Intrinsic value of Tenet Healthcare - THC

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$15.67

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$15.67

 
Intrinsic value

$33.42

 
Up/down potential

+113%

 
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 THC 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 1.5

 

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, %
  5.30
  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
  19,621
  20,013
  20,474
  21,000
  21,591
  22,245
  22,963
  23,745
  24,592
  25,504
  26,483
  27,530
  28,647
  29,837
  31,101
  32,443
  33,865
  35,370
  36,961
  38,643
  40,418
  42,292
  44,267
  46,350
  48,544
  50,855
  53,289
  55,850
  58,545
  61,380
  64,362
Variable operating expenses, $m
 
  16,676
  17,043
  17,462
  17,932
  18,453
  19,025
  19,648
  20,322
  21,048
  21,827
  21,918
  22,808
  23,755
  24,761
  25,830
  26,962
  28,160
  29,427
  30,766
  32,179
  33,671
  35,244
  36,902
  38,649
  40,489
  42,426
  44,465
  46,611
  48,868
  51,243
Fixed operating expenses, $m
 
  2,144
  2,198
  2,253
  2,309
  2,367
  2,426
  2,487
  2,549
  2,613
  2,678
  2,745
  2,814
  2,884
  2,956
  3,030
  3,106
  3,183
  3,263
  3,344
  3,428
  3,514
  3,602
  3,692
  3,784
  3,878
  3,975
  4,075
  4,177
  4,281
  4,388
Total operating expenses, $m
  18,402
  18,820
  19,241
  19,715
  20,241
  20,820
  21,451
  22,135
  22,871
  23,661
  24,505
  24,663
  25,622
  26,639
  27,717
  28,860
  30,068
  31,343
  32,690
  34,110
  35,607
  37,185
  38,846
  40,594
  42,433
  44,367
  46,401
  48,540
  50,788
  53,149
  55,631
Operating income, $m
  1,219
  1,193
  1,233
  1,285
  1,349
  1,425
  1,512
  1,611
  1,721
  1,844
  1,978
  2,867
  3,026
  3,198
  3,384
  3,583
  3,797
  4,027
  4,271
  4,533
  4,811
  5,107
  5,422
  5,757
  6,112
  6,488
  6,887
  7,310
  7,757
  8,231
  8,732
EBITDA, $m
  2,069
  2,439
  2,490
  2,556
  2,635
  2,727
  2,832
  2,951
  3,082
  3,228
  3,386
  3,559
  3,746
  3,949
  4,166
  4,399
  4,649
  4,916
  5,201
  5,504
  5,827
  6,171
  6,535
  6,922
  7,332
  7,767
  8,227
  8,714
  9,230
  9,774
  10,350
Interest expense (income), $m
  932
  949
  818
  850
  887
  928
  973
  1,023
  1,077
  1,136
  1,199
  1,267
  1,339
  1,417
  1,499
  1,587
  1,680
  1,779
  1,883
  1,993
  2,110
  2,233
  2,363
  2,500
  2,644
  2,796
  2,956
  3,125
  3,302
  3,489
  3,686
Earnings before tax, $m
  248
  244
  415
  435
  463
  497
  539
  588
  644
  708
  779
  1,600
  1,687
  1,781
  1,884
  1,996
  2,117
  2,248
  2,389
  2,539
  2,701
  2,874
  3,059
  3,257
  3,468
  3,692
  3,931
  4,185
  4,455
  4,742
  5,046
Tax expense, $m
  67
  66
  112
  117
  125
  134
  146
  159
  174
  191
  210
  432
  455
  481
  509
  539
  572
  607
  645
  686
  729
  776
  826
  879
  936
  997
  1,061
  1,130
  1,203
  1,280
  1,362
Net income, $m
  -192
  178
  303
  318
  338
  363
  394
  429
  470
  517
  569
  1,168
  1,231
  1,300
  1,376
  1,457
  1,546
  1,641
  1,744
  1,854
  1,972
  2,098
  2,233
  2,378
  2,531
  2,695
  2,869
  3,055
  3,252
  3,461
  3,684

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  716
  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
  24,701
  24,466
  25,029
  25,672
  26,394
  27,195
  28,073
  29,029
  30,064
  31,179
  32,375
  33,655
  35,021
  36,475
  38,021
  39,661
  41,399
  43,239
  45,185
  47,240
  49,411
  51,701
  54,117
  56,663
  59,345
  62,170
  65,145
  68,276
  71,571
  75,037
  78,683
Adjusted assets (=assets-cash), $m
  23,985
  24,466
  25,029
  25,672
  26,394
  27,195
  28,073
  29,029
  30,064
  31,179
  32,375
  33,655
  35,021
  36,475
  38,021
  39,661
  41,399
  43,239
  45,185
  47,240
  49,411
  51,701
  54,117
  56,663
  59,345
  62,170
  65,145
  68,276
  71,571
  75,037
  78,683
Revenue / Adjusted assets
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
Average production assets, $m
  9,964
  10,167
  10,401
  10,668
  10,968
  11,301
  11,665
  12,063
  12,493
  12,956
  13,453
  13,985
  14,553
  15,157
  15,799
  16,481
  17,203
  17,968
  18,776
  19,630
  20,532
  21,484
  22,488
  23,546
  24,661
  25,835
  27,071
  28,372
  29,741
  31,181
  32,696
Working capital, $m
  1,223
  720
  737
  756
  777
  801
  827
  855
  885
  918
  953
  991
  1,031
  1,074
  1,120
  1,168
  1,219
  1,273
  1,331
  1,391
  1,455
  1,523
  1,594
  1,669
  1,748
  1,831
  1,918
  2,011
  2,108
  2,210
  2,317
Total debt, $m
  15,255
  12,991
  13,497
  14,076
  14,726
  15,446
  16,236
  17,097
  18,028
  19,032
  20,109
  21,261
  22,490
  23,799
  25,190
  26,666
  28,230
  29,886
  31,637
  33,487
  35,441
  37,502
  39,676
  41,967
  44,382
  46,924
  49,601
  52,419
  55,385
  58,504
  61,785
Total liabilities, $m
  24,284
  22,020
  22,526
  23,105
  23,755
  24,475
  25,265
  26,126
  27,057
  28,061
  29,138
  30,290
  31,519
  32,828
  34,219
  35,695
  37,259
  38,915
  40,666
  42,516
  44,470
  46,531
  48,705
  50,996
  53,411
  55,953
  58,630
  61,448
  64,414
  67,533
  70,814
Total equity, $m
  417
  2,447
  2,503
  2,567
  2,639
  2,719
  2,807
  2,903
  3,006
  3,118
  3,238
  3,366
  3,502
  3,648
  3,802
  3,966
  4,140
  4,324
  4,518
  4,724
  4,941
  5,170
  5,412
  5,666
  5,935
  6,217
  6,514
  6,828
  7,157
  7,504
  7,868
Total liabilities and equity, $m
  24,701
  24,467
  25,029
  25,672
  26,394
  27,194
  28,072
  29,029
  30,063
  31,179
  32,376
  33,656
  35,021
  36,476
  38,021
  39,661
  41,399
  43,239
  45,184
  47,240
  49,411
  51,701
  54,117
  56,662
  59,346
  62,170
  65,144
  68,276
  71,571
  75,037
  78,682
Debt-to-equity ratio
  36.583
  5.310
  5.390
  5.480
  5.580
  5.680
  5.780
  5.890
  6.000
  6.100
  6.210
  6.320
  6.420
  6.520
  6.630
  6.720
  6.820
  6.910
  7.000
  7.090
  7.170
  7.250
  7.330
  7.410
  7.480
  7.550
  7.610
  7.680
  7.740
  7.800
  7.850
Adjusted equity ratio
  -0.012
  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
  -192
  178
  303
  318
  338
  363
  394
  429
  470
  517
  569
  1,168
  1,231
  1,300
  1,376
  1,457
  1,546
  1,641
  1,744
  1,854
  1,972
  2,098
  2,233
  2,378
  2,531
  2,695
  2,869
  3,055
  3,252
  3,461
  3,684
Depreciation, amort., depletion, $m
  850
  1,246
  1,257
  1,271
  1,285
  1,302
  1,320
  1,340
  1,361
  1,384
  1,409
  692
  720
  750
  782
  816
  852
  889
  930
  972
  1,016
  1,064
  1,113
  1,166
  1,221
  1,279
  1,340
  1,405
  1,472
  1,544
  1,619
Funds from operations, $m
  -1,839
  1,424
  1,560
  1,588
  1,623
  1,665
  1,714
  1,769
  1,831
  1,901
  1,977
  1,860
  1,952
  2,051
  2,158
  2,273
  2,397
  2,531
  2,673
  2,826
  2,988
  3,162
  3,347
  3,543
  3,752
  3,974
  4,210
  4,459
  4,724
  5,005
  5,302
Change in working capital, $m
  -2,397
  14
  17
  19
  21
  24
  26
  28
  30
  33
  35
  38
  40
  43
  46
  48
  51
  54
  57
  61
  64
  67
  71
  75
  79
  83
  88
  92
  97
  102
  107
Cash from operations, $m
  558
  1,548
  1,543
  1,569
  1,602
  1,641
  1,688
  1,741
  1,801
  1,868
  1,942
  1,823
  1,911
  2,008
  2,112
  2,225
  2,346
  2,476
  2,616
  2,765
  2,924
  3,094
  3,275
  3,468
  3,673
  3,891
  4,122
  4,367
  4,627
  4,903
  5,195
Maintenance CAPEX, $m
  0
  -493
  -503
  -515
  -528
  -543
  -559
  -577
  -597
  -618
  -641
  -666
  -692
  -720
  -750
  -782
  -816
  -852
  -889
  -930
  -972
  -1,016
  -1,064
  -1,113
  -1,166
  -1,221
  -1,279
  -1,340
  -1,405
  -1,472
  -1,544
New CAPEX, $m
  -875
  -203
  -234
  -267
  -300
  -333
  -365
  -397
  -430
  -463
  -497
  -532
  -568
  -604
  -642
  -682
  -722
  -765
  -808
  -854
  -902
  -952
  -1,004
  -1,058
  -1,115
  -1,174
  -1,236
  -1,301
  -1,369
  -1,440
  -1,515
Cash from investing activities, $m
  -430
  -696
  -737
  -782
  -828
  -876
  -924
  -974
  -1,027
  -1,081
  -1,138
  -1,198
  -1,260
  -1,324
  -1,392
  -1,464
  -1,538
  -1,617
  -1,697
  -1,784
  -1,874
  -1,968
  -2,068
  -2,171
  -2,281
  -2,395
  -2,515
  -2,641
  -2,774
  -2,912
  -3,059
Free cash flow, $m
  128
  852
  806
  787
  774
  766
  763
  766
  774
  786
  803
  625
  651
  683
  720
  761
  808
  860
  918
  981
  1,051
  1,126
  1,208
  1,297
  1,393
  1,496
  1,607
  1,726
  1,854
  1,990
  2,136
Issuance/(repayment) of debt, $m
  606
  -2,073
  506
  579
  650
  720
  790
  860
  931
  1,003
  1,077
  1,152
  1,229
  1,309
  1,391
  1,476
  1,564
  1,656
  1,751
  1,850
  1,954
  2,061
  2,174
  2,291
  2,414
  2,543
  2,677
  2,818
  2,965
  3,120
  3,281
Issuance/(repurchase) of shares, $m
  4
  3,251
  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  
  232
  1,178
  506
  579
  650
  720
  790
  860
  931
  1,003
  1,077
  1,152
  1,229
  1,309
  1,391
  1,476
  1,564
  1,656
  1,751
  1,850
  1,954
  2,061
  2,174
  2,291
  2,414
  2,543
  2,677
  2,818
  2,965
  3,120
  3,281
Total cash flow (excl. dividends), $m
  360
  -1,222
  1,313
  1,366
  1,424
  1,486
  1,554
  1,627
  1,705
  1,790
  1,880
  1,777
  1,881
  1,992
  2,111
  2,237
  2,372
  2,516
  2,669
  2,832
  3,004
  3,188
  3,382
  3,588
  3,807
  4,039
  4,284
  4,544
  4,819
  5,110
  5,417
Retained Cash Flow (-), $m
  274
  -2,555
  -56
  -64
  -72
  -80
  -88
  -96
  -103
  -111
  -120
  -128
  -137
  -145
  -155
  -164
  -174
  -184
  -195
  -206
  -217
  -229
  -242
  -255
  -268
  -283
  -297
  -313
  -329
  -347
  -365
Prev. year cash balance distribution, $m
 
  525
  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
 
  0
  1,256
  1,302
  1,351
  1,406
  1,466
  1,531
  1,602
  1,678
  1,760
  1,649
  1,744
  1,847
  1,956
  2,073
  2,199
  2,332
  2,474
  2,626
  2,787
  2,958
  3,141
  3,334
  3,539
  3,756
  3,987
  4,231
  4,489
  4,763
  5,053
Discount rate, %
 
  12.30
  12.92
  13.56
  14.24
  14.95
  15.70
  16.48
  17.31
  18.17
  19.08
  20.04
  21.04
  22.09
  23.19
  24.35
  25.57
  26.85
  28.19
  29.60
  31.08
  32.64
  34.27
  35.98
  37.78
  39.67
  41.65
  43.73
  45.92
  48.22
  50.63
PV of cash for distribution, $m
 
  0
  986
  889
  793
  701
  611
  526
  447
  373
  307
  221
  176
  138
  105
  79
  58
  41
  28
  19
  12
  8
  5
  3
  2
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Tenet Healthcare Corporation, together with its subsidiaries, operates as a diversified healthcare services company. It operates in three segments: Hospital Operations and Other, Ambulatory Care, and Conifer. The company’s general hospitals offer acute care services, operating and recovery rooms, radiology and respiratory therapy services, clinical laboratories, and pharmacies. It also provides intensive and critical care, and coronary care units; physical therapy, orthopedic, oncology, and outpatient services; tertiary care services, including open-heart surgery, neonatal intensive care, and neurosciences; quaternary care in heart, liver, kidney, and bone marrow transplants areas; tertiary and quaternary pediatric, and burn services; and limb-salvaging vascular procedures, acute level 1 trauma services, intravascular stroke care, minimally invasive cardiac valve replacement, imaging technology, and telemedicine access for various medical specialties. In addition, the company offers ambulatory surgery and urgent care centers, imaging centers, and short-stay surgical hospitals, as well as Aspen’s hospitals and clinics; healthcare business process services in the areas of hospital and physician revenue cycle management and value-based care solutions; and microhospitals, physician practices, and health plans. Further, it provides accounts receivable and health information management, and revenue integrity and patient financial services; patient communications and engagement services; and clinical integration, financial risk management, and population health management services. As of February 27, 2017, the company operated 80 general acute care hospitals, 20 short-stay surgical hospitals, and approximately 470 outpatient centers, as well as 239 ambulatory surgery, 34 urgent care, and 21 imaging centers in the United States; and 9 private hospitals and clinics in the United Kingdom. Tenet Healthcare Corporation was founded in 1967 and is headquartered in Dallas, Texas.

FINANCIAL RATIOS  of  Tenet Healthcare (THC)

Valuation Ratios
P/E Ratio -8.1
Price to Sales 0.1
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 2.8
Price to Free Cash Flow -4.9
Growth Rates
Sales Growth Rate 5.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 3.9%
Cap. Spend. - 3 Yr. Gr. Rate 4.8%
Financial Strength
Quick Ratio 4
Current Ratio 0.3
LT Debt to Equity 3612.5%
Total Debt to Equity 3658.3%
Interest Coverage 1
Management Effectiveness
Return On Assets 2%
Ret/ On Assets - 3 Yr. Avg. 2.1%
Return On Total Capital -1.2%
Ret/ On T. Cap. - 3 Yr. Avg. -0.7%
Return On Equity -34.7%
Return On Equity - 3 Yr. Avg. -17.9%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 84.1%
Gross Margin - 3 Yr. Avg. 84.1%
EBITDA Margin 10.3%
EBITDA Margin - 3 Yr. Avg. 10.1%
Operating Margin 6.2%
Oper. Margin - 3 Yr. Avg. 5.8%
Pre-Tax Margin 1.3%
Pre-Tax Margin - 3 Yr. Avg. 1%
Net Profit Margin -1%
Net Profit Margin - 3 Yr. Avg. -0.6%
Effective Tax Rate 27%
Eff/ Tax Rate - 3 Yr. Avg. 35.9%
Payout Ratio 0%

THC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the THC stock intrinsic value calculation we used $19621 million for the last fiscal year's total revenue generated by Tenet Healthcare. The default revenue input number comes from 2016 income statement of Tenet Healthcare. 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 THC 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 12.3%, whose default value for THC is calculated based on our internal credit rating of Tenet Healthcare, 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 Tenet Healthcare.
    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 THC stock the variable cost ratio is equal to 83.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2092 million in the base year in the intrinsic value calculation for THC 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 6.3% for Tenet Healthcare.

Corporate tax rate of 27% is the nominal tax rate for Tenet Healthcare. 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 THC 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 THC are equal to 50.8%.

Life of production assets of 20.2 years is the average useful life of capital assets used in Tenet Healthcare 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 THC is equal to 3.6%. 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 - $417 million for Tenet Healthcare - 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 97.685 million for Tenet Healthcare 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 Tenet Healthcare at the current share price and the inputted number of shares is $1.5 billion.


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