Intrinsic value of VMware - VMW

Previous Close

$96.27

  Intrinsic Value

$131.64

stock screener

  Rating & Target

buy

+37%

  Value-price divergence*

-11%

Previous close

$96.27

 
Intrinsic value

$131.64

 
Up/down potential

+37%

 
Rating

buy

 
Value-price divergence*

-11%

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

We calculate the intrinsic value of VMW 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 39.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  6.71
  8.80
  8.42
  8.08
  7.77
  7.49
  7.24
  7.02
  6.82
  6.64
  6.47
  6.32
  6.19
  6.07
  5.97
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.42
  5.37
  5.34
  5.30
  5.27
  5.25
  5.22
  5.20
  5.18
Revenue, $m
  7,093
  7,717
  8,367
  9,043
  9,746
  10,476
  11,235
  12,023
  12,843
  13,695
  14,581
  15,504
  16,464
  17,464
  18,506
  19,592
  20,725
  21,907
  23,141
  24,430
  25,777
  27,185
  28,657
  30,197
  31,809
  33,496
  35,262
  37,111
  39,049
  41,079
  43,207
Variable operating expenses, $m
 
  3,491
  3,751
  4,022
  4,303
  4,595
  4,899
  5,214
  5,542
  5,883
  6,238
  6,204
  6,588
  6,988
  7,405
  7,840
  8,293
  8,766
  9,260
  9,776
  10,315
  10,878
  11,467
  12,084
  12,728
  13,403
  14,110
  14,850
  15,626
  16,438
  17,289
Fixed operating expenses, $m
 
  2,532
  2,595
  2,660
  2,726
  2,795
  2,864
  2,936
  3,009
  3,085
  3,162
  3,241
  3,322
  3,405
  3,490
  3,577
  3,667
  3,758
  3,852
  3,949
  4,047
  4,149
  4,252
  4,359
  4,468
  4,579
  4,694
  4,811
  4,931
  5,055
  5,181
Total operating expenses, $m
  5,654
  6,023
  6,346
  6,682
  7,029
  7,390
  7,763
  8,150
  8,551
  8,968
  9,400
  9,445
  9,910
  10,393
  10,895
  11,417
  11,960
  12,524
  13,112
  13,725
  14,362
  15,027
  15,719
  16,443
  17,196
  17,982
  18,804
  19,661
  20,557
  21,493
  22,470
Operating income, $m
  1,439
  1,694
  2,021
  2,361
  2,716
  3,086
  3,471
  3,873
  4,291
  4,727
  5,182
  6,059
  6,554
  7,071
  7,610
  8,175
  8,765
  9,382
  10,029
  10,706
  11,415
  12,158
  12,938
  13,755
  14,613
  15,513
  16,458
  17,450
  18,492
  19,586
  20,736
EBITDA, $m
  1,784
  2,207
  2,543
  2,893
  3,258
  3,638
  4,034
  4,447
  4,877
  5,325
  5,792
  6,279
  6,788
  7,319
  7,873
  8,453
  9,059
  9,694
  10,357
  11,053
  11,781
  12,544
  13,345
  14,184
  15,065
  15,989
  16,959
  17,977
  19,047
  20,170
  21,350
Interest expense (income), $m
  29
  53
  59
  85
  112
  140
  168
  199
  230
  262
  296
  331
  368
  406
  445
  487
  530
  575
  621
  670
  721
  775
  831
  889
  950
  1,014
  1,081
  1,151
  1,224
  1,301
  1,381
Earnings before tax, $m
  1,473
  1,642
  1,961
  2,276
  2,604
  2,947
  3,303
  3,674
  4,061
  4,465
  4,886
  5,728
  6,186
  6,665
  7,165
  7,688
  8,235
  8,808
  9,407
  10,035
  10,693
  11,383
  12,107
  12,866
  13,663
  14,499
  15,377
  16,299
  17,268
  18,286
  19,355
Tax expense, $m
  287
  443
  530
  615
  703
  796
  892
  992
  1,097
  1,205
  1,319
  1,547
  1,670
  1,800
  1,935
  2,076
  2,223
  2,378
  2,540
  2,710
  2,887
  3,074
  3,269
  3,474
  3,689
  3,915
  4,152
  4,401
  4,662
  4,937
  5,226
Net income, $m
  1,186
  1,198
  1,432
  1,662
  1,901
  2,151
  2,411
  2,682
  2,965
  3,259
  3,566
  4,181
  4,516
  4,865
  5,231
  5,612
  6,012
  6,430
  6,867
  7,326
  7,806
  8,310
  8,838
  9,392
  9,974
  10,584
  11,225
  11,899
  12,606
  13,349
  14,129

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  7,985
  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
  16,643
  9,707
  10,524
  11,375
  12,258
  13,177
  14,132
  15,124
  16,155
  17,227
  18,342
  19,502
  20,709
  21,967
  23,277
  24,644
  26,069
  27,556
  29,108
  30,730
  32,424
  34,195
  36,047
  37,984
  40,011
  42,133
  44,354
  46,681
  49,118
  51,672
  54,348
Adjusted assets (=assets-cash), $m
  8,658
  9,707
  10,524
  11,375
  12,258
  13,177
  14,132
  15,124
  16,155
  17,227
  18,342
  19,502
  20,709
  21,967
  23,277
  24,644
  26,069
  27,556
  29,108
  30,730
  32,424
  34,195
  36,047
  37,984
  40,011
  42,133
  44,354
  46,681
  49,118
  51,672
  54,348
Revenue / Adjusted assets
  0.819
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
  0.795
Average production assets, $m
  1,655
  1,798
  1,950
  2,107
  2,271
  2,441
  2,618
  2,801
  2,992
  3,191
  3,397
  3,612
  3,836
  4,069
  4,312
  4,565
  4,829
  5,104
  5,392
  5,692
  6,006
  6,334
  6,677
  7,036
  7,411
  7,804
  8,216
  8,647
  9,098
  9,571
  10,067
Working capital, $m
  5,781
  -772
  -837
  -904
  -975
  -1,048
  -1,123
  -1,202
  -1,284
  -1,370
  -1,458
  -1,550
  -1,646
  -1,746
  -1,851
  -1,959
  -2,072
  -2,191
  -2,314
  -2,443
  -2,578
  -2,718
  -2,866
  -3,020
  -3,181
  -3,350
  -3,526
  -3,711
  -3,905
  -4,108
  -4,321
Total debt, $m
  1,500
  1,690
  2,426
  3,191
  3,987
  4,813
  5,672
  6,565
  7,493
  8,458
  9,461
  10,505
  11,592
  12,724
  13,904
  15,133
  16,416
  17,754
  19,151
  20,611
  22,135
  23,729
  25,396
  27,140
  28,964
  30,874
  32,873
  34,967
  37,160
  39,459
  41,867
Total liabilities, $m
  8,546
  8,736
  9,472
  10,237
  11,033
  11,859
  12,718
  13,611
  14,539
  15,504
  16,507
  17,551
  18,638
  19,770
  20,950
  22,179
  23,462
  24,800
  26,197
  27,657
  29,181
  30,775
  32,442
  34,186
  36,010
  37,920
  39,919
  42,013
  44,206
  46,505
  48,913
Total equity, $m
  8,097
  971
  1,052
  1,137
  1,226
  1,318
  1,413
  1,512
  1,615
  1,723
  1,834
  1,950
  2,071
  2,197
  2,328
  2,464
  2,607
  2,756
  2,911
  3,073
  3,242
  3,419
  3,605
  3,798
  4,001
  4,213
  4,435
  4,668
  4,912
  5,167
  5,435
Total liabilities and equity, $m
  16,643
  9,707
  10,524
  11,374
  12,259
  13,177
  14,131
  15,123
  16,154
  17,227
  18,341
  19,501
  20,709
  21,967
  23,278
  24,643
  26,069
  27,556
  29,108
  30,730
  32,423
  34,194
  36,047
  37,984
  40,011
  42,133
  44,354
  46,681
  49,118
  51,672
  54,348
Debt-to-equity ratio
  0.185
  1.740
  2.310
  2.810
  3.250
  3.650
  4.010
  4.340
  4.640
  4.910
  5.160
  5.390
  5.600
  5.790
  5.970
  6.140
  6.300
  6.440
  6.580
  6.710
  6.830
  6.940
  7.050
  7.150
  7.240
  7.330
  7.410
  7.490
  7.570
  7.640
  7.700
Adjusted equity ratio
  0.013
  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
  1,186
  1,198
  1,432
  1,662
  1,901
  2,151
  2,411
  2,682
  2,965
  3,259
  3,566
  4,181
  4,516
  4,865
  5,231
  5,612
  6,012
  6,430
  6,867
  7,326
  7,806
  8,310
  8,838
  9,392
  9,974
  10,584
  11,225
  11,899
  12,606
  13,349
  14,129
Depreciation, amort., depletion, $m
  345
  513
  522
  532
  542
  552
  563
  574
  586
  598
  610
  220
  234
  248
  263
  278
  294
  311
  329
  347
  366
  386
  407
  429
  452
  476
  501
  527
  555
  584
  614
Funds from operations, $m
  2,598
  1,711
  1,954
  2,193
  2,443
  2,703
  2,974
  3,256
  3,550
  3,857
  4,177
  4,402
  4,750
  5,113
  5,493
  5,891
  6,306
  6,741
  7,196
  7,673
  8,172
  8,696
  9,245
  9,821
  10,426
  11,060
  11,726
  12,426
  13,161
  13,932
  14,743
Change in working capital, $m
  217
  -62
  -65
  -68
  -70
  -73
  -76
  -79
  -82
  -85
  -89
  -92
  -96
  -100
  -104
  -109
  -113
  -118
  -123
  -129
  -135
  -141
  -147
  -154
  -161
  -169
  -177
  -185
  -194
  -203
  -213
Cash from operations, $m
  2,381
  1,774
  2,019
  2,261
  2,513
  2,776
  3,050
  3,335
  3,632
  3,942
  4,265
  4,494
  4,846
  5,213
  5,598
  5,999
  6,419
  6,859
  7,319
  7,802
  8,307
  8,837
  9,392
  9,975
  10,587
  11,229
  11,903
  12,611
  13,354
  14,135
  14,956
Maintenance CAPEX, $m
  0
  -101
  -110
  -119
  -128
  -138
  -149
  -160
  -171
  -182
  -195
  -207
  -220
  -234
  -248
  -263
  -278
  -294
  -311
  -329
  -347
  -366
  -386
  -407
  -429
  -452
  -476
  -501
  -527
  -555
  -584
New CAPEX, $m
  -153
  -143
  -151
  -157
  -164
  -170
  -177
  -184
  -191
  -199
  -207
  -215
  -224
  -233
  -243
  -253
  -264
  -275
  -288
  -300
  -314
  -328
  -343
  -359
  -375
  -393
  -412
  -431
  -451
  -473
  -496
Cash from investing activities, $m
  -465
  -244
  -261
  -276
  -292
  -308
  -326
  -344
  -362
  -381
  -402
  -422
  -444
  -467
  -491
  -516
  -542
  -569
  -599
  -629
  -661
  -694
  -729
  -766
  -804
  -845
  -888
  -932
  -978
  -1,028
  -1,080
Free cash flow, $m
  1,916
  1,530
  1,758
  1,985
  2,221
  2,467
  2,724
  2,992
  3,271
  3,561
  3,864
  4,072
  4,402
  4,747
  5,107
  5,483
  5,877
  6,289
  6,721
  7,173
  7,646
  8,143
  8,663
  9,209
  9,782
  10,384
  11,016
  11,679
  12,376
  13,108
  13,877
Issuance/(repayment) of debt, $m
  0
  190
  736
  765
  795
  827
  859
  893
  928
  965
  1,003
  1,044
  1,087
  1,132
  1,179
  1,230
  1,282
  1,338
  1,397
  1,459
  1,525
  1,594
  1,667
  1,744
  1,824
  1,910
  1,999
  2,094
  2,193
  2,298
  2,408
Issuance/(repurchase) of shares, $m
  -1,630
  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  
  -1,619
  190
  736
  765
  795
  827
  859
  893
  928
  965
  1,003
  1,044
  1,087
  1,132
  1,179
  1,230
  1,282
  1,338
  1,397
  1,459
  1,525
  1,594
  1,667
  1,744
  1,824
  1,910
  1,999
  2,094
  2,193
  2,298
  2,408
Total cash flow (excl. dividends), $m
  297
  1,720
  2,493
  2,750
  3,016
  3,294
  3,583
  3,885
  4,199
  4,526
  4,868
  5,116
  5,489
  5,879
  6,286
  6,713
  7,160
  7,628
  8,118
  8,632
  9,171
  9,736
  10,330
  10,953
  11,607
  12,294
  13,015
  13,773
  14,569
  15,406
  16,285
Retained Cash Flow (-), $m
  -178
  -596
  -82
  -85
  -88
  -92
  -95
  -99
  -103
  -107
  -111
  -116
  -121
  -126
  -131
  -137
  -142
  -149
  -155
  -162
  -169
  -177
  -185
  -194
  -203
  -212
  -222
  -233
  -244
  -255
  -268
Prev. year cash balance distribution, $m
 
  7,722
  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
 
  8,846
  2,412
  2,665
  2,928
  3,202
  3,488
  3,785
  4,095
  4,419
  4,756
  5,000
  5,368
  5,753
  6,155
  6,576
  7,017
  7,479
  7,963
  8,470
  9,002
  9,559
  10,145
  10,759
  11,404
  12,081
  12,793
  13,540
  14,325
  15,150
  16,017
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
 
  8,482
  2,208
  2,319
  2,411
  2,482
  2,531
  2,557
  2,560
  2,538
  2,494
  2,374
  2,291
  2,187
  2,066
  1,931
  1,783
  1,627
  1,466
  1,304
  1,144
  989
  842
  705
  581
  470
  373
  291
  222
  165
  121
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

VMware, Inc. provides virtualization and cloud infrastructure solutions in the United States and internationally. Its virtualization infrastructure solutions includes a suite of products and services designed to deliver a software-defined data center(SDDC), run on industry-standard desktop computers, servers, and mobile devices; and supports a range of operating system and application environments, as well as networking and storage infrastructures. The company offers VMware vSphere, a data center platform, which enables users to deploy hypervisor, a layer of software that resides between the operating system and system hardware to enable compute virtualization; storage and availability products that provide data storage and protection options; network and security products; and management and automation products to manage and automate overarching IT processes involved in provisioning IT services and resources to users from initial infrastructure deployment to retirement. It also provides SDDC suites, including VMware vCloud suite, vSphere with Operations Management, and VMware vRealize suite for building and managing a cloud infrastructure for use with the vSphere platform. In addition, the company offers Cloud Foundation, a SDDC delivery independent platform that can be deployed on-premises or run as-a-service. Further, it provides hybrid cloud computing solutions, such as VMware vCloud Air Network and vCloud Air; and end-user computing solutions, which enable its customers to securely deliver access to applications and data for their end users from various devices. The company sells its products through distributors, resellers, system vendors, and systems integrators. VMware, Inc. has a strategic alliance with Amazon Web Services to build and deliver an integrated hybrid solution. The company was incorporated in 1998 and is headquartered in Palo Alto, California. VMware, Inc. is a subsidiary of Dell Technologies Inc.

FINANCIAL RATIOS  of  VMware (VMW)

Valuation Ratios
P/E Ratio 33.1
Price to Sales 5.5
Price to Book 4.9
Price to Tangible Book
Price to Cash Flow 16.5
Price to Free Cash Flow 17.6
Growth Rates
Sales Growth Rate 6.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -54.1%
Cap. Spend. - 3 Yr. Gr. Rate -15%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 18.5%
Total Debt to Equity 18.5%
Interest Coverage 52
Management Effectiveness
Return On Assets 7.5%
Ret/ On Assets - 3 Yr. Avg. 6.9%
Return On Total Capital 12.5%
Ret/ On T. Cap. - 3 Yr. Avg. 11.4%
Return On Equity 14.8%
Return On Equity - 3 Yr. Avg. 13.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 85.2%
Gross Margin - 3 Yr. Avg. 84.9%
EBITDA Margin 26%
EBITDA Margin - 3 Yr. Avg. 24.4%
Operating Margin 20.3%
Oper. Margin - 3 Yr. Avg. 18.4%
Pre-Tax Margin 20.8%
Pre-Tax Margin - 3 Yr. Avg. 18.8%
Net Profit Margin 16.7%
Net Profit Margin - 3 Yr. Avg. 15.5%
Effective Tax Rate 19.5%
Eff/ Tax Rate - 3 Yr. Avg. 17.6%
Payout Ratio 0%

VMW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VMW stock intrinsic value calculation we used $7093 million for the last fiscal year's total revenue generated by VMware. The default revenue input number comes from 2016 income statement of VMware. 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 VMW stock valuation model: a) initial revenue growth rate of 8.8% 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 VMW is calculated based on our internal credit rating of VMware, 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 VMware.
    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 VMW stock the variable cost ratio is equal to 45.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2470 million in the base year in the intrinsic value calculation for VMW 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 VMware.

Corporate tax rate of 27% is the nominal tax rate for VMware. 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 VMW 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 VMW are equal to 23.3%.

Life of production assets of 16.4 years is the average useful life of capital assets used in VMware 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 VMW 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 - $8097 million for VMware - 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 408.44 million for VMware 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 VMware at the current share price and the inputted number of shares is $39.3 billion.

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Stock chart of VMW Financial statements of VMW
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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