Intrinsic value of Vertex Pharmaceuticals - VRTX

Previous Close

$140.91

  Intrinsic Value

$147.73

stock screener

  Rating & Target

hold

+5%

Previous close

$140.91

 
Intrinsic value

$147.73

 
Up/down potential

+5%

 
Rating

hold

We calculate the intrinsic value of VRTX 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 35.5

 

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, %
  64.92
  25.90
  23.81
  21.93
  20.24
  18.71
  17.34
  16.11
  15.00
  14.00
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
  6.09
  5.98
Revenue, $m
  1,702
  2,143
  2,653
  3,235
  3,889
  4,617
  5,418
  6,291
  7,234
  8,246
  9,326
  10,472
  11,683
  12,957
  14,293
  15,691
  17,151
  18,672
  20,257
  21,905
  23,619
  25,400
  27,251
  29,174
  31,173
  33,252
  35,413
  37,662
  40,003
  42,440
  44,980
Variable operating expenses, $m
 
  620
  767
  934
  1,122
  1,330
  1,560
  1,811
  2,082
  2,372
  2,682
  3,006
  3,354
  3,719
  4,103
  4,504
  4,923
  5,360
  5,815
  6,288
  6,780
  7,291
  7,823
  8,375
  8,949
  9,545
  10,166
  10,811
  11,483
  12,183
  12,912
Fixed operating expenses, $m
 
  1,260
  1,291
  1,323
  1,357
  1,391
  1,425
  1,461
  1,497
  1,535
  1,573
  1,613
  1,653
  1,694
  1,737
  1,780
  1,824
  1,870
  1,917
  1,965
  2,014
  2,064
  2,116
  2,169
  2,223
  2,278
  2,335
  2,394
  2,454
  2,515
  2,578
Total operating expenses, $m
  1,692
  1,880
  2,058
  2,257
  2,479
  2,721
  2,985
  3,272
  3,579
  3,907
  4,255
  4,619
  5,007
  5,413
  5,840
  6,284
  6,747
  7,230
  7,732
  8,253
  8,794
  9,355
  9,939
  10,544
  11,172
  11,823
  12,501
  13,205
  13,937
  14,698
  15,490
Operating income, $m
  10
  263
  595
  978
  1,411
  1,896
  2,432
  3,019
  3,655
  4,339
  5,071
  5,854
  6,676
  7,543
  8,453
  9,407
  10,403
  11,442
  12,525
  13,652
  14,825
  16,044
  17,312
  18,631
  20,002
  21,428
  22,912
  24,457
  26,066
  27,742
  29,490
EBITDA, $m
  71
  339
  688
  1,090
  1,545
  2,055
  2,617
  3,233
  3,900
  4,618
  5,386
  6,201
  7,064
  7,973
  8,928
  9,928
  10,972
  12,062
  13,198
  14,380
  15,609
  16,888
  18,217
  19,600
  21,037
  22,532
  24,088
  25,708
  27,394
  29,152
  30,984
Interest expense (income), $m
  84
  53
  77
  116
  162
  213
  270
  332
  400
  474
  553
  638
  727
  822
  921
  1,025
  1,135
  1,249
  1,367
  1,491
  1,620
  1,754
  1,893
  2,037
  2,187
  2,344
  2,506
  2,675
  2,850
  3,033
  3,223
Earnings before tax, $m
  -67
  210
  519
  861
  1,249
  1,683
  2,163
  2,687
  3,254
  3,865
  4,518
  5,216
  5,949
  6,722
  7,532
  8,381
  9,268
  10,194
  11,158
  12,161
  13,205
  14,291
  15,419
  16,593
  17,814
  19,084
  20,406
  21,782
  23,215
  24,709
  26,267
Tax expense, $m
  17
  57
  140
  233
  337
  455
  584
  725
  879
  1,044
  1,220
  1,408
  1,606
  1,815
  2,034
  2,263
  2,502
  2,752
  3,013
  3,283
  3,565
  3,858
  4,163
  4,480
  4,810
  5,153
  5,510
  5,881
  6,268
  6,671
  7,092
Net income, $m
  -112
  153
  379
  629
  912
  1,229
  1,579
  1,961
  2,376
  2,822
  3,298
  3,808
  4,343
  4,907
  5,499
  6,118
  6,766
  7,441
  8,145
  8,878
  9,640
  10,432
  11,256
  12,113
  13,004
  13,931
  14,896
  15,901
  16,947
  18,038
  19,175

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,435
  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
  2,897
  1,841
  2,279
  2,779
  3,341
  3,967
  4,655
  5,404
  6,215
  7,085
  8,012
  8,997
  10,037
  11,131
  12,279
  13,480
  14,734
  16,042
  17,403
  18,819
  20,291
  21,821
  23,411
  25,064
  26,781
  28,567
  30,424
  32,356
  34,367
  36,461
  38,643
Adjusted assets (=assets-cash), $m
  1,462
  1,841
  2,279
  2,779
  3,341
  3,967
  4,655
  5,404
  6,215
  7,085
  8,012
  8,997
  10,037
  11,131
  12,279
  13,480
  14,734
  16,042
  17,403
  18,819
  20,291
  21,821
  23,411
  25,064
  26,781
  28,567
  30,424
  32,356
  34,367
  36,461
  38,643
Revenue / Adjusted assets
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
Average production assets, $m
  633
  797
  987
  1,203
  1,447
  1,718
  2,015
  2,340
  2,691
  3,068
  3,469
  3,896
  4,346
  4,820
  5,317
  5,837
  6,380
  6,946
  7,536
  8,149
  8,786
  9,449
  10,137
  10,853
  11,596
  12,370
  13,174
  14,010
  14,881
  15,788
  16,733
Working capital, $m
  1,039
  -96
  -119
  -146
  -175
  -208
  -244
  -283
  -326
  -371
  -420
  -471
  -526
  -583
  -643
  -706
  -772
  -840
  -912
  -986
  -1,063
  -1,143
  -1,226
  -1,313
  -1,403
  -1,496
  -1,594
  -1,695
  -1,800
  -1,910
  -2,024
Total debt, $m
  841
  758
  1,152
  1,602
  2,108
  2,671
  3,290
  3,965
  4,694
  5,477
  6,312
  7,198
  8,134
  9,119
  10,152
  11,233
  12,362
  13,538
  14,763
  16,038
  17,363
  18,740
  20,171
  21,658
  23,204
  24,811
  26,482
  28,221
  30,031
  31,916
  33,880
Total liabilities, $m
  1,740
  1,657
  2,051
  2,501
  3,007
  3,570
  4,189
  4,864
  5,593
  6,376
  7,211
  8,097
  9,033
  10,018
  11,051
  12,132
  13,261
  14,437
  15,662
  16,937
  18,262
  19,639
  21,070
  22,557
  24,103
  25,710
  27,381
  29,120
  30,930
  32,815
  34,779
Total equity, $m
  1,157
  184
  228
  278
  334
  397
  465
  540
  621
  708
  801
  900
  1,004
  1,113
  1,228
  1,348
  1,473
  1,604
  1,740
  1,882
  2,029
  2,182
  2,341
  2,506
  2,678
  2,857
  3,042
  3,236
  3,437
  3,646
  3,864
Total liabilities and equity, $m
  2,897
  1,841
  2,279
  2,779
  3,341
  3,967
  4,654
  5,404
  6,214
  7,084
  8,012
  8,997
  10,037
  11,131
  12,279
  13,480
  14,734
  16,041
  17,402
  18,819
  20,291
  21,821
  23,411
  25,063
  26,781
  28,567
  30,423
  32,356
  34,367
  36,461
  38,643
Debt-to-equity ratio
  0.727
  4.120
  5.060
  5.770
  6.310
  6.730
  7.070
  7.340
  7.550
  7.730
  7.880
  8.000
  8.100
  8.190
  8.270
  8.330
  8.390
  8.440
  8.480
  8.520
  8.560
  8.590
  8.620
  8.640
  8.660
  8.690
  8.700
  8.720
  8.740
  8.750
  8.770
Adjusted equity ratio
  0.015
  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
  -112
  153
  379
  629
  912
  1,229
  1,579
  1,961
  2,376
  2,822
  3,298
  3,808
  4,343
  4,907
  5,499
  6,118
  6,766
  7,441
  8,145
  8,878
  9,640
  10,432
  11,256
  12,113
  13,004
  13,931
  14,896
  15,901
  16,947
  18,038
  19,175
Depreciation, amort., depletion, $m
  61
  76
  93
  112
  134
  158
  185
  214
  245
  279
  315
  348
  388
  430
  475
  521
  570
  620
  673
  728
  784
  844
  905
  969
  1,035
  1,104
  1,176
  1,251
  1,329
  1,410
  1,494
Funds from operations, $m
  234
  230
  472
  741
  1,046
  1,387
  1,764
  2,175
  2,621
  3,101
  3,613
  4,156
  4,731
  5,337
  5,973
  6,639
  7,336
  8,062
  8,818
  9,605
  10,424
  11,276
  12,161
  13,082
  14,040
  15,036
  16,073
  17,152
  18,276
  19,447
  20,669
Change in working capital, $m
  -2
  -20
  -23
  -26
  -29
  -33
  -36
  -39
  -42
  -46
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -90
  -94
  -97
  -101
  -105
  -110
  -114
Cash from operations, $m
  236
  249
  495
  767
  1,076
  1,420
  1,800
  2,214
  2,663
  3,146
  3,661
  4,207
  4,785
  5,394
  6,033
  6,702
  7,401
  8,130
  8,889
  9,679
  10,501
  11,356
  12,245
  13,169
  14,130
  15,129
  16,170
  17,253
  18,381
  19,557
  20,783
Maintenance CAPEX, $m
  0
  -57
  -71
  -88
  -107
  -129
  -153
  -180
  -209
  -240
  -274
  -310
  -348
  -388
  -430
  -475
  -521
  -570
  -620
  -673
  -728
  -784
  -844
  -905
  -969
  -1,035
  -1,104
  -1,176
  -1,251
  -1,329
  -1,410
New CAPEX, $m
  -57
  -164
  -190
  -216
  -244
  -271
  -298
  -325
  -351
  -377
  -402
  -426
  -450
  -474
  -497
  -520
  -543
  -566
  -589
  -613
  -637
  -663
  -689
  -716
  -744
  -773
  -804
  -837
  -871
  -907
  -945
Cash from investing activities, $m
  104
  -221
  -261
  -304
  -351
  -400
  -451
  -505
  -560
  -617
  -676
  -736
  -798
  -862
  -927
  -995
  -1,064
  -1,136
  -1,209
  -1,286
  -1,365
  -1,447
  -1,533
  -1,621
  -1,713
  -1,808
  -1,908
  -2,013
  -2,122
  -2,236
  -2,355
Free cash flow, $m
  340
  29
  234
  463
  725
  1,020
  1,348
  1,710
  2,104
  2,529
  2,986
  3,471
  3,987
  4,533
  5,106
  5,708
  6,337
  6,994
  7,680
  8,393
  9,136
  9,909
  10,712
  11,548
  12,417
  13,321
  14,261
  15,240
  16,260
  17,322
  18,429
Issuance/(repayment) of debt, $m
  -7
  236
  394
  450
  506
  563
  619
  675
  729
  783
  835
  886
  936
  985
  1,033
  1,081
  1,129
  1,177
  1,225
  1,274
  1,325
  1,377
  1,431
  1,487
  1,546
  1,607
  1,671
  1,739
  1,810
  1,885
  1,964
Issuance/(repurchase) of shares, $m
  68
  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  
  133
  236
  394
  450
  506
  563
  619
  675
  729
  783
  835
  886
  936
  985
  1,033
  1,081
  1,129
  1,177
  1,225
  1,274
  1,325
  1,377
  1,431
  1,487
  1,546
  1,607
  1,671
  1,739
  1,810
  1,885
  1,964
Total cash flow (excl. dividends), $m
  469
  265
  628
  913
  1,231
  1,583
  1,968
  2,385
  2,833
  3,312
  3,821
  4,357
  4,923
  5,517
  6,139
  6,789
  7,466
  8,171
  8,905
  9,668
  10,461
  11,286
  12,144
  13,035
  13,963
  14,928
  15,933
  16,979
  18,069
  19,206
  20,392
Retained Cash Flow (-), $m
  -217
  -143
  -44
  -50
  -56
  -63
  -69
  -75
  -81
  -87
  -93
  -98
  -104
  -109
  -115
  -120
  -125
  -131
  -136
  -142
  -147
  -153
  -159
  -165
  -172
  -179
  -186
  -193
  -201
  -209
  -218
Prev. year cash balance distribution, $m
 
  1,116
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  1,238
  584
  863
  1,175
  1,520
  1,899
  2,310
  2,752
  3,225
  3,728
  4,259
  4,819
  5,408
  6,024
  6,668
  7,340
  8,040
  8,769
  9,526
  10,314
  11,133
  11,985
  12,870
  13,791
  14,749
  15,747
  16,786
  17,868
  18,997
  20,174
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  1,187
  535
  751
  967
  1,178
  1,378
  1,560
  1,720
  1,853
  1,954
  2,022
  2,057
  2,056
  2,022
  1,958
  1,865
  1,749
  1,615
  1,467
  1,311
  1,152
  994
  844
  702
  574
  459
  360
  276
  207
  152
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

Vertex Pharmaceuticals Incorporated is engaged in discovering, developing, manufacturing and commercializing medicines for serious diseases. The Company is focused on developing and commercializing therapies for the treatment of cystic fibrosis (CF) and advancing its research and development programs in other indications. The Company's marketed medicines are ORKAMBI and KALYDECO. ORKAMBI (lumacaftor in combination with ivacaftor) is approved as a treatment for patients having two copies (homozygous) of the Delta-F508 (F508del) mutation in their cystic fibrosis transmembrane conductance regulator (CFTR) gene. KALYDECO (ivacaftor) is approved for the treatment of CF patients having the G551D mutation or other specified mutations in their CFTR gene. The Company's development programs in the field of CF include Tezacaftor (VX-661), VX-152, VX-440, VX-659, VX-445 and VX-371. VX-152, VX-440, VX-659 and VX-445 are CFTR corrector compounds.

FINANCIAL RATIOS  of  Vertex Pharmaceuticals (VRTX)

Valuation Ratios
P/E Ratio -312.4
Price to Sales 20.6
Price to Book 30.2
Price to Tangible Book
Price to Cash Flow 148.3
Price to Free Cash Flow 195.5
Growth Rates
Sales Growth Rate 64.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 26.7%
Cap. Spend. - 3 Yr. Gr. Rate 2.2%
Financial Strength
Quick Ratio 4
Current Ratio 0.1
LT Debt to Equity 45.1%
Total Debt to Equity 72.7%
Interest Coverage 0
Management Effectiveness
Return On Assets -0.2%
Ret/ On Assets - 3 Yr. Avg. -16.1%
Return On Total Capital -6%
Ret/ On T. Cap. - 3 Yr. Avg. -25.2%
Return On Equity -10.7%
Return On Equity - 3 Yr. Avg. -42.2%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 87.8%
Gross Margin - 3 Yr. Avg. 89.9%
EBITDA Margin 4.6%
EBITDA Margin - 3 Yr. Avg. -46.4%
Operating Margin 0.6%
Oper. Margin - 3 Yr. Avg. -52.6%
Pre-Tax Margin -3.9%
Pre-Tax Margin - 3 Yr. Avg. -61.6%
Net Profit Margin -6.6%
Net Profit Margin - 3 Yr. Avg. -62.6%
Effective Tax Rate -25.4%
Eff/ Tax Rate - 3 Yr. Avg. -10.6%
Payout Ratio 0%

VRTX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VRTX stock intrinsic value calculation we used $1702 million for the last fiscal year's total revenue generated by Vertex Pharmaceuticals. The default revenue input number comes from 2016 income statement of Vertex Pharmaceuticals. 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 VRTX stock valuation model: a) initial revenue growth rate of 25.9% 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 VRTX is calculated based on our internal credit rating of Vertex Pharmaceuticals, 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 Vertex Pharmaceuticals.
    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 VRTX stock the variable cost ratio is equal to 29%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1229 million in the base year in the intrinsic value calculation for VRTX 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 10.1% for Vertex Pharmaceuticals.

Corporate tax rate of 27% is the nominal tax rate for Vertex Pharmaceuticals. 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 VRTX 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 VRTX are equal to 37.2%.

Life of production assets of 11.2 years is the average useful life of capital assets used in Vertex Pharmaceuticals 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 VRTX is equal to -4.5%. 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 - $1157 million for Vertex Pharmaceuticals - 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 252.15 million for Vertex Pharmaceuticals 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 Vertex Pharmaceuticals at the current share price and the inputted number of shares is $35.5 billion.

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Financial statements of VRTX
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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