Intrinsic value of VISA Cl A - V

Previous Close

$103.32

  Intrinsic Value

$136.73

stock screener

  Rating & Target

buy

+32%

  Value-price divergence*

+191%

Previous close

$103.32

 
Intrinsic value

$136.73

 
Up/down potential

+32%

 
Rating

buy

 
Value-price divergence*

+191%

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

We calculate the intrinsic value of V 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 239.6

 

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, %
  8.66
  23.50
  21.65
  19.99
  18.49
  17.14
  15.92
  14.83
  13.85
  12.96
  12.17
  11.45
  10.81
  10.22
  9.70
  9.23
  8.81
  8.43
  8.09
  7.78
  7.50
  7.25
  7.02
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
Revenue, $m
  15,082
  18,626
  22,659
  27,187
  32,213
  37,734
  43,743
  50,230
  57,187
  64,600
  72,460
  80,757
  89,483
  98,633
  108,203
  118,192
  128,604
  139,443
  150,717
  162,438
  174,619
  187,278
  200,432
  214,106
  228,321
  243,107
  258,491
  274,505
  291,183
  308,562
  326,679
Variable operating expenses, $m
 
  6,109
  7,106
  8,225
  9,467
  10,831
  12,316
  13,919
  15,638
  17,470
  19,412
  19,956
  22,112
  24,373
  26,738
  29,206
  31,779
  34,457
  37,243
  40,139
  43,149
  46,277
  49,528
  52,907
  56,420
  60,073
  63,875
  67,832
  71,953
  76,248
  80,724
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
  7,199
  6,109
  7,106
  8,225
  9,467
  10,831
  12,316
  13,919
  15,638
  17,470
  19,412
  19,956
  22,112
  24,373
  26,738
  29,206
  31,779
  34,457
  37,243
  40,139
  43,149
  46,277
  49,528
  52,907
  56,420
  60,073
  63,875
  67,832
  71,953
  76,248
  80,724
Operating income, $m
  7,883
  12,517
  15,553
  18,963
  22,747
  26,903
  31,427
  36,312
  41,549
  47,130
  53,048
  60,802
  67,371
  74,260
  81,465
  88,986
  96,825
  104,985
  113,474
  122,298
  131,470
  141,000
  150,904
  161,199
  171,902
  183,034
  194,616
  206,673
  219,230
  232,314
  245,954
EBITDA, $m
  8,385
  14,901
  18,127
  21,750
  25,770
  30,187
  34,994
  40,184
  45,749
  51,680
  57,968
  64,605
  71,586
  78,906
  86,562
  94,553
  102,882
  111,553
  120,573
  129,949
  139,694
  149,821
  160,345
  171,283
  182,656
  194,484
  206,791
  219,602
  232,945
  246,848
  261,341
Interest expense (income), $m
  244
  556
  811
  1,102
  1,429
  1,791
  2,190
  2,624
  3,092
  3,594
  4,129
  4,696
  5,295
  5,925
  6,585
  7,276
  7,997
  8,748
  9,530
  10,344
  11,190
  12,069
  12,983
  13,932
  14,919
  15,945
  17,012
  18,122
  19,278
  20,482
  21,736
Earnings before tax, $m
  8,012
  11,961
  14,742
  17,861
  21,318
  25,112
  29,237
  33,688
  38,457
  43,537
  48,919
  56,105
  62,077
  68,335
  74,880
  81,710
  88,828
  96,237
  103,944
  111,954
  120,280
  128,931
  137,922
  147,267
  156,983
  167,089
  177,604
  188,551
  199,952
  211,833
  224,218
Tax expense, $m
  2,021
  3,230
  3,980
  4,822
  5,756
  6,780
  7,894
  9,096
  10,383
  11,755
  13,208
  15,148
  16,761
  18,451
  20,218
  22,062
  23,984
  25,984
  28,065
  30,228
  32,476
  34,811
  37,239
  39,762
  42,385
  45,114
  47,953
  50,909
  53,987
  57,195
  60,539
Net income, $m
  5,991
  8,732
  10,762
  13,038
  15,562
  18,331
  21,343
  24,592
  28,074
  31,782
  35,711
  40,957
  45,316
  49,885
  54,662
  59,649
  64,845
  70,253
  75,879
  81,727
  87,804
  94,120
  100,683
  107,505
  114,598
  121,975
  129,651
  137,642
  145,965
  154,638
  163,679

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8,938
  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
  64,035
  67,979
  82,697
  99,223
  117,566
  137,715
  159,645
  183,322
  208,710
  235,766
  264,453
  294,734
  326,581
  359,974
  394,900
  431,359
  469,357
  508,915
  550,062
  592,839
  637,296
  683,495
  731,505
  781,407
  833,290
  887,251
  943,397
  1,001,844
  1,062,713
  1,126,138
  1,192,258
Adjusted assets (=assets-cash), $m
  55,097
  67,979
  82,697
  99,223
  117,566
  137,715
  159,645
  183,322
  208,710
  235,766
  264,453
  294,734
  326,581
  359,974
  394,900
  431,359
  469,357
  508,915
  550,062
  592,839
  637,296
  683,495
  731,505
  781,407
  833,290
  887,251
  943,397
  1,001,844
  1,062,713
  1,126,138
  1,192,258
Revenue / Adjusted assets
  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
  0.274
Average production assets, $m
  21,317
  26,319
  32,017
  38,416
  45,517
  53,318
  61,808
  70,976
  80,805
  91,280
  102,386
  114,110
  126,440
  139,368
  152,890
  167,006
  181,717
  197,032
  212,963
  229,525
  246,737
  264,623
  283,211
  302,531
  322,618
  343,510
  365,248
  387,876
  411,442
  435,998
  461,597
Working capital, $m
  6,267
  -1,863
  -2,266
  -2,719
  -3,221
  -3,773
  -4,374
  -5,023
  -5,719
  -6,460
  -7,246
  -8,076
  -8,948
  -9,863
  -10,820
  -11,819
  -12,860
  -13,944
  -15,072
  -16,244
  -17,462
  -18,728
  -20,043
  -21,411
  -22,832
  -24,311
  -25,849
  -27,451
  -29,118
  -30,856
  -32,668
Total debt, $m
  15,882
  23,167
  31,483
  40,820
  51,184
  62,568
  74,958
  88,336
  102,680
  117,967
  134,175
  151,284
  169,277
  188,144
  207,878
  228,477
  249,946
  272,296
  295,544
  319,713
  344,831
  370,934
  398,059
  426,254
  455,568
  486,056
  517,778
  550,801
  585,192
  621,027
  658,385
Total liabilities, $m
  31,123
  38,408
  46,724
  56,061
  66,425
  77,809
  90,199
  103,577
  117,921
  133,208
  149,416
  166,525
  184,518
  203,385
  223,119
  243,718
  265,187
  287,537
  310,785
  334,954
  360,072
  386,175
  413,300
  441,495
  470,809
  501,297
  533,019
  566,042
  600,433
  636,268
  673,626
Total equity, $m
  32,912
  29,571
  35,973
  43,162
  51,141
  59,906
  69,445
  79,745
  90,789
  102,558
  115,037
  128,209
  142,063
  156,589
  171,782
  187,641
  204,170
  221,378
  239,277
  257,885
  277,224
  297,320
  318,205
  339,912
  362,481
  385,954
  410,378
  435,802
  462,280
  489,870
  518,632
Total liabilities and equity, $m
  64,035
  67,979
  82,697
  99,223
  117,566
  137,715
  159,644
  183,322
  208,710
  235,766
  264,453
  294,734
  326,581
  359,974
  394,901
  431,359
  469,357
  508,915
  550,062
  592,839
  637,296
  683,495
  731,505
  781,407
  833,290
  887,251
  943,397
  1,001,844
  1,062,713
  1,126,138
  1,192,258
Debt-to-equity ratio
  0.483
  0.780
  0.880
  0.950
  1.000
  1.040
  1.080
  1.110
  1.130
  1.150
  1.170
  1.180
  1.190
  1.200
  1.210
  1.220
  1.220
  1.230
  1.240
  1.240
  1.240
  1.250
  1.250
  1.250
  1.260
  1.260
  1.260
  1.260
  1.270
  1.270
  1.270
Adjusted equity ratio
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,991
  8,732
  10,762
  13,038
  15,562
  18,331
  21,343
  24,592
  28,074
  31,782
  35,711
  40,957
  45,316
  49,885
  54,662
  59,649
  64,845
  70,253
  75,879
  81,727
  87,804
  94,120
  100,683
  107,505
  114,598
  121,975
  129,651
  137,642
  145,965
  154,638
  163,679
Depreciation, amort., depletion, $m
  502
  2,384
  2,574
  2,787
  3,024
  3,284
  3,567
  3,872
  4,200
  4,549
  4,919
  3,804
  4,215
  4,646
  5,096
  5,567
  6,057
  6,568
  7,099
  7,651
  8,225
  8,821
  9,440
  10,084
  10,754
  11,450
  12,175
  12,929
  13,715
  14,533
  15,387
Funds from operations, $m
  2,048
  11,116
  13,336
  15,825
  18,586
  21,615
  24,910
  28,465
  32,274
  36,331
  40,631
  44,761
  49,531
  54,530
  59,759
  65,216
  70,902
  76,821
  82,978
  89,378
  96,029
  102,940
  110,123
  117,589
  125,351
  133,425
  141,826
  150,571
  159,680
  169,171
  179,066
Change in working capital, $m
  -3,526
  -354
  -403
  -453
  -503
  -552
  -601
  -649
  -696
  -741
  -786
  -830
  -873
  -915
  -957
  -999
  -1,041
  -1,084
  -1,127
  -1,172
  -1,218
  -1,266
  -1,315
  -1,367
  -1,422
  -1,479
  -1,538
  -1,601
  -1,668
  -1,738
  -1,812
Cash from operations, $m
  5,574
  11,470
  13,739
  16,278
  19,088
  22,167
  25,511
  29,113
  32,969
  37,072
  41,417
  45,590
  50,403
  55,445
  60,716
  66,214
  71,943
  77,905
  84,105
  90,550
  97,247
  104,206
  111,439
  118,956
  126,773
  134,904
  143,364
  152,173
  161,348
  170,909
  180,878
Maintenance CAPEX, $m
  0
  -711
  -877
  -1,067
  -1,281
  -1,517
  -1,777
  -2,060
  -2,366
  -2,693
  -3,043
  -3,413
  -3,804
  -4,215
  -4,646
  -5,096
  -5,567
  -6,057
  -6,568
  -7,099
  -7,651
  -8,225
  -8,821
  -9,440
  -10,084
  -10,754
  -11,450
  -12,175
  -12,929
  -13,715
  -14,533
New CAPEX, $m
  -523
  -5,002
  -5,698
  -6,399
  -7,102
  -7,801
  -8,490
  -9,167
  -9,829
  -10,475
  -11,106
  -11,724
  -12,330
  -12,928
  -13,522
  -14,115
  -14,712
  -15,315
  -15,931
  -16,562
  -17,212
  -17,886
  -18,588
  -19,320
  -20,087
  -20,892
  -21,738
  -22,628
  -23,566
  -24,556
  -25,599
Cash from investing activities, $m
  -10,916
  -5,713
  -6,575
  -7,466
  -8,383
  -9,318
  -10,267
  -11,227
  -12,195
  -13,168
  -14,149
  -15,137
  -16,134
  -17,143
  -18,168
  -19,211
  -20,279
  -21,372
  -22,499
  -23,661
  -24,863
  -26,111
  -27,409
  -28,760
  -30,171
  -31,646
  -33,188
  -34,803
  -36,495
  -38,271
  -40,132
Free cash flow, $m
  -5,342
  5,757
  7,164
  8,812
  10,706
  12,849
  15,243
  17,886
  20,774
  23,904
  27,268
  30,454
  34,269
  38,302
  42,548
  47,003
  51,665
  56,532
  61,607
  66,889
  72,384
  78,095
  84,030
  90,196
  96,602
  103,258
  110,176
  117,370
  124,852
  132,639
  140,745
Issuance/(repayment) of debt, $m
  15,971
  7,285
  8,315
  9,338
  10,364
  11,384
  12,390
  13,378
  14,344
  15,287
  16,208
  17,109
  17,994
  18,867
  19,733
  20,599
  21,469
  22,350
  23,248
  24,169
  25,118
  26,102
  27,126
  28,195
  29,314
  30,488
  31,723
  33,022
  34,391
  35,835
  37,358
Issuance/(repurchase) of shares, $m
  -7,062
  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  
  8,827
  7,285
  8,315
  9,338
  10,364
  11,384
  12,390
  13,378
  14,344
  15,287
  16,208
  17,109
  17,994
  18,867
  19,733
  20,599
  21,469
  22,350
  23,248
  24,169
  25,118
  26,102
  27,126
  28,195
  29,314
  30,488
  31,723
  33,022
  34,391
  35,835
  37,358
Total cash flow (excl. dividends), $m
  3,451
  13,042
  15,479
  18,150
  21,070
  24,233
  27,633
  31,264
  35,118
  39,190
  43,475
  47,563
  52,263
  57,169
  62,281
  67,602
  73,134
  78,883
  84,855
  91,058
  97,502
  104,198
  111,156
  118,390
  125,915
  133,746
  141,899
  150,392
  159,243
  168,474
  178,103
Retained Cash Flow (-), $m
  -3,070
  -5,597
  -6,402
  -7,189
  -7,979
  -8,765
  -9,539
  -10,300
  -11,044
  -11,770
  -12,479
  -13,172
  -13,854
  -14,526
  -15,193
  -15,859
  -16,529
  -17,208
  -17,899
  -18,608
  -19,339
  -20,096
  -20,885
  -21,707
  -22,569
  -23,473
  -24,424
  -25,424
  -26,478
  -27,590
  -28,762
Prev. year cash balance distribution, $m
 
  8,938
  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
 
  16,383
  9,077
  10,961
  13,091
  15,469
  18,094
  20,964
  24,075
  27,421
  30,997
  34,390
  38,410
  42,643
  47,088
  51,742
  56,604
  61,675
  66,956
  72,450
  78,163
  84,101
  90,271
  96,683
  103,346
  110,273
  117,475
  124,968
  132,765
  140,884
  149,341
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
 
  15,708
  8,310
  9,539
  10,779
  11,990
  13,132
  14,163
  15,047
  15,752
  16,250
  16,331
  16,391
  16,214
  15,808
  15,191
  14,384
  13,419
  12,331
  11,155
  9,932
  8,699
  7,490
  6,337
  5,264
  4,290
  3,427
  2,682
  2,054
  1,538
  1,124
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

Visa Inc. operates as a payments technology company worldwide. The company facilitates commerce through the transfer of value and information among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. It operates VisaNet, a processing network that enables authorization, clearing, and settlement of payment transactions; and offers fraud protection for account holders and assured payment for merchants. The company also offers gateway services for merchants to accept, process, and reconcile payments; manage fraud; and safeguard payment security online, as well as processing services for participating issuers of visa debit, prepaid, and ATM payment products. In addition, it provides digital products, including Visa Checkout that offers consumers an expedited and secure payment experience for online transactions; and Visa Direct, a push payment product platform, which facilitates payer-initiated transactions that are sent directly to the Visa account of the recipient, as well as Visa token service that replaces the card account numbers from the transaction with a token. Further the company offers corporate (travel) and purchasing card products, as well as value-added services. It provides its services under the Visa, Visa Electron, Interlink, V PAY, and PLUS brands. The company has a strategic partnership agreement with Oman Arab Bank to convert the bank’s current electron cards to chip-and-PIN debit cards. Visa Inc. was incorporated in 2007 and is headquartered in San Francisco, California.

FINANCIAL RATIOS  of  VISA Cl A (V)

Valuation Ratios
P/E Ratio 40.4
Price to Sales 16
Price to Book 7.4
Price to Tangible Book
Price to Cash Flow 43.4
Price to Free Cash Flow 47.9
Growth Rates
Sales Growth Rate 8.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 26.3%
Cap. Spend. - 3 Yr. Gr. Rate 2.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0.3
LT Debt to Equity 48.3%
Total Debt to Equity 48.3%
Interest Coverage 34
Management Effectiveness
Return On Assets 11.9%
Ret/ On Assets - 3 Yr. Avg. 14.3%
Return On Total Capital 15.2%
Ret/ On T. Cap. - 3 Yr. Avg. 19.1%
Return On Equity 19.1%
Return On Equity - 3 Yr. Avg. 20.4%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 58.1%
EBITDA Margin - 3 Yr. Avg. 63.9%
Operating Margin 52.3%
Oper. Margin - 3 Yr. Avg. 59.4%
Pre-Tax Margin 53.1%
Pre-Tax Margin - 3 Yr. Avg. 59.6%
Net Profit Margin 39.7%
Net Profit Margin - 3 Yr. Avg. 42.7%
Effective Tax Rate 25.2%
Eff/ Tax Rate - 3 Yr. Avg. 28.2%
Payout Ratio 22.5%

V stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the V stock intrinsic value calculation we used $15082 million for the last fiscal year's total revenue generated by VISA Cl A. The default revenue input number comes from 2016 income statement of VISA Cl A. 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 V stock valuation model: a) initial revenue growth rate of 23.5% 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 4.3%, whose default value for V is calculated based on our internal credit rating of VISA Cl A, 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 VISA Cl A.
    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 V stock the variable cost ratio is equal to 34.7%.

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 V 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 VISA Cl A.

Corporate tax rate of 27% is the nominal tax rate for VISA Cl A. 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 V 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 V are equal to 141.3%.

Life of production assets of 69.2 years is the average useful life of capital assets used in VISA Cl A 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 V 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 - $32912 million for VISA Cl A - 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 2319.14 million for VISA Cl A 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 VISA Cl A at the current share price and the inputted number of shares is $239.6 billion.

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COMPANY NEWS

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▶ How Are Visas Dividends Trending?   [07:37AM  Market Realist]
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▶ Visa tops Street 3Q forecasts   [Jul-20-17 09:11PM  Associated Press]
▶ How to Trade Visa Ahead of Earnings   [05:17PM  Bloomberg Video]
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▶ Visa Inc. Declares Quarterly Dividend   [04:05PM  Business Wire]
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▶ Visa and PayPal Extend Partnership to Europe   [10:51AM  Business Wire]
Stock chart of V Financial statements of V
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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