Intrinsic value of American Software, Inc. - AMSWA

Previous Close

$11.90

  Intrinsic Value

$6.62

stock screener

  Rating & Target

sell

-44%

Previous close

$11.90

 
Intrinsic value

$6.62

 
Up/down potential

-44%

 
Rating

sell

We calculate the intrinsic value of AMSWA 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 0.4

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  115
  118
  121
  124
  128
  132
  137
  142
  147
  153
  159
  165
  172
  179
  187
  195
  204
  213
  223
  233
  244
  255
  267
  280
  293
  307
  322
  337
  353
  371
Variable operating expenses, $m
  21
  22
  22
  23
  24
  25
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
Fixed operating expenses, $m
  83
  85
  86
  88
  90
  92
  94
  96
  99
  101
  103
  105
  107
  110
  112
  115
  117
  120
  122
  125
  128
  131
  134
  137
  140
  143
  146
  149
  152
  156
Total operating expenses, $m
  104
  107
  108
  111
  114
  117
  119
  122
  126
  129
  132
  135
  139
  143
  146
  151
  154
  159
  163
  168
  173
  178
  183
  188
  194
  199
  205
  211
  217
  224
Operating income, $m
  11
  11
  12
  13
  14
  15
  17
  19
  21
  24
  27
  30
  33
  36
  40
  45
  49
  54
  59
  65
  71
  77
  84
  92
  100
  108
  117
  126
  136
  147
EBITDA, $m
  15
  15
  16
  17
  18
  19
  21
  23
  26
  28
  31
  34
  38
  42
  46
  50
  55
  60
  66
  72
  78
  85
  92
  100
  108
  117
  126
  136
  146
  158
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
Earnings before tax, $m
  11
  11
  12
  13
  14
  15
  17
  18
  20
  23
  26
  28
  32
  35
  39
  43
  47
  52
  57
  62
  68
  74
  81
  88
  96
  104
  112
  121
  131
  141
Tax expense, $m
  3
  3
  3
  3
  4
  4
  4
  5
  6
  6
  7
  8
  9
  9
  10
  12
  13
  14
  15
  17
  18
  20
  22
  24
  26
  28
  30
  33
  35
  38
Net income, $m
  8
  8
  9
  9
  10
  11
  12
  13
  15
  17
  19
  21
  23
  26
  28
  31
  34
  38
  42
  45
  50
  54
  59
  64
  70
  76
  82
  89
  96
  103

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
  133
  136
  139
  143
  148
  152
  158
  163
  169
  176
  183
  190
  198
  206
  215
  225
  235
  245
  256
  268
  281
  294
  308
  322
  337
  354
  371
  388
  407
  427
Adjusted assets (=assets-cash), $m
  133
  136
  139
  143
  148
  152
  158
  163
  169
  176
  183
  190
  198
  206
  215
  225
  235
  245
  256
  268
  281
  294
  308
  322
  337
  354
  371
  388
  407
  427
Revenue / Adjusted assets
  0.865
  0.868
  0.871
  0.867
  0.865
  0.868
  0.867
  0.871
  0.870
  0.869
  0.869
  0.868
  0.869
  0.869
  0.870
  0.867
  0.868
  0.869
  0.871
  0.869
  0.868
  0.867
  0.867
  0.870
  0.869
  0.867
  0.868
  0.869
  0.867
  0.869
Average production assets, $m
  21
  21
  22
  23
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  39
  41
  42
  44
  46
  49
  51
  53
  56
  59
  61
  64
  67
Working capital, $m
  -18
  -18
  -19
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -40
  -41
  -43
  -45
  -48
  -50
  -52
  -55
  -57
Total debt, $m
  1
  2
  4
  5
  7
  9
  11
  13
  15
  18
  20
  23
  26
  29
  33
  37
  40
  45
  49
  53
  58
  63
  69
  74
  80
  86
  93
  100
  107
  115
Total liabilities, $m
  51
  53
  54
  55
  57
  59
  61
  63
  65
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  137
  143
  150
  158
  165
Total equity, $m
  81
  83
  85
  88
  90
  93
  97
  100
  104
  108
  112
  117
  121
  126
  132
  138
  144
  150
  157
  164
  172
  180
  189
  197
  207
  217
  227
  238
  250
  262
Total liabilities and equity, $m
  132
  136
  139
  143
  147
  152
  158
  163
  169
  176
  183
  191
  198
  206
  215
  225
  235
  245
  256
  268
  281
  294
  308
  322
  338
  354
  370
  388
  408
  427
Debt-to-equity ratio
  0.010
  0.030
  0.040
  0.060
  0.070
  0.090
  0.110
  0.130
  0.150
  0.160
  0.180
  0.200
  0.220
  0.230
  0.250
  0.270
  0.280
  0.300
  0.310
  0.320
  0.340
  0.350
  0.360
  0.380
  0.390
  0.400
  0.410
  0.420
  0.430
  0.440
Adjusted equity ratio
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613
  0.613

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  8
  8
  9
  9
  10
  11
  12
  13
  15
  17
  19
  21
  23
  26
  28
  31
  34
  38
  42
  45
  50
  54
  59
  64
  70
  76
  82
  89
  96
  103
Depreciation, amort., depletion, $m
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
Funds from operations, $m
  12
  12
  12
  13
  14
  15
  16
  18
  19
  21
  23
  25
  28
  31
  34
  37
  40
  44
  48
  52
  57
  62
  67
  72
  78
  84
  91
  98
  106
  114
Change in working capital, $m
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
Cash from operations, $m
  12
  12
  13
  14
  15
  16
  17
  19
  20
  22
  24
  26
  29
  32
  35
  38
  42
  45
  49
  54
  58
  63
  69
  74
  80
  87
  93
  101
  108
  116
Maintenance CAPEX, $m
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
New CAPEX, $m
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
Cash from investing activities, $m
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
Free cash flow, $m
  8
  9
  9
  10
  10
  11
  12
  14
  15
  17
  19
  21
  23
  26
  28
  31
  34
  38
  42
  45
  50
  54
  59
  64
  70
  76
  82
  89
  96
  103
Issuance/(repayment) of debt, $m
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
Total cash flow (excl. dividends), $m
  9
  10
  10
  11
  12
  13
  14
  16
  18
  19
  21
  24
  26
  29
  32
  35
  38
  42
  46
  50
  55
  59
  64
  70
  76
  82
  89
  96
  103
  111
Retained Cash Flow (-), $m
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
Prev. year cash balance distribution, $m
  33
  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
  41
  8
  8
  9
  9
  10
  11
  12
  14
  15
  17
  19
  21
  24
  26
  29
  32
  35
  39
  43
  47
  51
  56
  61
  66
  72
  78
  85
  91
  99
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
  39
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  8
  8
  8
  8
  7
  7
  7
  6
  5
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
Current shareholders' claim on cash, %
  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

American Software, Inc. (American Software) develops, markets and supports a portfolio of software and services that delivers enterprise management, supply chain and retail planning solutions to the marketplace. The Company operates through three business segments: Supply Chain Management (SCM), Enterprise Resource Planning (ERP) and Information Technology (IT) Consulting. The SCM segment consists of Logility, Inc. and its subsidiary, Demand Management, Inc. (DMI), both of which provide supply chain and retail planning solutions to trading partners. The ERP segment consist of American Software ERP, which provides business software for manufacturers and distributors, and New Generation Computing, Inc. (NGC), which provides industry-specific business software to both retailers and manufacturers in the apparel, footwear, sewn products and furniture industries. The IT Consulting segment consists of The Proven Method, Inc., an IT staffing and consulting services firm.

FINANCIAL RATIOS  of  American Software, Inc. (AMSWA)

Valuation Ratios
P/E Ratio 23.5
Price to Sales 3.3
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 17.6
Price to Free Cash Flow 22
Growth Rates
Sales Growth Rate -7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 5.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 10.5%
Ret/ On Assets - 3 Yr. Avg. 8%
Return On Total Capital 15.1%
Ret/ On T. Cap. - 3 Yr. Avg. 11.4%
Return On Equity 15.1%
Return On Equity - 3 Yr. Avg. 11.4%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 51.9%
Gross Margin - 3 Yr. Avg. 51.7%
EBITDA Margin 27.4%
EBITDA Margin - 3 Yr. Avg. 20.4%
Operating Margin 6.6%
Oper. Margin - 3 Yr. Avg. 9.2%
Pre-Tax Margin 20.8%
Pre-Tax Margin - 3 Yr. Avg. 14.5%
Net Profit Margin 14.2%
Net Profit Margin - 3 Yr. Avg. 10.2%
Effective Tax Rate 31.8%
Eff/ Tax Rate - 3 Yr. Avg. 28.4%
Payout Ratio 86.7%

AMSWA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AMSWA stock intrinsic value calculation we used $113 million for the last fiscal year's total revenue generated by American Software, Inc.. The default revenue input number comes from 0001 income statement of American Software, 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 AMSWA stock valuation model: a) initial revenue growth rate of 2% 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 AMSWA is calculated based on our internal credit rating of American Software, 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 American Software, 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 AMSWA stock the variable cost ratio is equal to 18.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $81 million in the base year in the intrinsic value calculation for AMSWA 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 American Software, Inc..

Corporate tax rate of 27% is the nominal tax rate for American Software, 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 AMSWA 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 AMSWA are equal to 18.2%.

Life of production assets of 6.4 years is the average useful life of capital assets used in American Software, 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 AMSWA is equal to -15.5%. 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 - $112.584 million for American Software, 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 31.124 million for American Software, 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 American Software, Inc. at the current share price and the inputted number of shares is $0.4 billion.

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