Intrinsic value of Johnson&Johnson - JNJ

Previous Close

$141.14

  Intrinsic Value

$147.16

stock screener

  Rating & Target

hold

+4%

Previous close

$141.14

 
Intrinsic value

$147.16

 
Up/down potential

+4%

 
Rating

hold

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

We calculate the intrinsic value of JNJ 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 2017), $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 378.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.59
  10.30
  9.77
  9.29
  8.86
  8.48
  8.13
  7.82
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.80
  5.72
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
Revenue, $m
  71,890
  79,295
  87,042
  95,131
  103,563
  112,342
  121,475
  130,970
  140,839
  151,094
  161,751
  172,828
  184,344
  196,320
  208,781
  221,751
  235,259
  249,332
  264,003
  279,303
  295,268
  311,934
  329,339
  347,525
  366,534
  386,410
  407,201
  428,955
  451,725
  475,565
  500,530
Variable operating expenses, $m
 
  52,575
  57,489
  62,620
  67,968
  73,537
  79,329
  85,352
  91,611
  98,116
  104,876
  109,621
  116,925
  124,522
  132,425
  140,652
  149,219
  158,146
  167,451
  177,156
  187,282
  197,853
  208,893
  220,428
  232,484
  245,092
  258,279
  272,077
  286,519
  301,640
  317,475
Fixed operating expenses, $m
 
  4,440
  4,551
  4,665
  4,782
  4,901
  5,024
  5,149
  5,278
  5,410
  5,545
  5,684
  5,826
  5,972
  6,121
  6,274
  6,431
  6,592
  6,756
  6,925
  7,098
  7,276
  7,458
  7,644
  7,835
  8,031
  8,232
  8,438
  8,649
  8,865
  9,087
Total operating expenses, $m
  52,087
  57,015
  62,040
  67,285
  72,750
  78,438
  84,353
  90,501
  96,889
  103,526
  110,421
  115,305
  122,751
  130,494
  138,546
  146,926
  155,650
  164,738
  174,207
  184,081
  194,380
  205,129
  216,351
  228,072
  240,319
  253,123
  266,511
  280,515
  295,168
  310,505
  326,562
Operating income, $m
  19,803
  22,279
  25,001
  27,846
  30,813
  33,904
  37,122
  40,469
  43,949
  47,568
  51,330
  57,523
  61,592
  65,827
  70,235
  74,825
  79,608
  84,595
  89,795
  95,222
  100,887
  106,805
  112,989
  119,453
  126,214
  133,287
  140,690
  148,441
  156,557
  165,059
  173,968
EBITDA, $m
  23,557
  27,266
  30,252
  33,373
  36,628
  40,019
  43,548
  47,219
  51,036
  55,005
  59,131
  63,421
  67,884
  72,527
  77,360
  82,393
  87,637
  93,104
  98,805
  104,754
  110,964
  117,451
  124,229
  131,314
  138,723
  146,475
  154,587
  163,080
  171,974
  181,289
  191,050
Interest expense (income), $m
  730
  785
  1,025
  1,274
  1,535
  1,806
  2,089
  2,383
  2,688
  3,006
  3,336
  3,680
  4,036
  4,407
  4,793
  5,194
  5,611
  6,046
  6,499
  6,972
  7,464
  7,978
  8,515
  9,075
  9,661
  10,273
  10,913
  11,582
  12,282
  13,016
  13,783
Earnings before tax, $m
  19,803
  21,494
  23,977
  26,572
  29,278
  32,098
  35,033
  38,086
  41,261
  44,562
  47,994
  53,843
  57,556
  61,420
  65,442
  69,632
  73,997
  78,548
  83,296
  88,250
  93,423
  98,827
  104,474
  110,378
  116,553
  123,015
  129,778
  136,859
  144,275
  152,044
  160,185
Tax expense, $m
  3,263
  5,803
  6,474
  7,174
  7,905
  8,666
  9,459
  10,283
  11,140
  12,032
  12,958
  14,538
  15,540
  16,583
  17,669
  18,801
  19,979
  21,208
  22,490
  23,828
  25,224
  26,683
  28,208
  29,802
  31,469
  33,214
  35,040
  36,952
  38,954
  41,052
  43,250
Net income, $m
  16,540
  15,690
  17,503
  19,397
  21,373
  23,432
  25,574
  27,803
  30,120
  32,530
  35,035
  39,306
  42,016
  44,837
  47,773
  50,831
  54,018
  57,340
  60,806
  64,423
  68,199
  72,144
  76,266
  80,576
  85,084
  89,801
  94,738
  99,907
  105,320
  110,992
  116,935

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  41,907
  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
  141,208
  109,523
  120,223
  131,396
  143,042
  155,168
  167,783
  180,898
  194,529
  208,693
  223,413
  238,712
  254,618
  271,160
  288,372
  306,287
  324,943
  344,382
  364,645
  385,778
  407,828
  430,848
  454,889
  480,007
  506,262
  533,716
  562,432
  592,480
  623,930
  656,857
  691,340
Adjusted assets (=assets-cash), $m
  99,301
  109,523
  120,223
  131,396
  143,042
  155,168
  167,783
  180,898
  194,529
  208,693
  223,413
  238,712
  254,618
  271,160
  288,372
  306,287
  324,943
  344,382
  364,645
  385,778
  407,828
  430,848
  454,889
  480,007
  506,262
  533,716
  562,432
  592,480
  623,930
  656,857
  691,340
Revenue / Adjusted assets
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
  0.724
Average production assets, $m
  42,229
  46,546
  51,094
  55,842
  60,791
  65,945
  71,306
  76,880
  82,672
  88,692
  94,948
  101,450
  108,210
  115,240
  122,554
  130,168
  138,097
  146,358
  154,970
  163,951
  173,322
  183,105
  193,322
  203,997
  215,155
  226,823
  239,027
  251,797
  265,163
  279,156
  293,811
Working capital, $m
  38,745
  1,665
  1,828
  1,998
  2,175
  2,359
  2,551
  2,750
  2,958
  3,173
  3,397
  3,629
  3,871
  4,123
  4,384
  4,657
  4,940
  5,236
  5,544
  5,865
  6,201
  6,551
  6,916
  7,298
  7,697
  8,115
  8,551
  9,008
  9,486
  9,987
  10,511
Total debt, $m
  27,126
  29,278
  36,405
  43,846
  51,602
  59,678
  68,080
  76,814
  85,892
  95,326
  105,129
  115,318
  125,912
  136,929
  148,391
  160,323
  172,748
  185,694
  199,189
  213,264
  227,950
  243,281
  259,292
  276,021
  293,507
  311,791
  330,916
  350,928
  371,873
  393,803
  416,768
Total liabilities, $m
  70,790
  72,942
  80,069
  87,510
  95,266
  103,342
  111,744
  120,478
  129,556
  138,990
  148,793
  158,982
  169,576
  180,593
  192,055
  203,987
  216,412
  229,358
  242,853
  256,928
  271,614
  286,945
  302,956
  319,685
  337,171
  355,455
  374,580
  394,592
  415,537
  437,467
  460,432
Total equity, $m
  70,418
  36,581
  40,155
  43,886
  47,776
  51,826
  56,040
  60,420
  64,973
  69,704
  74,620
  79,730
  85,042
  90,568
  96,316
  102,300
  108,531
  115,023
  121,791
  128,850
  136,215
  143,903
  151,933
  160,322
  169,092
  178,261
  187,852
  197,888
  208,393
  219,390
  230,907
Total liabilities and equity, $m
  141,208
  109,523
  120,224
  131,396
  143,042
  155,168
  167,784
  180,898
  194,529
  208,694
  223,413
  238,712
  254,618
  271,161
  288,371
  306,287
  324,943
  344,381
  364,644
  385,778
  407,829
  430,848
  454,889
  480,007
  506,263
  533,716
  562,432
  592,480
  623,930
  656,857
  691,339
Debt-to-equity ratio
  0.385
  0.800
  0.910
  1.000
  1.080
  1.150
  1.210
  1.270
  1.320
  1.370
  1.410
  1.450
  1.480
  1.510
  1.540
  1.570
  1.590
  1.610
  1.640
  1.660
  1.670
  1.690
  1.710
  1.720
  1.740
  1.750
  1.760
  1.770
  1.780
  1.790
  1.800
Adjusted equity ratio
  0.287
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334
  0.334

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16,540
  15,690
  17,503
  19,397
  21,373
  23,432
  25,574
  27,803
  30,120
  32,530
  35,035
  39,306
  42,016
  44,837
  47,773
  50,831
  54,018
  57,340
  60,806
  64,423
  68,199
  72,144
  76,266
  80,576
  85,084
  89,801
  94,738
  99,907
  105,320
  110,992
  116,935
Depreciation, amort., depletion, $m
  3,754
  4,987
  5,251
  5,527
  5,815
  6,114
  6,426
  6,750
  7,087
  7,437
  7,801
  5,898
  6,291
  6,700
  7,125
  7,568
  8,029
  8,509
  9,010
  9,532
  10,077
  10,646
  11,240
  11,860
  12,509
  13,187
  13,897
  14,639
  15,416
  16,230
  17,082
Funds from operations, $m
  16,994
  20,677
  22,754
  24,924
  27,188
  29,546
  32,000
  34,553
  37,207
  39,967
  42,836
  45,204
  48,307
  51,537
  54,898
  58,399
  62,047
  65,850
  69,816
  73,955
  78,276
  82,789
  87,506
  92,436
  97,593
  102,988
  108,635
  114,546
  120,737
  127,222
  134,017
Change in working capital, $m
  -1,773
  155
  163
  170
  177
  184
  192
  199
  207
  215
  224
  233
  242
  252
  262
  272
  284
  296
  308
  321
  335
  350
  366
  382
  399
  417
  437
  457
  478
  501
  524
Cash from operations, $m
  18,767
  20,521
  22,591
  24,754
  27,011
  29,362
  31,809
  34,354
  37,000
  39,752
  42,612
  44,971
  48,066
  51,285
  54,636
  58,127
  61,763
  65,554
  69,508
  73,633
  77,941
  82,439
  87,140
  92,054
  97,194
  102,571
  108,198
  114,089
  120,259
  126,721
  133,493
Maintenance CAPEX, $m
  0
  -2,455
  -2,706
  -2,971
  -3,247
  -3,534
  -3,834
  -4,146
  -4,470
  -4,807
  -5,157
  -5,520
  -5,898
  -6,291
  -6,700
  -7,125
  -7,568
  -8,029
  -8,509
  -9,010
  -9,532
  -10,077
  -10,646
  -11,240
  -11,860
  -12,509
  -13,187
  -13,897
  -14,639
  -15,416
  -16,230
New CAPEX, $m
  -3,226
  -4,317
  -4,548
  -4,748
  -4,950
  -5,153
  -5,361
  -5,574
  -5,793
  -6,020
  -6,256
  -6,502
  -6,760
  -7,030
  -7,314
  -7,614
  -7,929
  -8,261
  -8,612
  -8,981
  -9,371
  -9,783
  -10,217
  -10,675
  -11,158
  -11,667
  -12,204
  -12,770
  -13,366
  -13,994
  -14,655
Cash from investing activities, $m
  -4,761
  -6,772
  -7,254
  -7,719
  -8,197
  -8,687
  -9,195
  -9,720
  -10,263
  -10,827
  -11,413
  -12,022
  -12,658
  -13,321
  -14,014
  -14,739
  -15,497
  -16,290
  -17,121
  -17,991
  -18,903
  -19,860
  -20,863
  -21,915
  -23,018
  -24,176
  -25,391
  -26,667
  -28,005
  -29,410
  -30,885
Free cash flow, $m
  14,006
  13,749
  15,338
  17,036
  18,815
  20,674
  22,613
  24,634
  26,738
  28,925
  31,200
  32,949
  35,407
  37,964
  40,622
  43,388
  46,266
  49,264
  52,387
  55,642
  59,037
  62,579
  66,277
  70,140
  74,175
  78,394
  82,806
  87,422
  92,254
  97,311
  102,608
Issuance/(repayment) of debt, $m
  7,875
  6,836
  7,126
  7,441
  7,757
  8,076
  8,401
  8,735
  9,078
  9,434
  9,803
  10,189
  10,593
  11,017
  11,463
  11,931
  12,425
  12,946
  13,495
  14,075
  14,686
  15,331
  16,011
  16,729
  17,486
  18,284
  19,125
  20,012
  20,946
  21,929
  22,965
Issuance/(repurchase) of shares, $m
  -7,790
  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  
  70
  6,836
  7,126
  7,441
  7,757
  8,076
  8,401
  8,735
  9,078
  9,434
  9,803
  10,189
  10,593
  11,017
  11,463
  11,931
  12,425
  12,946
  13,495
  14,075
  14,686
  15,331
  16,011
  16,729
  17,486
  18,284
  19,125
  20,012
  20,946
  21,929
  22,965
Total cash flow (excl. dividends), $m
  13,861
  20,585
  22,464
  24,477
  26,571
  28,750
  31,015
  33,369
  35,816
  38,359
  41,003
  43,138
  46,001
  48,981
  52,085
  55,319
  58,692
  62,210
  65,882
  69,717
  73,723
  77,910
  82,289
  86,869
  91,661
  96,678
  101,932
  107,434
  113,199
  119,241
  125,574
Retained Cash Flow (-), $m
  732
  -3,386
  -3,574
  -3,732
  -3,890
  -4,050
  -4,213
  -4,380
  -4,553
  -4,731
  -4,916
  -5,110
  -5,313
  -5,525
  -5,748
  -5,984
  -6,231
  -6,492
  -6,768
  -7,058
  -7,365
  -7,688
  -8,030
  -8,390
  -8,769
  -9,169
  -9,591
  -10,036
  -10,504
  -10,998
  -11,517
Prev. year cash balance distribution, $m
 
  37,223
  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
 
  54,422
  18,890
  20,745
  22,681
  24,700
  26,802
  28,988
  31,263
  33,628
  36,087
  38,028
  40,688
  43,456
  46,336
  49,336
  52,460
  55,718
  59,114
  62,658
  66,358
  70,222
  74,259
  78,479
  82,892
  87,509
  92,340
  97,398
  102,695
  108,243
  114,056
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  52,179
  17,293
  18,054
  18,676
  19,145
  19,451
  19,584
  19,540
  19,317
  18,919
  18,059
  17,363
  16,523
  15,556
  14,484
  13,331
  12,123
  10,886
  9,648
  8,432
  7,263
  6,162
  5,144
  4,222
  3,404
  2,694
  2,090
  1,589
  1,182
  859
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

Johnson & Johnson is a holding company, which is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. It operates through three segments: Consumer, Pharmaceutical and Medical Devices. Its primary focus is products related to human health and well-being. The Consumer segment includes a range of products used in the baby care, oral care, skin care, over-the-counter pharmaceutical, women's health and wound care markets. The Pharmaceutical segment is focused on five therapeutic areas, including immunology, infectious diseases, neuroscience, oncology, and cardiovascular and metabolic diseases. The Medical Devices segment includes a range of products used in the orthopedic, surgery, cardiovascular, diabetes care and vision care fields. Its research facilities are located in the United States, Belgium, Brazil, Canada, China, France, Germany, India, Israel, Japan, the Netherlands, Singapore, Switzerland and the United Kingdom.

FINANCIAL RATIOS  of  Johnson&Johnson (JNJ)

Valuation Ratios
P/E Ratio 23.1
Price to Sales 5.3
Price to Book 5.4
Price to Tangible Book
Price to Cash Flow 20.4
Price to Free Cash Flow 24.6
Growth Rates
Sales Growth Rate 2.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -6.8%
Cap. Spend. - 3 Yr. Gr. Rate -2.1%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 31.9%
Total Debt to Equity 38.5%
Interest Coverage 28
Management Effectiveness
Return On Assets 12.5%
Ret/ On Assets - 3 Yr. Avg. 12.4%
Return On Total Capital 17.5%
Ret/ On T. Cap. - 3 Yr. Avg. 17.6%
Return On Equity 23.4%
Return On Equity - 3 Yr. Avg. 22.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 69.9%
Gross Margin - 3 Yr. Avg. 69.6%
EBITDA Margin 33.8%
EBITDA Margin - 3 Yr. Avg. 33.7%
Operating Margin 27.5%
Oper. Margin - 3 Yr. Avg. 27.5%
Pre-Tax Margin 27.5%
Pre-Tax Margin - 3 Yr. Avg. 27.5%
Net Profit Margin 23%
Net Profit Margin - 3 Yr. Avg. 22.3%
Effective Tax Rate 16.5%
Eff/ Tax Rate - 3 Yr. Avg. 18.9%
Payout Ratio 52.1%

JNJ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the JNJ stock intrinsic value calculation we used $71890 million for the last fiscal year's total revenue generated by Johnson&Johnson. The default revenue input number comes from 2017 income statement of Johnson&Johnson. 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 JNJ stock valuation model: a) initial revenue growth rate of 10.3% 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 4.3%, whose default value for JNJ is calculated based on our internal credit rating of Johnson&Johnson, 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 Johnson&Johnson.
    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 JNJ stock the variable cost ratio is equal to 66.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $4332 million in the base year in the intrinsic value calculation for JNJ 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 3.5% for Johnson&Johnson.

Corporate tax rate of 27% is the nominal tax rate for Johnson&Johnson. 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 JNJ 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 JNJ are equal to 58.7%.

Life of production assets of 17.2 years is the average useful life of capital assets used in Johnson&Johnson 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 JNJ is equal to 2.1%. 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 - $70418 million for Johnson&Johnson - 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 2683.99 million for Johnson&Johnson 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 Johnson&Johnson at the current share price and the inputted number of shares is $378.8 billion.

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Financial statements of JNJ
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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