Intrinsic value of Yahoo! - YHOO

Previous Close

$52.58

  Intrinsic Value

$8.04

stock screener

  Rating & Target

str. sell

-85%

  Value-price divergence*

-54%

Previous close

$52.58

 
Intrinsic value

$8.04

 
Up/down potential

-85%

 
Rating

str. sell

 
Value-price divergence*

-54%

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

We calculate the intrinsic value of YHOO 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 50.1

 

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, %
  4.05
  22.10
  20.39
  18.85
  17.47
  16.22
  15.10
  14.09
  13.18
  12.36
  11.62
  10.96
  10.37
  9.83
  9.35
  8.91
  8.52
  8.17
  7.85
  7.57
  7.31
  7.08
  6.87
  6.68
  6.52
  6.36
  6.23
  6.10
  5.99
  5.89
  5.81
Revenue, $m
  5,169
  6,311
  7,598
  9,031
  10,608
  12,328
  14,190
  16,189
  18,322
  20,587
  22,980
  25,499
  28,143
  30,909
  33,798
  36,810
  39,946
  43,209
  46,602
  50,128
  53,793
  57,601
  61,558
  65,673
  69,952
  74,404
  79,037
  83,862
  88,889
  94,129
  99,594
Variable operating expenses, $m
 
  12,336
  14,843
  17,633
  20,705
  24,057
  27,682
  31,576
  35,732
  40,144
  44,806
  49,671
  54,820
  60,209
  65,836
  71,704
  77,813
  84,170
  90,779
  97,647
  104,785
  112,203
  119,913
  127,928
  136,263
  144,935
  153,960
  163,359
  173,152
  183,359
  194,004
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
  5,814
  12,336
  14,843
  17,633
  20,705
  24,057
  27,682
  31,576
  35,732
  40,144
  44,806
  49,671
  54,820
  60,209
  65,836
  71,704
  77,813
  84,170
  90,779
  97,647
  104,785
  112,203
  119,913
  127,928
  136,263
  144,935
  153,960
  163,359
  173,152
  183,359
  194,004
Operating income, $m
  -645
  -6,024
  -7,244
  -8,602
  -10,097
  -11,728
  -13,493
  -15,388
  -17,410
  -19,557
  -21,826
  -24,172
  -26,678
  -29,300
  -32,039
  -34,894
  -37,867
  -40,960
  -44,176
  -47,519
  -50,993
  -54,603
  -58,354
  -62,255
  -66,311
  -70,531
  -74,923
  -79,497
  -84,263
  -89,230
  -94,410
EBITDA, $m
  -138
  -5,783
  -6,963
  -8,275
  -9,721
  -11,297
  -13,003
  -14,834
  -16,789
  -18,865
  -21,058
  -23,366
  -25,788
  -28,323
  -30,971
  -33,731
  -36,605
  -39,595
  -42,704
  -45,935
  -49,293
  -52,782
  -56,409
  -60,179
  -64,100
  -68,180
  -72,426
  -76,847
  -81,454
  -86,255
  -91,263
Interest expense (income), $m
  0
  46
  179
  328
  494
  676
  875
  1,090
  1,321
  1,568
  1,830
  2,107
  2,398
  2,704
  3,024
  3,358
  3,706
  4,069
  4,446
  4,838
  5,246
  5,670
  6,110
  6,568
  7,044
  7,539
  8,053
  8,589
  9,147
  9,728
  10,334
Earnings before tax, $m
  -699
  -6,070
  -7,424
  -8,930
  -10,591
  -12,404
  -14,368
  -16,478
  -18,731
  -21,125
  -23,656
  -26,279
  -29,076
  -32,004
  -35,062
  -38,252
  -41,573
  -45,029
  -48,623
  -52,358
  -56,239
  -60,272
  -64,465
  -68,823
  -73,355
  -78,070
  -82,977
  -88,086
  -93,410
  -98,958
  -104,744
Tax expense, $m
  -126
  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
Net income, $m
  -214
  -6,070
  -7,424
  -8,930
  -10,591
  -12,404
  -14,368
  -16,478
  -18,731
  -21,125
  -23,656
  -26,279
  -29,076
  -32,004
  -35,062
  -38,252
  -41,573
  -45,029
  -48,623
  -52,358
  -56,239
  -60,272
  -64,465
  -68,823
  -73,355
  -78,070
  -82,977
  -88,086
  -93,410
  -98,958
  -104,744

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,820
  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
  48,083
  50,491
  60,786
  72,245
  84,863
  98,627
  113,517
  129,509
  146,577
  164,695
  183,841
  203,994
  225,140
  247,271
  270,382
  294,478
  319,570
  345,675
  372,816
  401,026
  430,341
  460,804
  492,466
  525,383
  559,614
  595,228
  632,297
  670,897
  711,113
  753,033
  796,750
Adjusted assets (=assets-cash), $m
  41,263
  50,491
  60,786
  72,245
  84,863
  98,627
  113,517
  129,509
  146,577
  164,695
  183,841
  203,994
  225,140
  247,271
  270,382
  294,478
  319,570
  345,675
  372,816
  401,026
  430,341
  460,804
  492,466
  525,383
  559,614
  595,228
  632,297
  670,897
  711,113
  753,033
  796,750
Revenue / Adjusted assets
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
  0.125
Average production assets, $m
  1,634
  1,994
  2,401
  2,854
  3,352
  3,896
  4,484
  5,116
  5,790
  6,505
  7,262
  8,058
  8,893
  9,767
  10,680
  11,632
  12,623
  13,654
  14,726
  15,841
  16,998
  18,202
  19,452
  20,753
  22,105
  23,512
  24,976
  26,500
  28,089
  29,745
  31,472
Working capital, $m
  6,839
  25
  30
  36
  42
  49
  57
  65
  73
  82
  92
  102
  113
  124
  135
  147
  160
  173
  186
  201
  215
  230
  246
  263
  280
  298
  316
  335
  356
  377
  398
Total debt, $m
  1,300
  5,119
  9,371
  14,103
  19,314
  24,999
  31,149
  37,753
  44,802
  52,285
  60,192
  68,516
  77,249
  86,389
  95,934
  105,886
  116,248
  127,030
  138,239
  149,890
  161,997
  174,578
  187,655
  201,249
  215,387
  230,095
  245,405
  261,347
  277,956
  295,269
  313,324
Total liabilities, $m
  17,034
  20,853
  25,105
  29,837
  35,048
  40,733
  46,883
  53,487
  60,536
  68,019
  75,926
  84,250
  92,983
  102,123
  111,668
  121,620
  131,982
  142,764
  153,973
  165,624
  177,731
  190,312
  203,389
  216,983
  231,121
  245,829
  261,139
  277,081
  293,690
  311,003
  329,058
Total equity, $m
  31,049
  29,638
  35,681
  42,408
  49,814
  57,894
  66,634
  76,022
  86,041
  96,676
  107,914
  119,744
  132,157
  145,148
  158,714
  172,859
  187,588
  202,911
  218,843
  235,402
  252,610
  270,492
  289,078
  308,400
  328,494
  349,399
  371,158
  393,817
  417,424
  442,030
  467,692
Total liabilities and equity, $m
  48,083
  50,491
  60,786
  72,245
  84,862
  98,627
  113,517
  129,509
  146,577
  164,695
  183,840
  203,994
  225,140
  247,271
  270,382
  294,479
  319,570
  345,675
  372,816
  401,026
  430,341
  460,804
  492,467
  525,383
  559,615
  595,228
  632,297
  670,898
  711,114
  753,033
  796,750
Debt-to-equity ratio
  0.042
  0.170
  0.260
  0.330
  0.390
  0.430
  0.470
  0.500
  0.520
  0.540
  0.560
  0.570
  0.580
  0.600
  0.600
  0.610
  0.620
  0.630
  0.630
  0.640
  0.640
  0.650
  0.650
  0.650
  0.660
  0.660
  0.660
  0.660
  0.670
  0.670
  0.670
Adjusted equity ratio
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -214
  -6,070
  -7,424
  -8,930
  -10,591
  -12,404
  -14,368
  -16,478
  -18,731
  -21,125
  -23,656
  -26,279
  -29,076
  -32,004
  -35,062
  -38,252
  -41,573
  -45,029
  -48,623
  -52,358
  -56,239
  -60,272
  -64,465
  -68,823
  -73,355
  -78,070
  -82,977
  -88,086
  -93,410
  -98,958
  -104,744
Depreciation, amort., depletion, $m
  507
  241
  282
  327
  377
  431
  490
  553
  621
  692
  768
  806
  889
  977
  1,068
  1,163
  1,262
  1,365
  1,473
  1,584
  1,700
  1,820
  1,945
  2,075
  2,210
  2,351
  2,498
  2,650
  2,809
  2,974
  3,147
Funds from operations, $m
  1,827
  -5,829
  -7,142
  -8,603
  -10,214
  -11,973
  -13,878
  -15,925
  -18,111
  -20,433
  -22,888
  -25,473
  -28,187
  -31,027
  -33,994
  -37,088
  -40,311
  -43,664
  -47,150
  -50,773
  -54,539
  -58,452
  -62,519
  -66,747
  -71,144
  -75,718
  -80,479
  -85,436
  -90,601
  -95,984
  -101,597
Change in working capital, $m
  578
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
Cash from operations, $m
  1,249
  -5,833
  -7,147
  -8,609
  -10,220
  -11,980
  -13,885
  -15,933
  -18,119
  -20,442
  -22,897
  -25,483
  -28,197
  -31,038
  -34,006
  -37,100
  -40,323
  -43,677
  -47,163
  -50,788
  -54,554
  -58,467
  -62,535
  -66,764
  -71,161
  -75,736
  -80,498
  -85,456
  -90,621
  -96,005
  -101,619
Maintenance CAPEX, $m
  0
  -163
  -199
  -240
  -285
  -335
  -390
  -448
  -512
  -579
  -651
  -726
  -806
  -889
  -977
  -1,068
  -1,163
  -1,262
  -1,365
  -1,473
  -1,584
  -1,700
  -1,820
  -1,945
  -2,075
  -2,210
  -2,351
  -2,498
  -2,650
  -2,809
  -2,974
New CAPEX, $m
  -241
  -361
  -407
  -453
  -498
  -544
  -588
  -632
  -674
  -716
  -756
  -796
  -835
  -874
  -913
  -952
  -991
  -1,031
  -1,072
  -1,114
  -1,158
  -1,203
  -1,251
  -1,300
  -1,352
  -1,407
  -1,464
  -1,525
  -1,589
  -1,656
  -1,727
Cash from investing activities, $m
  -1,574
  -524
  -606
  -693
  -783
  -879
  -978
  -1,080
  -1,186
  -1,295
  -1,407
  -1,522
  -1,641
  -1,763
  -1,890
  -2,020
  -2,154
  -2,293
  -2,437
  -2,587
  -2,742
  -2,903
  -3,071
  -3,245
  -3,427
  -3,617
  -3,815
  -4,023
  -4,239
  -4,465
  -4,701
Free cash flow, $m
  -325
  -6,358
  -7,753
  -9,302
  -11,004
  -12,859
  -14,863
  -17,013
  -19,305
  -21,737
  -24,304
  -27,005
  -29,838
  -32,802
  -35,895
  -39,120
  -42,478
  -45,970
  -49,601
  -53,374
  -57,296
  -61,371
  -65,606
  -70,009
  -74,589
  -79,353
  -84,313
  -89,478
  -94,860
  -100,470
  -106,320
Issuance/(repayment) of debt, $m
  0
  3,819
  4,252
  4,732
  5,211
  5,685
  6,150
  6,605
  7,049
  7,483
  7,907
  8,323
  8,733
  9,140
  9,545
  9,952
  10,363
  10,781
  11,210
  11,651
  12,107
  12,581
  13,076
  13,594
  14,138
  14,709
  15,309
  15,942
  16,609
  17,313
  18,055
Issuance/(repurchase) of shares, $m
  18
  11,479
  13,467
  15,656
  17,998
  20,484
  23,108
  25,865
  28,750
  31,761
  34,894
  38,109
  41,489
  44,994
  48,629
  52,396
  56,302
  60,352
  64,555
  68,917
  73,447
  78,155
  83,050
  88,144
  93,449
  98,975
  104,736
  110,745
  117,017
  123,565
  130,406
Cash from financing (excl. dividends), $m  
  -194
  15,298
  17,719
  20,388
  23,209
  26,169
  29,258
  32,470
  35,799
  39,244
  42,801
  46,432
  50,222
  54,134
  58,174
  62,348
  66,665
  71,133
  75,765
  80,568
  85,554
  90,736
  96,126
  101,738
  107,587
  113,684
  120,045
  126,687
  133,626
  140,878
  148,461
Total cash flow (excl. dividends), $m
  -512
  8,940
  9,966
  11,087
  12,205
  13,310
  14,395
  15,457
  16,494
  17,507
  18,497
  19,427
  20,384
  21,332
  22,278
  23,228
  24,187
  25,164
  26,163
  27,193
  28,258
  29,365
  30,521
  31,730
  32,998
  34,330
  35,732
  37,209
  38,766
  40,408
  42,141
Retained Cash Flow (-), $m
  -2,005
  -11,479
  -13,467
  -15,656
  -17,998
  -20,484
  -23,108
  -25,865
  -28,750
  -31,761
  -34,894
  -38,109
  -41,489
  -44,994
  -48,629
  -52,396
  -56,302
  -60,352
  -64,555
  -68,917
  -73,447
  -78,155
  -83,050
  -88,144
  -93,449
  -98,975
  -104,736
  -110,745
  -117,017
  -123,565
  -130,406
Prev. year cash balance distribution, $m
 
  6,820
  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
 
  4,281
  -3,501
  -4,569
  -5,793
  -7,174
  -8,713
  -10,408
  -12,256
  -14,254
  -16,397
  -18,682
  -21,105
  -23,662
  -26,350
  -29,169
  -32,115
  -35,189
  -38,391
  -41,724
  -45,189
  -48,789
  -52,530
  -56,415
  -60,451
  -64,645
  -69,004
  -73,536
  -78,250
  -83,157
  -88,265
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
 
  4,104
  -3,205
  -3,976
  -4,770
  -5,561
  -6,324
  -7,032
  -7,660
  -8,188
  -8,596
  -8,872
  -9,006
  -8,997
  -8,846
  -8,563
  -8,161
  -7,657
  -7,070
  -6,424
  -5,742
  -5,046
  -4,359
  -3,697
  -3,079
  -2,515
  -2,013
  -1,578
  -1,211
  -908
  -665
Current shareholders' claim on cash, %
  100
  77.3
  60.3
  47.4
  37.6
  29.9
  24.0
  19.3
  15.7
  12.8
  10.4
  8.6
  7.0
  5.8
  4.8
  4.0
  3.3
  2.8
  2.3
  1.9
  1.6
  1.4
  1.1
  1.0
  0.8
  0.7
  0.6
  0.5
  0.4
  0.3
  0.3

Yahoo! Inc., together with its subsidiaries, provides search and display advertising services on Yahoo properties and affiliate sites worldwide. The company offers Yahoo Search that serves as a guide for users to discover information on the Internet; Yahoo Mail, which connects users to the people and content; and Yahoo Messenger, an instant messaging service, which enables users to connect, communicate, and share experiences in real-time. It also provides digital content products, including Yahoo News, which gives users to discover, consume, and engage around the news, content, and video; Yahoo Sports, which serves audiences of sports enthusiasts; Yahoo Finance that offers a range of financial data, information, and tools; Yahoo Lifestyle to engage users passionate about style and fashion; and Tumblr, which provides a Web platform and mobile applications on iOS and android to create, share, and curate content, as well as Tumblr messaging that enables users to engage with other users that share their same interests and passions. In addition, the company provides advertiser products, such as Yahoo Gemini, a marketplace for search and native advertising; and BrightRoll, which offers a suite of media-agnostic tools to enable advertisers, publishers, and partners connect with users across ad formats and devices. Further, it offers advertising formats; and digital advertising products, such as Yahoo native, Yahoo video, Yahoo premium, and Yahoo audience ads. Additionally, the company offers Yahoo Mobile Developer suite consisting of Flurry Analytics, Yahoo App Publishing, Yahoo App Marketing, and Tumblr In-App Sharing tools to measure, monetize, advertise, and improve their apps. Yahoo! Inc. was founded in 1994 and is headquartered in Sunnyvale, California.

FINANCIAL RATIOS  of  Yahoo! (YHOO)

Valuation Ratios
P/E Ratio -234.7
Price to Sales 9.7
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 40.2
Price to Free Cash Flow 49.8
Growth Rates
Sales Growth Rate 4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -56.9%
Cap. Spend. - 3 Yr. Gr. Rate -6.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 4.2%
Total Debt to Equity 4.2%
Interest Coverage 0
Management Effectiveness
Return On Assets -0.5%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital -0.7%
Ret/ On T. Cap. - 3 Yr. Avg. 4.9%
Return On Equity -0.7%
Return On Equity - 3 Yr. Avg. 5.2%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 47.4%
Gross Margin - 3 Yr. Avg. 59.2%
EBITDA Margin -3.7%
EBITDA Margin - 3 Yr. Avg. 50.7%
Operating Margin -12.5%
Oper. Margin - 3 Yr. Avg. 39.5%
Pre-Tax Margin -13.5%
Pre-Tax Margin - 3 Yr. Avg. 39%
Net Profit Margin -4.1%
Net Profit Margin - 3 Yr. Avg. 23.7%
Effective Tax Rate 18%
Eff/ Tax Rate - 3 Yr. Avg. 19.4%
Payout Ratio 0%

YHOO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the YHOO stock intrinsic value calculation we used $5169 million for the last fiscal year's total revenue generated by Yahoo!. The default revenue input number comes from 2016 income statement of Yahoo!. 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 YHOO stock valuation model: a) initial revenue growth rate of 22.1% 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 YHOO is calculated based on our internal credit rating of Yahoo!, 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 Yahoo!.
    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 YHOO stock the variable cost ratio is equal to 195.6%.

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

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Yahoo!.

Corporate tax rate of 27% is the nominal tax rate for Yahoo!. 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 YHOO 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 YHOO are equal to 31.6%.

Life of production assets of 10 years is the average useful life of capital assets used in Yahoo! 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 YHOO is equal to 0.4%. 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 - $31049 million for Yahoo! - 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 953.071 million for Yahoo! 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 Yahoo! at the current share price and the inputted number of shares is $50.1 billion.

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Stock chart of YHOO Financial statements of YHOO
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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