Intrinsic value of Teva Pharmaceutical Industries ADR - TEVA

Previous Close

$33.04

  Intrinsic Value

$70.49

stock screener

  Rating & Target

str. buy

+113%

  Value-price divergence*

+550%

Previous close

$33.04

 
Intrinsic value

$70.49

 
Up/down potential

+113%

 
Rating

str. buy

 
Value-price divergence*

+550%

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

We calculate the intrinsic value of TEVA 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 32.8

 

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, %
  11.45
  17.00
  15.80
  14.72
  13.75
  12.87
  12.09
  11.38
  10.74
  10.17
  9.65
  9.18
  8.77
  8.39
  8.05
  7.75
  7.47
  7.22
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
Revenue, $m
  21,903
  25,627
  29,675
  34,044
  38,724
  43,709
  48,992
  54,566
  60,426
  66,568
  72,992
  79,695
  86,681
  93,953
  101,516
  109,379
  117,550
  126,042
  134,866
  144,039
  153,576
  163,495
  173,816
  184,561
  195,752
  207,414
  219,571
  232,252
  245,485
  259,301
  273,732
Variable operating expenses, $m
 
  21,514
  24,212
  27,122
  30,241
  33,562
  37,081
  40,795
  44,699
  48,792
  53,071
  53,097
  57,751
  62,596
  67,635
  72,873
  78,318
  83,975
  89,854
  95,965
  102,319
  108,928
  115,805
  122,963
  130,419
  138,189
  146,289
  154,737
  163,554
  172,759
  182,373
Fixed operating expenses, $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
Total operating expenses, $m
  20,633
  21,514
  24,212
  27,122
  30,241
  33,562
  37,081
  40,795
  44,699
  48,792
  53,071
  53,097
  57,751
  62,596
  67,635
  72,873
  78,318
  83,975
  89,854
  95,965
  102,319
  108,928
  115,805
  122,963
  130,419
  138,189
  146,289
  154,737
  163,554
  172,759
  182,373
Operating income, $m
  1,270
  4,112
  5,463
  6,921
  8,483
  10,147
  11,910
  13,771
  15,726
  17,777
  19,920
  26,599
  28,930
  31,357
  33,881
  36,506
  39,233
  42,067
  45,012
  48,073
  51,256
  54,567
  58,012
  61,598
  65,333
  69,225
  73,283
  77,515
  81,931
  86,543
  91,359
EBITDA, $m
  2,794
  9,406
  10,892
  12,496
  14,214
  16,044
  17,983
  20,028
  22,179
  24,434
  26,792
  29,252
  31,817
  34,486
  37,262
  40,148
  43,147
  46,264
  49,503
  52,870
  56,370
  60,011
  63,800
  67,744
  71,851
  76,132
  80,594
  85,249
  90,106
  95,177
  100,474
Interest expense (income), $m
  290
  1,194
  1,542
  1,917
  2,321
  2,755
  3,216
  3,705
  4,222
  4,764
  5,333
  5,928
  6,549
  7,196
  7,869
  8,569
  9,298
  10,054
  10,841
  11,658
  12,507
  13,390
  14,309
  15,265
  16,260
  17,296
  18,376
  19,502
  20,676
  21,902
  23,181
Earnings before tax, $m
  824
  2,918
  3,922
  5,005
  6,162
  7,393
  8,694
  10,065
  11,505
  13,012
  14,587
  20,671
  22,381
  24,161
  26,012
  27,936
  29,935
  32,013
  34,171
  36,416
  38,749
  41,177
  43,703
  46,333
  49,073
  51,929
  54,907
  58,013
  61,255
  64,641
  68,178
Tax expense, $m
  521
  788
  1,059
  1,351
  1,664
  1,996
  2,347
  2,718
  3,106
  3,513
  3,939
  5,581
  6,043
  6,524
  7,023
  7,543
  8,083
  8,643
  9,226
  9,832
  10,462
  11,118
  11,800
  12,510
  13,250
  14,021
  14,825
  15,664
  16,539
  17,453
  18,408
Net income, $m
  329
  2,130
  2,863
  3,653
  4,498
  5,397
  6,347
  7,348
  8,399
  9,499
  10,649
  15,090
  16,338
  17,638
  18,989
  20,393
  21,853
  23,369
  24,945
  26,583
  28,287
  30,059
  31,903
  33,823
  35,823
  37,908
  40,082
  42,350
  44,716
  47,188
  49,770

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,677
  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
  92,890
  106,777
  123,648
  141,849
  161,350
  182,121
  204,132
  227,357
  251,774
  277,368
  304,132
  332,064
  361,171
  391,471
  422,985
  455,746
  489,793
  525,174
  561,943
  600,162
  639,899
  681,229
  724,235
  769,005
  815,635
  864,223
  914,880
  967,717
  1,022,856
  1,080,422
  1,140,550
Adjusted assets (=assets-cash), $m
  91,213
  106,777
  123,648
  141,849
  161,350
  182,121
  204,132
  227,357
  251,774
  277,368
  304,132
  332,064
  361,171
  391,471
  422,985
  455,746
  489,793
  525,174
  561,943
  600,162
  639,899
  681,229
  724,235
  769,005
  815,635
  864,223
  914,880
  967,717
  1,022,856
  1,080,422
  1,140,550
Revenue / Adjusted assets
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
Average production assets, $m
  21,890
  25,601
  29,646
  34,010
  38,685
  43,665
  48,943
  54,511
  60,365
  66,502
  72,919
  79,616
  86,594
  93,859
  101,415
  109,270
  117,433
  125,916
  134,731
  143,895
  153,422
  163,331
  173,643
  184,377
  195,557
  207,206
  219,352
  232,020
  245,240
  259,042
  273,458
Working capital, $m
  -1,558
  51
  59
  68
  77
  87
  98
  109
  121
  133
  146
  159
  173
  188
  203
  219
  235
  252
  270
  288
  307
  327
  348
  369
  392
  415
  439
  465
  491
  519
  547
Total debt, $m
  35,798
  44,048
  54,761
  66,319
  78,702
  91,892
  105,869
  120,617
  136,121
  152,374
  169,369
  187,105
  205,589
  224,829
  244,840
  265,644
  287,264
  309,731
  333,079
  357,348
  382,581
  408,825
  436,134
  464,563
  494,173
  525,027
  557,194
  590,745
  625,758
  662,313
  700,494
Total liabilities, $m
  59,553
  67,803
  78,516
  90,074
  102,457
  115,647
  129,624
  144,372
  159,876
  176,129
  193,124
  210,860
  229,344
  248,584
  268,595
  289,399
  311,019
  333,486
  356,834
  381,103
  406,336
  432,580
  459,889
  488,318
  517,928
  548,782
  580,949
  614,500
  649,513
  686,068
  724,249
Total equity, $m
  33,337
  38,974
  45,131
  51,775
  58,893
  66,474
  74,508
  82,985
  91,898
  101,239
  111,008
  121,203
  131,828
  142,887
  154,390
  166,347
  178,775
  191,689
  205,109
  219,059
  233,563
  248,649
  264,346
  280,687
  297,707
  315,442
  333,931
  353,217
  373,342
  394,354
  416,301
Total liabilities and equity, $m
  92,890
  106,777
  123,647
  141,849
  161,350
  182,121
  204,132
  227,357
  251,774
  277,368
  304,132
  332,063
  361,172
  391,471
  422,985
  455,746
  489,794
  525,175
  561,943
  600,162
  639,899
  681,229
  724,235
  769,005
  815,635
  864,224
  914,880
  967,717
  1,022,855
  1,080,422
  1,140,550
Debt-to-equity ratio
  1.074
  1.130
  1.210
  1.280
  1.340
  1.380
  1.420
  1.450
  1.480
  1.510
  1.530
  1.540
  1.560
  1.570
  1.590
  1.600
  1.610
  1.620
  1.620
  1.630
  1.640
  1.640
  1.650
  1.660
  1.660
  1.660
  1.670
  1.670
  1.680
  1.680
  1.680
Adjusted equity ratio
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  329
  2,130
  2,863
  3,653
  4,498
  5,397
  6,347
  7,348
  8,399
  9,499
  10,649
  15,090
  16,338
  17,638
  18,989
  20,393
  21,853
  23,369
  24,945
  26,583
  28,287
  30,059
  31,903
  33,823
  35,823
  37,908
  40,082
  42,350
  44,716
  47,188
  49,770
Depreciation, amort., depletion, $m
  1,524
  5,294
  5,429
  5,575
  5,730
  5,896
  6,072
  6,258
  6,453
  6,658
  6,872
  2,654
  2,886
  3,129
  3,380
  3,642
  3,914
  4,197
  4,491
  4,796
  5,114
  5,444
  5,788
  6,146
  6,519
  6,907
  7,312
  7,734
  8,175
  8,635
  9,115
Funds from operations, $m
  6,444
  7,424
  8,292
  9,228
  10,229
  11,293
  12,419
  13,605
  14,852
  16,157
  17,520
  17,743
  19,225
  20,767
  22,370
  24,036
  25,767
  27,566
  29,436
  31,380
  33,401
  35,503
  37,691
  39,969
  42,342
  44,815
  47,394
  50,084
  52,891
  55,823
  58,885
Change in working capital, $m
  1,219
  7
  8
  9
  9
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  28
  29
Cash from operations, $m
  5,225
  7,417
  8,284
  9,219
  10,219
  11,283
  12,408
  13,594
  14,840
  16,144
  17,507
  17,730
  19,211
  20,752
  22,354
  24,020
  25,751
  27,549
  29,419
  31,362
  33,382
  35,483
  37,671
  39,948
  42,320
  44,792
  47,369
  50,058
  52,865
  55,795
  58,856
Maintenance CAPEX, $m
  0
  -730
  -853
  -988
  -1,134
  -1,290
  -1,456
  -1,631
  -1,817
  -2,012
  -2,217
  -2,431
  -2,654
  -2,886
  -3,129
  -3,380
  -3,642
  -3,914
  -4,197
  -4,491
  -4,796
  -5,114
  -5,444
  -5,788
  -6,146
  -6,519
  -6,907
  -7,312
  -7,734
  -8,175
  -8,635
New CAPEX, $m
  -901
  -3,711
  -4,045
  -4,364
  -4,676
  -4,980
  -5,277
  -5,568
  -5,854
  -6,137
  -6,417
  -6,697
  -6,979
  -7,265
  -7,556
  -7,855
  -8,163
  -8,483
  -8,816
  -9,163
  -9,527
  -9,909
  -10,311
  -10,734
  -11,180
  -11,650
  -12,145
  -12,668
  -13,220
  -13,802
  -14,416
Cash from investing activities, $m
  -35,740
  -4,441
  -4,898
  -5,352
  -5,810
  -6,270
  -6,733
  -7,199
  -7,671
  -8,149
  -8,634
  -9,128
  -9,633
  -10,151
  -10,685
  -11,235
  -11,805
  -12,397
  -13,013
  -13,654
  -14,323
  -15,023
  -15,755
  -16,522
  -17,326
  -18,169
  -19,052
  -19,980
  -20,954
  -21,977
  -23,051
Free cash flow, $m
  -30,515
  2,976
  3,386
  3,867
  4,410
  5,013
  5,676
  6,395
  7,169
  7,996
  8,874
  8,602
  9,578
  10,601
  11,670
  12,785
  13,945
  15,152
  16,406
  17,707
  19,058
  20,460
  21,915
  23,425
  24,994
  26,623
  28,317
  30,078
  31,911
  33,818
  35,805
Issuance/(repayment) of debt, $m
  26,251
  9,927
  10,713
  11,558
  12,383
  13,190
  13,977
  14,748
  15,505
  16,252
  16,995
  17,737
  18,483
  19,240
  20,012
  20,803
  21,620
  22,467
  23,348
  24,269
  25,233
  26,245
  27,309
  28,429
  29,609
  30,854
  32,167
  33,552
  35,013
  36,555
  38,181
Issuance/(repurchase) of shares, $m
  693
  3,507
  3,295
  2,990
  2,620
  2,185
  1,687
  1,129
  514
  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  
  26,775
  13,434
  14,008
  14,548
  15,003
  15,375
  15,664
  15,877
  16,019
  16,252
  16,995
  17,737
  18,483
  19,240
  20,012
  20,803
  21,620
  22,467
  23,348
  24,269
  25,233
  26,245
  27,309
  28,429
  29,609
  30,854
  32,167
  33,552
  35,013
  36,555
  38,181
Total cash flow (excl. dividends), $m
  -4,400
  16,410
  17,393
  18,415
  19,413
  20,388
  21,340
  22,272
  23,187
  24,248
  25,869
  26,339
  28,062
  29,841
  31,682
  33,588
  35,565
  37,619
  39,754
  41,976
  44,291
  46,705
  49,224
  51,855
  54,603
  57,477
  60,484
  63,630
  66,924
  70,373
  73,986
Retained Cash Flow (-), $m
  -3,568
  -5,637
  -6,158
  -6,643
  -7,118
  -7,581
  -8,034
  -8,477
  -8,912
  -9,342
  -9,769
  -10,195
  -10,624
  -11,059
  -11,503
  -11,958
  -12,427
  -12,914
  -13,421
  -13,950
  -14,504
  -15,086
  -15,697
  -16,341
  -17,020
  -17,735
  -18,490
  -19,286
  -20,126
  -21,012
  -21,947
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
 
  10,773
  11,236
  11,771
  12,295
  12,806
  13,306
  13,795
  14,275
  14,906
  16,100
  16,144
  17,437
  18,782
  20,179
  21,630
  23,138
  24,705
  26,333
  28,026
  29,787
  31,619
  33,527
  35,513
  37,584
  39,742
  41,994
  44,344
  46,798
  49,361
  52,040
Discount rate, %
 
  8.60
  9.03
  9.48
  9.96
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.42
  27.74
  29.12
  30.58
  32.11
  33.71
  35.40
PV of cash for distribution, $m
 
  9,920
  9,452
  8,970
  8,411
  7,790
  7,123
  6,429
  5,724
  5,080
  4,602
  3,817
  3,360
  2,903
  2,461
  2,045
  1,665
  1,326
  1,033
  786
  583
  422
  297
  204
  135
  87
  55
  33
  19
  11
  6
Current shareholders' claim on cash, %
  100
  90.3
  83.2
  77.9
  74.1
  71.4
  69.6
  68.6
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2
  68.2

Teva Pharmaceutical Industries Limited develops, manufactures, markets, and distributes generic medicines and a portfolio of specialty medicines worldwide. It operates through two segments, Generic Medicines and Specialty Medicines. The Generic Medicines segment offers sterile products, hormones, narcotics, high-potency drugs, and cytotoxic substances in various dosage forms, including tablets, capsules, injectables, inhalants, liquids, ointments, and creams. This segment also develops, manufactures, and sells active pharmaceutical ingredients. The Specialty Medicines segment provides branded specialty medicines for use in central nervous system and respiratory indications, as well as the women’s health, oncology, and other specialty businesses. Its products in the central nervous system area comprise Copaxone for multiple sclerosis; Azilect for the treatment of Parkinson’s disease; and Nuvigil for the treatment of excessive sleepiness associated with narcolepsy and certain other disorders. This segment’s products in the respiratory market include ProAir, ProAir Respiclick, QVAR, Duoresp Spiromax, Qnasl, Braltus, Cinqair/Cinqaero, and Aerivio Spiromax for the treatment of asthma and chronic obstructive pulmonary disease, as well as Treanda/Bendeka, Granix, Trisenox, Lonquex, and Tevagrastim/Ratiograstim products in the oncology market. This segment also offers a portfolio of products in the women’s health category, which includes ParaGard, Plan B One-Step, and OTC/Rx, as well as other products. The company has collaboration arrangements with Attenukine, Procter & Gamble Company, and Regeneron Pharmaceuticals, Inc. Teva Pharmaceutical Industries Limited was founded in 1901 and is headquartered in Petach Tikva, Israel.

FINANCIAL RATIOS  of  Teva Pharmaceutical Industries ADR (TEVA)

Valuation Ratios
P/E Ratio 101.9
Price to Sales 1.5
Price to Book 1
Price to Tangible Book
Price to Cash Flow 6.4
Price to Free Cash Flow 7.8
Growth Rates
Sales Growth Rate 11.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 16.7%
Cap. Spend. - 3 Yr. Gr. Rate -2.7%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 97.6%
Total Debt to Equity 107.4%
Interest Coverage 4
Management Effectiveness
Return On Assets 0.6%
Ret/ On Assets - 3 Yr. Avg. 3.7%
Return On Total Capital 0.6%
Ret/ On T. Cap. - 3 Yr. Avg. 4.6%
Return On Equity 1%
Return On Equity - 3 Yr. Avg. 6.8%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 54.1%
Gross Margin - 3 Yr. Avg. 55.5%
EBITDA Margin 12%
EBITDA Margin - 3 Yr. Avg. 19.6%
Operating Margin 5.8%
Oper. Margin - 3 Yr. Avg. 12.8%
Pre-Tax Margin 3.8%
Pre-Tax Margin - 3 Yr. Avg. 11.2%
Net Profit Margin 1.5%
Net Profit Margin - 3 Yr. Avg. 8.2%
Effective Tax Rate 63.2%
Eff/ Tax Rate - 3 Yr. Avg. 35.5%
Payout Ratio 473.6%

TEVA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TEVA stock intrinsic value calculation we used $21903 million for the last fiscal year's total revenue generated by Teva Pharmaceutical Industries ADR. The default revenue input number comes from 2016 income statement of Teva Pharmaceutical Industries ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our TEVA stock valuation model: a) initial revenue growth rate of 17% 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 8.6%, whose default value for TEVA is calculated based on our internal credit rating of Teva Pharmaceutical Industries ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Teva Pharmaceutical Industries ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of TEVA stock the variable cost ratio is equal to 86.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for TEVA 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 Teva Pharmaceutical Industries ADR.

Corporate tax rate of 27% is the nominal tax rate for Teva Pharmaceutical Industries ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the TEVA 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 TEVA are equal to 99.9%.

Life of production assets of 35.2 years is the average useful life of capital assets used in Teva Pharmaceutical Industries ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for TEVA is equal to 0.2%. 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 - $33337 million for Teva Pharmaceutical Industries ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 992.574 million for Teva Pharmaceutical Industries ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Teva Pharmaceutical Industries ADR at the current share price and the inputted number of shares is $32.8 billion.

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Stock chart of TEVA Financial statements of TEVA Annual reports of TEVA
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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