Intrinsic value of United Technologies - UTX

Previous Close

$118.00

  Intrinsic Value

$155.26

stock screener

  Rating & Target

buy

+32%

  Value-price divergence*

-35%

Previous close

$118.00

 
Intrinsic value

$155.26

 
Up/down potential

+32%

 
Rating

buy

 
Value-price divergence*

-35%

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

We calculate the intrinsic value of UTX 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 94.9

 

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, %
  2.04
  3.40
  3.56
  3.70
  3.83
  3.95
  4.06
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.82
  4.84
  4.86
  4.87
  4.89
  4.90
  4.91
  4.92
  4.92
Revenue, $m
  57,244
  59,190
  61,297
  63,568
  66,005
  68,612
  71,395
  74,357
  77,506
  80,848
  84,389
  88,137
  92,102
  96,291
  100,714
  105,381
  110,302
  115,491
  120,957
  126,714
  132,776
  139,157
  145,871
  152,935
  160,364
  168,178
  176,394
  185,031
  194,110
  203,653
  213,683
Variable operating expenses, $m
 
  13,581
  13,968
  14,385
  14,833
  15,312
  15,823
  16,368
  16,946
  17,560
  18,211
  16,194
  16,922
  17,692
  18,504
  19,362
  20,266
  21,219
  22,223
  23,281
  24,395
  25,567
  26,801
  28,099
  29,464
  30,899
  32,409
  33,996
  35,664
  37,417
  39,260
Fixed operating expenses, $m
 
  37,649
  38,591
  39,555
  40,544
  41,558
  42,597
  43,662
  44,753
  45,872
  47,019
  48,194
  49,399
  50,634
  51,900
  53,197
  54,527
  55,891
  57,288
  58,720
  60,188
  61,693
  63,235
  64,816
  66,436
  68,097
  69,800
  71,545
  73,333
  75,167
  77,046
Total operating expenses, $m
  49,072
  51,230
  52,559
  53,940
  55,377
  56,870
  58,420
  60,030
  61,699
  63,432
  65,230
  64,388
  66,321
  68,326
  70,404
  72,559
  74,793
  77,110
  79,511
  82,001
  84,583
  87,260
  90,036
  92,915
  95,900
  98,996
  102,209
  105,541
  108,997
  112,584
  116,306
Operating income, $m
  8,172
  7,960
  8,739
  9,627
  10,628
  11,742
  12,975
  14,328
  15,807
  17,416
  19,159
  23,750
  25,781
  27,965
  30,309
  32,822
  35,509
  38,381
  41,446
  44,713
  48,193
  51,897
  55,835
  60,020
  64,464
  69,181
  74,185
  79,491
  85,113
  91,070
  97,377
EBITDA, $m
  10,134
  11,630
  12,443
  13,369
  14,409
  15,566
  16,843
  18,245
  19,775
  21,438
  23,240
  25,185
  27,281
  29,533
  31,950
  34,538
  37,306
  40,262
  43,416
  46,777
  50,356
  54,163
  58,211
  62,511
  67,076
  71,921
  77,058
  82,504
  88,275
  94,387
  100,857
Interest expense (income), $m
  1,157
  1,128
  1,237
  1,352
  1,475
  1,608
  1,750
  1,902
  2,063
  2,234
  2,417
  2,609
  2,814
  3,030
  3,258
  3,499
  3,753
  4,021
  4,304
  4,602
  4,915
  5,245
  5,593
  5,959
  6,344
  6,748
  7,174
  7,622
  8,092
  8,587
  9,107
Earnings before tax, $m
  7,133
  6,832
  7,502
  8,276
  9,153
  10,134
  11,225
  12,426
  13,744
  15,181
  16,743
  21,140
  22,967
  24,935
  27,052
  29,323
  31,756
  34,360
  37,142
  40,112
  43,278
  46,651
  50,242
  54,061
  58,121
  62,433
  67,011
  71,869
  77,021
  82,483
  88,270
Tax expense, $m
  1,697
  1,845
  2,026
  2,234
  2,471
  2,736
  3,031
  3,355
  3,711
  4,099
  4,521
  5,708
  6,201
  6,733
  7,304
  7,917
  8,574
  9,277
  10,028
  10,830
  11,685
  12,596
  13,565
  14,597
  15,693
  16,857
  18,093
  19,405
  20,796
  22,270
  23,833
Net income, $m
  5,055
  4,987
  5,477
  6,041
  6,681
  7,398
  8,194
  9,071
  10,033
  11,082
  12,222
  15,432
  16,766
  18,203
  19,748
  21,406
  23,182
  25,083
  27,114
  29,281
  31,593
  34,055
  36,677
  39,465
  42,428
  45,576
  48,918
  52,464
  56,225
  60,213
  64,437

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  7,157
  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
  89,706
  85,412
  88,452
  91,729
  95,245
  99,008
  103,023
  107,298
  111,841
  116,663
  121,773
  127,182
  132,903
  138,948
  145,330
  152,064
  159,167
  166,653
  174,541
  182,849
  191,596
  200,803
  210,492
  220,685
  231,406
  242,681
  254,536
  267,000
  280,102
  293,872
  308,344
Adjusted assets (=assets-cash), $m
  82,549
  85,412
  88,452
  91,729
  95,245
  99,008
  103,023
  107,298
  111,841
  116,663
  121,773
  127,182
  132,903
  138,948
  145,330
  152,064
  159,167
  166,653
  174,541
  182,849
  191,596
  200,803
  210,492
  220,685
  231,406
  242,681
  254,536
  267,000
  280,102
  293,872
  308,344
Revenue / Adjusted assets
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
  0.693
Average production assets, $m
  24,589
  25,452
  26,358
  27,334
  28,382
  29,503
  30,700
  31,974
  33,328
  34,764
  36,287
  37,899
  39,604
  41,405
  43,307
  45,314
  47,430
  49,661
  52,011
  54,487
  57,094
  59,837
  62,724
  65,762
  68,957
  72,317
  75,849
  79,563
  83,468
  87,571
  91,884
Working capital, $m
  6,644
  1,776
  1,839
  1,907
  1,980
  2,058
  2,142
  2,231
  2,325
  2,425
  2,532
  2,644
  2,763
  2,889
  3,021
  3,161
  3,309
  3,465
  3,629
  3,801
  3,983
  4,175
  4,376
  4,588
  4,811
  5,045
  5,292
  5,551
  5,823
  6,110
  6,410
Total debt, $m
  23,901
  23,783
  25,990
  28,369
  30,922
  33,653
  36,568
  39,672
  42,971
  46,471
  50,181
  54,108
  58,262
  62,650
  67,283
  72,173
  77,329
  82,764
  88,491
  94,522
  100,873
  107,557
  114,591
  121,991
  129,775
  137,961
  146,567
  155,616
  165,128
  175,125
  185,632
Total liabilities, $m
  62,127
  62,009
  64,216
  66,595
  69,148
  71,879
  74,794
  77,898
  81,197
  84,697
  88,407
  92,334
  96,488
  100,876
  105,509
  110,399
  115,555
  120,990
  126,717
  132,748
  139,099
  145,783
  152,817
  160,217
  168,001
  176,187
  184,793
  193,842
  203,354
  213,351
  223,858
Total equity, $m
  27,579
  23,403
  24,236
  25,134
  26,097
  27,128
  28,228
  29,400
  30,645
  31,966
  33,366
  34,848
  36,415
  38,072
  39,820
  41,666
  43,612
  45,663
  47,824
  50,101
  52,497
  55,020
  57,675
  60,468
  63,405
  66,495
  69,743
  73,158
  76,748
  80,521
  84,486
Total liabilities and equity, $m
  89,706
  85,412
  88,452
  91,729
  95,245
  99,007
  103,022
  107,298
  111,842
  116,663
  121,773
  127,182
  132,903
  138,948
  145,329
  152,065
  159,167
  166,653
  174,541
  182,849
  191,596
  200,803
  210,492
  220,685
  231,406
  242,682
  254,536
  267,000
  280,102
  293,872
  308,344
Debt-to-equity ratio
  0.867
  1.020
  1.070
  1.130
  1.180
  1.240
  1.300
  1.350
  1.400
  1.450
  1.500
  1.550
  1.600
  1.650
  1.690
  1.730
  1.770
  1.810
  1.850
  1.890
  1.920
  1.950
  1.990
  2.020
  2.050
  2.070
  2.100
  2.130
  2.150
  2.170
  2.200
Adjusted equity ratio
  0.255
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,055
  4,987
  5,477
  6,041
  6,681
  7,398
  8,194
  9,071
  10,033
  11,082
  12,222
  15,432
  16,766
  18,203
  19,748
  21,406
  23,182
  25,083
  27,114
  29,281
  31,593
  34,055
  36,677
  39,465
  42,428
  45,576
  48,918
  52,464
  56,225
  60,213
  64,437
Depreciation, amort., depletion, $m
  1,962
  3,670
  3,704
  3,741
  3,781
  3,823
  3,869
  3,917
  3,968
  4,023
  4,080
  1,436
  1,500
  1,568
  1,640
  1,716
  1,797
  1,881
  1,970
  2,064
  2,163
  2,267
  2,376
  2,491
  2,612
  2,739
  2,873
  3,014
  3,162
  3,317
  3,480
Funds from operations, $m
  2,344
  8,657
  9,181
  9,783
  10,462
  11,222
  12,063
  12,988
  14,001
  15,105
  16,303
  16,868
  18,266
  19,771
  21,388
  23,122
  24,979
  26,964
  29,084
  31,345
  33,756
  36,322
  39,053
  41,956
  45,040
  48,315
  51,791
  55,478
  59,387
  63,530
  67,918
Change in working capital, $m
  -1,536
  58
  63
  68
  73
  78
  83
  89
  94
  100
  106
  112
  119
  126
  133
  140
  148
  156
  164
  173
  182
  191
  201
  212
  223
  234
  246
  259
  272
  286
  301
Cash from operations, $m
  3,880
  8,599
  9,118
  9,715
  10,389
  11,143
  11,979
  12,899
  13,907
  15,005
  16,196
  16,755
  18,147
  19,646
  21,255
  22,982
  24,831
  26,808
  28,920
  31,173
  33,574
  36,131
  38,851
  41,744
  44,817
  48,081
  51,545
  55,219
  59,115
  63,243
  67,617
Maintenance CAPEX, $m
  0
  -931
  -964
  -998
  -1,035
  -1,075
  -1,118
  -1,163
  -1,211
  -1,262
  -1,317
  -1,375
  -1,436
  -1,500
  -1,568
  -1,640
  -1,716
  -1,797
  -1,881
  -1,970
  -2,064
  -2,163
  -2,267
  -2,376
  -2,491
  -2,612
  -2,739
  -2,873
  -3,014
  -3,162
  -3,317
New CAPEX, $m
  -2,087
  -863
  -906
  -976
  -1,048
  -1,121
  -1,196
  -1,274
  -1,354
  -1,437
  -1,523
  -1,612
  -1,705
  -1,801
  -1,902
  -2,007
  -2,116
  -2,231
  -2,351
  -2,476
  -2,607
  -2,744
  -2,887
  -3,037
  -3,195
  -3,360
  -3,533
  -3,714
  -3,904
  -4,103
  -4,313
Cash from investing activities, $m
  -2,503
  -1,794
  -1,870
  -1,974
  -2,083
  -2,196
  -2,314
  -2,437
  -2,565
  -2,699
  -2,840
  -2,987
  -3,141
  -3,301
  -3,470
  -3,647
  -3,832
  -4,028
  -4,232
  -4,446
  -4,671
  -4,907
  -5,154
  -5,413
  -5,686
  -5,972
  -6,272
  -6,587
  -6,918
  -7,265
  -7,630
Free cash flow, $m
  1,377
  6,804
  7,247
  7,740
  8,306
  8,947
  9,665
  10,463
  11,342
  12,305
  13,357
  13,769
  15,007
  16,344
  17,785
  19,335
  20,998
  22,781
  24,688
  26,727
  28,903
  31,224
  33,697
  36,330
  39,131
  42,109
  45,273
  48,632
  52,197
  55,978
  59,987
Issuance/(repayment) of debt, $m
  3,686
  2,086
  2,208
  2,379
  2,553
  2,732
  2,915
  3,104
  3,299
  3,501
  3,710
  3,927
  4,153
  4,388
  4,634
  4,889
  5,156
  5,435
  5,727
  6,032
  6,350
  6,684
  7,034
  7,400
  7,784
  8,186
  8,607
  9,049
  9,512
  9,997
  10,507
Issuance/(repurchase) of shares, $m
  -2,241
  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  
  881
  2,086
  2,208
  2,379
  2,553
  2,732
  2,915
  3,104
  3,299
  3,501
  3,710
  3,927
  4,153
  4,388
  4,634
  4,889
  5,156
  5,435
  5,727
  6,032
  6,350
  6,684
  7,034
  7,400
  7,784
  8,186
  8,607
  9,049
  9,512
  9,997
  10,507
Total cash flow (excl. dividends), $m
  2,138
  8,890
  9,455
  10,118
  10,859
  11,679
  12,580
  13,566
  14,641
  15,806
  17,067
  17,696
  19,160
  20,733
  22,419
  24,224
  26,154
  28,216
  30,415
  32,758
  35,254
  37,909
  40,731
  43,731
  46,915
  50,295
  53,880
  57,681
  61,709
  65,976
  70,494
Retained Cash Flow (-), $m
  -221
  -777
  -833
  -898
  -964
  -1,031
  -1,100
  -1,171
  -1,245
  -1,321
  -1,400
  -1,482
  -1,567
  -1,656
  -1,749
  -1,845
  -1,946
  -2,051
  -2,161
  -2,276
  -2,397
  -2,523
  -2,655
  -2,793
  -2,938
  -3,089
  -3,248
  -3,415
  -3,590
  -3,773
  -3,965
Prev. year cash balance distribution, $m
 
  4,953
  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
 
  13,066
  8,622
  9,221
  9,895
  10,648
  11,480
  12,395
  13,396
  14,485
  15,667
  16,214
  17,593
  19,076
  20,670
  22,379
  24,208
  26,164
  28,253
  30,482
  32,857
  35,386
  38,077
  40,938
  43,977
  47,205
  50,631
  54,266
  58,119
  62,202
  66,529
Discount rate, %
 
  5.90
  6.20
  6.50
  6.83
  7.17
  7.53
  7.91
  8.30
  8.72
  9.15
  9.61
  10.09
  10.60
  11.13
  11.68
  12.27
  12.88
  13.52
  14.20
  14.91
  15.65
  16.44
  17.26
  18.12
  19.03
  19.98
  20.98
  22.03
  23.13
  24.29
PV of cash for distribution, $m
 
  12,338
  7,645
  7,632
  7,597
  7,531
  7,426
  7,276
  7,077
  6,827
  6,526
  5,909
  5,550
  5,151
  4,720
  4,267
  3,802
  3,337
  2,881
  2,446
  2,040
  1,669
  1,339
  1,051
  808
  606
  444
  317
  221
  149
  98
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

United Technologies Corporation provides technology products and services to building systems and aerospace industries worldwide. Its Otis segment designs, manufactures, sells, and installs passenger and freight elevators, escalators, and moving walkways; and offers modernization products to upgrade elevators and escalators, as well as maintenance and repair services. The company’s UTC Climate, Controls & Security segment provides heating, ventilating, air conditioning, and refrigeration solutions, such as controls for residential, commercial, industrial, and transportation applications. This segment offers electronic security products, including intruder alarms, access control systems, and video surveillance systems; fire safety products; and design, installation, systems integration, repair, maintenance, monitoring, and inspection services. Its Pratt & Whitney segment supplies aircraft engines for commercial, military, business jet, and general aviation markets; and provides aftermarket maintenance, repair, and overhaul, as well as fleet management services. The company’s UTC Aerospace Systems segment provides electric power generation, power management, and distribution systems; air data and aircraft sensing systems; engine control, intelligence, surveillance, and reconnaissance systems; engine components; environmental control systems; fire and ice detection, and protection systems; propeller systems; engine nacelle systems; aircraft lighting and seating, and cargo systems; actuation and landing systems; space products and subsystems; and aftermarket services. United Technologies Corporation offers its services through manufacturers’ representatives, distributors, wholesalers, dealers, retail outlets, and sales representatives, as well as directly to customers. United Technologies Corporation was founded in 1934 and is headquartered in Farmington, Connecticut.

FINANCIAL RATIOS  of  United Technologies (UTX)

Valuation Ratios
P/E Ratio 18.9
Price to Sales 1.7
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 24.6
Price to Free Cash Flow 53.2
Growth Rates
Sales Growth Rate 2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -0.1%
Cap. Spend. - 3 Yr. Gr. Rate -1.8%
Financial Strength
Quick Ratio 3
Current Ratio 0.1
LT Debt to Equity 78.7%
Total Debt to Equity 86.7%
Interest Coverage 7
Management Effectiveness
Return On Assets 6.7%
Ret/ On Assets - 3 Yr. Avg. 7.9%
Return On Total Capital 10.2%
Ret/ On T. Cap. - 3 Yr. Avg. 12.6%
Return On Equity 18.4%
Return On Equity - 3 Yr. Avg. 21.4%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 27.6%
Gross Margin - 3 Yr. Avg. 28.4%
EBITDA Margin 17.9%
EBITDA Margin - 3 Yr. Avg. 18.2%
Operating Margin 14.3%
Oper. Margin - 3 Yr. Avg. 14.6%
Pre-Tax Margin 12.5%
Pre-Tax Margin - 3 Yr. Avg. 13%
Net Profit Margin 8.8%
Net Profit Margin - 3 Yr. Avg. 11%
Effective Tax Rate 23.8%
Eff/ Tax Rate - 3 Yr. Avg. 27.4%
Payout Ratio 40.9%

UTX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the UTX stock intrinsic value calculation we used $57244 million for the last fiscal year's total revenue generated by United Technologies. The default revenue input number comes from 2016 income statement of United Technologies. 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 UTX stock valuation model: a) initial revenue growth rate of 3.4% 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 5.9%, whose default value for UTX is calculated based on our internal credit rating of United Technologies, 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 Technologies.
    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 UTX stock the variable cost ratio is equal to 23.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $36731 million in the base year in the intrinsic value calculation for UTX 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 5.2% for United Technologies.

Corporate tax rate of 27% is the nominal tax rate for United Technologies. 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 UTX 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 UTX are equal to 43%.

Life of production assets of 26.4 years is the average useful life of capital assets used in United Technologies 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 UTX is equal to 3%. 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 - $27579 million for United Technologies - 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 804.011 million for United Technologies 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 Technologies at the current share price and the inputted number of shares is $94.9 billion.

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Stock chart of UTX Financial statements of UTX
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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