Intrinsic value of Zimmer Biomet Holdings - ZBH

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$119.65

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$119.65

 
Intrinsic value

$49.91

 
Up/down potential

-58%

 
Rating

str. sell

 
Value-price divergence* premium content

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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 24.2

 

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
 
  6,252
  6,469
  6,700
  6,945
  7,204
  7,478
  7,768
  8,075
  8,398
  8,739
  8,034
  8,413
  8,813
  9,233
  9,676
  10,142
  10,632
  11,147
  11,690
  12,260
  12,859
  13,490
  14,152
  14,849
  15,580
  16,349
  17,157
  18,006
  18,898
  19,835
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
  7,103
  7,341
  7,594
  7,861
  8,143
  8,441
  8,755
  9,086
  9,435
  9,801
  9,123
  9,529
  9,957
  10,406
  10,878
  11,374
  11,895
  12,442
  13,017
  13,620
  14,253
  14,919
  15,617
  16,350
  17,119
  17,926
  18,774
  19,663
  20,597
  21,576
Operating income, $m
  826
  897
  993
  1,097
  1,207
  1,325
  1,450
  1,583
  1,724
  1,874
  2,033
  3,266
  3,444
  3,633
  3,832
  4,043
  4,265
  4,500
  4,748
  5,010
  5,286
  5,577
  5,884
  6,207
  6,548
  6,907
  7,285
  7,684
  8,104
  8,546
  9,011
EBITDA, $m
  1,865
  2,516
  2,636
  2,764
  2,900
  3,046
  3,200
  3,364
  3,539
  3,723
  3,919
  4,125
  4,344
  4,575
  4,820
  5,078
  5,350
  5,637
  5,940
  6,260
  6,597
  6,952
  7,326
  7,721
  8,136
  8,573
  9,034
  9,519
  10,029
  10,567
  11,132
Interest expense (income), $m
  0
  373
  397
  422
  448
  477
  507
  538
  572
  607
  645
  684
  725
  769
  815
  864
  915
  969
  1,025
  1,085
  1,147
  1,213
  1,282
  1,355
  1,432
  1,512
  1,597
  1,685
  1,779
  1,877
  1,980
Earnings before tax, $m
  400
  523
  596
  675
  758
  848
  943
  1,045
  1,152
  1,267
  1,389
  2,582
  2,719
  2,864
  3,017
  3,179
  3,350
  3,531
  3,723
  3,925
  4,138
  4,363
  4,601
  4,852
  5,116
  5,395
  5,689
  5,998
  6,325
  6,669
  7,031
Tax expense, $m
  95
  141
  161
  182
  205
  229
  255
  282
  311
  342
  375
  697
  734
  773
  815
  858
  905
  953
  1,005
  1,060
  1,117
  1,178
  1,242
  1,310
  1,381
  1,457
  1,536
  1,620
  1,708
  1,801
  1,898
Net income, $m
  306
  382
  435
  493
  554
  619
  688
  763
  841
  925
  1,014
  1,885
  1,985
  2,090
  2,202
  2,321
  2,446
  2,578
  2,718
  2,865
  3,021
  3,185
  3,359
  3,542
  3,735
  3,938
  4,153
  4,379
  4,617
  4,868
  5,133

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
  27,115
  28,252
  29,458
  30,738
  32,093
  33,527
  35,043
  36,645
  38,335
  40,118
  41,998
  43,979
  46,066
  48,264
  50,578
  53,013
  55,576
  58,271
  61,106
  64,087
  67,221
  70,516
  73,979
  77,619
  81,444
  85,464
  89,687
  94,125
  98,787
  103,684
Adjusted assets (=assets-cash), $m
  26,050
  27,115
  28,252
  29,458
  30,738
  32,093
  33,527
  35,043
  36,645
  38,335
  40,118
  41,998
  43,979
  46,066
  48,264
  50,578
  53,013
  55,576
  58,271
  61,106
  64,087
  67,221
  70,516
  73,979
  77,619
  81,444
  85,464
  89,687
  94,125
  98,787
  103,684
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
  11,263
  11,735
  12,236
  12,767
  13,330
  13,926
  14,556
  15,221
  15,923
  16,663
  17,444
  18,267
  19,134
  20,047
  21,008
  22,020
  23,084
  24,203
  25,381
  26,619
  27,921
  29,289
  30,728
  32,240
  33,829
  35,498
  37,253
  39,096
  41,032
  43,066
Working capital, $m
  2,282
  2,312
  2,409
  2,511
  2,621
  2,736
  2,858
  2,988
  3,124
  3,268
  3,420
  3,581
  3,749
  3,927
  4,115
  4,312
  4,520
  4,738
  4,968
  5,210
  5,464
  5,731
  6,012
  6,307
  6,617
  6,944
  7,286
  7,646
  8,025
  8,422
  8,840
Total debt, $m
  11,241
  11,336
  12,053
  12,814
  13,622
  14,477
  15,382
  16,338
  17,349
  18,415
  19,540
  20,727
  21,977
  23,294
  24,681
  26,141
  27,677
  29,294
  30,995
  32,784
  34,665
  36,642
  38,722
  40,907
  43,204
  45,617
  48,154
  50,819
  53,619
  56,560
  59,651
Total liabilities, $m
  17,016
  17,110
  17,827
  18,588
  19,396
  20,251
  21,156
  22,112
  23,123
  24,189
  25,314
  26,501
  27,751
  29,068
  30,455
  31,915
  33,451
  35,068
  36,769
  38,558
  40,439
  42,416
  44,496
  46,681
  48,978
  51,391
  53,928
  56,593
  59,393
  62,334
  65,425
Total equity, $m
  9,669
  10,006
  10,425
  10,870
  11,342
  11,842
  12,372
  12,931
  13,522
  14,146
  14,804
  15,497
  16,228
  16,999
  17,810
  18,663
  19,562
  20,507
  21,502
  22,548
  23,648
  24,805
  26,020
  27,298
  28,641
  30,053
  31,536
  33,095
  34,732
  36,452
  38,260
Total liabilities and equity, $m
  26,685
  27,116
  28,252
  29,458
  30,738
  32,093
  33,528
  35,043
  36,645
  38,335
  40,118
  41,998
  43,979
  46,067
  48,265
  50,578
  53,013
  55,575
  58,271
  61,106
  64,087
  67,221
  70,516
  73,979
  77,619
  81,444
  85,464
  89,688
  94,125
  98,786
  103,685
Debt-to-equity ratio
  1.163
  1.130
  1.160
  1.180
  1.200
  1.220
  1.240
  1.260
  1.280
  1.300
  1.320
  1.340
  1.350
  1.370
  1.390
  1.400
  1.410
  1.430
  1.440
  1.450
  1.470
  1.480
  1.490
  1.500
  1.510
  1.520
  1.530
  1.540
  1.540
  1.550
  1.560
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
  382
  435
  493
  554
  619
  688
  763
  841
  925
  1,014
  1,885
  1,985
  2,090
  2,202
  2,321
  2,446
  2,578
  2,718
  2,865
  3,021
  3,185
  3,359
  3,542
  3,735
  3,938
  4,153
  4,379
  4,617
  4,868
  5,133
Depreciation, amort., depletion, $m
  1,039
  1,619
  1,642
  1,667
  1,693
  1,721
  1,750
  1,781
  1,814
  1,849
  1,885
  859
  900
  943
  988
  1,035
  1,085
  1,137
  1,192
  1,250
  1,311
  1,375
  1,443
  1,514
  1,588
  1,666
  1,749
  1,835
  1,926
  2,021
  2,121
Funds from operations, $m
  1,610
  2,001
  2,078
  2,160
  2,247
  2,340
  2,439
  2,544
  2,656
  2,774
  2,899
  2,744
  2,885
  3,033
  3,190
  3,356
  3,530
  3,715
  3,910
  4,115
  4,332
  4,561
  4,802
  5,055
  5,323
  5,605
  5,901
  6,214
  6,543
  6,890
  7,254
Change in working capital, $m
  -22
  91
  97
  103
  109
  116
  122
  129
  137
  144
  152
  160
  169
  178
  187
  197
  208
  218
  230
  242
  254
  267
  281
  295
  310
  326
  343
  360
  378
  397
  418
Cash from operations, $m
  1,632
  1,917
  1,981
  2,057
  2,138
  2,224
  2,317
  2,415
  2,519
  2,630
  2,747
  2,584
  2,716
  2,855
  3,002
  3,158
  3,323
  3,497
  3,680
  3,874
  4,078
  4,294
  4,521
  4,760
  5,013
  5,279
  5,559
  5,854
  6,165
  6,492
  6,837
Maintenance CAPEX, $m
  0
  -533
  -555
  -578
  -603
  -629
  -657
  -686
  -717
  -750
  -784
  -821
  -859
  -900
  -943
  -988
  -1,035
  -1,085
  -1,137
  -1,192
  -1,250
  -1,311
  -1,375
  -1,443
  -1,514
  -1,588
  -1,666
  -1,749
  -1,835
  -1,926
  -2,021
New CAPEX, $m
  -530
  -447
  -472
  -501
  -532
  -563
  -596
  -630
  -665
  -702
  -741
  -781
  -823
  -867
  -913
  -961
  -1,011
  -1,064
  -1,120
  -1,177
  -1,238
  -1,302
  -1,369
  -1,439
  -1,512
  -1,589
  -1,670
  -1,754
  -1,843
  -1,936
  -2,034
Cash from investing activities, $m
  -1,692
  -980
  -1,027
  -1,079
  -1,135
  -1,192
  -1,253
  -1,316
  -1,382
  -1,452
  -1,525
  -1,602
  -1,682
  -1,767
  -1,856
  -1,949
  -2,046
  -2,149
  -2,257
  -2,369
  -2,488
  -2,613
  -2,744
  -2,882
  -3,026
  -3,177
  -3,336
  -3,503
  -3,678
  -3,862
  -4,055
Free cash flow, $m
  -60
  938
  954
  978
  1,004
  1,033
  1,064
  1,099
  1,137
  1,178
  1,222
  982
  1,033
  1,088
  1,147
  1,210
  1,276
  1,348
  1,423
  1,504
  1,590
  1,680
  1,777
  1,879
  1,987
  2,101
  2,223
  2,351
  2,487
  2,630
  2,781
Issuance/(repayment) of debt, $m
  -260
  671
  717
  761
  807
  855
  905
  957
  1,010
  1,067
  1,125
  1,186
  1,250
  1,317
  1,387
  1,460
  1,537
  1,617
  1,701
  1,789
  1,881
  1,978
  2,079
  2,185
  2,297
  2,414
  2,536
  2,665
  2,800
  2,942
  3,090
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
  671
  717
  761
  807
  855
  905
  957
  1,010
  1,067
  1,125
  1,186
  1,250
  1,317
  1,387
  1,460
  1,537
  1,617
  1,701
  1,789
  1,881
  1,978
  2,079
  2,185
  2,297
  2,414
  2,536
  2,665
  2,800
  2,942
  3,090
Total cash flow (excl. dividends), $m
  -637
  1,609
  1,671
  1,739
  1,811
  1,888
  1,969
  2,056
  2,147
  2,244
  2,347
  2,169
  2,284
  2,405
  2,534
  2,670
  2,813
  2,964
  3,124
  3,293
  3,471
  3,658
  3,856
  4,064
  4,284
  4,515
  4,759
  5,016
  5,287
  5,572
  5,872
Retained Cash Flow (-), $m
  219
  -395
  -419
  -445
  -472
  -500
  -529
  -559
  -591
  -624
  -658
  -694
  -731
  -770
  -811
  -854
  -899
  -945
  -995
  -1,046
  -1,100
  -1,157
  -1,216
  -1,278
  -1,343
  -1,412
  -1,483
  -1,558
  -1,637
  -1,720
  -1,807
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
 
  1,272
  1,252
  1,294
  1,339
  1,388
  1,440
  1,496
  1,556
  1,621
  1,689
  1,475
  1,553
  1,635
  1,723
  1,816
  1,915
  2,019
  2,130
  2,247
  2,371
  2,502
  2,640
  2,786
  2,941
  3,104
  3,276
  3,457
  3,649
  3,851
  4,064
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
 
  1,173
  1,057
  992
  924
  853
  782
  709
  637
  565
  496
  360
  310
  263
  220
  181
  146
  115
  90
  68
  50
  37
  26
  18
  12
  8
  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 78.4
Price to Sales 3.1
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 14.7
Price to Free Cash Flow 21.8
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 8.4%, 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 202.44 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 $24.2 billion.


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COMPANY NEWS

▶ 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
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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