Intrinsic value of SAP ADR - SAP

Previous Close

$104.93

  Intrinsic Value

$167.24

stock screener

  Rating & Target

str. buy

+59%

  Value-price divergence*

-55%

Previous close

$104.93

 
Intrinsic value

$167.24

 
Up/down potential

+59%

 
Rating

str. buy

 
Value-price divergence*

-55%

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

We calculate the intrinsic value of SAP 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 128.7

 

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, %
  6.11
  11.80
  11.12
  10.51
  9.96
  9.46
  9.02
  8.61
  8.25
  7.93
  7.63
  7.37
  7.13
  6.92
  6.73
  6.56
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.40
  5.36
  5.32
Revenue, $m
  23,285
  26,033
  28,927
  31,967
  35,150
  38,476
  41,945
  45,558
  49,317
  53,227
  57,290
  61,513
  65,902
  70,462
  75,203
  80,133
  85,262
  90,599
  96,157
  101,946
  107,980
  114,271
  120,835
  127,686
  134,840
  142,313
  150,124
  158,290
  166,830
  175,765
  185,116
Variable operating expenses, $m
 
  7,624
  8,198
  8,801
  9,432
  10,092
  10,780
  11,496
  12,242
  13,017
  13,823
  12,201
  13,071
  13,975
  14,916
  15,894
  16,911
  17,969
  19,072
  20,220
  21,417
  22,665
  23,966
  25,325
  26,744
  28,226
  29,776
  31,395
  33,089
  34,861
  36,716
Fixed operating expenses, $m
 
  11,340
  11,623
  11,914
  12,211
  12,517
  12,830
  13,150
  13,479
  13,816
  14,162
  14,516
  14,879
  15,250
  15,632
  16,023
  16,423
  16,834
  17,255
  17,686
  18,128
  18,581
  19,046
  19,522
  20,010
  20,510
  21,023
  21,549
  22,087
  22,639
  23,205
Total operating expenses, $m
  17,865
  18,964
  19,821
  20,715
  21,643
  22,609
  23,610
  24,646
  25,721
  26,833
  27,985
  26,717
  27,950
  29,225
  30,548
  31,917
  33,334
  34,803
  36,327
  37,906
  39,545
  41,246
  43,012
  44,847
  46,754
  48,736
  50,799
  52,944
  55,176
  57,500
  59,921
Operating income, $m
  5,420
  7,069
  9,107
  11,253
  13,507
  15,868
  18,335
  20,911
  23,596
  26,393
  29,306
  34,797
  37,952
  41,236
  44,656
  48,217
  51,928
  55,796
  59,831
  64,040
  68,435
  73,026
  77,823
  82,839
  88,086
  93,577
  99,325
  105,346
  111,654
  118,265
  125,195
EBITDA, $m
  6,758
  9,753
  11,815
  13,988
  16,269
  18,658
  21,156
  23,763
  26,480
  29,311
  32,258
  35,326
  38,518
  41,842
  45,302
  48,906
  52,661
  56,575
  60,657
  64,916
  69,363
  74,007
  78,861
  83,936
  89,244
  94,799
  100,615
  106,706
  113,087
  119,775
  126,785
Interest expense (income), $m
  201
  238
  309
  383
  462
  544
  629
  719
  812
  909
  1,010
  1,114
  1,223
  1,336
  1,454
  1,576
  1,703
  1,835
  1,973
  2,116
  2,265
  2,420
  2,583
  2,752
  2,928
  3,113
  3,305
  3,506
  3,717
  3,937
  4,167
Earnings before tax, $m
  5,133
  6,832
  8,798
  10,869
  13,045
  15,324
  17,706
  20,192
  22,784
  25,485
  28,296
  33,683
  36,729
  39,900
  43,202
  46,641
  50,225
  53,961
  57,858
  61,924
  66,170
  70,605
  75,240
  80,087
  85,158
  90,464
  96,020
  101,839
  107,937
  114,328
  121,028
Tax expense, $m
  1,298
  1,845
  2,375
  2,935
  3,522
  4,137
  4,781
  5,452
  6,152
  6,881
  7,640
  9,094
  9,917
  10,773
  11,665
  12,593
  13,561
  14,570
  15,622
  16,720
  17,866
  19,063
  20,315
  21,624
  22,993
  24,425
  25,925
  27,497
  29,143
  30,868
  32,678
Net income, $m
  3,849
  4,987
  6,422
  7,935
  9,523
  11,186
  12,925
  14,740
  16,633
  18,604
  20,656
  24,588
  26,812
  29,127
  31,538
  34,048
  36,664
  39,392
  42,236
  45,205
  48,304
  51,542
  54,926
  58,464
  62,165
  66,039
  70,095
  74,343
  78,794
  83,459
  88,350

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,114
  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
  46,731
  47,679
  52,981
  58,548
  64,378
  70,469
  76,822
  83,439
  90,325
  97,485
  104,927
  112,662
  120,699
  129,052
  137,735
  146,764
  156,157
  165,933
  176,111
  186,714
  197,765
  209,288
  221,310
  233,857
  246,960
  260,647
  274,952
  289,908
  305,549
  321,914
  339,041
Adjusted assets (=assets-cash), $m
  42,617
  47,679
  52,981
  58,548
  64,378
  70,469
  76,822
  83,439
  90,325
  97,485
  104,927
  112,662
  120,699
  129,052
  137,735
  146,764
  156,157
  165,933
  176,111
  186,714
  197,765
  209,288
  221,310
  233,857
  246,960
  260,647
  274,952
  289,908
  305,549
  321,914
  339,041
Revenue / Adjusted assets
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
Average production assets, $m
  4,257
  4,764
  5,294
  5,850
  6,432
  7,041
  7,676
  8,337
  9,025
  9,740
  10,484
  11,257
  12,060
  12,895
  13,762
  14,664
  15,603
  16,580
  17,597
  18,656
  19,760
  20,912
  22,113
  23,367
  24,676
  26,043
  27,473
  28,967
  30,530
  32,165
  33,876
Working capital, $m
  1,995
  -417
  -463
  -511
  -562
  -616
  -671
  -729
  -789
  -852
  -917
  -984
  -1,054
  -1,127
  -1,203
  -1,282
  -1,364
  -1,450
  -1,539
  -1,631
  -1,728
  -1,828
  -1,933
  -2,043
  -2,157
  -2,277
  -2,402
  -2,533
  -2,669
  -2,812
  -2,962
Total debt, $m
  8,548
  8,822
  10,953
  13,191
  15,535
  17,983
  20,537
  23,197
  25,966
  28,844
  31,836
  34,945
  38,176
  41,534
  45,024
  48,654
  52,430
  56,360
  60,452
  64,714
  69,157
  73,789
  78,622
  83,666
  88,933
  94,435
  100,186
  106,198
  112,486
  119,064
  125,949
Total liabilities, $m
  18,893
  19,167
  21,298
  23,536
  25,880
  28,328
  30,882
  33,542
  36,311
  39,189
  42,181
  45,290
  48,521
  51,879
  55,369
  58,999
  62,775
  66,705
  70,797
  75,059
  79,502
  84,134
  88,967
  94,011
  99,278
  104,780
  110,531
  116,543
  122,831
  129,409
  136,294
Total equity, $m
  27,838
  28,512
  31,682
  35,012
  38,498
  42,140
  45,939
  49,897
  54,014
  58,296
  62,747
  67,372
  72,178
  77,173
  82,365
  87,765
  93,382
  99,228
  105,315
  111,655
  118,264
  125,154
  132,343
  139,847
  147,682
  155,867
  164,421
  173,365
  182,718
  192,505
  202,746
Total liabilities and equity, $m
  46,731
  47,679
  52,980
  58,548
  64,378
  70,468
  76,821
  83,439
  90,325
  97,485
  104,928
  112,662
  120,699
  129,052
  137,734
  146,764
  156,157
  165,933
  176,112
  186,714
  197,766
  209,288
  221,310
  233,858
  246,960
  260,647
  274,952
  289,908
  305,549
  321,914
  339,040
Debt-to-equity ratio
  0.307
  0.310
  0.350
  0.380
  0.400
  0.430
  0.450
  0.460
  0.480
  0.490
  0.510
  0.520
  0.530
  0.540
  0.550
  0.550
  0.560
  0.570
  0.570
  0.580
  0.580
  0.590
  0.590
  0.600
  0.600
  0.610
  0.610
  0.610
  0.620
  0.620
  0.620
Adjusted equity ratio
  0.557
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598
  0.598

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,849
  4,987
  6,422
  7,935
  9,523
  11,186
  12,925
  14,740
  16,633
  18,604
  20,656
  24,588
  26,812
  29,127
  31,538
  34,048
  36,664
  39,392
  42,236
  45,205
  48,304
  51,542
  54,926
  58,464
  62,165
  66,039
  70,095
  74,343
  78,794
  83,459
  88,350
Depreciation, amort., depletion, $m
  1,338
  2,684
  2,709
  2,735
  2,762
  2,791
  2,821
  2,852
  2,884
  2,918
  2,953
  528
  566
  605
  646
  688
  733
  778
  826
  876
  928
  982
  1,038
  1,097
  1,158
  1,223
  1,290
  1,360
  1,433
  1,510
  1,590
Funds from operations, $m
  3,163
  7,671
  9,131
  10,670
  12,285
  13,977
  15,746
  17,592
  19,517
  21,521
  23,609
  25,117
  27,378
  29,732
  32,184
  34,737
  37,397
  40,170
  43,062
  46,081
  49,232
  52,524
  55,964
  59,561
  63,324
  67,262
  71,384
  75,703
  80,227
  84,969
  89,941
Change in working capital, $m
  -1,721
  -44
  -46
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -65
  -68
  -70
  -73
  -76
  -79
  -82
  -85
  -89
  -93
  -97
  -101
  -105
  -110
  -114
  -120
  -125
  -131
  -137
  -143
  -150
Cash from operations, $m
  4,884
  7,715
  9,178
  10,718
  12,336
  14,030
  15,802
  17,650
  19,577
  21,584
  23,674
  25,185
  27,449
  29,805
  32,259
  34,816
  37,479
  40,255
  43,151
  46,173
  49,328
  52,624
  56,069
  59,670
  63,438
  67,381
  71,509
  75,833
  80,364
  85,112
  90,090
Maintenance CAPEX, $m
  0
  -200
  -224
  -249
  -275
  -302
  -331
  -360
  -391
  -424
  -457
  -492
  -528
  -566
  -605
  -646
  -688
  -733
  -778
  -826
  -876
  -928
  -982
  -1,038
  -1,097
  -1,158
  -1,223
  -1,290
  -1,360
  -1,433
  -1,510
New CAPEX, $m
  -1,056
  -507
  -530
  -556
  -582
  -609
  -635
  -661
  -688
  -715
  -744
  -773
  -803
  -835
  -868
  -902
  -939
  -977
  -1,017
  -1,059
  -1,104
  -1,151
  -1,201
  -1,254
  -1,309
  -1,368
  -1,429
  -1,494
  -1,563
  -1,635
  -1,711
Cash from investing activities, $m
  -1,899
  -707
  -754
  -805
  -857
  -911
  -966
  -1,021
  -1,079
  -1,139
  -1,201
  -1,265
  -1,331
  -1,401
  -1,473
  -1,548
  -1,627
  -1,710
  -1,795
  -1,885
  -1,980
  -2,079
  -2,183
  -2,292
  -2,406
  -2,526
  -2,652
  -2,784
  -2,923
  -3,068
  -3,221
Free cash flow, $m
  2,985
  7,008
  8,424
  9,914
  11,479
  13,120
  14,836
  16,628
  18,497
  20,445
  22,473
  23,920
  26,117
  28,405
  30,786
  33,267
  35,852
  38,546
  41,356
  44,288
  47,348
  50,545
  53,886
  57,378
  61,032
  64,855
  68,857
  73,049
  77,441
  82,044
  86,869
Issuance/(repayment) of debt, $m
  -1,478
  2,027
  2,131
  2,238
  2,344
  2,449
  2,554
  2,660
  2,768
  2,878
  2,992
  3,109
  3,231
  3,358
  3,491
  3,630
  3,776
  3,930
  4,092
  4,262
  4,442
  4,632
  4,833
  5,044
  5,267
  5,502
  5,751
  6,012
  6,288
  6,579
  6,885
Issuance/(repurchase) of shares, $m
  28
  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  
  -1,401
  2,027
  2,131
  2,238
  2,344
  2,449
  2,554
  2,660
  2,768
  2,878
  2,992
  3,109
  3,231
  3,358
  3,491
  3,630
  3,776
  3,930
  4,092
  4,262
  4,442
  4,632
  4,833
  5,044
  5,267
  5,502
  5,751
  6,012
  6,288
  6,579
  6,885
Total cash flow (excl. dividends), $m
  1,761
  9,035
  10,556
  12,152
  13,823
  15,568
  17,390
  19,288
  21,265
  23,323
  25,465
  27,029
  29,348
  31,763
  34,277
  36,897
  39,628
  42,476
  45,448
  48,550
  51,791
  55,177
  58,718
  62,423
  66,299
  70,357
  74,608
  79,061
  83,729
  88,622
  93,754
Retained Cash Flow (-), $m
  -3,281
  -3,035
  -3,171
  -3,329
  -3,486
  -3,642
  -3,799
  -3,957
  -4,118
  -4,282
  -4,451
  -4,625
  -4,806
  -4,995
  -5,193
  -5,400
  -5,617
  -5,846
  -6,087
  -6,341
  -6,608
  -6,891
  -7,189
  -7,503
  -7,835
  -8,185
  -8,554
  -8,943
  -9,354
  -9,786
  -10,242
Prev. year cash balance distribution, $m
 
  2,361
  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
 
  8,361
  7,385
  8,822
  10,336
  11,926
  13,591
  15,331
  17,148
  19,041
  21,014
  22,404
  24,542
  26,767
  29,085
  31,497
  34,011
  36,630
  39,361
  42,210
  45,182
  48,287
  51,530
  54,919
  58,464
  62,172
  66,054
  70,118
  74,375
  78,836
  83,512
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  8,016
  6,761
  7,678
  8,511
  9,244
  9,864
  10,358
  10,718
  10,938
  11,017
  10,639
  10,473
  10,177
  9,764
  9,247
  8,643
  7,970
  7,249
  6,499
  5,741
  4,994
  4,276
  3,599
  2,978
  2,419
  1,927
  1,505
  1,151
  861
  629
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

SAP SE provides application and analytics software and software-related services for enterprises worldwide. The company offers solutions for various businesses, including asset management, commerce, finance, human resources, manufacturing, marketing, sales, service, sourcing and procurement, supply chain, and sustainability, as well as research and development, and engineering. It provides enterprise application software to consumer, discrete manufacturing, energy and natural resources, financial services, public services, and services industries. In addition, the company offers SAP HANA, a platform that combines database, data processing, integration, and application platform capabilities in-memory, as well as simplifies application development and processing across Big Data sources and structures; and SAP HANA Cloud Platform, a platform as-a-service, which enables to build, extend, run, and sell applications and services, including infrastructure, data, and storage, as well as a toolbox of platform and application extension services to customers and partners in the cloud. Further, it provides SAP Business Suite, as well as software-as-a-service, such as SAP SuccessFactors solutions; and SAP cloud-based solutions, such as temporary workforce sourcing, procuring and managing external workforce, and travel and business travel expense management systems. Additionally, the company provides analytic solutions, such as trusted data discovery and agile visualization, advanced analytics, and corporate performance management solutions; and support, custom software development, consulting, training, messaging, and payment services. The company has a strategic partnership with Capgemini SA to help clients in the discrete manufacturing industries to manage their digital transformation; and a collaboration with Accenture to develop predictive analytics solutions for asset management in the utilities industry. SAP SE was founded in 1972 and is headquartered in Walldorf, Germany.

FINANCIAL RATIOS  of  SAP ADR (SAP)

Valuation Ratios
P/E Ratio 32.7
Price to Sales 5.4
Price to Book 4.5
Price to Tangible Book
Price to Cash Flow 25.8
Price to Free Cash Flow 32.9
Growth Rates
Sales Growth Rate 6.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 57.4%
Cap. Spend. - 3 Yr. Gr. Rate 12.1%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 24.4%
Total Debt to Equity 30.7%
Interest Coverage 27
Management Effectiveness
Return On Assets 8.8%
Ret/ On Assets - 3 Yr. Avg. 9%
Return On Total Capital 10.9%
Ret/ On T. Cap. - 3 Yr. Avg. 11.1%
Return On Equity 14.7%
Return On Equity - 3 Yr. Avg. 15.8%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 72%
Gross Margin - 3 Yr. Avg. 71.4%
EBITDA Margin 28.7%
EBITDA Margin - 3 Yr. Avg. 28.7%
Operating Margin 23.3%
Oper. Margin - 3 Yr. Avg. 22.8%
Pre-Tax Margin 22%
Pre-Tax Margin - 3 Yr. Avg. 22%
Net Profit Margin 16.5%
Net Profit Margin - 3 Yr. Avg. 16.6%
Effective Tax Rate 25.3%
Eff/ Tax Rate - 3 Yr. Avg. 24.5%
Payout Ratio 37.8%

SAP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SAP stock intrinsic value calculation we used $23285 million for the last fiscal year's total revenue generated by SAP ADR. The default revenue input number comes from 2016 income statement of SAP ADR. 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 SAP stock valuation model: a) initial revenue growth rate of 11.8% 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 SAP is calculated based on our internal credit rating of SAP ADR, 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 SAP ADR.
    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 SAP stock the variable cost ratio is equal to 30.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $11063 million in the base year in the intrinsic value calculation for SAP 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 SAP ADR.

Corporate tax rate of 27% is the nominal tax rate for SAP ADR. 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 SAP 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 SAP are equal to 18.3%.

Life of production assets of 21.3 years is the average useful life of capital assets used in SAP ADR 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 SAP is equal to -1.6%. 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 - $27838 million for SAP ADR - 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 1226.82 million for SAP ADR 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 SAP ADR at the current share price and the inputted number of shares is $128.7 billion.

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COMPANY NEWS

▶ DuluxGroup Goes Digital with SAP Ariba   [Aug-21-17 07:00PM  Business Wire]
▶ ETFs with exposure to SAP SE : August 4, 2017   [Aug-04-17 07:51PM  Capital Cube]
▶ Step Up For Students Transforms Education with SAP Ariba   [Aug-01-17 08:30AM  Business Wire]
▶ SAP Ariba Live Heads Down Under   [Jul-25-17 06:00PM  Business Wire]
▶ SAP beats Street 2Q forecasts   [Jul-21-17 12:23AM  Associated Press]
▶ SAP Beats Q2 Targets, But Profit Margin Weighs On Stock   [Jul-20-17 04:00PM  Investor's Business Daily]
▶ SAP NS2® Achieves FedRAMP Authorization   [12:46PM  PR Newswire]
▶ [$$] SAP Second-Quarter Net Profit Falls   [12:14PM  The Wall Street Journal]
▶ [$$] SAP raises outlook as cloud sales take off   [06:48AM  Financial Times]
▶ Yahoo Finance Live: Midday Movers - Jun 21st, 2017   [Jun-21-17 01:12PM  Yahoo Finance Video]
▶ Green Cross Transforms Procurement with SAP Ariba   [Jun-20-17 08:30AM  Business Wire]
▶ Former EMC Chief Joe Tucci Is Joining This VC Firm   [Jun-19-17 01:05PM  Fortune]
▶ SAP Ariba Means Business in Europe   [07:00AM  Business Wire]
▶ European Stocks Slump as Tech Stocks Weigh   [11:51AM  TheStreet.com]
▶ Technology Shares Lead Global Declines   [03:50AM  The Wall Street Journal]
▶ A-B InBev in $600 million software license dispute   [Jun-06-17 04:30PM  American City Business Journals]
▶ Manutan Simplifies Commerce with SAP Ariba   [08:30AM  Business Wire]
▶ HPE Discover   [Jun-01-17 05:12PM  Yahoo Finance Video]
▶ SAP Investor Presentation in June 2017   [11:23AM  PR Newswire]
▶ SAP Ariba a Leader in eProcurement   [May-30-17 09:44AM  Business Wire]
▶ Salesforces Value Proposition in the Software Space   [May-25-17 10:35AM  Market Realist]
▶ A Look into Salesforces Technical Indicators   [09:06AM  Market Realist]
Stock chart of SAP Financial statements of SAP
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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