Intrinsic value of Horizon Pharma - HZNP

Previous Close

$14.10

  Intrinsic Value

$2.78

stock screener

  Rating & Target

str. sell

-80%

Previous close

$14.10

 
Intrinsic value

$2.78

 
Up/down potential

-80%

 
Rating

str. sell

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

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.

Please visit our new site that uses elements of artificial intelligence for stock valuation: artificial intelligence value of Horizon Pharma (HZNP) stock.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  29.59
  30.10
  27.59
  25.33
  23.30
  21.47
  19.82
  18.34
  17.01
  15.80
  14.72
  13.75
  12.88
  12.09
  11.38
  10.74
  10.17
  9.65
  9.19
  8.77
  8.39
  8.05
  7.75
  7.47
  7.22
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
Revenue, $m
  981
  1,276
  1,628
  2,041
  2,516
  3,057
  3,662
  4,334
  5,071
  5,873
  6,737
  7,664
  8,651
  9,696
  10,800
  11,960
  13,176
  14,448
  15,775
  17,158
  18,598
  20,095
  21,652
  23,270
  24,951
  26,698
  28,514
  30,402
  32,366
  34,409
  36,536
Variable operating expenses, $m
 
  1,433
  1,816
  2,264
  2,781
  3,369
  4,028
  4,758
  5,560
  6,431
  7,372
  8,335
  9,408
  10,545
  11,745
  13,007
  14,330
  15,713
  17,156
  18,660
  20,226
  21,854
  23,547
  25,306
  27,135
  29,035
  31,010
  33,063
  35,199
  37,421
  39,735
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
  1,128
  1,433
  1,816
  2,264
  2,781
  3,369
  4,028
  4,758
  5,560
  6,431
  7,372
  8,335
  9,408
  10,545
  11,745
  13,007
  14,330
  15,713
  17,156
  18,660
  20,226
  21,854
  23,547
  25,306
  27,135
  29,035
  31,010
  33,063
  35,199
  37,421
  39,735
Operating income, $m
  -147
  -156
  -187
  -223
  -265
  -312
  -365
  -424
  -489
  -559
  -634
  -671
  -757
  -849
  -945
  -1,047
  -1,153
  -1,265
  -1,381
  -1,502
  -1,628
  -1,759
  -1,895
  -2,037
  -2,184
  -2,337
  -2,496
  -2,661
  -2,833
  -3,012
  -3,198
EBITDA, $m
  75
  138
  176
  220
  271
  330
  395
  467
  547
  633
  727
  827
  933
  1,046
  1,165
  1,290
  1,421
  1,558
  1,701
  1,850
  2,006
  2,167
  2,335
  2,510
  2,691
  2,879
  3,075
  3,279
  3,491
  3,711
  3,940
Interest expense (income), $m
  61
  74
  111
  156
  208
  268
  336
  413
  497
  591
  692
  801
  918
  1,043
  1,175
  1,314
  1,461
  1,614
  1,775
  1,943
  2,117
  2,299
  2,488
  2,685
  2,889
  3,102
  3,323
  3,552
  3,790
  4,039
  4,297
Earnings before tax, $m
  -228
  -230
  -298
  -379
  -473
  -580
  -701
  -837
  -986
  -1,149
  -1,326
  -1,472
  -1,675
  -1,892
  -2,120
  -2,361
  -2,614
  -2,879
  -3,156
  -3,445
  -3,745
  -4,058
  -4,384
  -4,722
  -5,074
  -5,439
  -5,818
  -6,213
  -6,624
  -7,051
  -7,495
Tax expense, $m
  -61
  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
  -167
  -230
  -298
  -379
  -473
  -580
  -701
  -837
  -986
  -1,149
  -1,326
  -1,472
  -1,675
  -1,892
  -2,120
  -2,361
  -2,614
  -2,879
  -3,156
  -3,445
  -3,745
  -4,058
  -4,384
  -4,722
  -5,074
  -5,439
  -5,818
  -6,213
  -6,624
  -7,051
  -7,495

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  509
  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
  4,292
  4,928
  6,287
  7,880
  9,716
  11,802
  14,141
  16,734
  19,580
  22,674
  26,013
  29,590
  33,400
  37,438
  41,699
  46,178
  50,873
  55,783
  60,907
  66,247
  71,806
  77,587
  83,598
  89,844
  96,335
  103,080
  110,092
  117,382
  124,964
  132,854
  141,067
Adjusted assets (=assets-cash), $m
  3,783
  4,928
  6,287
  7,880
  9,716
  11,802
  14,141
  16,734
  19,580
  22,674
  26,013
  29,590
  33,400
  37,438
  41,699
  46,178
  50,873
  55,783
  60,907
  66,247
  71,806
  77,587
  83,598
  89,844
  96,335
  103,080
  110,092
  117,382
  124,964
  132,854
  141,067
Revenue / Adjusted assets
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
  0.259
Average production assets, $m
  2,243
  2,918
  3,723
  4,665
  5,752
  6,987
  8,372
  9,908
  11,593
  13,425
  15,402
  17,520
  19,776
  22,166
  24,689
  27,341
  30,121
  33,028
  36,062
  39,223
  42,514
  45,937
  49,496
  53,194
  57,037
  61,031
  65,182
  69,499
  73,988
  78,659
  83,522
Working capital, $m
  440
  -79
  -101
  -127
  -156
  -190
  -227
  -269
  -314
  -364
  -418
  -475
  -536
  -601
  -670
  -742
  -817
  -896
  -978
  -1,064
  -1,153
  -1,246
  -1,342
  -1,443
  -1,547
  -1,655
  -1,768
  -1,885
  -2,007
  -2,133
  -2,265
Total debt, $m
  1,807
  2,711
  3,796
  5,067
  6,532
  8,197
  10,063
  12,133
  14,404
  16,873
  19,537
  22,392
  25,433
  28,655
  32,055
  35,629
  39,376
  43,294
  47,383
  51,644
  56,080
  60,694
  65,490
  70,474
  75,654
  81,037
  86,632
  92,449
  98,500
  104,796
  111,350
Total liabilities, $m
  3,028
  3,932
  5,017
  6,288
  7,753
  9,418
  11,284
  13,354
  15,625
  18,094
  20,758
  23,613
  26,654
  29,876
  33,276
  36,850
  40,597
  44,515
  48,604
  52,865
  57,301
  61,915
  66,711
  71,695
  76,875
  82,258
  87,853
  93,670
  99,721
  106,017
  112,571
Total equity, $m
  1,264
  995
  1,270
  1,592
  1,963
  2,384
  2,856
  3,380
  3,955
  4,580
  5,255
  5,977
  6,747
  7,563
  8,423
  9,328
  10,276
  11,268
  12,303
  13,382
  14,505
  15,673
  16,887
  18,148
  19,460
  20,822
  22,238
  23,711
  25,243
  26,836
  28,496
Total liabilities and equity, $m
  4,292
  4,927
  6,287
  7,880
  9,716
  11,802
  14,140
  16,734
  19,580
  22,674
  26,013
  29,590
  33,401
  37,439
  41,699
  46,178
  50,873
  55,783
  60,907
  66,247
  71,806
  77,588
  83,598
  89,843
  96,335
  103,080
  110,091
  117,381
  124,964
  132,853
  141,067
Debt-to-equity ratio
  1.430
  2.720
  2.990
  3.180
  3.330
  3.440
  3.520
  3.590
  3.640
  3.680
  3.720
  3.750
  3.770
  3.790
  3.810
  3.820
  3.830
  3.840
  3.850
  3.860
  3.870
  3.870
  3.880
  3.880
  3.890
  3.890
  3.900
  3.900
  3.900
  3.900
  3.910
Adjusted equity ratio
  0.200
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -167
  -230
  -298
  -379
  -473
  -580
  -701
  -837
  -986
  -1,149
  -1,326
  -1,472
  -1,675
  -1,892
  -2,120
  -2,361
  -2,614
  -2,879
  -3,156
  -3,445
  -3,745
  -4,058
  -4,384
  -4,722
  -5,074
  -5,439
  -5,818
  -6,213
  -6,624
  -7,051
  -7,495
Depreciation, amort., depletion, $m
  222
  294
  363
  443
  536
  642
  760
  891
  1,035
  1,192
  1,361
  1,497
  1,690
  1,895
  2,110
  2,337
  2,574
  2,823
  3,082
  3,352
  3,634
  3,926
  4,230
  4,547
  4,875
  5,216
  5,571
  5,940
  6,324
  6,723
  7,139
Funds from operations, $m
  505
  64
  64
  64
  64
  62
  59
  55
  49
  43
  35
  26
  15
  3
  -10
  -24
  -40
  -56
  -74
  -92
  -112
  -132
  -153
  -176
  -199
  -223
  -247
  -273
  -300
  -328
  -356
Change in working capital, $m
  136
  -18
  -22
  -26
  -29
  -33
  -38
  -42
  -46
  -50
  -54
  -57
  -61
  -65
  -68
  -72
  -75
  -79
  -82
  -86
  -89
  -93
  -97
  -100
  -104
  -108
  -113
  -117
  -122
  -127
  -132
Cash from operations, $m
  369
  82
  86
  90
  93
  95
  96
  96
  95
  92
  88
  83
  76
  68
  58
  48
  36
  23
  9
  -6
  -22
  -39
  -57
  -75
  -94
  -114
  -135
  -156
  -178
  -201
  -224
Maintenance CAPEX, $m
  0
  -192
  -249
  -318
  -399
  -492
  -597
  -716
  -847
  -991
  -1,147
  -1,316
  -1,497
  -1,690
  -1,895
  -2,110
  -2,337
  -2,574
  -2,823
  -3,082
  -3,352
  -3,634
  -3,926
  -4,230
  -4,547
  -4,875
  -5,216
  -5,571
  -5,940
  -6,324
  -6,723
New CAPEX, $m
  -16
  -675
  -805
  -943
  -1,087
  -1,235
  -1,385
  -1,535
  -1,685
  -1,832
  -1,977
  -2,118
  -2,256
  -2,391
  -2,523
  -2,652
  -2,780
  -2,907
  -3,034
  -3,162
  -3,291
  -3,423
  -3,559
  -3,698
  -3,843
  -3,994
  -4,151
  -4,316
  -4,489
  -4,671
  -4,863
Cash from investing activities, $m
  -1,376
  -867
  -1,054
  -1,261
  -1,486
  -1,727
  -1,982
  -2,251
  -2,532
  -2,823
  -3,124
  -3,434
  -3,753
  -4,081
  -4,418
  -4,762
  -5,117
  -5,481
  -5,857
  -6,244
  -6,643
  -7,057
  -7,485
  -7,928
  -8,390
  -8,869
  -9,367
  -9,887
  -10,429
  -10,995
  -11,586
Free cash flow, $m
  -1,007
  -784
  -968
  -1,171
  -1,393
  -1,631
  -1,886
  -2,155
  -2,437
  -2,731
  -3,036
  -3,351
  -3,677
  -4,013
  -4,359
  -4,715
  -5,081
  -5,459
  -5,848
  -6,250
  -6,666
  -7,096
  -7,542
  -8,004
  -8,484
  -8,983
  -9,502
  -10,043
  -10,607
  -11,196
  -11,810
Issuance/(repayment) of debt, $m
  652
  912
  1,085
  1,271
  1,465
  1,664
  1,867
  2,069
  2,271
  2,469
  2,664
  2,855
  3,041
  3,222
  3,400
  3,574
  3,747
  3,918
  4,089
  4,261
  4,436
  4,614
  4,796
  4,984
  5,180
  5,383
  5,595
  5,817
  6,051
  6,296
  6,554
Issuance/(repurchase) of shares, $m
  4
  462
  573
  701
  843
  1,001
  1,174
  1,360
  1,561
  1,774
  2,001
  2,194
  2,445
  2,707
  2,981
  3,266
  3,563
  3,871
  4,191
  4,523
  4,868
  5,226
  5,598
  5,984
  6,385
  6,801
  7,235
  7,686
  8,155
  8,644
  9,154
Cash from financing (excl. dividends), $m  
  657
  1,374
  1,658
  1,972
  2,308
  2,665
  3,041
  3,429
  3,832
  4,243
  4,665
  5,049
  5,486
  5,929
  6,381
  6,840
  7,310
  7,789
  8,280
  8,784
  9,304
  9,840
  10,394
  10,968
  11,565
  12,184
  12,830
  13,503
  14,206
  14,940
  15,708
Total cash flow (excl. dividends), $m
  -351
  591
  690
  800
  916
  1,034
  1,155
  1,275
  1,395
  1,513
  1,629
  1,698
  1,808
  1,916
  2,022
  2,126
  2,228
  2,330
  2,432
  2,534
  2,638
  2,744
  2,852
  2,964
  3,080
  3,201
  3,328
  3,460
  3,598
  3,744
  3,898
Retained Cash Flow (-), $m
  49
  -462
  -573
  -701
  -843
  -1,001
  -1,174
  -1,360
  -1,561
  -1,774
  -2,001
  -2,194
  -2,445
  -2,707
  -2,981
  -3,266
  -3,563
  -3,871
  -4,191
  -4,523
  -4,868
  -5,226
  -5,598
  -5,984
  -6,385
  -6,801
  -7,235
  -7,686
  -8,155
  -8,644
  -9,154
Prev. year cash balance distribution, $m
 
  501
  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
 
  629
  117
  100
  72
  33
  -19
  -85
  -166
  -261
  -371
  -497
  -637
  -791
  -959
  -1,140
  -1,334
  -1,541
  -1,759
  -1,989
  -2,230
  -2,482
  -2,745
  -3,019
  -3,304
  -3,600
  -3,907
  -4,226
  -4,557
  -4,900
  -5,256
Discount rate, %
 
  7.50
  7.88
  8.27
  8.68
  9.12
  9.57
  10.05
  10.55
  11.08
  11.63
  12.22
  12.83
  13.47
  14.14
  14.85
  15.59
  16.37
  17.19
  18.05
  18.95
  19.90
  20.89
  21.94
  23.04
  24.19
  25.40
  26.67
  28.00
  29.40
  30.87
PV of cash for distribution, $m
 
  585
  100
  79
  52
  21
  -11
  -44
  -74
  -101
  -124
  -140
  -150
  -153
  -150
  -143
  -131
  -117
  -101
  -85
  -69
  -55
  -42
  -32
  -23
  -16
  -11
  -7
  -5
  -3
  -2
Current shareholders' claim on cash, %
  100
  75.5
  57.8
  44.6
  34.8
  27.3
  21.6
  17.2
  13.8
  11.2
  9.0
  7.4
  6.1
  5.0
  4.1
  3.4
  2.8
  2.4
  2.0
  1.6
  1.4
  1.2
  1.0
  0.8
  0.7
  0.6
  0.5
  0.4
  0.3
  0.3
  0.2

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 (HZNP)

Valuation Ratios
P/E Ratio -13.6
Price to Sales 2.3
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 6.2
Price to Free Cash Flow 6.5
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 $981 million for the last fiscal year's total revenue generated by Horizon Pharma. The default revenue input number comes from 2016 income statement of Horizon Pharma. 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 30.1% 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 7.5%, whose default value for HZNP is calculated based on our internal credit rating of Horizon Pharma, 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.
    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 113.3%.

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 4.1% for Horizon Pharma.

Corporate tax rate of 27% is the nominal tax rate for Horizon Pharma. 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 228.6%.

Life of production assets of 11.7 years is the average useful life of capital assets used in Horizon Pharma 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 -6.2%. 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 - $1264 million for Horizon Pharma - 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 167.808 million for Horizon Pharma 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 at the current share price and the inputted number of shares is $2.4 billion.

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Financial statements of HZNP
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