Intrinsic value of Charles Schwab - SCHW

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$39.52

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$39.52

 
Intrinsic value

$133.24

 
Up/down potential

+237%

 
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 SCHW.

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

We calculate the intrinsic value of SCHW 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 53.0

 

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, %
  17.58
  18.40
  17.06
  15.85
  14.77
  13.79
  12.91
  12.12
  11.41
  10.77
  10.19
  9.67
  9.21
  8.78
  8.41
  8.07
  7.76
  7.48
  7.23
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
  6.07
  5.96
  5.87
  5.78
  5.70
  5.63
Revenue, $m
  7,644
  9,050
  10,595
  12,274
  14,087
  16,030
  18,100
  20,293
  22,609
  25,043
  27,596
  30,265
  33,051
  35,954
  38,976
  42,120
  45,388
  48,784
  52,314
  55,982
  59,794
  63,758
  67,881
  72,171
  76,636
  81,287
  86,133
  91,186
  96,456
  101,955
  107,696
Variable operating expenses, $m
 
  3,371
  3,926
  4,528
  5,179
  5,877
  6,620
  7,407
  8,238
  9,112
  10,028
  10,863
  11,863
  12,906
  13,990
  15,119
  16,292
  17,511
  18,778
  20,095
  21,463
  22,886
  24,366
  25,905
  27,508
  29,178
  30,917
  32,731
  34,623
  36,597
  38,657
Fixed operating expenses, $m
 
  1,873
  1,919
  1,967
  2,017
  2,067
  2,119
  2,172
  2,226
  2,282
  2,339
  2,397
  2,457
  2,519
  2,582
  2,646
  2,712
  2,780
  2,849
  2,921
  2,994
  3,069
  3,145
  3,224
  3,305
  3,387
  3,472
  3,559
  3,648
  3,739
  3,832
Total operating expenses, $m
  4,651
  5,244
  5,845
  6,495
  7,196
  7,944
  8,739
  9,579
  10,464
  11,394
  12,367
  13,260
  14,320
  15,425
  16,572
  17,765
  19,004
  20,291
  21,627
  23,016
  24,457
  25,955
  27,511
  29,129
  30,813
  32,565
  34,389
  36,290
  38,271
  40,336
  42,489
Operating income, $m
  2,993
  3,806
  4,749
  5,778
  6,891
  8,086
  9,361
  10,715
  12,145
  13,650
  15,229
  17,004
  18,730
  20,530
  22,404
  24,355
  26,384
  28,493
  30,686
  32,966
  35,337
  37,804
  40,370
  43,041
  45,823
  48,722
  51,744
  54,896
  58,185
  61,620
  65,207
EBITDA, $m
  3,227
  4,039
  5,001
  6,050
  7,185
  8,404
  9,705
  11,085
  12,543
  14,078
  15,688
  17,373
  19,133
  20,968
  22,879
  24,868
  26,937
  29,088
  31,324
  33,649
  36,066
  38,580
  41,197
  43,920
  46,757
  49,712
  52,794
  56,007
  59,361
  62,862
  66,519
Interest expense (income), $m
  160
  5,443
  6,497
  7,848
  9,318
  10,904
  12,604
  14,415
  16,335
  18,361
  20,491
  22,724
  25,060
  27,497
  30,038
  32,682
  35,433
  38,292
  41,264
  44,353
  47,562
  50,898
  54,366
  57,974
  61,727
  65,635
  69,704
  73,945
  78,365
  82,977
  87,788
Earnings before tax, $m
  2,993
  -1,636
  -1,748
  -2,070
  -2,427
  -2,818
  -3,243
  -3,700
  -4,190
  -4,711
  -5,262
  -5,720
  -6,329
  -6,967
  -7,633
  -8,327
  -9,049
  -9,799
  -10,578
  -11,386
  -12,224
  -13,094
  -13,996
  -14,932
  -15,904
  -16,912
  -17,960
  -19,048
  -20,180
  -21,357
  -22,582
Tax expense, $m
  1,104
  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
Net income, $m
  1,889
  -1,636
  -1,748
  -2,070
  -2,427
  -2,818
  -3,243
  -3,700
  -4,190
  -4,711
  -5,262
  -5,720
  -6,329
  -6,967
  -7,633
  -8,327
  -9,049
  -9,799
  -10,578
  -11,386
  -12,224
  -13,094
  -13,996
  -14,932
  -15,904
  -16,912
  -17,960
  -19,048
  -20,180
  -21,357
  -22,582

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  10,828
  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
  223,383
  251,403
  294,292
  340,949
  391,302
  445,270
  502,766
  563,707
  628,022
  695,649
  766,545
  840,688
  918,074
  998,722
  1,082,676
  1,169,999
  1,260,779
  1,355,123
  1,453,163
  1,555,048
  1,660,949
  1,771,055
  1,885,576
  2,004,736
  2,128,782
  2,257,975
  2,392,595
  2,532,940
  2,679,324
  2,832,080
  2,991,558
Adjusted assets (=assets-cash), $m
  212,555
  251,403
  294,292
  340,949
  391,302
  445,270
  502,766
  563,707
  628,022
  695,649
  766,545
  840,688
  918,074
  998,722
  1,082,676
  1,169,999
  1,260,779
  1,355,123
  1,453,163
  1,555,048
  1,660,949
  1,771,055
  1,885,576
  2,004,736
  2,128,782
  2,257,975
  2,392,595
  2,532,940
  2,679,324
  2,832,080
  2,991,558
Revenue / Adjusted assets
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
  0.036
Average production assets, $m
  812
  959
  1,123
  1,301
  1,493
  1,699
  1,919
  2,151
  2,397
  2,655
  2,925
  3,208
  3,503
  3,811
  4,131
  4,465
  4,811
  5,171
  5,545
  5,934
  6,338
  6,758
  7,195
  7,650
  8,123
  8,616
  9,130
  9,666
  10,224
  10,807
  11,416
Working capital, $m
  0
  4,525
  5,297
  6,137
  7,043
  8,015
  9,050
  10,147
  11,304
  12,522
  13,798
  15,132
  16,525
  17,977
  19,488
  21,060
  22,694
  24,392
  26,157
  27,991
  29,897
  31,879
  33,940
  36,085
  38,318
  40,644
  43,067
  45,593
  48,228
  50,977
  53,848
Total debt, $m
  166,330
  185,630
  224,231
  266,222
  311,540
  360,111
  411,857
  466,705
  524,588
  585,452
  649,259
  715,987
  785,634
  858,218
  933,776
  1,012,367
  1,094,069
  1,178,979
  1,267,215
  1,358,911
  1,454,222
  1,553,318
  1,656,386
  1,763,631
  1,875,272
  1,991,546
  2,112,704
  2,239,014
  2,370,759
  2,508,240
  2,651,771
Total liabilities, $m
  206,962
  226,262
  264,863
  306,854
  352,172
  400,743
  452,489
  507,337
  565,220
  626,084
  689,891
  756,619
  826,266
  898,850
  974,408
  1,052,999
  1,134,701
  1,219,611
  1,307,847
  1,399,543
  1,494,854
  1,593,950
  1,697,018
  1,804,263
  1,915,904
  2,032,178
  2,153,336
  2,279,646
  2,411,391
  2,548,872
  2,692,403
Total equity, $m
  16,421
  25,140
  29,429
  34,095
  39,130
  44,527
  50,277
  56,371
  62,802
  69,565
  76,655
  84,069
  91,807
  99,872
  108,268
  117,000
  126,078
  135,512
  145,316
  155,505
  166,095
  177,106
  188,558
  200,474
  212,878
  225,798
  239,260
  253,294
  267,932
  283,208
  299,156
Total liabilities and equity, $m
  223,383
  251,402
  294,292
  340,949
  391,302
  445,270
  502,766
  563,708
  628,022
  695,649
  766,546
  840,688
  918,073
  998,722
  1,082,676
  1,169,999
  1,260,779
  1,355,123
  1,453,163
  1,555,048
  1,660,949
  1,771,056
  1,885,576
  2,004,737
  2,128,782
  2,257,976
  2,392,596
  2,532,940
  2,679,323
  2,832,080
  2,991,559
Debt-to-equity ratio
  10.129
  7.380
  7.620
  7.810
  7.960
  8.090
  8.190
  8.280
  8.350
  8.420
  8.470
  8.520
  8.560
  8.590
  8.620
  8.650
  8.680
  8.700
  8.720
  8.740
  8.760
  8.770
  8.780
  8.800
  8.810
  8.820
  8.830
  8.840
  8.850
  8.860
  8.860
Adjusted equity ratio
  0.077
  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
  1,889
  -1,636
  -1,748
  -2,070
  -2,427
  -2,818
  -3,243
  -3,700
  -4,190
  -4,711
  -5,262
  -5,720
  -6,329
  -6,967
  -7,633
  -8,327
  -9,049
  -9,799
  -10,578
  -11,386
  -12,224
  -13,094
  -13,996
  -14,932
  -15,904
  -16,912
  -17,960
  -19,048
  -20,180
  -21,357
  -22,582
Depreciation, amort., depletion, $m
  234
  233
  252
  272
  294
  318
  343
  370
  398
  428
  459
  369
  403
  438
  475
  513
  553
  594
  637
  682
  729
  777
  827
  879
  934
  990
  1,049
  1,111
  1,175
  1,242
  1,312
Funds from operations, $m
  2,775
  -1,403
  -1,496
  -1,798
  -2,132
  -2,500
  -2,899
  -3,330
  -3,792
  -4,283
  -4,803
  -5,351
  -5,927
  -6,529
  -7,158
  -7,814
  -8,496
  -9,205
  -9,940
  -10,704
  -11,496
  -12,317
  -13,169
  -14,053
  -14,970
  -15,922
  -16,911
  -17,937
  -19,005
  -20,115
  -21,270
Change in working capital, $m
  113
  703
  772
  840
  906
  971
  1,035
  1,097
  1,158
  1,217
  1,276
  1,335
  1,393
  1,452
  1,511
  1,572
  1,634
  1,698
  1,765
  1,834
  1,906
  1,982
  2,061
  2,145
  2,233
  2,325
  2,423
  2,526
  2,635
  2,750
  2,871
Cash from operations, $m
  2,662
  -1,475
  -2,268
  -2,637
  -3,039
  -3,471
  -3,934
  -4,427
  -4,949
  -5,500
  -6,079
  -6,686
  -7,320
  -7,981
  -8,670
  -9,386
  -10,130
  -10,903
  -11,705
  -12,538
  -13,402
  -14,299
  -15,231
  -16,198
  -17,203
  -18,248
  -19,334
  -20,464
  -21,640
  -22,864
  -24,140
Maintenance CAPEX, $m
  0
  -93
  -110
  -129
  -150
  -172
  -195
  -221
  -247
  -275
  -305
  -336
  -369
  -403
  -438
  -475
  -513
  -553
  -594
  -637
  -682
  -729
  -777
  -827
  -879
  -934
  -990
  -1,049
  -1,111
  -1,175
  -1,242
New CAPEX, $m
  -346
  -147
  -164
  -178
  -192
  -206
  -219
  -233
  -245
  -258
  -271
  -283
  -295
  -308
  -320
  -333
  -346
  -360
  -374
  -389
  -404
  -420
  -437
  -455
  -473
  -493
  -514
  -536
  -559
  -583
  -609
Cash from investing activities, $m
  -38,775
  -240
  -274
  -307
  -342
  -378
  -414
  -454
  -492
  -533
  -576
  -619
  -664
  -711
  -758
  -808
  -859
  -913
  -968
  -1,026
  -1,086
  -1,149
  -1,214
  -1,282
  -1,352
  -1,427
  -1,504
  -1,585
  -1,670
  -1,758
  -1,851
Free cash flow, $m
  -36,113
  -1,716
  -2,542
  -2,945
  -3,380
  -3,849
  -4,349
  -4,880
  -5,442
  -6,034
  -6,655
  -7,305
  -7,984
  -8,691
  -9,428
  -10,194
  -10,990
  -11,816
  -12,674
  -13,564
  -14,488
  -15,448
  -16,445
  -17,480
  -18,556
  -19,674
  -20,838
  -22,049
  -23,309
  -24,623
  -25,991
Issuance/(repayment) of debt, $m
  -7
  30,128
  38,600
  41,991
  45,318
  48,571
  51,746
  54,848
  57,883
  60,864
  63,807
  66,728
  69,647
  72,584
  75,558
  78,591
  81,702
  84,910
  88,236
  91,697
  95,311
  99,096
  103,068
  107,245
  111,641
  116,274
  121,158
  126,310
  131,745
  137,480
  143,531
Issuance/(repurchase) of shares, $m
  1,460
  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  
  35,449
  30,128
  38,600
  41,991
  45,318
  48,571
  51,746
  54,848
  57,883
  60,864
  63,807
  66,728
  69,647
  72,584
  75,558
  78,591
  81,702
  84,910
  88,236
  91,697
  95,311
  99,096
  103,068
  107,245
  111,641
  116,274
  121,158
  126,310
  131,745
  137,480
  143,531
Total cash flow (excl. dividends), $m
  -664
  28,412
  36,059
  39,047
  41,938
  44,722
  47,397
  49,967
  52,441
  54,830
  57,152
  59,423
  61,663
  63,892
  66,130
  68,397
  70,712
  73,094
  75,562
  78,133
  80,823
  83,648
  86,624
  89,765
  93,086
  96,599
  100,320
  104,261
  108,436
  112,858
  117,540
Retained Cash Flow (-), $m
  -3,019
  -8,719
  -4,289
  -4,666
  -5,035
  -5,397
  -5,750
  -6,094
  -6,431
  -6,763
  -7,090
  -7,414
  -7,739
  -8,065
  -8,395
  -8,732
  -9,078
  -9,434
  -9,804
  -10,189
  -10,590
  -11,011
  -11,452
  -11,916
  -12,405
  -12,919
  -13,462
  -14,034
  -14,638
  -15,276
  -15,948
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
 
  19,693
  31,770
  34,381
  36,902
  39,325
  41,648
  43,873
  46,009
  48,068
  50,062
  52,009
  53,925
  55,828
  57,735
  59,665
  61,634
  63,660
  65,758
  67,944
  70,232
  72,637
  75,172
  77,849
  80,681
  83,680
  86,858
  90,227
  93,798
  97,582
  101,592
Discount rate, %
 
  13.80
  14.49
  15.21
  15.98
  16.77
  17.61
  18.49
  19.42
  20.39
  21.41
  22.48
  23.60
  24.78
  26.02
  27.32
  28.69
  30.12
  31.63
  33.21
  34.87
  36.62
  38.45
  40.37
  42.39
  44.51
  46.73
  49.07
  51.52
  54.10
  56.80
PV of cash for distribution, $m
 
  17,305
  24,237
  22,480
  20,398
  18,111
  15,735
  13,376
  11,125
  9,048
  7,195
  5,590
  4,241
  3,139
  2,266
  1,593
  1,089
  724
  467
  292
  177
  104
  59
  32
  17
  8
  4
  2
  1
  0
  0
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 Charles Schwab Corporation, through its subsidiaries, provides wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. The company operates through two segments, Investor Services and Advisor Services. The Investor Services segment provides retail brokerage and banking services, retirement plan services, and other corporate brokerage services; and stock plan services, compliance solutions, and mutual fund clearing services, as well as engages in the off-platform sales business. The Advisor Services segment provides custodial, trading, and support services; and retirement and corporate brokerage retirement services. The company provides brokerage accounts with cash management capabilities; third-party mutual funds through the Mutual Fund Marketplace, including no-transaction fee mutual funds through the Mutual Fund OneSource service, which includes proprietary mutual funds, plus mutual fund trading, and clearing services to broker-dealers; exchange-traded funds (ETFs), including proprietary and third-party ETFs; and advice solutions, such as managed portfolios of proprietary and third-party mutual funds and ETFs, separately managed accounts, customized personal advice for tailored portfolios, and specialized planning and portfolio management. It also offers banking products and services, including checking and savings accounts, certificates of deposit, first lien residential real estate mortgage loans, home equity loans and lines of credit, and Pledged Asset Lines; and trust services comprising trust custody services, personal trust reporting services, and administrative trustee services. The company serves individuals and institutional clients in the United States, the Commonwealth of Puerto Rico, London, and Hong Kong. The Charles Schwab Corporation was founded in 1971 and is headquartered in San Francisco, California.

FINANCIAL RATIOS  of  Charles Schwab (SCHW)

Valuation Ratios
P/E Ratio 27.9
Price to Sales 6.9
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 19.8
Price to Free Cash Flow 22.7
Growth Rates
Sales Growth Rate 17.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 30.1%
Cap. Spend. - 3 Yr. Gr. Rate 6.8%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 17.5%
Total Debt to Equity 1012.9%
Interest Coverage 20
Management Effectiveness
Return On Assets 1%
Ret/ On Assets - 3 Yr. Avg. 0.9%
Return On Total Capital 1.1%
Ret/ On T. Cap. - 3 Yr. Avg. 1.1%
Return On Equity 12.7%
Return On Equity - 3 Yr. Avg. 12%
Asset Turnover 0
Profitability Ratios
Gross Margin 97.8%
Gross Margin - 3 Yr. Avg. 98%
EBITDA Margin 44.3%
EBITDA Margin - 3 Yr. Avg. 41.3%
Operating Margin 39.2%
Oper. Margin - 3 Yr. Avg. 36.2%
Pre-Tax Margin 39.2%
Pre-Tax Margin - 3 Yr. Avg. 36.2%
Net Profit Margin 24.7%
Net Profit Margin - 3 Yr. Avg. 22.8%
Effective Tax Rate 36.9%
Eff/ Tax Rate - 3 Yr. Avg. 37%
Payout Ratio 25.7%

SCHW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SCHW stock intrinsic value calculation we used $7644 million for the last fiscal year's total revenue generated by Charles Schwab. The default revenue input number comes from 2016 income statement of Charles Schwab. 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 SCHW stock valuation model: a) initial revenue growth rate of 18.4% 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 13.8%, whose default value for SCHW is calculated based on our internal credit rating of Charles Schwab, 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 Charles Schwab.
    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 SCHW stock the variable cost ratio is equal to 37.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1827 million in the base year in the intrinsic value calculation for SCHW 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 Charles Schwab.

Corporate tax rate of 27% is the nominal tax rate for Charles Schwab. 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 SCHW 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 SCHW are equal to 10.6%.

Life of production assets of 8.7 years is the average useful life of capital assets used in Charles Schwab 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 SCHW is equal to 50%. 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 - $16421 million for Charles Schwab - 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 1342.05 million for Charles Schwab 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 Charles Schwab at the current share price and the inputted number of shares is $53.0 billion.


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COMPANY NEWS

▶ Tax Reforms and Spending Cuts to Balance Trumps Budget Plan   [May-25-17 07:37AM  Market Realist]
▶ Charles Schwab IRA and Roth IRA Review (SCHW)   [May-19-17 01:28PM  Investopedia]
▶ Battle Over Online Trading Fees May Be Over   [May-18-17 04:17PM  Barrons.com]
▶ Schwab Declares Preferred Stock Dividend   [May-16-17 07:15PM  Business Wire]
▶ Schwab Reports Monthly Activity Highlights   [May-12-17 08:45AM  Business Wire]
▶ Makena Capital Management Llc Buys Schwab U.S. ...   [May-10-17 02:38PM  GuruFocus.com]
▶ 24 Years In, Which ETF Providers Are At The Top?   [May-05-17 03:06PM  Investor's Business Daily]
▶ The Revolution Has Been Mischaracterized   [10:01AM  Barrons.com]
▶ Go Robo or Die!!!   [May-02-17 03:26PM  Barrons.com]
▶ Weekly Top Insider Buys Highlight for the Week of April 28   [Apr-30-17 12:36PM  GuruFocus.com]
▶ 9 Partners for the Next Decade   [Apr-27-17 04:00PM  Morningstar]
▶ Santoli: The market is disengaged from policy headlines   [Apr-26-17 04:01PM  CNBC Videos]
▶ Pro: Tech has come back with a vengeance   [Apr-25-17 01:05PM  CNBC Videos]
▶ 5 Index Funds to Buy in April   [01:02PM  Motley Fool]
▶ Brokerage pricing battle   [12:39PM  CNBC Videos]
▶ Banks And Financial Stocks: Latest News And Analysis   [01:00PM  Investor's Business Daily]
▶ Cue the Tiny Violins for These Two Schwab Funds   [Apr-19-17 04:39PM  Barrons.com]
▶ Schwab to Liquidate Two Funds   [01:05PM  Business Wire]
▶ [$$] Finance Watch   [Apr-18-17 11:01PM  The Wall Street Journal]
▶ Bear Growls As Financials Weaken Further; Europe Also Weighs   [01:33PM  Investor's Business Daily]
▶ Q1 Earnings In Focus   [10:57AM  Zacks]
▶ Schwab Rising on Quarterly Results   [09:27AM  Barrons.com]
▶ Schwab beats Street 1Q forecasts   [09:01AM  Associated Press]
▶ Facebook's F8 Begins; 4 Dow Stocks Report Earnings: Investing Action Plan   [Apr-17-17 04:36PM  Investor's Business Daily]
▶ Penny-Pinching Index Fund Investors May Pay a Price   [Apr-14-17 07:00AM  Morningstar]
▶ Schwab Sharpens Focus, Gains Strength   [07:00AM  Morningstar]
▶ Bank earnings and the yield curve   [06:33AM  CNBC Videos]
▶ The Schwab family's best money-saving secrets   [Apr-09-17 11:00AM  CNBC]
▶ 2 Powerful Retirement Tax Strategies for the Self-Employed   [Apr-08-17 02:40PM  TheStreet.com]
▶ Broker Earnings Preview: Schwab is a Buy   [Apr-07-17 11:11AM  Barrons.com]
▶ Schwab Announces Its Spring Business Update   [08:45AM  Business Wire]
▶ Why Interactive Brokers Was Downgraded   [11:54AM  Barrons.com]
▶ [$$] ProShares No Longer Wants to Pay Charles Schwab to Sell Its ETFs   [Mar-24-17 10:59PM  The Wall Street Journal]
▶ [$$] ProShares Doesn't Want to Pay Schwab to Sell Its ETFs   [07:15PM  at The Wall Street Journal]
▶ Online Broker Price Wars Will Slash Earnings   [06:00AM  at Investopedia]
▶ 3 Stocks We're Watching in the First Quarter   [Mar-20-17 07:51PM  at Motley Fool]
▶ [$$] Asset management: Passive resistance   [02:28PM  at Financial Times]
▶ Schwab: A Contrarian View   [Mar-17-17 05:21PM  at Barrons.com]
▶ The Biggest Winner in the New Broker Wars   [Mar-16-17 09:43AM  at Motley Fool]
▶ No Garage Sale In Art: Leading Or Lagging Indicator?   [Mar-14-17 03:41PM  at Forbes]
Stock chart of SCHW Financial statements of SCHW Annual reports of SCHW
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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