Intrinsic value of Raytheon - RTN

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$157.89

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$157.89

 
Intrinsic value

$198.38

 
Up/down potential

+26%

 
Rating

buy

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

We calculate the intrinsic value of RTN 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 46.0

 

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, %
  3.54
  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
  24,069
  24,550
  25,115
  25,760
  26,485
  27,288
  28,169
  29,128
  30,167
  31,286
  32,486
  33,771
  35,141
  36,601
  38,152
  39,797
  41,542
  43,388
  45,340
  47,403
  49,581
  51,879
  54,303
  56,857
  59,549
  62,384
  65,369
  68,511
  71,817
  75,295
  78,953
Variable operating expenses, $m
 
  17,745
  18,119
  18,547
  19,027
  19,559
  20,143
  20,778
  21,466
  22,207
  23,003
  22,375
  23,283
  24,250
  25,278
  26,368
  27,524
  28,747
  30,040
  31,407
  32,850
  34,373
  35,979
  37,671
  39,455
  41,333
  43,311
  45,392
  47,583
  49,887
  52,311
Fixed operating expenses, $m
 
  3,579
  3,669
  3,761
  3,855
  3,951
  4,050
  4,151
  4,255
  4,361
  4,470
  4,582
  4,696
  4,814
  4,934
  5,057
  5,184
  5,313
  5,446
  5,582
  5,722
  5,865
  6,012
  6,162
  6,316
  6,474
  6,636
  6,802
  6,972
  7,146
  7,325
Total operating expenses, $m
  20,829
  21,324
  21,788
  22,308
  22,882
  23,510
  24,193
  24,929
  25,721
  26,568
  27,473
  26,957
  27,979
  29,064
  30,212
  31,425
  32,708
  34,060
  35,486
  36,989
  38,572
  40,238
  41,991
  43,833
  45,771
  47,807
  49,947
  52,194
  54,555
  57,033
  59,636
Operating income, $m
  3,240
  3,226
  3,327
  3,453
  3,604
  3,778
  3,977
  4,199
  4,446
  4,717
  5,013
  6,814
  7,162
  7,537
  7,940
  8,372
  8,834
  9,327
  9,853
  10,413
  11,009
  11,641
  12,312
  13,024
  13,778
  14,577
  15,422
  16,317
  17,262
  18,261
  19,317
EBITDA, $m
  3,755
  4,808
  4,912
  5,040
  5,194
  5,372
  5,574
  5,801
  6,052
  6,327
  6,629
  6,956
  7,309
  7,691
  8,100
  8,539
  9,008
  9,509
  10,044
  10,612
  11,217
  11,859
  12,540
  13,263
  14,028
  14,839
  15,697
  16,604
  17,564
  18,578
  19,649
Interest expense (income), $m
  231
  229
  247
  267
  290
  316
  345
  376
  410
  447
  487
  530
  576
  625
  677
  733
  791
  854
  920
  989
  1,063
  1,141
  1,223
  1,309
  1,401
  1,497
  1,598
  1,705
  1,817
  1,935
  2,059
Earnings before tax, $m
  3,030
  2,997
  3,080
  3,186
  3,314
  3,463
  3,632
  3,823
  4,036
  4,270
  4,526
  6,284
  6,586
  6,912
  7,263
  7,639
  8,043
  8,474
  8,934
  9,424
  9,946
  10,500
  11,089
  11,715
  12,378
  13,080
  13,824
  14,612
  15,445
  16,327
  17,258
Tax expense, $m
  857
  809
  832
  860
  895
  935
  981
  1,032
  1,090
  1,153
  1,222
  1,697
  1,778
  1,866
  1,961
  2,063
  2,171
  2,288
  2,412
  2,544
  2,685
  2,835
  2,994
  3,163
  3,342
  3,532
  3,733
  3,945
  4,170
  4,408
  4,660
Net income, $m
  2,211
  2,188
  2,249
  2,326
  2,419
  2,528
  2,652
  2,791
  2,946
  3,117
  3,304
  4,587
  4,808
  5,046
  5,302
  5,577
  5,871
  6,186
  6,522
  6,879
  7,260
  7,665
  8,095
  8,552
  9,036
  9,549
  10,092
  10,667
  11,275
  11,918
  12,598

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,403
  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
  30,052
  27,188
  27,813
  28,528
  29,330
  30,219
  31,195
  32,257
  33,407
  34,646
  35,976
  37,398
  38,916
  40,532
  42,250
  44,072
  46,004
  48,048
  50,210
  52,495
  54,907
  57,452
  60,136
  62,965
  65,946
  69,085
  72,391
  75,870
  79,531
  83,383
  87,434
Adjusted assets (=assets-cash), $m
  26,649
  27,188
  27,813
  28,528
  29,330
  30,219
  31,195
  32,257
  33,407
  34,646
  35,976
  37,398
  38,916
  40,532
  42,250
  44,072
  46,004
  48,048
  50,210
  52,495
  54,907
  57,452
  60,136
  62,965
  65,946
  69,085
  72,391
  75,870
  79,531
  83,383
  87,434
Revenue / Adjusted assets
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
  0.903
Average production assets, $m
  3,027
  3,093
  3,164
  3,246
  3,337
  3,438
  3,549
  3,670
  3,801
  3,942
  4,093
  4,255
  4,428
  4,612
  4,807
  5,014
  5,234
  5,467
  5,713
  5,973
  6,247
  6,537
  6,842
  7,164
  7,503
  7,860
  8,236
  8,632
  9,049
  9,487
  9,948
Working capital, $m
  4,251
  859
  879
  902
  927
  955
  986
  1,019
  1,056
  1,095
  1,137
  1,182
  1,230
  1,281
  1,335
  1,393
  1,454
  1,519
  1,587
  1,659
  1,735
  1,816
  1,901
  1,990
  2,084
  2,183
  2,288
  2,398
  2,514
  2,635
  2,763
Total debt, $m
  5,335
  5,740
  6,209
  6,745
  7,347
  8,014
  8,745
  9,542
  10,405
  11,334
  12,331
  13,398
  14,536
  15,748
  17,036
  18,403
  19,852
  21,385
  23,007
  24,720
  26,529
  28,438
  30,451
  32,573
  34,808
  37,163
  39,642
  42,252
  44,997
  47,886
  50,925
Total liabilities, $m
  19,986
  20,391
  20,860
  21,396
  21,998
  22,665
  23,396
  24,193
  25,056
  25,985
  26,982
  28,049
  29,187
  30,399
  31,687
  33,054
  34,503
  36,036
  37,658
  39,371
  41,180
  43,089
  45,102
  47,224
  49,459
  51,814
  54,293
  56,903
  59,648
  62,537
  65,576
Total equity, $m
  10,066
  6,797
  6,953
  7,132
  7,333
  7,555
  7,799
  8,064
  8,352
  8,662
  8,994
  9,350
  9,729
  10,133
  10,562
  11,018
  11,501
  12,012
  12,553
  13,124
  13,727
  14,363
  15,034
  15,741
  16,486
  17,271
  18,098
  18,968
  19,883
  20,846
  21,859
Total liabilities and equity, $m
  30,052
  27,188
  27,813
  28,528
  29,331
  30,220
  31,195
  32,257
  33,408
  34,647
  35,976
  37,399
  38,916
  40,532
  42,249
  44,072
  46,004
  48,048
  50,211
  52,495
  54,907
  57,452
  60,136
  62,965
  65,945
  69,085
  72,391
  75,871
  79,531
  83,383
  87,435
Debt-to-equity ratio
  0.530
  0.840
  0.890
  0.950
  1.000
  1.060
  1.120
  1.180
  1.250
  1.310
  1.370
  1.430
  1.490
  1.550
  1.610
  1.670
  1.730
  1.780
  1.830
  1.880
  1.930
  1.980
  2.030
  2.070
  2.110
  2.150
  2.190
  2.230
  2.260
  2.300
  2.330
Adjusted equity ratio
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,211
  2,188
  2,249
  2,326
  2,419
  2,528
  2,652
  2,791
  2,946
  3,117
  3,304
  4,587
  4,808
  5,046
  5,302
  5,577
  5,871
  6,186
  6,522
  6,879
  7,260
  7,665
  8,095
  8,552
  9,036
  9,549
  10,092
  10,667
  11,275
  11,918
  12,598
Depreciation, amort., depletion, $m
  515
  1,582
  1,584
  1,587
  1,590
  1,593
  1,597
  1,601
  1,606
  1,610
  1,615
  142
  148
  154
  160
  167
  174
  182
  190
  199
  208
  218
  228
  239
  250
  262
  275
  288
  302
  316
  332
Funds from operations, $m
  2,874
  3,770
  3,833
  3,913
  4,009
  4,121
  4,249
  4,392
  4,552
  4,727
  4,919
  4,729
  4,955
  5,199
  5,462
  5,744
  6,046
  6,368
  6,712
  7,078
  7,468
  7,883
  8,323
  8,790
  9,286
  9,811
  10,366
  10,954
  11,577
  12,235
  12,930
Change in working capital, $m
  22
  17
  20
  23
  25
  28
  31
  34
  36
  39
  42
  45
  48
  51
  54
  58
  61
  65
  68
  72
  76
  80
  85
  89
  94
  99
  104
  110
  116
  122
  128
Cash from operations, $m
  2,852
  3,781
  3,813
  3,890
  3,984
  4,093
  4,218
  4,359
  4,515
  4,688
  4,877
  4,684
  4,907
  5,148
  5,408
  5,686
  5,984
  6,303
  6,644
  7,006
  7,392
  7,803
  8,238
  8,701
  9,192
  9,711
  10,262
  10,844
  11,461
  12,113
  12,802
Maintenance CAPEX, $m
  0
  -101
  -103
  -105
  -108
  -111
  -115
  -118
  -122
  -127
  -131
  -136
  -142
  -148
  -154
  -160
  -167
  -174
  -182
  -190
  -199
  -208
  -218
  -228
  -239
  -250
  -262
  -275
  -288
  -302
  -316
New CAPEX, $m
  -625
  -66
  -71
  -81
  -91
  -101
  -111
  -121
  -131
  -141
  -151
  -162
  -173
  -184
  -195
  -207
  -220
  -233
  -246
  -260
  -274
  -290
  -305
  -322
  -339
  -357
  -376
  -396
  -417
  -438
  -461
Cash from investing activities, $m
  53
  -167
  -174
  -186
  -199
  -212
  -226
  -239
  -253
  -268
  -282
  -298
  -315
  -332
  -349
  -367
  -387
  -407
  -428
  -450
  -473
  -498
  -523
  -550
  -578
  -607
  -638
  -671
  -705
  -740
  -777
Free cash flow, $m
  2,905
  3,613
  3,639
  3,704
  3,784
  3,881
  3,992
  4,119
  4,262
  4,420
  4,595
  4,386
  4,593
  4,817
  5,059
  5,319
  5,598
  5,896
  6,215
  6,556
  6,919
  7,305
  7,715
  8,151
  8,614
  9,104
  9,624
  10,174
  10,757
  11,373
  12,025
Issuance/(repayment) of debt, $m
  0
  405
  469
  536
  602
  667
  732
  797
  863
  929
  997
  1,067
  1,138
  1,212
  1,288
  1,367
  1,449
  1,533
  1,622
  1,713
  1,809
  1,909
  2,013
  2,122
  2,236
  2,355
  2,479
  2,609
  2,746
  2,889
  3,038
Issuance/(repurchase) of shares, $m
  -996
  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  
  -1,080
  405
  469
  536
  602
  667
  732
  797
  863
  929
  997
  1,067
  1,138
  1,212
  1,288
  1,367
  1,449
  1,533
  1,622
  1,713
  1,809
  1,909
  2,013
  2,122
  2,236
  2,355
  2,479
  2,609
  2,746
  2,889
  3,038
Total cash flow (excl. dividends), $m
  1,825
  4,018
  4,108
  4,240
  4,386
  4,547
  4,724
  4,916
  5,125
  5,350
  5,592
  5,452
  5,731
  6,029
  6,347
  6,685
  7,046
  7,430
  7,837
  8,269
  8,728
  9,214
  9,728
  10,273
  10,849
  11,459
  12,103
  12,783
  13,502
  14,262
  15,063
Retained Cash Flow (-), $m
  62
  -134
  -156
  -179
  -201
  -222
  -244
  -266
  -288
  -310
  -332
  -356
  -379
  -404
  -429
  -456
  -483
  -511
  -541
  -571
  -603
  -636
  -671
  -707
  -745
  -785
  -826
  -870
  -915
  -963
  -1,013
Prev. year cash balance distribution, $m
 
  3,403
  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
 
  7,287
  3,952
  4,061
  4,185
  4,325
  4,480
  4,651
  4,837
  5,040
  5,259
  5,097
  5,352
  5,625
  5,917
  6,230
  6,563
  6,918
  7,296
  7,698
  8,125
  8,577
  9,057
  9,566
  10,104
  10,674
  11,276
  11,914
  12,587
  13,299
  14,050
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
 
  6,987
  3,618
  3,534
  3,446
  3,353
  3,251
  3,142
  3,023
  2,895
  2,757
  2,420
  2,284
  2,139
  1,987
  1,829
  1,668
  1,505
  1,344
  1,185
  1,032
  887
  752
  627
  515
  415
  329
  256
  195
  145
  106
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

Raytheon Company develops technologically integrated products, services, and solutions worldwide. It operates through five segments: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Forcepoint. The IDS segment provides integrated air and missile defense; land and sea-based radar solutions; command, control, communications, computers, cyber, and intelligence solutions; and naval combat and ship electronic systems. The IIS segment offers a range of technical and professional services, such as intelligence, surveillance and reconnaissance, navigation, DoD space and weather, cybersecurity, analytics, training, logistics, mission support, engineering, and automation and sustainment solutions; and air traffic management systems. The MS segment develops and supports a range of weapon systems, including missiles, smart munitions, close-in weapon systems, projectiles, kinetic kill vehicles, directed energy effectors, and combat sensor solutions. The SAS segment provides electro-optical/infrared sensors, airborne radars for surveillance and fire control applications, lasers, precision guidance systems, signals intelligence systems, processors, electronic warfare systems, and communication and space-qualified systems for civil and military applications. The Forcepoint segment develops cyber security products comprising insider threat solutions, data loss prevention, firewall technology, cross domain transfer, and cloud and on premise Web and email security products. The company serves the U.S. Department of Defense, the U.S. Intelligence Community, the U.S. Armed Forces, the Federal Aviation Administration, the National Oceanic and Atmospheric Administration, Department of Homeland Security, the National Aeronautics and Space Administration, and other international customers. Raytheon Company was founded in 1922 and is based in Waltham, Massachusetts.

FINANCIAL RATIOS  of  Raytheon (RTN)

Valuation Ratios
P/E Ratio 20.9
Price to Sales 1.9
Price to Book 4.6
Price to Tangible Book
Price to Cash Flow 16.2
Price to Free Cash Flow 20.8
Growth Rates
Sales Growth Rate 3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 36.8%
Cap. Spend. - 3 Yr. Gr. Rate 13.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 53%
Total Debt to Equity 53%
Interest Coverage 14
Management Effectiveness
Return On Assets 8%
Ret/ On Assets - 3 Yr. Avg. 8.3%
Return On Total Capital 14.3%
Ret/ On T. Cap. - 3 Yr. Avg. 14.2%
Return On Equity 21.9%
Return On Equity - 3 Yr. Avg. 21.6%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 25.4%
Gross Margin - 3 Yr. Avg. 24.7%
EBITDA Margin 15.7%
EBITDA Margin - 3 Yr. Avg. 15.6%
Operating Margin 13.5%
Oper. Margin - 3 Yr. Avg. 13.4%
Pre-Tax Margin 12.6%
Pre-Tax Margin - 3 Yr. Avg. 12.5%
Net Profit Margin 9.2%
Net Profit Margin - 3 Yr. Avg. 9.3%
Effective Tax Rate 28.3%
Eff/ Tax Rate - 3 Yr. Avg. 27%
Payout Ratio 38.4%

RTN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RTN stock intrinsic value calculation we used $24069 million for the last fiscal year's total revenue generated by Raytheon. The default revenue input number comes from 2016 income statement of Raytheon. 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 RTN 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 RTN is calculated based on our internal credit rating of Raytheon, 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 Raytheon.
    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 RTN stock the variable cost ratio is equal to 72.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $3492 million in the base year in the intrinsic value calculation for RTN 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 4.3% for Raytheon.

Corporate tax rate of 27% is the nominal tax rate for Raytheon. 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 RTN 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 RTN are equal to 12.6%.

Life of production assets of 34.5 years is the average useful life of capital assets used in Raytheon 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 RTN is equal to 3.5%. 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 - $10066 million for Raytheon - 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 291.607 million for Raytheon 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 Raytheon at the current share price and the inputted number of shares is $46.0 billion.


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Stock chart of RTN Financial statements of RTN Annual reports of RTN
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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