Intrinsic value of Charles Schwab - SCHW

Previous Close

$40.21

  Intrinsic Value

$97.76

stock screener

  Rating & Target

str. buy

+143%

  Value-price divergence*

-57%

Previous close

$40.21

 
Intrinsic value

$97.76

 
Up/down potential

+143%

 
Rating

str. buy

 
Value-price divergence*

-57%

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 54.0

 

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
  18.00
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
Revenue, $m
  7,644
  9,020
  10,526
  12,161
  13,922
  15,805
  17,809
  19,929
  22,165
  24,514
  26,974
  29,545
  32,228
  35,022
  37,931
  40,955
  44,099
  47,367
  50,762
  54,290
  57,958
  61,772
  65,740
  69,868
  74,167
  78,644
  83,310
  88,176
  93,251
  98,548
  104,079
Variable operating expenses, $m
 
  3,360
  3,901
  4,488
  5,120
  5,796
  6,515
  7,276
  8,079
  8,922
  9,805
  10,605
  11,568
  12,571
  13,615
  14,701
  15,829
  17,002
  18,221
  19,487
  20,804
  22,173
  23,597
  25,079
  26,622
  28,229
  29,904
  31,650
  33,472
  35,374
  37,359
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
  5,233
  5,820
  6,455
  7,137
  7,863
  8,634
  9,448
  10,305
  11,204
  12,144
  13,002
  14,025
  15,090
  16,197
  17,347
  18,541
  19,782
  21,070
  22,408
  23,798
  25,242
  26,742
  28,303
  29,927
  31,616
  33,376
  35,209
  37,120
  39,113
  41,191
Operating income, $m
  2,993
  3,787
  4,706
  5,706
  6,785
  7,942
  9,175
  10,481
  11,860
  13,310
  14,830
  16,543
  18,203
  19,933
  21,734
  23,608
  25,558
  27,584
  29,692
  31,882
  34,161
  36,531
  38,997
  41,565
  44,240
  47,028
  49,934
  52,966
  56,131
  59,435
  62,888
EBITDA, $m
  3,227
  4,019
  4,957
  5,977
  7,077
  8,257
  9,514
  10,847
  12,253
  13,731
  15,282
  16,903
  18,595
  20,359
  22,196
  24,107
  26,095
  28,162
  30,310
  32,544
  34,867
  37,283
  39,798
  42,416
  45,144
  47,986
  50,949
  54,041
  57,267
  60,636
  64,156
Interest expense (income), $m
  160
  5,443
  6,470
  7,788
  9,219
  10,759
  12,407
  14,160
  16,016
  17,972
  20,027
  22,180
  24,430
  26,777
  29,222
  31,767
  34,414
  37,165
  40,024
  42,995
  46,082
  49,291
  52,629
  56,100
  59,713
  63,474
  67,391
  71,474
  75,731
  80,172
  84,807
Earnings before tax, $m
  2,993
  -1,656
  -1,765
  -2,083
  -2,434
  -2,817
  -3,233
  -3,679
  -4,156
  -4,662
  -5,197
  -5,637
  -6,227
  -6,845
  -7,488
  -8,159
  -8,856
  -9,580
  -10,332
  -11,112
  -11,921
  -12,761
  -13,631
  -14,535
  -15,472
  -16,446
  -17,457
  -18,508
  -19,600
  -20,737
  -21,920
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
  -1,656
  -1,765
  -2,083
  -2,434
  -2,817
  -3,233
  -3,679
  -4,156
  -4,662
  -5,197
  -5,637
  -6,227
  -6,845
  -7,488
  -8,159
  -8,856
  -9,580
  -10,332
  -11,112
  -11,921
  -12,761
  -13,631
  -14,535
  -15,472
  -16,446
  -17,457
  -18,508
  -19,600
  -20,737
  -21,920

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
  250,553
  292,396
  337,805
  386,709
  439,028
  494,681
  553,591
  615,692
  680,931
  749,272
  820,699
  895,215
  972,844
  1,053,633
  1,137,650
  1,224,982
  1,315,741
  1,410,053
  1,508,069
  1,609,956
  1,715,899
  1,826,102
  1,940,785
  2,060,185
  2,184,558
  2,314,174
  2,449,320
  2,590,302
  2,737,440
  2,891,074
Adjusted assets (=assets-cash), $m
  212,555
  250,553
  292,396
  337,805
  386,709
  439,028
  494,681
  553,591
  615,692
  680,931
  749,272
  820,699
  895,215
  972,844
  1,053,633
  1,137,650
  1,224,982
  1,315,741
  1,410,053
  1,508,069
  1,609,956
  1,715,899
  1,826,102
  1,940,785
  2,060,185
  2,184,558
  2,314,174
  2,449,320
  2,590,302
  2,737,440
  2,891,074
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
  956
  1,116
  1,289
  1,476
  1,675
  1,888
  2,113
  2,349
  2,598
  2,859
  3,132
  3,416
  3,712
  4,021
  4,341
  4,675
  5,021
  5,381
  5,755
  6,144
  6,548
  6,968
  7,406
  7,862
  8,336
  8,831
  9,347
  9,885
  10,446
  11,032
Working capital, $m
  0
  4,510
  5,263
  6,080
  6,961
  7,903
  8,904
  9,965
  11,082
  12,257
  13,487
  14,773
  16,114
  17,511
  18,965
  20,478
  22,050
  23,683
  25,381
  27,145
  28,979
  30,886
  32,870
  34,934
  37,083
  39,322
  41,655
  44,088
  46,625
  49,274
  52,039
Total debt, $m
  166,330
  184,866
  222,524
  263,392
  307,406
  354,493
  404,581
  457,600
  513,491
  572,206
  633,713
  697,997
  765,061
  834,928
  907,638
  983,253
  1,061,852
  1,143,534
  1,228,416
  1,316,630
  1,408,328
  1,503,677
  1,602,860
  1,706,074
  1,813,535
  1,925,470
  2,042,124
  2,163,756
  2,290,639
  2,423,064
  2,561,334
Total liabilities, $m
  206,962
  225,498
  263,156
  304,024
  348,038
  395,125
  445,213
  498,232
  554,123
  612,838
  674,345
  738,629
  805,693
  875,560
  948,270
  1,023,885
  1,102,484
  1,184,166
  1,269,048
  1,357,262
  1,448,960
  1,544,309
  1,643,492
  1,746,706
  1,854,167
  1,966,102
  2,082,756
  2,204,388
  2,331,271
  2,463,696
  2,601,966
Total equity, $m
  16,421
  25,055
  29,240
  33,780
  38,671
  43,903
  49,468
  55,359
  61,569
  68,093
  74,927
  82,070
  89,521
  97,284
  105,363
  113,765
  122,498
  131,574
  141,005
  150,807
  160,996
  171,590
  182,610
  194,078
  206,019
  218,456
  231,417
  244,932
  259,030
  273,744
  289,107
Total liabilities and equity, $m
  223,383
  250,553
  292,396
  337,804
  386,709
  439,028
  494,681
  553,591
  615,692
  680,931
  749,272
  820,699
  895,214
  972,844
  1,053,633
  1,137,650
  1,224,982
  1,315,740
  1,410,053
  1,508,069
  1,609,956
  1,715,899
  1,826,102
  1,940,784
  2,060,186
  2,184,558
  2,314,173
  2,449,320
  2,590,301
  2,737,440
  2,891,073
Debt-to-equity ratio
  10.129
  7.380
  7.610
  7.800
  7.950
  8.070
  8.180
  8.270
  8.340
  8.400
  8.460
  8.500
  8.550
  8.580
  8.610
  8.640
  8.670
  8.690
  8.710
  8.730
  8.750
  8.760
  8.780
  8.790
  8.800
  8.810
  8.820
  8.830
  8.840
  8.850
  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
  -1,656
  -1,765
  -2,083
  -2,434
  -2,817
  -3,233
  -3,679
  -4,156
  -4,662
  -5,197
  -5,637
  -6,227
  -6,845
  -7,488
  -8,159
  -8,856
  -9,580
  -10,332
  -11,112
  -11,921
  -12,761
  -13,631
  -14,535
  -15,472
  -16,446
  -17,457
  -18,508
  -19,600
  -20,737
  -21,920
Depreciation, amort., depletion, $m
  234
  233
  251
  271
  292
  315
  340
  366
  393
  421
  451
  360
  393
  427
  462
  499
  537
  577
  618
  661
  706
  753
  801
  851
  904
  958
  1,015
  1,074
  1,136
  1,201
  1,268
Funds from operations, $m
  2,775
  -1,423
  -1,514
  -1,812
  -2,141
  -2,502
  -2,893
  -3,314
  -3,763
  -4,241
  -4,746
  -5,277
  -5,835
  -6,418
  -7,026
  -7,660
  -8,319
  -9,003
  -9,714
  -10,451
  -11,215
  -12,008
  -12,831
  -13,684
  -14,569
  -15,488
  -16,442
  -17,434
  -18,464
  -19,536
  -20,652
Change in working capital, $m
  113
  688
  753
  817
  880
  942
  1,002
  1,060
  1,118
  1,174
  1,230
  1,286
  1,341
  1,397
  1,454
  1,512
  1,572
  1,634
  1,698
  1,764
  1,834
  1,907
  1,984
  2,064
  2,149
  2,239
  2,333
  2,433
  2,538
  2,648
  2,765
Cash from operations, $m
  2,662
  -2,111
  -2,267
  -2,629
  -3,022
  -3,444
  -3,895
  -4,374
  -4,881
  -5,415
  -5,976
  -6,563
  -7,176
  -7,815
  -8,480
  -9,172
  -9,891
  -10,637
  -11,411
  -12,215
  -13,049
  -13,915
  -14,814
  -15,748
  -16,718
  -17,726
  -18,775
  -19,866
  -21,002
  -22,185
  -23,417
Maintenance CAPEX, $m
  0
  -93
  -110
  -128
  -148
  -170
  -193
  -217
  -243
  -270
  -299
  -329
  -360
  -393
  -427
  -462
  -499
  -537
  -577
  -618
  -661
  -706
  -753
  -801
  -851
  -904
  -958
  -1,015
  -1,074
  -1,136
  -1,201
New CAPEX, $m
  -346
  -144
  -160
  -173
  -187
  -200
  -212
  -225
  -237
  -249
  -261
  -273
  -284
  -296
  -308
  -321
  -333
  -346
  -360
  -374
  -389
  -404
  -421
  -438
  -456
  -475
  -495
  -516
  -538
  -561
  -586
Cash from investing activities, $m
  -38,775
  -237
  -270
  -301
  -335
  -370
  -405
  -442
  -480
  -519
  -560
  -602
  -644
  -689
  -735
  -783
  -832
  -883
  -937
  -992
  -1,050
  -1,110
  -1,174
  -1,239
  -1,307
  -1,379
  -1,453
  -1,531
  -1,612
  -1,697
  -1,787
Free cash flow, $m
  -36,113
  -2,349
  -2,536
  -2,931
  -3,356
  -3,813
  -4,300
  -4,816
  -5,361
  -5,934
  -6,535
  -7,164
  -7,820
  -8,504
  -9,215
  -9,955
  -10,723
  -11,521
  -12,348
  -13,208
  -14,100
  -15,026
  -15,987
  -16,986
  -18,025
  -19,105
  -20,228
  -21,397
  -22,614
  -23,882
  -25,204
Issuance/(repayment) of debt, $m
  -7
  29,364
  37,658
  40,868
  44,014
  47,087
  50,088
  53,019
  55,891
  58,715
  61,507
  64,284
  67,064
  69,866
  72,710
  75,615
  78,599
  81,682
  84,881
  88,214
  91,698
  95,349
  99,182
  103,215
  107,461
  111,935
  116,654
  121,632
  126,883
  132,424
  138,270
Issuance/(repurchase) of shares, $m
  1,460
  10,290
  5,949
  6,624
  7,324
  8,049
  8,798
  9,570
  10,366
  11,186
  12,031
  12,780
  13,679
  14,607
  15,567
  16,560
  17,589
  18,656
  19,763
  20,914
  22,110
  23,355
  24,652
  26,003
  27,413
  28,883
  30,419
  32,023
  33,699
  35,451
  37,283
Cash from financing (excl. dividends), $m  
  35,449
  39,654
  43,607
  47,492
  51,338
  55,136
  58,886
  62,589
  66,257
  69,901
  73,538
  77,064
  80,743
  84,473
  88,277
  92,175
  96,188
  100,338
  104,644
  109,128
  113,808
  118,704
  123,834
  129,218
  134,874
  140,818
  147,073
  153,655
  160,582
  167,875
  175,553
Total cash flow (excl. dividends), $m
  -664
  37,306
  41,071
  44,561
  47,981
  51,323
  54,586
  57,774
  60,896
  63,967
  67,003
  69,900
  72,923
  75,970
  79,062
  82,220
  85,466
  88,818
  92,297
  95,921
  99,709
  103,678
  107,847
  112,231
  116,848
  121,714
  126,845
  132,257
  137,968
  143,993
  150,350
Retained Cash Flow (-), $m
  -3,019
  -10,290
  -5,949
  -6,624
  -7,324
  -8,049
  -8,798
  -9,570
  -10,366
  -11,186
  -12,031
  -12,780
  -13,679
  -14,607
  -15,567
  -16,560
  -17,589
  -18,656
  -19,763
  -20,914
  -22,110
  -23,355
  -24,652
  -26,003
  -27,413
  -28,883
  -30,419
  -32,023
  -33,699
  -35,451
  -37,283
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
 
  27,015
  35,122
  37,937
  40,657
  43,274
  45,788
  48,203
  50,530
  52,781
  54,972
  57,120
  59,244
  61,362
  63,495
  65,660
  67,876
  70,162
  72,533
  75,007
  77,599
  80,323
  83,195
  86,228
  89,436
  92,831
  96,426
  100,235
  104,269
  108,542
  113,066
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
 
  23,739
  26,794
  24,805
  22,474
  19,930
  17,299
  14,697
  12,218
  9,936
  7,901
  6,139
  4,659
  3,451
  2,492
  1,753
  1,200
  798
  515
  323
  196
  115
  65
  35
  19
  9
  5
  2
  1
  0
  0
Current shareholders' claim on cash, %
  100
  84.0
  78.3
  73.3
  68.8
  64.7
  61.0
  57.6
  54.5
  51.6
  49.0
  46.6
  44.3
  42.2
  40.3
  38.4
  36.7
  35.1
  33.5
  32.1
  30.7
  29.4
  28.2
  27.0
  25.9
  24.9
  23.8
  22.9
  22.0
  21.1
  20.2

The Charles Schwab Corporation (CSC) is a savings and loan holding company. The Company, through its subsidiaries, engages in wealth management, securities brokerage, banking, money management and financial advisory services. The Company provides financial services to individuals and institutional clients 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. The Advisor Services segment provides custodial, trading, and support services as well as retirement business services. The Company offers a range of products to address individuals' varying investment and financial needs. Its product offerings include brokerage, mutual funds, ETFs, advice solutions, banking and trust. Brokerage provides a range of brokerage accounts with cash management capabilities. Mutual funds offer third-party mutual funds through the Mutual Fund Marketplace.

FINANCIAL RATIOS  of  Charles Schwab (SCHW)

Valuation Ratios
P/E Ratio 28.4
Price to Sales 7
Price to Book 3.3
Price to Tangible Book
Price to Cash Flow 20.1
Price to Free Cash Flow 23.1
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 18% 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 1343.06 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 $54.0 billion.

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COMPANY NEWS

▶ Schwab Reports Monthly Activity Highlights   [08:45AM  Business Wire]
▶ Understanding TD Ameritrades Valuations   [07:38AM  Market Realist]
▶ TD Ameritrade: Projected Total Dividends in Fiscal 2017   [Sep-13-17 10:37AM  Market Realist]
▶ A Look at E*TRADEs Valuations in 2Q17   [10:37AM  Market Realist]
▶ E*TRADEs Commission Revenues Fell in 2Q17   [07:38AM  Market Realist]
▶ Whats behind Charles Schwabs Fair Valuations?   [07:36AM  Market Realist]
▶ Why TD Ameritrades Net Revenues Rose   [11:36AM  Market Realist]
▶ Why Charles Schwabs Total Expenses Rose   [09:06AM  Market Realist]
▶ Why Charles Schwabs Investor Services Net Revenues Rose   [Sep-11-17 10:36AM  Market Realist]
▶ ETFs' Future Looks Bright in Schwab User Survey   [Sep-08-17 11:29AM  Bloomberg Video]
▶ Millennials love affair with ETFs is nowhere near over   [Sep-07-17 12:36PM  MarketWatch]
▶ Your Robo Adviser Is More Active Than You Think   [Sep-05-17 12:04AM  The Wall Street Journal]
▶ Company Profile for Charles Schwab   [Sep-01-17 10:20AM  Business Wire]
▶ You're Too Stressed to Save For Retirement   [Aug-28-17 05:00PM  TheStreet.com]
▶ We Pick the Best Online Brokers   [Aug-24-17 08:50AM  Kiplinger]
▶ Jones Is Tactically Cautious on Fixed Income Markets   [Aug-21-17 10:02AM  Bloomberg Video]
▶ Why Schwab's Sonders Is 'a Bit Cautious' on Stocks   [Aug-15-17 05:58PM  Bloomberg Video]
▶ Schwab Reports Monthly Activity Highlights   [Aug-14-17 08:45AM  Business Wire]
▶ What are the potential pullbacks for markets?   [Aug-03-17 09:22PM  CNBC Videos]
▶ Robo Advisers Get the Human Touch   [Aug-01-17 12:50PM  Kiplinger]
▶ [$$] Which Robo Is Best for Your Portfolio?   [Jul-29-17 12:01AM  Barrons.com]
▶ Fed policy setting the stage for a bubble?   [Jul-25-17 08:21AM  Fox Business Videos]
▶ Stocks' double-digit earnings growth sustainable?   [08:20AM  Fox Business Videos]
▶ Schwab's New Filing May Kick Off ETFs' No-Fee Future   [Jul-21-17 10:44AM  Bloomberg Video]
▶ Schwab matches Street 2Q forecasts   [Jul-18-17 07:01PM  Associated Press]
▶ TD Ameritrade Stock Breaks Out As Q3 Beats; Schwab Meets   [04:07PM  Investor's Business Daily]
▶ Jefferies Sees 15% Upside for Charles Schwab   [02:53PM  TheStreet.com]
▶ Schwab: Close, but No Cigar?   [11:51AM  Barrons.com]
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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