Intrinsic value of Procter&Gamble - PG

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$86.08

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$86.08

 
Intrinsic value

$52.09

 
Up/down potential

-39%

 
Rating

sell

 
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 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

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 219.2

 

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, %
  -7.70
  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
  65,299
  66,605
  68,137
  69,888
  71,854
  74,032
  76,423
  79,025
  81,843
  84,878
  88,135
  91,620
  95,338
  99,298
  103,505
  107,970
  112,702
  117,710
  123,007
  128,603
  134,512
  140,747
  147,323
  154,254
  161,556
  169,247
  177,345
  185,869
  194,838
  204,274
  214,199
Variable operating expenses, $m
 
  56,126
  57,315
  58,674
  60,200
  61,890
  63,745
  65,765
  67,952
  70,307
  72,835
  71,105
  73,990
  77,063
  80,329
  83,794
  87,466
  91,353
  95,463
  99,807
  104,393
  109,231
  114,334
  119,713
  125,381
  131,350
  137,634
  144,249
  151,210
  158,533
  166,236
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
  51,858
  56,126
  57,315
  58,674
  60,200
  61,890
  63,745
  65,765
  67,952
  70,307
  72,835
  71,105
  73,990
  77,063
  80,329
  83,794
  87,466
  91,353
  95,463
  99,807
  104,393
  109,231
  114,334
  119,713
  125,381
  131,350
  137,634
  144,249
  151,210
  158,533
  166,236
Operating income, $m
  13,441
  10,479
  10,822
  11,214
  11,654
  12,142
  12,677
  13,260
  13,891
  14,571
  15,300
  20,515
  21,348
  22,235
  23,177
  24,176
  25,236
  26,358
  27,544
  28,797
  30,120
  31,516
  32,988
  34,540
  36,175
  37,898
  39,711
  41,619
  43,628
  45,741
  47,963
EBITDA, $m
  16,519
  16,482
  16,861
  17,294
  17,781
  18,320
  18,912
  19,556
  20,253
  21,004
  21,810
  22,672
  23,592
  24,572
  25,613
  26,718
  27,889
  29,129
  30,439
  31,824
  33,286
  34,829
  36,456
  38,172
  39,979
  41,882
  43,886
  45,995
  48,215
  50,550
  53,006
Interest expense (income), $m
  569
  663
  703
  751
  806
  867
  935
  1,009
  1,090
  1,178
  1,273
  1,374
  1,483
  1,599
  1,722
  1,853
  1,992
  2,140
  2,296
  2,461
  2,635
  2,819
  3,014
  3,218
  3,434
  3,662
  3,902
  4,154
  4,420
  4,699
  4,993
Earnings before tax, $m
  13,369
  9,816
  10,119
  10,463
  10,849
  11,275
  11,743
  12,251
  12,801
  13,392
  14,027
  19,141
  19,865
  20,636
  21,455
  22,323
  23,244
  24,218
  25,248
  26,336
  27,485
  28,697
  29,975
  31,322
  32,741
  34,236
  35,809
  37,466
  39,208
  41,042
  42,970
Tax expense, $m
  3,342
  2,650
  2,732
  2,825
  2,929
  3,044
  3,170
  3,308
  3,456
  3,616
  3,787
  5,168
  5,364
  5,572
  5,793
  6,027
  6,276
  6,539
  6,817
  7,111
  7,421
  7,748
  8,093
  8,457
  8,840
  9,244
  9,668
  10,116
  10,586
  11,081
  11,602
Net income, $m
  10,508
  7,166
  7,387
  7,638
  7,920
  8,231
  8,572
  8,943
  9,344
  9,777
  10,240
  13,973
  14,502
  15,064
  15,662
  16,296
  16,968
  17,679
  18,431
  19,225
  20,064
  20,949
  21,882
  22,865
  23,901
  24,992
  26,141
  27,350
  28,622
  29,960
  31,368

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  13,348
  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
  127,136
  116,037
  118,705
  121,756
  125,181
  128,976
  133,140
  137,675
  142,583
  147,871
  153,546
  159,617
  166,095
  172,992
  180,323
  188,101
  196,345
  205,070
  214,298
  224,048
  234,342
  245,205
  256,660
  268,735
  281,457
  294,856
  308,964
  323,813
  339,439
  355,878
  373,169
Adjusted assets (=assets-cash), $m
  113,788
  116,037
  118,705
  121,756
  125,181
  128,976
  133,140
  137,675
  142,583
  147,871
  153,546
  159,617
  166,095
  172,992
  180,323
  188,101
  196,345
  205,070
  214,298
  224,048
  234,342
  245,205
  256,660
  268,735
  281,457
  294,856
  308,964
  323,813
  339,439
  355,878
  373,169
Revenue / Adjusted assets
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
  0.574
Average production assets, $m
  44,289
  45,158
  46,197
  47,384
  48,717
  50,194
  51,814
  53,579
  55,489
  57,547
  59,756
  62,118
  64,639
  67,324
  70,177
  73,204
  76,412
  79,808
  83,399
  87,193
  91,199
  95,427
  99,885
  104,584
  109,535
  114,750
  120,240
  126,019
  132,100
  138,498
  145,227
Working capital, $m
  3,012
  1,332
  1,363
  1,398
  1,437
  1,481
  1,528
  1,581
  1,637
  1,698
  1,763
  1,832
  1,907
  1,986
  2,070
  2,159
  2,254
  2,354
  2,460
  2,572
  2,690
  2,815
  2,946
  3,085
  3,231
  3,385
  3,547
  3,717
  3,897
  4,085
  4,284
Total debt, $m
  30,598
  20,098
  21,461
  23,020
  24,771
  26,710
  28,838
  31,155
  33,663
  36,365
  39,265
  42,367
  45,677
  49,202
  52,948
  56,923
  61,135
  65,594
  70,309
  75,291
  80,552
  86,103
  91,956
  98,126
  104,627
  111,474
  118,684
  126,272
  134,256
  142,657
  151,492
Total liabilities, $m
  69,795
  59,295
  60,658
  62,217
  63,968
  65,907
  68,035
  70,352
  72,860
  75,562
  78,462
  81,564
  84,874
  88,399
  92,145
  96,120
  100,332
  104,791
  109,506
  114,488
  119,749
  125,300
  131,153
  137,323
  143,824
  150,671
  157,881
  165,469
  173,453
  181,854
  190,689
Total equity, $m
  57,341
  56,742
  58,047
  59,539
  61,214
  63,069
  65,106
  67,323
  69,723
  72,309
  75,084
  78,053
  81,220
  84,593
  88,178
  91,982
  96,012
  100,279
  104,792
  109,559
  114,593
  119,905
  125,507
  131,411
  137,632
  144,185
  151,083
  158,345
  165,986
  174,024
  182,480
Total liabilities and equity, $m
  127,136
  116,037
  118,705
  121,756
  125,182
  128,976
  133,141
  137,675
  142,583
  147,871
  153,546
  159,617
  166,094
  172,992
  180,323
  188,102
  196,344
  205,070
  214,298
  224,047
  234,342
  245,205
  256,660
  268,734
  281,456
  294,856
  308,964
  323,814
  339,439
  355,878
  373,169
Debt-to-equity ratio
  0.534
  0.350
  0.370
  0.390
  0.400
  0.420
  0.440
  0.460
  0.480
  0.500
  0.520
  0.540
  0.560
  0.580
  0.600
  0.620
  0.640
  0.650
  0.670
  0.690
  0.700
  0.720
  0.730
  0.750
  0.760
  0.770
  0.790
  0.800
  0.810
  0.820
  0.830
Adjusted equity ratio
  0.465
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489
  0.489

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  10,508
  7,166
  7,387
  7,638
  7,920
  8,231
  8,572
  8,943
  9,344
  9,777
  10,240
  13,973
  14,502
  15,064
  15,662
  16,296
  16,968
  17,679
  18,431
  19,225
  20,064
  20,949
  21,882
  22,865
  23,901
  24,992
  26,141
  27,350
  28,622
  29,960
  31,368
Depreciation, amort., depletion, $m
  3,078
  6,003
  6,039
  6,080
  6,127
  6,178
  6,234
  6,295
  6,362
  6,433
  6,510
  2,157
  2,244
  2,338
  2,437
  2,542
  2,653
  2,771
  2,896
  3,028
  3,167
  3,313
  3,468
  3,631
  3,803
  3,984
  4,175
  4,376
  4,587
  4,809
  5,043
Funds from operations, $m
  17,259
  13,169
  13,426
  13,718
  14,046
  14,409
  14,806
  15,239
  15,706
  16,210
  16,750
  16,130
  16,746
  17,402
  18,099
  18,838
  19,621
  20,450
  21,327
  22,253
  23,230
  24,262
  25,350
  26,496
  27,704
  28,976
  30,316
  31,725
  33,209
  34,769
  36,411
Change in working capital, $m
  1,824
  26
  31
  35
  39
  44
  48
  52
  56
  61
  65
  70
  74
  79
  84
  89
  95
  100
  106
  112
  118
  125
  132
  139
  146
  154
  162
  170
  179
  189
  199
Cash from operations, $m
  15,435
  12,766
  13,395
  13,683
  14,007
  14,365
  14,758
  15,186
  15,650
  16,149
  16,685
  16,060
  16,672
  17,323
  18,014
  18,749
  19,526
  20,350
  21,221
  22,141
  23,112
  24,137
  25,218
  26,358
  27,558
  28,823
  30,154
  31,555
  33,029
  34,581
  36,212
Maintenance CAPEX, $m
  0
  -1,538
  -1,568
  -1,604
  -1,645
  -1,692
  -1,743
  -1,799
  -1,860
  -1,927
  -1,998
  -2,075
  -2,157
  -2,244
  -2,338
  -2,437
  -2,542
  -2,653
  -2,771
  -2,896
  -3,028
  -3,167
  -3,313
  -3,468
  -3,631
  -3,803
  -3,984
  -4,175
  -4,376
  -4,587
  -4,809
New CAPEX, $m
  -3,314
  -870
  -1,039
  -1,187
  -1,333
  -1,477
  -1,621
  -1,765
  -1,910
  -2,058
  -2,209
  -2,363
  -2,521
  -2,684
  -2,853
  -3,027
  -3,208
  -3,396
  -3,591
  -3,794
  -4,006
  -4,227
  -4,458
  -4,699
  -4,951
  -5,215
  -5,490
  -5,779
  -6,081
  -6,398
  -6,729
Cash from investing activities, $m
  -5,575
  -2,408
  -2,607
  -2,791
  -2,978
  -3,169
  -3,364
  -3,564
  -3,770
  -3,985
  -4,207
  -4,438
  -4,678
  -4,928
  -5,191
  -5,464
  -5,750
  -6,049
  -6,362
  -6,690
  -7,034
  -7,394
  -7,771
  -8,167
  -8,582
  -9,018
  -9,474
  -9,954
  -10,457
  -10,985
  -11,538
Free cash flow, $m
  9,860
  10,359
  10,788
  10,892
  11,029
  11,197
  11,395
  11,623
  11,879
  12,164
  12,478
  11,623
  11,994
  12,394
  12,824
  13,285
  13,777
  14,301
  14,859
  15,451
  16,078
  16,743
  17,447
  18,190
  18,976
  19,805
  20,679
  21,601
  22,573
  23,596
  24,674
Issuance/(repayment) of debt, $m
  1,285
  1,153
  1,364
  1,559
  1,750
  1,939
  2,128
  2,317
  2,508
  2,702
  2,900
  3,102
  3,310
  3,525
  3,746
  3,975
  4,212
  4,459
  4,715
  4,982
  5,260
  5,551
  5,854
  6,170
  6,501
  6,847
  7,209
  7,588
  7,985
  8,400
  8,836
Issuance/(repurchase) of shares, $m
  -3,062
  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  
  -1,777
  1,153
  1,364
  1,559
  1,750
  1,939
  2,128
  2,317
  2,508
  2,702
  2,900
  3,102
  3,310
  3,525
  3,746
  3,975
  4,212
  4,459
  4,715
  4,982
  5,260
  5,551
  5,854
  6,170
  6,501
  6,847
  7,209
  7,588
  7,985
  8,400
  8,836
Total cash flow (excl. dividends), $m
  7,702
  11,511
  12,152
  12,451
  12,779
  13,136
  13,523
  13,940
  14,387
  14,866
  15,378
  14,725
  15,304
  15,918
  16,570
  17,259
  17,989
  18,760
  19,574
  20,433
  21,339
  22,294
  23,300
  24,360
  25,477
  26,652
  27,888
  29,189
  30,557
  31,997
  33,510
Retained Cash Flow (-), $m
  5,078
  -1,096
  -1,305
  -1,492
  -1,675
  -1,856
  -2,036
  -2,217
  -2,400
  -2,586
  -2,775
  -2,969
  -3,168
  -3,373
  -3,585
  -3,804
  -4,031
  -4,267
  -4,512
  -4,768
  -5,034
  -5,312
  -5,602
  -5,905
  -6,221
  -6,552
  -6,899
  -7,261
  -7,641
  -8,039
  -8,455
Prev. year cash balance distribution, $m
 
  1,695
  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
 
  12,110
  10,847
  10,959
  11,104
  11,280
  11,487
  11,722
  11,987
  12,281
  12,603
  11,756
  12,136
  12,546
  12,985
  13,456
  13,958
  14,493
  15,062
  15,665
  16,305
  16,982
  17,699
  18,456
  19,256
  20,099
  20,989
  21,928
  22,916
  23,958
  25,055
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
 
  11,611
  9,930
  9,537
  9,143
  8,744
  8,336
  7,920
  7,492
  7,055
  6,607
  5,583
  5,179
  4,770
  4,359
  3,950
  3,547
  3,153
  2,774
  2,412
  2,072
  1,757
  1,469
  1,210
  981
  782
  612
  471
  355
  262
  189
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 provides branded consumer packaged goods to consumers in North America, Europe, the Asia Pacific, India, the Middle East, Africa, and Latin America. The company’s Beauty segment offers hair care products comprising conditioners, shampoos, styling aids, and treatments; and antiperspirants and deodorants, personal cleansing, and skin care products. This segment markets its products under the Head & Shoulders, Olay, Pantene, Rejoice, Old Spice, Safeguard, and SK-II brands. Its Grooming segment provides blades and razors, pre- and post-shave products, and other shave care products, as well as appliances under the Braun, Fusion, Gillette, Mach3, Prestobarba, and Venus brands. The company’s Health Care segment offers toothbrushes, toothpaste, and other oral care products; and gastrointestinal, rapid diagnostics, respiratory, vitamins/minerals/supplements, and other healthcare products under the Oral-B, Crest, Prilosec, Vicks, Metamucil, Pepto Bismol, and Align brands. Its Fabric & Home Care segment provides fabric care products, including fabric enhancers, laundry additives, and laundry detergents; and home care products comprising air care, dish care, P&G professional, and surface care products under the Tide, Ariel, Downy, Gain, Cascade, Dawn, Febreze, Mr. Clean, and Swiffer brands. The company’s Baby, Feminine & Family Care segment offers baby care products, such as baby wipes, diapers, and pants; adult incontinence and feminine care products; and family care products, such as paper towels, tissues, and toilet papers. This segment markets its products under the Pampers, Always, Bounty, Charmin, Luvs, and Tampax brands. The company sells its products 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. The Procter & Gamble Company was founded in 1837 and is based in Cincinnati, Ohio.

FINANCIAL RATIOS  of  Procter&Gamble (PG)

Valuation Ratios
P/E Ratio 21.9
Price to Sales 3.5
Price to Book 4
Price to Tangible Book
Price to Cash Flow 14.9
Price to Free Cash Flow 18.9
Growth Rates
Sales Growth Rate -7.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.3%
Cap. Spend. - 3 Yr. Gr. Rate -3.7%
Financial Strength
Quick Ratio 1
Current Ratio 0.3
LT Debt to Equity 33%
Total Debt to Equity 53.4%
Interest Coverage 24
Management Effectiveness
Return On Assets 8.5%
Ret/ On Assets - 3 Yr. Avg. 7.5%
Return On Total Capital 11.6%
Ret/ On T. Cap. - 3 Yr. Avg. 10.1%
Return On Equity 17.5%
Return On Equity - 3 Yr. Avg. 15.1%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 50.7%
Gross Margin - 3 Yr. Avg. 48.9%
EBITDA Margin 26.1%
EBITDA Margin - 3 Yr. Avg. 23.4%
Operating Margin 20.6%
Oper. Margin - 3 Yr. Avg. 18.3%
Pre-Tax Margin 20.5%
Pre-Tax Margin - 3 Yr. Avg. 18.1%
Net Profit Margin 16.1%
Net Profit Margin - 3 Yr. Avg. 13.9%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 23.6%
Payout Ratio 70.8%

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 $65299 million for the last fiscal year's total revenue generated by Procter&Gamble. The default revenue input number comes from 2016 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 84.4%.

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 3.5% 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%.

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 67.8%.

Life of production assets of 28.8 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 2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $57341 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 2546.58 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 $219.2 billion.


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Stock chart of PG Financial statements of PG Annual reports 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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