Intrinsic value of Travelers Cos. - TRV

Previous Close

$129.47

  Intrinsic Value

$295.13

stock screener

  Rating & Target

str. buy

+128%

  Value-price divergence*

+42%

Previous close

$129.47

 
Intrinsic value

$295.13

 
Up/down potential

+128%

 
Rating

str. buy

 
Value-price divergence*

+42%

Our model is not good at valuating stocks of financial companies, such as TRV.

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

We calculate the intrinsic value of TRV 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 36.3

 

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, %
  2.93
  3.60
  3.74
  3.87
  3.98
  4.08
  4.17
  4.26
  4.33
  4.40
  4.46
  4.51
  4.56
  4.60
  4.64
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
Revenue, $m
  0
  28,650
  29,721
  30,870
  32,098
  33,409
  34,803
  36,284
  37,855
  39,520
  41,282
  43,144
  45,112
  47,189
  49,380
  51,691
  54,127
  56,693
  59,395
  62,240
  65,234
  68,385
  71,700
  75,186
  78,852
  82,706
  86,758
  91,018
  95,495
  100,199
  105,143
Variable operating expenses, $m
 
  23,193
  24,047
  24,963
  25,942
  26,986
  28,098
  29,278
  30,531
  31,858
  33,262
  34,388
  35,957
  37,612
  39,359
  41,201
  43,142
  45,187
  47,341
  49,609
  51,995
  54,507
  57,148
  59,927
  62,849
  65,921
  69,151
  72,546
  76,114
  79,864
  83,805
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
  23,238
  23,193
  24,047
  24,963
  25,942
  26,986
  28,098
  29,278
  30,531
  31,858
  33,262
  34,388
  35,957
  37,612
  39,359
  41,201
  43,142
  45,187
  47,341
  49,609
  51,995
  54,507
  57,148
  59,927
  62,849
  65,921
  69,151
  72,546
  76,114
  79,864
  83,805
Operating income, $m
  4,416
  5,456
  5,674
  5,907
  6,156
  6,422
  6,705
  7,006
  7,325
  7,662
  8,020
  8,756
  9,155
  9,577
  10,022
  10,491
  10,985
  11,506
  12,054
  12,631
  13,239
  13,878
  14,551
  15,259
  16,003
  16,785
  17,607
  18,472
  19,380
  20,335
  21,338
EBITDA, $m
  9,227
  5,843
  6,061
  6,296
  6,546
  6,814
  7,098
  7,400
  7,720
  8,060
  8,419
  8,799
  9,200
  9,624
  10,071
  10,542
  11,039
  11,562
  12,113
  12,694
  13,304
  13,947
  14,623
  15,334
  16,081
  16,868
  17,694
  18,563
  19,476
  20,435
  21,444
Interest expense (income), $m
  358
  360
  511
  678
  857
  1,049
  1,253
  1,470
  1,701
  1,946
  2,205
  2,480
  2,770
  3,077
  3,400
  3,742
  4,102
  4,482
  4,881
  5,302
  5,746
  6,212
  6,703
  7,220
  7,763
  8,334
  8,935
  9,566
  10,230
  10,928
  11,661
Earnings before tax, $m
  4,053
  5,096
  5,162
  5,229
  5,299
  5,373
  5,452
  5,535
  5,623
  5,716
  5,815
  6,276
  6,385
  6,500
  6,621
  6,749
  6,883
  7,024
  7,173
  7,329
  7,493
  7,666
  7,848
  8,039
  8,240
  8,451
  8,672
  8,905
  9,150
  9,407
  9,678
Tax expense, $m
  1,039
  1,376
  1,394
  1,412
  1,431
  1,451
  1,472
  1,495
  1,518
  1,543
  1,570
  1,695
  1,724
  1,755
  1,788
  1,822
  1,858
  1,896
  1,937
  1,979
  2,023
  2,070
  2,119
  2,170
  2,225
  2,282
  2,342
  2,404
  2,471
  2,540
  2,613
Net income, $m
  3,014
  3,720
  3,768
  3,817
  3,868
  3,922
  3,980
  4,041
  4,105
  4,173
  4,245
  4,582
  4,661
  4,745
  4,833
  4,927
  5,024
  5,128
  5,236
  5,350
  5,470
  5,596
  5,729
  5,868
  6,015
  6,169
  6,331
  6,501
  6,680
  6,867
  7,065

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  100,245
  103,803
  107,685
  111,848
  116,299
  121,046
  126,097
  131,464
  137,157
  143,188
  149,571
  156,319
  163,448
  170,975
  178,915
  187,288
  196,112
  205,409
  215,200
  225,508
  236,356
  247,772
  259,781
  272,412
  285,695
  299,660
  314,342
  329,775
  345,995
  363,041
  380,954
Adjusted assets (=assets-cash), $m
  100,245
  103,803
  107,685
  111,848
  116,299
  121,046
  126,097
  131,464
  137,157
  143,188
  149,571
  156,319
  163,448
  170,975
  178,915
  187,288
  196,112
  205,409
  215,200
  225,508
  236,356
  247,772
  259,781
  272,412
  285,695
  299,660
  314,342
  329,775
  345,995
  363,041
  380,954
Revenue / Adjusted assets
  0.000
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
Average production assets, $m
  274
  286
  297
  309
  321
  334
  348
  363
  379
  395
  413
  431
  451
  472
  494
  517
  541
  567
  594
  622
  652
  684
  717
  752
  789
  827
  868
  910
  955
  1,002
  1,051
Working capital, $m
  0
  573
  594
  617
  642
  668
  696
  726
  757
  790
  826
  863
  902
  944
  988
  1,034
  1,083
  1,134
  1,188
  1,245
  1,305
  1,368
  1,434
  1,504
  1,577
  1,654
  1,735
  1,820
  1,910
  2,004
  2,103
Total debt, $m
  6,437
  9,133
  12,115
  15,312
  18,731
  22,376
  26,256
  30,377
  34,749
  39,381
  44,283
  49,466
  54,941
  60,721
  66,820
  73,250
  80,027
  87,167
  94,686
  102,603
  110,935
  119,702
  128,925
  138,625
  148,826
  159,552
  170,828
  182,680
  195,137
  208,229
  221,986
Total liabilities, $m
  77,024
  79,720
  82,702
  85,899
  89,318
  92,963
  96,843
  100,964
  105,336
  109,968
  114,870
  120,053
  125,528
  131,308
  137,407
  143,837
  150,614
  157,754
  165,273
  173,190
  181,522
  190,289
  199,512
  209,212
  219,413
  230,139
  241,415
  253,267
  265,724
  278,816
  292,573
Total equity, $m
  23,221
  24,082
  24,983
  25,949
  26,981
  28,083
  29,255
  30,500
  31,820
  33,220
  34,700
  36,266
  37,920
  39,666
  41,508
  43,451
  45,498
  47,655
  49,926
  52,318
  54,835
  57,483
  60,269
  63,200
  66,281
  69,521
  72,927
  76,508
  80,271
  84,226
  88,381
Total liabilities and equity, $m
  100,245
  103,802
  107,685
  111,848
  116,299
  121,046
  126,098
  131,464
  137,156
  143,188
  149,570
  156,319
  163,448
  170,974
  178,915
  187,288
  196,112
  205,409
  215,199
  225,508
  236,357
  247,772
  259,781
  272,412
  285,694
  299,660
  314,342
  329,775
  345,995
  363,042
  380,954
Debt-to-equity ratio
  0.277
  0.380
  0.480
  0.590
  0.690
  0.800
  0.900
  1.000
  1.090
  1.190
  1.280
  1.360
  1.450
  1.530
  1.610
  1.690
  1.760
  1.830
  1.900
  1.960
  2.020
  2.080
  2.140
  2.190
  2.250
  2.300
  2.340
  2.390
  2.430
  2.470
  2.510
Adjusted equity ratio
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,014
  3,720
  3,768
  3,817
  3,868
  3,922
  3,980
  4,041
  4,105
  4,173
  4,245
  4,582
  4,661
  4,745
  4,833
  4,927
  5,024
  5,128
  5,236
  5,350
  5,470
  5,596
  5,729
  5,868
  6,015
  6,169
  6,331
  6,501
  6,680
  6,867
  7,065
Depreciation, amort., depletion, $m
  4,811
  387
  388
  389
  390
  391
  393
  394
  396
  398
  399
  43
  45
  47
  49
  52
  54
  57
  59
  62
  65
  68
  72
  75
  79
  83
  87
  91
  95
  100
  105
Funds from operations, $m
  701
  4,107
  4,156
  4,206
  4,258
  4,314
  4,373
  4,435
  4,501
  4,571
  4,644
  4,625
  4,706
  4,792
  4,883
  4,978
  5,079
  5,184
  5,295
  5,412
  5,535
  5,665
  5,801
  5,944
  6,094
  6,252
  6,418
  6,592
  6,775
  6,968
  7,170
Change in working capital, $m
  -3,501
  20
  21
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  42
  44
  46
  49
  51
  54
  57
  60
  63
  66
  70
  73
  77
  81
  85
  90
  94
  99
Cash from operations, $m
  4,202
  4,087
  4,135
  4,183
  4,234
  4,288
  4,345
  4,405
  4,470
  4,537
  4,609
  4,587
  4,667
  4,751
  4,839
  4,932
  5,030
  5,133
  5,241
  5,355
  5,475
  5,602
  5,734
  5,874
  6,020
  6,175
  6,337
  6,507
  6,686
  6,873
  7,071
Maintenance CAPEX, $m
  0
  -27
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -91
  -95
  -100
New CAPEX, $m
  0
  -13
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
Cash from investing activities, $m
  -1,460
  -40
  -40
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -76
  -80
  -84
  -87
  -92
  -97
  -101
  -107
  -112
  -118
  -124
  -130
  -136
  -142
  -149
Free cash flow, $m
  2,742
  4,046
  4,095
  4,141
  4,190
  4,242
  4,298
  4,356
  4,418
  4,483
  4,552
  4,527
  4,604
  4,685
  4,770
  4,859
  4,954
  5,053
  5,158
  5,268
  5,383
  5,505
  5,633
  5,767
  5,909
  6,057
  6,213
  6,377
  6,550
  6,731
  6,921
Issuance/(repayment) of debt, $m
  91
  2,696
  2,982
  3,197
  3,418
  3,645
  3,880
  4,122
  4,372
  4,632
  4,902
  5,183
  5,475
  5,780
  6,098
  6,430
  6,777
  7,140
  7,519
  7,916
  8,332
  8,767
  9,223
  9,701
  10,201
  10,726
  11,276
  11,852
  12,457
  13,092
  13,757
Issuance/(repurchase) of shares, $m
  -2,140
  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  
  -2,049
  2,696
  2,982
  3,197
  3,418
  3,645
  3,880
  4,122
  4,372
  4,632
  4,902
  5,183
  5,475
  5,780
  6,098
  6,430
  6,777
  7,140
  7,519
  7,916
  8,332
  8,767
  9,223
  9,701
  10,201
  10,726
  11,276
  11,852
  12,457
  13,092
  13,757
Total cash flow (excl. dividends), $m
  684
  6,743
  7,077
  7,339
  7,609
  7,888
  8,177
  8,477
  8,790
  9,115
  9,453
  9,710
  10,079
  10,465
  10,868
  11,290
  11,731
  12,193
  12,677
  13,184
  13,715
  14,272
  14,856
  15,468
  16,110
  16,783
  17,489
  18,230
  19,007
  19,822
  20,678
Retained Cash Flow (-), $m
  377
  -861
  -901
  -966
  -1,033
  -1,101
  -1,172
  -1,245
  -1,321
  -1,399
  -1,481
  -1,566
  -1,654
  -1,746
  -1,842
  -1,942
  -2,047
  -2,157
  -2,271
  -2,391
  -2,517
  -2,648
  -2,786
  -2,930
  -3,082
  -3,240
  -3,406
  -3,580
  -3,763
  -3,955
  -4,156
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
 
  5,882
  6,176
  6,373
  6,576
  6,787
  7,005
  7,232
  7,469
  7,715
  7,973
  8,145
  8,425
  8,719
  9,026
  9,347
  9,684
  10,036
  10,406
  10,793
  11,198
  11,624
  12,070
  12,537
  13,028
  13,543
  14,083
  14,649
  15,244
  15,868
  16,522
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  5,639
  5,654
  5,546
  5,415
  5,261
  5,084
  4,886
  4,668
  4,432
  4,180
  3,868
  3,595
  3,315
  3,030
  2,744
  2,461
  2,184
  1,916
  1,662
  1,423
  1,202
  1,001
  822
  664
  527
  411
  314
  236
  173
  124
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

The Travelers Companies, Inc., through its subsidiaries, provides a range of commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals in the United states and internationally. The company operates through three segments: Business and International Insurance, Bond & Specialty Insurance, and Personal Insurance. The Business and International Insurance segment offers property and casualty products, including commercial multi-peril, commercial property, general liability, commercial automobile, and workers' compensation; and personal property, employers' liability, public and product liability, professional indemnity, commercial property, surety, marine, aviation, personal accident, and kidnap and ransom insurance. This segment operates through select accounts, which serve small businesses; commercial accounts that serve mid-sized businesses; national accounts, which serve large companies; first party that provides traditional and customized property insurance programs to large and mid-sized customers; and specialized distribution, which markets and underwrites its products through brokers, wholesale agents, program managers, and specialized retail agents. The Bond & Specialty Insurance segment provides fidelity and surety and general liability products, as well as others, such as property, workers' compensation, commercial automobile, and commercial multi-peril insurance products. The Personal Insurance segment offers property and casualty insurance covering personal risks, primarily automobile and homeowners insurance to individuals. The company distributes its products primarily through independent agencies and brokers. The Travelers Companies, Inc. was founded in 1853 and is based in New York, New York.

FINANCIAL RATIOS  of  Travelers Cos. (TRV)

Valuation Ratios
P/E Ratio 12
Price to Sales 1.3
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 8.6
Price to Free Cash Flow 8.6
Growth Rates
Sales Growth Rate 2.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 25.4%
Total Debt to Equity 27.7%
Interest Coverage 12
Management Effectiveness
Return On Assets 3.3%
Ret/ On Assets - 3 Yr. Avg. 3.6%
Return On Total Capital 10.1%
Ret/ On T. Cap. - 3 Yr. Avg. 11.1%
Return On Equity 12.9%
Return On Equity - 3 Yr. Avg. 14%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 33.3%
EBITDA Margin - 3 Yr. Avg. 35.8%
Operating Margin 16%
Oper. Margin - 3 Yr. Avg. 18.4%
Pre-Tax Margin 14.7%
Pre-Tax Margin - 3 Yr. Avg. 17%
Net Profit Margin 10.9%
Net Profit Margin - 3 Yr. Avg. 12.4%
Effective Tax Rate 25.6%
Eff/ Tax Rate - 3 Yr. Avg. 26.8%
Payout Ratio 25.1%

TRV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TRV stock intrinsic value calculation we used $27654 million for the last fiscal year's total revenue generated by Travelers Cos.. The default revenue input number comes from 2016 income statement of Travelers Cos.. 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 TRV stock valuation model: a) initial revenue growth rate of 3.6% 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 4.3%, whose default value for TRV is calculated based on our internal credit rating of Travelers Cos., 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 Travelers Cos..
    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 TRV stock the variable cost ratio is equal to 81%.

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 TRV 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 5.6% for Travelers Cos..

Corporate tax rate of 27% is the nominal tax rate for Travelers Cos.. 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 TRV 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 TRV are equal to 1%.

Life of production assets of 10 years is the average useful life of capital assets used in Travelers Cos. 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 TRV is equal to 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 - $23221 million for Travelers Cos. - 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 280.182 million for Travelers Cos. 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 Travelers Cos. at the current share price and the inputted number of shares is $36.3 billion.

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▶ Travelers Is Tracking Toward a Breakout   [May-22-17 01:37PM  TheStreet.com]
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Stock chart of TRV Financial statements of TRV
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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