Intrinsic value of Horizon Pharma plc - HZNP

Previous Close

$26.84

  Intrinsic Value

$1.52

stock screener

  Rating & Target

str. sell

-94%

Previous close

$26.84

 
Intrinsic value

$1.52

 
Up/down potential

-94%

 
Rating

str. sell

We calculate the intrinsic value of HZNP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 4.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  29.70
  27.23
  25.01
  23.01
  21.21
  19.59
  18.13
  16.81
  15.63
  14.57
  13.61
  12.75
  11.98
  11.28
  10.65
  10.09
  9.58
  9.12
  8.71
  8.34
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.60
  6.44
  6.29
  6.16
Revenue, $m
  1,567
  1,993
  2,492
  3,065
  3,715
  4,443
  5,248
  6,131
  7,089
  8,122
  9,227
  10,404
  11,650
  12,964
  14,344
  15,791
  17,304
  18,881
  20,526
  22,237
  24,016
  25,866
  27,789
  29,786
  31,863
  34,021
  36,265
  38,599
  41,028
  43,556
Variable operating expenses, $m
  2,135
  2,716
  3,394
  4,175
  5,060
  6,050
  7,147
  8,348
  9,652
  11,058
  12,562
  14,163
  15,859
  17,648
  19,528
  21,497
  23,556
  25,704
  27,942
  30,272
  32,694
  35,213
  37,830
  40,550
  43,376
  46,314
  49,369
  52,546
  55,853
  59,295
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
  2,135
  2,716
  3,394
  4,175
  5,060
  6,050
  7,147
  8,348
  9,652
  11,058
  12,562
  14,163
  15,859
  17,648
  19,528
  21,497
  23,556
  25,704
  27,942
  30,272
  32,694
  35,213
  37,830
  40,550
  43,376
  46,314
  49,369
  52,546
  55,853
  59,295
Operating income, $m
  -568
  -722
  -902
  -1,110
  -1,344
  -1,607
  -1,898
  -2,217
  -2,564
  -2,937
  -3,334
  -3,759
  -4,210
  -4,684
  -5,183
  -5,706
  -6,253
  -6,823
  -7,417
  -8,035
  -8,678
  -9,347
  -10,041
  -10,763
  -11,513
  -12,293
  -13,104
  -13,947
  -14,825
  -15,739
EBITDA, $m
  -386
  -491
  -613
  -755
  -915
  -1,094
  -1,292
  -1,509
  -1,745
  -2,000
  -2,272
  -2,561
  -2,868
  -3,192
  -3,532
  -3,888
  -4,260
  -4,648
  -5,053
  -5,475
  -5,913
  -6,368
  -6,841
  -7,333
  -7,844
  -8,376
  -8,928
  -9,503
  -10,101
  -10,723
Interest expense (income), $m
  61
  121
  180
  250
  332
  426
  533
  652
  784
  929
  1,086
  1,255
  1,437
  1,629
  1,834
  2,049
  2,276
  2,513
  2,761
  3,020
  3,289
  3,570
  3,862
  4,165
  4,480
  4,808
  5,148
  5,502
  5,870
  6,253
  6,651
Earnings before tax, $m
  -690
  -903
  -1,153
  -1,442
  -1,771
  -2,140
  -2,550
  -3,001
  -3,492
  -4,023
  -4,589
  -5,196
  -5,839
  -6,518
  -7,233
  -7,982
  -8,765
  -9,584
  -10,436
  -11,324
  -12,248
  -13,208
  -14,206
  -15,243
  -16,321
  -17,441
  -18,606
  -19,817
  -21,078
  -22,390
Tax expense, $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
Net income, $m
  -690
  -903
  -1,153
  -1,442
  -1,771
  -2,140
  -2,550
  -3,001
  -3,492
  -4,023
  -4,589
  -5,196
  -5,839
  -6,518
  -7,233
  -7,982
  -8,765
  -9,584
  -10,436
  -11,324
  -12,248
  -13,208
  -14,206
  -15,243
  -16,321
  -17,441
  -18,606
  -19,817
  -21,078
  -22,390

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  5,120
  6,514
  8,143
  10,017
  12,141
  14,519
  17,151
  20,035
  23,166
  26,542
  30,155
  34,000
  38,071
  42,365
  46,877
  51,605
  56,547
  61,704
  67,077
  72,669
  78,484
  84,530
  90,812
  97,341
  104,126
  111,179
  118,512
  126,140
  134,077
  142,341
Adjusted assets (=assets-cash), $m
  5,120
  6,514
  8,143
  10,017
  12,141
  14,519
  17,151
  20,035
  23,166
  26,542
  30,155
  34,000
  38,071
  42,365
  46,877
  51,605
  56,547
  61,704
  67,077
  72,669
  78,484
  84,530
  90,812
  97,341
  104,126
  111,179
  118,512
  126,140
  134,077
  142,341
Revenue / Adjusted assets
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
Average production assets, $m
  1,786
  2,272
  2,841
  3,494
  4,235
  5,065
  5,983
  6,989
  8,081
  9,259
  10,519
  11,860
  13,281
  14,779
  16,353
  18,002
  19,726
  21,525
  23,399
  25,350
  27,379
  29,487
  31,679
  33,956
  36,323
  38,784
  41,342
  44,003
  46,771
  49,654
Working capital, $m
  -227
  -289
  -361
  -444
  -539
  -644
  -761
  -889
  -1,028
  -1,178
  -1,338
  -1,509
  -1,689
  -1,880
  -2,080
  -2,290
  -2,509
  -2,738
  -2,976
  -3,224
  -3,482
  -3,751
  -4,029
  -4,319
  -4,620
  -4,933
  -5,258
  -5,597
  -5,949
  -6,316
Total debt, $m
  2,819
  3,912
  5,189
  6,658
  8,323
  10,187
  12,251
  14,512
  16,967
  19,613
  22,446
  25,460
  28,652
  32,019
  35,556
  39,263
  43,138
  47,180
  51,393
  55,777
  60,336
  65,076
  70,001
  75,120
  80,439
  85,969
  91,718
  97,698
  103,921
  110,400
Total liabilities, $m
  4,014
  5,107
  6,384
  7,853
  9,519
  11,383
  13,446
  15,707
  18,162
  20,809
  23,641
  26,656
  29,848
  33,214
  36,752
  40,458
  44,333
  48,376
  52,588
  56,972
  61,532
  66,271
  71,197
  76,315
  81,635
  87,164
  92,913
  98,893
  105,117
  111,595
Total equity, $m
  1,106
  1,407
  1,759
  2,164
  2,622
  3,136
  3,705
  4,327
  5,004
  5,733
  6,513
  7,344
  8,223
  9,151
  10,126
  11,147
  12,214
  13,328
  14,489
  15,696
  16,953
  18,258
  19,615
  21,026
  22,491
  24,015
  25,599
  27,246
  28,961
  30,746
Total liabilities and equity, $m
  5,120
  6,514
  8,143
  10,017
  12,141
  14,519
  17,151
  20,034
  23,166
  26,542
  30,154
  34,000
  38,071
  42,365
  46,878
  51,605
  56,547
  61,704
  67,077
  72,668
  78,485
  84,529
  90,812
  97,341
  104,126
  111,179
  118,512
  126,139
  134,078
  142,341
Debt-to-equity ratio
  2.550
  2.780
  2.950
  3.080
  3.170
  3.250
  3.310
  3.350
  3.390
  3.420
  3.450
  3.470
  3.480
  3.500
  3.510
  3.520
  3.530
  3.540
  3.550
  3.550
  3.560
  3.560
  3.570
  3.570
  3.580
  3.580
  3.580
  3.590
  3.590
  3.590
Adjusted equity ratio
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -690
  -903
  -1,153
  -1,442
  -1,771
  -2,140
  -2,550
  -3,001
  -3,492
  -4,023
  -4,589
  -5,196
  -5,839
  -6,518
  -7,233
  -7,982
  -8,765
  -9,584
  -10,436
  -11,324
  -12,248
  -13,208
  -14,206
  -15,243
  -16,321
  -17,441
  -18,606
  -19,817
  -21,078
  -22,390
Depreciation, amort., depletion, $m
  182
  232
  289
  355
  430
  514
  606
  708
  818
  937
  1,063
  1,198
  1,341
  1,493
  1,652
  1,818
  1,993
  2,174
  2,364
  2,561
  2,766
  2,979
  3,200
  3,430
  3,669
  3,918
  4,176
  4,445
  4,724
  5,016
Funds from operations, $m
  -507
  -671
  -864
  -1,087
  -1,341
  -1,626
  -1,944
  -2,293
  -2,674
  -3,085
  -3,527
  -3,998
  -4,498
  -5,025
  -5,581
  -6,163
  -6,773
  -7,409
  -8,073
  -8,764
  -9,482
  -10,230
  -11,006
  -11,813
  -12,652
  -13,524
  -14,430
  -15,373
  -16,353
  -17,374
Change in working capital, $m
  -52
  -62
  -72
  -83
  -94
  -106
  -117
  -128
  -139
  -150
  -160
  -171
  -181
  -191
  -200
  -210
  -219
  -229
  -238
  -248
  -258
  -268
  -279
  -290
  -301
  -313
  -325
  -338
  -352
  -367
Cash from operations, $m
  -455
  -609
  -792
  -1,004
  -1,247
  -1,521
  -1,827
  -2,165
  -2,535
  -2,936
  -3,367
  -3,827
  -4,317
  -4,835
  -5,381
  -5,954
  -6,554
  -7,180
  -7,834
  -8,516
  -9,224
  -9,961
  -10,727
  -11,524
  -12,351
  -13,211
  -14,105
  -15,034
  -16,001
  -17,008
Maintenance CAPEX, $m
  -139
  -180
  -230
  -287
  -353
  -428
  -512
  -604
  -706
  -816
  -935
  -1,063
  -1,198
  -1,341
  -1,493
  -1,652
  -1,818
  -1,993
  -2,174
  -2,364
  -2,561
  -2,766
  -2,979
  -3,200
  -3,430
  -3,669
  -3,918
  -4,176
  -4,445
  -4,724
New CAPEX, $m
  -409
  -486
  -568
  -654
  -741
  -829
  -918
  -1,006
  -1,093
  -1,177
  -1,260
  -1,341
  -1,420
  -1,498
  -1,574
  -1,649
  -1,724
  -1,799
  -1,874
  -1,951
  -2,029
  -2,109
  -2,192
  -2,277
  -2,367
  -2,460
  -2,558
  -2,661
  -2,769
  -2,883
Cash from investing activities, $m
  -548
  -666
  -798
  -941
  -1,094
  -1,257
  -1,430
  -1,610
  -1,799
  -1,993
  -2,195
  -2,404
  -2,618
  -2,839
  -3,067
  -3,301
  -3,542
  -3,792
  -4,048
  -4,315
  -4,590
  -4,875
  -5,171
  -5,477
  -5,797
  -6,129
  -6,476
  -6,837
  -7,214
  -7,607
Free cash flow, $m
  -1,004
  -1,276
  -1,589
  -1,944
  -2,340
  -2,778
  -3,257
  -3,776
  -4,333
  -4,929
  -5,562
  -6,231
  -6,935
  -7,674
  -8,447
  -9,255
  -10,096
  -10,972
  -11,883
  -12,830
  -13,814
  -14,836
  -15,898
  -17,001
  -18,148
  -19,340
  -20,580
  -21,871
  -23,215
  -24,615
Issuance/(repayment) of debt, $m
  922
  1,093
  1,277
  1,469
  1,665
  1,864
  2,063
  2,261
  2,455
  2,646
  2,833
  3,015
  3,192
  3,366
  3,538
  3,707
  3,875
  4,043
  4,212
  4,384
  4,559
  4,740
  4,926
  5,118
  5,319
  5,529
  5,749
  5,980
  6,223
  6,479
Issuance/(repurchase) of shares, $m
  942
  1,204
  1,505
  1,846
  2,229
  2,654
  3,119
  3,624
  4,169
  4,752
  5,370
  6,026
  6,719
  7,446
  8,207
  9,003
  9,833
  10,697
  11,597
  12,532
  13,504
  14,514
  15,563
  16,653
  17,787
  18,965
  20,190
  21,465
  22,792
  24,175
Cash from financing (excl. dividends), $m  
  1,864
  2,297
  2,782
  3,315
  3,894
  4,518
  5,182
  5,885
  6,624
  7,398
  8,203
  9,041
  9,911
  10,812
  11,745
  12,710
  13,708
  14,740
  15,809
  16,916
  18,063
  19,254
  20,489
  21,771
  23,106
  24,494
  25,939
  27,445
  29,015
  30,654
Total cash flow (excl. dividends), $m
  860
  1,021
  1,192
  1,371
  1,554
  1,740
  1,925
  2,109
  2,291
  2,468
  2,640
  2,810
  2,976
  3,138
  3,297
  3,455
  3,612
  3,768
  3,926
  4,086
  4,250
  4,418
  4,591
  4,771
  4,958
  5,154
  5,359
  5,574
  5,800
  6,039
Retained Cash Flow (-), $m
  -942
  -1,204
  -1,505
  -1,846
  -2,229
  -2,654
  -3,119
  -3,624
  -4,169
  -4,752
  -5,370
  -6,026
  -6,719
  -7,446
  -8,207
  -9,003
  -9,833
  -10,697
  -11,597
  -12,532
  -13,504
  -14,514
  -15,563
  -16,653
  -17,787
  -18,965
  -20,190
  -21,465
  -22,792
  -24,175
Prev. year cash balance distribution, $m
  200
  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
  119
  -183
  -312
  -475
  -675
  -914
  -1,194
  -1,515
  -1,878
  -2,283
  -2,730
  -3,217
  -3,743
  -4,308
  -4,910
  -5,548
  -6,221
  -6,929
  -7,671
  -8,446
  -9,254
  -10,096
  -10,972
  -11,883
  -12,828
  -13,811
  -14,831
  -15,891
  -16,992
  -18,136
Discount rate, %
  6.30
  6.62
  6.95
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.78
  11.31
  11.88
  12.47
  13.10
  13.75
  14.44
  15.16
  15.92
  16.72
  17.55
  18.43
  19.35
  20.32
  21.33
  22.40
  23.52
  24.70
  25.93
PV of cash for distribution, $m
  112
  -161
  -255
  -359
  -467
  -575
  -677
  -768
  -843
  -899
  -932
  -942
  -929
  -895
  -842
  -774
  -696
  -611
  -525
  -440
  -360
  -288
  -224
  -170
  -126
  -91
  -63
  -43
  -28
  -18
Current shareholders' claim on cash, %
  79.7
  63.6
  51.0
  41.0
  33.1
  26.8
  21.8
  17.8
  14.5
  11.9
  9.8
  8.1
  6.7
  5.5
  4.6
  3.8
  3.1
  2.6
  2.2
  1.8
  1.5
  1.3
  1.1
  0.9
  0.7
  0.6
  0.5
  0.4
  0.4
  0.3

Horizon Pharma Public Limited Company is a biopharmaceutical company. The Company is focused on identifying, developing, acquiring and commercializing differentiated and accessible medicines that address unmet medical needs. As of December 31, 2016, the Company marketed 11 medicines through its orphan, rheumatology and primary care business units. The Company's marketed medicines are ACTIMMUNE (interferon gamma-1b), BUPHENYL (sodium phenylbutyrate) Tablets and Powder, DUEXIS (ibuprofen/famotidine), KRYSTEXXA (pegloticase), MIGERGOT (ergotamine tartrate & caffeine suppositories), PENNSAID (diclofenac sodium topical solution) 2% weight per weight (w/w), or PENNSAID 2%, PROCYSBI (cysteamine bitartrate) delayed-release capsules, QUINSAIR (aerosolized form of levofloxacin), RAVICTI (glycerol phenylbutyrate) Oral Liquid, RAYOS (prednisone) delayed-release tablets and VIMOVO (naproxen/esomeprazole magnesium).

FINANCIAL RATIOS  of  Horizon Pharma plc (HZNP)

Valuation Ratios
P/E Ratio -26
Price to Sales 4.4
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 11.8
Price to Free Cash Flow 12.3
Growth Rates
Sales Growth Rate 29.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 128.6%
Cap. Spend. - 3 Yr. Gr. Rate -15%
Financial Strength
Quick Ratio 64
Current Ratio 0
LT Debt to Equity 142.3%
Total Debt to Equity 143%
Interest Coverage -3
Management Effectiveness
Return On Assets -3.3%
Ret/ On Assets - 3 Yr. Avg. -12.9%
Return On Total Capital -6%
Ret/ On T. Cap. - 3 Yr. Avg. -19.8%
Return On Equity -13%
Return On Equity - 3 Yr. Avg. -38.7%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 59.9%
Gross Margin - 3 Yr. Avg. 68.1%
EBITDA Margin 5.6%
EBITDA Margin - 3 Yr. Avg. -21%
Operating Margin -15%
Oper. Margin - 3 Yr. Avg. -11.2%
Pre-Tax Margin -23.2%
Pre-Tax Margin - 3 Yr. Avg. -43.9%
Net Profit Margin -17%
Net Profit Margin - 3 Yr. Avg. -33.5%
Effective Tax Rate 26.8%
Eff/ Tax Rate - 3 Yr. Avg. 53%
Payout Ratio 0%

HZNP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HZNP stock intrinsic value calculation we used $1208 million for the last fiscal year's total revenue generated by Horizon Pharma plc. The default revenue input number comes from 0001 income statement of Horizon Pharma plc. 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 HZNP stock valuation model: a) initial revenue growth rate of 29.7% 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 6.3%, whose default value for HZNP is calculated based on our internal credit rating of Horizon Pharma plc, 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 Horizon Pharma plc.
    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 HZNP stock the variable cost ratio is equal to 136.3%.

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 HZNP 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 6.4% for Horizon Pharma plc.

Corporate tax rate of 27% is the nominal tax rate for Horizon Pharma plc. 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 HZNP 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 HZNP are equal to 114%.

Life of production assets of 9.9 years is the average useful life of capital assets used in Horizon Pharma plc 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 HZNP is equal to -14.5%. 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 - $1054.157 million for Horizon Pharma plc - 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 169.595 million for Horizon Pharma plc 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 Horizon Pharma plc at the current share price and the inputted number of shares is $4.6 billion.

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