Intrinsic value of Zimmer Biomet Holdings - ZBH

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$129.09

  Intrinsic Value

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  Value-price divergence*

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$129.09

 
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*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 25.9

 

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
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
Revenue, $m
  7,684
  7,999
  8,334
  8,690
  9,068
  9,467
  9,891
  10,338
  10,810
  11,309
  11,835
  12,389
  12,974
  13,590
  14,238
  14,921
  15,639
  16,395
  17,190
  18,026
  18,906
  19,830
  20,802
  21,824
  22,898
  24,026
  25,212
  26,458
  27,767
  29,142
  30,587
Variable operating expenses, $m
 
  6,244
  6,462
  6,693
  6,938
  7,198
  7,472
  7,763
  8,069
  8,393
  8,734
  8,044
  8,423
  8,823
  9,244
  9,687
  10,153
  10,644
  11,160
  11,703
  12,274
  12,874
  13,506
  14,169
  14,866
  15,599
  16,368
  17,177
  18,027
  18,920
  19,858
Fixed operating expenses, $m
 
  858
  879
  901
  924
  947
  971
  995
  1,020
  1,045
  1,071
  1,098
  1,126
  1,154
  1,183
  1,212
  1,243
  1,274
  1,305
  1,338
  1,372
  1,406
  1,441
  1,477
  1,514
  1,552
  1,591
  1,630
  1,671
  1,713
  1,756
Total operating expenses, $m
  6,858
  7,102
  7,341
  7,594
  7,862
  8,145
  8,443
  8,758
  9,089
  9,438
  9,805
  9,142
  9,549
  9,977
  10,427
  10,899
  11,396
  11,918
  12,465
  13,041
  13,646
  14,280
  14,947
  15,646
  16,380
  17,151
  17,959
  18,807
  19,698
  20,633
  21,614
Operating income, $m
  826
  897
  993
  1,096
  1,206
  1,323
  1,448
  1,580
  1,721
  1,871
  2,029
  3,248
  3,425
  3,613
  3,812
  4,021
  4,243
  4,477
  4,724
  4,985
  5,260
  5,550
  5,856
  6,178
  6,518
  6,876
  7,253
  7,650
  8,069
  8,509
  8,973
EBITDA, $m
  1,865
  2,478
  2,596
  2,723
  2,857
  3,001
  3,154
  3,316
  3,488
  3,671
  3,864
  4,068
  4,285
  4,513
  4,755
  5,010
  5,279
  5,563
  5,863
  6,179
  6,512
  6,864
  7,234
  7,624
  8,035
  8,467
  8,923
  9,403
  9,908
  10,440
  11,000
Interest expense (income), $m
  0
  373
  397
  422
  448
  477
  506
  538
  571
  606
  643
  683
  724
  767
  813
  862
  912
  966
  1,022
  1,081
  1,144
  1,209
  1,278
  1,350
  1,427
  1,507
  1,591
  1,679
  1,772
  1,869
  1,972
Earnings before tax, $m
  400
  524
  596
  674
  757
  846
  941
  1,043
  1,150
  1,264
  1,385
  2,565
  2,701
  2,845
  2,998
  3,160
  3,331
  3,511
  3,702
  3,903
  4,116
  4,341
  4,578
  4,828
  5,091
  5,369
  5,662
  5,971
  6,297
  6,640
  7,002
Tax expense, $m
  95
  141
  161
  182
  205
  229
  254
  281
  311
  341
  374
  693
  729
  768
  810
  853
  899
  948
  1,000
  1,054
  1,111
  1,172
  1,236
  1,303
  1,375
  1,450
  1,529
  1,612
  1,700
  1,793
  1,890
Net income, $m
  306
  382
  435
  492
  553
  618
  687
  761
  840
  923
  1,011
  1,872
  1,972
  2,077
  2,189
  2,307
  2,431
  2,563
  2,702
  2,850
  3,005
  3,169
  3,342
  3,524
  3,717
  3,920
  4,133
  4,359
  4,597
  4,847
  5,111

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
  26,933
  28,061
  29,260
  30,531
  31,877
  33,302
  34,807
  36,398
  38,077
  39,848
  41,715
  43,683
  45,756
  47,939
  50,238
  52,656
  55,201
  57,879
  60,694
  63,655
  66,768
  70,041
  73,481
  77,096
  80,896
  84,888
  89,084
  93,491
  98,122
  102,986
Adjusted assets (=assets-cash), $m
  26,050
  26,933
  28,061
  29,260
  30,531
  31,877
  33,302
  34,807
  36,398
  38,077
  39,848
  41,715
  43,683
  45,756
  47,939
  50,238
  52,656
  55,201
  57,879
  60,694
  63,655
  66,768
  70,041
  73,481
  77,096
  80,896
  84,888
  89,084
  93,491
  98,122
  102,986
Revenue / Adjusted assets
  0.295
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
Average production assets, $m
  10,816
  10,175
  10,601
  11,054
  11,534
  12,043
  12,581
  13,150
  13,751
  14,385
  15,054
  15,759
  16,503
  17,286
  18,111
  18,979
  19,893
  20,854
  21,866
  22,929
  24,048
  25,224
  26,460
  27,760
  29,126
  30,561
  32,070
  33,654
  35,319
  37,069
  38,906
Working capital, $m
  2,282
  2,304
  2,400
  2,503
  2,611
  2,727
  2,848
  2,977
  3,113
  3,257
  3,408
  3,568
  3,736
  3,914
  4,101
  4,297
  4,504
  4,722
  4,951
  5,192
  5,445
  5,711
  5,991
  6,285
  6,595
  6,920
  7,261
  7,620
  7,997
  8,393
  8,809
Total debt, $m
  11,241
  11,341
  12,054
  12,811
  13,614
  14,465
  15,366
  16,317
  17,322
  18,383
  19,503
  20,683
  21,927
  23,237
  24,617
  26,069
  27,598
  29,206
  30,898
  32,678
  34,549
  36,517
  38,585
  40,759
  43,044
  45,445
  47,969
  50,620
  53,405
  56,332
  59,406
Total liabilities, $m
  17,016
  17,022
  17,735
  18,492
  19,295
  20,146
  21,047
  21,998
  23,003
  24,064
  25,184
  26,364
  27,608
  28,918
  30,298
  31,750
  33,279
  34,887
  36,579
  38,359
  40,230
  42,198
  44,266
  46,440
  48,725
  51,126
  53,650
  56,301
  59,086
  62,013
  65,087
Total equity, $m
  9,669
  9,911
  10,327
  10,768
  11,235
  11,731
  12,255
  12,809
  13,394
  14,012
  14,664
  15,351
  16,075
  16,838
  17,642
  18,487
  19,378
  20,314
  21,299
  22,336
  23,425
  24,571
  25,775
  27,041
  28,371
  29,770
  31,239
  32,783
  34,405
  36,109
  37,899
Total liabilities and equity, $m
  26,685
  26,933
  28,062
  29,260
  30,530
  31,877
  33,302
  34,807
  36,397
  38,076
  39,848
  41,715
  43,683
  45,756
  47,940
  50,237
  52,657
  55,201
  57,878
  60,695
  63,655
  66,769
  70,041
  73,481
  77,096
  80,896
  84,889
  89,084
  93,491
  98,122
  102,986
Debt-to-equity ratio
  1.163
  1.140
  1.170
  1.190
  1.210
  1.230
  1.250
  1.270
  1.290
  1.310
  1.330
  1.350
  1.360
  1.380
  1.400
  1.410
  1.420
  1.440
  1.450
  1.460
  1.470
  1.490
  1.500
  1.510
  1.520
  1.530
  1.540
  1.540
  1.550
  1.560
  1.570
Adjusted equity ratio
  0.347
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368
  0.368

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  306
  382
  435
  492
  553
  618
  687
  761
  840
  923
  1,011
  1,872
  1,972
  2,077
  2,189
  2,307
  2,431
  2,563
  2,702
  2,850
  3,005
  3,169
  3,342
  3,524
  3,717
  3,920
  4,133
  4,359
  4,597
  4,847
  5,111
Depreciation, amort., depletion, $m
  1,039
  1,581
  1,603
  1,627
  1,652
  1,678
  1,706
  1,736
  1,767
  1,800
  1,835
  821
  860
  900
  943
  988
  1,036
  1,086
  1,139
  1,194
  1,252
  1,314
  1,378
  1,446
  1,517
  1,592
  1,670
  1,753
  1,840
  1,931
  2,026
Funds from operations, $m
  1,610
  1,963
  2,038
  2,119
  2,205
  2,296
  2,393
  2,497
  2,607
  2,723
  2,846
  2,693
  2,831
  2,978
  3,132
  3,295
  3,467
  3,649
  3,841
  4,044
  4,257
  4,482
  4,720
  4,970
  5,234
  5,511
  5,804
  6,112
  6,436
  6,778
  7,137
Change in working capital, $m
  -22
  91
  97
  103
  109
  115
  122
  129
  136
  144
  151
  160
  168
  177
  187
  197
  207
  218
  229
  241
  253
  266
  280
  294
  309
  325
  342
  359
  377
  396
  416
Cash from operations, $m
  1,632
  835
  1,942
  2,016
  2,096
  2,181
  2,272
  2,368
  2,471
  2,579
  2,695
  2,533
  2,663
  2,800
  2,945
  3,099
  3,261
  3,432
  3,612
  3,803
  4,004
  4,216
  4,440
  4,676
  4,924
  5,186
  5,462
  5,753
  6,059
  6,382
  6,721
Maintenance CAPEX, $m
  0
  -509
  -530
  -552
  -576
  -601
  -627
  -655
  -685
  -716
  -749
  -784
  -821
  -860
  -900
  -943
  -988
  -1,036
  -1,086
  -1,139
  -1,194
  -1,252
  -1,314
  -1,378
  -1,446
  -1,517
  -1,592
  -1,670
  -1,753
  -1,840
  -1,931
New CAPEX, $m
  -530
  -403
  -426
  -453
  -480
  -509
  -538
  -569
  -601
  -634
  -669
  -705
  -743
  -783
  -825
  -868
  -914
  -961
  -1,011
  -1,064
  -1,119
  -1,176
  -1,236
  -1,300
  -1,366
  -1,435
  -1,508
  -1,585
  -1,665
  -1,749
  -1,838
Cash from investing activities, $m
  -1,692
  -912
  -956
  -1,005
  -1,056
  -1,110
  -1,165
  -1,224
  -1,286
  -1,350
  -1,418
  -1,489
  -1,564
  -1,643
  -1,725
  -1,811
  -1,902
  -1,997
  -2,097
  -2,203
  -2,313
  -2,428
  -2,550
  -2,678
  -2,812
  -2,952
  -3,100
  -3,255
  -3,418
  -3,589
  -3,769
Free cash flow, $m
  -60
  -76
  985
  1,011
  1,040
  1,072
  1,106
  1,144
  1,185
  1,229
  1,277
  1,044
  1,099
  1,157
  1,220
  1,287
  1,358
  1,434
  1,515
  1,600
  1,691
  1,788
  1,890
  1,998
  2,113
  2,234
  2,362
  2,498
  2,641
  2,793
  2,953
Issuance/(repayment) of debt, $m
  -260
  672
  713
  757
  803
  851
  900
  952
  1,005
  1,061
  1,119
  1,180
  1,244
  1,310
  1,380
  1,453
  1,529
  1,608
  1,692
  1,780
  1,871
  1,967
  2,068
  2,174
  2,285
  2,401
  2,523
  2,651
  2,786
  2,926
  3,074
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
  672
  713
  757
  803
  851
  900
  952
  1,005
  1,061
  1,119
  1,180
  1,244
  1,310
  1,380
  1,453
  1,529
  1,608
  1,692
  1,780
  1,871
  1,967
  2,068
  2,174
  2,285
  2,401
  2,523
  2,651
  2,786
  2,926
  3,074
Total cash flow (excl. dividends), $m
  -637
  595
  1,699
  1,769
  1,843
  1,922
  2,006
  2,096
  2,190
  2,290
  2,396
  2,224
  2,343
  2,468
  2,600
  2,740
  2,887
  3,043
  3,207
  3,380
  3,563
  3,755
  3,958
  4,172
  4,398
  4,635
  4,886
  5,149
  5,427
  5,719
  6,027
Retained Cash Flow (-), $m
  219
  -386
  -415
  -441
  -468
  -495
  -524
  -554
  -585
  -618
  -652
  -687
  -724
  -763
  -803
  -846
  -890
  -937
  -985
  -1,036
  -1,090
  -1,146
  -1,204
  -1,266
  -1,330
  -1,398
  -1,469
  -1,544
  -1,622
  -1,704
  -1,790
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
 
  267
  1,283
  1,328
  1,375
  1,427
  1,482
  1,541
  1,605
  1,672
  1,744
  1,537
  1,618
  1,705
  1,797
  1,894
  1,997
  2,106
  2,221
  2,344
  2,473
  2,609
  2,754
  2,906
  3,067
  3,237
  3,416
  3,605
  3,805
  4,015
  4,237
Discount rate, %
 
  8.30
  8.72
  9.15
  9.61
  10.09
  10.59
  11.12
  11.68
  12.26
  12.88
  13.52
  14.20
  14.91
  15.65
  16.43
  17.26
  18.12
  19.02
  19.97
  20.97
  22.02
  23.12
  24.28
  25.49
  26.77
  28.11
  29.51
  30.99
  32.54
  34.16
PV of cash for distribution, $m
 
  246
  1,086
  1,021
  953
  882
  810
  737
  663
  590
  519
  381
  329
  280
  235
  193
  156
  124
  97
  74
  55
  40
  28
  20
  13
  9
  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 84.6
Price to Sales 3.4
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 15.9
Price to Free Cash Flow 23.5
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 4.1% 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 8.3%, 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 78.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $837 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 127.2%.

Life of production assets of 19.2 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 28.8%. 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 - $9583 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 $25.9 billion.


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COMPANY NEWS

▶ 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]
▶ [$$] User's Manual for a Mixed-Up Market   [Jan-21-17 12:01AM  at Barrons.com]
Stock chart of ZBH Financial statements of ZBH Annual reports 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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