Intrinsic value of Zimmer Biomet Holdings - ZBH

Previous Close

$113.08

  Intrinsic Value

$49.95

stock screener

  Rating & Target

str. sell

-56%

  Value-price divergence*

-64%

Previous close

$113.08

 
Intrinsic value

$49.95

 
Up/down potential

-56%

 
Rating

str. sell

 
Value-price divergence*

-64%

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

We calculate the intrinsic value of ZBH 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 22.7

 

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, %
  28.11
  3.80
  3.92
  4.03
  4.13
  4.21
  4.29
  4.36
  4.43
  4.48
  4.54
  4.58
  4.62
  4.66
  4.69
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
Revenue, $m
  7,684
  7,976
  8,289
  8,623
  8,978
  9,356
  9,758
  10,184
  10,634
  11,111
  11,615
  12,147
  12,709
  13,301
  13,926
  14,584
  15,277
  16,007
  16,775
  17,584
  18,434
  19,329
  20,270
  21,260
  22,300
  23,394
  24,543
  25,751
  27,021
  28,355
  29,757
Variable operating expenses, $m
 
  6,237
  6,439
  6,656
  6,887
  7,132
  7,392
  7,668
  7,961
  8,270
  8,597
  7,877
  8,241
  8,626
  9,030
  9,457
  9,907
  10,380
  10,878
  11,403
  11,954
  12,535
  13,145
  13,786
  14,461
  15,170
  15,916
  16,699
  17,523
  18,388
  19,297
Fixed operating expenses, $m
 
  851
  872
  894
  916
  939
  963
  987
  1,011
  1,037
  1,062
  1,089
  1,116
  1,144
  1,173
  1,202
  1,232
  1,263
  1,295
  1,327
  1,360
  1,394
  1,429
  1,465
  1,501
  1,539
  1,577
  1,617
  1,657
  1,699
  1,741
Total operating expenses, $m
  6,858
  7,088
  7,311
  7,550
  7,803
  8,071
  8,355
  8,655
  8,972
  9,307
  9,659
  8,966
  9,357
  9,770
  10,203
  10,659
  11,139
  11,643
  12,173
  12,730
  13,314
  13,929
  14,574
  15,251
  15,962
  16,709
  17,493
  18,316
  19,180
  20,087
  21,038
Operating income, $m
  826
  889
  977
  1,073
  1,175
  1,286
  1,403
  1,529
  1,663
  1,805
  1,956
  3,181
  3,351
  3,531
  3,722
  3,924
  4,138
  4,364
  4,602
  4,854
  5,120
  5,401
  5,696
  6,009
  6,338
  6,685
  7,050
  7,436
  7,841
  8,269
  8,719
EBITDA, $m
  1,865
  2,506
  2,617
  2,735
  2,863
  2,999
  3,144
  3,299
  3,465
  3,640
  3,826
  4,023
  4,233
  4,454
  4,688
  4,936
  5,198
  5,474
  5,766
  6,074
  6,399
  6,741
  7,102
  7,483
  7,884
  8,307
  8,753
  9,222
  9,716
  10,236
  10,783
Interest expense (income), $m
  0
  373
  395
  418
  443
  470
  498
  528
  560
  594
  630
  667
  707
  749
  794
  840
  890
  942
  996
  1,054
  1,114
  1,178
  1,245
  1,315
  1,390
  1,467
  1,549
  1,635
  1,726
  1,821
  1,921
Earnings before tax, $m
  400
  515
  582
  654
  732
  815
  905
  1,000
  1,102
  1,211
  1,326
  2,514
  2,644
  2,782
  2,929
  3,084
  3,248
  3,422
  3,606
  3,800
  4,006
  4,223
  4,452
  4,693
  4,948
  5,217
  5,501
  5,800
  6,116
  6,448
  6,798
Tax expense, $m
  95
  139
  157
  177
  198
  220
  244
  270
  298
  327
  358
  679
  714
  751
  791
  833
  877
  924
  974
  1,026
  1,082
  1,140
  1,202
  1,267
  1,336
  1,409
  1,485
  1,566
  1,651
  1,741
  1,836
Net income, $m
  306
  376
  425
  478
  534
  595
  661
  730
  805
  884
  968
  1,835
  1,930
  2,031
  2,138
  2,251
  2,371
  2,498
  2,632
  2,774
  2,924
  3,082
  3,250
  3,426
  3,612
  3,809
  4,016
  4,234
  4,464
  4,707
  4,963

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  634
  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
  26,684
  27,037
  28,097
  29,229
  30,435
  31,717
  33,078
  34,521
  36,049
  37,665
  39,373
  41,177
  43,081
  45,089
  47,206
  49,436
  51,786
  54,260
  56,865
  59,605
  62,489
  65,522
  68,712
  72,067
  75,594
  79,301
  83,198
  87,293
  91,597
  96,119
  100,871
Adjusted assets (=assets-cash), $m
  26,050
  27,037
  28,097
  29,229
  30,435
  31,717
  33,078
  34,521
  36,049
  37,665
  39,373
  41,177
  43,081
  45,089
  47,206
  49,436
  51,786
  54,260
  56,865
  59,605
  62,489
  65,522
  68,712
  72,067
  75,594
  79,301
  83,198
  87,293
  91,597
  96,119
  100,871
Revenue / Adjusted assets
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
Average production assets, $m
  10,816
  11,230
  11,670
  12,141
  12,641
  13,174
  13,739
  14,339
  14,973
  15,644
  16,354
  17,103
  17,894
  18,728
  19,607
  20,534
  21,510
  22,538
  23,619
  24,758
  25,955
  27,215
  28,540
  29,934
  31,399
  32,938
  34,557
  36,258
  38,046
  39,924
  41,898
Working capital, $m
  2,282
  2,305
  2,395
  2,492
  2,595
  2,704
  2,820
  2,943
  3,073
  3,211
  3,357
  3,511
  3,673
  3,844
  4,025
  4,215
  4,415
  4,626
  4,848
  5,082
  5,328
  5,586
  5,858
  6,144
  6,445
  6,761
  7,093
  7,442
  7,809
  8,195
  8,600
Total debt, $m
  11,241
  11,287
  11,955
  12,669
  13,430
  14,239
  15,098
  16,009
  16,973
  17,993
  19,070
  20,209
  21,410
  22,677
  24,013
  25,420
  26,903
  28,464
  30,108
  31,837
  33,657
  35,571
  37,584
  39,700
  41,926
  44,265
  46,724
  49,308
  52,024
  54,877
  57,875
Total liabilities, $m
  17,016
  17,061
  17,729
  18,443
  19,204
  20,013
  20,872
  21,783
  22,747
  23,767
  24,844
  25,983
  27,184
  28,451
  29,787
  31,194
  32,677
  34,238
  35,882
  37,611
  39,431
  41,345
  43,358
  45,474
  47,700
  50,039
  52,498
  55,082
  57,798
  60,651
  63,649
Total equity, $m
  9,669
  9,977
  10,368
  10,785
  11,230
  11,703
  12,206
  12,738
  13,302
  13,898
  14,529
  15,194
  15,897
  16,638
  17,419
  18,242
  19,109
  20,022
  20,983
  21,994
  23,058
  24,178
  25,355
  26,593
  27,894
  29,262
  30,700
  32,211
  33,799
  35,468
  37,221
Total liabilities and equity, $m
  26,685
  27,038
  28,097
  29,228
  30,434
  31,716
  33,078
  34,521
  36,049
  37,665
  39,373
  41,177
  43,081
  45,089
  47,206
  49,436
  51,786
  54,260
  56,865
  59,605
  62,489
  65,523
  68,713
  72,067
  75,594
  79,301
  83,198
  87,293
  91,597
  96,119
  100,870
Debt-to-equity ratio
  1.163
  1.130
  1.150
  1.170
  1.200
  1.220
  1.240
  1.260
  1.280
  1.290
  1.310
  1.330
  1.350
  1.360
  1.380
  1.390
  1.410
  1.420
  1.430
  1.450
  1.460
  1.470
  1.480
  1.490
  1.500
  1.510
  1.520
  1.530
  1.540
  1.550
  1.550
Adjusted equity ratio
  0.347
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369
  0.369

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  306
  376
  425
  478
  534
  595
  661
  730
  805
  884
  968
  1,835
  1,930
  2,031
  2,138
  2,251
  2,371
  2,498
  2,632
  2,774
  2,924
  3,082
  3,250
  3,426
  3,612
  3,809
  4,016
  4,234
  4,464
  4,707
  4,963
Depreciation, amort., depletion, $m
  1,039
  1,618
  1,639
  1,662
  1,687
  1,713
  1,741
  1,771
  1,802
  1,835
  1,870
  843
  881
  923
  966
  1,012
  1,060
  1,110
  1,164
  1,220
  1,279
  1,341
  1,406
  1,475
  1,547
  1,623
  1,702
  1,786
  1,874
  1,967
  2,064
Funds from operations, $m
  1,610
  1,994
  2,064
  2,140
  2,222
  2,309
  2,402
  2,501
  2,607
  2,719
  2,838
  2,677
  2,811
  2,954
  3,104
  3,263
  3,431
  3,608
  3,796
  3,994
  4,203
  4,423
  4,656
  4,901
  5,159
  5,431
  5,718
  6,020
  6,339
  6,674
  7,027
Change in working capital, $m
  -22
  84
  90
  96
  103
  109
  116
  123
  130
  138
  146
  154
  162
  171
  180
  190
  200
  211
  222
  234
  246
  259
  272
  286
  301
  316
  332
  349
  367
  386
  405
Cash from operations, $m
  1,632
  1,909
  1,974
  2,044
  2,119
  2,199
  2,286
  2,378
  2,476
  2,581
  2,693
  2,524
  2,649
  2,782
  2,923
  3,073
  3,231
  3,397
  3,574
  3,760
  3,957
  4,165
  4,384
  4,615
  4,858
  5,115
  5,386
  5,671
  5,972
  6,288
  6,622
Maintenance CAPEX, $m
  0
  -533
  -553
  -575
  -598
  -623
  -649
  -677
  -706
  -738
  -771
  -806
  -843
  -881
  -923
  -966
  -1,012
  -1,060
  -1,110
  -1,164
  -1,220
  -1,279
  -1,341
  -1,406
  -1,475
  -1,547
  -1,623
  -1,702
  -1,786
  -1,874
  -1,967
New CAPEX, $m
  -530
  -414
  -440
  -470
  -501
  -533
  -565
  -599
  -635
  -671
  -709
  -749
  -791
  -834
  -879
  -927
  -976
  -1,028
  -1,082
  -1,138
  -1,198
  -1,260
  -1,325
  -1,393
  -1,465
  -1,540
  -1,619
  -1,701
  -1,788
  -1,878
  -1,974
Cash from investing activities, $m
  -1,692
  -947
  -993
  -1,045
  -1,099
  -1,156
  -1,214
  -1,276
  -1,341
  -1,409
  -1,480
  -1,555
  -1,634
  -1,715
  -1,802
  -1,893
  -1,988
  -2,088
  -2,192
  -2,302
  -2,418
  -2,539
  -2,666
  -2,799
  -2,940
  -3,087
  -3,242
  -3,403
  -3,574
  -3,752
  -3,941
Free cash flow, $m
  -60
  962
  981
  999
  1,020
  1,044
  1,071
  1,102
  1,135
  1,172
  1,212
  969
  1,016
  1,067
  1,122
  1,180
  1,243
  1,310
  1,382
  1,458
  1,540
  1,626
  1,718
  1,815
  1,919
  2,029
  2,145
  2,268
  2,398
  2,536
  2,681
Issuance/(repayment) of debt, $m
  -260
  622
  669
  714
  761
  809
  859
  910
  964
  1,020
  1,078
  1,138
  1,201
  1,267
  1,336
  1,408
  1,483
  1,561
  1,643
  1,729
  1,820
  1,914
  2,013
  2,117
  2,225
  2,339
  2,459
  2,584
  2,716
  2,854
  2,998
Issuance/(repurchase) of shares, $m
  -416
  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  
  -555
  622
  669
  714
  761
  809
  859
  910
  964
  1,020
  1,078
  1,138
  1,201
  1,267
  1,336
  1,408
  1,483
  1,561
  1,643
  1,729
  1,820
  1,914
  2,013
  2,117
  2,225
  2,339
  2,459
  2,584
  2,716
  2,854
  2,998
Total cash flow (excl. dividends), $m
  -637
  1,584
  1,649
  1,713
  1,781
  1,853
  1,930
  2,012
  2,100
  2,192
  2,290
  2,107
  2,217
  2,334
  2,457
  2,588
  2,726
  2,871
  3,025
  3,188
  3,359
  3,540
  3,731
  3,932
  4,144
  4,368
  4,604
  4,852
  5,114
  5,389
  5,680
Retained Cash Flow (-), $m
  219
  -366
  -391
  -418
  -445
  -473
  -502
  -532
  -564
  -596
  -630
  -666
  -702
  -741
  -781
  -823
  -867
  -913
  -961
  -1,011
  -1,064
  -1,119
  -1,177
  -1,238
  -1,301
  -1,368
  -1,438
  -1,511
  -1,588
  -1,669
  -1,753
Prev. year cash balance distribution, $m
 
  58
  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
 
  1,276
  1,258
  1,295
  1,336
  1,380
  1,428
  1,480
  1,536
  1,596
  1,660
  1,441
  1,515
  1,593
  1,676
  1,765
  1,859
  1,958
  2,064
  2,176
  2,295
  2,421
  2,554
  2,694
  2,843
  3,000
  3,166
  3,341
  3,526
  3,721
  3,926
Discount rate, %
 
  8.40
  8.82
  9.26
  9.72
  10.21
  10.72
  11.26
  11.82
  12.41
  13.03
  13.68
  14.37
  15.09
  15.84
  16.63
  17.46
  18.34
  19.25
  20.22
  21.23
  22.29
  23.40
  24.57
  25.80
  27.09
  28.45
  29.87
  31.36
  32.93
  34.58
PV of cash for distribution, $m
 
  1,177
  1,062
  993
  922
  849
  775
  701
  628
  557
  488
  352
  302
  256
  214
  176
  142
  112
  87
  66
  49
  35
  25
  17
  12
  7
  5
  3
  2
  1
  1
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

Zimmer Biomet Holdings, Inc., together with its subsidiaries, provides musculoskeletal healthcare products and solutions in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company operates through four segments: Americas Spine, Bone Healing, Craniomaxillofacial and Thoracic (CMF), and Dental. It designs, manufactures, and markets orthopaedic reconstructive products, such as knee and hip reconstructive products; S.E.T. products, including surgical, sports medicine, biologics, foot and ankle, extremities, and trauma products; dental products that include dental reconstructive implants, and dental prosthetic and regenerative products; and spine products comprising medical devices and surgical instruments. The company also offers face and skull reconstruction products, as well as products that fixate and stabilize the bones of the chest to facilitate healing or reconstruction after open heart surgery, trauma, or for deformities of the chest. In addition, it provides bone cement and bone healing products. The company’s products and solutions are used to treat patients suffering from disorders of, or injuries to, bones, joints, or supporting soft tissues. It serves orthopaedic surgeons, neurosurgeons, oral surgeons, dentists, hospitals, stocking distributors, healthcare dealers, and other specialists, as well as agents, healthcare purchasing organizations, or buying groups. The company was formerly known as Zimmer Holdings, Inc. and changed its name to Zimmer Biomet Holdings, Inc. in June 2015. Zimmer Biomet Holdings, Inc. was founded in 1927 and is headquartered in Warsaw, Indiana.

FINANCIAL RATIOS  of  Zimmer Biomet Holdings (ZBH)

Valuation Ratios
P/E Ratio 74.1
Price to Sales 3
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 13.9
Price to Free Cash Flow 20.6
Growth Rates
Sales Growth Rate 28.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 22.1%
Cap. Spend. - 3 Yr. Gr. Rate 12.6%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 110.3%
Total Debt to Equity 116.3%
Interest Coverage 0
Management Effectiveness
Return On Assets 1.1%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital 1.4%
Ret/ On T. Cap. - 3 Yr. Avg. 3.8%
Return On Equity 3.1%
Return On Equity - 3 Yr. Avg. 5.4%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 69%
Gross Margin - 3 Yr. Avg. 70.8%
EBITDA Margin 18.7%
EBITDA Margin - 3 Yr. Avg. 20.4%
Operating Margin 10.7%
Oper. Margin - 3 Yr. Avg. 13.6%
Pre-Tax Margin 5.2%
Pre-Tax Margin - 3 Yr. Avg. 9.3%
Net Profit Margin 4%
Net Profit Margin - 3 Yr. Avg. 7.3%
Effective Tax Rate 23.8%
Eff/ Tax Rate - 3 Yr. Avg. 17.3%
Payout Ratio 61.4%

ZBH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ZBH stock intrinsic value calculation we used $7684 million for the last fiscal year's total revenue generated by Zimmer Biomet Holdings. The default revenue input number comes from 2016 income statement of Zimmer Biomet Holdings. 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 ZBH stock valuation model: a) initial revenue growth rate of 3.8% 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 8.4%, whose default value for ZBH is calculated based on our internal credit rating of Zimmer Biomet Holdings, 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 Zimmer Biomet Holdings.
    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 ZBH stock the variable cost ratio is equal to 78.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $830 million in the base year in the intrinsic value calculation for ZBH 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 Zimmer Biomet Holdings.

Corporate tax rate of 27% is the nominal tax rate for Zimmer Biomet Holdings. 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 ZBH 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 ZBH are equal to 140.8%.

Life of production assets of 20.3 years is the average useful life of capital assets used in Zimmer Biomet Holdings 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 ZBH is equal to 28.9%. 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 - $9669 million for Zimmer Biomet Holdings - 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 200.521 million for Zimmer Biomet Holdings 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 Zimmer Biomet Holdings at the current share price and the inputted number of shares is $22.7 billion.

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COMPANY NEWS

▶ New Strong Sell Stocks for August 14th   [Aug-14-17 08:02AM  Zacks]
▶ Moody's assigns B2 to Lima, stable outlook   [Jul-31-17 12:07PM  Moody's]
▶ Zimmer misses 2Q profit forecasts   [Jul-27-17 04:31PM  Associated Press]
▶ Stryker Won the Patent Case against Zimmer Biomet Holdings   [Jul-21-17 09:11AM  Market Realist]
▶ Jana Partners Cleans Up, Exits Whole Foods Stake   [Jul-20-17 09:47AM  Barrons.com]
▶ The Best Stock in Indiana: Zimmer Biomet   [Jul-18-17 03:50PM  Kiplinger]
▶ Zimmer Biomet: Cramer's Top Takeaways   [06:25AM  TheStreet.com]
▶ Medtech CEO Hits 'Third Strike,' Steps Down On Q2 Disappointment   [Jul-12-17 04:50PM  Investor's Business Daily]
▶ Analysts Applaud Zimmer CEO Departure   [10:01AM  Barrons.com]
▶ Zimmer Biomet shares slide on CEO departure, outlook   [Jul-11-17 04:51PM  MarketWatch]
▶ [$$] Hans Zimmer, Movie Maestro   [Jul-07-17 10:53PM  The Wall Street Journal]
▶ Zimmer Biomets Latest Analyst Recommendations: Mostly Buy   [Jul-03-17 09:08AM  Market Realist]
▶ Inside Zimmer Biomets Latest Dividend Payment   [07:39AM  Market Realist]
▶ Zimmer Biomet's warning letter from FDA was resolved   [Jun-13-17 07:17AM  MarketWatch]
▶ Zimmer Biomet Holdings: The Latest Analyst Recommendations   [Jun-05-17 09:07AM  Market Realist]
▶ What Prompted Downward Revision in Zimmer Biomets Guidance?   [Jun-02-17 10:36AM  Market Realist]
▶ How Zimmer Biomet Expects to Drive Growth through Innovation   [Jun-01-17 05:35PM  Market Realist]
▶ 3 Top Dividend Stocks in the Dentistry Industry   [May-23-17 05:42PM  Motley Fool]
▶ Jeff Auxier's Spring 2017 Market Commentary   [03:43PM  GuruFocus.com]
▶ This Medtech Stock Crashed Below 3 Technical Levels; Can It Get Up?   [Apr-27-17 05:01PM  Investor's Business Daily]
▶ Zimmer beats Street 1Q forecasts   [07:44AM  Associated Press]
▶ How ZBH Stock Has Performed Recently   [Apr-26-17 09:07AM  Market Realist]
▶ Why Zimmer Biomet Could See Revenue Growth in 1Q17   [Apr-25-17 02:05PM  Market Realist]
▶ What Analysts Recommend for Zimmer Biomet   [10:43AM  Market Realist]
▶ Which Medtech Stocks Should You Buy Ahead Of Q1?   [Apr-13-17 03:16PM  Investor's Business Daily]
▶ You Should Own J&J, Zimmer Biomet Ahead Of Earnings: RBC   [Apr-12-17 02:50PM  Barrons.com]
▶ Zimmer Biomet Stock Trades Ex-Dividend Wednesday   [Mar-28-17 11:43AM  Investopedia]
Stock chart of ZBH Financial statements of ZBH
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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