Intrinsic value of United Parcel Service Cl B - UPS

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$110.27

  Intrinsic Value

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  Value-price divergence*

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$110.27

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

We calculate the intrinsic value of UPS 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 95.1

 

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, %
  4.36
  5.50
  5.45
  5.40
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
  5.16
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
Revenue, $m
  60,906
  64,256
  67,758
  71,420
  75,251
  79,261
  83,458
  87,853
  92,455
  97,277
  102,329
  107,624
  113,174
  118,993
  125,094
  131,491
  138,201
  145,240
  152,623
  160,368
  168,495
  177,022
  185,970
  195,360
  205,215
  215,557
  226,413
  237,806
  249,766
  262,319
  275,497
Variable operating expenses, $m
 
  55,818
  58,839
  61,999
  65,305
  68,764
  72,386
  76,178
  80,149
  84,309
  88,669
  92,862
  97,650
  102,671
  107,935
  113,455
  119,245
  125,317
  131,688
  138,371
  145,383
  152,740
  160,461
  168,563
  177,066
  185,990
  195,356
  205,187
  215,506
  226,338
  237,708
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
  55,439
  55,818
  58,839
  61,999
  65,305
  68,764
  72,386
  76,178
  80,149
  84,309
  88,669
  92,862
  97,650
  102,671
  107,935
  113,455
  119,245
  125,317
  131,688
  138,371
  145,383
  152,740
  160,461
  168,563
  177,066
  185,990
  195,356
  205,187
  215,506
  226,338
  237,708
Operating income, $m
  5,467
  8,438
  8,919
  9,421
  9,946
  10,496
  11,072
  11,675
  12,306
  12,968
  13,661
  14,763
  15,524
  16,322
  17,159
  18,036
  18,957
  19,922
  20,935
  21,997
  23,112
  24,282
  25,509
  26,797
  28,149
  29,568
  31,057
  32,620
  34,260
  35,982
  37,790
EBITDA, $m
  7,691
  10,808
  11,397
  12,013
  12,657
  13,331
  14,037
  14,776
  15,551
  16,362
  17,211
  18,102
  19,036
  20,014
  21,040
  22,116
  23,245
  24,429
  25,671
  26,973
  28,340
  29,775
  31,280
  32,859
  34,516
  36,256
  38,082
  39,998
  42,010
  44,121
  46,338
Interest expense (income), $m
  373
  434
  354
  418
  486
  557
  631
  709
  791
  876
  965
  1,059
  1,157
  1,259
  1,367
  1,480
  1,599
  1,723
  1,853
  1,990
  2,133
  2,284
  2,442
  2,607
  2,781
  2,964
  3,155
  3,356
  3,567
  3,789
  4,021
Earnings before tax, $m
  5,136
  8,004
  8,565
  9,003
  9,460
  9,939
  10,441
  10,966
  11,516
  12,092
  12,696
  13,704
  14,367
  15,063
  15,792
  16,556
  17,358
  18,199
  19,082
  20,008
  20,979
  21,998
  23,067
  24,190
  25,368
  26,604
  27,901
  29,263
  30,693
  32,193
  33,768
Tax expense, $m
  1,705
  2,161
  2,313
  2,431
  2,554
  2,684
  2,819
  2,961
  3,109
  3,265
  3,428
  3,700
  3,879
  4,067
  4,264
  4,470
  4,687
  4,914
  5,152
  5,402
  5,664
  5,939
  6,228
  6,531
  6,849
  7,183
  7,533
  7,901
  8,287
  8,692
  9,117
Net income, $m
  3,431
  5,843
  6,252
  6,572
  6,906
  7,256
  7,622
  8,005
  8,406
  8,827
  9,268
  10,004
  10,488
  10,996
  11,528
  12,086
  12,672
  13,286
  13,930
  14,605
  15,315
  16,059
  16,839
  17,659
  18,518
  19,421
  20,368
  21,362
  22,406
  23,501
  24,651

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,567
  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
  40,377
  37,775
  39,834
  41,987
  44,240
  46,597
  49,064
  51,648
  54,353
  57,188
  60,158
  63,271
  66,534
  69,955
  73,541
  77,302
  81,247
  85,385
  89,725
  94,279
  99,056
  104,069
  109,330
  114,850
  120,644
  126,724
  133,106
  139,804
  146,835
  154,215
  161,962
Adjusted assets (=assets-cash), $m
  35,810
  37,775
  39,834
  41,987
  44,240
  46,597
  49,064
  51,648
  54,353
  57,188
  60,158
  63,271
  66,534
  69,955
  73,541
  77,302
  81,247
  85,385
  89,725
  94,279
  99,056
  104,069
  109,330
  114,850
  120,644
  126,724
  133,106
  139,804
  146,835
  154,215
  161,962
Revenue / Adjusted assets
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
  1.701
Average production assets, $m
  20,230
  21,333
  22,496
  23,711
  24,983
  26,315
  27,708
  29,167
  30,695
  32,296
  33,973
  35,731
  37,574
  39,506
  41,531
  43,655
  45,883
  48,220
  50,671
  53,242
  55,940
  58,771
  61,742
  64,860
  68,131
  71,565
  75,169
  78,952
  82,922
  87,090
  91,465
Working capital, $m
  2,119
  1,285
  1,355
  1,428
  1,505
  1,585
  1,669
  1,757
  1,849
  1,946
  2,047
  2,152
  2,263
  2,380
  2,502
  2,630
  2,764
  2,905
  3,052
  3,207
  3,370
  3,540
  3,719
  3,907
  4,104
  4,311
  4,528
  4,756
  4,995
  5,246
  5,510
Total debt, $m
  16,075
  10,101
  11,954
  13,891
  15,919
  18,040
  20,261
  22,586
  25,021
  27,572
  30,246
  33,047
  35,984
  39,062
  42,290
  45,675
  49,225
  52,949
  56,856
  60,954
  65,254
  69,766
  74,500
  79,468
  84,682
  90,155
  95,898
  101,926
  108,254
  114,896
  121,869
Total liabilities, $m
  39,972
  33,998
  35,851
  37,788
  39,816
  41,937
  44,158
  46,483
  48,918
  51,469
  54,143
  56,944
  59,881
  62,959
  66,187
  69,572
  73,122
  76,846
  80,753
  84,851
  89,151
  93,663
  98,397
  103,365
  108,579
  114,052
  119,795
  125,823
  132,151
  138,793
  145,766
Total equity, $m
  405
  3,778
  3,983
  4,199
  4,424
  4,660
  4,906
  5,165
  5,435
  5,719
  6,016
  6,327
  6,653
  6,995
  7,354
  7,730
  8,125
  8,538
  8,973
  9,428
  9,906
  10,407
  10,933
  11,485
  12,064
  12,672
  13,311
  13,980
  14,683
  15,421
  16,196
Total liabilities and equity, $m
  40,377
  37,776
  39,834
  41,987
  44,240
  46,597
  49,064
  51,648
  54,353
  57,188
  60,159
  63,271
  66,534
  69,954
  73,541
  77,302
  81,247
  85,384
  89,726
  94,279
  99,057
  104,070
  109,330
  114,850
  120,643
  126,724
  133,106
  139,803
  146,834
  154,214
  161,962
Debt-to-equity ratio
  39.691
  2.670
  3.000
  3.310
  3.600
  3.870
  4.130
  4.370
  4.600
  4.820
  5.030
  5.220
  5.410
  5.580
  5.750
  5.910
  6.060
  6.200
  6.340
  6.470
  6.590
  6.700
  6.810
  6.920
  7.020
  7.110
  7.200
  7.290
  7.370
  7.450
  7.520
Adjusted equity ratio
  -0.116
  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
  3,431
  5,843
  6,252
  6,572
  6,906
  7,256
  7,622
  8,005
  8,406
  8,827
  9,268
  10,004
  10,488
  10,996
  11,528
  12,086
  12,672
  13,286
  13,930
  14,605
  15,315
  16,059
  16,839
  17,659
  18,518
  19,421
  20,368
  21,362
  22,406
  23,501
  24,651
Depreciation, amort., depletion, $m
  2,224
  2,369
  2,478
  2,592
  2,711
  2,835
  2,965
  3,102
  3,244
  3,394
  3,551
  3,339
  3,512
  3,692
  3,881
  4,080
  4,288
  4,506
  4,736
  4,976
  5,228
  5,493
  5,770
  6,062
  6,367
  6,688
  7,025
  7,379
  7,750
  8,139
  8,548
Funds from operations, $m
  5,739
  8,213
  8,731
  9,164
  9,617
  10,091
  10,587
  11,107
  11,651
  12,221
  12,819
  13,343
  14,000
  14,688
  15,409
  16,166
  16,960
  17,792
  18,665
  19,581
  20,543
  21,551
  22,610
  23,720
  24,886
  26,109
  27,393
  28,741
  30,155
  31,640
  33,199
Change in working capital, $m
  -734
  67
  70
  73
  77
  80
  84
  88
  92
  96
  101
  106
  111
  116
  122
  128
  134
  141
  148
  155
  163
  171
  179
  188
  197
  207
  217
  228
  239
  251
  264
Cash from operations, $m
  6,473
  8,474
  8,661
  9,090
  9,540
  10,010
  10,503
  11,019
  11,559
  12,125
  12,718
  13,237
  13,889
  14,571
  15,287
  16,038
  16,825
  17,651
  18,518
  19,426
  20,380
  21,381
  22,431
  23,532
  24,689
  25,902
  27,176
  28,513
  29,916
  31,389
  32,935
Maintenance CAPEX, $m
  0
  -1,891
  -1,994
  -2,102
  -2,216
  -2,335
  -2,459
  -2,590
  -2,726
  -2,869
  -3,018
  -3,175
  -3,339
  -3,512
  -3,692
  -3,881
  -4,080
  -4,288
  -4,506
  -4,736
  -4,976
  -5,228
  -5,493
  -5,770
  -6,062
  -6,367
  -6,688
  -7,025
  -7,379
  -7,750
  -8,139
New CAPEX, $m
  -2,965
  -1,103
  -1,163
  -1,216
  -1,272
  -1,331
  -1,393
  -1,459
  -1,528
  -1,601
  -1,677
  -1,758
  -1,843
  -1,932
  -2,025
  -2,124
  -2,228
  -2,337
  -2,451
  -2,572
  -2,698
  -2,831
  -2,971
  -3,118
  -3,272
  -3,434
  -3,604
  -3,783
  -3,971
  -4,168
  -4,375
Cash from investing activities, $m
  -2,566
  -2,994
  -3,157
  -3,318
  -3,488
  -3,666
  -3,852
  -4,049
  -4,254
  -4,470
  -4,695
  -4,933
  -5,182
  -5,444
  -5,717
  -6,005
  -6,308
  -6,625
  -6,957
  -7,308
  -7,674
  -8,059
  -8,464
  -8,888
  -9,334
  -9,801
  -10,292
  -10,808
  -11,350
  -11,918
  -12,514
Free cash flow, $m
  3,907
  5,480
  5,504
  5,772
  6,052
  6,344
  6,650
  6,970
  7,305
  7,655
  8,022
  8,304
  8,707
  9,128
  9,570
  10,033
  10,518
  11,027
  11,560
  12,119
  12,706
  13,322
  13,967
  14,645
  15,355
  16,101
  16,884
  17,705
  18,567
  19,472
  20,421
Issuance/(repayment) of debt, $m
  2,034
  -2,293
  1,853
  1,938
  2,027
  2,121
  2,221
  2,325
  2,435
  2,551
  2,673
  2,802
  2,937
  3,079
  3,228
  3,385
  3,550
  3,724
  3,906
  4,098
  4,300
  4,512
  4,734
  4,968
  5,214
  5,472
  5,744
  6,028
  6,328
  6,642
  6,972
Issuance/(repurchase) of shares, $m
  -2,433
  186
  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  
  -497
  -2,107
  1,853
  1,938
  2,027
  2,121
  2,221
  2,325
  2,435
  2,551
  2,673
  2,802
  2,937
  3,079
  3,228
  3,385
  3,550
  3,724
  3,906
  4,098
  4,300
  4,512
  4,734
  4,968
  5,214
  5,472
  5,744
  6,028
  6,328
  6,642
  6,972
Total cash flow (excl. dividends), $m
  3,389
  3,187
  7,357
  7,710
  8,079
  8,466
  8,871
  9,295
  9,740
  10,206
  10,695
  11,106
  11,643
  12,207
  12,798
  13,418
  14,068
  14,750
  15,466
  16,218
  17,006
  17,833
  18,702
  19,613
  20,569
  21,573
  22,627
  23,733
  24,895
  26,114
  27,393
Retained Cash Flow (-), $m
  2,065
  -4,259
  -206
  -215
  -225
  -236
  -247
  -258
  -271
  -283
  -297
  -311
  -326
  -342
  -359
  -376
  -394
  -414
  -434
  -455
  -478
  -501
  -526
  -552
  -579
  -608
  -638
  -670
  -703
  -738
  -775
Prev. year cash balance distribution, $m
 
  886
  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
  7,151
  7,494
  7,854
  8,230
  8,624
  9,037
  9,470
  9,923
  10,398
  10,795
  11,317
  11,865
  12,439
  13,042
  13,674
  14,337
  15,032
  15,762
  16,528
  17,332
  18,176
  19,061
  19,990
  20,965
  21,989
  23,064
  24,192
  25,376
  26,619
Discount rate, %
 
  6.30
  6.62
  6.95
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.78
  11.31
  11.88
  12.47
  13.10
  13.75
  14.44
  15.16
  15.92
  16.72
  17.55
  18.43
  19.35
  20.32
  21.33
  22.40
  23.52
  24.70
  25.93
PV of cash for distribution, $m
 
  0
  6,291
  6,127
  5,926
  5,691
  5,422
  5,124
  4,800
  4,454
  4,092
  3,686
  3,315
  2,945
  2,584
  2,237
  1,908
  1,604
  1,326
  1,078
  861
  675
  518
  390
  286
  206
  144
  98
  65
  42
  26
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

United Parcel Service, Inc., a package delivery company, provides transportation, logistics, and financial services in the United States and internationally. It operates in three segments: U.S. Domestic Package, International Package, and Supply Chain & Freight. The U.S. Domestic Package segment offers time-definite delivery of letters, documents, small packages, and palletized freight through air and ground services in the United States. The International Package segment provides guaranteed day and time-definite international shipping services in Europe, the Asia Pacific, Canada and Latin America, the Indian sub-continent, the Middle East, and Africa. It offers guaranteed time-definite express options, including Express Plus, Express, and Express Saver. The Supply Chain & Freight segment offers international air and ocean freight forwarding, customs brokerage, truckload freight brokerage, distribution and post-sales services, and mail and consulting services in approximately 220 countries and territories; and less-than-truckload and truckload services to customers in North America. The company also offers shipping, visibility, and billing technologies; and insurance, financing, and payment services. It operates a fleet of approximately 114,000 package cars, vans, tractors, and motorcycles; and owns 40,000 containers used to transport cargo in its aircraft. United Parcel Service, Inc. was founded in 1907 and is headquartered in Atlanta, Georgia.

FINANCIAL RATIOS  of  United Parcel Service Cl B (UPS)

Valuation Ratios
P/E Ratio 27.9
Price to Sales 1.6
Price to Book 236.3
Price to Tangible Book
Price to Cash Flow 14.8
Price to Free Cash Flow 27.3
Growth Rates
Sales Growth Rate 4.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 24.6%
Cap. Spend. - 3 Yr. Gr. Rate 7.5%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 3060.2%
Total Debt to Equity 3969.1%
Interest Coverage 15
Management Effectiveness
Return On Assets 9.4%
Ret/ On Assets - 3 Yr. Avg. 13.9%
Return On Total Capital 20.6%
Ret/ On T. Cap. - 3 Yr. Avg. 33.4%
Return On Equity 238.7%
Return On Equity - 3 Yr. Avg. 244%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 81.5%
Gross Margin - 3 Yr. Avg. 80.8%
EBITDA Margin 12.7%
EBITDA Margin - 3 Yr. Avg. 13.8%
Operating Margin 9%
Oper. Margin - 3 Yr. Avg. 10.2%
Pre-Tax Margin 8.4%
Pre-Tax Margin - 3 Yr. Avg. 9.7%
Net Profit Margin 5.6%
Net Profit Margin - 3 Yr. Avg. 6.4%
Effective Tax Rate 33.2%
Eff/ Tax Rate - 3 Yr. Avg. 33.9%
Payout Ratio 77%

UPS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the UPS stock intrinsic value calculation we used $60906 million for the last fiscal year's total revenue generated by United Parcel Service Cl B. The default revenue input number comes from 2016 income statement of United Parcel Service Cl B. 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 UPS stock valuation model: a) initial revenue growth rate of 5.5% 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 6.3%, whose default value for UPS is calculated based on our internal credit rating of United Parcel Service Cl B, 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 United Parcel Service Cl B.
    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 UPS 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 UPS 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 United Parcel Service Cl B.

Corporate tax rate of 27% is the nominal tax rate for United Parcel Service Cl B. 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 UPS 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 UPS are equal to 33.2%.

Life of production assets of 10.7 years is the average useful life of capital assets used in United Parcel Service Cl B 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 UPS 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 - $405 million for United Parcel Service Cl B - 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 862.169 million for United Parcel Service Cl B 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 United Parcel Service Cl B at the current share price and the inputted number of shares is $95.1 billion.


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Stock chart of UPS Financial statements of UPS Annual reports of UPS
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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