Intrinsic value of Take-Two Interactive Software - TTWO

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$77.47

  Intrinsic Value

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  Value-price divergence*

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$77.47

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

We calculate the intrinsic value of TTWO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 7.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  25.88
  51.70
  47.03
  42.83
  39.04
  35.64
  32.58
  29.82
  27.34
  25.10
  23.09
  21.28
  19.65
  18.19
  16.87
  15.68
  14.62
  13.65
  12.79
  12.01
  11.31
  10.68
  10.11
  9.60
  9.14
  8.73
  8.35
  8.02
  7.72
  7.44
  7.20
Revenue, $m
  1,780
  2,700
  3,970
  5,671
  7,885
  10,695
  14,178
  18,406
  23,438
  29,321
  36,092
  43,774
  52,378
  61,905
  72,349
  83,695
  95,927
  109,025
  122,967
  137,735
  153,311
  169,681
  186,835
  204,769
  223,483
  242,982
  263,278
  284,385
  306,327
  329,131
  352,827
Variable operating expenses, $m
 
  1,923
  2,810
  3,999
  5,546
  7,510
  9,944
  12,899
  16,415
  20,527
  25,258
  30,591
  36,603
  43,261
  50,559
  58,489
  67,037
  76,190
  85,933
  96,254
  107,138
  118,578
  130,566
  143,099
  156,177
  169,804
  183,987
  198,738
  214,071
  230,007
  246,566
Fixed operating expenses, $m
 
  429
  440
  451
  462
  474
  486
  498
  511
  523
  536
  550
  564
  578
  592
  607
  622
  638
  653
  670
  687
  704
  721
  739
  758
  777
  796
  816
  837
  857
  879
Total operating expenses, $m
  1,688
  2,352
  3,250
  4,450
  6,008
  7,984
  10,430
  13,397
  16,926
  21,050
  25,794
  31,141
  37,167
  43,839
  51,151
  59,096
  67,659
  76,828
  86,586
  96,924
  107,825
  119,282
  131,287
  143,838
  156,935
  170,581
  184,783
  199,554
  214,908
  230,864
  247,445
Operating income, $m
  91
  348
  720
  1,221
  1,876
  2,711
  3,748
  5,009
  6,512
  8,271
  10,298
  12,634
  15,211
  18,066
  21,197
  24,600
  28,268
  32,197
  36,380
  40,812
  45,486
  50,399
  55,548
  60,931
  66,548
  72,402
  78,495
  84,832
  91,420
  98,266
  105,381
EBITDA, $m
  351
  449
  851
  1,393
  2,101
  3,003
  4,124
  5,487
  7,111
  9,011
  11,200
  13,684
  16,468
  19,552
  22,933
  26,608
  30,571
  34,814
  39,332
  44,117
  49,165
  54,471
  60,032
  65,845
  71,912
  78,233
  84,813
  91,657
  98,772
  106,165
  113,849
Interest expense (income), $m
  8
  9
  39
  89
  155
  242
  352
  488
  653
  850
  1,080
  1,344
  1,645
  1,981
  2,353
  2,761
  3,205
  3,683
  4,195
  4,740
  5,317
  5,925
  6,565
  7,236
  7,937
  8,668
  9,430
  10,223
  11,048
  11,906
  12,797
Earnings before tax, $m
  77
  339
  680
  1,132
  1,721
  2,469
  3,397
  4,522
  5,859
  7,422
  9,218
  11,289
  13,566
  16,085
  18,844
  21,838
  25,064
  28,515
  32,186
  36,072
  40,169
  44,473
  48,982
  53,695
  58,612
  63,734
  69,065
  74,609
  80,372
  86,361
  92,585
Tax expense, $m
  10
  92
  184
  306
  465
  667
  917
  1,221
  1,582
  2,004
  2,489
  3,048
  3,663
  4,343
  5,088
  5,896
  6,767
  7,699
  8,690
  9,739
  10,846
  12,008
  13,225
  14,498
  15,825
  17,208
  18,647
  20,144
  21,700
  23,317
  24,998
Net income, $m
  67
  247
  497
  826
  1,256
  1,802
  2,479
  3,301
  4,277
  5,418
  6,729
  8,241
  9,904
  11,742
  13,756
  15,942
  18,296
  20,816
  23,496
  26,333
  29,323
  32,466
  35,757
  39,197
  42,787
  46,526
  50,417
  54,464
  58,671
  63,043
  67,587

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,392
  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
  3,149
  3,350
  4,926
  7,035
  9,782
  13,269
  17,591
  22,836
  29,079
  36,379
  44,780
  54,310
  64,985
  76,805
  89,762
  103,840
  119,017
  135,267
  152,565
  170,887
  190,212
  210,522
  231,806
  254,056
  277,274
  301,467
  326,647
  352,836
  380,059
  408,351
  437,750
Adjusted assets (=assets-cash), $m
  1,757
  3,350
  4,926
  7,035
  9,782
  13,269
  17,591
  22,836
  29,079
  36,379
  44,780
  54,310
  64,985
  76,805
  89,762
  103,840
  119,017
  135,267
  152,565
  170,887
  190,212
  210,522
  231,806
  254,056
  277,274
  301,467
  326,647
  352,836
  380,059
  408,351
  437,750
Revenue / Adjusted assets
  1.013
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
  0.806
Average production assets, $m
  428
  648
  953
  1,361
  1,892
  2,567
  3,403
  4,417
  5,625
  7,037
  8,662
  10,506
  12,571
  14,857
  17,364
  20,087
  23,023
  26,166
  29,512
  33,056
  36,795
  40,723
  44,840
  49,145
  53,636
  58,316
  63,187
  68,253
  73,519
  78,991
  84,678
Working capital, $m
  509
  -270
  -397
  -567
  -788
  -1,069
  -1,418
  -1,841
  -2,344
  -2,932
  -3,609
  -4,377
  -5,238
  -6,190
  -7,235
  -8,370
  -9,593
  -10,903
  -12,297
  -13,774
  -15,331
  -16,968
  -18,684
  -20,477
  -22,348
  -24,298
  -26,328
  -28,439
  -30,633
  -32,913
  -35,283
Total debt, $m
  252
  1,122
  2,540
  4,439
  6,911
  10,049
  13,939
  18,660
  24,278
  30,848
  38,409
  46,986
  56,593
  67,232
  78,893
  91,563
  105,222
  119,847
  135,416
  151,905
  169,298
  187,577
  206,732
  226,758
  247,654
  269,427
  292,089
  315,659
  340,160
  365,623
  392,082
Total liabilities, $m
  2,145
  3,015
  4,433
  6,332
  8,804
  11,942
  15,832
  20,553
  26,171
  32,741
  40,302
  48,879
  58,486
  69,125
  80,786
  93,456
  107,115
  121,740
  137,309
  153,798
  171,191
  189,470
  208,625
  228,651
  249,547
  271,320
  293,982
  317,552
  342,053
  367,516
  393,975
Total equity, $m
  1,004
  335
  493
  704
  978
  1,327
  1,759
  2,284
  2,908
  3,638
  4,478
  5,431
  6,498
  7,681
  8,976
  10,384
  11,902
  13,527
  15,257
  17,089
  19,021
  21,052
  23,181
  25,406
  27,727
  30,147
  32,665
  35,284
  38,006
  40,835
  43,775
Total liabilities and equity, $m
  3,149
  3,350
  4,926
  7,036
  9,782
  13,269
  17,591
  22,837
  29,079
  36,379
  44,780
  54,310
  64,984
  76,806
  89,762
  103,840
  119,017
  135,267
  152,566
  170,887
  190,212
  210,522
  231,806
  254,057
  277,274
  301,467
  326,647
  352,836
  380,059
  408,351
  437,750
Debt-to-equity ratio
  0.251
  3.350
  5.160
  6.310
  7.060
  7.570
  7.920
  8.170
  8.350
  8.480
  8.580
  8.650
  8.710
  8.750
  8.790
  8.820
  8.840
  8.860
  8.880
  8.890
  8.900
  8.910
  8.920
  8.930
  8.930
  8.940
  8.940
  8.950
  8.950
  8.950
  8.960
Adjusted equity ratio
  -0.221
  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
  67
  247
  497
  826
  1,256
  1,802
  2,479
  3,301
  4,277
  5,418
  6,729
  8,241
  9,904
  11,742
  13,756
  15,942
  18,296
  20,816
  23,496
  26,333
  29,323
  32,466
  35,757
  39,197
  42,787
  46,526
  50,417
  54,464
  58,671
  63,043
  67,587
Depreciation, amort., depletion, $m
  260
  101
  131
  172
  225
  293
  376
  478
  598
  740
  902
  1,051
  1,257
  1,486
  1,736
  2,009
  2,302
  2,617
  2,951
  3,306
  3,679
  4,072
  4,484
  4,914
  5,364
  5,832
  6,319
  6,825
  7,352
  7,899
  8,468
Funds from operations, $m
  233
  348
  628
  998
  1,481
  2,095
  2,856
  3,778
  4,876
  6,157
  7,631
  9,292
  11,161
  13,228
  15,492
  17,951
  20,599
  23,432
  26,447
  29,638
  33,003
  36,538
  40,241
  44,112
  48,150
  52,357
  56,736
  61,290
  66,023
  70,942
  76,055
Change in working capital, $m
  -98
  -92
  -127
  -170
  -221
  -281
  -348
  -423
  -503
  -588
  -677
  -768
  -860
  -953
  -1,044
  -1,135
  -1,223
  -1,310
  -1,394
  -1,477
  -1,558
  -1,637
  -1,715
  -1,793
  -1,871
  -1,950
  -2,030
  -2,111
  -2,194
  -2,280
  -2,370
Cash from operations, $m
  331
  440
  755
  1,168
  1,703
  2,376
  3,204
  4,201
  5,379
  6,746
  8,308
  10,060
  12,021
  14,181
  16,537
  19,085
  21,822
  24,742
  27,841
  31,115
  34,560
  38,175
  41,957
  45,905
  50,022
  54,307
  58,765
  63,400
  68,217
  73,223
  78,424
Maintenance CAPEX, $m
  0
  -43
  -65
  -95
  -136
  -189
  -257
  -340
  -442
  -563
  -704
  -866
  -1,051
  -1,257
  -1,486
  -1,736
  -2,009
  -2,302
  -2,617
  -2,951
  -3,306
  -3,679
  -4,072
  -4,484
  -4,914
  -5,364
  -5,832
  -6,319
  -6,825
  -7,352
  -7,899
New CAPEX, $m
  -21
  -220
  -305
  -408
  -531
  -674
  -836
  -1,015
  -1,208
  -1,412
  -1,625
  -1,844
  -2,065
  -2,287
  -2,506
  -2,723
  -2,936
  -3,143
  -3,346
  -3,544
  -3,738
  -3,929
  -4,117
  -4,304
  -4,491
  -4,680
  -4,871
  -5,066
  -5,266
  -5,473
  -5,687
Cash from investing activities, $m
  -129
  -263
  -370
  -503
  -667
  -863
  -1,093
  -1,355
  -1,650
  -1,975
  -2,329
  -2,710
  -3,116
  -3,544
  -3,992
  -4,459
  -4,945
  -5,445
  -5,963
  -6,495
  -7,044
  -7,608
  -8,189
  -8,788
  -9,405
  -10,044
  -10,703
  -11,385
  -12,091
  -12,825
  -13,586
Free cash flow, $m
  202
  177
  385
  665
  1,035
  1,512
  2,111
  2,846
  3,729
  4,771
  5,980
  7,350
  8,905
  10,637
  12,545
  14,626
  16,878
  19,296
  21,878
  24,620
  27,517
  30,567
  33,767
  37,117
  40,616
  44,264
  48,063
  52,016
  56,126
  60,398
  64,838
Issuance/(repayment) of debt, $m
  0
  870
  1,418
  1,899
  2,472
  3,138
  3,890
  4,721
  5,618
  6,570
  7,561
  8,577
  9,607
  10,638
  11,662
  12,670
  13,659
  14,625
  15,568
  16,490
  17,392
  18,279
  19,155
  20,026
  20,896
  21,773
  22,662
  23,570
  24,501
  25,463
  26,460
Issuance/(repurchase) of shares, $m
  0
  25
  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  
  -50
  895
  1,418
  1,899
  2,472
  3,138
  3,890
  4,721
  5,618
  6,570
  7,561
  8,577
  9,607
  10,638
  11,662
  12,670
  13,659
  14,625
  15,568
  16,490
  17,392
  18,279
  19,155
  20,026
  20,896
  21,773
  22,662
  23,570
  24,501
  25,463
  26,460
Total cash flow (excl. dividends), $m
  145
  1,072
  1,803
  2,563
  3,507
  4,650
  6,001
  7,567
  9,348
  11,341
  13,540
  15,928
  18,513
  21,276
  24,206
  27,296
  30,536
  33,921
  37,447
  41,110
  44,909
  48,846
  52,922
  57,143
  61,512
  66,037
  70,725
  75,585
  80,627
  85,861
  91,298
Retained Cash Flow (-), $m
  -423
  -272
  -158
  -211
  -275
  -349
  -432
  -525
  -624
  -730
  -840
  -953
  -1,067
  -1,182
  -1,296
  -1,408
  -1,518
  -1,625
  -1,730
  -1,832
  -1,932
  -2,031
  -2,128
  -2,225
  -2,322
  -2,419
  -2,518
  -2,619
  -2,722
  -2,829
  -2,940
Prev. year cash balance distribution, $m
 
  941
  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
 
  1,741
  1,646
  2,353
  3,233
  4,301
  5,569
  7,042
  8,724
  10,611
  12,700
  14,975
  17,445
  20,094
  22,911
  25,888
  29,019
  32,296
  35,717
  39,277
  42,976
  46,815
  50,794
  54,918
  59,190
  63,618
  68,207
  72,967
  77,905
  83,032
  88,358
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
 
  1,669
  1,507
  2,047
  2,662
  3,334
  4,042
  4,758
  5,452
  6,095
  6,658
  7,111
  7,444
  7,640
  7,691
  7,600
  7,374
  7,027
  6,578
  6,048
  5,461
  4,842
  4,215
  3,599
  3,015
  2,475
  1,990
  1,566
  1,205
  906
  665
Current shareholders' claim on cash, %
  100
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2

Take-Two Interactive Software, Inc. develops, publishes, and markets interactive entertainment solutions for consumers worldwide. The company offers its products under the Rockstar Games and 2K labels. It develops and publishes action/adventure products under the Grand Theft Auto, Max Payne, Midnight Club, and Red Dead names through developing sequels; offering downloadable episodes, and content and virtual currency; and releasing titles for smartphones and tablets. The company also develops brands in other genres, including the L.A. Noire, Bully, and Manhunt franchises. In addition, it publishes various entertainment properties across platforms and a range of genres, including action, adventure, family/casual, racing, role-playing, shooter, sports, and strategy; various unit selling franchises, including BioShock, Borderlands, Carnival Games, Evolve, Mafia, NBA 2K, Sid Meier's Civilization, Spec Ops, WWE 2K, and XCOM; and various sports simulation titles, including its flagship NBA 2K series, a basketball video game and the WWE 2K professional wrestling series. Further, the company offers free-to-play mobile games, such as Dragon City and Monster Legends on iOS and Android platforms. Its products are designed for console gaming systems, such as Sony's PlayStation 3 and PlayStation 4, and Microsoft's Xbox 360 and Xbox One; and personal computers comprising smartphones and tablets. The company delivers its products through physical retail, digital download, online platforms, and cloud streaming services. Take-Two Interactive Software, Inc. was founded in 1993 and is headquartered in New York, New York.

FINANCIAL RATIOS  of  Take-Two Interactive Software (TTWO)

Valuation Ratios
P/E Ratio 118.7
Price to Sales 4.5
Price to Book 7.9
Price to Tangible Book
Price to Cash Flow 24
Price to Free Cash Flow 25.6
Growth Rates
Sales Growth Rate 25.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -43.2%
Cap. Spend. - 3 Yr. Gr. Rate -6.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.3
LT Debt to Equity 25.1%
Total Debt to Equity 25.1%
Interest Coverage 11
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. -3.7%
Return On Total Capital 5.7%
Ret/ On T. Cap. - 3 Yr. Avg. -6.5%
Return On Equity 8.5%
Return On Equity - 3 Yr. Avg. -11.3%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 42.5%
Gross Margin - 3 Yr. Avg. 37.2%
EBITDA Margin 19.4%
EBITDA Margin - 3 Yr. Avg. 6.2%
Operating Margin 5.2%
Oper. Margin - 3 Yr. Avg. -6.5%
Pre-Tax Margin 4.3%
Pre-Tax Margin - 3 Yr. Avg. -7.9%
Net Profit Margin 3.8%
Net Profit Margin - 3 Yr. Avg. -7.5%
Effective Tax Rate 13%
Eff/ Tax Rate - 3 Yr. Avg. 29.9%
Payout Ratio 0%

TTWO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TTWO stock intrinsic value calculation we used $1780 million for the last fiscal year's total revenue generated by Take-Two Interactive Software. The default revenue input number comes from 2017 income statement of Take-Two Interactive Software. 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 TTWO stock valuation model: a) initial revenue growth rate of 51.7% 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 TTWO is calculated based on our internal credit rating of Take-Two Interactive Software, 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 Take-Two Interactive Software.
    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 TTWO stock the variable cost ratio is equal to 71.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $419 million in the base year in the intrinsic value calculation for TTWO 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 Take-Two Interactive Software.

Corporate tax rate of 27% is the nominal tax rate for Take-Two Interactive Software. 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 TTWO 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 TTWO are equal to 24%.

Life of production assets of 10 years is the average useful life of capital assets used in Take-Two Interactive Software 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 TTWO is equal to -10%. 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 - $1004 million for Take-Two Interactive Software - 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 100.51 million for Take-Two Interactive Software 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 Take-Two Interactive Software at the current share price and the inputted number of shares is $7.8 billion.


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COMPANY NEWS

▶ Updating Our Thoughts on Take-Two Interactive   [Jul-13-17 08:42AM  TheStreet.com]
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▶ Take Profits in Take-Two Interactive   [09:56AM  TheStreet.com]
▶ Cramer: Investors Keep Getting It Wrong   [07:01PM  TheStreet.com]
▶ [$$] Take-Two Needs 'Grand Theft Auto' to Keep on Rolling   [02:28PM  The Wall Street Journal]
▶ Trader's Daily Notebook: The Grind Goes On   [07:00AM  TheStreet.com]
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▶ Cramer's charts take on video game companies   [May-23-17 06:42PM  CNBC Videos]
▶ Take-Two Could Struggle to Rally Higher   [04:59PM  Investopedia]
▶ Take-Two delays "Red Dead"   [03:14PM  Reuters Videos]
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Stock chart of TTWO Financial statements of TTWO Annual reports of TTWO
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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