Intrinsic value of Rockwell Collins - COL

Previous Close

$135.00

  Intrinsic Value

$1,481

stock screener

  Rating & Target

str. buy

+997%

Previous close

$135.00

 
Intrinsic value

$1,481

 
Up/down potential

+997%

 
Rating

str. buy

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of COL 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 2016), $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 21.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  0.29
  57.00
  51.80
  47.12
  42.91
  39.12
  35.71
  32.63
  29.87
  27.38
  25.15
  23.13
  21.32
  19.69
  18.22
  16.90
  15.71
  14.64
  13.67
  12.80
  12.02
  11.32
  10.69
  10.12
  9.61
  9.15
  8.73
  8.36
  8.02
  7.72
  7.45
Revenue, $m
  5,259
  8,257
  12,534
  18,439
  26,351
  36,659
  49,749
  65,984
  85,694
  109,161
  136,611
  168,211
  204,070
  244,244
  288,740
  337,525
  390,538
  447,696
  508,905
  574,070
  643,099
  715,910
  792,439
  872,641
  956,490
  1,043,989
  1,135,161
  1,230,058
  1,328,755
  1,431,353
  1,537,979
Variable operating expenses, $m
 
  6,537
  9,824
  14,363
  20,443
  28,365
  38,424
  50,901
  66,049
  84,083
  105,179
  129,272
  156,830
  187,704
  221,899
  259,391
  300,132
  344,059
  391,099
  441,179
  494,228
  550,184
  608,998
  670,633
  735,073
  802,316
  872,383
  945,312
  1,021,162
  1,100,010
  1,181,952
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
  4,280
  6,537
  9,824
  14,363
  20,443
  28,365
  38,424
  50,901
  66,049
  84,083
  105,179
  129,272
  156,830
  187,704
  221,899
  259,391
  300,132
  344,059
  391,099
  441,179
  494,228
  550,184
  608,998
  670,633
  735,073
  802,316
  872,383
  945,312
  1,021,162
  1,100,010
  1,181,952
Operating income, $m
  979
  1,719
  2,709
  4,077
  5,908
  8,294
  11,324
  15,083
  19,645
  25,078
  31,432
  38,939
  47,240
  56,540
  66,840
  78,134
  90,405
  103,637
  117,806
  132,891
  148,871
  165,726
  183,442
  202,007
  221,418
  241,673
  262,778
  284,746
  307,593
  331,344
  356,026
EBITDA, $m
  1,232
  2,016
  3,060
  4,501
  6,433
  8,949
  12,144
  16,107
  20,919
  26,647
  33,348
  41,062
  49,816
  59,623
  70,485
  82,394
  95,335
  109,287
  124,229
  140,137
  156,988
  174,762
  193,443
  213,021
  233,490
  254,849
  277,105
  300,271
  324,364
  349,409
  375,438
Interest expense (income), $m
  0
  62
  167
  318
  525
  803
  1,166
  1,626
  2,196
  2,889
  3,714
  4,679
  5,789
  7,050
  8,462
  10,026
  11,740
  13,603
  15,612
  17,764
  20,054
  22,480
  25,039
  27,729
  30,548
  33,495
  36,570
  39,775
  43,110
  46,579
  50,185
Earnings before tax, $m
  935
  1,657
  2,542
  3,759
  5,383
  7,491
  10,159
  13,457
  17,449
  22,189
  27,718
  34,260
  41,451
  49,490
  58,379
  68,108
  78,665
  90,034
  102,194
  115,128
  128,817
  143,246
  158,402
  174,278
  190,870
  208,178
  226,208
  244,971
  264,483
  284,765
  305,842
Tax expense, $m
  208
  447
  686
  1,015
  1,453
  2,023
  2,743
  3,633
  4,711
  5,991
  7,484
  9,250
  11,192
  13,362
  15,762
  18,389
  21,240
  24,309
  27,592
  31,084
  34,781
  38,676
  42,769
  47,055
  51,535
  56,208
  61,076
  66,142
  71,410
  76,887
  82,577
Net income, $m
  728
  1,210
  1,856
  2,744
  3,929
  5,468
  7,416
  9,824
  12,738
  16,198
  20,234
  25,010
  30,259
  36,128
  42,616
  49,719
  57,426
  65,724
  74,602
  84,043
  94,036
  104,569
  115,634
  127,223
  139,335
  151,970
  165,132
  178,829
  193,073
  207,878
  223,264

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  340
  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
  7,699
  11,548
  17,529
  25,789
  36,855
  51,272
  69,578
  92,285
  119,852
  152,673
  191,064
  235,260
  285,413
  341,600
  403,832
  472,063
  546,206
  626,148
  711,755
  802,895
  899,439
  1,001,273
  1,108,307
  1,220,476
  1,337,749
  1,460,124
  1,587,638
  1,720,360
  1,858,398
  2,001,893
  2,151,019
Adjusted assets (=assets-cash), $m
  7,359
  11,548
  17,529
  25,789
  36,855
  51,272
  69,578
  92,285
  119,852
  152,673
  191,064
  235,260
  285,413
  341,600
  403,832
  472,063
  546,206
  626,148
  711,755
  802,895
  899,439
  1,001,273
  1,108,307
  1,220,476
  1,337,749
  1,460,124
  1,587,638
  1,720,360
  1,858,398
  2,001,893
  2,151,019
Revenue / Adjusted assets
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
Average production assets, $m
  685
  1,073
  1,629
  2,397
  3,426
  4,766
  6,467
  8,578
  11,140
  14,191
  17,759
  21,867
  26,529
  31,752
  37,536
  43,878
  50,770
  58,200
  66,158
  74,629
  83,603
  93,068
  103,017
  113,443
  124,344
  135,719
  147,571
  159,907
  172,738
  186,076
  199,937
Working capital, $m
  1,144
  2,427
  3,685
  5,421
  7,747
  10,778
  14,626
  19,399
  25,194
  32,093
  40,164
  49,454
  59,997
  71,808
  84,889
  99,232
  114,818
  131,622
  149,618
  168,777
  189,071
  210,478
  232,977
  256,556
  281,208
  306,933
  333,737
  361,637
  390,654
  420,818
  452,166
Total debt, $m
  2,114
  4,784
  9,079
  15,010
  22,955
  33,306
  46,450
  62,754
  82,547
  106,112
  133,677
  165,409
  201,419
  241,762
  286,444
  335,434
  388,669
  446,067
  507,533
  572,972
  642,290
  715,407
  792,257
  872,795
  956,997
  1,044,862
  1,136,417
  1,231,712
  1,330,823
  1,433,852
  1,540,925
Total liabilities, $m
  5,621
  8,291
  12,586
  18,517
  26,462
  36,813
  49,957
  66,261
  86,054
  109,619
  137,184
  168,916
  204,926
  245,269
  289,951
  338,941
  392,176
  449,574
  511,040
  576,479
  645,797
  718,914
  795,764
  876,302
  960,504
  1,048,369
  1,139,924
  1,235,219
  1,334,330
  1,437,359
  1,544,432
Total equity, $m
  2,078
  3,256
  4,943
  7,273
  10,393
  14,459
  19,621
  26,024
  33,798
  43,054
  53,880
  66,343
  80,486
  96,331
  113,880
  133,122
  154,030
  176,574
  200,715
  226,416
  253,642
  282,359
  312,543
  344,174
  377,245
  411,755
  447,714
  485,142
  524,068
  564,534
  606,587
Total liabilities and equity, $m
  7,699
  11,547
  17,529
  25,790
  36,855
  51,272
  69,578
  92,285
  119,852
  152,673
  191,064
  235,259
  285,412
  341,600
  403,831
  472,063
  546,206
  626,148
  711,755
  802,895
  899,439
  1,001,273
  1,108,307
  1,220,476
  1,337,749
  1,460,124
  1,587,638
  1,720,361
  1,858,398
  2,001,893
  2,151,019
Debt-to-equity ratio
  1.017
  1.470
  1.840
  2.060
  2.210
  2.300
  2.370
  2.410
  2.440
  2.460
  2.480
  2.490
  2.500
  2.510
  2.520
  2.520
  2.520
  2.530
  2.530
  2.530
  2.530
  2.530
  2.530
  2.540
  2.540
  2.540
  2.540
  2.540
  2.540
  2.540
  2.540
Adjusted equity ratio
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  728
  1,210
  1,856
  2,744
  3,929
  5,468
  7,416
  9,824
  12,738
  16,198
  20,234
  25,010
  30,259
  36,128
  42,616
  49,719
  57,426
  65,724
  74,602
  84,043
  94,036
  104,569
  115,634
  127,223
  139,335
  151,970
  165,132
  178,829
  193,073
  207,878
  223,264
Depreciation, amort., depletion, $m
  253
  296
  350
  425
  524
  655
  820
  1,025
  1,273
  1,570
  1,916
  2,123
  2,576
  3,083
  3,644
  4,260
  4,929
  5,651
  6,423
  7,246
  8,117
  9,036
  10,002
  11,014
  12,072
  13,177
  14,327
  15,525
  16,771
  18,066
  19,411
Funds from operations, $m
  394
  1,506
  2,206
  3,169
  4,454
  6,123
  8,236
  10,848
  14,011
  17,767
  22,150
  27,133
  32,835
  39,211
  46,261
  53,979
  62,355
  71,375
  81,025
  91,289
  102,153
  113,605
  125,635
  138,237
  151,407
  165,146
  179,459
  194,354
  209,844
  225,944
  242,676
Change in working capital, $m
  -329
  881
  1,257
  1,736
  2,326
  3,031
  3,848
  4,773
  5,795
  6,899
  8,070
  9,290
  10,543
  11,811
  13,082
  14,343
  15,586
  16,804
  17,996
  19,158
  20,294
  21,407
  22,500
  23,579
  24,652
  25,725
  26,805
  27,900
  29,017
  30,164
  31,348
Cash from operations, $m
  723
  625
  948
  1,432
  2,128
  3,092
  4,387
  6,075
  8,216
  10,868
  14,080
  17,843
  22,292
  27,399
  33,179
  39,636
  46,769
  54,571
  63,029
  72,130
  81,859
  92,199
  103,136
  114,658
  126,755
  139,422
  152,654
  166,454
  180,827
  195,780
  211,328
Maintenance CAPEX, $m
  0
  -67
  -104
  -158
  -233
  -333
  -463
  -628
  -833
  -1,082
  -1,378
  -1,724
  -2,123
  -2,576
  -3,083
  -3,644
  -4,260
  -4,929
  -5,651
  -6,423
  -7,246
  -8,117
  -9,036
  -10,002
  -11,014
  -12,072
  -13,177
  -14,327
  -15,525
  -16,771
  -18,066
New CAPEX, $m
  -193
  -388
  -556
  -768
  -1,029
  -1,340
  -1,702
  -2,111
  -2,562
  -3,051
  -3,568
  -4,108
  -4,662
  -5,223
  -5,784
  -6,342
  -6,892
  -7,431
  -7,957
  -8,471
  -8,974
  -9,465
  -9,949
  -10,426
  -10,900
  -11,375
  -11,852
  -12,337
  -12,831
  -13,338
  -13,861
Cash from investing activities, $m
  -209
  -455
  -660
  -926
  -1,262
  -1,673
  -2,165
  -2,739
  -3,395
  -4,133
  -4,946
  -5,832
  -6,785
  -7,799
  -8,867
  -9,986
  -11,152
  -12,360
  -13,608
  -14,894
  -16,220
  -17,582
  -18,985
  -20,428
  -21,914
  -23,447
  -25,029
  -26,664
  -28,356
  -30,109
  -31,927
Free cash flow, $m
  514
  170
  288
  506
  867
  1,420
  2,223
  3,337
  4,821
  6,736
  9,134
  12,011
  15,507
  19,601
  24,312
  29,650
  35,617
  42,211
  49,421
  57,236
  65,639
  74,616
  84,151
  94,230
  104,841
  115,975
  127,626
  139,791
  152,471
  165,672
  179,401
Issuance/(repayment) of debt, $m
  -8
  3,010
  4,295
  5,931
  7,945
  10,351
  13,144
  16,304
  19,793
  23,565
  27,565
  31,732
  36,010
  40,342
  44,682
  48,990
  53,235
  57,398
  61,466
  65,438
  69,318
  73,117
  76,850
  80,538
  84,201
  87,865
  91,555
  95,295
  99,111
  103,029
  107,073
Issuance/(repurchase) of shares, $m
  -240
  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  
  -250
  3,010
  4,295
  5,931
  7,945
  10,351
  13,144
  16,304
  19,793
  23,565
  27,565
  31,732
  36,010
  40,342
  44,682
  48,990
  53,235
  57,398
  61,466
  65,438
  69,318
  73,117
  76,850
  80,538
  84,201
  87,865
  91,555
  95,295
  99,111
  103,029
  107,073
Total cash flow (excl. dividends), $m
  260
  3,180
  4,583
  6,437
  8,812
  11,771
  15,367
  19,640
  24,614
  30,301
  36,699
  43,743
  51,517
  59,944
  68,994
  78,640
  88,853
  99,609
  110,888
  122,674
  134,958
  147,733
  161,002
  174,768
  189,043
  203,840
  219,180
  235,085
  251,582
  268,701
  286,474
Retained Cash Flow (-), $m
  -203
  -1,178
  -1,687
  -2,329
  -3,121
  -4,065
  -5,163
  -6,403
  -7,774
  -9,255
  -10,826
  -12,463
  -14,143
  -15,845
  -17,549
  -19,241
  -20,909
  -22,543
  -24,141
  -25,701
  -27,225
  -28,717
  -30,184
  -31,632
  -33,071
  -34,510
  -35,959
  -37,428
  -38,927
  -40,465
  -42,054
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
 
  2,002
  2,896
  4,108
  5,691
  7,705
  10,205
  13,237
  16,841
  21,046
  25,872
  31,280
  37,374
  44,099
  51,445
  59,398
  67,944
  77,065
  86,746
  96,973
  107,732
  119,016
  130,818
  143,136
  155,972
  169,331
  183,221
  197,658
  212,655
  228,235
  244,420
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  1,906
  2,614
  3,497
  4,544
  5,737
  7,041
  8,407
  9,775
  11,081
  12,257
  13,220
  13,961
  14,420
  14,572
  14,415
  13,963
  13,245
  12,306
  11,196
  9,975
  8,699
  7,424
  6,197
  5,057
  4,032
  3,139
  2,383
  1,764
  1,271
  891
Current shareholders' claim on cash, %
  100
  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

Rockwell Collins, Inc. designs, produces and supports communications and aviation systems for commercial and military customers. The Company provides information management services through voice and data communication networks and solutions across the world. The Company operates through three segments: Commercial Systems, Government Systems and Information Management Services. The Commercial Systems segment supplies aviation electronics systems, products and services to customers located throughout the world. The Government Systems segment provides a range of electronic products, systems and services to customers including the United States Department of Defense, various ministries of defense, other government agencies and defense contractors around the world. The Information Management Services segment provides communications services, systems integration and security solutions across the aviation, airport, rail and nuclear security markets.

FINANCIAL RATIOS  of  Rockwell Collins (COL)

Valuation Ratios
P/E Ratio 24.1
Price to Sales 3.3
Price to Book 8.5
Price to Tangible Book
Price to Cash Flow 24.3
Price to Free Cash Flow 33.2
Growth Rates
Sales Growth Rate 0.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -8.1%
Cap. Spend. - 3 Yr. Gr. Rate 9.8%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 66.1%
Total Debt to Equity 101.7%
Interest Coverage 0
Management Effectiveness
Return On Assets 9.7%
Ret/ On Assets - 3 Yr. Avg. 9.9%
Return On Total Capital 17.8%
Ret/ On T. Cap. - 3 Yr. Avg. 17.6%
Return On Equity 36.8%
Return On Equity - 3 Yr. Avg. 35.9%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 30.7%
Gross Margin - 3 Yr. Avg. 30.6%
EBITDA Margin 22.6%
EBITDA Margin - 3 Yr. Avg. 23.1%
Operating Margin 18.6%
Oper. Margin - 3 Yr. Avg. 18.9%
Pre-Tax Margin 17.8%
Pre-Tax Margin - 3 Yr. Avg. 17.9%
Net Profit Margin 13.8%
Net Profit Margin - 3 Yr. Avg. 13%
Effective Tax Rate 22.2%
Eff/ Tax Rate - 3 Yr. Avg. 26.7%
Payout Ratio 23.6%

COL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the COL stock intrinsic value calculation we used $5259 million for the last fiscal year's total revenue generated by Rockwell Collins. The default revenue input number comes from 2016 income statement of Rockwell Collins. 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 COL stock valuation model: a) initial revenue growth rate of 57% 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 5%, whose default value for COL is calculated based on our internal credit rating of Rockwell Collins, 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 Rockwell Collins.
    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 COL stock the variable cost ratio is equal to 80.5%.

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 COL 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 3.5% for Rockwell Collins.

Corporate tax rate of 27% is the nominal tax rate for Rockwell Collins. 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 COL 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 COL are equal to 13%.

Life of production assets of 10.3 years is the average useful life of capital assets used in Rockwell Collins 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 COL is equal to 29.4%. 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 - $2078 million for Rockwell Collins - 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 162.444 million for Rockwell Collins 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 Rockwell Collins at the current share price and the inputted number of shares is $21.9 billion.

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Financial statements of COL
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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