Intrinsic value of Bank of America - BAC

Previous Close

$30.79

  Intrinsic Value

$0.00

stock screener

  Rating & Target

str. sell

-100%

Previous close

$30.79

 
Intrinsic value

$0.00

 
Up/down potential

-100%

 
Rating

str. sell

Our model is not good at valuating stocks of financial companies, such as BAC.

We calculate the intrinsic value of BAC 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 313.9

 

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, %
  4.40
  4.46
  4.51
  4.56
  4.61
  4.65
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
Revenue, $m
  91,195
  95,263
  99,563
  104,106
  108,901
  113,960
  119,295
  124,917
  130,841
  137,078
  143,646
  150,557
  157,830
  165,481
  173,528
  181,990
  190,887
  200,240
  210,072
  220,405
  231,265
  242,676
  254,667
  267,265
  280,500
  294,404
  309,010
  324,353
  340,469
  357,396
Variable operating expenses, $m
  60,007
  62,683
  65,512
  68,502
  71,657
  74,986
  78,496
  82,196
  86,093
  90,198
  94,519
  99,067
  103,852
  108,886
  114,181
  119,749
  125,604
  131,758
  138,227
  145,027
  152,172
  159,681
  167,571
  175,860
  184,569
  193,718
  203,329
  213,424
  224,028
  235,167
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
  60,007
  62,683
  65,512
  68,502
  71,657
  74,986
  78,496
  82,196
  86,093
  90,198
  94,519
  99,067
  103,852
  108,886
  114,181
  119,749
  125,604
  131,758
  138,227
  145,027
  152,172
  159,681
  167,571
  175,860
  184,569
  193,718
  203,329
  213,424
  224,028
  235,167
Operating income, $m
  31,189
  32,580
  34,051
  35,604
  37,244
  38,974
  40,799
  42,722
  44,747
  46,881
  49,127
  51,491
  53,978
  56,594
  59,347
  62,241
  65,283
  68,482
  71,845
  75,379
  79,093
  82,995
  87,096
  91,405
  95,931
  100,686
  105,682
  110,929
  116,440
  122,229
EBITDA, $m
  264,485
  276,281
  288,753
  301,927
  315,835
  330,508
  345,979
  362,285
  379,464
  397,555
  416,601
  436,647
  457,739
  479,928
  503,266
  527,807
  553,611
  580,737
  609,251
  639,220
  670,715
  703,810
  738,585
  775,121
  813,506
  853,831
  896,192
  940,688
  987,427
  1,036,520
Interest expense (income), $m
  10,510
  76,829
  71,882
  74,832
  77,951
  81,247
  84,725
  88,395
  92,265
  96,343
  100,639
  105,164
  109,928
  114,941
  120,217
  125,767
  131,604
  137,742
  144,196
  150,980
  158,112
  165,607
  173,485
  181,762
  190,460
  199,598
  209,198
  219,284
  229,879
  241,008
  252,698
Earnings before tax, $m
  -45,640
  -39,302
  -40,782
  -42,347
  -44,002
  -45,751
  -47,596
  -49,543
  -51,595
  -53,759
  -56,037
  -58,437
  -60,964
  -63,622
  -66,420
  -69,363
  -72,458
  -75,713
  -79,136
  -82,733
  -86,515
  -90,489
  -94,666
  -99,055
  -103,667
  -108,512
  -113,603
  -118,950
  -124,568
  -130,469
Tax expense, $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
Net income, $m
  -45,640
  -39,302
  -40,782
  -42,347
  -44,002
  -45,751
  -47,596
  -49,543
  -51,595
  -53,759
  -56,037
  -58,437
  -60,964
  -63,622
  -66,420
  -69,363
  -72,458
  -75,713
  -79,136
  -82,733
  -86,515
  -90,489
  -94,666
  -99,055
  -103,667
  -108,512
  -113,603
  -118,950
  -124,568
  -130,469

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
  1,361,127
  1,421,833
  1,486,014
  1,553,815
  1,625,389
  1,700,900
  1,780,522
  1,864,438
  1,952,844
  2,045,947
  2,143,964
  2,247,126
  2,355,674
  2,469,865
  2,589,968
  2,716,267
  2,849,061
  2,988,663
  3,135,404
  3,289,633
  3,451,715
  3,622,035
  3,800,997
  3,989,025
  4,186,567
  4,394,092
  4,612,093
  4,841,089
  5,081,623
  5,334,268
Adjusted assets (=assets-cash), $m
  1,361,127
  1,421,833
  1,486,014
  1,553,815
  1,625,389
  1,700,900
  1,780,522
  1,864,438
  1,952,844
  2,045,947
  2,143,964
  2,247,126
  2,355,674
  2,469,865
  2,589,968
  2,716,267
  2,849,061
  2,988,663
  3,135,404
  3,289,633
  3,451,715
  3,622,035
  3,800,997
  3,989,025
  4,186,567
  4,394,092
  4,612,093
  4,841,089
  5,081,623
  5,334,268
Revenue / Adjusted assets
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
  0.067
Average production assets, $m
  2,332,963
  2,437,013
  2,547,020
  2,663,230
  2,785,908
  2,915,333
  3,051,803
  3,195,636
  3,347,164
  3,506,741
  3,674,742
  3,851,560
  4,037,611
  4,233,334
  4,439,190
  4,655,666
  4,883,273
  5,122,550
  5,374,064
  5,638,412
  5,916,219
  6,208,146
  6,514,885
  6,837,165
  7,175,751
  7,531,448
  7,905,100
  8,297,597
  8,709,872
  9,142,904
Working capital, $m
  -2,028,279
  -2,118,740
  -2,214,380
  -2,315,413
  -2,422,069
  -2,534,591
  -2,653,239
  -2,778,287
  -2,910,025
  -3,048,762
  -3,194,822
  -3,348,548
  -3,510,301
  -3,680,462
  -3,859,433
  -4,047,637
  -4,245,519
  -4,453,547
  -4,672,213
  -4,902,037
  -5,143,563
  -5,397,364
  -5,664,044
  -5,944,234
  -6,238,601
  -6,547,843
  -6,872,697
  -7,213,934
  -7,572,366
  -7,948,844
Total debt, $m
  1,331,147
  1,385,783
  1,443,546
  1,504,567
  1,568,983
  1,636,943
  1,708,602
  1,784,127
  1,863,693
  1,947,486
  2,035,701
  2,128,546
  2,226,240
  2,329,012
  2,437,104
  2,550,773
  2,670,287
  2,795,929
  2,927,997
  3,066,803
  3,212,677
  3,365,964
  3,527,030
  3,696,256
  3,874,043
  4,060,816
  4,257,017
  4,463,113
  4,679,594
  4,906,974
Total liabilities, $m
  1,225,014
  1,279,650
  1,337,413
  1,398,434
  1,462,850
  1,530,810
  1,602,469
  1,677,994
  1,757,560
  1,841,353
  1,929,568
  2,022,413
  2,120,107
  2,222,879
  2,330,971
  2,444,640
  2,564,154
  2,689,796
  2,821,864
  2,960,670
  3,106,544
  3,259,831
  3,420,897
  3,590,123
  3,767,910
  3,954,683
  4,150,884
  4,356,980
  4,573,461
  4,800,841
Total equity, $m
  136,113
  142,183
  148,601
  155,382
  162,539
  170,090
  178,052
  186,444
  195,284
  204,595
  214,396
  224,713
  235,567
  246,987
  258,997
  271,627
  284,906
  298,866
  313,540
  328,963
  345,172
  362,203
  380,100
  398,903
  418,657
  439,409
  461,209
  484,109
  508,162
  533,427
Total liabilities and equity, $m
  1,361,127
  1,421,833
  1,486,014
  1,553,816
  1,625,389
  1,700,900
  1,780,521
  1,864,438
  1,952,844
  2,045,948
  2,143,964
  2,247,126
  2,355,674
  2,469,866
  2,589,968
  2,716,267
  2,849,060
  2,988,662
  3,135,404
  3,289,633
  3,451,716
  3,622,034
  3,800,997
  3,989,026
  4,186,567
  4,394,092
  4,612,093
  4,841,089
  5,081,623
  5,334,268
Debt-to-equity ratio
  9.780
  9.750
  9.710
  9.680
  9.650
  9.620
  9.600
  9.570
  9.540
  9.520
  9.500
  9.470
  9.450
  9.430
  9.410
  9.390
  9.370
  9.360
  9.340
  9.320
  9.310
  9.290
  9.280
  9.270
  9.250
  9.240
  9.230
  9.220
  9.210
  9.200
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
  -45,640
  -39,302
  -40,782
  -42,347
  -44,002
  -45,751
  -47,596
  -49,543
  -51,595
  -53,759
  -56,037
  -58,437
  -60,964
  -63,622
  -66,420
  -69,363
  -72,458
  -75,713
  -79,136
  -82,733
  -86,515
  -90,489
  -94,666
  -99,055
  -103,667
  -108,512
  -113,603
  -118,950
  -124,568
  -130,469
Depreciation, amort., depletion, $m
  233,296
  243,701
  254,702
  266,323
  278,591
  291,533
  305,180
  319,564
  334,716
  350,674
  367,474
  385,156
  403,761
  423,333
  443,919
  465,567
  488,327
  512,255
  537,406
  563,841
  591,622
  620,815
  651,489
  683,717
  717,575
  753,145
  790,510
  829,760
  870,987
  914,290
Funds from operations, $m
  187,656
  204,399
  213,920
  223,976
  234,588
  245,783
  257,584
  270,021
  283,121
  296,916
  311,437
  326,719
  342,798
  359,711
  377,499
  396,203
  415,869
  436,542
  458,271
  481,108
  505,107
  530,325
  556,822
  584,661
  613,908
  644,633
  676,907
  710,810
  746,419
  783,822
Change in working capital, $m
  -85,483
  -90,461
  -95,640
  -101,033
  -106,656
  -112,522
  -118,648
  -125,048
  -131,739
  -138,737
  -146,060
  -153,726
  -161,753
  -170,161
  -178,971
  -188,204
  -197,882
  -208,028
  -218,667
  -229,824
  -241,526
  -253,801
  -266,679
  -280,190
  -294,367
  -309,243
  -324,854
  -341,237
  -358,431
  -376,478
Cash from operations, $m
  273,139
  294,860
  309,560
  325,009
  341,244
  358,305
  376,232
  395,068
  414,860
  435,652
  457,497
  480,444
  504,551
  529,872
  556,470
  584,407
  613,751
  644,569
  676,938
  710,932
  746,633
  784,127
  823,502
  864,852
  908,275
  953,875
  1,001,761
  1,052,047
  1,104,851
  1,160,300
Maintenance CAPEX, $m
  -223,465
  -233,296
  -243,701
  -254,702
  -266,323
  -278,591
  -291,533
  -305,180
  -319,564
  -334,716
  -350,674
  -367,474
  -385,156
  -403,761
  -423,333
  -443,919
  -465,567
  -488,327
  -512,255
  -537,406
  -563,841
  -591,622
  -620,815
  -651,489
  -683,717
  -717,575
  -753,145
  -790,510
  -829,760
  -870,987
New CAPEX, $m
  -98,312
  -104,050
  -110,007
  -116,210
  -122,677
  -129,425
  -136,471
  -143,832
  -151,528
  -159,578
  -168,001
  -176,818
  -186,051
  -195,723
  -205,856
  -216,476
  -227,607
  -239,277
  -251,514
  -264,347
  -277,808
  -291,927
  -306,739
  -322,280
  -338,586
  -355,697
  -373,653
  -392,497
  -412,274
  -433,032
Cash from investing activities, $m
  -321,777
  -337,346
  -353,708
  -370,912
  -389,000
  -408,016
  -428,004
  -449,012
  -471,092
  -494,294
  -518,675
  -544,292
  -571,207
  -599,484
  -629,189
  -660,395
  -693,174
  -727,604
  -763,769
  -801,753
  -841,649
  -883,549
  -927,554
  -973,769
  -1,022,303
  -1,073,272
  -1,126,798
  -1,183,007
  -1,242,034
  -1,304,019
Free cash flow, $m
  -48,638
  -42,486
  -44,148
  -45,903
  -47,756
  -49,711
  -51,772
  -53,944
  -56,232
  -58,642
  -61,178
  -63,848
  -66,657
  -69,611
  -72,719
  -75,987
  -79,423
  -83,035
  -86,832
  -90,822
  -95,016
  -99,422
  -104,052
  -108,917
  -114,027
  -119,396
  -125,036
  -130,960
  -137,183
  -143,719
Issuance/(repayment) of debt, $m
  -91,613
  54,636
  57,763
  61,021
  64,417
  67,960
  71,659
  75,525
  79,566
  83,793
  88,215
  92,845
  97,694
  102,772
  108,093
  113,669
  119,514
  125,642
  132,067
  138,806
  145,874
  153,288
  161,065
  169,226
  177,788
  186,773
  196,201
  206,096
  216,481
  227,381
Issuance/(repurchase) of shares, $m
  188,835
  45,373
  47,200
  49,127
  51,160
  53,302
  55,558
  57,934
  60,436
  63,069
  65,839
  68,753
  71,818
  75,042
  78,430
  81,993
  85,738
  89,674
  93,810
  98,156
  102,723
  107,521
  112,562
  117,858
  123,421
  129,265
  135,403
  141,850
  148,621
  155,733
Cash from financing (excl. dividends), $m  
  97,222
  100,009
  104,963
  110,148
  115,577
  121,262
  127,217
  133,459
  140,002
  146,862
  154,054
  161,598
  169,512
  177,814
  186,523
  195,662
  205,252
  215,316
  225,877
  236,962
  248,597
  260,809
  273,627
  287,084
  301,209
  316,038
  331,604
  347,946
  365,102
  383,114
Total cash flow (excl. dividends), $m
  48,583
  57,522
  60,815
  64,245
  67,820
  71,550
  75,445
  79,515
  83,770
  88,220
  92,876
  97,751
  102,855
  108,202
  113,804
  119,675
  125,829
  132,280
  139,045
  146,140
  153,581
  161,387
  169,576
  178,167
  187,182
  196,641
  206,568
  216,985
  227,919
  239,394
Retained Cash Flow (-), $m
  -188,835
  -45,373
  -47,200
  -49,127
  -51,160
  -53,302
  -55,558
  -57,934
  -60,436
  -63,069
  -65,839
  -68,753
  -71,818
  -75,042
  -78,430
  -81,993
  -85,738
  -89,674
  -93,810
  -98,156
  -102,723
  -107,521
  -112,562
  -117,858
  -123,421
  -129,265
  -135,403
  -141,850
  -148,621
  -155,733
Prev. year cash balance distribution, $m
  7,082
  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
  1,660
  1,733
  1,810
  1,892
  1,978
  2,069
  2,165
  2,267
  2,373
  2,486
  2,604
  2,729
  2,861
  2,999
  3,144
  3,297
  3,458
  3,627
  3,805
  3,991
  4,188
  4,394
  4,611
  4,839
  5,078
  5,330
  5,594
  5,871
  6,163
  6,469
Cash available for distribution, $m
  -133,169
  12,150
  13,615
  15,117
  16,660
  18,249
  19,887
  21,581
  23,334
  25,151
  27,037
  28,998
  31,037
  33,160
  35,374
  37,682
  40,091
  42,607
  45,236
  47,984
  50,858
  53,866
  57,013
  60,309
  63,760
  67,376
  71,165
  75,135
  79,298
  83,661
Discount rate, %
  14.70
  15.44
  16.21
  17.02
  17.87
  18.76
  19.70
  20.68
  21.72
  22.80
  23.94
  25.14
  26.40
  27.72
  29.10
  30.56
  32.09
  33.69
  35.38
  37.15
  39.00
  40.95
  43.00
  45.15
  47.41
  49.78
  52.27
  54.88
  57.63
  60.51
PV of cash for distribution, $m
  -116,102
  9,118
  8,676
  8,063
  7,323
  6,504
  5,648
  4,796
  3,979
  3,224
  2,549
  1,966
  1,476
  1,079
  767
  529
  353
  229
  143
  87
  50
  28
  15
  8
  4
  2
  1
  0
  0
  0
Current shareholders' claim on cash, %
  50.0
  37.5
  28.2
  21.2
  15.9
  12.0
  9.0
  6.8
  5.1
  3.9
  2.9
  2.2
  1.7
  1.3
  1.0
  0.7
  0.6
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0

Bank of America Corporation is a bank holding company and a financial holding company. The Company is a financial institution, serving individual consumers and others with a range of banking, investing, asset management and other financial and risk management products and services. The Company, through its banking and various non-bank subsidiaries, throughout the United States and in international markets, provides a range of banking and non-bank financial services and products through four business segments: Consumer Banking, which comprises Deposits and Consumer Lending; Global Wealth & Investment Management, which consists of two primary businesses: Merrill Lynch Global Wealth Management and U.S. Trust, Bank of America Private Wealth Management; Global Banking, which provides a range of lending-related products and services; Global Markets, which offers sales and trading services, and All Other, which consists of equity investments, residual expense allocations and other.

FINANCIAL RATIOS  of  Bank of America (BAC)

Valuation Ratios
P/E Ratio 17.3
Price to Sales 0
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 16.9
Price to Free Cash Flow 16.9
Growth Rates
Sales Growth Rate -100%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 137.5%
Total Debt to Equity 154%
Interest Coverage 3
Management Effectiveness
Return On Assets 1.2%
Ret/ On Assets - 3 Yr. Avg. 1%
Return On Total Capital 2.6%
Ret/ On T. Cap. - 3 Yr. Avg. 1.9%
Return On Equity 6.8%
Return On Equity - 3 Yr. Avg. 5.2%
Asset Turnover 0
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 0%
EBITDA Margin - 3 Yr. Avg. 0%
Operating Margin 0%
Oper. Margin - 3 Yr. Avg. 0%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. 0%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 0%
Effective Tax Rate 28.8%
Eff/ Tax Rate - 3 Yr. Avg. 29.2%
Payout Ratio 23.4%

BAC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BAC stock intrinsic value calculation we used $87352 million for the last fiscal year's total revenue generated by Bank of America. The default revenue input number comes from 2017 income statement of Bank of America. 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 BAC stock valuation model: a) initial revenue growth rate of 4.4% 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 14.7%, whose default value for BAC is calculated based on our internal credit rating of Bank of America, 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 Bank of America.
    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 BAC stock the variable cost ratio is equal to 65.8%.

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 BAC 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 Bank of America.

Corporate tax rate of 27% is the nominal tax rate for Bank of America. 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 BAC stock is equal to 1.9%.

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 BAC are equal to 2558.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Bank of America 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 BAC is equal to -2224.1%. 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 - $0 million for Bank of America - 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 10196 million for Bank of America 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 Bank of America at the current share price and the inputted number of shares is $313.9 billion.

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