Intrinsic value of Valeant Pharmaceuticals International - VRX

Previous Close

$17.71

  Intrinsic Value

$22.03

stock screener

  Rating & Target

buy

+24%

  Value-price divergence*

-33%

Previous close

$17.71

 
Intrinsic value

$22.03

 
Up/down potential

+24%

 
Rating

buy

 
Value-price divergence*

-33%

*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 5.1

 

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
  1,672
  1,651
  1,702
  1,761
  1,827
  1,901
  1,981
  2,069
  2,163
  2,265
  2,375
  2,492
  2,617
  2,750
  2,892
  3,042
  3,201
  3,370
  3,548
  3,736
  3,935
  4,144
  4,366
  4,599
  4,844
  5,103
  5,375
  5,662
  5,964
  6,281
Earnings before tax, $m
  -2,435
  -219
  -129
  -100
  -70
  -37
  -1
  37
  78
  121
  167
  1,796
  1,848
  1,903
  1,961
  2,023
  2,088
  2,157
  2,230
  2,306
  2,387
  2,472
  2,562
  2,656
  2,755
  2,860
  2,970
  3,085
  3,207
  3,335
  3,469
Tax expense, $m
  -27
  0
  0
  0
  0
  0
  0
  10
  21
  33
  45
  485
  499
  514
  530
  546
  564
  582
  602
  623
  645
  667
  692
  717
  744
  772
  802
  833
  866
  900
  937
Net income, $m
  -2,409
  -219
  -129
  -100
  -70
  -37
  -1
  27
  57
  88
  122
  1,311
  1,349
  1,389
  1,432
  1,477
  1,524
  1,575
  1,628
  1,684
  1,743
  1,805
  1,870
  1,939
  2,011
  2,088
  2,168
  2,252
  2,341
  2,435
  2,533

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
  44,448
  45,470
  46,639
  47,951
  49,405
  51,000
  52,737
  54,617
  56,642
  58,816
  61,142
  63,623
  66,265
  69,073
  72,053
  75,210
  78,553
  82,087
  85,822
  89,765
  93,926
  98,314
  102,939
  107,813
  112,945
  118,349
  124,038
  130,023
  136,320
  142,943
Adjusted assets (=assets-cash), $m
  42,987
  44,448
  45,470
  46,639
  47,951
  49,405
  51,000
  52,737
  54,617
  56,642
  58,816
  61,142
  63,623
  66,265
  69,073
  72,053
  75,210
  78,553
  82,087
  85,822
  89,765
  93,926
  98,314
  102,939
  107,813
  112,945
  118,349
  124,038
  130,023
  136,320
  142,943
Revenue / Adjusted assets
  0.225
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
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
  29,478
  30,398
  31,450
  32,631
  33,939
  35,375
  36,938
  38,630
  40,453
  42,409
  44,502
  46,736
  49,114
  51,641
  54,322
  57,164
  60,172
  63,354
  66,715
  70,264
  74,009
  77,958
  82,121
  86,506
  91,126
  95,989
  101,109
  106,496
  112,163
  118,124
Total liabilities, $m
  40,377
  40,003
  40,923
  41,975
  43,156
  44,464
  45,900
  47,463
  49,155
  50,978
  52,934
  55,027
  57,261
  59,639
  62,166
  64,847
  67,689
  70,697
  73,879
  77,240
  80,789
  84,534
  88,483
  92,646
  97,031
  101,651
  106,514
  111,634
  117,021
  122,688
  128,649
Total equity, $m
  3,152
  4,445
  4,547
  4,664
  4,795
  4,940
  5,100
  5,274
  5,462
  5,664
  5,882
  6,114
  6,362
  6,627
  6,907
  7,205
  7,521
  7,855
  8,209
  8,582
  8,977
  9,393
  9,831
  10,294
  10,781
  11,295
  11,835
  12,404
  13,002
  13,632
  14,294
Total liabilities and equity, $m
  43,529
  44,448
  45,470
  46,639
  47,951
  49,404
  51,000
  52,737
  54,617
  56,642
  58,816
  61,141
  63,623
  66,266
  69,073
  72,052
  75,210
  78,552
  82,088
  85,822
  89,766
  93,927
  98,314
  102,940
  107,812
  112,946
  118,349
  124,038
  130,023
  136,320
  142,943
Debt-to-equity ratio
  9.471
  6.630
  6.690
  6.740
  6.810
  6.870
  6.940
  7.000
  7.070
  7.140
  7.210
  7.280
  7.350
  7.410
  7.480
  7.540
  7.600
  7.660
  7.720
  7.770
  7.830
  7.880
  7.930
  7.980
  8.020
  8.070
  8.110
  8.150
  8.190
  8.230
  8.260
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
  -129
  -100
  -70
  -37
  -1
  27
  57
  88
  122
  1,311
  1,349
  1,389
  1,432
  1,477
  1,524
  1,575
  1,628
  1,684
  1,743
  1,805
  1,870
  1,939
  2,011
  2,088
  2,168
  2,252
  2,341
  2,435
  2,533
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
  3,141
  3,213
  3,292
  3,379
  3,474
  3,567
  3,667
  3,774
  3,888
  3,584
  3,714
  3,853
  4,000
  4,155
  4,320
  4,495
  4,679
  4,874
  5,080
  5,297
  5,525
  5,766
  6,020
  6,287
  6,568
  6,864
  7,175
  7,502
  7,847
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
  2,994
  3,120
  3,188
  3,264
  3,348
  3,440
  3,530
  3,626
  3,730
  3,842
  3,534
  3,661
  3,796
  3,940
  4,092
  4,253
  4,424
  4,604
  4,795
  4,996
  5,208
  5,432
  5,667
  5,916
  6,177
  6,453
  6,743
  7,047
  7,368
  7,706
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
  930
  943
  898
  857
  820
  785
  743
  701
  661
  621
  155
  115
  76
  36
  -5
  -45
  -87
  -130
  -173
  -218
  -264
  -312
  -361
  -411
  -464
  -519
  -576
  -635
  -696
  -760
Issuance/(repayment) of debt, $m
  -1,216
  -374
  920
  1,052
  1,181
  1,308
  1,436
  1,563
  1,692
  1,823
  1,956
  2,093
  2,233
  2,378
  2,527
  2,682
  2,842
  3,008
  3,181
  3,361
  3,549
  3,745
  3,949
  4,163
  4,386
  4,619
  4,864
  5,119
  5,387
  5,667
  5,961
Issuance/(repurchase) of shares, $m
  33
  1,512
  231
  217
  201
  182
  161
  147
  131
  114
  95
  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
  1,138
  1,151
  1,269
  1,382
  1,490
  1,597
  1,710
  1,823
  1,937
  2,051
  2,093
  2,233
  2,378
  2,527
  2,682
  2,842
  3,008
  3,181
  3,361
  3,549
  3,745
  3,949
  4,163
  4,386
  4,619
  4,864
  5,119
  5,387
  5,667
  5,961
Total cash flow (excl. dividends), $m
  -55
  2,069
  2,093
  2,167
  2,239
  2,310
  2,381
  2,453
  2,525
  2,598
  2,672
  2,248
  2,348
  2,453
  2,563
  2,677
  2,796
  2,921
  3,052
  3,188
  3,331
  3,481
  3,638
  3,802
  3,975
  4,155
  4,345
  4,544
  4,752
  4,971
  5,201
Retained Cash Flow (-), $m
  2,759
  -1,512
  -231
  -217
  -201
  -182
  -161
  -174
  -188
  -203
  -217
  -233
  -248
  -264
  -281
  -298
  -316
  -334
  -353
  -373
  -394
  -416
  -439
  -463
  -487
  -513
  -540
  -569
  -599
  -630
  -662
Prev. year cash balance distribution, $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 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
 
  557
  1,863
  1,950
  2,038
  2,128
  2,221
  2,279
  2,337
  2,395
  2,455
  2,015
  2,100
  2,189
  2,282
  2,379
  2,481
  2,587
  2,698
  2,815
  2,937
  3,065
  3,199
  3,340
  3,487
  3,642
  3,804
  3,975
  4,154
  4,341
  4,538
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
 
  491
  1,429
  1,286
  1,140
  996
  856
  712
  581
  466
  367
  226
  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
  77.3
  74.9
  72.7
  70.9
  69.2
  67.9
  66.7
  65.7
  64.9
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2

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 -2.6
Price to Sales 0.6
Price to Book 2
Price to Tangible Book
Price to Cash Flow 3
Price to Free Cash Flow 3.4
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 289.919 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 $5.1 billion.

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COMPANY NEWS

▶ Sequoia Fund Seen Bouncing Back After Valeant Saga   [Jul-20-17 04:24PM  GuruFocus.com]
▶ When Should Investors Buy Options?   [11:37AM  Motley Fool]
▶ M&A Monday: Church & Dwight, Dominion Diamond, Valeant & More   [04:12PM  Investor's Business Daily]
▶ Valeant Unloads Yet Another Unit   [11:30AM  Barrons.com]
▶ Valeant: A Long Road Ahead?   [11:02AM  Barrons.com]
▶ The Market In 5 Minutes   [Jun-30-17 09:06AM  Benzinga]
▶ Sanpower's SVP Says Dendreon Deal Is a Milestone   [Jun-29-17 10:12PM  Bloomberg Video]
▶ 5 Reasons Valeant Can Keep Flying   [11:14AM  Barrons.com]
▶ Top 3 Companies Owned by Valeant (VRX)   [10:28AM  Investopedia]
▶ Valeant: Out of the Frying Pan, Into the Fire   [Jun-27-17 02:02PM  Barrons.com]
▶ Valeant Pharma: A Debt Swap?   [02:17PM  Barrons.com]
▶ Paulson Times Appointment to Valeant's Board Perfectly   [Jun-23-17 04:02PM  Motley Fool]
▶ What Bill Miller Thinks about Valeant Now   [09:06AM  Market Realist]
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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