Intrinsic value of GlaxoSmithKline ADR - GSK

Previous Close

$34.99

  Intrinsic Value

$66.82

stock screener

  Rating & Target

str. buy

+91%

Previous close

$34.99

 
Intrinsic value

$66.82

 
Up/down potential

+91%

 
Rating

str. buy

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

We calculate the intrinsic value of GSK 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 84.5

 

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, %
  16.58
  12.10
  11.39
  10.75
  10.18
  9.66
  9.19
  8.77
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.80
  6.62
  6.46
  6.32
  6.18
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
Revenue, $m
  33,905
  38,008
  42,337
  46,888
  51,659
  56,649
  61,856
  67,283
  72,932
  78,808
  84,916
  91,264
  97,861
  104,716
  111,842
  119,250
  126,956
  134,974
  143,321
  152,014
  161,073
  170,517
  180,368
  190,647
  201,379
  212,589
  224,302
  236,546
  249,349
  262,743
  276,759
Variable operating expenses, $m
 
  20,170
  22,385
  24,714
  27,155
  29,707
  32,372
  35,148
  38,038
  41,044
  44,169
  46,692
  50,067
  53,574
  57,219
  61,010
  64,952
  69,054
  73,325
  77,772
  82,407
  87,238
  92,278
  97,537
  103,028
  108,763
  114,755
  121,019
  127,570
  134,422
  141,593
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
  30,746
  20,170
  22,385
  24,714
  27,155
  29,707
  32,372
  35,148
  38,038
  41,044
  44,169
  46,692
  50,067
  53,574
  57,219
  61,010
  64,952
  69,054
  73,325
  77,772
  82,407
  87,238
  92,278
  97,537
  103,028
  108,763
  114,755
  121,019
  127,570
  134,422
  141,593
Operating income, $m
  3,158
  17,837
  19,952
  22,174
  24,505
  26,942
  29,485
  32,135
  34,894
  37,764
  40,747
  44,572
  47,794
  51,142
  54,622
  58,241
  62,004
  65,920
  69,996
  74,242
  78,666
  83,279
  88,090
  93,110
  98,351
  103,826
  109,546
  115,526
  121,780
  128,321
  135,166
EBITDA, $m
  5,315
  20,579
  22,923
  25,388
  27,971
  30,673
  33,493
  36,431
  39,490
  42,671
  45,978
  49,416
  52,987
  56,699
  60,557
  64,569
  68,741
  73,083
  77,602
  82,309
  87,214
  92,328
  97,661
  103,227
  109,038
  115,108
  121,450
  128,079
  135,012
  142,265
  149,854
Interest expense (income), $m
  890
  731
  766
  1,075
  1,401
  1,742
  2,099
  2,471
  2,859
  3,263
  3,683
  4,120
  4,574
  5,046
  5,536
  6,046
  6,576
  7,127
  7,700
  8,297
  8,919
  9,566
  10,242
  10,946
  11,681
  12,449
  13,250
  14,088
  14,964
  15,879
  16,837
Earnings before tax, $m
  2,357
  17,107
  19,186
  21,099
  23,104
  25,200
  27,386
  29,664
  32,035
  34,500
  37,063
  40,452
  43,220
  46,096
  49,086
  52,195
  55,428
  58,793
  62,296
  65,945
  69,748
  73,712
  77,848
  82,164
  86,670
  91,377
  96,296
  101,438
  106,816
  112,442
  118,329
Tax expense, $m
  1,066
  4,619
  5,180
  5,697
  6,238
  6,804
  7,394
  8,009
  8,649
  9,315
  10,007
  10,922
  11,669
  12,446
  13,253
  14,093
  14,966
  15,874
  16,820
  17,805
  18,832
  19,902
  21,019
  22,184
  23,401
  24,672
  26,000
  27,388
  28,840
  30,359
  31,949
Net income, $m
  1,109
  12,488
  14,006
  15,402
  16,866
  18,396
  19,992
  21,655
  23,385
  25,185
  27,056
  29,530
  31,550
  33,650
  35,833
  38,102
  40,463
  42,919
  45,476
  48,140
  50,916
  53,810
  56,829
  59,980
  63,269
  66,705
  70,296
  74,050
  77,976
  82,083
  86,380

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,061
  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
  71,825
  73,658
  82,048
  90,869
  100,115
  109,785
  119,877
  130,394
  141,341
  152,728
  164,566
  176,868
  189,652
  202,938
  216,747
  231,105
  246,039
  261,578
  277,754
  294,601
  312,157
  330,459
  349,550
  369,471
  390,270
  411,993
  434,693
  458,422
  483,235
  509,193
  536,355
Adjusted assets (=assets-cash), $m
  65,764
  73,658
  82,048
  90,869
  100,115
  109,785
  119,877
  130,394
  141,341
  152,728
  164,566
  176,868
  189,652
  202,938
  216,747
  231,105
  246,039
  261,578
  277,754
  294,601
  312,157
  330,459
  349,550
  369,471
  390,270
  411,993
  434,693
  458,422
  483,235
  509,193
  536,355
Revenue / Adjusted assets
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
Average production assets, $m
  33,994
  38,122
  42,464
  47,029
  51,814
  56,819
  62,042
  67,485
  73,151
  79,044
  85,171
  91,538
  98,154
  105,030
  112,177
  119,608
  127,337
  135,379
  143,751
  152,470
  161,556
  171,029
  180,909
  191,219
  201,983
  213,226
  224,974
  237,255
  250,098
  263,532
  277,590
Working capital, $m
  -2,783
  -4,295
  -4,784
  -5,298
  -5,838
  -6,401
  -6,990
  -7,603
  -8,241
  -8,905
  -9,596
  -10,313
  -11,058
  -11,833
  -12,638
  -13,475
  -14,346
  -15,252
  -16,195
  -17,178
  -18,201
  -19,268
  -20,382
  -21,543
  -22,756
  -24,023
  -25,346
  -26,730
  -28,176
  -29,690
  -31,274
Total debt, $m
  22,843
  18,676
  26,227
  34,166
  42,488
  51,190
  60,273
  69,738
  79,591
  89,839
  100,493
  111,565
  123,071
  135,028
  147,456
  160,379
  173,819
  187,804
  202,362
  217,525
  233,325
  249,797
  266,979
  284,908
  303,627
  323,178
  343,608
  364,964
  387,296
  410,658
  435,104
Total liabilities, $m
  70,458
  66,292
  73,843
  81,782
  90,104
  98,806
  107,889
  117,354
  127,207
  137,455
  148,109
  159,181
  170,687
  182,644
  195,072
  207,995
  221,435
  235,420
  249,978
  265,141
  280,941
  297,413
  314,595
  332,524
  351,243
  370,794
  391,224
  412,580
  434,912
  458,274
  482,720
Total equity, $m
  1,366
  7,366
  8,205
  9,087
  10,012
  10,978
  11,988
  13,039
  14,134
  15,273
  16,457
  17,687
  18,965
  20,294
  21,675
  23,111
  24,604
  26,158
  27,775
  29,460
  31,216
  33,046
  34,955
  36,947
  39,027
  41,199
  43,469
  45,842
  48,324
  50,919
  53,636
Total liabilities and equity, $m
  71,824
  73,658
  82,048
  90,869
  100,116
  109,784
  119,877
  130,393
  141,341
  152,728
  164,566
  176,868
  189,652
  202,938
  216,747
  231,106
  246,039
  261,578
  277,753
  294,601
  312,157
  330,459
  349,550
  369,471
  390,270
  411,993
  434,693
  458,422
  483,236
  509,193
  536,356
Debt-to-equity ratio
  16.723
  2.540
  3.200
  3.760
  4.240
  4.660
  5.030
  5.350
  5.630
  5.880
  6.110
  6.310
  6.490
  6.650
  6.800
  6.940
  7.060
  7.180
  7.290
  7.380
  7.470
  7.560
  7.640
  7.710
  7.780
  7.840
  7.900
  7.960
  8.010
  8.060
  8.110
Adjusted equity ratio
  -0.045
  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
  1,109
  12,488
  14,006
  15,402
  16,866
  18,396
  19,992
  21,655
  23,385
  25,185
  27,056
  29,530
  31,550
  33,650
  35,833
  38,102
  40,463
  42,919
  45,476
  48,140
  50,916
  53,810
  56,829
  59,980
  63,269
  66,705
  70,296
  74,050
  77,976
  82,083
  86,380
Depreciation, amort., depletion, $m
  2,157
  2,742
  2,972
  3,213
  3,467
  3,731
  4,008
  4,296
  4,596
  4,907
  5,232
  4,843
  5,193
  5,557
  5,935
  6,328
  6,737
  7,163
  7,606
  8,067
  8,548
  9,049
  9,572
  10,117
  10,687
  11,282
  11,903
  12,553
  13,233
  13,943
  14,687
Funds from operations, $m
  10,354
  15,230
  16,978
  18,616
  20,333
  22,127
  24,000
  25,951
  27,981
  30,093
  32,288
  34,373
  36,744
  39,207
  41,768
  44,431
  47,200
  50,082
  53,082
  56,207
  59,464
  62,859
  66,401
  70,097
  73,956
  77,987
  82,200
  86,603
  91,208
  96,026
  101,068
Change in working capital, $m
  2,456
  -464
  -489
  -514
  -539
  -564
  -588
  -613
  -638
  -664
  -690
  -717
  -745
  -775
  -805
  -837
  -871
  -906
  -943
  -982
  -1,024
  -1,067
  -1,113
  -1,162
  -1,213
  -1,267
  -1,324
  -1,384
  -1,447
  -1,514
  -1,584
Cash from operations, $m
  7,898
  15,694
  17,467
  19,130
  20,872
  22,691
  24,588
  26,564
  28,619
  30,757
  32,978
  35,091
  37,489
  39,982
  42,573
  45,268
  48,071
  50,988
  54,025
  57,190
  60,487
  63,926
  67,514
  71,259
  75,169
  79,254
  83,523
  87,987
  92,655
  97,540
  102,651
Maintenance CAPEX, $m
  0
  -1,799
  -2,017
  -2,247
  -2,488
  -2,742
  -3,006
  -3,283
  -3,571
  -3,870
  -4,182
  -4,506
  -4,843
  -5,193
  -5,557
  -5,935
  -6,328
  -6,737
  -7,163
  -7,606
  -8,067
  -8,548
  -9,049
  -9,572
  -10,117
  -10,687
  -11,282
  -11,903
  -12,553
  -13,233
  -13,943
New CAPEX, $m
  -2,859
  -4,128
  -4,342
  -4,565
  -4,786
  -5,004
  -5,223
  -5,443
  -5,666
  -5,893
  -6,126
  -6,367
  -6,616
  -6,876
  -7,147
  -7,431
  -7,729
  -8,042
  -8,372
  -8,719
  -9,086
  -9,472
  -9,880
  -10,310
  -10,764
  -11,243
  -11,748
  -12,281
  -12,842
  -13,434
  -14,058
Cash from investing activities, $m
  -1,543
  -5,927
  -6,359
  -6,812
  -7,274
  -7,746
  -8,229
  -8,726
  -9,237
  -9,763
  -10,308
  -10,873
  -11,459
  -12,069
  -12,704
  -13,366
  -14,057
  -14,779
  -15,535
  -16,325
  -17,153
  -18,020
  -18,929
  -19,882
  -20,881
  -21,930
  -23,030
  -24,184
  -25,395
  -26,667
  -28,001
Free cash flow, $m
  6,355
  9,767
  11,108
  12,318
  13,598
  14,945
  16,359
  17,838
  19,383
  20,993
  22,669
  24,217
  26,030
  27,913
  29,869
  31,902
  34,014
  36,209
  38,491
  40,864
  43,334
  45,906
  48,585
  51,376
  54,287
  57,324
  60,493
  63,803
  67,260
  70,873
  74,650
Issuance/(repayment) of debt, $m
  158
  853
  7,551
  7,939
  8,322
  8,702
  9,083
  9,465
  9,853
  10,248
  10,654
  11,072
  11,506
  11,957
  12,428
  12,922
  13,440
  13,985
  14,559
  15,163
  15,800
  16,472
  17,181
  17,929
  18,719
  19,551
  20,430
  21,356
  22,332
  23,362
  24,446
Issuance/(repurchase) of shares, $m
  18
  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  
  -1,875
  853
  7,551
  7,939
  8,322
  8,702
  9,083
  9,465
  9,853
  10,248
  10,654
  11,072
  11,506
  11,957
  12,428
  12,922
  13,440
  13,985
  14,559
  15,163
  15,800
  16,472
  17,181
  17,929
  18,719
  19,551
  20,430
  21,356
  22,332
  23,362
  24,446
Total cash flow (excl. dividends), $m
  4,825
  10,621
  18,658
  20,257
  21,920
  23,648
  25,441
  27,303
  29,236
  31,241
  33,323
  35,289
  37,535
  39,870
  42,298
  44,824
  47,454
  50,194
  53,049
  56,027
  59,134
  62,378
  65,766
  69,306
  73,006
  76,875
  80,923
  85,158
  89,592
  94,234
  99,096
Retained Cash Flow (-), $m
  4,851
  -7,041
  -839
  -882
  -925
  -967
  -1,009
  -1,052
  -1,095
  -1,139
  -1,184
  -1,230
  -1,278
  -1,329
  -1,381
  -1,436
  -1,493
  -1,554
  -1,618
  -1,685
  -1,756
  -1,830
  -1,909
  -1,992
  -2,080
  -2,172
  -2,270
  -2,373
  -2,481
  -2,596
  -2,716
Prev. year cash balance distribution, $m
 
  1,041
  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
 
  4,621
  17,819
  19,375
  20,995
  22,681
  24,432
  26,252
  28,141
  30,103
  32,139
  34,059
  36,257
  38,541
  40,917
  43,388
  45,960
  48,640
  51,432
  54,342
  57,379
  60,548
  63,857
  67,314
  70,926
  74,703
  78,653
  82,786
  87,111
  91,639
  96,380
Discount rate, %
 
  8.60
  9.03
  9.48
  9.96
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.42
  27.74
  29.12
  30.58
  32.11
  33.71
  35.40
PV of cash for distribution, $m
 
  4,255
  14,990
  14,764
  14,363
  13,796
  13,079
  12,234
  11,284
  10,258
  9,187
  8,052
  6,986
  5,958
  4,991
  4,103
  3,307
  2,611
  2,017
  1,524
  1,124
  808
  566
  386
  256
  164
  102
  62
  36
  20
  11
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

GlaxoSmithKline plc is a global healthcare company. The Company operates through three segments: Pharmaceuticals, Vaccines and Consumer Healthcare. The Company focuses on its research across six areas: Respiratory diseases, human immunodeficiency virus (HIV)/infectious diseases, Vaccines, Immuno-inflammation, Oncology and Rare diseases. The Company makes a range of prescription medicines, vaccines and consumer healthcare products. The Pharmaceuticals business discovers, develops and commercializes medicines to treat a range of acute and chronic diseases. The Vaccines business provides vaccines for people of all ages from babies and adolescents to adults and older people. The Consumer Healthcare business develops and markets products in Wellness, Oral health, Nutrition and Skin health categories. Its product portfolio includes Adartrel, Bexsero, Daraprim and Quinvaxem. Its brands include Panadol, abreva, polident and physiogel.

FINANCIAL RATIOS  of  GlaxoSmithKline ADR (GSK)

Valuation Ratios
P/E Ratio 154.9
Price to Sales 5.1
Price to Book 125.8
Price to Tangible Book
Price to Cash Flow 21.8
Price to Free Cash Flow 34.1
Growth Rates
Sales Growth Rate 16.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 23.7%
Cap. Spend. - 3 Yr. Gr. Rate 6.7%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 1304.8%
Total Debt to Equity 1672.3%
Interest Coverage 4
Management Effectiveness
Return On Assets 2.3%
Ret/ On Assets - 3 Yr. Avg. 9.9%
Return On Total Capital 4.4%
Ret/ On T. Cap. - 3 Yr. Avg. 17.8%
Return On Equity 29.2%
Return On Equity - 3 Yr. Avg. 85.9%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 68.1%
Gross Margin - 3 Yr. Avg. 68%
EBITDA Margin 15.9%
EBITDA Margin - 3 Yr. Avg. 30.8%
Operating Margin 9.3%
Oper. Margin - 3 Yr. Avg. 23.9%
Pre-Tax Margin 7%
Pre-Tax Margin - 3 Yr. Avg. 21.3%
Net Profit Margin 3.3%
Net Profit Margin - 3 Yr. Avg. 16.8%
Effective Tax Rate 45.2%
Eff/ Tax Rate - 3 Yr. Avg. 23.4%
Payout Ratio 531.7%

GSK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GSK stock intrinsic value calculation we used $33905 million for the last fiscal year's total revenue generated by GlaxoSmithKline ADR. The default revenue input number comes from 2016 income statement of GlaxoSmithKline 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 GSK stock valuation model: a) initial revenue growth rate of 12.1% 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 8.6%, whose default value for GSK is calculated based on our internal credit rating of GlaxoSmithKline 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 GlaxoSmithKline 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 GSK stock the variable cost ratio is equal to 53.3%.

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 GSK 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 4.1% for GlaxoSmithKline ADR.

Corporate tax rate of 27% is the nominal tax rate for GlaxoSmithKline 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 GSK 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 GSK are equal to 100.3%.

Life of production assets of 18.9 years is the average useful life of capital assets used in GlaxoSmithKline 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 GSK is equal to -11.3%. 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 - $1366 million for GlaxoSmithKline 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 2414.05 million for GlaxoSmithKline 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 GlaxoSmithKline ADR at the current share price and the inputted number of shares is $84.5 billion.

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SNY Sanofi ADR 43.17 48.60  hold
MRK Merck&Co 56.24 30.41  str.sell

COMPANY NEWS

▶ 10 Biggest Antidepressant Drug Companies In 2017   [Dec-14-17 09:51AM  Insider Monkey]
▶ GlaxoSmithKline's Rockville chief lays out priorities for 2018   [10:03AM  American City Business Journals]
▶ Why Gilead Could Have 'Greatest' Ever In HIV Drug Launches   [Dec-06-17 04:23PM  Investor's Business Daily]
▶ GlaxoSmithKlines Vaccines Business in 3Q17   [07:31AM  Market Realist]
▶ PRESS DIGEST- Financial Times - Dec 6   [Dec-05-17 08:03PM  Reuters]
▶ GlaxoSmithKline and the Dividend Mirage   [03:23PM  GuruFocus.com]
▶ GlaxoSmithKlines HIV Business in 3Q17   [09:02AM  Market Realist]
▶ GlaxoSmithKlines Business Segments in 3Q17   [Dec-04-17 10:33AM  Market Realist]
▶ GlaxoSmithKlines Quarterly Revenues for 3Q17   [09:04AM  Market Realist]
▶ GlaxoSmithKlines Valuation in November 2017   [07:35AM  Market Realist]
▶ Is a Dividend Cut Coming From GlaxoSmithKline plc?   [Dec-02-17 10:36AM  Motley Fool]
▶ Gauging Novartiss Valuation This November   [02:11PM  Market Realist]
▶ Is GlaxoSmithKline plc (LSE:GSK) Undervalued?   [Nov-20-17 07:53AM  Simply Wall St.]
▶ AstraZenecas Valuation after 3Q17 Earnings   [Nov-16-17 11:26AM  Market Realist]
▶ [$$] Gates Foundation, Abu Dhabi Pair to Fight Forgotten Diseases   [Nov-15-17 03:01PM  The Wall Street Journal]
▶ 9 More Companies Whose Dividend Is in Danger   [Nov-14-17 03:14PM  InvestorPlace]
▶ Top LSE Dividend Picks For The Day   [03:02AM  Simply Wall St.]
▶ VBI: Multiple Platforms Yield a Portfolio of Vaccines   [Nov-13-17 01:00PM  Zacks Small Cap Research]
▶ AstraZeneca's Dividend Commitment Comes at a Cost   [Nov-09-17 02:00PM  Bloomberg]
▶ Dynavax Awaits FDA Verdict On Hepatitis B Vaccine   [Nov-08-17 03:04PM  Benzinga]
▶ Largest Shareholders of GlaxcoSmithKline   [03:00PM  Investopedia]
▶ GlaxoSmithKline R&D leader departing for UK government job   [02:30PM  American City Business Journals]
▶ [$$] Glaxo Names Roche Veteran as R&D Head   [01:37PM  The Wall Street Journal]
▶ 3 International Stocks for Retirees   [Nov-07-17 07:33AM  Motley Fool]
▶ Glaxo vs Gilead: Put 'Em Up?   [Nov-06-17 12:43PM  Barrons.com]
Financial statements of GSK
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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