Intrinsic value of Applied Materials - AMAT

Previous Close

$56.09

  Intrinsic Value

$233.37

stock screener

  Rating & Target

str. buy

+316%

Previous close

$56.09

 
Intrinsic value

$233.37

 
Up/down potential

+316%

 
Rating

str. buy

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

We calculate the intrinsic value of AMAT 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 59.8

 

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, %
  12.07
  32.70
  29.93
  27.44
  25.19
  23.17
  21.36
  19.72
  18.25
  16.92
  15.73
  14.66
  13.69
  12.82
  12.04
  11.34
  10.70
  10.13
  9.62
  9.16
  8.74
  8.37
  8.03
  7.73
  7.46
  7.21
  6.99
  6.79
  6.61
  6.45
  6.30
Revenue, $m
  10,825
  14,365
  18,664
  23,785
  29,777
  36,678
  44,511
  53,289
  63,014
  73,678
  85,269
  97,768
  111,155
  125,408
  140,509
  156,438
  173,182
  190,730
  209,077
  228,224
  248,175
  268,941
  290,540
  312,992
  336,326
  360,573
  385,772
  411,965
  439,199
  467,526
  497,002
Variable operating expenses, $m
 
  8,597
  11,070
  14,017
  17,464
  21,435
  25,942
  30,992
  36,588
  42,723
  49,392
  56,252
  63,955
  72,156
  80,844
  90,009
  99,643
  109,740
  120,296
  131,313
  142,792
  154,740
  167,167
  180,085
  193,511
  207,462
  221,961
  237,031
  252,701
  268,999
  285,959
Fixed operating expenses, $m
 
  2,216
  2,271
  2,328
  2,386
  2,446
  2,507
  2,570
  2,634
  2,700
  2,768
  2,837
  2,908
  2,980
  3,055
  3,131
  3,210
  3,290
  3,372
  3,456
  3,543
  3,631
  3,722
  3,815
  3,910
  4,008
  4,108
  4,211
  4,316
  4,424
  4,535
Total operating expenses, $m
  8,673
  10,813
  13,341
  16,345
  19,850
  23,881
  28,449
  33,562
  39,222
  45,423
  52,160
  59,089
  66,863
  75,136
  83,899
  93,140
  102,853
  113,030
  123,668
  134,769
  146,335
  158,371
  170,889
  183,900
  197,421
  211,470
  226,069
  241,242
  257,017
  273,423
  290,494
Operating income, $m
  2,152
  3,552
  5,322
  7,440
  9,926
  12,797
  16,062
  19,727
  23,792
  28,254
  33,109
  38,679
  44,292
  50,272
  56,610
  63,297
  70,329
  77,700
  85,409
  93,455
  101,840
  110,570
  119,651
  129,092
  138,904
  149,103
  159,703
  170,723
  182,182
  194,103
  206,508
EBITDA, $m
  2,541
  4,050
  5,870
  8,047
  10,603
  13,554
  16,909
  20,676
  24,854
  29,440
  34,428
  39,811
  45,580
  51,725
  58,238
  65,110
  72,336
  79,910
  87,832
  96,100
  104,716
  113,686
  123,017
  132,718
  142,802
  153,281
  164,173
  175,496
  187,271
  199,520
  212,267
Interest expense (income), $m
  151
  119
  208
  316
  444
  595
  768
  965
  1,185
  1,430
  1,698
  1,989
  2,303
  2,639
  2,997
  3,376
  3,776
  4,197
  4,638
  5,099
  5,579
  6,081
  6,602
  7,145
  7,709
  8,295
  8,904
  9,537
  10,195
  10,879
  11,590
Earnings before tax, $m
  2,013
  3,433
  5,115
  7,124
  9,482
  12,202
  15,294
  18,762
  22,606
  26,825
  31,411
  36,690
  41,990
  47,633
  53,613
  59,921
  66,553
  73,504
  80,771
  88,356
  96,261
  104,489
  113,048
  121,947
  131,196
  140,808
  150,799
  161,186
  171,987
  183,224
  194,918
Tax expense, $m
  292
  927
  1,381
  1,924
  2,560
  3,295
  4,129
  5,066
  6,104
  7,243
  8,481
  9,906
  11,337
  12,861
  14,475
  16,179
  17,969
  19,846
  21,808
  23,856
  25,990
  28,212
  30,523
  32,926
  35,423
  38,018
  40,716
  43,520
  46,437
  49,470
  52,628
Net income, $m
  1,721
  2,506
  3,734
  5,201
  6,922
  8,907
  11,164
  13,696
  16,503
  19,582
  22,930
  26,784
  30,652
  34,772
  39,137
  43,742
  48,584
  53,658
  58,963
  64,500
  70,271
  76,277
  82,525
  89,021
  95,773
  102,790
  110,083
  117,666
  125,551
  133,753
  142,290

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,749
  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
  14,570
  14,365
  18,664
  23,785
  29,777
  36,678
  44,511
  53,289
  63,014
  73,678
  85,269
  97,768
  111,155
  125,408
  140,509
  156,438
  173,182
  190,730
  209,077
  228,224
  248,175
  268,941
  290,540
  312,992
  336,326
  360,573
  385,772
  411,965
  439,199
  467,526
  497,002
Adjusted assets (=assets-cash), $m
  10,821
  14,365
  18,664
  23,785
  29,777
  36,678
  44,511
  53,289
  63,014
  73,678
  85,269
  97,768
  111,155
  125,408
  140,509
  156,438
  173,182
  190,730
  209,077
  228,224
  248,175
  268,941
  290,540
  312,992
  336,326
  360,573
  385,772
  411,965
  439,199
  467,526
  497,002
Revenue / Adjusted assets
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
Average production assets, $m
  1,583
  2,097
  2,725
  3,473
  4,347
  5,355
  6,499
  7,780
  9,200
  10,757
  12,449
  14,274
  16,229
  18,310
  20,514
  22,840
  25,285
  27,847
  30,525
  33,321
  36,234
  39,265
  42,419
  45,697
  49,104
  52,644
  56,323
  60,147
  64,123
  68,259
  72,562
Working capital, $m
  4,721
  1,551
  2,016
  2,569
  3,216
  3,961
  4,807
  5,755
  6,805
  7,957
  9,209
  10,559
  12,005
  13,544
  15,175
  16,895
  18,704
  20,599
  22,580
  24,648
  26,803
  29,046
  31,378
  33,803
  36,323
  38,942
  41,663
  44,492
  47,433
  50,493
  53,676
Total debt, $m
  3,325
  5,467
  8,309
  11,694
  15,655
  20,216
  25,394
  31,196
  37,624
  44,673
  52,335
  60,596
  69,445
  78,867
  88,848
  99,377
  110,445
  122,044
  134,172
  146,828
  160,016
  173,742
  188,019
  202,860
  218,283
  234,311
  250,967
  268,281
  286,283
  305,007
  324,490
Total liabilities, $m
  7,353
  9,495
  12,337
  15,722
  19,683
  24,244
  29,422
  35,224
  41,652
  48,701
  56,363
  64,624
  73,473
  82,895
  92,876
  103,405
  114,473
  126,072
  138,200
  150,856
  164,044
  177,770
  192,047
  206,888
  222,311
  238,339
  254,995
  272,309
  290,311
  309,035
  328,518
Total equity, $m
  7,217
  4,870
  6,327
  8,063
  10,094
  12,434
  15,089
  18,065
  21,362
  24,977
  28,906
  33,143
  37,681
  42,513
  47,632
  53,032
  58,709
  64,657
  70,877
  77,368
  84,131
  91,171
  98,493
  106,104
  114,014
  122,234
  130,777
  139,656
  148,888
  158,491
  168,484
Total liabilities and equity, $m
  14,570
  14,365
  18,664
  23,785
  29,777
  36,678
  44,511
  53,289
  63,014
  73,678
  85,269
  97,767
  111,154
  125,408
  140,508
  156,437
  173,182
  190,729
  209,077
  228,224
  248,175
  268,941
  290,540
  312,992
  336,325
  360,573
  385,772
  411,965
  439,199
  467,526
  497,002
Debt-to-equity ratio
  0.461
  1.120
  1.310
  1.450
  1.550
  1.630
  1.680
  1.730
  1.760
  1.790
  1.810
  1.830
  1.840
  1.860
  1.870
  1.870
  1.880
  1.890
  1.890
  1.900
  1.900
  1.910
  1.910
  1.910
  1.910
  1.920
  1.920
  1.920
  1.920
  1.920
  1.930
Adjusted equity ratio
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,721
  2,506
  3,734
  5,201
  6,922
  8,907
  11,164
  13,696
  16,503
  19,582
  22,930
  26,784
  30,652
  34,772
  39,137
  43,742
  48,584
  53,658
  58,963
  64,500
  70,271
  76,277
  82,525
  89,021
  95,773
  102,790
  110,083
  117,666
  125,551
  133,753
  142,290
Depreciation, amort., depletion, $m
  389
  498
  548
  607
  677
  757
  847
  949
  1,062
  1,185
  1,320
  1,133
  1,288
  1,453
  1,628
  1,813
  2,007
  2,210
  2,423
  2,644
  2,876
  3,116
  3,367
  3,627
  3,897
  4,178
  4,470
  4,774
  5,089
  5,417
  5,759
Funds from operations, $m
  2,585
  3,004
  4,282
  5,808
  7,598
  9,664
  12,012
  14,645
  17,564
  20,767
  24,250
  27,916
  31,940
  36,225
  40,765
  45,555
  50,590
  55,868
  61,386
  67,145
  73,146
  79,394
  85,892
  92,648
  99,670
  106,968
  114,554
  122,439
  130,640
  139,171
  148,049
Change in working capital, $m
  119
  382
  464
  553
  647
  745
  846
  948
  1,050
  1,152
  1,252
  1,350
  1,446
  1,539
  1,631
  1,720
  1,808
  1,895
  1,982
  2,068
  2,155
  2,243
  2,333
  2,425
  2,520
  2,619
  2,721
  2,829
  2,941
  3,059
  3,183
Cash from operations, $m
  2,466
  2,622
  3,817
  5,255
  6,951
  8,919
  11,166
  13,697
  16,514
  19,616
  22,998
  26,567
  30,495
  34,686
  39,135
  43,835
  48,782
  53,972
  59,404
  65,077
  70,992
  77,151
  83,559
  90,223
  97,150
  104,349
  111,832
  119,610
  127,699
  136,111
  144,866
Maintenance CAPEX, $m
  0
  -126
  -166
  -216
  -276
  -345
  -425
  -516
  -617
  -730
  -854
  -988
  -1,133
  -1,288
  -1,453
  -1,628
  -1,813
  -2,007
  -2,210
  -2,423
  -2,644
  -2,876
  -3,116
  -3,367
  -3,627
  -3,897
  -4,178
  -4,470
  -4,774
  -5,089
  -5,417
New CAPEX, $m
  -253
  -514
  -628
  -748
  -875
  -1,007
  -1,144
  -1,282
  -1,420
  -1,557
  -1,692
  -1,825
  -1,954
  -2,081
  -2,205
  -2,326
  -2,445
  -2,562
  -2,679
  -2,795
  -2,913
  -3,032
  -3,153
  -3,278
  -3,407
  -3,540
  -3,679
  -3,824
  -3,976
  -4,136
  -4,304
Cash from investing activities, $m
  -425
  -640
  -794
  -964
  -1,151
  -1,352
  -1,569
  -1,798
  -2,037
  -2,287
  -2,546
  -2,813
  -3,087
  -3,369
  -3,658
  -3,954
  -4,258
  -4,569
  -4,889
  -5,218
  -5,557
  -5,908
  -6,269
  -6,645
  -7,034
  -7,437
  -7,857
  -8,294
  -8,750
  -9,225
  -9,721
Free cash flow, $m
  2,041
  1,982
  3,023
  4,291
  5,801
  7,566
  9,597
  11,900
  14,477
  17,328
  20,452
  23,754
  27,407
  31,317
  35,477
  39,881
  44,525
  49,404
  54,515
  59,859
  65,434
  71,243
  77,290
  83,578
  90,117
  96,912
  103,975
  111,316
  118,949
  126,887
  135,145
Issuance/(repayment) of debt, $m
  -1,207
  2,342
  2,842
  3,385
  3,961
  4,561
  5,178
  5,802
  6,428
  7,049
  7,661
  8,262
  8,849
  9,422
  9,981
  10,529
  11,068
  11,599
  12,128
  12,656
  13,188
  13,727
  14,277
  14,841
  15,424
  16,028
  16,657
  17,313
  18,002
  18,724
  19,484
Issuance/(repurchase) of shares, $m
  -1,804
  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  
  -2,988
  2,342
  2,842
  3,385
  3,961
  4,561
  5,178
  5,802
  6,428
  7,049
  7,661
  8,262
  8,849
  9,422
  9,981
  10,529
  11,068
  11,599
  12,128
  12,656
  13,188
  13,727
  14,277
  14,841
  15,424
  16,028
  16,657
  17,313
  18,002
  18,724
  19,484
Total cash flow (excl. dividends), $m
  -947
  4,324
  5,865
  7,676
  9,762
  12,128
  14,775
  17,702
  20,905
  24,378
  28,113
  32,016
  36,256
  40,739
  45,458
  50,410
  55,592
  61,003
  66,643
  72,515
  78,622
  84,970
  91,566
  98,420
  105,540
  112,940
  120,631
  128,630
  136,950
  145,611
  154,629
Retained Cash Flow (-), $m
  396
  -1,202
  -1,457
  -1,736
  -2,031
  -2,339
  -2,655
  -2,976
  -3,297
  -3,615
  -3,929
  -4,237
  -4,538
  -4,832
  -5,119
  -5,400
  -5,676
  -5,949
  -6,220
  -6,491
  -6,763
  -7,040
  -7,322
  -7,611
  -7,910
  -8,220
  -8,542
  -8,879
  -9,232
  -9,603
  -9,992
Prev. year cash balance distribution, $m
 
  3,549
  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
 
  6,672
  4,407
  5,940
  7,730
  9,788
  12,119
  14,726
  17,608
  20,762
  24,184
  27,778
  31,718
  35,907
  40,339
  45,010
  49,916
  55,054
  60,423
  66,024
  71,858
  77,930
  84,244
  90,808
  97,630
  104,720
  112,089
  119,750
  127,718
  136,008
  144,636
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
 
  6,397
  4,035
  5,169
  6,365
  7,587
  8,796
  9,949
  11,006
  11,927
  12,679
  13,192
  13,535
  13,652
  13,543
  13,214
  12,685
  11,979
  11,128
  10,166
  9,131
  8,061
  6,990
  5,952
  4,972
  4,074
  3,270
  2,570
  1,976
  1,485
  1,089
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

Applied Materials, Inc. provides manufacturing equipment, services and software to the global semiconductor, display and related industries. The Company's segments are Semiconductor Systems, which includes semiconductor capital equipment for etch, rapid thermal processing, deposition, chemical mechanical planarization, metrology and inspection, wafer packaging, and ion implantation; Applied Global Services, which provides integrated solutions to optimize equipment and fab performance and productivity; Display and Adjacent Markets, which includes products for manufacturing liquid crystal displays, organic light-emitting diodes, upgrades and roll-to-roll Web coating systems and other display technologies for televisions, personal computers, smart phones and other consumer-oriented devices, and Corporate and Other segment, which includes revenues from products, as well as costs of products sold for fabricating solar photovoltaic cells and modules, and certain operating expenses.

FINANCIAL RATIOS  of  Applied Materials (AMAT)

Valuation Ratios
P/E Ratio 36.9
Price to Sales 5.9
Price to Book 8.8
Price to Tangible Book
Price to Cash Flow 25.7
Price to Free Cash Flow 28.7
Growth Rates
Sales Growth Rate 12.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 17.7%
Cap. Spend. - 3 Yr. Gr. Rate 5.1%
Financial Strength
Quick Ratio 19
Current Ratio 0
LT Debt to Equity 43.3%
Total Debt to Equity 46.1%
Interest Coverage 14
Management Effectiveness
Return On Assets 12.4%
Ret/ On Assets - 3 Yr. Avg. 10.6%
Return On Total Capital 15.2%
Ret/ On T. Cap. - 3 Yr. Avg. 13%
Return On Equity 23.2%
Return On Equity - 3 Yr. Avg. 18.4%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 41.7%
Gross Margin - 3 Yr. Avg. 41.6%
EBITDA Margin 23.6%
EBITDA Margin - 3 Yr. Avg. 22%
Operating Margin 19.9%
Oper. Margin - 3 Yr. Avg. 18.1%
Pre-Tax Margin 18.6%
Pre-Tax Margin - 3 Yr. Avg. 17%
Net Profit Margin 15.9%
Net Profit Margin - 3 Yr. Avg. 14%
Effective Tax Rate 14.5%
Eff/ Tax Rate - 3 Yr. Avg. 18.1%
Payout Ratio 25.8%

AMAT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AMAT stock intrinsic value calculation we used $10825 million for the last fiscal year's total revenue generated by Applied Materials. The default revenue input number comes from 2016 income statement of Applied Materials. 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 AMAT stock valuation model: a) initial revenue growth rate of 32.7% 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 AMAT is calculated based on our internal credit rating of Applied Materials, 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 Applied Materials.
    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 AMAT stock the variable cost ratio is equal to 60.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2162 million in the base year in the intrinsic value calculation for AMAT 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 3.8% for Applied Materials.

Corporate tax rate of 27% is the nominal tax rate for Applied Materials. 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 AMAT 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 AMAT are equal to 14.6%.

Life of production assets of 12.6 years is the average useful life of capital assets used in Applied Materials 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 AMAT is equal to 10.8%. 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 - $7217 million for Applied Materials - 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 1066.5 million for Applied Materials 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 Applied Materials at the current share price and the inputted number of shares is $59.8 billion.

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Financial statements of AMAT
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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