Intrinsic value of Vertex Pharmaceuticals - VRTX

Previous Close

$151.37

  Intrinsic Value

$1,245

stock screener

  Rating & Target

str. buy

+722%

  Value-price divergence*

-113%

Previous close

$151.37

 
Intrinsic value

$1,245

 
Up/down potential

+722%

 
Rating

str. buy

 
Value-price divergence*

-113%

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

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 38.3

 

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, %
  64.92
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  1,702
  2,723
  4,207
  6,292
  9,129
  12,880
  17,708
  23,769
  31,210
  40,160
  50,725
  62,989
  77,010
  92,822
  110,440
  129,858
  151,056
  174,004
  198,665
  224,998
  252,965
  282,528
  313,657
  346,329
  380,527
  416,248
  453,496
  492,286
  532,645
  574,609
  618,225
Variable operating expenses, $m
 
  787
  1,213
  1,811
  2,626
  3,702
  5,088
  6,828
  8,964
  11,533
  14,566
  18,082
  22,107
  26,646
  31,703
  37,277
  43,363
  49,950
  57,029
  64,589
  72,617
  81,103
  90,039
  99,418
  109,235
  119,489
  130,182
  141,317
  152,902
  164,948
  177,469
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
  2,047
  2,504
  3,134
  3,983
  5,093
  6,513
  8,289
  10,461
  13,068
  16,139
  19,695
  23,760
  28,340
  33,440
  39,057
  45,187
  51,820
  58,946
  66,554
  74,631
  83,167
  92,155
  101,587
  111,458
  121,767
  132,517
  143,711
  155,356
  167,463
  180,047
Operating income, $m
  10
  677
  1,703
  3,157
  5,147
  7,787
  11,194
  15,480
  20,748
  27,091
  34,585
  43,294
  53,250
  64,482
  77,001
  90,801
  105,869
  122,184
  139,719
  158,445
  178,334
  199,361
  221,502
  244,742
  269,069
  294,480
  320,979
  348,575
  377,289
  407,145
  438,178
EBITDA, $m
  71
  772
  1,848
  3,371
  5,455
  8,220
  11,787
  16,274
  21,790
  28,430
  36,275
  45,387
  55,808
  67,565
  80,669
  95,114
  110,887
  127,964
  146,317
  165,918
  186,737
  208,745
  231,920
  256,245
  281,708
  308,306
  336,041
  364,926
  394,980
  426,230
  458,712
Interest expense (income), $m
  84
  53
  139
  264
  440
  679
  996
  1,403
  1,914
  2,541
  3,296
  4,187
  5,222
  6,404
  7,738
  9,224
  10,861
  12,649
  14,585
  16,665
  18,886
  21,244
  23,738
  26,363
  29,119
  32,003
  35,016
  38,157
  41,429
  44,833
  48,372
Earnings before tax, $m
  -67
  624
  1,564
  2,893
  4,707
  7,108
  10,199
  14,077
  18,834
  24,550
  31,289
  39,107
  48,029
  58,078
  69,263
  81,577
  95,008
  109,535
  125,134
  141,781
  159,449
  178,117
  197,765
  218,379
  239,951
  262,478
  285,963
  310,418
  335,860
  362,313
  389,806
Tax expense, $m
  17
  168
  422
  781
  1,271
  1,919
  2,754
  3,801
  5,085
  6,628
  8,448
  10,559
  12,968
  15,681
  18,701
  22,026
  25,652
  29,574
  33,786
  38,281
  43,051
  48,091
  53,396
  58,962
  64,787
  70,869
  77,210
  83,813
  90,682
  97,824
  105,248
Net income, $m
  -112
  456
  1,142
  2,112
  3,436
  5,189
  7,445
  10,276
  13,749
  17,921
  22,841
  28,548
  35,061
  42,397
  50,562
  59,551
  69,356
  79,960
  91,348
  103,500
  116,398
  130,025
  144,368
  159,417
  175,164
  191,609
  208,753
  226,605
  245,178
  264,488
  284,558

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
  3,119
  4,819
  7,207
  10,458
  14,754
  20,284
  27,227
  35,750
  46,002
  58,104
  72,152
  88,213
  106,326
  126,507
  148,750
  173,031
  199,318
  227,566
  257,730
  289,765
  323,629
  359,287
  396,711
  435,885
  476,802
  519,468
  563,902
  610,132
  658,200
  708,161
Adjusted assets (=assets-cash), $m
  1,462
  3,119
  4,819
  7,207
  10,458
  14,754
  20,284
  27,227
  35,750
  46,002
  58,104
  72,152
  88,213
  106,326
  126,507
  148,750
  173,031
  199,318
  227,566
  257,730
  289,765
  323,629
  359,287
  396,711
  435,885
  476,802
  519,468
  563,902
  610,132
  658,200
  708,161
Revenue / Adjusted assets
  1.164
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
  0.873
Average production assets, $m
  633
  1,013
  1,565
  2,341
  3,396
  4,792
  6,587
  8,842
  11,610
  14,939
  18,870
  23,432
  28,648
  34,530
  41,084
  48,307
  56,193
  64,730
  73,903
  83,699
  94,103
  105,101
  116,681
  128,834
  141,556
  154,844
  168,700
  183,130
  198,144
  213,754
  229,980
Working capital, $m
  1,039
  -123
  -189
  -283
  -411
  -580
  -797
  -1,070
  -1,404
  -1,807
  -2,283
  -2,834
  -3,465
  -4,177
  -4,970
  -5,844
  -6,798
  -7,830
  -8,940
  -10,125
  -11,383
  -12,714
  -14,115
  -15,585
  -17,124
  -18,731
  -20,407
  -22,153
  -23,969
  -25,857
  -27,820
Total debt, $m
  841
  1,375
  2,614
  4,355
  6,725
  9,857
  13,888
  18,949
  25,163
  32,636
  41,459
  51,700
  63,408
  76,613
  91,324
  107,539
  125,241
  144,404
  164,997
  186,986
  210,340
  235,027
  261,021
  288,303
  316,861
  346,690
  377,793
  410,185
  443,887
  478,929
  515,351
Total liabilities, $m
  1,740
  2,274
  3,513
  5,254
  7,624
  10,756
  14,787
  19,848
  26,062
  33,535
  42,358
  52,599
  64,307
  77,512
  92,223
  108,438
  126,140
  145,303
  165,896
  187,885
  211,239
  235,926
  261,920
  289,202
  317,760
  347,589
  378,692
  411,084
  444,786
  479,828
  516,250
Total equity, $m
  1,157
  845
  1,306
  1,953
  2,834
  3,998
  5,497
  7,378
  9,688
  12,466
  15,746
  19,553
  23,906
  28,814
  34,283
  40,311
  46,892
  54,015
  61,670
  69,845
  78,526
  87,704
  97,367
  107,509
  118,125
  129,213
  140,776
  152,817
  165,346
  178,372
  191,912
Total liabilities and equity, $m
  2,897
  3,119
  4,819
  7,207
  10,458
  14,754
  20,284
  27,226
  35,750
  46,001
  58,104
  72,152
  88,213
  106,326
  126,506
  148,749
  173,032
  199,318
  227,566
  257,730
  289,765
  323,630
  359,287
  396,711
  435,885
  476,802
  519,468
  563,901
  610,132
  658,200
  708,162
Debt-to-equity ratio
  0.727
  1.630
  2.000
  2.230
  2.370
  2.470
  2.530
  2.570
  2.600
  2.620
  2.630
  2.640
  2.650
  2.660
  2.660
  2.670
  2.670
  2.670
  2.680
  2.680
  2.680
  2.680
  2.680
  2.680
  2.680
  2.680
  2.680
  2.680
  2.680
  2.680
  2.690
Adjusted equity ratio
  0.015
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271
  0.271

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -112
  456
  1,142
  2,112
  3,436
  5,189
  7,445
  10,276
  13,749
  17,921
  22,841
  28,548
  35,061
  42,397
  50,562
  59,551
  69,356
  79,960
  91,348
  103,500
  116,398
  130,025
  144,368
  159,417
  175,164
  191,609
  208,753
  226,605
  245,178
  264,488
  284,558
Depreciation, amort., depletion, $m
  61
  95
  145
  214
  308
  433
  593
  794
  1,042
  1,339
  1,690
  2,092
  2,558
  3,083
  3,668
  4,313
  5,017
  5,779
  6,599
  7,473
  8,402
  9,384
  10,418
  11,503
  12,639
  13,825
  15,063
  16,351
  17,691
  19,085
  20,534
Funds from operations, $m
  234
  551
  1,287
  2,326
  3,745
  5,622
  8,038
  11,071
  14,791
  19,260
  24,531
  30,640
  37,619
  45,480
  54,230
  63,864
  74,373
  85,740
  97,946
  110,973
  124,800
  139,409
  154,786
  170,920
  187,803
  205,434
  223,816
  242,956
  262,869
  283,573
  305,092
Change in working capital, $m
  -2
  -46
  -67
  -94
  -128
  -169
  -217
  -273
  -335
  -403
  -475
  -552
  -631
  -712
  -793
  -874
  -954
  -1,033
  -1,110
  -1,185
  -1,258
  -1,330
  -1,401
  -1,470
  -1,539
  -1,607
  -1,676
  -1,746
  -1,816
  -1,888
  -1,963
Cash from operations, $m
  236
  597
  1,354
  2,420
  3,872
  5,791
  8,255
  11,343
  15,126
  19,663
  25,006
  31,192
  38,250
  46,192
  55,023
  64,738
  75,327
  86,773
  99,056
  112,158
  126,058
  140,739
  156,187
  172,390
  189,342
  207,041
  225,492
  244,702
  264,685
  285,462
  307,055
Maintenance CAPEX, $m
  0
  -57
  -90
  -140
  -209
  -303
  -428
  -588
  -789
  -1,037
  -1,334
  -1,685
  -2,092
  -2,558
  -3,083
  -3,668
  -4,313
  -5,017
  -5,779
  -6,599
  -7,473
  -8,402
  -9,384
  -10,418
  -11,503
  -12,639
  -13,825
  -15,063
  -16,351
  -17,691
  -19,085
New CAPEX, $m
  -57
  -380
  -552
  -776
  -1,056
  -1,395
  -1,796
  -2,255
  -2,768
  -3,329
  -3,930
  -4,562
  -5,216
  -5,882
  -6,554
  -7,223
  -7,886
  -8,537
  -9,174
  -9,796
  -10,404
  -10,998
  -11,580
  -12,154
  -12,722
  -13,288
  -13,856
  -14,430
  -15,013
  -15,611
  -16,225
Cash from investing activities, $m
  104
  -437
  -642
  -916
  -1,265
  -1,698
  -2,224
  -2,843
  -3,557
  -4,366
  -5,264
  -6,247
  -7,308
  -8,440
  -9,637
  -10,891
  -12,199
  -13,554
  -14,953
  -16,395
  -17,877
  -19,400
  -20,964
  -22,572
  -24,225
  -25,927
  -27,681
  -29,493
  -31,364
  -33,302
  -35,310
Free cash flow, $m
  340
  160
  711
  1,505
  2,608
  4,092
  6,032
  8,501
  11,568
  15,297
  19,742
  24,945
  30,942
  37,752
  45,386
  53,847
  63,128
  73,219
  84,103
  95,763
  108,181
  121,340
  135,223
  149,818
  165,117
  181,114
  197,810
  215,209
  233,321
  252,160
  271,745
Issuance/(repayment) of debt, $m
  -7
  853
  1,239
  1,741
  2,369
  3,132
  4,031
  5,061
  6,214
  7,473
  8,823
  10,241
  11,708
  13,205
  14,712
  16,215
  17,701
  19,163
  20,593
  21,990
  23,354
  24,687
  25,994
  27,282
  28,558
  29,829
  31,104
  32,392
  33,702
  35,042
  36,422
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
  853
  1,239
  1,741
  2,369
  3,132
  4,031
  5,061
  6,214
  7,473
  8,823
  10,241
  11,708
  13,205
  14,712
  16,215
  17,701
  19,163
  20,593
  21,990
  23,354
  24,687
  25,994
  27,282
  28,558
  29,829
  31,104
  32,392
  33,702
  35,042
  36,422
Total cash flow (excl. dividends), $m
  469
  1,013
  1,950
  3,246
  4,977
  7,224
  10,063
  13,562
  17,782
  22,771
  28,565
  35,186
  42,650
  50,956
  60,098
  70,062
  80,830
  92,381
  104,696
  117,753
  131,535
  146,027
  161,217
  177,101
  193,675
  210,943
  228,914
  247,601
  267,023
  287,202
  308,166
Retained Cash Flow (-), $m
  -217
  -316
  -461
  -647
  -881
  -1,164
  -1,498
  -1,882
  -2,310
  -2,778
  -3,280
  -3,807
  -4,352
  -4,909
  -5,469
  -6,028
  -6,580
  -7,124
  -7,655
  -8,175
  -8,681
  -9,177
  -9,663
  -10,142
  -10,616
  -11,089
  -11,563
  -12,041
  -12,528
  -13,027
  -13,539
Prev. year cash balance distribution, $m
 
  628
  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
 
  1,325
  1,490
  2,598
  4,096
  6,060
  8,564
  11,680
  15,472
  19,992
  25,285
  31,379
  38,297
  46,047
  54,629
  64,034
  74,249
  85,258
  97,041
  109,579
  122,854
  136,850
  151,554
  166,959
  183,059
  199,854
  217,351
  235,560
  254,494
  274,175
  294,627
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
 
  1,270
  1,364
  2,261
  3,373
  4,697
  6,215
  7,891
  9,670
  11,485
  13,256
  14,902
  16,343
  17,508
  18,340
  18,799
  18,868
  18,551
  17,871
  16,872
  15,611
  14,155
  12,575
  10,943
  9,324
  7,775
  6,341
  5,056
  3,937
  2,993
  2,218
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 discovers, develops, manufactures, and commercializes medicines for serious diseases. The company focuses on developing and commercializing therapies for the treatment of cystic fibrosis (CF) and advancing its research and development programs. It markets ORKAMBI (lumacaftor in combination with ivacaftor) for the treatment of patients with CF 12 years of age and older who have two copies (homozygous) of the F508del mutation in their cystic fibrosis transmembrane conductance regulator (CFTR) gene; and KALYDECO (ivacaftor) for the treatment of patients with CF 2 years of age and older who have the G551D mutation or other specified mutations in their CFTR gene. The company also develops Tezacaftor (VX-661), a corrector compound that is in a Phase III development program in combination with ivacaftor in multiple CF patients; VX-152 and VX-440 that are CFTR corrector compounds in Phase II clinical trials, as well as VX-659 and VX-445 that are CFTR corrector compounds in Phase I clinical trials; and VX-371, an investigational epithelial sodium channel, which is in a Phase II development program. In addition, it engages in the research and mid-and early-stage development programs in the areas of oncology, pain, and neurology. The company sells its products primarily to specialty pharmacy providers and wholesalers in North America, as well as government-owned and supported customers internationally. Vertex Pharmaceuticals Incorporated has collaborations with Cystic Fibrosis Foundation Therapeutics Incorporated; Parion Sciences, Inc.; CRISPR Therapeutics AG; Moderna Therapeutics, Inc.; BioAxone Biosciences, Inc.; Merck KGaA; and Janssen Pharmaceuticals, Inc. The company was founded in 1989 and is headquartered in Boston, Massachusetts.

FINANCIAL RATIOS  of  Vertex Pharmaceuticals (VRTX)

Valuation Ratios
P/E Ratio -335.6
Price to Sales 22.1
Price to Book 32.5
Price to Tangible Book
Price to Cash Flow 159.3
Price to Free Cash Flow 210
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 60% 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 253.239 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 $38.3 billion.

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▶ Vertexs latest FDA nod could boost sales by $150M: analyst   [Aug-02-17 12:35PM  American City Business Journals]
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Stock chart of VRTX 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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