Intrinsic value of Valeant Pharmaceuticals International - VRX

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$12.83

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$12.83

 
Intrinsic value

$12.71

 
Up/down potential

-1%

 
Rating

hold

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

We calculate the intrinsic value of VRX 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 4.3

 

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, %
  -7.40
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  9,674
  9,867
  10,094
  10,354
  10,645
  10,968
  11,322
  11,708
  12,125
  12,575
  13,057
  13,573
  14,124
  14,711
  15,334
  15,996
  16,697
  17,439
  18,223
  19,053
  19,928
  20,852
  21,826
  22,853
  23,934
  25,074
  26,274
  27,536
  28,865
  30,263
  31,733
Variable operating expenses, $m
 
  8,415
  8,572
  8,752
  8,954
  9,177
  9,423
  9,690
  9,979
  10,290
  10,625
  9,403
  9,784
  10,191
  10,623
  11,081
  11,566
  12,080
  12,624
  13,198
  13,805
  14,445
  15,120
  15,831
  16,580
  17,370
  18,201
  19,075
  19,996
  20,964
  21,983
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
  10,240
  8,415
  8,572
  8,752
  8,954
  9,177
  9,423
  9,690
  9,979
  10,290
  10,625
  9,403
  9,784
  10,191
  10,623
  11,081
  11,566
  12,080
  12,624
  13,198
  13,805
  14,445
  15,120
  15,831
  16,580
  17,370
  18,201
  19,075
  19,996
  20,964
  21,983
Operating income, $m
  -566
  1,453
  1,522
  1,602
  1,691
  1,791
  1,899
  2,018
  2,146
  2,284
  2,433
  4,171
  4,340
  4,520
  4,712
  4,915
  5,130
  5,358
  5,599
  5,854
  6,123
  6,407
  6,706
  7,022
  7,354
  7,704
  8,073
  8,461
  8,869
  9,299
  9,750
EBITDA, $m
  2,300
  4,684
  4,792
  4,915
  5,054
  5,207
  5,375
  5,558
  5,756
  5,969
  6,199
  6,444
  6,705
  6,984
  7,280
  7,594
  7,926
  8,279
  8,651
  9,045
  9,460
  9,899
  10,361
  10,849
  11,362
  11,903
  12,473
  13,072
  13,703
  14,367
  15,065
Interest expense (income), $m
  1,718
  1,671
  1,621
  1,672
  1,730
  1,795
  1,867
  1,947
  2,033
  2,127
  2,227
  2,335
  2,451
  2,574
  2,706
  2,845
  2,994
  3,151
  3,317
  3,493
  3,678
  3,874
  4,081
  4,300
  4,530
  4,772
  5,027
  5,296
  5,579
  5,876
  6,190
Earnings before tax, $m
  -2,435
  -219
  -99
  -70
  -38
  -5
  32
  71
  113
  158
  205
  1,835
  1,889
  1,946
  2,006
  2,069
  2,137
  2,208
  2,282
  2,361
  2,445
  2,532
  2,625
  2,722
  2,825
  2,932
  3,046
  3,165
  3,290
  3,422
  3,561
Tax expense, $m
  -27
  0
  0
  0
  0
  0
  9
  19
  31
  43
  55
  496
  510
  525
  542
  559
  577
  596
  616
  638
  660
  684
  709
  735
  763
  792
  822
  855
  888
  924
  961
Net income, $m
  -2,409
  -219
  -99
  -70
  -38
  -5
  23
  52
  83
  115
  150
  1,340
  1,379
  1,420
  1,464
  1,511
  1,560
  1,612
  1,666
  1,724
  1,785
  1,849
  1,916
  1,987
  2,062
  2,141
  2,223
  2,310
  2,402
  2,498
  2,600

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  542
  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
  43,529
  43,855
  44,864
  46,017
  47,312
  48,746
  50,320
  52,033
  53,889
  55,887
  58,032
  60,326
  62,775
  65,382
  68,152
  71,092
  74,207
  77,505
  80,993
  84,678
  88,569
  92,674
  97,003
  101,567
  106,375
  111,439
  116,771
  122,384
  128,289
  134,502
  141,037
Adjusted assets (=assets-cash), $m
  42,987
  43,855
  44,864
  46,017
  47,312
  48,746
  50,320
  52,033
  53,889
  55,887
  58,032
  60,326
  62,775
  65,382
  68,152
  71,092
  74,207
  77,505
  80,993
  84,678
  88,569
  92,674
  97,003
  101,567
  106,375
  111,439
  116,771
  122,384
  128,289
  134,502
  141,037
Revenue / Adjusted assets
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
Average production assets, $m
  22,361
  22,804
  23,328
  23,928
  24,601
  25,347
  26,165
  27,056
  28,021
  29,060
  30,175
  31,368
  32,641
  33,997
  35,437
  36,966
  38,586
  40,301
  42,114
  44,030
  46,053
  48,188
  50,439
  52,812
  55,312
  57,946
  60,718
  63,636
  66,707
  69,938
  73,336
Working capital, $m
  1,468
  947
  969
  994
  1,022
  1,053
  1,087
  1,124
  1,164
  1,207
  1,253
  1,303
  1,356
  1,412
  1,472
  1,536
  1,603
  1,674
  1,749
  1,829
  1,913
  2,002
  2,095
  2,194
  2,298
  2,407
  2,522
  2,643
  2,771
  2,905
  3,046
Total debt, $m
  29,852
  28,945
  29,853
  30,890
  32,055
  33,346
  34,763
  36,305
  37,975
  39,773
  41,704
  43,769
  45,972
  48,318
  50,812
  53,458
  56,262
  59,230
  62,369
  65,685
  69,187
  72,882
  76,778
  80,885
  85,213
  89,771
  94,569
  99,620
  104,935
  110,527
  116,409
Total liabilities, $m
  40,377
  39,470
  40,378
  41,415
  42,580
  43,871
  45,288
  46,830
  48,500
  50,298
  52,229
  54,294
  56,497
  58,843
  61,337
  63,983
  66,787
  69,755
  72,894
  76,210
  79,712
  83,407
  87,303
  91,410
  95,738
  100,296
  105,094
  110,145
  115,460
  121,052
  126,934
Total equity, $m
  3,152
  4,386
  4,486
  4,602
  4,731
  4,875
  5,032
  5,203
  5,389
  5,589
  5,803
  6,033
  6,277
  6,538
  6,815
  7,109
  7,421
  7,751
  8,099
  8,468
  8,857
  9,267
  9,700
  10,157
  10,638
  11,144
  11,677
  12,238
  12,829
  13,450
  14,104
Total liabilities and equity, $m
  43,529
  43,856
  44,864
  46,017
  47,311
  48,746
  50,320
  52,033
  53,889
  55,887
  58,032
  60,327
  62,774
  65,381
  68,152
  71,092
  74,208
  77,506
  80,993
  84,678
  88,569
  92,674
  97,003
  101,567
  106,376
  111,440
  116,771
  122,383
  128,289
  134,502
  141,038
Debt-to-equity ratio
  9.471
  6.600
  6.650
  6.710
  6.780
  6.840
  6.910
  6.980
  7.050
  7.120
  7.190
  7.260
  7.320
  7.390
  7.460
  7.520
  7.580
  7.640
  7.700
  7.760
  7.810
  7.860
  7.910
  7.960
  8.010
  8.060
  8.100
  8.140
  8.180
  8.220
  8.250
Adjusted equity ratio
  0.061
  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
  -2,409
  -219
  -99
  -70
  -38
  -5
  23
  52
  83
  115
  150
  1,340
  1,379
  1,420
  1,464
  1,511
  1,560
  1,612
  1,666
  1,724
  1,785
  1,849
  1,916
  1,987
  2,062
  2,141
  2,223
  2,310
  2,402
  2,498
  2,600
Depreciation, amort., depletion, $m
  2,866
  3,232
  3,270
  3,313
  3,362
  3,416
  3,475
  3,540
  3,610
  3,685
  3,766
  2,273
  2,365
  2,464
  2,568
  2,679
  2,796
  2,920
  3,052
  3,191
  3,337
  3,492
  3,655
  3,827
  4,008
  4,199
  4,400
  4,611
  4,834
  5,068
  5,314
Funds from operations, $m
  1,977
  3,013
  3,171
  3,243
  3,324
  3,412
  3,499
  3,592
  3,692
  3,800
  3,916
  3,613
  3,744
  3,884
  4,032
  4,189
  4,356
  4,532
  4,718
  4,914
  5,122
  5,341
  5,571
  5,814
  6,070
  6,340
  6,623
  6,922
  7,236
  7,566
  7,914
Change in working capital, $m
  -110
  19
  22
  25
  28
  31
  34
  37
  40
  43
  46
  50
  53
  56
  60
  64
  67
  71
  75
  80
  84
  89
  94
  99
  104
  109
  115
  121
  128
  134
  141
Cash from operations, $m
  2,087
  830
  3,149
  3,219
  3,296
  3,381
  3,465
  3,555
  3,652
  3,757
  3,870
  3,563
  3,691
  3,828
  3,972
  4,126
  4,289
  4,461
  4,643
  4,835
  5,038
  5,252
  5,478
  5,716
  5,966
  6,230
  6,508
  6,801
  7,108
  7,432
  7,773
Maintenance CAPEX, $m
  0
  -1,620
  -1,652
  -1,690
  -1,734
  -1,783
  -1,837
  -1,896
  -1,961
  -2,030
  -2,106
  -2,187
  -2,273
  -2,365
  -2,464
  -2,568
  -2,679
  -2,796
  -2,920
  -3,052
  -3,191
  -3,337
  -3,492
  -3,655
  -3,827
  -4,008
  -4,199
  -4,400
  -4,611
  -4,834
  -5,068
New CAPEX, $m
  -291
  -443
  -524
  -600
  -673
  -746
  -818
  -891
  -965
  -1,039
  -1,115
  -1,193
  -1,273
  -1,355
  -1,441
  -1,529
  -1,620
  -1,715
  -1,813
  -1,916
  -2,023
  -2,135
  -2,251
  -2,373
  -2,500
  -2,633
  -2,772
  -2,918
  -3,071
  -3,231
  -3,398
Cash from investing activities, $m
  -125
  -2,063
  -2,176
  -2,290
  -2,407
  -2,529
  -2,655
  -2,787
  -2,926
  -3,069
  -3,221
  -3,380
  -3,546
  -3,720
  -3,905
  -4,097
  -4,299
  -4,511
  -4,733
  -4,968
  -5,214
  -5,472
  -5,743
  -6,028
  -6,327
  -6,641
  -6,971
  -7,318
  -7,682
  -8,065
  -8,466
Free cash flow, $m
  1,962
  -1,234
  972
  929
  889
  852
  810
  768
  727
  687
  648
  183
  145
  107
  68
  29
  -10
  -50
  -91
  -133
  -176
  -220
  -265
  -312
  -361
  -411
  -463
  -518
  -574
  -632
  -693
Issuance/(repayment) of debt, $m
  -1,216
  -900
  908
  1,038
  1,165
  1,291
  1,416
  1,542
  1,670
  1,799
  1,930
  2,065
  2,204
  2,346
  2,493
  2,646
  2,804
  2,968
  3,139
  3,316
  3,502
  3,695
  3,897
  4,107
  4,327
  4,558
  4,799
  5,051
  5,315
  5,592
  5,882
Issuance/(repurchase) of shares, $m
  33
  3,367
  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  
  -1,963
  2,467
  908
  1,038
  1,165
  1,291
  1,416
  1,542
  1,670
  1,799
  1,930
  2,065
  2,204
  2,346
  2,493
  2,646
  2,804
  2,968
  3,139
  3,316
  3,502
  3,695
  3,897
  4,107
  4,327
  4,558
  4,799
  5,051
  5,315
  5,592
  5,882
Total cash flow (excl. dividends), $m
  -55
  -2,134
  1,880
  1,966
  2,054
  2,143
  2,226
  2,310
  2,397
  2,486
  2,579
  2,249
  2,349
  2,453
  2,562
  2,675
  2,794
  2,918
  3,048
  3,184
  3,326
  3,475
  3,631
  3,795
  3,967
  4,147
  4,335
  4,533
  4,741
  4,959
  5,188
Retained Cash Flow (-), $m
  2,759
  -1,769
  -101
  -115
  -129
  -143
  -157
  -171
  -186
  -200
  -214
  -229
  -245
  -261
  -277
  -294
  -312
  -330
  -349
  -368
  -389
  -411
  -433
  -456
  -481
  -506
  -533
  -561
  -591
  -621
  -654
Prev. year cash balance distribution, $m
 
  535
  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
 
  0
  1,779
  1,851
  1,924
  2,000
  2,069
  2,139
  2,211
  2,286
  2,364
  2,019
  2,104
  2,192
  2,285
  2,381
  2,482
  2,588
  2,699
  2,815
  2,937
  3,064
  3,198
  3,338
  3,486
  3,640
  3,802
  3,972
  4,151
  4,338
  4,535
Discount rate, %
 
  13.50
  14.18
  14.88
  15.63
  16.41
  17.23
  18.09
  19.00
  19.95
  20.94
  21.99
  23.09
  24.24
  25.46
  26.73
  28.07
  29.47
  30.94
  32.49
  34.11
  35.82
  37.61
  39.49
  41.47
  43.54
  45.72
  48.00
  50.40
  52.92
  55.57
PV of cash for distribution, $m
 
  0
  1,365
  1,221
  1,077
  935
  797
  668
  550
  445
  353
  227
  174
  130
  95
  68
  47
  32
  21
  13
  8
  5
  3
  2
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2
  51.2

Valeant Pharmaceuticals International, Inc. develops, manufactures, and markets pharmaceuticals, over-the-counter products, and medical devices worldwide. The company offers Xifaxan for the treatment of irritable bowel syndrome with diarrhea; Wellbutrin XL for major depressive disorder in adults; Solodyn to treat red and pus-filled pimples of acne in patients, as well as Ziana, Clindagel, Acanya, Atralin, Retin- A Micro, and ONEXTON gel; Glumetza to improve glycemic control in adults with type 2 diabetes mellitus; PROVENGE for the treatment of prostate cancer; and Jublia for onychomycosis of the toenails. It also provides Nitropress for the immediate reduction of blood pressure of patients in hypertensive crises; Isuprel for heart related treatments; Xenazine for chorea; Uceris to get ulcerative colitis under control; Lotemax gel for post-operative inflammation and pain; Arestin, a subgingival sustained-release antibiotic; PreserVision, an antioxidant eye vitamin and mineral supplement; CeraVe to rebuild and repair the skin barrier; Biotrue for healthy contact lens wear; and ReNu Multiplus to lubricate and rewet soft contact lenses. In addition, the company offers Ocuvite, a lutein eye vitamin and mineral supplement; Boston, a cleansing solution for gas permeable contact lenses; Artelac to treat dry eyes; various ophthalmic surgical products; SofLens daily disposable contact lenses; Biotrue ONEday lens; Bausch + Lomb Ultra, a contact lens PureVision, a contact lens; and medical device systems for aesthetic applications. Further, it provides Tobramycin and Dexamethasone ophthalmic suspension for steroid responsive inflammatory ocular conditions; Metronidazole to treat bacterial infections; and Latanoprost for the treatment of glaucoma. The company was formerly known as Biovail Corporation and changed its name to Valeant Pharmaceuticals International, Inc. in September, 2010. The company was founded in 1983 and is based in Laval, Canada.

FINANCIAL RATIOS  of  Valeant Pharmaceuticals International (VRX)

Valuation Ratios
P/E Ratio -1.9
Price to Sales 0.5
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 2.1
Price to Free Cash Flow 2.5
Growth Rates
Sales Growth Rate -7.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -4%
Cap. Spend. - 3 Yr. Gr. Rate 9.5%
Financial Strength
Quick Ratio 77
Current Ratio 0.1
LT Debt to Equity 946.9%
Total Debt to Equity 947.1%
Interest Coverage 0
Management Effectiveness
Return On Assets -1.5%
Ret/ On Assets - 3 Yr. Avg. 3.4%
Return On Total Capital -6.9%
Ret/ On T. Cap. - 3 Yr. Avg. -1.3%
Return On Equity -53.2%
Return On Equity - 3 Yr. Avg. -13.8%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 73%
Gross Margin - 3 Yr. Avg. 73.7%
EBITDA Margin 22.2%
EBITDA Margin - 3 Yr. Avg. 33.5%
Operating Margin -5.9%
Oper. Margin - 3 Yr. Avg. 10.5%
Pre-Tax Margin -25.2%
Pre-Tax Margin - 3 Yr. Avg. -4.6%
Net Profit Margin -24.9%
Net Profit Margin - 3 Yr. Avg. -5.7%
Effective Tax Rate 1.1%
Eff/ Tax Rate - 3 Yr. Avg. -22.7%
Payout Ratio 0%

VRX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VRX stock intrinsic value calculation we used $9674 million for the last fiscal year's total revenue generated by Valeant Pharmaceuticals International. The default revenue input number comes from 2016 income statement of Valeant Pharmaceuticals International. 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 VRX stock valuation model: a) initial revenue growth rate of 2% 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 13.5%, whose default value for VRX is calculated based on our internal credit rating of Valeant Pharmaceuticals International, 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 Valeant Pharmaceuticals International.
    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 VRX stock the variable cost ratio is equal to 85.6%.

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 VRX stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.6% for Valeant Pharmaceuticals International.

Corporate tax rate of 27% is the nominal tax rate for Valeant Pharmaceuticals International. 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 VRX 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 VRX are equal to 231.1%.

Life of production assets of 13.8 years is the average useful life of capital assets used in Valeant Pharmaceuticals International 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 VRX is equal to 9.6%. 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 - $3152 million for Valeant Pharmaceuticals International - 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 332.291 million for Valeant Pharmaceuticals International 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 Valeant Pharmaceuticals International at the current share price and the inputted number of shares is $4.3 billion.


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COMPANY NEWS

▶ Top 3 Companies Owned by Valeant (VRX)   [May-26-17 10:53AM  Investopedia]
▶ Valeant's Numbers: Are They As Good As They Seem?   [May-25-17 11:46AM  Motley Fool]
▶ Time to Buy Valeant Pharmaceuticals   [12:56PM  Investopedia]
▶ 3 Value Stocks for Ambitious Investors   [May-21-17 09:04AM  Motley Fool]
▶ Ackman has something to prove after Valeant mistake   [May-20-17 12:47PM  MarketWatch]
▶ Bill Ackman Details Missteps With Valeant Investment   [May-19-17 04:50PM  TheStreet.com]
▶ Valeant Pharmaceuticals: IntriguedReally?   [01:33PM  Barrons.com]
▶ Humbled by Valeant, Ackman goes back to basics   [May-18-17 10:04PM  Reuters]
▶ Biotech And Pharma Industry And Stock News   [12:11PM  Investor's Business Daily]
▶ Court Battle May Be Responsible For Drugmaker's 40% Spike   [May-12-17 04:08PM  Investor's Business Daily]
▶ Company News for May 12, 2017   [10:07AM  Zacks]
▶ Why prescription drug prices keep going up   [09:31AM  Yahoo Finance]
▶ 6 Hot Stock Charts WIth Unusual Volume   [07:00AM  TheStreet.com]
▶ Valeant Rockets Higher: Why I'm Not Buying   [May-10-17 05:02PM  Motley Fool]
▶ Valeant: Is That All?   [02:40PM  Barrons.com]
▶ Valeant Can't Paper Over Its Problems   [01:28PM  Bloomberg]
▶ Valeant turns First Profit in Six Quarters   [11:12AM  Investopedia]
▶ Valeant swings to a profit   [10:48AM  Reuters Videos]
▶ Valeant: Up, Up & Away!   [09:56AM  Barrons.com]
▶ Valeant explodes after boosting guidance   [08:37AM  Business Insider]
▶ How Valeant Earnings Beat Estimates   [07:45AM  24/7 Wall St.]
▶ More Trouble Ahead For Valeant?   [11:29AM  Barrons.com]
▶ Valeant: When Earnings are Almost an Afterthought   [May-04-17 09:57AM  Barrons.com]
▶ Valeant Announces 2017 Annual Meeting Results   [May-03-17 06:02PM  CNW Group]
Stock chart of VRX Financial statements of VRX Annual reports of VRX
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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