Intrinsic value of Amgen Inc. - AMGN

Previous Close

$171.28

  Intrinsic Value

$125.24

stock screener

  Rating & Target

sell

-27%

Previous close

$171.28

 
Intrinsic value

$125.24

 
Up/down potential

-27%

 
Rating

sell

We calculate the intrinsic value of AMGN 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 0001), $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 106.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.40
  7.16
  6.94
  6.75
  6.57
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
  5.14
  5.13
  5.11
Revenue, $m
  25,504
  27,330
  29,228
  31,201
  33,252
  35,386
  37,607
  39,919
  42,327
  44,837
  47,454
  50,184
  53,034
  56,009
  59,117
  62,365
  65,760
  69,312
  73,027
  76,915
  80,985
  85,247
  89,711
  94,387
  99,287
  104,423
  109,806
  115,450
  121,367
  127,573
Variable operating expenses, $m
  14,348
  15,340
  16,370
  17,442
  18,556
  19,715
  20,921
  22,177
  23,485
  24,848
  25,773
  27,256
  28,804
  30,420
  32,108
  33,872
  35,716
  37,645
  39,663
  41,774
  43,985
  46,300
  48,724
  51,264
  53,925
  56,714
  59,638
  62,703
  65,917
  69,287
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  14,348
  15,340
  16,370
  17,442
  18,556
  19,715
  20,921
  22,177
  23,485
  24,848
  25,773
  27,256
  28,804
  30,420
  32,108
  33,872
  35,716
  37,645
  39,663
  41,774
  43,985
  46,300
  48,724
  51,264
  53,925
  56,714
  59,638
  62,703
  65,917
  69,287
Operating income, $m
  11,157
  11,991
  12,858
  13,759
  14,696
  15,671
  16,686
  17,742
  18,843
  19,989
  21,681
  22,928
  24,230
  25,589
  27,009
  28,493
  30,045
  31,667
  33,364
  35,141
  37,000
  38,948
  40,987
  43,124
  45,362
  47,709
  50,168
  52,746
  55,450
  58,285
EBITDA, $m
  12,890
  13,813
  14,772
  15,769
  16,806
  17,884
  19,006
  20,175
  21,392
  22,661
  23,983
  25,363
  26,803
  28,307
  29,878
  31,519
  33,235
  35,030
  36,908
  38,873
  40,930
  43,084
  45,340
  47,703
  50,180
  52,775
  55,496
  58,348
  61,339
  64,475
Interest expense (income), $m
  1,300
  1,832
  1,571
  1,743
  1,923
  2,109
  2,303
  2,505
  2,715
  2,934
  3,161
  3,399
  3,646
  3,904
  4,174
  4,455
  4,749
  5,056
  5,377
  5,713
  6,064
  6,432
  6,817
  7,220
  7,642
  8,084
  8,547
  9,033
  9,542
  10,075
  10,635
Earnings before tax, $m
  9,324
  10,420
  11,114
  11,836
  12,587
  13,368
  14,181
  15,027
  15,909
  16,828
  18,282
  19,282
  20,326
  21,415
  22,554
  23,744
  24,988
  26,290
  27,652
  29,077
  30,569
  32,131
  33,767
  35,482
  37,278
  39,161
  41,135
  43,205
  45,375
  47,650
Tax expense, $m
  2,518
  2,813
  3,001
  3,196
  3,398
  3,609
  3,829
  4,057
  4,295
  4,544
  4,936
  5,206
  5,488
  5,782
  6,090
  6,411
  6,747
  7,098
  7,466
  7,851
  8,254
  8,675
  9,117
  9,580
  10,065
  10,574
  11,107
  11,665
  12,251
  12,866
Net income, $m
  6,807
  7,607
  8,114
  8,641
  9,189
  9,759
  10,352
  10,970
  11,613
  12,284
  13,346
  14,076
  14,838
  15,633
  16,465
  17,333
  18,242
  19,192
  20,186
  21,226
  22,315
  23,456
  24,650
  25,902
  27,213
  28,588
  30,029
  31,539
  33,123
  34,785

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  49,619
  53,172
  56,864
  60,702
  64,693
  68,845
  73,165
  77,663
  82,349
  87,232
  92,323
  97,635
  103,178
  108,967
  115,013
  121,332
  127,939
  134,848
  142,076
  149,640
  157,559
  165,851
  174,535
  183,633
  193,166
  203,157
  213,630
  224,610
  236,123
  248,196
Adjusted assets (=assets-cash), $m
  49,619
  53,172
  56,864
  60,702
  64,693
  68,845
  73,165
  77,663
  82,349
  87,232
  92,323
  97,635
  103,178
  108,967
  115,013
  121,332
  127,939
  134,848
  142,076
  149,640
  157,559
  165,851
  174,535
  183,633
  193,166
  203,157
  213,630
  224,610
  236,123
  248,196
Revenue / Adjusted assets
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
Average production assets, $m
  17,572
  18,831
  20,138
  21,497
  22,911
  24,381
  25,911
  27,504
  29,163
  30,893
  32,696
  34,577
  36,540
  38,590
  40,732
  42,969
  45,309
  47,756
  50,316
  52,994
  55,799
  58,735
  61,811
  65,033
  68,409
  71,947
  75,656
  79,545
  83,622
  87,897
Working capital, $m
  -816
  -875
  -935
  -998
  -1,064
  -1,132
  -1,203
  -1,277
  -1,354
  -1,435
  -1,519
  -1,606
  -1,697
  -1,792
  -1,892
  -1,996
  -2,104
  -2,218
  -2,337
  -2,461
  -2,592
  -2,728
  -2,871
  -3,020
  -3,177
  -3,342
  -3,514
  -3,694
  -3,884
  -4,082
Total debt, $m
  29,089
  32,287
  35,610
  39,064
  42,656
  46,392
  50,281
  54,329
  58,546
  62,941
  67,523
  72,303
  77,293
  82,502
  87,944
  93,631
  99,577
  105,795
  112,300
  119,108
  126,235
  133,698
  141,514
  149,702
  158,282
  167,274
  176,699
  186,581
  196,942
  207,808
Total liabilities, $m
  44,657
  47,855
  51,178
  54,632
  58,224
  61,960
  65,849
  69,897
  74,114
  78,509
  83,091
  87,871
  92,861
  98,070
  103,512
  109,199
  115,145
  121,363
  127,868
  134,676
  141,803
  149,266
  157,082
  165,270
  173,850
  182,842
  192,267
  202,149
  212,510
  223,376
Total equity, $m
  4,962
  5,317
  5,686
  6,070
  6,469
  6,884
  7,317
  7,766
  8,235
  8,723
  9,232
  9,763
  10,318
  10,897
  11,501
  12,133
  12,794
  13,485
  14,208
  14,964
  15,756
  16,585
  17,454
  18,363
  19,317
  20,316
  21,363
  22,461
  23,612
  24,820
Total liabilities and equity, $m
  49,619
  53,172
  56,864
  60,702
  64,693
  68,844
  73,166
  77,663
  82,349
  87,232
  92,323
  97,634
  103,179
  108,967
  115,013
  121,332
  127,939
  134,848
  142,076
  149,640
  157,559
  165,851
  174,536
  183,633
  193,167
  203,158
  213,630
  224,610
  236,122
  248,196
Debt-to-equity ratio
  5.860
  6.070
  6.260
  6.440
  6.590
  6.740
  6.870
  7.000
  7.110
  7.220
  7.310
  7.410
  7.490
  7.570
  7.650
  7.720
  7.780
  7.850
  7.900
  7.960
  8.010
  8.060
  8.110
  8.150
  8.190
  8.230
  8.270
  8.310
  8.340
  8.370
Adjusted equity ratio
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6,807
  7,607
  8,114
  8,641
  9,189
  9,759
  10,352
  10,970
  11,613
  12,284
  13,346
  14,076
  14,838
  15,633
  16,465
  17,333
  18,242
  19,192
  20,186
  21,226
  22,315
  23,456
  24,650
  25,902
  27,213
  28,588
  30,029
  31,539
  33,123
  34,785
Depreciation, amort., depletion, $m
  1,733
  1,822
  1,914
  2,010
  2,109
  2,213
  2,321
  2,433
  2,550
  2,671
  2,303
  2,435
  2,573
  2,718
  2,868
  3,026
  3,191
  3,363
  3,543
  3,732
  3,929
  4,136
  4,353
  4,580
  4,818
  5,067
  5,328
  5,602
  5,889
  6,190
Funds from operations, $m
  8,540
  9,429
  10,028
  10,650
  11,298
  11,971
  12,672
  13,403
  14,163
  14,956
  15,648
  16,511
  17,411
  18,351
  19,333
  20,359
  21,432
  22,555
  23,729
  24,958
  26,245
  27,592
  29,003
  30,482
  32,031
  33,655
  35,357
  37,141
  39,012
  40,975
Change in working capital, $m
  -56
  -58
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -84
  -87
  -91
  -95
  -99
  -104
  -109
  -114
  -119
  -124
  -130
  -136
  -143
  -150
  -157
  -164
  -172
  -181
  -189
  -199
Cash from operations, $m
  8,596
  9,487
  10,088
  10,713
  11,363
  12,040
  12,744
  13,476
  14,240
  15,036
  15,732
  16,598
  17,502
  18,446
  19,432
  20,463
  21,541
  22,668
  23,848
  25,082
  26,375
  27,728
  29,146
  30,631
  32,188
  33,819
  35,529
  37,322
  39,202
  41,173
Maintenance CAPEX, $m
  -1,152
  -1,237
  -1,326
  -1,418
  -1,514
  -1,613
  -1,717
  -1,825
  -1,937
  -2,054
  -2,176
  -2,303
  -2,435
  -2,573
  -2,718
  -2,868
  -3,026
  -3,191
  -3,363
  -3,543
  -3,732
  -3,929
  -4,136
  -4,353
  -4,580
  -4,818
  -5,067
  -5,328
  -5,602
  -5,889
New CAPEX, $m
  -1,221
  -1,258
  -1,308
  -1,359
  -1,413
  -1,470
  -1,530
  -1,593
  -1,659
  -1,729
  -1,803
  -1,881
  -1,963
  -2,050
  -2,141
  -2,238
  -2,340
  -2,447
  -2,560
  -2,679
  -2,804
  -2,936
  -3,076
  -3,222
  -3,376
  -3,538
  -3,709
  -3,888
  -4,077
  -4,276
Cash from investing activities, $m
  -2,373
  -2,495
  -2,634
  -2,777
  -2,927
  -3,083
  -3,247
  -3,418
  -3,596
  -3,783
  -3,979
  -4,184
  -4,398
  -4,623
  -4,859
  -5,106
  -5,366
  -5,638
  -5,923
  -6,222
  -6,536
  -6,865
  -7,212
  -7,575
  -7,956
  -8,356
  -8,776
  -9,216
  -9,679
  -10,165
Free cash flow, $m
  6,224
  6,991
  7,455
  7,936
  8,436
  8,956
  9,497
  10,059
  10,644
  11,253
  11,753
  12,415
  13,104
  13,823
  14,573
  15,357
  16,175
  17,031
  17,925
  18,860
  19,838
  20,862
  21,934
  23,056
  24,232
  25,463
  26,753
  28,105
  29,523
  31,009
Issuance/(repayment) of debt, $m
  -4,840
  3,197
  3,323
  3,454
  3,592
  3,736
  3,888
  4,048
  4,217
  4,395
  4,582
  4,780
  4,989
  5,210
  5,442
  5,687
  5,946
  6,218
  6,505
  6,808
  7,127
  7,463
  7,816
  8,188
  8,580
  8,992
  9,426
  9,882
  10,361
  10,866
Issuance/(repurchase) of shares, $m
  1,471
  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  
  -3,369
  3,197
  3,323
  3,454
  3,592
  3,736
  3,888
  4,048
  4,217
  4,395
  4,582
  4,780
  4,989
  5,210
  5,442
  5,687
  5,946
  6,218
  6,505
  6,808
  7,127
  7,463
  7,816
  8,188
  8,580
  8,992
  9,426
  9,882
  10,361
  10,866
Total cash flow (excl. dividends), $m
  2,855
  10,189
  10,778
  11,390
  12,028
  12,692
  13,385
  14,107
  14,861
  15,648
  16,336
  17,195
  18,093
  19,032
  20,015
  21,044
  22,121
  23,249
  24,430
  25,668
  26,965
  28,325
  29,750
  31,244
  32,812
  34,455
  36,179
  37,987
  39,884
  41,874
Retained Cash Flow (-), $m
  -8,278
  -355
  -369
  -384
  -399
  -415
  -432
  -450
  -469
  -488
  -509
  -531
  -554
  -579
  -605
  -632
  -661
  -691
  -723
  -756
  -792
  -829
  -868
  -910
  -953
  -999
  -1,047
  -1,098
  -1,151
  -1,207
Prev. year cash balance distribution, $m
  15,816
  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
  10,393
  9,833
  10,408
  11,006
  11,629
  12,277
  12,953
  13,657
  14,392
  15,159
  15,827
  16,664
  17,539
  18,454
  19,411
  20,412
  21,460
  22,558
  23,707
  24,912
  26,173
  27,496
  28,882
  30,335
  31,858
  33,456
  35,132
  36,889
  38,733
  40,667
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
  9,965
  9,002
  9,058
  9,063
  9,014
  8,910
  8,751
  8,536
  8,268
  7,947
  7,516
  7,111
  6,669
  6,195
  5,699
  5,187
  4,669
  4,154
  3,650
  3,166
  2,707
  2,281
  1,893
  1,545
  1,239
  976
  754
  571
  423
  306
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Amgen Inc. is a biotechnology company. The Company discovers, develops, manufactures and delivers various human therapeutics. It operates in human therapeutics segment. Its marketed products portfolio includes Neulasta (pegfilgrastim); erythropoiesis-stimulating agents (ESAs), such as Aranesp (darbepoetin alfa) and EPOGEN (epoetin alfa); Sensipar/Mimpara (cinacalcet); XGEVA (denosumab); Prolia (denosumab); NEUPOGEN (filgrastim), and other marketed products, such as KYPROLIS (carfilzomib), Vectibix (panitumumab), Nplate (romiplostim), Repatha (evolocumab), BLINCYTO (blinatumomab), IMLYGIC (talimogene laherparepvec) and Corlanor (ivabradine). It focuses on human therapeutics for the treatment of serious illness in the areas of oncology/hematology, cardiovascular disease and neuroscience. Its product candidates in Phase III include Erenumab for episodic migraine, Aranesp for myelodysplastic syndromes, BLINCYTO for acute lymphoblastic leukemia and IMLYGIC for metastatic melanoma.

FINANCIAL RATIOS  of  Amgen Inc. (AMGN)

Valuation Ratios
P/E Ratio 16.4
Price to Sales 5.5
Price to Book 4.2
Price to Tangible Book
Price to Cash Flow 12.2
Price to Free Cash Flow 13.3
Growth Rates
Sales Growth Rate 6.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 29%
Cap. Spend. - 3 Yr. Gr. Rate 3.8%
Financial Strength
Quick Ratio 9
Current Ratio 0.2
LT Debt to Equity 101.1%
Total Debt to Equity 115.8%
Interest Coverage 8
Management Effectiveness
Return On Assets 11.8%
Ret/ On Assets - 3 Yr. Avg. 10.7%
Return On Total Capital 12.5%
Ret/ On T. Cap. - 3 Yr. Avg. 11.2%
Return On Equity 26.6%
Return On Equity - 3 Yr. Avg. 24.7%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 81.9%
Gross Margin - 3 Yr. Avg. 80.1%
EBITDA Margin 54.7%
EBITDA Margin - 3 Yr. Avg. 50%
Operating Margin 42.6%
Oper. Margin - 3 Yr. Avg. 37.5%
Pre-Tax Margin 39.9%
Pre-Tax Margin - 3 Yr. Avg. 34.8%
Net Profit Margin 33.6%
Net Profit Margin - 3 Yr. Avg. 30.4%
Effective Tax Rate 15.7%
Eff/ Tax Rate - 3 Yr. Avg. 12.1%
Payout Ratio 38.8%

AMGN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AMGN stock intrinsic value calculation we used $23747 million for the last fiscal year's total revenue generated by Amgen Inc.. The default revenue input number comes from 0001 income statement of Amgen Inc.. 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 AMGN stock valuation model: a) initial revenue growth rate of 7.4% 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 AMGN is calculated based on our internal credit rating of Amgen Inc., 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 Amgen Inc..
    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 AMGN stock the variable cost ratio is equal to 56.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AMGN 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 5.4% for Amgen Inc..

Corporate tax rate of 27% is the nominal tax rate for Amgen Inc.. 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 AMGN 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 AMGN are equal to 68.9%.

Life of production assets of 14.2 years is the average useful life of capital assets used in Amgen Inc. 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 AMGN is equal to -3.2%. 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 - $12500 million for Amgen Inc. - 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 622.255 million for Amgen Inc. 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 Amgen Inc. at the current share price and the inputted number of shares is $106.6 billion.

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