Intrinsic value of American Software Cl A - AMSWA

Previous Close

$12.14

  Intrinsic Value

$32.36

stock screener

  Rating & Target

str. buy

+167%

Previous close

$12.14

 
Intrinsic value

$32.36

 
Up/down potential

+167%

 
Rating

str. buy

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 0.3

 

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, %
  11.80
  11.12
  10.51
  9.96
  9.46
  9.02
  8.61
  8.25
  7.93
  7.63
  7.37
  7.13
  6.92
  6.73
  6.56
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.40
  5.36
  5.32
Revenue, $m
  126
  140
  155
  170
  186
  203
  221
  239
  258
  277
  298
  319
  341
  364
  388
  413
  439
  465
  493
  523
  553
  585
  618
  653
  689
  727
  766
  807
  851
  896
Variable operating expenses, $m
  23
  25
  27
  30
  32
  34
  37
  40
  43
  46
  45
  48
  51
  55
  58
  62
  66
  70
  74
  78
  83
  88
  93
  98
  103
  109
  115
  121
  127
  134
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
  106
  110
  113
  118
  122
  126
  131
  136
  142
  147
  148
  153
  158
  165
  170
  177
  183
  190
  196
  203
  211
  219
  227
  235
  243
  252
  261
  270
  279
  290
Operating income, $m
  20
  30
  41
  52
  64
  76
  89
  102
  116
  131
  150
  166
  182
  200
  217
  236
  256
  276
  297
  319
  342
  366
  392
  418
  446
  475
  506
  538
  571
  606
EBITDA, $m
  28
  38
  49
  61
  73
  86
  99
  113
  128
  143
  159
  175
  192
  210
  228
  248
  268
  289
  311
  334
  358
  383
  409
  437
  466
  496
  527
  560
  595
  632
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
Earnings before tax, $m
  20
  30
  40
  51
  63
  74
  87
  100
  113
  127
  146
  162
  177
  194
  211
  229
  248
  268
  289
  310
  332
  356
  380
  406
  433
  461
  491
  522
  554
  588
Tax expense, $m
  5
  8
  11
  14
  17
  20
  23
  27
  31
  34
  39
  44
  48
  52
  57
  62
  67
  72
  78
  84
  90
  96
  103
  110
  117
  125
  133
  141
  150
  159
Net income, $m
  15
  22
  29
  37
  46
  54
  63
  73
  83
  93
  107
  118
  130
  142
  154
  168
  181
  196
  211
  226
  243
  260
  278
  296
  316
  337
  358
  381
  405
  430

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
  145
  161
  178
  196
  215
  234
  254
  275
  297
  319
  343
  367
  393
  419
  447
  475
  505
  536
  568
  602
  637
  674
  712
  752
  794
  837
  883
  930
  980
  1,032
Adjusted assets (=assets-cash), $m
  145
  161
  178
  196
  215
  234
  254
  275
  297
  319
  343
  367
  393
  419
  447
  475
  505
  536
  568
  602
  637
  674
  712
  752
  794
  837
  883
  930
  980
  1,032
Revenue / Adjusted assets
  0.869
  0.870
  0.871
  0.867
  0.865
  0.868
  0.870
  0.869
  0.869
  0.868
  0.869
  0.869
  0.868
  0.869
  0.868
  0.869
  0.869
  0.868
  0.868
  0.869
  0.868
  0.868
  0.868
  0.868
  0.868
  0.869
  0.867
  0.868
  0.868
  0.868
Average production assets, $m
  23
  25
  28
  31
  34
  37
  40
  43
  47
  50
  54
  58
  62
  66
  71
  75
  80
  85
  90
  95
  101
  106
  112
  119
  125
  132
  139
  147
  155
  163
Working capital, $m
  -20
  -22
  -24
  -26
  -29
  -31
  -34
  -37
  -40
  -43
  -46
  -49
  -53
  -56
  -60
  -64
  -68
  -72
  -76
  -81
  -86
  -91
  -96
  -101
  -107
  -113
  -119
  -125
  -132
  -139
Total debt, $m
  6
  12
  19
  25
  33
  40
  48
  56
  64
  73
  82
  92
  102
  112
  123
  134
  145
  157
  170
  183
  196
  210
  225
  241
  257
  274
  291
  310
  329
  349
Total liabilities, $m
  56
  62
  69
  76
  83
  91
  98
  106
  115
  124
  133
  142
  152
  162
  173
  184
  196
  208
  220
  233
  247
  261
  276
  291
  307
  324
  342
  360
  379
  399
Total equity, $m
  89
  99
  109
  120
  132
  143
  156
  169
  182
  196
  210
  225
  241
  257
  274
  291
  310
  329
  348
  369
  391
  413
  436
  461
  486
  513
  541
  570
  601
  633
Total liabilities and equity, $m
  145
  161
  178
  196
  215
  234
  254
  275
  297
  320
  343
  367
  393
  419
  447
  475
  506
  537
  568
  602
  638
  674
  712
  752
  793
  837
  883
  930
  980
  1,032
Debt-to-equity ratio
  0.070
  0.120
  0.170
  0.210
  0.250
  0.280
  0.310
  0.330
  0.350
  0.370
  0.390
  0.410
  0.420
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.490
  0.500
  0.510
  0.520
  0.520
  0.530
  0.530
  0.540
  0.540
  0.550
  0.550
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
  15
  22
  29
  37
  46
  54
  63
  73
  83
  93
  107
  118
  130
  142
  154
  168
  181
  196
  211
  226
  243
  260
  278
  296
  316
  337
  358
  381
  405
  430
Depreciation, amort., depletion, $m
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
Funds from operations, $m
  22
  30
  38
  46
  55
  64
  74
  84
  94
  105
  115
  127
  139
  152
  165
  179
  194
  209
  225
  241
  258
  276
  295
  315
  336
  357
  380
  404
  429
  455
Change in working capital, $m
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Cash from operations, $m
  25
  32
  40
  49
  58
  67
  76
  87
  97
  108
  118
  130
  143
  156
  169
  183
  198
  213
  229
  246
  263
  281
  300
  320
  341
  363
  386
  410
  436
  462
Maintenance CAPEX, $m
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
New CAPEX, $m
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
Cash from investing activities, $m
  -5
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -16
  -17
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -32
Free cash flow, $m
  19
  26
  34
  41
  50
  58
  68
  77
  87
  97
  107
  118
  130
  142
  154
  168
  181
  196
  211
  226
  243
  260
  278
  297
  316
  337
  358
  381
  405
  430
Issuance/(repayment) of debt, $m
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  12
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
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  
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  12
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
Total cash flow (excl. dividends), $m
  25
  32
  40
  48
  57
  66
  75
  85
  95
  106
  116
  127
  139
  152
  165
  179
  193
  208
  223
  239
  256
  274
  293
  312
  332
  354
  376
  399
  424
  450
Retained Cash Flow (-), $m
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
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
  48
  22
  30
  37
  46
  54
  63
  72
  82
  92
  101
  112
  124
  136
  148
  161
  175
  189
  203
  219
  235
  252
  269
  288
  307
  327
  348
  370
  393
  418
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
  46
  20
  26
  31
  35
  39
  43
  45
  47
  48
  48
  48
  47
  46
  43
  41
  38
  35
  31
  28
  24
  21
  18
  15
  12
  10
  7
  6
  4
  3
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 Cl A (AMSWA)

Valuation Ratios
P/E Ratio 24
Price to Sales 3.4
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 18
Price to Free Cash Flow 22.5
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 $112.703 million for the last fiscal year's total revenue generated by American Software Cl A. The default revenue input number comes from 0001 income statement of American Software Cl A. 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 11.8% 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 Cl A, 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 Cl A.
    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 Cl A.

Corporate tax rate of 27% is the nominal tax rate for American Software Cl A. 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 Cl A 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 Cl A - 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 28.2 million for American Software Cl A 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 Cl A at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ American Software: Fiscal 1Q Earnings Snapshot   [Sep-04-18 04:17PM  Associated Press]
▶ American Software: Fiscal 4Q Earnings Snapshot   [Jun-21-18 04:20PM  Associated Press]
▶ Logility Congratulates the 2018 Gartner Supply Chain Top 25   [Jun-12-18 08:30AM  Business Wire]
▶ Logility Sponsors BRPs Annual Merchandise Planning Survey   [Mar-08-18 08:30AM  Business Wire]
▶ American Software posts 2Q profit   [Nov-30-17 04:11PM  Associated Press]
▶ Adobe (ADBE) in Focus: Stock Moves 12.2% Higher   [Oct-20-17 08:52AM  Zacks]

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