Intrinsic value of British American Tobacco p.l.c. - BTI

Previous Close

$37.36

  Intrinsic Value

$194.70

stock screener

  Rating & Target

str. buy

+421%

Previous close

$37.36

 
Intrinsic value

$194.70

 
Up/down potential

+421%

 
Rating

str. buy

We calculate the intrinsic value of BTI 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 85.7

 

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, %
  50.60
  46.04
  41.94
  38.24
  34.92
  31.93
  29.23
  26.81
  24.63
  22.67
  20.90
  19.31
  17.88
  16.59
  15.43
  14.39
  13.45
  12.60
  11.84
  11.16
  10.54
  9.99
  9.49
  9.04
  8.64
  8.27
  7.95
  7.65
  7.39
  7.15
Revenue, $m
  41,298
  60,311
  85,603
  118,340
  159,661
  210,636
  272,212
  345,193
  430,212
  527,725
  638,018
  761,218
  897,315
  1,046,188
  1,207,633
  1,381,395
  1,567,190
  1,764,731
  1,973,751
  2,194,019
  2,425,355
  2,667,635
  2,920,809
  3,184,894
  3,459,984
  3,746,250
  4,043,937
  4,353,363
  4,674,923
  5,009,078
Variable operating expenses, $m
  19,781
  21,559
  23,926
  26,988
  30,854
  35,623
  41,384
  48,212
  56,166
  65,289
  59,691
  71,218
  83,950
  97,878
  112,983
  129,240
  146,622
  165,103
  184,659
  205,267
  226,910
  249,577
  273,263
  297,970
  323,707
  350,489
  378,340
  407,289
  437,373
  468,636
Fixed operating expenses, $m
  202
  207
  211
  216
  221
  226
  231
  236
  241
  246
  252
  257
  263
  269
  274
  280
  287
  293
  299
  306
  313
  320
  327
  334
  341
  349
  356
  364
  372
  380
Total operating expenses, $m
  19,983
  21,766
  24,137
  27,204
  31,075
  35,849
  41,615
  48,448
  56,407
  65,535
  59,943
  71,475
  84,213
  98,147
  113,257
  129,520
  146,909
  165,396
  184,958
  205,573
  227,223
  249,897
  273,590
  298,304
  324,048
  350,838
  378,696
  407,653
  437,745
  469,016
Operating income, $m
  21,315
  38,545
  61,466
  91,135
  128,586
  174,787
  230,597
  296,745
  373,805
  462,190
  578,076
  689,744
  813,102
  948,041
  1,094,376
  1,251,875
  1,420,281
  1,599,334
  1,788,793
  1,988,447
  2,198,132
  2,417,739
  2,647,219
  2,886,590
  3,135,936
  3,395,412
  3,665,240
  3,945,710
  4,237,178
  4,540,062
EBITDA, $m
  39,696
  58,060
  82,490
  114,113
  154,030
  203,271
  262,756
  333,259
  415,391
  509,594
  616,144
  735,163
  866,642
  1,010,463
  1,166,431
  1,334,298
  1,513,790
  1,704,630
  1,906,560
  2,119,357
  2,342,845
  2,576,908
  2,821,494
  3,076,622
  3,342,382
  3,618,939
  3,906,529
  4,205,461
  4,516,115
  4,838,937
Interest expense (income), $m
  779
  3,609
  6,565
  10,622
  16,019
  23,004
  31,821
  42,698
  55,837
  71,409
  89,550
  110,357
  133,891
  160,179
  189,218
  220,984
  255,432
  292,509
  332,153
  374,303
  418,903
  465,902
  515,264
  566,960
  620,981
  677,330
  736,028
  797,110
  860,629
  926,653
  995,265
Earnings before tax, $m
  17,706
  31,979
  50,843
  75,116
  105,582
  142,965
  187,899
  240,908
  302,395
  372,640
  467,719
  555,853
  652,923
  758,822
  873,392
  996,443
  1,127,772
  1,267,182
  1,414,490
  1,569,544
  1,732,230
  1,902,476
  2,080,259
  2,265,609
  2,458,606
  2,659,385
  2,868,131
  3,085,082
  3,310,525
  3,544,797
Tax expense, $m
  4,781
  8,634
  13,728
  20,281
  28,507
  38,601
  50,733
  65,045
  81,647
  100,613
  126,284
  150,080
  176,289
  204,882
  235,816
  269,040
  304,499
  342,139
  381,912
  423,777
  467,702
  513,668
  561,670
  611,714
  663,824
  718,034
  774,395
  832,972
  893,842
  957,095
Net income, $m
  12,925
  23,345
  37,116
  54,835
  77,075
  104,365
  137,166
  175,863
  220,749
  272,027
  341,435
  405,773
  476,634
  553,940
  637,576
  727,403
  823,274
  925,043
  1,032,578
  1,145,767
  1,264,528
  1,388,807
  1,518,589
  1,653,894
  1,794,782
  1,941,351
  2,093,735
  2,252,110
  2,416,683
  2,587,702

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
  286,788
  418,826
  594,465
  821,802
  1,108,760
  1,462,747
  1,890,362
  2,397,175
  2,987,582
  3,664,759
  4,430,683
  5,286,238
  6,231,353
  7,265,191
  8,386,342
  9,593,023
  10,883,262
  12,255,075
  13,706,605
  15,236,246
  16,842,740
  18,525,246
  20,283,395
  22,117,318
  24,027,668
  26,015,625
  28,082,893
  30,231,691
  32,464,744
  34,785,265
Adjusted assets (=assets-cash), $m
  286,788
  418,826
  594,465
  821,802
  1,108,760
  1,462,747
  1,890,362
  2,397,175
  2,987,582
  3,664,759
  4,430,683
  5,286,238
  6,231,353
  7,265,191
  8,386,342
  9,593,023
  10,883,262
  12,255,075
  13,706,605
  15,236,246
  16,842,740
  18,525,246
  20,283,395
  22,117,318
  24,027,668
  26,015,625
  28,082,893
  30,231,691
  32,464,744
  34,785,265
Revenue / Adjusted assets
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
Average production assets, $m
  73,923
  107,957
  153,229
  211,828
  285,794
  377,038
  487,260
  617,896
  770,079
  944,628
  1,142,053
  1,362,581
  1,606,194
  1,872,676
  2,161,664
  2,472,697
  2,805,270
  3,158,868
  3,533,014
  3,927,295
  4,341,385
  4,775,067
  5,228,248
  5,700,960
  6,193,372
  6,705,788
  7,238,646
  7,792,521
  8,368,112
  8,966,250
Working capital, $m
  991
  1,447
  2,054
  2,840
  3,832
  5,055
  6,533
  8,285
  10,325
  12,665
  15,312
  18,269
  21,536
  25,109
  28,983
  33,153
  37,613
  42,354
  47,370
  52,656
  58,209
  64,023
  70,099
  76,437
  83,040
  89,910
  97,054
  104,481
  112,198
  120,218
Total debt, $m
  121,583
  196,712
  296,650
  426,005
  589,285
  790,703
  1,034,016
  1,322,392
  1,658,334
  2,043,648
  2,479,459
  2,966,269
  3,504,040
  4,092,294
  4,730,229
  5,416,830
  6,150,976
  6,931,538
  7,757,458
  8,627,824
  9,541,919
  10,499,265
  11,499,652
  12,543,154
  13,630,143
  14,761,291
  15,937,566
  17,160,232
  18,430,840
  19,751,216
Total liabilities, $m
  163,183
  238,312
  338,250
  467,605
  630,885
  832,303
  1,075,616
  1,363,992
  1,699,934
  2,085,248
  2,521,059
  3,007,869
  3,545,640
  4,133,894
  4,771,829
  5,458,430
  6,192,576
  6,973,138
  7,799,058
  8,669,424
  9,583,519
  10,540,865
  11,541,252
  12,584,754
  13,671,743
  14,802,891
  15,979,166
  17,201,832
  18,472,440
  19,792,816
Total equity, $m
  123,606
  180,514
  256,214
  354,197
  477,876
  630,444
  814,746
  1,033,182
  1,287,648
  1,579,511
  1,909,625
  2,278,369
  2,685,713
  3,131,297
  3,614,514
  4,134,593
  4,690,686
  5,281,937
  5,907,547
  6,566,822
  7,259,221
  7,984,381
  8,742,143
  9,532,564
  10,355,925
  11,212,734
  12,103,727
  13,029,859
  13,992,305
  14,992,449
Total liabilities and equity, $m
  286,789
  418,826
  594,464
  821,802
  1,108,761
  1,462,747
  1,890,362
  2,397,174
  2,987,582
  3,664,759
  4,430,684
  5,286,238
  6,231,353
  7,265,191
  8,386,343
  9,593,023
  10,883,262
  12,255,075
  13,706,605
  15,236,246
  16,842,740
  18,525,246
  20,283,395
  22,117,318
  24,027,668
  26,015,625
  28,082,893
  30,231,691
  32,464,745
  34,785,265
Debt-to-equity ratio
  0.980
  1.090
  1.160
  1.200
  1.230
  1.250
  1.270
  1.280
  1.290
  1.290
  1.300
  1.300
  1.300
  1.310
  1.310
  1.310
  1.310
  1.310
  1.310
  1.310
  1.310
  1.310
  1.320
  1.320
  1.320
  1.320
  1.320
  1.320
  1.320
  1.320
Adjusted equity ratio
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  12,925
  23,345
  37,116
  54,835
  77,075
  104,365
  137,166
  175,863
  220,749
  272,027
  341,435
  405,773
  476,634
  553,940
  637,576
  727,403
  823,274
  925,043
  1,032,578
  1,145,767
  1,264,528
  1,388,807
  1,518,589
  1,653,894
  1,794,782
  1,941,351
  2,093,735
  2,252,110
  2,416,683
  2,587,702
Depreciation, amort., depletion, $m
  18,381
  19,515
  21,025
  22,978
  25,443
  28,485
  32,159
  36,513
  41,586
  47,405
  38,068
  45,419
  53,540
  62,423
  72,055
  82,423
  93,509
  105,296
  117,767
  130,910
  144,713
  159,169
  174,275
  190,032
  206,446
  223,526
  241,288
  259,751
  278,937
  298,875
Funds from operations, $m
  31,306
  42,860
  58,140
  77,812
  102,518
  132,849
  169,325
  212,377
  262,335
  319,431
  379,503
  451,192
  530,174
  616,363
  709,632
  809,827
  916,783
  1,030,338
  1,150,345
  1,276,677
  1,409,241
  1,547,976
  1,692,864
  1,843,926
  2,001,228
  2,164,877
  2,335,024
  2,511,860
  2,695,621
  2,886,577
Change in working capital, $m
  333
  456
  607
  786
  992
  1,223
  1,478
  1,752
  2,040
  2,340
  2,647
  2,957
  3,266
  3,573
  3,875
  4,170
  4,459
  4,741
  5,016
  5,286
  5,552
  5,815
  6,076
  6,338
  6,602
  6,870
  7,144
  7,426
  7,717
  8,020
Cash from operations, $m
  30,973
  42,404
  57,533
  77,027
  101,527
  131,626
  167,848
  210,625
  260,294
  317,091
  376,856
  448,235
  526,907
  612,790
  705,757
  805,656
  912,324
  1,025,597
  1,145,328
  1,271,391
  1,403,688
  1,542,161
  1,686,788
  1,837,588
  1,994,626
  2,158,007
  2,327,879
  2,504,434
  2,687,903
  2,878,557
Maintenance CAPEX, $m
  -1,636
  -2,464
  -3,599
  -5,108
  -7,061
  -9,526
  -12,568
  -16,242
  -20,597
  -25,669
  -31,488
  -38,068
  -45,419
  -53,540
  -62,423
  -72,055
  -82,423
  -93,509
  -105,296
  -117,767
  -130,910
  -144,713
  -159,169
  -174,275
  -190,032
  -206,446
  -223,526
  -241,288
  -259,751
  -278,937
New CAPEX, $m
  -24,832
  -34,034
  -45,273
  -58,599
  -73,966
  -91,244
  -110,222
  -130,636
  -152,183
  -174,549
  -197,425
  -220,528
  -243,613
  -266,482
  -288,988
  -311,034
  -332,572
  -353,598
  -374,146
  -394,280
  -414,090
  -433,683
  -453,180
  -472,712
  -492,412
  -512,416
  -532,859
  -553,874
  -575,592
  -598,138
Cash from investing activities, $m
  -26,468
  -36,498
  -48,872
  -63,707
  -81,027
  -100,770
  -122,790
  -146,878
  -172,780
  -200,218
  -228,913
  -258,596
  -289,032
  -320,022
  -351,411
  -383,089
  -414,995
  -447,107
  -479,442
  -512,047
  -545,000
  -578,396
  -612,349
  -646,987
  -682,444
  -718,862
  -756,385
  -795,162
  -835,343
  -877,075
Free cash flow, $m
  4,505
  5,906
  8,662
  13,321
  20,499
  30,856
  45,058
  63,747
  87,514
  116,873
  147,944
  189,639
  237,875
  292,768
  354,347
  422,567
  497,328
  578,490
  665,886
  759,343
  858,689
  963,766
  1,074,438
  1,190,601
  1,312,182
  1,439,145
  1,571,494
  1,709,272
  1,852,561
  2,001,482
Issuance/(repayment) of debt, $m
  54,758
  75,129
  99,938
  129,355
  163,279
  201,418
  243,313
  288,376
  335,942
  385,313
  435,811
  486,811
  537,771
  588,254
  637,935
  686,601
  734,146
  780,562
  825,920
  870,366
  914,095
  957,346
  1,000,387
  1,043,502
  1,086,989
  1,131,147
  1,176,275
  1,222,666
  1,270,607
  1,320,376
Issuance/(repurchase) of shares, $m
  28,513
  33,563
  38,585
  43,148
  46,604
  48,204
  47,136
  42,573
  33,717
  19,836
  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  
  83,271
  108,692
  138,523
  172,503
  209,883
  249,622
  290,449
  330,949
  369,659
  405,149
  435,811
  486,811
  537,771
  588,254
  637,935
  686,601
  734,146
  780,562
  825,920
  870,366
  914,095
  957,346
  1,000,387
  1,043,502
  1,086,989
  1,131,147
  1,176,275
  1,222,666
  1,270,607
  1,320,376
Total cash flow (excl. dividends), $m
  87,776
  114,598
  147,185
  185,824
  230,383
  280,478
  335,506
  394,696
  457,173
  522,022
  583,755
  676,450
  775,646
  881,022
  992,282
  1,109,168
  1,231,475
  1,359,051
  1,491,807
  1,629,709
  1,772,784
  1,921,112
  2,074,825
  2,234,104
  2,399,171
  2,570,293
  2,747,769
  2,931,938
  3,123,168
  3,321,859
Retained Cash Flow (-), $m
  -41,438
  -56,908
  -75,700
  -97,982
  -123,679
  -152,568
  -184,302
  -218,436
  -254,466
  -291,863
  -330,114
  -368,744
  -407,345
  -445,584
  -483,216
  -520,079
  -556,093
  -591,251
  -625,609
  -659,275
  -692,399
  -725,160
  -757,762
  -790,421
  -823,361
  -856,809
  -890,992
  -926,132
  -962,446
  -1,000,145
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
  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
  46,338
  57,690
  71,485
  87,841
  106,704
  127,910
  151,204
  176,260
  202,708
  230,159
  253,641
  307,706
  368,301
  435,438
  509,065
  589,089
  675,381
  767,800
  866,197
  970,434
  1,080,385
  1,195,952
  1,317,063
  1,443,683
  1,575,810
  1,713,483
  1,856,777
  2,005,806
  2,160,722
  2,321,714
Discount rate, %
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.20
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.37
  29.79
  31.28
PV of cash for distribution, $m
  43,065
  49,479
  56,154
  62,692
  68,598
  73,396
  76,686
  78,192
  77,789
  75,508
  70,252
  71,000
  69,803
  66,778
  62,175
  56,345
  49,695
  42,652
  35,611
  28,913
  22,816
  17,489
  13,012
  9,390
  6,566
  4,445
  2,910
  1,840
  1,123
  660
Current shareholders' claim on cash, %
  75.0
  59.5
  49.4
  42.5
  37.8
  34.4
  32.1
  30.6
  29.7
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2
  29.2

British American Tobacco p.l.c. is a tobacco and next generation products company. The Company's tobacco product range includes cigarettes, fine cut (roll-your-own and make-your-own tobacco) and Swedish-style snus. Its segments include Asia-Pacific, Americas, Western Europe, and Eastern Europe, Middle East and Africa (EEMEA). The Asia-Pacific segment includes its operations in various countries, including Australia, Pakistan, Malaysia, Vietnam, Japan, South Korea, Indonesia, New Zealand and Bangladesh. The Americas segment includes its operations in various countries, including Brazil, Mexico, Canada, Colombia, Argentina, Chile and Venezuela. The Western Europe segment includes its operations in various countries, including Germany, Denmark, Switzerland, Belgium, France, the United Kingdom, Romania, Spain, Italy, Poland and Croatia/Balkans. The EEMEA segment includes its operations in various countries, including Russia, Ukraine, South Africa, Turkey, Egypt, Nigeria and Algeria.

FINANCIAL RATIOS  of  British American Tobacco p.l.c. (BTI)

Valuation Ratios
P/E Ratio 12.3
Price to Sales 3.9
Price to Book 7
Price to Tangible Book
Price to Cash Flow 12.4
Price to Free Cash Flow 14.6
Growth Rates
Sales Growth Rate 12.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 12%
Cap. Spend. - 3 Yr. Gr. Rate -1.4%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 201.5%
Total Debt to Equity 238.3%
Interest Coverage 11
Management Effectiveness
Return On Assets 14.4%
Ret/ On Assets - 3 Yr. Avg. 14.7%
Return On Total Capital 18.8%
Ret/ On T. Cap. - 3 Yr. Avg. 19.2%
Return On Equity 71.1%
Return On Equity - 3 Yr. Avg. 68.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 74.7%
Gross Margin - 3 Yr. Avg. 76.6%
EBITDA Margin 50.8%
EBITDA Margin - 3 Yr. Avg. 48.6%
Operating Margin 31.4%
Oper. Margin - 3 Yr. Avg. 32.9%
Pre-Tax Margin 42.3%
Pre-Tax Margin - 3 Yr. Avg. 40.6%
Net Profit Margin 31.5%
Net Profit Margin - 3 Yr. Avg. 28.8%
Effective Tax Rate 22.5%
Eff/ Tax Rate - 3 Yr. Avg. 25.1%
Payout Ratio 62.6%

BTI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BTI stock intrinsic value calculation we used $27422 million for the last fiscal year's total revenue generated by British American Tobacco p.l.c.. The default revenue input number comes from 0001 income statement of British American Tobacco p.l.c.. 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 BTI stock valuation model: a) initial revenue growth rate of 50.6% 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 7.6%, whose default value for BTI is calculated based on our internal credit rating of British American Tobacco p.l.c., 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 British American Tobacco p.l.c..
    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 BTI stock the variable cost ratio is equal to 67.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $198 million in the base year in the intrinsic value calculation for BTI 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 British American Tobacco p.l.c..

Corporate tax rate of 27% is the nominal tax rate for British American Tobacco p.l.c.. 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 BTI 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 BTI are equal to 179%.

Life of production assets of 76 years is the average useful life of capital assets used in British American Tobacco p.l.c. 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 BTI is equal to 2.4%. 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 - $82167.5675676 million for British American Tobacco p.l.c. - 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 2293.758 million for British American Tobacco p.l.c. 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 British American Tobacco p.l.c. at the current share price and the inputted number of shares is $85.7 billion.

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