Intrinsic value of Amazon.com - AMZN

Previous Close

$1,886.52

  Intrinsic Value

$1,291

stock screener

  Rating & Target

sell

-32%

Previous close

$1,886.52

 
Intrinsic value

$1,291

 
Up/down potential

-32%

 
Rating

sell

We calculate the intrinsic value of AMZN 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 2017), $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 905.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  30.80
  28.22
  25.90
  23.81
  21.93
  20.23
  18.71
  17.34
  16.11
  15.00
  14.00
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
Revenue, $m
  232,649
  298,302
  375,557
  464,970
  566,925
  681,641
  809,184
  949,497
  1,102,423
  1,267,736
  1,445,168
  1,634,431
  1,835,249
  2,047,367
  2,270,575
  2,504,717
  2,749,698
  3,005,495
  3,272,155
  3,549,804
  3,838,640
  4,138,937
  4,451,043
  4,775,374
  5,112,419
  5,462,731
  5,826,929
  6,205,694
  6,599,771
  7,009,960
Variable operating expenses, $m
  225,025
  288,151
  362,430
  448,401
  546,431
  656,729
  779,361
  914,271
  1,061,309
  1,220,256
  1,389,521
  1,571,497
  1,764,581
  1,968,532
  2,183,145
  2,408,271
  2,643,819
  2,889,766
  3,146,159
  3,413,117
  3,690,831
  3,979,565
  4,279,652
  4,591,495
  4,915,562
  5,252,385
  5,602,559
  5,966,740
  6,345,642
  6,740,037
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
  225,025
  288,151
  362,430
  448,401
  546,431
  656,729
  779,361
  914,271
  1,061,309
  1,220,256
  1,389,521
  1,571,497
  1,764,581
  1,968,532
  2,183,145
  2,408,271
  2,643,819
  2,889,766
  3,146,159
  3,413,117
  3,690,831
  3,979,565
  4,279,652
  4,591,495
  4,915,562
  5,252,385
  5,602,559
  5,966,740
  6,345,642
  6,740,037
Operating income, $m
  7,623
  10,151
  13,126
  16,569
  20,495
  24,912
  29,823
  35,226
  41,115
  47,480
  55,647
  62,935
  70,667
  78,835
  87,430
  96,446
  105,879
  115,729
  125,996
  136,688
  147,809
  159,372
  171,390
  183,879
  196,857
  210,346
  224,370
  238,954
  254,128
  269,923
EBITDA, $m
  15,170
  19,451
  24,488
  30,319
  36,967
  44,447
  52,763
  61,913
  71,884
  82,664
  94,233
  106,574
  119,669
  133,500
  148,054
  163,322
  179,296
  195,975
  213,363
  231,467
  250,301
  269,882
  290,233
  311,381
  333,359
  356,201
  379,949
  404,646
  430,342
  457,089
Interest expense (income), $m
  290
  1,336
  3,057
  5,121
  7,550
  10,362
  13,568
  17,175
  21,185
  25,597
  30,406
  35,604
  41,183
  47,134
  53,448
  60,118
  67,137
  74,499
  82,202
  90,245
  98,630
  107,360
  116,442
  125,885
  135,698
  145,896
  156,494
  167,509
  178,961
  190,871
  203,262
Earnings before tax, $m
  6,287
  7,094
  8,005
  9,018
  10,133
  11,344
  12,648
  14,041
  15,517
  17,074
  20,043
  21,752
  23,533
  25,387
  27,312
  29,309
  31,380
  33,527
  35,751
  38,058
  40,449
  42,930
  45,506
  48,181
  50,961
  53,852
  56,860
  59,993
  63,258
  66,661
Tax expense, $m
  1,698
  1,915
  2,161
  2,435
  2,736
  3,063
  3,415
  3,791
  4,190
  4,610
  5,412
  5,873
  6,354
  6,854
  7,374
  7,913
  8,473
  9,052
  9,653
  10,276
  10,921
  11,591
  12,287
  13,009
  13,759
  14,540
  15,352
  16,198
  17,080
  17,999
Net income, $m
  4,590
  5,179
  5,843
  6,583
  7,397
  8,281
  9,233
  10,250
  11,328
  12,464
  14,632
  15,879
  17,179
  18,532
  19,938
  21,396
  22,907
  24,474
  26,099
  27,782
  29,528
  31,339
  33,219
  35,172
  37,201
  39,312
  41,508
  43,795
  46,178
  48,663

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
  171,696
  220,149
  277,163
  343,151
  418,395
  503,056
  597,184
  700,736
  813,596
  935,599
  1,066,544
  1,206,222
  1,354,427
  1,510,972
  1,675,701
  1,848,500
  2,029,297
  2,218,077
  2,414,875
  2,619,782
  2,832,945
  3,054,566
  3,284,902
  3,524,261
  3,773,003
  4,031,536
  4,300,316
  4,579,848
  4,870,679
  5,173,403
Adjusted assets (=assets-cash), $m
  171,696
  220,149
  277,163
  343,151
  418,395
  503,056
  597,184
  700,736
  813,596
  935,599
  1,066,544
  1,206,222
  1,354,427
  1,510,972
  1,675,701
  1,848,500
  2,029,297
  2,218,077
  2,414,875
  2,619,782
  2,832,945
  3,054,566
  3,284,902
  3,524,261
  3,773,003
  4,031,536
  4,300,316
  4,579,848
  4,870,679
  5,173,403
Revenue / Adjusted assets
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
  1.355
Average production assets, $m
  62,117
  79,647
  100,274
  124,147
  151,369
  181,998
  216,052
  253,516
  294,347
  338,486
  385,860
  436,393
  490,011
  546,647
  606,244
  668,759
  734,169
  802,467
  873,665
  947,798
  1,024,917
  1,105,096
  1,188,428
  1,275,025
  1,365,016
  1,458,549
  1,555,790
  1,656,920
  1,762,139
  1,871,659
Working capital, $m
  -24,195
  -31,023
  -39,058
  -48,357
  -58,960
  -70,891
  -84,155
  -98,748
  -114,652
  -131,845
  -150,297
  -169,981
  -190,866
  -212,926
  -236,140
  -260,491
  -285,969
  -312,571
  -340,304
  -369,180
  -399,219
  -430,449
  -462,908
  -496,639
  -531,692
  -568,124
  -606,001
  -645,392
  -686,376
  -729,036
Total debt, $m
  56,611
  94,840
  139,824
  191,888
  251,256
  318,053
  392,320
  474,022
  563,070
  659,330
  762,646
  872,851
  989,785
  1,113,299
  1,243,270
  1,379,608
  1,522,258
  1,671,205
  1,826,478
  1,988,150
  2,156,335
  2,331,195
  2,512,930
  2,701,784
  2,898,041
  3,102,024
  3,314,092
  3,534,642
  3,764,108
  4,002,957
Total liabilities, $m
  135,469
  173,698
  218,682
  270,746
  330,114
  396,911
  471,178
  552,880
  641,928
  738,188
  841,504
  951,709
  1,068,643
  1,192,157
  1,322,128
  1,458,466
  1,601,116
  1,750,063
  1,905,336
  2,067,008
  2,235,193
  2,410,053
  2,591,788
  2,780,642
  2,976,899
  3,180,882
  3,392,950
  3,613,500
  3,842,966
  4,081,815
Total equity, $m
  36,228
  46,451
  58,481
  72,405
  88,281
  106,145
  126,006
  147,855
  171,669
  197,411
  225,041
  254,513
  285,784
  318,815
  353,573
  390,033
  428,182
  468,014
  509,539
  552,774
  597,751
  644,514
  693,114
  743,619
  796,104
  850,654
  907,367
  966,348
  1,027,713
  1,091,588
Total liabilities and equity, $m
  171,697
  220,149
  277,163
  343,151
  418,395
  503,056
  597,184
  700,735
  813,597
  935,599
  1,066,545
  1,206,222
  1,354,427
  1,510,972
  1,675,701
  1,848,499
  2,029,298
  2,218,077
  2,414,875
  2,619,782
  2,832,944
  3,054,567
  3,284,902
  3,524,261
  3,773,003
  4,031,536
  4,300,317
  4,579,848
  4,870,679
  5,173,403
Debt-to-equity ratio
  1.560
  2.040
  2.390
  2.650
  2.850
  3.000
  3.110
  3.210
  3.280
  3.340
  3.390
  3.430
  3.460
  3.490
  3.520
  3.540
  3.560
  3.570
  3.580
  3.600
  3.610
  3.620
  3.630
  3.630
  3.640
  3.650
  3.650
  3.660
  3.660
  3.670
Adjusted equity ratio
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4,590
  5,179
  5,843
  6,583
  7,397
  8,281
  9,233
  10,250
  11,328
  12,464
  14,632
  15,879
  17,179
  18,532
  19,938
  21,396
  22,907
  24,474
  26,099
  27,782
  29,528
  31,339
  33,219
  35,172
  37,201
  39,312
  41,508
  43,795
  46,178
  48,663
Depreciation, amort., depletion, $m
  7,547
  9,300
  11,362
  13,750
  16,472
  19,535
  22,940
  26,687
  30,770
  35,184
  38,586
  43,639
  49,001
  54,665
  60,624
  66,876
  73,417
  80,247
  87,367
  94,780
  102,492
  110,510
  118,843
  127,502
  136,502
  145,855
  155,579
  165,692
  176,214
  187,166
Funds from operations, $m
  12,136
  14,479
  17,206
  20,333
  23,869
  27,816
  32,173
  36,936
  42,097
  47,648
  53,218
  59,518
  66,181
  73,197
  80,562
  88,272
  96,324
  104,721
  113,465
  122,562
  132,020
  141,849
  152,062
  162,674
  173,703
  185,167
  197,087
  209,487
  222,392
  235,829
Change in working capital, $m
  -5,697
  -6,828
  -8,034
  -9,299
  -10,603
  -11,930
  -13,264
  -14,593
  -15,904
  -17,193
  -18,453
  -19,683
  -20,885
  -22,060
  -23,214
  -24,351
  -25,478
  -26,603
  -27,733
  -28,875
  -30,039
  -31,231
  -32,459
  -33,730
  -35,053
  -36,432
  -37,877
  -39,392
  -40,984
  -42,660
Cash from operations, $m
  17,834
  21,307
  25,240
  29,632
  34,472
  39,746
  45,438
  51,529
  58,002
  64,840
  71,670
  79,202
  87,066
  95,257
  103,776
  112,622
  121,802
  131,324
  141,198
  151,437
  162,059
  173,080
  184,521
  196,405
  208,756
  221,599
  234,964
  248,879
  263,376
  278,488
Maintenance CAPEX, $m
  -4,756
  -6,212
  -7,965
  -10,027
  -12,415
  -15,137
  -18,200
  -21,605
  -25,352
  -29,435
  -33,849
  -38,586
  -43,639
  -49,001
  -54,665
  -60,624
  -66,876
  -73,417
  -80,247
  -87,367
  -94,780
  -102,492
  -110,510
  -118,843
  -127,502
  -136,502
  -145,855
  -155,579
  -165,692
  -176,214
New CAPEX, $m
  -14,560
  -17,529
  -20,627
  -23,873
  -27,222
  -30,629
  -34,054
  -37,464
  -40,831
  -44,139
  -47,374
  -50,533
  -53,618
  -56,636
  -59,597
  -62,516
  -65,410
  -68,298
  -71,198
  -74,132
  -77,119
  -80,179
  -83,332
  -86,596
  -89,991
  -93,533
  -97,241
  -101,130
  -105,218
  -109,521
Cash from investing activities, $m
  -19,316
  -23,741
  -28,592
  -33,900
  -39,637
  -45,766
  -52,254
  -59,069
  -66,183
  -73,574
  -81,223
  -89,119
  -97,257
  -105,637
  -114,262
  -123,140
  -132,286
  -141,715
  -151,445
  -161,499
  -171,899
  -182,671
  -193,842
  -205,439
  -217,493
  -230,035
  -243,096
  -256,709
  -270,910
  -285,735
Free cash flow, $m
  -1,482
  -2,435
  -3,351
  -4,269
  -5,165
  -6,019
  -6,816
  -7,540
  -8,181
  -8,733
  -9,552
  -9,918
  -10,192
  -10,379
  -10,486
  -10,518
  -10,483
  -10,391
  -10,247
  -10,061
  -9,840
  -9,591
  -9,321
  -9,034
  -8,738
  -8,436
  -8,132
  -7,831
  -7,534
  -7,246
Issuance/(repayment) of debt, $m
  31,868
  38,229
  44,984
  52,064
  59,368
  66,797
  74,267
  81,703
  89,047
  96,260
  103,316
  110,206
  116,934
  123,514
  129,971
  136,338
  142,650
  148,947
  155,273
  161,672
  168,186
  174,859
  181,735
  188,854
  196,257
  203,982
  212,068
  220,551
  229,466
  238,849
Issuance/(repurchase) of shares, $m
  3,929
  5,045
  6,187
  7,340
  8,479
  9,582
  10,628
  11,600
  12,486
  13,278
  12,998
  13,593
  14,092
  14,499
  14,820
  15,065
  15,241
  15,358
  15,426
  15,453
  15,449
  15,423
  15,382
  15,333
  15,283
  15,239
  15,205
  15,186
  15,187
  15,212
Cash from financing (excl. dividends), $m  
  35,797
  43,274
  51,171
  59,404
  67,847
  76,379
  84,895
  93,303
  101,533
  109,538
  116,314
  123,799
  131,026
  138,013
  144,791
  151,403
  157,891
  164,305
  170,699
  177,125
  183,635
  190,282
  197,117
  204,187
  211,540
  219,221
  227,273
  235,737
  244,653
  254,061
Total cash flow (excl. dividends), $m
  34,315
  40,839
  47,819
  55,136
  62,682
  70,360
  78,079
  85,762
  93,352
  100,805
  106,762
  113,881
  120,833
  127,633
  134,306
  140,885
  147,407
  153,915
  160,452
  167,063
  173,795
  180,691
  187,796
  195,153
  202,802
  210,785
  219,141
  227,906
  237,119
  246,814
Retained Cash Flow (-), $m
  -8,519
  -10,224
  -12,030
  -13,923
  -15,876
  -17,863
  -19,861
  -21,849
  -23,814
  -25,743
  -27,630
  -29,472
  -31,271
  -33,031
  -34,758
  -36,460
  -38,148
  -39,833
  -41,524
  -43,235
  -44,977
  -46,762
  -48,601
  -50,505
  -52,484
  -54,550
  -56,713
  -58,981
  -61,365
  -63,875
Prev. year cash balance distribution, $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 flow adjustment, $m
  4,269
  5,584
  7,159
  9,013
  11,159
  13,606
  16,359
  19,420
  22,788
  26,458
  30,426
  34,684
  39,226
  44,046
  49,137
  54,494
  60,113
  65,993
  72,132
  78,532
  85,195
  92,127
  99,334
  106,825
  114,609
  122,698
  131,106
  139,846
  148,937
  158,394
Cash available for distribution, $m
  25,796
  30,616
  35,789
  41,212
  46,806
  52,497
  58,218
  63,913
  69,538
  75,063
  79,132
  84,409
  89,562
  94,602
  99,548
  104,424
  109,259
  114,082
  118,927
  123,828
  128,817
  133,929
  139,195
  144,648
  150,318
  156,235
  162,428
  168,925
  175,753
  182,940
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
  24,732
  28,028
  31,146
  33,934
  36,280
  38,099
  39,331
  39,947
  39,946
  39,353
  37,579
  36,020
  34,053
  31,760
  29,226
  26,536
  23,773
  21,009
  18,311
  15,735
  13,324
  11,113
  9,123
  7,367
  5,848
  4,558
  3,486
  2,614
  1,919
  1,377
Current shareholders' claim on cash, %
  98.6
  97.2
  96.0
  94.8
  93.7
  92.7
  91.8
  90.9
  90.2
  89.5
  88.9
  88.3
  87.9
  87.4
  87.0
  86.6
  86.3
  86.0
  85.7
  85.5
  85.2
  85.0
  84.8
  84.6
  84.4
  84.3
  84.1
  84.0
  83.9
  83.7

Amazon.com, Inc. offers a range of products and services through its Websites. The Company operates through three segments: North America, International and Amazon Web Services (AWS). The Company's products include merchandise and content that it purchases for resale from vendors and those offered by third-party sellers. It also manufactures and sells electronic devices. The Company, through its subsidiary, Whole Foods Market, Inc., offers healthy and organic food and staples across its stores. The Company also offers a range of products like whole trade bananas, organic avocados, organic large brown eggs, organic responsibly-farmed salmon and tilapia, organic baby kale and baby lettuce, animal-welfare-rated 85% lean ground beef, creamy and crunchy almond butter, organic gala and fuji apples, organic rotisserie chicken.

FINANCIAL RATIOS  of  Amazon.com (AMZN)

Valuation Ratios
P/E Ratio 379.5
Price to Sales 6.6
Price to Book 46.7
Price to Tangible Book
Price to Cash Flow 54.7
Price to Free Cash Flow 92.7
Growth Rates
Sales Growth Rate 27.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 46.8%
Cap. Spend. - 3 Yr. Gr. Rate 14.4%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 78.9%
Total Debt to Equity 100.4%
Interest Coverage 14
Management Effectiveness
Return On Assets 3.4%
Ret/ On Assets - 3 Yr. Avg. 1.5%
Return On Total Capital 7.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2.7%
Return On Equity 14.5%
Return On Equity - 3 Yr. Avg. 5.7%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 35.1%
Gross Margin - 3 Yr. Avg. 32.5%
EBITDA Margin 9%
EBITDA Margin - 3 Yr. Avg. 7.3%
Operating Margin 3.1%
Oper. Margin - 3 Yr. Avg. 1.8%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. 1.4%
Net Profit Margin 1.7%
Net Profit Margin - 3 Yr. Avg. 0.7%
Effective Tax Rate 36.6%
Eff/ Tax Rate - 3 Yr. Avg. -17.8%
Payout Ratio 0%

AMZN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AMZN stock intrinsic value calculation we used $177866 million for the last fiscal year's total revenue generated by Amazon.com. The default revenue input number comes from 2017 income statement of Amazon.com. 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 AMZN stock valuation model: a) initial revenue growth rate of 30.8% 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 AMZN is calculated based on our internal credit rating of Amazon.com, 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 Amazon.com.
    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 AMZN stock the variable cost ratio is equal to 96.9%.

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 AMZN 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 Amazon.com.

Corporate tax rate of 27% is the nominal tax rate for Amazon.com. 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 AMZN stock is equal to 2.4%.

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 AMZN are equal to 26.7%.

Life of production assets of 10 years is the average useful life of capital assets used in Amazon.com 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 AMZN is equal to -10.4%. 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 - $27709 million for Amazon.com - 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 480 million for Amazon.com 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 Amazon.com at the current share price and the inputted number of shares is $905.5 billion.

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