Intrinsic value of HCA Healthcare - HCA

Previous Close

$81.05

  Intrinsic Value

$36.97

stock screener

  Rating & Target

str. sell

-54%

Previous close

$81.05

 
Intrinsic value

$36.97

 
Up/down potential

-54%

 
Rating

str. sell

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

We calculate the intrinsic value of HCA 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 29.3

 

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, %
  4.57
  4.60
  4.64
  4.68
  4.71
  4.74
  4.76
  4.79
  4.81
  4.83
  4.85
  4.86
  4.87
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
Revenue, $m
  41,490
  43,399
  45,412
  47,536
  49,774
  52,132
  54,615
  57,230
  59,982
  62,878
  65,924
  69,129
  72,498
  76,041
  79,766
  83,681
  87,797
  92,121
  96,666
  101,441
  106,458
  111,730
  117,267
  123,084
  129,195
  135,613
  142,355
  149,436
  156,873
  164,684
  172,887
Variable operating expenses, $m
 
  22,797
  23,823
  24,906
  26,047
  27,249
  28,516
  29,849
  31,252
  32,728
  34,281
  35,245
  36,963
  38,769
  40,668
  42,664
  44,762
  46,967
  49,284
  51,719
  54,277
  56,964
  59,788
  62,754
  65,869
  69,141
  72,579
  76,189
  79,980
  83,963
  88,145
Fixed operating expenses, $m
 
  13,899
  14,246
  14,603
  14,968
  15,342
  15,725
  16,119
  16,522
  16,935
  17,358
  17,792
  18,237
  18,693
  19,160
  19,639
  20,130
  20,633
  21,149
  21,678
  22,220
  22,775
  23,345
  23,928
  24,526
  25,139
  25,768
  26,412
  27,072
  27,749
  28,443
Total operating expenses, $m
  35,050
  36,696
  38,069
  39,509
  41,015
  42,591
  44,241
  45,968
  47,774
  49,663
  51,639
  53,037
  55,200
  57,462
  59,828
  62,303
  64,892
  67,600
  70,433
  73,397
  76,497
  79,739
  83,133
  86,682
  90,395
  94,280
  98,347
  102,601
  107,052
  111,712
  116,588
Operating income, $m
  6,440
  6,703
  7,342
  8,027
  8,759
  9,541
  10,374
  11,263
  12,209
  13,215
  14,285
  16,092
  17,299
  18,580
  19,938
  21,378
  22,904
  24,521
  26,233
  28,045
  29,962
  31,990
  34,135
  36,403
  38,800
  41,333
  44,009
  46,835
  49,820
  52,972
  56,299
EBITDA, $m
  8,406
  8,812
  9,518
  10,274
  11,080
  11,940
  12,856
  13,831
  14,868
  15,970
  17,141
  18,384
  19,703
  21,101
  22,583
  24,153
  25,815
  27,575
  29,438
  31,408
  33,492
  35,695
  38,023
  40,484
  43,083
  45,829
  48,729
  51,790
  55,022
  58,432
  62,032
Interest expense (income), $m
  1,666
  1,683
  1,160
  1,238
  1,321
  1,408
  1,499
  1,595
  1,697
  1,804
  1,916
  2,034
  2,158
  2,289
  2,426
  2,571
  2,723
  2,882
  3,050
  3,226
  3,412
  3,606
  3,811
  4,025
  4,251
  4,488
  4,737
  4,999
  5,273
  5,562
  5,865
Earnings before tax, $m
  4,810
  5,020
  6,182
  6,789
  7,438
  8,133
  8,875
  9,667
  10,512
  11,412
  12,369
  14,058
  15,141
  16,291
  17,512
  18,807
  20,181
  21,638
  23,182
  24,818
  26,550
  28,384
  30,324
  32,377
  34,548
  36,844
  39,271
  41,837
  44,547
  47,410
  50,434
Tax expense, $m
  1,378
  1,355
  1,669
  1,833
  2,008
  2,196
  2,396
  2,610
  2,838
  3,081
  3,340
  3,796
  4,088
  4,398
  4,728
  5,078
  5,449
  5,842
  6,259
  6,701
  7,169
  7,664
  8,188
  8,742
  9,328
  9,948
  10,603
  11,296
  12,028
  12,801
  13,617
Net income, $m
  2,890
  3,665
  4,513
  4,956
  5,430
  5,937
  6,479
  7,057
  7,674
  8,330
  9,029
  10,262
  11,053
  11,892
  12,783
  13,729
  14,732
  15,796
  16,923
  18,117
  19,382
  20,720
  22,137
  23,635
  25,220
  26,896
  28,668
  30,541
  32,519
  34,609
  36,817

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  646
  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
  33,758
  34,636
  36,243
  37,938
  39,724
  41,606
  43,588
  45,674
  47,871
  50,182
  52,613
  55,171
  57,860
  60,687
  63,660
  66,785
  70,069
  73,521
  77,148
  80,959
  84,963
  89,170
  93,589
  98,232
  103,108
  108,231
  113,611
  119,263
  125,198
  131,432
  137,979
Adjusted assets (=assets-cash), $m
  33,112
  34,636
  36,243
  37,938
  39,724
  41,606
  43,588
  45,674
  47,871
  50,182
  52,613
  55,171
  57,860
  60,687
  63,660
  66,785
  70,069
  73,521
  77,148
  80,959
  84,963
  89,170
  93,589
  98,232
  103,108
  108,231
  113,611
  119,263
  125,198
  131,432
  137,979
Revenue / Adjusted assets
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
  1.253
Average production assets, $m
  15,683
  16,405
  17,166
  17,968
  18,815
  19,706
  20,645
  21,633
  22,673
  23,768
  24,919
  26,131
  27,404
  28,744
  30,152
  31,632
  33,187
  34,822
  36,540
  38,345
  40,241
  42,234
  44,327
  46,526
  48,836
  51,262
  53,810
  56,487
  59,298
  62,251
  65,351
Working capital, $m
  3,252
  2,951
  3,088
  3,232
  3,385
  3,545
  3,714
  3,892
  4,079
  4,276
  4,483
  4,701
  4,930
  5,171
  5,424
  5,690
  5,970
  6,264
  6,573
  6,898
  7,239
  7,598
  7,974
  8,370
  8,785
  9,222
  9,680
  10,162
  10,667
  11,199
  11,756
Total debt, $m
  31,376
  21,488
  22,935
  24,460
  26,067
  27,761
  29,545
  31,423
  33,400
  35,480
  37,668
  39,969
  42,390
  44,935
  47,610
  50,422
  53,378
  56,485
  59,749
  63,179
  66,783
  70,569
  74,546
  78,725
  83,114
  87,724
  92,566
  97,652
  102,994
  108,605
  114,497
Total liabilities, $m
  41,060
  31,172
  32,619
  34,144
  35,751
  37,445
  39,229
  41,107
  43,084
  45,164
  47,352
  49,653
  52,074
  54,619
  57,294
  60,106
  63,062
  66,169
  69,433
  72,863
  76,467
  80,253
  84,230
  88,409
  92,798
  97,408
  102,250
  107,336
  112,678
  118,289
  124,181
Total equity, $m
  -7,302
  3,464
  3,624
  3,794
  3,972
  4,161
  4,359
  4,567
  4,787
  5,018
  5,261
  5,517
  5,786
  6,069
  6,366
  6,678
  7,007
  7,352
  7,715
  8,096
  8,496
  8,917
  9,359
  9,823
  10,311
  10,823
  11,361
  11,926
  12,520
  13,143
  13,798
Total liabilities and equity, $m
  33,758
  34,636
  36,243
  37,938
  39,723
  41,606
  43,588
  45,674
  47,871
  50,182
  52,613
  55,170
  57,860
  60,688
  63,660
  66,784
  70,069
  73,521
  77,148
  80,959
  84,963
  89,170
  93,589
  98,232
  103,109
  108,231
  113,611
  119,262
  125,198
  131,432
  137,979
Debt-to-equity ratio
  -4.297
  6.200
  6.330
  6.450
  6.560
  6.670
  6.780
  6.880
  6.980
  7.070
  7.160
  7.240
  7.330
  7.400
  7.480
  7.550
  7.620
  7.680
  7.740
  7.800
  7.860
  7.910
  7.970
  8.010
  8.060
  8.110
  8.150
  8.190
  8.230
  8.260
  8.300
Adjusted equity ratio
  -0.240
  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
  2,890
  3,665
  4,513
  4,956
  5,430
  5,937
  6,479
  7,057
  7,674
  8,330
  9,029
  10,262
  11,053
  11,892
  12,783
  13,729
  14,732
  15,796
  16,923
  18,117
  19,382
  20,720
  22,137
  23,635
  25,220
  26,896
  28,668
  30,541
  32,519
  34,609
  36,817
Depreciation, amort., depletion, $m
  1,966
  2,109
  2,176
  2,247
  2,321
  2,399
  2,481
  2,568
  2,659
  2,755
  2,856
  2,292
  2,404
  2,521
  2,645
  2,775
  2,911
  3,055
  3,205
  3,364
  3,530
  3,705
  3,888
  4,081
  4,284
  4,497
  4,720
  4,955
  5,202
  5,461
  5,733
Funds from operations, $m
  2,438
  5,774
  6,689
  7,202
  7,751
  8,336
  8,960
  9,625
  10,333
  11,086
  11,886
  12,555
  13,457
  14,414
  15,428
  16,504
  17,644
  18,851
  20,128
  21,481
  22,912
  24,425
  26,025
  27,717
  29,504
  31,393
  33,388
  35,496
  37,721
  40,070
  42,550
Change in working capital, $m
  -3,215
  130
  137
  144
  152
  160
  169
  178
  187
  197
  207
  218
  229
  241
  253
  266
  280
  294
  309
  325
  341
  358
  377
  396
  416
  436
  458
  482
  506
  531
  558
Cash from operations, $m
  5,653
  5,644
  6,552
  7,058
  7,598
  8,176
  8,791
  9,447
  10,146
  10,889
  11,679
  12,337
  13,227
  14,173
  15,175
  16,238
  17,364
  18,557
  19,819
  21,156
  22,570
  24,066
  25,648
  27,321
  29,089
  30,957
  32,930
  35,014
  37,215
  39,539
  41,992
Maintenance CAPEX, $m
  0
  -1,376
  -1,439
  -1,506
  -1,576
  -1,650
  -1,729
  -1,811
  -1,898
  -1,989
  -2,085
  -2,186
  -2,292
  -2,404
  -2,521
  -2,645
  -2,775
  -2,911
  -3,055
  -3,205
  -3,364
  -3,530
  -3,705
  -3,888
  -4,081
  -4,284
  -4,497
  -4,720
  -4,955
  -5,202
  -5,461
New CAPEX, $m
  -2,760
  -722
  -761
  -803
  -846
  -891
  -939
  -988
  -1,040
  -1,095
  -1,152
  -1,211
  -1,274
  -1,339
  -1,408
  -1,480
  -1,556
  -1,635
  -1,718
  -1,805
  -1,897
  -1,992
  -2,093
  -2,199
  -2,310
  -2,426
  -2,548
  -2,677
  -2,811
  -2,952
  -3,101
Cash from investing activities, $m
  -3,240
  -2,098
  -2,200
  -2,309
  -2,422
  -2,541
  -2,668
  -2,799
  -2,938
  -3,084
  -3,237
  -3,397
  -3,566
  -3,743
  -3,929
  -4,125
  -4,331
  -4,546
  -4,773
  -5,010
  -5,261
  -5,522
  -5,798
  -6,087
  -6,391
  -6,710
  -7,045
  -7,397
  -7,766
  -8,154
  -8,562
Free cash flow, $m
  2,413
  3,547
  4,352
  4,749
  5,176
  5,634
  6,124
  6,648
  7,208
  7,805
  8,442
  8,939
  9,661
  10,429
  11,246
  12,113
  13,034
  14,011
  15,047
  16,146
  17,310
  18,544
  19,851
  21,234
  22,698
  24,247
  25,885
  27,617
  29,449
  31,385
  33,430
Issuance/(repayment) of debt, $m
  815
  -9,672
  1,446
  1,525
  1,608
  1,694
  1,784
  1,878
  1,977
  2,080
  2,188
  2,302
  2,420
  2,545
  2,675
  2,812
  2,956
  3,106
  3,264
  3,430
  3,604
  3,786
  3,978
  4,178
  4,389
  4,610
  4,842
  5,086
  5,342
  5,610
  5,892
Issuance/(repurchase) of shares, $m
  -2,751
  7,531
  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  
  -2,508
  -2,141
  1,446
  1,525
  1,608
  1,694
  1,784
  1,878
  1,977
  2,080
  2,188
  2,302
  2,420
  2,545
  2,675
  2,812
  2,956
  3,106
  3,264
  3,430
  3,604
  3,786
  3,978
  4,178
  4,389
  4,610
  4,842
  5,086
  5,342
  5,610
  5,892
Total cash flow (excl. dividends), $m
  -95
  1,406
  5,798
  6,275
  6,784
  7,328
  7,908
  8,526
  9,185
  9,885
  10,630
  11,241
  12,082
  12,974
  13,921
  14,925
  15,989
  17,117
  18,311
  19,576
  20,914
  22,330
  23,828
  25,412
  27,087
  28,857
  30,727
  32,703
  34,791
  36,995
  39,323
Retained Cash Flow (-), $m
  -297
  -11,196
  -161
  -169
  -179
  -188
  -198
  -209
  -220
  -231
  -243
  -256
  -269
  -283
  -297
  -312
  -328
  -345
  -363
  -381
  -400
  -421
  -442
  -464
  -488
  -512
  -538
  -565
  -594
  -623
  -655
Prev. year cash balance distribution, $m
 
  430
  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
 
  -9,360
  5,638
  6,105
  6,605
  7,140
  7,710
  8,318
  8,965
  9,654
  10,387
  10,985
  11,813
  12,692
  13,624
  14,613
  15,661
  16,772
  17,949
  19,195
  20,514
  21,909
  23,386
  24,948
  26,599
  28,345
  30,189
  32,138
  34,197
  36,372
  38,668
Discount rate, %
 
  12.20
  12.81
  13.45
  14.12
  14.83
  15.57
  16.35
  17.17
  18.02
  18.93
  19.87
  20.87
  21.91
  23.00
  24.16
  25.36
  26.63
  27.96
  29.36
  30.83
  32.37
  33.99
  35.69
  37.47
  39.35
  41.31
  43.38
  45.55
  47.83
  50.22
PV of cash for distribution, $m
 
  -8,342
  4,430
  4,181
  3,894
  3,576
  3,236
  2,882
  2,524
  2,172
  1,835
  1,496
  1,215
  966
  751
  569
  421
  303
  212
  144
  95
  61
  37
  22
  13
  7
  4
  2
  1
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

HCA Healthcare, Inc., formerly HCA Holdings, Inc., is a holding company. The Company, through its subsidiaries, owns and operates hospitals and related healthcare entities. As of December 31, 2016, the Company operated in two geographically organized groups, including the National and American Groups. As of December 31, 2016, the National Group included 84 hospitals, which were located in Alaska, California, Florida, southern Georgia, Idaho, Indiana, northern Kentucky, Nevada, New Hampshire, South Carolina, Utah and Virginia. As of December 31, 2016, the American Group included 80 hospitals, which were located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Mississippi, Missouri, Oklahoma, Tennessee and Texas. As of December 31, 2016, the Company operated six hospitals in England. The Company owns, manages or operates hospitals, freestanding surgery centers and freestanding emergency care facilities, walk-in clinics, diagnostic and imaging centers, among others.

FINANCIAL RATIOS  of  HCA Healthcare (HCA)

Valuation Ratios
P/E Ratio 10.4
Price to Sales 0.7
Price to Book -4.1
Price to Tangible Book
Price to Cash Flow 5.3
Price to Free Cash Flow 10.4
Growth Rates
Sales Growth Rate 4.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 16.2%
Cap. Spend. - 3 Yr. Gr. Rate 7.3%
Financial Strength
Quick Ratio 3
Current Ratio 0.2
LT Debt to Equity -426.7%
Total Debt to Equity -429.7%
Interest Coverage 4
Management Effectiveness
Return On Assets 12.3%
Ret/ On Assets - 3 Yr. Avg. 10.9%
Return On Total Capital 12.3%
Ret/ On T. Cap. - 3 Yr. Avg. 10.3%
Return On Equity -38.8%
Return On Equity - 3 Yr. Avg. -29.8%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 83.3%
Gross Margin - 3 Yr. Avg. 83.2%
EBITDA Margin 20.3%
EBITDA Margin - 3 Yr. Avg. 19.5%
Operating Margin 15.5%
Oper. Margin - 3 Yr. Avg. 14.5%
Pre-Tax Margin 11.6%
Pre-Tax Margin - 3 Yr. Avg. 10.3%
Net Profit Margin 7%
Net Profit Margin - 3 Yr. Avg. 5.8%
Effective Tax Rate 28.6%
Eff/ Tax Rate - 3 Yr. Avg. 30.8%
Payout Ratio 0%

HCA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HCA stock intrinsic value calculation we used $41490 million for the last fiscal year's total revenue generated by HCA Healthcare. The default revenue input number comes from 2016 income statement of HCA Healthcare. 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 HCA stock valuation model: a) initial revenue growth rate of 4.6% 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 12.2%, whose default value for HCA is calculated based on our internal credit rating of HCA Healthcare, 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 HCA Healthcare.
    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 HCA stock the variable cost ratio is equal to 52.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $13560 million in the base year in the intrinsic value calculation for HCA 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 HCA Healthcare.

Corporate tax rate of 27% is the nominal tax rate for HCA Healthcare. 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 HCA 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 HCA are equal to 37.8%.

Life of production assets of 11.4 years is the average useful life of capital assets used in HCA Healthcare 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 HCA is equal to 6.8%. 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 - $-7302 million for HCA Healthcare - 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 361.258 million for HCA Healthcare 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 HCA Healthcare at the current share price and the inputted number of shares is $29.3 billion.

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COMPANY NEWS

▶ HCA Previews 2017 Third Quarter Results   [04:30PM  Business Wire]
▶ HCA pays $22M for site to build hospital near Nova Southeastern University   [Oct-17-17 02:10PM  American City Business Journals]
▶ Healthcare Reform: Insurers Feel the Pain   [12:59PM  Barrons.com]
▶ Whats Moving Tenet Healthcare Corp (THC) Stock Today?   [Sep-14-17 02:50PM  InvestorPlace]
▶ HCA misses Street 2Q forecasts   [Jul-25-17 11:42PM  Associated Press]
▶ HCA Reports Second Quarter 2017 Results   [08:30AM  Business Wire]
▶ HCA 2nd Quarter 2017 Earnings Conference Call   [Jul-10-17 04:45PM  Business Wire]
▶ How the health-care vote impacts the markets   [Jun-27-17 02:10PM  CNBC Videos]
▶ CBO Deals Blow To Senate's TrumpCare Bill; Sen. Collins To Vote No   [Jun-26-17 06:59PM  Investor's Business Daily]
▶ Trading the CBO: 6 buys in healthcare   [05:00PM  CNBC Videos]
▶ Aventura Hospital seeks approval for major expansion   [Jun-12-17 06:30AM  American City Business Journals]
▶ ETFs with exposure to HCA Healthcare, Inc. : June 8, 2017   [Jun-08-17 01:38PM  Capital Cube]
▶ Steel, chips, planes & more in the blitz   [Jun-07-17 01:27PM  CNBC Videos]
▶ Healthcare Sector Updates for May 2226, 2017   [May-31-17 12:01PM  Market Realist]
▶ S&P 500, Nasdaq Jump to New Records as Crude Oil Slides   [May-25-17 04:31PM  TheStreet.com]
▶ The 3 Best Hospital Stocks to Buy in 2017   [May-17-17 04:42PM  Motley Fool]
Financial statements of HCA
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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