061
  -8,478
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
 
  325
  332
  339
  348
  358
  369
  381
  394
  408
  423
  439
  456
  475
  495
  516
  538
  561
  586
  613
  641
  670
  701
  734
  768
  805
  843
  883
  926
  971
  1,018
Cash available for distribution, $m
 
  14,452
  14,474
  14,590
  14,752
  14,955
  15,199
  15,482
  15,803
  16,162
  16,559
  15,133
  15,605
  16,116
  16,665
  17,254
  17,885
  18,557
  19,273
  20,033
  20,840
  21,696
  22,601
  23,558
  24,570
  25,638
  26,765
  27,953
  29,206
  30,526
  31,916
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
 
  13,856
  13,250
  12,698
  12,146
  11,592
  11,030
  10,459
  9,877
  9,284
  8,681
  7,186
  6,659
  6,127
  5,595
  5,066
  4,545
  4,038
  3,549
  3,085
  2,648
  2,244
  1,875
  1,544
  1,251
  997
  781
  600
  452
  333
  240
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

The Procter & Gamble Company is focused on providing branded consumer packaged goods to the consumers across the world. The Company operates through five segments: Beauty; Grooming; Health Care; Fabric & Home Care, and Baby, Feminine & Family Care. The Company sells its products in approximately 180 countries and territories primarily through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, distributors, baby stores, specialty beauty stores, e-commerce, high-frequency stores and pharmacies. It offers products under the brands, such as Olay, Old Spice, Safeguard, Head & Shoulders, Pantene, Rejoice, Mach3, Prestobarba, Venus, Cascade, Dawn, Febreze, Mr. Clean, Bounty and Charmin.

FINANCIAL RATIOS  of  Procter&Gamble (PG)

Valuation Ratios
P/E Ratio 13.1
Price to Sales 3.1
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 15.8
Price to Free Cash Flow 21.4
Growth Rates
Sales Growth Rate -0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.1%
Cap. Spend. - 3 Yr. Gr. Rate -2.5%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 32.7%
Total Debt to Equity 57.2%
Interest Coverage 27
Management Effectiveness
Return On Assets 12.7%
Ret/ On Assets - 3 Yr. Avg. 8.9%
Return On Total Capital 17.5%
Ret/ On T. Cap. - 3 Yr. Avg. 12.1%
Return On Equity 27.2%
Return On Equity - 3 Yr. Avg. 18.5%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 50.9%
Gross Margin - 3 Yr. Avg. 50%
EBITDA Margin 25.5%
EBITDA Margin - 3 Yr. Avg. 24.2%
Operating Margin 21.5%
Oper. Margin - 3 Yr. Avg. 19.2%
Pre-Tax Margin 20.4%
Pre-Tax Margin - 3 Yr. Avg. 18.8%
Net Profit Margin 23.6%
Net Profit Margin - 3 Yr. Avg. 16.5%
Effective Tax Rate 23.1%
Eff/ Tax Rate - 3 Yr. Avg. 24.3%
Payout Ratio 47.2%

PG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PG stock intrinsic value calculation we used $65058 million for the last fiscal year's total revenue generated by Procter&Gamble. The default revenue input number comes from 2017 income statement of Procter&Gamble. 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 PG 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 PG is calculated based on our internal credit rating of Procter&Gamble, 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 Procter&Gamble.
    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 PG stock the variable cost ratio is equal to 79.4%.

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 PG 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 5.4% for Procter&Gamble.

Corporate tax rate of 27% is the nominal tax rate for Procter&Gamble. 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 PG stock is equal to 0.5%.

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 PG are equal to 136.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Procter&Gamble 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 PG is equal to -7.7%. 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 - $55778 million for Procter&Gamble - 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 2558 million for Procter&Gamble 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 Procter&Gamble at the current share price and the inputted number of shares is $201.3 billion.

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Financial statements of PG
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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