Intrinsic value of Charles Schwab - SCHW

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$38.33

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$38.33

 
Intrinsic value

$117.45

 
Up/down potential

+206%

 
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 50.8

 

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
  16.80
  15.62
  14.56
  13.60
  12.74
  11.97
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
Revenue, $m
  7,644
  8,928
  10,323
  11,826
  13,434
  15,146
  16,958
  18,870
  20,878
  22,983
  25,183
  27,478
  29,869
  32,358
  34,947
  37,637
  40,434
  43,339
  46,359
  49,498
  52,762
  56,157
  59,690
  63,368
  67,199
  71,192
  75,355
  79,697
  84,229
  88,960
  93,903
Variable operating expenses, $m
 
  3,327
  3,828
  4,367
  4,945
  5,559
  6,210
  6,896
  7,617
  8,372
  9,162
  9,863
  10,722
  11,615
  12,544
  13,510
  14,514
  15,557
  16,641
  17,767
  18,939
  20,158
  21,426
  22,746
  24,121
  25,554
  27,048
  28,607
  30,234
  31,932
  33,706
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
  5,200
  5,747
  6,334
  6,962
  7,626
  8,329
  9,068
  9,843
  10,654
  11,501
  12,260
  13,179
  14,134
  15,126
  16,156
  17,226
  18,337
  19,490
  20,688
  21,933
  23,227
  24,571
  25,970
  27,426
  28,941
  30,520
  32,166
  33,882
  35,671
  37,538
Operating income, $m
  2,993
  3,728
  4,575
  5,491
  6,473
  7,520
  8,630
  9,802
  11,035
  12,329
  13,682
  15,218
  16,691
  18,225
  19,821
  21,481
  23,208
  25,003
  26,869
  28,810
  30,830
  32,931
  35,119
  37,398
  39,774
  42,251
  44,834
  47,531
  50,347
  53,289
  56,364
EBITDA, $m
  3,227
  3,960
  4,824
  5,757
  6,759
  7,827
  8,959
  10,155
  11,412
  12,732
  14,111
  15,552
  17,055
  18,619
  20,247
  21,940
  23,700
  25,531
  27,434
  29,413
  31,472
  33,615
  35,846
  38,171
  40,593
  43,118
  45,752
  48,502
  51,374
  54,373
  57,508
Interest expense (income), $m
  160
  5,443
  6,390
  7,610
  8,925
  10,333
  11,831
  13,417
  15,089
  16,846
  18,688
  20,613
  22,621
  24,713
  26,891
  29,156
  31,511
  33,957
  36,500
  39,142
  41,889
  44,745
  47,715
  50,807
  54,025
  57,377
  60,871
  64,513
  68,313
  72,278
  76,418
Earnings before tax, $m
  2,993
  -1,715
  -1,815
  -2,120
  -2,453
  -2,813
  -3,201
  -3,614
  -4,054
  -4,518
  -5,006
  -5,395
  -5,930
  -6,489
  -7,070
  -7,675
  -8,303
  -8,954
  -9,631
  -10,332
  -11,059
  -11,814
  -12,596
  -13,408
  -14,251
  -15,127
  -16,036
  -16,982
  -17,965
  -18,989
  -20,054
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
  -1,715
  -1,815
  -2,120
  -2,453
  -2,813
  -3,201
  -3,614
  -4,054
  -4,518
  -5,006
  -5,395
  -5,930
  -6,489
  -7,070
  -7,675
  -8,303
  -8,954
  -9,631
  -10,332
  -11,059
  -11,814
  -12,596
  -13,408
  -14,251
  -15,127
  -16,036
  -16,982
  -17,965
  -18,989
  -20,054

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
  248,005
  286,744
  328,488
  373,170
  420,719
  471,069
  524,164
  579,955
  638,412
  699,518
  763,275
  829,702
  898,838
  970,740
  1,045,482
  1,123,156
  1,203,873
  1,287,757
  1,374,953
  1,465,617
  1,559,924
  1,658,061
  1,760,231
  1,866,652
  1,977,554
  2,093,184
  2,213,802
  2,339,682
  2,471,115
  2,608,405
Adjusted assets (=assets-cash), $m
  212,555
  248,005
  286,744
  328,488
  373,170
  420,719
  471,069
  524,164
  579,955
  638,412
  699,518
  763,275
  829,702
  898,838
  970,740
  1,045,482
  1,123,156
  1,203,873
  1,287,757
  1,374,953
  1,465,617
  1,559,924
  1,658,061
  1,760,231
  1,866,652
  1,977,554
  2,093,184
  2,213,802
  2,339,682
  2,471,115
  2,608,405
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
  946
  1,094
  1,254
  1,424
  1,605
  1,798
  2,000
  2,213
  2,436
  2,669
  2,913
  3,166
  3,430
  3,704
  3,990
  4,286
  4,594
  4,914
  5,247
  5,593
  5,953
  6,327
  6,717
  7,123
  7,546
  7,988
  8,448
  8,928
  9,430
  9,954
Working capital, $m
  0
  4,464
  5,161
  5,913
  6,717
  7,573
  8,479
  9,435
  10,439
  11,491
  12,591
  13,739
  14,935
  16,179
  17,473
  18,819
  20,217
  21,670
  23,180
  24,749
  26,381
  28,079
  29,845
  31,684
  33,600
  35,596
  37,677
  39,848
  42,114
  44,480
  46,951
Total debt, $m
  166,330
  182,573
  217,437
  255,007
  295,221
  338,015
  383,330
  431,115
  481,328
  533,939
  588,934
  646,315
  706,100
  768,323
  833,034
  900,302
  970,209
  1,042,853
  1,118,350
  1,196,826
  1,278,424
  1,363,300
  1,451,623
  1,543,576
  1,639,355
  1,739,167
  1,843,234
  1,951,790
  2,065,082
  2,183,372
  2,306,933
Total liabilities, $m
  206,962
  223,205
  258,069
  295,639
  335,853
  378,647
  423,962
  471,747
  521,960
  574,571
  629,566
  686,947
  746,732
  808,955
  873,666
  940,934
  1,010,841
  1,083,485
  1,158,982
  1,237,458
  1,319,056
  1,403,932
  1,492,255
  1,584,208
  1,679,987
  1,779,799
  1,883,866
  1,992,422
  2,105,714
  2,224,004
  2,347,565
Total equity, $m
  16,421
  24,801
  28,674
  32,849
  37,317
  42,072
  47,107
  52,416
  57,996
  63,841
  69,952
  76,327
  82,970
  89,884
  97,074
  104,548
  112,316
  120,387
  128,776
  137,495
  146,562
  155,992
  165,806
  176,023
  186,665
  197,755
  209,318
  221,380
  233,968
  247,112
  260,841
Total liabilities and equity, $m
  223,383
  248,006
  286,743
  328,488
  373,170
  420,719
  471,069
  524,163
  579,956
  638,412
  699,518
  763,274
  829,702
  898,839
  970,740
  1,045,482
  1,123,157
  1,203,872
  1,287,758
  1,374,953
  1,465,618
  1,559,924
  1,658,061
  1,760,231
  1,866,652
  1,977,554
  2,093,184
  2,213,802
  2,339,682
  2,471,116
  2,608,406
Debt-to-equity ratio
  10.129
  7.360
  7.580
  7.760
  7.910
  8.030
  8.140
  8.220
  8.300
  8.360
  8.420
  8.470
  8.510
  8.550
  8.580
  8.610
  8.640
  8.660
  8.680
  8.700
  8.720
  8.740
  8.750
  8.770
  8.780
  8.790
  8.810
  8.820
  8.830
  8.840
  8.840
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
  -1,715
  -1,815
  -2,120
  -2,453
  -2,813
  -3,201
  -3,614
  -4,054
  -4,518
  -5,006
  -5,395
  -5,930
  -6,489
  -7,070
  -7,675
  -8,303
  -8,954
  -9,631
  -10,332
  -11,059
  -11,814
  -12,596
  -13,408
  -14,251
  -15,127
  -16,036
  -16,982
  -17,965
  -18,989
  -20,054
Depreciation, amort., depletion, $m
  234
  231
  248
  267
  286
  307
  329
  353
  377
  403
  430
  335
  364
  394
  426
  459
  493
  528
  565
  603
  643
  684
  727
  772
  819
  867
  918
  971
  1,026
  1,084
  1,144
Funds from operations, $m
  2,775
  -1,483
  -1,566
  -1,853
  -2,166
  -2,506
  -2,871
  -3,262
  -3,677
  -4,115
  -4,576
  -5,060
  -5,566
  -6,095
  -6,644
  -7,216
  -7,810
  -8,426
  -9,066
  -9,729
  -10,416
  -11,129
  -11,869
  -12,636
  -13,433
  -14,259
  -15,118
  -16,011
  -16,939
  -17,905
  -18,910
Change in working capital, $m
  113
  642
  697
  751
  804
  856
  906
  956
  1,004
  1,052
  1,100
  1,148
  1,196
  1,244
  1,294
  1,345
  1,398
  1,453
  1,510
  1,570
  1,632
  1,698
  1,766
  1,839
  1,916
  1,996
  2,081
  2,171
  2,266
  2,366
  2,471
Cash from operations, $m
  2,662
  -1,494
  -2,264
  -2,604
  -2,971
  -3,362
  -3,778
  -4,218
  -4,681
  -5,167
  -5,676
  -6,208
  -6,762
  -7,339
  -7,939
  -8,562
  -9,208
  -9,879
  -10,576
  -11,298
  -12,048
  -12,827
  -13,635
  -14,475
  -15,348
  -16,256
  -17,200
  -18,182
  -19,205
  -20,271
  -21,381
Maintenance CAPEX, $m
  0
  -93
  -109
  -126
  -144
  -164
  -185
  -207
  -230
  -254
  -280
  -307
  -335
  -364
  -394
  -426
  -459
  -493
  -528
  -565
  -603
  -643
  -684
  -727
  -772
  -819
  -867
  -918
  -971
  -1,026
  -1,084
New CAPEX, $m
  -346
  -134
  -148
  -159
  -171
  -181
  -192
  -203
  -213
  -223
  -233
  -243
  -253
  -264
  -274
  -285
  -296
  -308
  -320
  -333
  -346
  -360
  -374
  -390
  -406
  -423
  -441
  -460
  -480
  -502
  -524
Cash from investing activities, $m
  -38,775
  -227
  -257
  -285
  -315
  -345
  -377
  -410
  -443
  -477
  -513
  -550
  -588
  -628
  -668
  -711
  -755
  -801
  -848
  -898
  -949
  -1,003
  -1,058
  -1,117
  -1,178
  -1,242
  -1,308
  -1,378
  -1,451
  -1,528
  -1,608
Free cash flow, $m
  -36,113
  -1,722
  -2,520
  -2,889
  -3,285
  -3,707
  -4,154
  -4,627
  -5,124
  -5,645
  -6,189
  -6,758
  -7,350
  -7,967
  -8,607
  -9,273
  -9,963
  -10,680
  -11,424
  -12,196
  -12,997
  -13,830
  -14,694
  -15,592
  -16,526
  -17,498
  -18,508
  -19,560
  -20,656
  -21,798
  -22,989
Issuance/(repayment) of debt, $m
  -7
  27,071
  34,865
  37,570
  40,213
  42,794
  45,316
  47,785
  50,212
  52,611
  54,995
  57,381
  59,785
  62,223
  64,712
  67,268
  69,907
  72,645
  75,496
  78,476
  81,598
  84,876
  88,323
  91,953
  95,778
  99,812
  104,067
  108,556
  113,292
  118,290
  123,561
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
  27,071
  34,865
  37,570
  40,213
  42,794
  45,316
  47,785
  50,212
  52,611
  54,995
  57,381
  59,785
  62,223
  64,712
  67,268
  69,907
  72,645
  75,496
  78,476
  81,598
  84,876
  88,323
  91,953
  95,778
  99,812
  104,067
  108,556
  113,292
  118,290
  123,561
Total cash flow (excl. dividends), $m
  -664
  25,349
  32,344
  34,680
  36,928
  39,087
  41,161
  43,158
  45,089
  46,966
  48,806
  50,623
  52,434
  54,256
  56,104
  57,995
  59,944
  61,965
  64,072
  66,280
  68,601
  71,046
  73,629
  76,361
  79,252
  82,314
  85,559
  88,996
  92,636
  96,491
  100,572
Retained Cash Flow (-), $m
  -3,019
  -8,380
  -3,874
  -4,174
  -4,468
  -4,755
  -5,035
  -5,309
  -5,579
  -5,846
  -6,111
  -6,376
  -6,643
  -6,914
  -7,190
  -7,474
  -7,767
  -8,072
  -8,388
  -8,720
  -9,066
  -9,431
  -9,814
  -10,217
  -10,642
  -11,090
  -11,563
  -12,062
  -12,588
  -13,143
  -13,729
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
 
  16,969
  28,471
  30,506
  32,460
  34,332
  36,126
  37,849
  39,510
  41,121
  42,695
  44,247
  45,792
  47,342
  48,914
  50,521
  52,176
  53,893
  55,684
  57,560
  59,534
  61,616
  63,815
  66,144
  68,610
  71,224
  73,996
  76,934
  80,048
  83,348
  86,843
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
 
  14,912
  21,720
  19,946
  17,943
  15,812
  13,649
  11,540
  9,553
  7,741
  6,136
  4,756
  3,601
  2,662
  1,919
  1,349
  922
  613
  396
  248
  150
  88
  50
  27
  14
  7
  3
  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
Price to Sales 6.7
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 19.2
Price to Free Cash Flow 22.1
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 16.8% 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 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 1326.15 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 $50.8 billion.


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COMPANY NEWS

▶ Banks And Financial Stocks: Latest News And Analysis   [01:00PM  Investor's Business Daily]
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▶ Schwab: A Contrarian View   [Mar-17-17 05:21PM  at Barrons.com]
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▶ No Garage Sale In Art: Leading Or Lagging Indicator?   [Mar-14-17 03:41PM  at Forbes]
▶ Schwab Reports Monthly Activity Highlights   [08:45AM  Business Wire]
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▶ Why a Big eBroker Merger Seems Likely   [Mar-10-17 09:24AM  at Barrons.com]
▶ Schwab Debuts New Conference: ADVANTAGEĀ®   [Mar-09-17 03:00PM  Business Wire]
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Stock chart of SCHW Financial statements 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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