Intrinsic value of Teva Pharmaceutical Industries ADR - TEVA

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$31.13

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$31.13

 
Intrinsic value

$170.57

 
Up/down potential

+448%

 
Rating

str. buy

 
Value-price divergence* premium content

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*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 31.8

 

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
  33.00
  30.20
  27.68
  25.41
  23.37
  21.53
  19.88
  18.39
  17.05
  15.85
  14.76
  13.79
  12.91
  12.12
  11.41
  10.76
  10.19
  9.67
  9.20
  8.78
  8.40
  8.06
  7.76
  7.48
  7.23
  7.01
  6.81
  6.63
  6.47
  6.32
Revenue, $m
  21,903
  29,131
  37,929
  48,427
  60,733
  74,927
  91,062
  109,165
  129,244
  151,284
  175,259
  201,132
  228,862
  258,403
  289,714
  322,758
  357,502
  393,926
  432,018
  471,775
  513,208
  556,338
  601,200
  647,837
  696,306
  746,673
  799,016
  853,421
  909,988
  968,822
  1,030,040
Variable operating expenses, $m
 
  23,849
  29,711
  36,705
  44,904
  54,361
  65,111
  77,172
  90,549
  105,233
  121,206
  134,004
  152,478
  172,160
  193,021
  215,036
  238,185
  262,452
  287,830
  314,318
  341,923
  370,659
  400,548
  431,620
  463,912
  497,469
  532,342
  568,589
  606,277
  645,475
  686,261
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
  23,849
  29,711
  36,705
  44,904
  54,361
  65,111
  77,172
  90,549
  105,233
  121,206
  134,004
  152,478
  172,160
  193,021
  215,036
  238,185
  262,452
  287,830
  314,318
  341,923
  370,659
  400,548
  431,620
  463,912
  497,469
  532,342
  568,589
  606,277
  645,475
  686,261
Operating income, $m
  1,270
  5,282
  8,218
  11,722
  15,829
  20,566
  25,951
  31,993
  38,695
  46,050
  54,052
  67,128
  76,383
  86,243
  96,693
  107,721
  119,318
  131,474
  144,187
  157,456
  171,285
  185,680
  200,652
  216,218
  232,394
  249,204
  266,674
  284,832
  303,711
  323,347
  343,779
EBITDA, $m
  2,794
  10,693
  13,922
  17,775
  22,292
  27,502
  33,425
  40,070
  47,439
  55,529
  64,329
  73,826
  84,004
  94,848
  106,341
  118,469
  131,222
  144,592
  158,573
  173,166
  188,374
  204,206
  220,672
  237,791
  255,581
  274,069
  293,281
  313,251
  334,014
  355,609
  378,079
Interest expense (income), $m
  290
  1,194
  1,866
  2,681
  3,653
  4,793
  6,107
  7,601
  9,278
  11,137
  13,178
  15,398
  17,794
  20,362
  23,098
  25,997
  29,057
  32,275
  35,648
  39,175
  42,857
  46,694
  50,688
  54,842
  59,161
  63,649
  68,314
  73,161
  78,199
  83,437
  88,886
Earnings before tax, $m
  824
  4,087
  6,352
  9,041
  12,176
  15,774
  19,844
  24,392
  29,417
  34,913
  40,874
  51,730
  58,589
  65,881
  73,595
  81,724
  90,260
  99,199
  108,539
  118,281
  128,428
  138,986
  149,964
  161,375
  173,233
  185,555
  198,360
  211,671
  225,512
  239,910
  254,894
Tax expense, $m
  521
  1,104
  1,715
  2,441
  3,288
  4,259
  5,358
  6,586
  7,943
  9,427
  11,036
  13,967
  15,819
  17,788
  19,871
  22,065
  24,370
  26,784
  29,306
  31,936
  34,675
  37,526
  40,490
  43,571
  46,773
  50,100
  53,557
  57,151
  60,888
  64,776
  68,821
Net income, $m
  329
  2,984
  4,637
  6,600
  8,888
  11,515
  14,486
  17,806
  21,474
  25,487
  29,838
  37,763
  42,770
  48,093
  53,725
  59,659
  65,890
  72,416
  79,234
  86,345
  93,752
  101,460
  109,474
  117,804
  126,460
  135,455
  144,803
  154,520
  164,624
  175,134
  186,072

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
  121,379
  158,036
  201,780
  253,056
  312,197
  379,425
  454,856
  538,515
  630,348
  730,244
  838,050
  953,590
  1,076,679
  1,207,143
  1,344,824
  1,489,593
  1,641,360
  1,800,073
  1,965,727
  2,138,365
  2,318,076
  2,505,000
  2,699,322
  2,901,275
  3,111,137
  3,329,232
  3,555,922
  3,791,616
  4,036,758
  4,291,834
Adjusted assets (=assets-cash), $m
  91,213
  121,379
  158,036
  201,780
  253,056
  312,197
  379,425
  454,856
  538,515
  630,348
  730,244
  838,050
  953,590
  1,076,679
  1,207,143
  1,344,824
  1,489,593
  1,641,360
  1,800,073
  1,965,727
  2,138,365
  2,318,076
  2,505,000
  2,699,322
  2,901,275
  3,111,137
  3,329,232
  3,555,922
  3,791,616
  4,036,758
  4,291,834
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
  29,102
  37,891
  48,379
  60,673
  74,852
  90,971
  109,056
  129,114
  151,132
  175,083
  200,931
  228,633
  258,145
  289,425
  322,435
  357,145
  393,532
  431,585
  471,303
  512,694
  555,782
  600,599
  647,189
  695,610
  745,926
  798,217
  852,568
  909,078
  967,853
  1,029,010
Working capital, $m
  -1,558
  58
  76
  97
  121
  150
  182
  218
  258
  303
  351
  402
  458
  517
  579
  646
  715
  788
  864
  944
  1,026
  1,113
  1,202
  1,296
  1,393
  1,493
  1,598
  1,707
  1,820
  1,938
  2,060
Total debt, $m
  35,798
  53,321
  76,598
  104,375
  136,936
  174,490
  217,180
  265,079
  318,202
  376,516
  439,950
  508,407
  581,774
  659,936
  742,781
  830,208
  922,137
  1,018,508
  1,119,291
  1,224,482
  1,334,107
  1,448,224
  1,566,920
  1,690,314
  1,818,554
  1,951,817
  2,090,307
  2,234,256
  2,383,921
  2,539,586
  2,701,560
Total liabilities, $m
  59,553
  77,076
  100,353
  128,130
  160,691
  198,245
  240,935
  288,834
  341,957
  400,271
  463,705
  532,162
  605,529
  683,691
  766,536
  853,963
  945,892
  1,042,263
  1,143,046
  1,248,237
  1,357,862
  1,471,979
  1,590,675
  1,714,069
  1,842,309
  1,975,572
  2,114,062
  2,258,011
  2,407,676
  2,563,341
  2,725,315
Total equity, $m
  33,337
  44,303
  57,683
  73,650
  92,366
  113,952
  138,490
  166,023
  196,558
  230,077
  266,539
  305,888
  348,060
  392,988
  440,607
  490,861
  543,702
  599,096
  657,027
  717,490
  780,503
  846,098
  914,325
  985,252
  1,058,965
  1,135,565
  1,215,170
  1,297,912
  1,383,940
  1,473,417
  1,566,519
Total liabilities and equity, $m
  92,890
  121,379
  158,036
  201,780
  253,057
  312,197
  379,425
  454,857
  538,515
  630,348
  730,244
  838,050
  953,589
  1,076,679
  1,207,143
  1,344,824
  1,489,594
  1,641,359
  1,800,073
  1,965,727
  2,138,365
  2,318,077
  2,505,000
  2,699,321
  2,901,274
  3,111,137
  3,329,232
  3,555,923
  3,791,616
  4,036,758
  4,291,834
Debt-to-equity ratio
  1.074
  1.200
  1.330
  1.420
  1.480
  1.530
  1.570
  1.600
  1.620
  1.640
  1.650
  1.660
  1.670
  1.680
  1.690
  1.690
  1.700
  1.700
  1.700
  1.710
  1.710
  1.710
  1.710
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
  1.720
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
  2,984
  4,637
  6,600
  8,888
  11,515
  14,486
  17,806
  21,474
  25,487
  29,838
  37,763
  42,770
  48,093
  53,725
  59,659
  65,890
  72,416
  79,234
  86,345
  93,752
  101,460
  109,474
  117,804
  126,460
  135,455
  144,803
  154,520
  164,624
  175,134
  186,072
Depreciation, amort., depletion, $m
  1,524
  5,411
  5,704
  6,054
  6,463
  6,936
  7,473
  8,076
  8,745
  9,479
  10,277
  6,698
  7,621
  8,605
  9,647
  10,748
  11,905
  13,118
  14,386
  15,710
  17,090
  18,526
  20,020
  21,573
  23,187
  24,864
  26,607
  28,419
  30,303
  32,262
  34,300
Funds from operations, $m
  6,444
  8,395
  10,341
  12,653
  15,352
  18,451
  21,960
  25,882
  30,219
  34,965
  40,115
  44,461
  50,391
  56,698
  63,372
  70,406
  77,795
  85,533
  93,620
  102,055
  110,842
  119,986
  129,494
  139,377
  149,647
  160,319
  171,410
  182,939
  194,927
  207,396
  220,373
Change in working capital, $m
  1,219
  14
  18
  21
  25
  28
  32
  36
  40
  44
  48
  52
  55
  59
  63
  66
  69
  73
  76
  80
  83
  86
  90
  93
  97
  101
  105
  109
  113
  118
  122
Cash from operations, $m
  5,225
  16,051
  10,323
  12,632
  15,327
  18,422
  21,927
  25,846
  30,179
  34,921
  40,067
  44,409
  50,336
  56,639
  63,309
  70,340
  77,725
  85,460
  93,544
  101,976
  110,759
  119,899
  129,404
  139,284
  149,550
  160,219
  171,306
  182,830
  194,813
  207,278
  220,250
Maintenance CAPEX, $m
  0
  -730
  -970
  -1,263
  -1,613
  -2,022
  -2,495
  -3,032
  -3,635
  -4,304
  -5,038
  -5,836
  -6,698
  -7,621
  -8,605
  -9,647
  -10,748
  -11,905
  -13,118
  -14,386
  -15,710
  -17,090
  -18,526
  -20,020
  -21,573
  -23,187
  -24,864
  -26,607
  -28,419
  -30,303
  -32,262
New CAPEX, $m
  -901
  -7,212
  -8,789
  -10,488
  -12,294
  -14,180
  -16,119
  -18,085
  -20,058
  -22,018
  -23,951
  -25,848
  -27,702
  -29,512
  -31,280
  -33,010
  -34,710
  -36,388
  -38,053
  -39,717
  -41,392
  -43,088
  -44,817
  -46,591
  -48,420
  -50,317
  -52,290
  -54,351
  -56,510
  -58,775
  -61,157
Cash from investing activities, $m
  -35,740
  -7,942
  -9,759
  -11,751
  -13,907
  -16,202
  -18,614
  -21,117
  -23,693
  -26,322
  -28,989
  -31,684
  -34,400
  -37,133
  -39,885
  -42,657
  -45,458
  -48,293
  -51,171
  -54,103
  -57,102
  -60,178
  -63,343
  -66,611
  -69,993
  -73,504
  -77,154
  -80,958
  -84,929
  -89,078
  -93,419
Free cash flow, $m
  -30,515
  8,109
  564
  881
  1,421
  2,220
  3,314
  4,728
  6,486
  8,600
  11,078
  12,725
  15,936
  19,506
  23,425
  27,682
  32,268
  37,168
  42,373
  47,872
  53,657
  59,722
  66,061
  72,673
  79,557
  86,715
  94,151
  101,872
  109,885
  118,201
  126,831
Issuance/(repayment) of debt, $m
  26,251
  19,200
  23,277
  27,778
  32,560
  37,555
  42,690
  47,899
  53,123
  58,314
  63,434
  68,457
  73,368
  78,162
  82,844
  87,427
  91,929
  96,372
  100,783
  105,191
  109,625
  114,117
  118,696
  123,394
  128,240
  133,263
  138,490
  143,949
  149,665
  155,665
  161,973
Issuance/(repurchase) of shares, $m
  693
  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  
  26,775
  19,200
  23,277
  27,778
  32,560
  37,555
  42,690
  47,899
  53,123
  58,314
  63,434
  68,457
  73,368
  78,162
  82,844
  87,427
  91,929
  96,372
  100,783
  105,191
  109,625
  114,117
  118,696
  123,394
  128,240
  133,263
  138,490
  143,949
  149,665
  155,665
  161,973
Total cash flow (excl. dividends), $m
  -4,400
  27,309
  23,841
  28,659
  33,981
  39,775
  46,003
  52,627
  59,609
  66,914
  74,512
  81,182
  89,304
  97,667
  106,269
  115,110
  124,196
  133,540
  143,156
  153,063
  163,282
  173,839
  184,758
  196,068
  207,797
  219,978
  232,641
  245,820
  259,550
  273,866
  288,805
Retained Cash Flow (-), $m
  -3,568
  -10,966
  -13,380
  -15,967
  -18,716
  -21,587
  -24,538
  -27,532
  -30,535
  -33,519
  -36,462
  -39,349
  -42,172
  -44,928
  -47,619
  -50,253
  -52,841
  -55,395
  -57,930
  -60,464
  -63,013
  -65,595
  -68,227
  -70,927
  -73,713
  -76,600
  -79,604
  -82,742
  -86,028
  -89,477
  -93,103
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
 
  16,342
  10,461
  12,692
  15,265
  18,188
  21,465
  25,095
  29,073
  33,395
  38,050
  41,833
  47,132
  52,740
  58,650
  64,856
  71,355
  78,145
  85,225
  92,599
  100,270
  108,244
  116,531
  125,140
  134,084
  143,378
  153,037
  163,078
  173,522
  184,389
  195,702
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
 
  15,048
  8,800
  9,672
  10,443
  11,064
  11,491
  11,695
  11,658
  11,380
  10,876
  9,890
  9,081
  8,153
  7,153
  6,133
  5,134
  4,195
  3,343
  2,596
  1,964
  1,445
  1,033
  718
  483
  315
  199
  121
  71
  40
  22
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

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 96
Price to Sales 1.4
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 6
Price to Free Cash Flow 7.3
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 33% 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 1021.5 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 $31.8 billion.


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Stock chart of TEVA Financial statements 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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