Intrinsic value of Fresenius Medical Care ADR - FMS

Previous Close

$51.65

  Intrinsic Value

$138.81

stock screener

  Rating & Target

str. buy

+169%

Previous close

$51.65

 
Intrinsic value

$138.81

 
Up/down potential

+169%

 
Rating

str. buy

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

We calculate the intrinsic value of FMS 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 31.9

 

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, %
  7.01
  21.70
  20.03
  18.53
  17.17
  15.96
  14.86
  13.88
  12.99
  12.19
  11.47
  10.82
  10.24
  9.72
  9.24
  8.82
  8.44
  8.09
  7.79
  7.51
  7.26
  7.03
  6.83
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.79
Revenue, $m
  15,710
  19,119
  22,949
  27,200
  31,872
  36,958
  42,450
  48,340
  54,618
  61,275
  68,303
  75,696
  83,448
  91,556
  100,020
  108,842
  118,027
  127,581
  137,513
  147,835
  158,562
  169,710
  181,296
  193,343
  205,871
  218,907
  232,477
  246,609
  261,335
  276,685
  292,696
Variable operating expenses, $m
 
  13,792
  16,315
  19,115
  22,193
  25,543
  29,160
  33,040
  37,175
  41,561
  46,190
  49,861
  54,967
  60,308
  65,883
  71,694
  77,744
  84,037
  90,579
  97,379
  104,445
  111,787
  119,419
  127,354
  135,607
  144,194
  153,132
  162,441
  172,141
  182,252
  192,798
Fixed operating expenses, $m
 
  1,948
  1,996
  2,046
  2,097
  2,150
  2,203
  2,259
  2,315
  2,373
  2,432
  2,493
  2,555
  2,619
  2,685
  2,752
  2,821
  2,891
  2,963
  3,037
  3,113
  3,191
  3,271
  3,353
  3,437
  3,522
  3,611
  3,701
  3,793
  3,888
  3,985
Total operating expenses, $m
  13,396
  15,740
  18,311
  21,161
  24,290
  27,693
  31,363
  35,299
  39,490
  43,934
  48,622
  52,354
  57,522
  62,927
  68,568
  74,446
  80,565
  86,928
  93,542
  100,416
  107,558
  114,978
  122,690
  130,707
  139,044
  147,716
  156,743
  166,142
  175,934
  186,140
  196,783
Operating income, $m
  2,313
  3,379
  4,638
  6,039
  7,582
  9,265
  11,086
  13,041
  15,128
  17,342
  19,681
  23,342
  25,926
  28,629
  31,452
  34,396
  37,462
  40,652
  43,970
  47,419
  51,004
  54,731
  58,606
  62,635
  66,828
  71,191
  75,734
  80,467
  85,401
  90,545
  95,912
EBITDA, $m
  2,994
  4,718
  6,005
  7,437
  9,015
  10,735
  12,596
  14,595
  16,727
  18,990
  21,381
  23,898
  26,538
  29,301
  32,187
  35,196
  38,329
  41,589
  44,980
  48,505
  52,168
  55,977
  59,937
  64,055
  68,339
  72,798
  77,441
  82,278
  87,320
  92,577
  98,062
Interest expense (income), $m
  340
  298
  428
  573
  735
  912
  1,105
  1,314
  1,537
  1,775
  2,028
  2,295
  2,576
  2,870
  3,178
  3,499
  3,834
  4,183
  4,546
  4,923
  5,315
  5,722
  6,145
  6,585
  7,042
  7,518
  8,013
  8,528
  9,065
  9,624
  10,207
Earnings before tax, $m
  1,958
  3,081
  4,210
  5,466
  6,847
  8,353
  9,981
  11,728
  13,590
  15,566
  17,653
  21,047
  23,350
  25,759
  28,274
  30,897
  33,628
  36,469
  39,424
  42,496
  45,690
  49,009
  52,461
  56,050
  59,785
  63,673
  67,721
  71,939
  76,336
  80,921
  85,706
Tax expense, $m
  599
  832
  1,137
  1,476
  1,849
  2,255
  2,695
  3,166
  3,669
  4,203
  4,766
  5,683
  6,304
  6,955
  7,634
  8,342
  9,080
  9,847
  10,645
  11,474
  12,336
  13,232
  14,164
  15,134
  16,142
  17,192
  18,285
  19,424
  20,611
  21,849
  23,141
Net income, $m
  1,090
  2,249
  3,073
  3,990
  4,999
  6,098
  7,286
  8,561
  9,921
  11,363
  12,887
  15,364
  17,045
  18,804
  20,640
  22,555
  24,548
  26,623
  28,780
  31,022
  33,353
  35,777
  38,296
  40,917
  43,643
  46,481
  49,437
  52,516
  55,725
  59,072
  62,565

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  901
  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
  23,624
  27,669
  33,211
  39,364
  46,124
  53,484
  61,432
  69,956
  79,042
  88,676
  98,847
  109,545
  120,764
  132,498
  144,747
  157,514
  170,806
  184,632
  199,006
  213,944
  229,468
  245,600
  262,368
  279,801
  297,932
  316,798
  336,436
  356,888
  378,198
  400,413
  423,583
Adjusted assets (=assets-cash), $m
  22,723
  27,669
  33,211
  39,364
  46,124
  53,484
  61,432
  69,956
  79,042
  88,676
  98,847
  109,545
  120,764
  132,498
  144,747
  157,514
  170,806
  184,632
  199,006
  213,944
  229,468
  245,600
  262,368
  279,801
  297,932
  316,798
  336,436
  356,888
  378,198
  400,413
  423,583
Revenue / Adjusted assets
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
Average production assets, $m
  2,390
  2,906
  3,488
  4,134
  4,845
  5,618
  6,452
  7,348
  8,302
  9,314
  10,382
  11,506
  12,684
  13,916
  15,203
  16,544
  17,940
  19,392
  20,902
  22,471
  24,101
  25,796
  27,557
  29,388
  31,292
  33,274
  35,337
  37,485
  39,723
  42,056
  44,490
Working capital, $m
  1,997
  2,791
  3,350
  3,971
  4,653
  5,396
  6,198
  7,058
  7,974
  8,946
  9,972
  11,052
  12,183
  13,367
  14,603
  15,891
  17,232
  18,627
  20,077
  21,584
  23,150
  24,778
  26,469
  28,228
  30,057
  31,960
  33,942
  36,005
  38,155
  40,396
  42,734
Total debt, $m
  7,518
  9,505
  12,736
  16,323
  20,264
  24,555
  29,189
  34,158
  39,455
  45,072
  51,002
  57,239
  63,779
  70,620
  77,761
  85,205
  92,954
  101,014
  109,394
  118,103
  127,154
  136,559
  146,334
  156,498
  167,069
  178,067
  189,516
  201,440
  213,863
  226,815
  240,323
Total liabilities, $m
  14,144
  16,131
  19,362
  22,949
  26,890
  31,181
  35,815
  40,784
  46,081
  51,698
  57,628
  63,865
  70,405
  77,246
  84,387
  91,831
  99,580
  107,640
  116,020
  124,729
  133,780
  143,185
  152,960
  163,124
  173,695
  184,693
  196,142
  208,066
  220,489
  233,441
  246,949
Total equity, $m
  9,480
  11,538
  13,849
  16,415
  19,234
  22,303
  25,617
  29,172
  32,960
  36,978
  41,219
  45,680
  50,358
  55,251
  60,359
  65,683
  71,226
  76,991
  82,985
  89,215
  95,688
  102,415
  109,407
  116,677
  124,238
  132,105
  140,294
  148,822
  157,708
  166,972
  176,634
Total liabilities and equity, $m
  23,624
  27,669
  33,211
  39,364
  46,124
  53,484
  61,432
  69,956
  79,041
  88,676
  98,847
  109,545
  120,763
  132,497
  144,746
  157,514
  170,806
  184,631
  199,005
  213,944
  229,468
  245,600
  262,367
  279,801
  297,933
  316,798
  336,436
  356,888
  378,197
  400,413
  423,583
Debt-to-equity ratio
  0.793
  0.820
  0.920
  0.990
  1.050
  1.100
  1.140
  1.170
  1.200
  1.220
  1.240
  1.250
  1.270
  1.280
  1.290
  1.300
  1.310
  1.310
  1.320
  1.320
  1.330
  1.330
  1.340
  1.340
  1.340
  1.350
  1.350
  1.350
  1.360
  1.360
  1.360
Adjusted equity ratio
  0.401
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,090
  2,249
  3,073
  3,990
  4,999
  6,098
  7,286
  8,561
  9,921
  11,363
  12,887
  15,364
  17,045
  18,804
  20,640
  22,555
  24,548
  26,623
  28,780
  31,022
  33,353
  35,777
  38,296
  40,917
  43,643
  46,481
  49,437
  52,516
  55,725
  59,072
  62,565
Depreciation, amort., depletion, $m
  681
  1,339
  1,367
  1,398
  1,433
  1,470
  1,510
  1,554
  1,600
  1,649
  1,700
  556
  613
  672
  734
  799
  867
  937
  1,010
  1,086
  1,164
  1,246
  1,331
  1,420
  1,512
  1,607
  1,707
  1,811
  1,919
  2,032
  2,149
Funds from operations, $m
  1,747
  3,589
  4,440
  5,388
  6,431
  7,568
  8,797
  10,115
  11,521
  13,012
  14,587
  15,920
  17,658
  19,476
  21,375
  23,354
  25,415
  27,560
  29,790
  32,108
  34,518
  37,023
  39,627
  42,336
  45,155
  48,089
  51,144
  54,326
  57,644
  61,104
  64,714
Change in working capital, $m
  -130
  498
  559
  621
  682
  743
  802
  860
  917
  972
  1,026
  1,079
  1,132
  1,184
  1,236
  1,288
  1,341
  1,395
  1,450
  1,507
  1,566
  1,628
  1,692
  1,759
  1,829
  1,903
  1,981
  2,063
  2,150
  2,241
  2,338
Cash from operations, $m
  1,877
  3,091
  3,881
  4,768
  5,749
  6,826
  7,995
  9,255
  10,604
  12,040
  13,561
  14,841
  16,526
  18,293
  20,139
  22,066
  24,074
  26,165
  28,339
  30,601
  32,952
  35,395
  37,936
  40,578
  43,326
  46,185
  49,162
  52,263
  55,494
  58,863
  62,377
Maintenance CAPEX, $m
  0
  -115
  -140
  -169
  -200
  -234
  -271
  -312
  -355
  -401
  -450
  -502
  -556
  -613
  -672
  -734
  -799
  -867
  -937
  -1,010
  -1,086
  -1,164
  -1,246
  -1,331
  -1,420
  -1,512
  -1,607
  -1,707
  -1,811
  -1,919
  -2,032
New CAPEX, $m
  -1,410
  -516
  -582
  -646
  -710
  -773
  -835
  -895
  -954
  -1,012
  -1,068
  -1,124
  -1,178
  -1,232
  -1,287
  -1,341
  -1,396
  -1,452
  -1,510
  -1,569
  -1,630
  -1,694
  -1,761
  -1,831
  -1,904
  -1,981
  -2,063
  -2,148
  -2,238
  -2,333
  -2,434
Cash from investing activities, $m
  -1,210
  -631
  -722
  -815
  -910
  -1,007
  -1,106
  -1,207
  -1,309
  -1,413
  -1,518
  -1,626
  -1,734
  -1,845
  -1,959
  -2,075
  -2,195
  -2,319
  -2,447
  -2,579
  -2,716
  -2,858
  -3,007
  -3,162
  -3,324
  -3,493
  -3,670
  -3,855
  -4,049
  -4,252
  -4,466
Free cash flow, $m
  667
  2,459
  3,159
  3,953
  4,840
  5,818
  6,889
  8,048
  9,295
  10,627
  12,043
  13,216
  14,792
  16,447
  18,180
  19,991
  21,879
  23,846
  25,893
  28,022
  30,236
  32,537
  34,928
  37,415
  40,002
  42,692
  45,492
  48,408
  51,445
  54,611
  57,912
Issuance/(repayment) of debt, $m
  -206
  2,888
  3,231
  3,587
  3,941
  4,291
  4,634
  4,969
  5,297
  5,617
  5,930
  6,237
  6,540
  6,841
  7,141
  7,443
  7,749
  8,061
  8,380
  8,709
  9,050
  9,405
  9,776
  10,164
  10,571
  10,999
  11,449
  11,923
  12,424
  12,952
  13,508
Issuance/(repurchase) of shares, $m
  43
  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  
  -270
  2,888
  3,231
  3,587
  3,941
  4,291
  4,634
  4,969
  5,297
  5,617
  5,930
  6,237
  6,540
  6,841
  7,141
  7,443
  7,749
  8,061
  8,380
  8,709
  9,050
  9,405
  9,776
  10,164
  10,571
  10,999
  11,449
  11,923
  12,424
  12,952
  13,508
Total cash flow (excl. dividends), $m
  416
  5,347
  6,390
  7,540
  8,781
  10,109
  11,522
  13,017
  14,592
  16,244
  17,972
  19,453
  21,332
  23,288
  25,322
  27,434
  29,628
  31,906
  34,273
  36,731
  39,286
  41,942
  44,704
  47,579
  50,572
  53,691
  56,941
  60,331
  63,869
  67,562
  71,420
Retained Cash Flow (-), $m
  -808
  -2,058
  -2,311
  -2,566
  -2,819
  -3,069
  -3,314
  -3,554
  -3,789
  -4,017
  -4,241
  -4,461
  -4,678
  -4,893
  -5,108
  -5,324
  -5,543
  -5,765
  -5,994
  -6,229
  -6,473
  -6,727
  -6,992
  -7,270
  -7,561
  -7,867
  -8,189
  -8,528
  -8,886
  -9,264
  -9,662
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
 
  3,289
  4,079
  4,974
  5,962
  7,040
  8,208
  9,463
  10,803
  12,226
  13,731
  14,992
  16,654
  18,395
  20,214
  22,110
  24,085
  26,141
  28,279
  30,502
  32,812
  35,214
  37,712
  40,309
  43,011
  45,824
  48,752
  51,803
  54,983
  58,298
  61,758
Discount rate, %
 
  6.40
  6.72
  7.06
  7.41
  7.78
  8.17
  8.58
  9.01
  9.46
  9.93
  10.42
  10.95
  11.49
  12.07
  12.67
  13.31
  13.97
  14.67
  15.40
  16.17
  16.98
  17.83
  18.72
  19.66
  20.64
  21.67
  22.76
  23.89
  25.09
  26.34
PV of cash for distribution, $m
 
  3,091
  3,581
  4,054
  4,479
  4,841
  5,124
  5,320
  5,420
  5,422
  5,328
  5,036
  4,788
  4,472
  4,101
  3,693
  3,264
  2,830
  2,407
  2,006
  1,637
  1,307
  1,021
  778
  579
  420
  297
  204
  136
  88
  55
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

Fresenius Medical Care AG & Co. KGaA is a kidney dialysis company. The Company provides dialysis care and related services to persons suffering from end-stage renal disease (ESRD), as well as other healthcare services. The Company's segments include North America Segment, the Europe, Middle East and Africa (EMEA) Segment, the Asia-Pacific Segment and the Latin America Segment. The Company develops and manufactures a range of dialysis machines, systems and disposable products. As of December 31, 2016, the Company sold its products to customers in more than 120 countries and also used in its internal healthcare service operations. The Company's Care Coordination services include coordinated delivery of pharmacy services, vascular, cardiovascular and endovascular specialty services, non-dialysis laboratory testing services, physician services, hospitalist and intensivist services, health plan services, ambulatory surgery center services and urgent care services.

FINANCIAL RATIOS  of  Fresenius Medical Care ADR (FMS)

Valuation Ratios
P/E Ratio 14.5
Price to Sales 1
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 8.4
Price to Free Cash Flow 33.9
Growth Rates
Sales Growth Rate 7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 26.6%
Cap. Spend. - 3 Yr. Gr. Rate 5.3%
Financial Strength
Quick Ratio 1
Current Ratio 0.2
LT Debt to Equity 66.6%
Total Debt to Equity 79.3%
Interest Coverage 7
Management Effectiveness
Return On Assets 5.8%
Ret/ On Assets - 3 Yr. Avg. 5.1%
Return On Total Capital 6.6%
Ret/ On T. Cap. - 3 Yr. Avg. 5.9%
Return On Equity 12%
Return On Equity - 3 Yr. Avg. 11.3%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 32.3%
Gross Margin - 3 Yr. Avg. 31.9%
EBITDA Margin 19%
EBITDA Margin - 3 Yr. Avg. 17.7%
Operating Margin 14.7%
Oper. Margin - 3 Yr. Avg. 14.3%
Pre-Tax Margin 12.5%
Pre-Tax Margin - 3 Yr. Avg. 11.9%
Net Profit Margin 6.9%
Net Profit Margin - 3 Yr. Avg. 6.6%
Effective Tax Rate 30.6%
Eff/ Tax Rate - 3 Yr. Avg. 31.5%
Payout Ratio 22.3%

FMS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FMS stock intrinsic value calculation we used $15710 million for the last fiscal year's total revenue generated by Fresenius Medical Care ADR. The default revenue input number comes from 2016 income statement of Fresenius Medical Care ADR. 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 FMS stock valuation model: a) initial revenue growth rate of 21.7% 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 6.4%, whose default value for FMS is calculated based on our internal credit rating of Fresenius Medical Care ADR, 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 Fresenius Medical Care ADR.
    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 FMS stock the variable cost ratio is equal to 73.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1900 million in the base year in the intrinsic value calculation for FMS 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 4.5% for Fresenius Medical Care ADR.

Corporate tax rate of 27% is the nominal tax rate for Fresenius Medical Care ADR. 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 FMS 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 FMS are equal to 15.2%.

Life of production assets of 20.7 years is the average useful life of capital assets used in Fresenius Medical Care ADR 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 FMS is equal to 14.6%. 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 - $9480 million for Fresenius Medical Care ADR - 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 618.531 million for Fresenius Medical Care ADR 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 Fresenius Medical Care ADR at the current share price and the inputted number of shares is $31.9 billion.

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COMPANY NEWS

▶ Fresenius Medical Earns RS Rating Upgrade   [Dec-05-17 03:00AM  Investor's Business Daily]
▶ NxStage Medical Prepares for Fresenius Merger   [Nov-21-17 12:45PM  Motley Fool]
▶ Fresenius posts 3Q profit   [Nov-03-17 03:53PM  Associated Press]
▶ Like Mother Like Daughter   [Sep-13-17 04:11PM  Business Wire]
▶ [$$] Fresenius Unit Buys NxStage Medical in $2 Billion Dialysis Deal   [Aug-08-17 12:37AM  The Wall Street Journal]
▶ Buyout Bid Overshadows NxStage Medical's Losses   [Aug-07-17 05:31PM  Motley Fool]
▶ Fresenius to buy Lawrence-based NxStage Medical for $2B   [03:11PM  American City Business Journals]
▶ Fresenius Pays an Arm, and Maybe a Leg   [06:29AM  Bloomberg]
▶ [$$] U.S. Charges Four With Trading Insider Tips on Health-Care Policy   [May-24-17 07:44PM  The Wall Street Journal]
▶ Fresenius beats Street 1Q forecasts   [May-03-17 05:02AM  Associated Press]
▶ [$$] Revelstoke Capital Adds Operating Partner to Team   [May-02-17 12:03PM  The Wall Street Journal]
▶ Fresenius Buys Akorn -- What Now?   [09:29AM  Motley Fool]
▶ Akorn Launches To Six-Month High On Fresenius Takeover Rumor   [Apr-07-17 04:39PM  Investor's Business Daily]
▶ Fresenius Medical Care misses 4Q revenue forecasts   [Feb-22-17 05:07PM  Associated Press]
▶ Cleveland Clinic East Kidney Center Opening Soon   [Jan-04-17 12:30PM  Business Wire]
Financial statements of FMS
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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