Intrinsic value of Sears Holdings - SHLD

Previous Close

$8.20

  Intrinsic Value

$0.00

stock screener

  Rating & Target

str. sell

-100%

  Value-price divergence*

0%

Previous close

$8.20

 
Intrinsic value

$0.00

 
Up/down potential

-100%

 
Rating

str. sell

 
Value-price divergence*

0%

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

We calculate the intrinsic value of SHLD 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 2017), $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 0.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -11.96
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  22,138
  22,581
  23,100
  23,694
  24,360
  25,099
  25,909
  26,792
  27,747
  28,776
  29,880
  31,061
  32,322
  33,664
  35,091
  36,605
  38,209
  39,907
  41,702
  43,600
  45,603
  47,717
  49,946
  52,296
  54,772
  57,379
  60,124
  63,014
  66,055
  69,254
  72,619
Variable operating expenses, $m
 
  15,241
  15,591
  15,991
  16,441
  16,938
  17,484
  18,079
  18,722
  19,416
  20,160
  20,929
  21,778
  22,683
  23,644
  24,664
  25,744
  26,889
  28,098
  29,377
  30,727
  32,151
  33,653
  35,236
  36,904
  38,661
  40,511
  42,458
  44,507
  46,662
  48,929
Fixed operating expenses, $m
 
  9,640
  9,881
  10,128
  10,381
  10,641
  10,907
  11,180
  11,459
  11,746
  12,039
  12,340
  12,649
  12,965
  13,289
  13,621
  13,962
  14,311
  14,669
  15,035
  15,411
  15,796
  16,191
  16,596
  17,011
  17,436
  17,872
  18,319
  18,777
  19,246
  19,728
Total operating expenses, $m
  24,116
  24,881
  25,472
  26,119
  26,822
  27,579
  28,391
  29,259
  30,181
  31,162
  32,199
  33,269
  34,427
  35,648
  36,933
  38,285
  39,706
  41,200
  42,767
  44,412
  46,138
  47,947
  49,844
  51,832
  53,915
  56,097
  58,383
  60,777
  63,284
  65,908
  68,657
Operating income, $m
  -1,978
  -2,301
  -2,372
  -2,426
  -2,462
  -2,480
  -2,482
  -2,467
  -2,435
  -2,385
  -2,319
  -2,207
  -2,105
  -1,983
  -1,842
  -1,680
  -1,498
  -1,293
  -1,065
  -812
  -535
  -230
  102
  464
  856
  1,282
  1,741
  2,237
  2,771
  3,345
  3,962
EBITDA, $m
  -1,603
  -1,916
  -1,979
  -2,023
  -2,049
  -2,056
  -2,044
  -2,015
  -1,968
  -1,902
  -1,818
  -1,715
  -1,592
  -1,450
  -1,286
  -1,100
  -892
  -660
  -404
  -121
  188
  526
  893
  1,292
  1,724
  2,191
  2,694
  3,236
  3,818
  4,443
  5,113
Interest expense (income), $m
  275
  321
  -33
  -18
  0
  19
  41
  64
  90
  118
  148
  181
  215
  252
  292
  333
  378
  425
  475
  527
  583
  642
  703
  769
  838
  910
  987
  1,067
  1,152
  1,241
  1,335
Earnings before tax, $m
  -2,395
  -2,621
  -2,339
  -2,408
  -2,461
  -2,499
  -2,523
  -2,531
  -2,525
  -2,504
  -2,467
  -2,388
  -2,320
  -2,235
  -2,134
  -2,014
  -1,875
  -1,717
  -1,539
  -1,340
  -1,118
  -872
  -602
  -305
  19
  371
  755
  1,170
  1,619
  2,104
  2,627
Tax expense, $m
  -174
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  5
  100
  204
  316
  437
  568
  709
Net income, $m
  -2,221
  -2,621
  -2,339
  -2,408
  -2,461
  -2,499
  -2,523
  -2,531
  -2,525
  -2,504
  -2,467
  -2,388
  -2,320
  -2,235
  -2,134
  -2,014
  -1,875
  -1,717
  -1,539
  -1,340
  -1,118
  -872
  -602
  -305
  14
  271
  551
  854
  1,182
  1,536
  1,918

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  286
  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
  9,362
  9,548
  9,767
  10,019
  10,300
  10,613
  10,955
  11,328
  11,732
  12,167
  12,634
  13,134
  13,667
  14,234
  14,838
  15,478
  16,156
  16,874
  17,633
  18,435
  19,282
  20,176
  21,119
  22,112
  23,159
  24,262
  25,423
  26,644
  27,930
  29,283
  30,706
Adjusted assets (=assets-cash), $m
  9,076
  9,548
  9,767
  10,019
  10,300
  10,613
  10,955
  11,328
  11,732
  12,167
  12,634
  13,134
  13,667
  14,234
  14,838
  15,478
  16,156
  16,874
  17,633
  18,435
  19,282
  20,176
  21,119
  22,112
  23,159
  24,262
  25,423
  26,644
  27,930
  29,283
  30,706
Revenue / Adjusted assets
  2.439
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
  2.365
Average production assets, $m
  4,151
  4,223
  4,320
  4,431
  4,555
  4,693
  4,845
  5,010
  5,189
  5,381
  5,588
  5,808
  6,044
  6,295
  6,562
  6,845
  7,145
  7,463
  7,798
  8,153
  8,528
  8,923
  9,340
  9,779
  10,242
  10,730
  11,243
  11,784
  12,352
  12,950
  13,580
Working capital, $m
  315
  632
  647
  663
  682
  703
  725
  750
  777
  806
  837
  870
  905
  943
  983
  1,025
  1,070
  1,117
  1,168
  1,221
  1,277
  1,336
  1,398
  1,464
  1,534
  1,607
  1,683
  1,764
  1,850
  1,939
  2,033
Total debt, $m
  4,163
  -430
  -232
  -6
  247
  528
  837
  1,173
  1,536
  1,928
  2,348
  2,797
  3,277
  3,788
  4,331
  4,907
  5,517
  6,164
  6,847
  7,569
  8,331
  9,136
  9,984
  10,878
  11,820
  12,813
  13,857
  14,957
  16,114
  17,332
  18,612
Total liabilities, $m
  13,186
  8,593
  8,791
  9,017
  9,270
  9,551
  9,860
  10,196
  10,559
  10,951
  11,371
  11,820
  12,300
  12,811
  13,354
  13,930
  14,540
  15,187
  15,870
  16,592
  17,354
  18,159
  19,007
  19,901
  20,843
  21,836
  22,880
  23,980
  25,137
  26,355
  27,635
Total equity, $m
  -3,824
  955
  977
  1,002
  1,030
  1,061
  1,096
  1,133
  1,173
  1,217
  1,263
  1,313
  1,367
  1,423
  1,484
  1,548
  1,616
  1,687
  1,763
  1,844
  1,928
  2,018
  2,112
  2,211
  2,316
  2,426
  2,542
  2,664
  2,793
  2,928
  3,071
Total liabilities and equity, $m
  9,362
  9,548
  9,768
  10,019
  10,300
  10,612
  10,956
  11,329
  11,732
  12,168
  12,634
  13,133
  13,667
  14,234
  14,838
  15,478
  16,156
  16,874
  17,633
  18,436
  19,282
  20,177
  21,119
  22,112
  23,159
  24,262
  25,422
  26,644
  27,930
  29,283
  30,706
Debt-to-equity ratio
  -1.089
  -0.450
  -0.240
  -0.010
  0.240
  0.500
  0.760
  1.040
  1.310
  1.580
  1.860
  2.130
  2.400
  2.660
  2.920
  3.170
  3.420
  3.650
  3.880
  4.110
  4.320
  4.530
  4.730
  4.920
  5.100
  5.280
  5.450
  5.610
  5.770
  5.920
  6.060
Adjusted equity ratio
  -0.453
  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
  -2,221
  -2,621
  -2,339
  -2,408
  -2,461
  -2,499
  -2,523
  -2,531
  -2,525
  -2,504
  -2,467
  -2,388
  -2,320
  -2,235
  -2,134
  -2,014
  -1,875
  -1,717
  -1,539
  -1,340
  -1,118
  -872
  -602
  -305
  14
  271
  551
  854
  1,182
  1,536
  1,918
Depreciation, amort., depletion, $m
  375
  385
  393
  402
  413
  425
  437
  451
  467
  483
  500
  492
  512
  533
  556
  580
  606
  632
  661
  691
  723
  756
  792
  829
  868
  909
  953
  999
  1,047
  1,097
  1,151
Funds from operations, $m
  -548
  -2,237
  -1,946
  -2,006
  -2,048
  -2,075
  -2,085
  -2,080
  -2,058
  -2,021
  -1,967
  -1,896
  -1,808
  -1,702
  -1,577
  -1,434
  -1,270
  -1,085
  -878
  -649
  -395
  -116
  190
  524
  882
  1,180
  1,504
  1,853
  2,229
  2,634
  3,069
Change in working capital, $m
  833
  12
  15
  17
  19
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  42
  45
  48
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  90
  94
Cash from operations, $m
  -1,381
  -2,249
  -1,961
  -2,022
  -2,067
  -2,095
  -2,108
  -2,104
  -2,085
  -2,050
  -1,998
  -1,929
  -1,843
  -1,740
  -1,617
  -1,476
  -1,315
  -1,133
  -929
  -702
  -451
  -175
  127
  458
  812
  1,107
  1,427
  1,772
  2,144
  2,544
  2,974
Maintenance CAPEX, $m
  0
  -352
  -358
  -366
  -375
  -386
  -398
  -411
  -425
  -440
  -456
  -474
  -492
  -512
  -533
  -556
  -580
  -606
  -632
  -661
  -691
  -723
  -756
  -792
  -829
  -868
  -909
  -953
  -999
  -1,047
  -1,097
New CAPEX, $m
  -142
  -72
  -97
  -111
  -125
  -138
  -152
  -165
  -179
  -192
  -207
  -221
  -236
  -251
  -267
  -283
  -300
  -318
  -336
  -355
  -375
  -395
  -417
  -439
  -463
  -488
  -513
  -540
  -569
  -598
  -629
Cash from investing activities, $m
  244
  -424
  -455
  -477
  -500
  -524
  -550
  -576
  -604
  -632
  -663
  -695
  -728
  -763
  -800
  -839
  -880
  -924
  -968
  -1,016
  -1,066
  -1,118
  -1,173
  -1,231
  -1,292
  -1,356
  -1,422
  -1,493
  -1,568
  -1,645
  -1,726
Free cash flow, $m
  -1,137
  -2,673
  -2,416
  -2,499
  -2,567
  -2,619
  -2,657
  -2,680
  -2,688
  -2,682
  -2,660
  -2,624
  -2,571
  -2,503
  -2,418
  -2,315
  -2,195
  -2,056
  -1,897
  -1,717
  -1,517
  -1,293
  -1,046
  -773
  -479
  -248
  4
  279
  577
  899
  1,248
Issuance/(repayment) of debt, $m
  1,165
  -4,593
  198
  226
  254
  281
  308
  336
  363
  392
  420
  450
  480
  511
  543
  576
  610
  646
  683
  722
  762
  804
  848
  894
  942
  992
  1,045
  1,100
  1,157
  1,217
  1,280
Issuance/(repurchase) of shares, $m
  0
  7,400
  2,361
  2,433
  2,489
  2,530
  2,557
  2,568
  2,565
  2,547
  2,514
  2,438
  2,373
  2,292
  2,194
  2,078
  1,943
  1,789
  1,615
  1,420
  1,202
  961
  696
  405
  91
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1,185
  2,807
  2,559
  2,659
  2,743
  2,811
  2,865
  2,904
  2,928
  2,939
  2,934
  2,888
  2,853
  2,803
  2,737
  2,654
  2,553
  2,435
  2,298
  2,142
  1,964
  1,765
  1,544
  1,299
  1,033
  992
  1,045
  1,100
  1,157
  1,217
  1,280
Total cash flow (excl. dividends), $m
  48
  134
  143
  160
  176
  192
  208
  224
  241
  257
  274
  264
  282
  300
  319
  339
  359
  380
  402
  424
  448
  473
  499
  526
  554
  744
  1,049
  1,378
  1,734
  2,117
  2,528
Retained Cash Flow (-), $m
  1,861
  -7,400
  -2,361
  -2,433
  -2,489
  -2,530
  -2,557
  -2,568
  -2,565
  -2,547
  -2,514
  -2,438
  -2,373
  -2,292
  -2,194
  -2,078
  -1,943
  -1,789
  -1,615
  -1,420
  -1,202
  -961
  -696
  -405
  -105
  -110
  -116
  -122
  -129
  -135
  -142
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
 
  -7,266
  -2,218
  -2,273
  -2,313
  -2,338
  -2,349
  -2,344
  -2,325
  -2,290
  -2,240
  -2,174
  -2,091
  -1,992
  -1,875
  -1,739
  -1,584
  -1,409
  -1,213
  -995
  -754
  -489
  -197
  121
  449
  634
  933
  1,256
  1,605
  1,981
  2,386
Discount rate, %
 
  16.10
  16.91
  17.75
  18.64
  19.57
  20.55
  21.58
  22.65
  23.79
  24.98
  26.23
  27.54
  28.91
  30.36
  31.88
  33.47
  35.14
  36.90
  38.75
  40.68
  42.72
  44.85
  47.10
  49.45
  51.92
  54.52
  57.25
  60.11
  63.11
  66.27
PV of cash for distribution, $m
 
  -6,258
  -1,623
  -1,392
  -1,168
  -957
  -765
  -597
  -454
  -336
  -241
  -168
  -113
  -73
  -46
  -27
  -16
  -8
  -4
  -2
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  14.4
  4.1
  1.2
  0.3
  0.1
  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
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Sears Holdings Corporation operates as a retailer in the United States. It operates in two segments, Kmart and Sears Domestic. The Kmart segment operates retail stores that offer a range of products, including consumer electronics, seasonal merchandise, outdoor living, toys, lawn and garden equipment, food and consumables, and apparel; and in-store pharmacies. It provides merchandise under the Jaclyn Smith, Joe Boxer, and Alphaline labels; Sears brand products, such as Kenmore, Craftsman, and DieHard; and Kenmore-branded products. As of October 31, 2015, this segment operated approximately 952 Kmart stores. The Sears Domestic segment operates stores that provide appliances, consumer electronics/connected solutions, tools, sporting goods, outdoor living, lawn and garden equipment, apparel, footwear, jewelry, and accessories, as well as automotive services and products, such as tires, batteries, and home fashion products. It also offers appliances and services to commercial customers in the single-family residential construction/remodel, property management, multi-family new construction, and government/military sectors; appliance and plumbing fixtures to architects, designers, and new construction or remodeling customers; parts and repair services for appliances, lawn and garden equipment, consumer electronics, floor care products, and heating and cooling systems; and home improvement services, as well as protection agreements and product installation services. This segment provides merchandise under the Kenmore, Craftsman, DieHard, Covington, Canyon River Blues, Metaphor, Outdoor Life, Structure, and Apostrophe brands, as well as under the Roadhandler, Ty Pennington Style, and Alphaline brands. As of October 31, 2015, this segment operated 735 Sears stores. Sears Holdings Corporation was founded in 1899 and is based in Hoffman Estates, Illinois.

FINANCIAL RATIOS  of  Sears Holdings (SHLD)

Valuation Ratios
P/E Ratio -0.4
Price to Sales 0
Price to Book -0.2
Price to Tangible Book
Price to Cash Flow -0.6
Price to Free Cash Flow -0.6
Growth Rates
Sales Growth Rate -12%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -32.7%
Cap. Spend. - 3 Yr. Gr. Rate -15.5%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity -93.4%
Total Debt to Equity -108.9%
Interest Coverage -8
Management Effectiveness
Return On Assets -19%
Ret/ On Assets - 3 Yr. Avg. -11.9%
Return On Total Capital -328.6%
Ret/ On T. Cap. - 3 Yr. Avg. -141.9%
Return On Equity 76.8%
Return On Equity - 3 Yr. Avg. -90.9%
Asset Turnover 2.1
Profitability Ratios
Gross Margin 22.2%
Gross Margin - 3 Yr. Avg. 22.9%
EBITDA Margin -7.9%
EBITDA Margin - 3 Yr. Avg. -4.5%
Operating Margin -8.9%
Oper. Margin - 3 Yr. Avg. -5.9%
Pre-Tax Margin -10.8%
Pre-Tax Margin - 3 Yr. Avg. -7.2%
Net Profit Margin -10%
Net Profit Margin - 3 Yr. Avg. -6.6%
Effective Tax Rate 7.3%
Eff/ Tax Rate - 3 Yr. Avg. 6.1%
Payout Ratio 0%

SHLD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SHLD stock intrinsic value calculation we used $22138 million for the last fiscal year's total revenue generated by Sears Holdings. The default revenue input number comes from 2017 income statement of Sears Holdings. 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 SHLD stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 16.1%, whose default value for SHLD is calculated based on our internal credit rating of Sears Holdings, 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 Sears Holdings.
    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 SHLD stock the variable cost ratio is equal to 67.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $9405 million in the base year in the intrinsic value calculation for SHLD 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 7.7% for Sears Holdings.

Corporate tax rate of 27% is the nominal tax rate for Sears Holdings. 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 SHLD 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 SHLD are equal to 18.7%.

Life of production assets of 11.8 years is the average useful life of capital assets used in Sears Holdings 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 SHLD is equal to 2.8%. 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 - $-3824 million for Sears Holdings - 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 104.371 million for Sears Holdings 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 Sears Holdings at the current share price and the inputted number of shares is $0.9 billion.

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Stock chart of SHLD Financial statements of SHLD
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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