Intrinsic value of Prudential Financial - PRU

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$105.65

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$105.65

 
Intrinsic value

$234.05

 
Up/down potential

+122%

 
Rating

str. buy

 
Value-price divergence* premium content

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

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

We calculate the intrinsic value of PRU 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 45.2

 

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, %
  3.04
  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
  60,181
  61,565
  63,147
  64,924
  66,892
  69,052
  71,403
  73,949
  76,691
  79,635
  82,783
  86,143
  89,720
  93,522
  97,557
  101,832
  106,357
  111,143
  116,200
  121,539
  127,173
  133,114
  139,376
  145,974
  152,924
  160,241
  167,942
  176,046
  184,572
  193,540
Variable operating expenses, $m
 
  51,996
  53,192
  54,559
  56,094
  57,795
  59,661
  61,692
  63,892
  66,261
  68,804
  71,525
  74,428
  77,518
  80,803
  84,289
  87,983
  91,893
  96,028
  100,397
  105,010
  109,877
  115,010
  120,421
  126,122
  132,126
  138,448
  145,102
  152,104
  159,470
  167,218
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
  53,296
  51,996
  53,192
  54,559
  56,094
  57,795
  59,661
  61,692
  63,892
  66,261
  68,804
  71,525
  74,428
  77,518
  80,803
  84,289
  87,983
  91,893
  96,028
  100,397
  105,010
  109,877
  115,010
  120,421
  126,122
  132,126
  138,448
  145,102
  152,104
  159,470
  167,218
Operating income, $m
  5,705
  8,185
  8,373
  8,588
  8,830
  9,097
  9,391
  9,711
  10,057
  10,430
  10,830
  11,259
  11,715
  12,202
  12,719
  13,268
  13,849
  14,465
  15,115
  15,803
  16,529
  17,295
  18,103
  18,955
  19,853
  20,798
  21,793
  22,840
  23,942
  25,102
  26,321
EBITDA, $m
  6,023
  8,185
  8,373
  8,588
  8,830
  9,097
  9,391
  9,711
  10,057
  10,430
  10,830
  11,259
  11,715
  12,202
  12,719
  13,268
  13,849
  14,465
  15,115
  15,803
  16,529
  17,295
  18,103
  18,955
  19,853
  20,798
  21,793
  22,840
  23,942
  25,102
  26,321
Interest expense (income), $m
  1,257
  1,066
  270
  1,100
  2,050
  3,115
  4,296
  5,592
  7,003
  8,531
  10,176
  11,942
  13,831
  15,847
  17,994
  20,275
  22,695
  25,260
  27,976
  30,847
  33,881
  37,085
  40,465
  44,029
  47,787
  51,746
  55,915
  60,306
  64,926
  69,789
  74,904
Earnings before tax, $m
  5,705
  7,118
  8,103
  7,488
  6,780
  5,982
  5,095
  4,119
  3,054
  1,899
  654
  -683
  -2,116
  -3,645
  -5,274
  -7,007
  -8,846
  -10,796
  -12,860
  -15,044
  -17,352
  -19,789
  -22,361
  -25,074
  -27,934
  -30,948
  -34,123
  -37,465
  -40,984
  -44,687
  -48,583
Tax expense, $m
  1,335
  1,922
  2,188
  2,022
  1,831
  1,615
  1,376
  1,112
  825
  513
  177
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  4,368
  5,196
  5,915
  5,466
  4,949
  4,367
  3,719
  3,007
  2,229
  1,387
  478
  -683
  -2,116
  -3,645
  -5,274
  -7,007
  -8,846
  -10,796
  -12,860
  -15,044
  -17,352
  -19,789
  -22,361
  -25,074
  -27,934
  -30,948
  -34,123
  -37,465
  -40,984
  -44,687
  -48,583

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
  783,962
  802,414
  820,869
  841,965
  865,650
  891,894
  920,689
  952,045
  985,986
  1,022,552
  1,061,795
  1,103,778
  1,148,576
  1,196,273
  1,246,964
  1,300,754
  1,357,758
  1,418,098
  1,481,908
  1,549,330
  1,620,518
  1,695,633
  1,774,849
  1,858,348
  1,946,324
  2,038,983
  2,136,541
  2,239,227
  2,347,282
  2,460,960
  2,580,531
Adjusted assets (=assets-cash), $m
  783,962
  802,414
  820,869
  841,965
  865,650
  891,894
  920,689
  952,045
  985,986
  1,022,552
  1,061,795
  1,103,778
  1,148,576
  1,196,273
  1,246,964
  1,300,754
  1,357,758
  1,418,098
  1,481,908
  1,549,330
  1,620,518
  1,695,633
  1,774,849
  1,858,348
  1,946,324
  2,038,983
  2,136,541
  2,239,227
  2,347,282
  2,460,960
  2,580,531
Revenue / Adjusted assets
  0.000
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
Average production assets, $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
Working capital, $m
  0
  3,370
  3,448
  3,536
  3,636
  3,746
  3,867
  3,999
  4,141
  4,295
  4,460
  4,636
  4,824
  5,024
  5,237
  5,463
  5,703
  5,956
  6,224
  6,507
  6,806
  7,122
  7,454
  7,805
  8,175
  8,564
  8,973
  9,405
  9,859
  10,336
  10,838
Total debt, $m
  21,324
  5,397
  22,007
  40,994
  62,310
  85,929
  111,845
  140,065
  170,612
  203,522
  238,841
  276,625
  316,943
  359,871
  405,493
  453,904
  505,207
  559,513
  616,942
  677,622
  741,691
  809,295
  880,589
  955,738
  1,034,917
  1,118,310
  1,206,112
  1,298,529
  1,395,778
  1,498,089
  1,605,703
Total liabilities, $m
  738,099
  722,172
  738,782
  757,769
  779,085
  802,704
  828,620
  856,840
  887,387
  920,297
  955,616
  993,400
  1,033,718
  1,076,646
  1,122,268
  1,170,679
  1,221,982
  1,276,288
  1,333,717
  1,394,397
  1,458,466
  1,526,070
  1,597,364
  1,672,513
  1,751,692
  1,835,085
  1,922,887
  2,015,304
  2,112,553
  2,214,864
  2,322,478
Total equity, $m
  45,863
  80,241
  82,087
  84,197
  86,565
  89,189
  92,069
  95,204
  98,599
  102,255
  106,180
  110,378
  114,858
  119,627
  124,696
  130,075
  135,776
  141,810
  148,191
  154,933
  162,052
  169,563
  177,485
  185,835
  194,632
  203,898
  213,654
  223,923
  234,728
  246,096
  258,053
Total liabilities and equity, $m
  783,962
  802,413
  820,869
  841,966
  865,650
  891,893
  920,689
  952,044
  985,986
  1,022,552
  1,061,796
  1,103,778
  1,148,576
  1,196,273
  1,246,964
  1,300,754
  1,357,758
  1,418,098
  1,481,908
  1,549,330
  1,620,518
  1,695,633
  1,774,849
  1,858,348
  1,946,324
  2,038,983
  2,136,541
  2,239,227
  2,347,281
  2,460,960
  2,580,531
Debt-to-equity ratio
  0.465
  0.070
  0.270
  0.490
  0.720
  0.960
  1.210
  1.470
  1.730
  1.990
  2.250
  2.510
  2.760
  3.010
  3.250
  3.490
  3.720
  3.950
  4.160
  4.370
  4.580
  4.770
  4.960
  5.140
  5.320
  5.480
  5.650
  5.800
  5.950
  6.090
  6.220
Adjusted equity ratio
  0.059
  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
  4,368
  5,196
  5,915
  5,466
  4,949
  4,367
  3,719
  3,007
  2,229
  1,387
  478
  -683
  -2,116
  -3,645
  -5,274
  -7,007
  -8,846
  -10,796
  -12,860
  -15,044
  -17,352
  -19,789
  -22,361
  -25,074
  -27,934
  -30,948
  -34,123
  -37,465
  -40,984
  -44,687
  -48,583
Depreciation, amort., depletion, $m
  318
  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
Funds from operations, $m
  25,642
  5,196
  5,915
  5,466
  4,949
  4,367
  3,719
  3,007
  2,229
  1,387
  478
  -683
  -2,116
  -3,645
  -5,274
  -7,007
  -8,846
  -10,796
  -12,860
  -15,044
  -17,352
  -19,789
  -22,361
  -25,074
  -27,934
  -30,948
  -34,123
  -37,465
  -40,984
  -44,687
  -48,583
Change in working capital, $m
  10,864
  66
  78
  89
  99
  110
  121
  132
  143
  154
  165
  176
  188
  200
  213
  226
  239
  253
  268
  283
  299
  315
  333
  351
  370
  389
  410
  431
  454
  477
  502
Cash from operations, $m
  14,778
  5,130
  5,838
  5,377
  4,850
  4,257
  3,598
  2,875
  2,087
  1,233
  313
  -860
  -2,304
  -3,846
  -5,487
  -7,233
  -9,085
  -11,049
  -13,128
  -15,327
  -17,651
  -20,105
  -22,694
  -25,425
  -28,304
  -31,337
  -34,533
  -37,897
  -41,438
  -45,165
  -49,085
Maintenance CAPEX, $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
New CAPEX, $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
Cash from investing activities, $m
  -21,551
  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
Free cash flow, $m
  -6,773
  5,130
  5,838
  5,377
  4,850
  4,257
  3,598
  2,875
  2,087
  1,233
  313
  -860
  -2,304
  -3,846
  -5,487
  -7,233
  -9,085
  -11,049
  -13,128
  -15,327
  -17,651
  -20,105
  -22,694
  -25,425
  -28,304
  -31,337
  -34,533
  -37,897
  -41,438
  -45,165
  -49,085
Issuance/(repayment) of debt, $m
  281
  -15,927
  16,610
  18,987
  21,316
  23,620
  25,916
  28,220
  30,547
  32,910
  35,319
  37,785
  40,318
  42,927
  45,622
  48,411
  51,303
  54,306
  57,429
  60,680
  64,069
  67,604
  71,294
  75,149
  79,179
  83,393
  87,802
  92,417
  97,250
  102,311
  107,614
Issuance/(repurchase) of shares, $m
  -1,693
  45,175
  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  
  4,538
  29,248
  16,610
  18,987
  21,316
  23,620
  25,916
  28,220
  30,547
  32,910
  35,319
  37,785
  40,318
  42,927
  45,622
  48,411
  51,303
  54,306
  57,429
  60,680
  64,069
  67,604
  71,294
  75,149
  79,179
  83,393
  87,802
  92,417
  97,250
  102,311
  107,614
Total cash flow (excl. dividends), $m
  -2,185
  -10,796
  22,448
  24,364
  26,166
  27,876
  29,514
  31,095
  32,634
  34,143
  35,631
  36,925
  38,014
  39,082
  40,135
  41,178
  42,217
  43,257
  44,301
  45,353
  46,418
  47,499
  48,600
  49,724
  50,875
  52,055
  53,270
  54,520
  55,812
  57,146
  58,528
Retained Cash Flow (-), $m
  -3,973
  -34,378
  -1,846
  -2,110
  -2,368
  -2,624
  -2,880
  -3,136
  -3,394
  -3,657
  -3,924
  -4,198
  -4,480
  -4,770
  -5,069
  -5,379
  -5,700
  -6,034
  -6,381
  -6,742
  -7,119
  -7,512
  -7,922
  -8,350
  -8,798
  -9,266
  -9,756
  -10,269
  -10,806
  -11,368
  -11,957
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
 
  0
  20,602
  22,254
  23,797
  25,252
  26,634
  27,959
  29,240
  30,486
  31,707
  32,727
  33,534
  34,312
  35,066
  35,799
  36,517
  37,223
  37,920
  38,611
  39,299
  39,988
  40,679
  41,374
  42,077
  42,790
  43,514
  44,252
  45,006
  45,778
  46,571
Discount rate, %
 
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.12
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.82
  25.01
  26.26
  27.58
PV of cash for distribution, $m
 
  0
  17,983
  17,971
  17,651
  17,072
  16,279
  15,316
  14,222
  13,036
  11,795
  10,473
  9,122
  7,834
  6,630
  5,526
  4,533
  3,656
  2,898
  2,255
  1,721
  1,287
  942
  674
  472
  322
  214
  138
  87
  53
  31
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Prudential Financial, Inc., through its subsidiaries, provides insurance, investment management, and other financial products and services in the United States and internationally. The company primarily offers life insurance, annuities, retirement-related, mutual funds, and investment management products and services. It operates through U.S. Retirement Solutions and Investment Management, U.S. Individual Life and Group Insurance, and International Insurance divisions. The U.S. Retirement Solutions and Investment Management division provides individual variable and fixed annuity products; and recordkeeping, plan administration, actuarial advisory, tailored participant education and communication, trustee, and institutional and retail investment services. It also offers brokerage services; guaranteed investment contracts, funding agreements, structured settlement annuities, and other group annuities; and investment management and advisory services to the public and private marketplace. The U.S. Individual Life and Group Insurance division provides individual variable, term, and universal life insurance products to mass middle, mass affluent, and affluent markets; and group life, and long-term and short-term group disability, as well as group corporate, bank, and trust-owned life insurance products to institutional clients. It also sells accidental death and dismemberment, and other ancillary coverages; and offers plan administrative services. The International Insurance division provides individual life insurance, retirement, and related products. The company serves individual and institutional customers through third-party broker-dealers, independent financial planners, financial professionals, third-party financial advisors, brokers, benefits consultants, sales force, wire houses, banks, general agencies, producer groups, life planners, and life consultants. Prudential Financial, Inc. was founded in 1875 and is headquartered in Newark, New Jersey.

FINANCIAL RATIOS  of  Prudential Financial (PRU)

Valuation Ratios
P/E Ratio 10.4
Price to Sales 0.8
Price to Book 1
Price to Tangible Book
Price to Cash Flow 3.1
Price to Free Cash Flow 3.1
Growth Rates
Sales Growth Rate 3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 39.3%
Total Debt to Equity 46.5%
Interest Coverage 6
Management Effectiveness
Return On Assets 0.7%
Ret/ On Assets - 3 Yr. Avg. 0.6%
Return On Total Capital 6.3%
Ret/ On T. Cap. - 3 Yr. Avg. 5.4%
Return On Equity 10%
Return On Equity - 3 Yr. Avg. 9%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 12.3%
EBITDA Margin - 3 Yr. Avg. 12.1%
Operating Margin 9.7%
Oper. Margin - 3 Yr. Avg. 8.8%
Pre-Tax Margin 9.7%
Pre-Tax Margin - 3 Yr. Avg. 8.8%
Net Profit Margin 7.4%
Net Profit Margin - 3 Yr. Avg. 6.6%
Effective Tax Rate 23.4%
Eff/ Tax Rate - 3 Yr. Avg. 23.3%
Payout Ratio 29.8%

PRU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PRU stock intrinsic value calculation we used $59001 million for the last fiscal year's total revenue generated by Prudential Financial. The default revenue input number comes from 2016 income statement of Prudential Financial. 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 PRU 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 6.7%, whose default value for PRU is calculated based on our internal credit rating of Prudential Financial, 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 Prudential Financial.
    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 PRU stock the variable cost ratio is equal to 86.4%.

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 PRU 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% for Prudential Financial.

Corporate tax rate of 27% is the nominal tax rate for Prudential Financial. 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 PRU 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 PRU are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in Prudential Financial 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 PRU is equal to 5.6%. 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 - $45863 million for Prudential Financial - 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 427.915 million for Prudential Financial 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 Prudential Financial at the current share price and the inputted number of shares is $45.2 billion.


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Stock chart of PRU Financial statements of PRU
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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