Intrinsic value of Korn Ferry - KFY

Previous Close

$46.01

  Intrinsic Value

$83.37

stock screener

  Rating & Target

str. buy

+81%

Previous close

$46.01

 
Intrinsic value

$83.37

 
Up/down potential

+81%

 
Rating

str. buy

We calculate the intrinsic value of KFY 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 2.6

 

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, %
  5.50
  5.45
  5.40
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
  5.16
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
Revenue, $m
  1,920
  2,025
  2,134
  2,249
  2,368
  2,494
  2,625
  2,763
  2,907
  3,058
  3,216
  3,382
  3,556
  3,738
  3,929
  4,130
  4,340
  4,561
  4,792
  5,035
  5,290
  5,557
  5,838
  6,132
  6,441
  6,766
  7,106
  7,464
  7,839
  8,232
Variable operating expenses, $m
  1,046
  1,099
  1,154
  1,211
  1,272
  1,335
  1,401
  1,470
  1,543
  1,619
  1,620
  1,704
  1,791
  1,883
  1,979
  2,080
  2,186
  2,297
  2,414
  2,536
  2,665
  2,799
  2,941
  3,089
  3,245
  3,408
  3,580
  3,760
  3,949
  4,147
Fixed operating expenses, $m
  649
  663
  678
  693
  708
  724
  739
  756
  772
  789
  807
  824
  843
  861
  880
  899
  919
  939
  960
  981
  1,003
  1,025
  1,047
  1,071
  1,094
  1,118
  1,143
  1,168
  1,194
  1,220
Total operating expenses, $m
  1,695
  1,762
  1,832
  1,904
  1,980
  2,059
  2,140
  2,226
  2,315
  2,408
  2,427
  2,528
  2,634
  2,744
  2,859
  2,979
  3,105
  3,236
  3,374
  3,517
  3,668
  3,824
  3,988
  4,160
  4,339
  4,526
  4,723
  4,928
  5,143
  5,367
Operating income, $m
  225
  263
  303
  344
  389
  435
  485
  537
  591
  649
  789
  854
  922
  994
  1,070
  1,150
  1,234
  1,324
  1,418
  1,517
  1,622
  1,733
  1,849
  1,973
  2,102
  2,239
  2,384
  2,536
  2,696
  2,865
EBITDA, $m
  333
  372
  413
  457
  503
  552
  603
  657
  714
  774
  838
  905
  975
  1,050
  1,129
  1,212
  1,300
  1,392
  1,490
  1,593
  1,702
  1,816
  1,937
  2,065
  2,199
  2,341
  2,491
  2,648
  2,814
  2,989
Interest expense (income), $m
  11
  13
  16
  19
  23
  26
  30
  34
  38
  43
  47
  52
  57
  62
  68
  74
  80
  86
  93
  100
  107
  115
  123
  131
  140
  150
  159
  170
  181
  192
  204
Earnings before tax, $m
  212
  247
  283
  322
  362
  405
  450
  498
  549
  602
  737
  797
  860
  926
  996
  1,070
  1,148
  1,231
  1,318
  1,410
  1,507
  1,610
  1,718
  1,832
  1,953
  2,080
  2,214
  2,355
  2,504
  2,662
Tax expense, $m
  57
  67
  76
  87
  98
  109
  122
  135
  148
  163
  199
  215
  232
  250
  269
  289
  310
  332
  356
  381
  407
  435
  464
  495
  527
  562
  598
  636
  676
  719
Net income, $m
  155
  180
  207
  235
  264
  296
  329
  364
  401
  440
  538
  582
  627
  676
  727
  781
  838
  899
  962
  1,029
  1,100
  1,175
  1,254
  1,338
  1,425
  1,518
  1,616
  1,719
  1,828
  1,943

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
  2,412
  2,544
  2,681
  2,825
  2,975
  3,133
  3,298
  3,471
  3,652
  3,841
  4,040
  4,249
  4,467
  4,696
  4,936
  5,188
  5,452
  5,730
  6,020
  6,325
  6,645
  6,981
  7,334
  7,704
  8,092
  8,500
  8,927
  9,376
  9,848
  10,342
Adjusted assets (=assets-cash), $m
  2,412
  2,544
  2,681
  2,825
  2,975
  3,133
  3,298
  3,471
  3,652
  3,841
  4,040
  4,249
  4,467
  4,696
  4,936
  5,188
  5,452
  5,730
  6,020
  6,325
  6,645
  6,981
  7,334
  7,704
  8,092
  8,500
  8,927
  9,376
  9,848
  10,342
Revenue / Adjusted assets
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
  0.796
Average production assets, $m
  538
  567
  598
  630
  663
  698
  735
  774
  814
  856
  900
  947
  996
  1,047
  1,100
  1,156
  1,215
  1,277
  1,342
  1,410
  1,481
  1,556
  1,635
  1,717
  1,804
  1,894
  1,990
  2,090
  2,195
  2,305
Working capital, $m
  -58
  -61
  -64
  -67
  -71
  -75
  -79
  -83
  -87
  -92
  -96
  -101
  -107
  -112
  -118
  -124
  -130
  -137
  -144
  -151
  -159
  -167
  -175
  -184
  -193
  -203
  -213
  -224
  -235
  -247
Total debt, $m
  295
  357
  421
  489
  559
  633
  710
  791
  876
  964
  1,057
  1,155
  1,257
  1,364
  1,477
  1,595
  1,718
  1,848
  1,984
  2,127
  2,277
  2,434
  2,599
  2,772
  2,954
  3,144
  3,344
  3,555
  3,775
  4,007
Total liabilities, $m
  1,129
  1,190
  1,255
  1,322
  1,393
  1,466
  1,543
  1,624
  1,709
  1,798
  1,891
  1,988
  2,091
  2,198
  2,310
  2,428
  2,552
  2,681
  2,817
  2,960
  3,110
  3,267
  3,432
  3,605
  3,787
  3,978
  4,178
  4,388
  4,609
  4,840
Total equity, $m
  1,283
  1,353
  1,426
  1,503
  1,583
  1,667
  1,755
  1,846
  1,943
  2,044
  2,149
  2,260
  2,376
  2,498
  2,626
  2,760
  2,901
  3,048
  3,203
  3,365
  3,535
  3,714
  3,902
  4,098
  4,305
  4,522
  4,749
  4,988
  5,239
  5,502
Total liabilities and equity, $m
  2,412
  2,543
  2,681
  2,825
  2,976
  3,133
  3,298
  3,470
  3,652
  3,842
  4,040
  4,248
  4,467
  4,696
  4,936
  5,188
  5,453
  5,729
  6,020
  6,325
  6,645
  6,981
  7,334
  7,703
  8,092
  8,500
  8,927
  9,376
  9,848
  10,342
Debt-to-equity ratio
  0.230
  0.260
  0.300
  0.330
  0.350
  0.380
  0.400
  0.430
  0.450
  0.470
  0.490
  0.510
  0.530
  0.550
  0.560
  0.580
  0.590
  0.610
  0.620
  0.630
  0.640
  0.660
  0.670
  0.680
  0.690
  0.700
  0.700
  0.710
  0.720
  0.730
Adjusted equity ratio
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  155
  180
  207
  235
  264
  296
  329
  364
  401
  440
  538
  582
  627
  676
  727
  781
  838
  899
  962
  1,029
  1,100
  1,175
  1,254
  1,338
  1,425
  1,518
  1,616
  1,719
  1,828
  1,943
Depreciation, amort., depletion, $m
  108
  109
  111
  113
  114
  116
  118
  120
  122
  125
  48
  51
  54
  56
  59
  62
  65
  69
  72
  76
  80
  84
  88
  92
  97
  102
  107
  112
  118
  124
Funds from operations, $m
  263
  289
  318
  347
  379
  412
  447
  484
  523
  564
  587
  632
  681
  732
  786
  843
  904
  967
  1,034
  1,105
  1,180
  1,259
  1,342
  1,430
  1,522
  1,620
  1,723
  1,832
  1,946
  2,067
Change in working capital, $m
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
Cash from operations, $m
  266
  293
  321
  351
  382
  416
  451
  488
  527
  569
  591
  637
  686
  738
  792
  849
  910
  974
  1,041
  1,112
  1,188
  1,267
  1,350
  1,439
  1,532
  1,630
  1,733
  1,842
  1,957
  2,079
Maintenance CAPEX, $m
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -54
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -84
  -88
  -92
  -97
  -102
  -107
  -112
  -118
New CAPEX, $m
  -27
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -71
  -75
  -79
  -82
  -87
  -91
  -95
  -100
  -105
  -110
Cash from investing activities, $m
  -54
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -82
  -86
  -90
  -94
  -100
  -105
  -110
  -115
  -121
  -127
  -134
  -140
  -147
  -155
  -163
  -170
  -179
  -188
  -197
  -207
  -217
  -228
Free cash flow, $m
  211
  234
  260
  287
  315
  345
  377
  410
  445
  483
  501
  543
  587
  633
  682
  734
  789
  847
  908
  972
  1,040
  1,112
  1,188
  1,268
  1,353
  1,442
  1,536
  1,635
  1,740
  1,850
Issuance/(repayment) of debt, $m
  59
  62
  64
  67
  70
  74
  77
  81
  85
  89
  93
  98
  102
  107
  112
  118
  124
  130
  136
  143
  150
  157
  165
  173
  182
  191
  200
  210
  221
  232
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  59
  62
  64
  67
  70
  74
  77
  81
  85
  89
  93
  98
  102
  107
  112
  118
  124
  130
  136
  143
  150
  157
  165
  173
  182
  191
  200
  210
  221
  232
Total cash flow (excl. dividends), $m
  270
  296
  324
  354
  385
  419
  454
  491
  530
  571
  594
  640
  689
  740
  795
  852
  913
  976
  1,044
  1,115
  1,190
  1,270
  1,353
  1,441
  1,535
  1,633
  1,736
  1,845
  1,961
  2,082
Retained Cash Flow (-), $m
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -92
  -96
  -101
  -106
  -111
  -116
  -122
  -128
  -134
  -141
  -147
  -155
  -162
  -170
  -179
  -188
  -197
  -207
  -217
  -228
  -239
  -251
  -263
Prev. year cash balance distribution, $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 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
  203
  226
  251
  277
  305
  335
  366
  399
  434
  471
  488
  529
  573
  618
  667
  718
  772
  829
  889
  953
  1,020
  1,091
  1,166
  1,245
  1,328
  1,416
  1,509
  1,607
  1,710
  1,819
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
  195
  207
  218
  228
  237
  243
  247
  249
  249
  247
  232
  226
  218
  208
  196
  182
  168
  153
  137
  121
  105
  91
  76
  63
  52
  41
  32
  25
  19
  14
Current shareholders' claim on cash, %
  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

Korn/Ferry International (Korn Ferry) is a people and organizational advisory company. The Company and its subsidiaries are engaged in the provision of talent management solutions, including executive search on a retained basis, recruitment for non-executive professionals, recruitment process outsourcing, and leadership and talent consulting services. Its segments include Executive Search, Hay Group and Futurestep. The Executive Search segment focuses on recruiting Board of Director and C-level positions, in addition to research-based interviewing and onboarding solutions, for clients predominantly in the consumer, financial services, industrial, life sciences/healthcare and technology industries. The Hay Group segment assists clients with ongoing assessment, compensation and development of their senior executives and management teams. The Futurestep segment provides talent acquisition solutions and services, such as project recruitment, individual professional search and consulting.

FINANCIAL RATIOS  of  Korn Ferry (KFY)

Valuation Ratios
P/E Ratio 31.2
Price to Sales 1.6
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 24.7
Price to Free Cash Flow 46.8
Growth Rates
Sales Growth Rate 20.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 92.3%
Cap. Spend. - 3 Yr. Gr. Rate 11.5%
Financial Strength
Quick Ratio 21
Current Ratio 0
LT Debt to Equity 21.8%
Total Debt to Equity 23.6%
Interest Coverage 12
Management Effectiveness
Return On Assets 4.7%
Ret/ On Assets - 3 Yr. Avg. 4.6%
Return On Total Capital 6.7%
Ret/ On T. Cap. - 3 Yr. Avg. 7%
Return On Equity 7.9%
Return On Equity - 3 Yr. Avg. 7.5%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 92.1%
Gross Margin - 3 Yr. Avg. 92.1%
EBITDA Margin 10.7%
EBITDA Margin - 3 Yr. Avg. 10.6%
Operating Margin 7.1%
Oper. Margin - 3 Yr. Avg. 7.2%
Pre-Tax Margin 7.2%
Pre-Tax Margin - 3 Yr. Avg. 7.3%
Net Profit Margin 5.2%
Net Profit Margin - 3 Yr. Avg. 5.2%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 30.7%
Payout Ratio 27.4%

KFY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KFY stock intrinsic value calculation we used $1820 million for the last fiscal year's total revenue generated by Korn Ferry. The default revenue input number comes from 0001 income statement of Korn Ferry. 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 KFY stock valuation model: a) initial revenue growth rate of 5.5% 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 KFY is calculated based on our internal credit rating of Korn Ferry, 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 Korn Ferry.
    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 KFY stock the variable cost ratio is equal to 54.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $635 million in the base year in the intrinsic value calculation for KFY 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 Korn Ferry.

Corporate tax rate of 27% is the nominal tax rate for Korn Ferry. 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 KFY 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 KFY are equal to 28%.

Life of production assets of 18.6 years is the average useful life of capital assets used in Korn Ferry 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 KFY is equal to -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 - $1216.607 million for Korn Ferry - 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 56.479 million for Korn Ferry 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 Korn Ferry at the current share price and the inputted number of shares is $2.6 billion.

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