Intrinsic value of Microchip Technology - MCHP

Previous Close

$94.37

  Intrinsic Value

$393.99

stock screener

  Rating & Target

str. buy

+317%

Previous close

$94.37

 
Intrinsic value

$393.99

 
Up/down potential

+317%

 
Rating

str. buy

We calculate the intrinsic value of MCHP 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 20.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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, %
  56.80
  51.62
  46.96
  42.76
  38.99
  35.59
  32.53
  29.78
  27.30
  25.07
  23.06
  21.26
  19.63
  18.17
  16.85
  15.67
  14.60
  13.64
  12.77
  12.00
  11.30
  10.67
  10.10
  9.59
  9.13
  8.72
  8.35
  8.01
  7.71
  7.44
Revenue, $m
  5,344
  8,102
  11,907
  16,998
  23,625
  32,033
  42,453
  55,094
  70,133
  87,715
  107,943
  130,887
  156,580
  185,025
  216,202
  250,071
  286,578
  325,663
  367,266
  411,329
  457,799
  506,637
  557,813
  611,313
  667,137
  725,303
  785,843
  848,806
  914,257
  982,276
Variable operating expenses, $m
  4,225
  6,177
  8,869
  12,471
  17,160
  23,109
  30,481
  39,424
  50,065
  62,504
  76,371
  92,604
  110,782
  130,908
  152,966
  176,928
  202,757
  230,411
  259,846
  291,020
  323,899
  358,452
  394,660
  432,512
  472,008
  513,161
  555,994
  600,541
  646,849
  694,973
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
  4,225
  6,177
  8,869
  12,471
  17,160
  23,109
  30,481
  39,424
  50,065
  62,504
  76,371
  92,604
  110,782
  130,908
  152,966
  176,928
  202,757
  230,411
  259,846
  291,020
  323,899
  358,452
  394,660
  432,512
  472,008
  513,161
  555,994
  600,541
  646,849
  694,973
Operating income, $m
  1,118
  1,925
  3,038
  4,527
  6,465
  8,925
  11,972
  15,670
  20,068
  25,211
  31,572
  38,283
  45,797
  54,117
  63,236
  73,142
  83,820
  95,252
  107,421
  120,308
  133,900
  148,185
  163,153
  178,801
  195,129
  212,142
  229,849
  248,265
  267,408
  287,303
EBITDA, $m
  2,140
  3,245
  4,769
  6,808
  9,462
  12,829
  17,002
  22,064
  28,087
  35,129
  43,230
  52,418
  62,708
  74,100
  86,586
  100,150
  114,771
  130,424
  147,085
  164,732
  183,343
  202,902
  223,397
  244,823
  267,180
  290,475
  314,720
  339,936
  366,148
  393,389
Interest expense (income), $m
  83
  157
  290
  481
  744
  1,096
  1,555
  2,136
  2,857
  3,731
  4,771
  5,987
  7,386
  8,972
  10,749
  12,716
  14,873
  17,215
  19,739
  22,442
  25,320
  28,367
  31,580
  34,958
  38,497
  42,197
  46,057
  50,080
  54,267
  58,621
  63,147
Earnings before tax, $m
  962
  1,635
  2,557
  3,783
  5,369
  7,370
  9,836
  12,813
  16,337
  20,440
  25,585
  30,897
  36,825
  43,368
  50,520
  58,270
  66,606
  75,513
  84,978
  94,989
  105,534
  116,604
  128,195
  140,304
  152,932
  166,084
  179,769
  193,998
  208,788
  224,156
Tax expense, $m
  260
  441
  690
  1,021
  1,450
  1,990
  2,656
  3,459
  4,411
  5,519
  6,908
  8,342
  9,943
  11,709
  13,640
  15,733
  17,983
  20,388
  22,944
  25,647
  28,494
  31,483
  34,613
  37,882
  41,292
  44,843
  48,538
  52,380
  56,373
  60,522
Net income, $m
  702
  1,193
  1,866
  2,761
  3,919
  5,380
  7,180
  9,353
  11,926
  14,921
  18,677
  22,555
  26,882
  31,659
  36,880
  42,537
  48,622
  55,124
  62,034
  69,342
  77,040
  85,121
  93,583
  102,422
  111,641
  121,242
  131,231
  141,619
  152,415
  163,634

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
  11,110
  16,844
  24,754
  35,340
  49,117
  66,597
  88,260
  114,540
  145,807
  182,359
  224,414
  272,114
  325,529
  384,668
  449,485
  519,897
  595,795
  677,055
  763,548
  855,154
  951,766
  1,053,299
  1,159,694
  1,270,921
  1,386,980
  1,507,907
  1,633,769
  1,764,669
  1,900,742
  2,042,154
Adjusted assets (=assets-cash), $m
  11,110
  16,844
  24,754
  35,340
  49,117
  66,597
  88,260
  114,540
  145,807
  182,359
  224,414
  272,114
  325,529
  384,668
  449,485
  519,897
  595,795
  677,055
  763,548
  855,154
  951,766
  1,053,299
  1,159,694
  1,270,921
  1,386,980
  1,507,907
  1,633,769
  1,764,669
  1,900,742
  2,042,154
Revenue / Adjusted assets
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
Average production assets, $m
  5,771
  8,750
  12,859
  18,358
  25,515
  34,596
  45,849
  59,501
  75,744
  94,732
  116,578
  141,358
  169,106
  199,827
  233,498
  270,076
  309,504
  351,716
  396,648
  444,235
  494,423
  547,168
  602,438
  660,218
  720,508
  783,327
  848,710
  916,711
  987,398
  1,060,858
Working capital, $m
  422
  640
  941
  1,343
  1,866
  2,531
  3,354
  4,352
  5,541
  6,929
  8,527
  10,340
  12,370
  14,617
  17,080
  19,756
  22,640
  25,727
  29,014
  32,495
  36,166
  40,024
  44,067
  48,294
  52,704
  57,299
  62,082
  67,056
  72,226
  77,600
Total debt, $m
  5,378
  8,911
  13,783
  20,304
  28,791
  39,558
  52,903
  69,091
  88,352
  110,868
  136,773
  166,157
  199,061
  235,490
  275,417
  318,791
  365,545
  415,600
  468,880
  525,309
  584,822
  647,367
  712,906
  781,422
  852,914
  927,405
  1,004,937
  1,085,571
  1,169,392
  1,256,502
Total liabilities, $m
  6,844
  10,376
  15,249
  21,769
  30,256
  41,024
  54,368
  70,557
  89,817
  112,333
  138,239
  167,622
  200,526
  236,955
  276,883
  320,257
  367,010
  417,066
  470,345
  526,775
  586,288
  648,832
  714,372
  782,887
  854,380
  928,871
  1,006,402
  1,087,036
  1,170,857
  1,257,967
Total equity, $m
  4,266
  6,468
  9,506
  13,570
  18,861
  25,573
  33,892
  43,983
  55,990
  70,026
  86,175
  104,492
  125,003
  147,712
  172,602
  199,641
  228,785
  259,989
  293,202
  328,379
  365,478
  404,467
  445,323
  488,034
  532,600
  579,036
  627,367
  677,633
  729,885
  784,187
Total liabilities and equity, $m
  11,110
  16,844
  24,755
  35,339
  49,117
  66,597
  88,260
  114,540
  145,807
  182,359
  224,414
  272,114
  325,529
  384,667
  449,485
  519,898
  595,795
  677,055
  763,547
  855,154
  951,766
  1,053,299
  1,159,695
  1,270,921
  1,386,980
  1,507,907
  1,633,769
  1,764,669
  1,900,742
  2,042,154
Debt-to-equity ratio
  1.260
  1.380
  1.450
  1.500
  1.530
  1.550
  1.560
  1.570
  1.580
  1.580
  1.590
  1.590
  1.590
  1.590
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
Adjusted equity ratio
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384
  0.384

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  702
  1,193
  1,866
  2,761
  3,919
  5,380
  7,180
  9,353
  11,926
  14,921
  18,677
  22,555
  26,882
  31,659
  36,880
  42,537
  48,622
  55,124
  62,034
  69,342
  77,040
  85,121
  93,583
  102,422
  111,641
  121,242
  131,231
  141,619
  152,415
  163,634
Depreciation, amort., depletion, $m
  1,022
  1,320
  1,731
  2,281
  2,996
  3,904
  5,030
  6,395
  8,019
  9,918
  11,658
  14,136
  16,911
  19,983
  23,350
  27,008
  30,950
  35,172
  39,665
  44,424
  49,442
  54,717
  60,244
  66,022
  72,051
  78,333
  84,871
  91,671
  98,740
  106,086
Funds from operations, $m
  1,724
  2,513
  3,597
  5,042
  6,916
  9,284
  12,210
  15,748
  19,945
  24,839
  30,335
  36,690
  43,793
  51,641
  60,229
  69,545
  79,572
  90,296
  101,699
  113,765
  126,482
  139,838
  153,826
  168,444
  183,691
  199,574
  216,102
  233,290
  251,155
  269,720
Change in working capital, $m
  153
  218
  301
  402
  524
  664
  823
  999
  1,188
  1,389
  1,598
  1,813
  2,030
  2,247
  2,463
  2,676
  2,884
  3,088
  3,287
  3,481
  3,671
  3,858
  4,043
  4,226
  4,410
  4,595
  4,783
  4,974
  5,171
  5,374
Cash from operations, $m
  1,571
  2,295
  3,296
  4,640
  6,392
  8,620
  11,387
  14,750
  18,757
  23,450
  28,737
  34,878
  41,763
  49,394
  57,766
  66,869
  76,688
  87,208
  98,412
  110,284
  122,811
  135,980
  149,783
  164,217
  179,281
  194,979
  211,320
  228,316
  245,984
  264,346
Maintenance CAPEX, $m
  -368
  -577
  -875
  -1,286
  -1,836
  -2,552
  -3,460
  -4,585
  -5,950
  -7,574
  -9,473
  -11,658
  -14,136
  -16,911
  -19,983
  -23,350
  -27,008
  -30,950
  -35,172
  -39,665
  -44,424
  -49,442
  -54,717
  -60,244
  -66,022
  -72,051
  -78,333
  -84,871
  -91,671
  -98,740
New CAPEX, $m
  -2,092
  -2,979
  -4,109
  -5,499
  -7,157
  -9,080
  -11,254
  -13,652
  -16,243
  -18,988
  -21,847
  -24,779
  -27,748
  -30,721
  -33,671
  -36,578
  -39,427
  -42,213
  -44,931
  -47,587
  -50,188
  -52,745
  -55,270
  -57,780
  -60,290
  -62,819
  -65,383
  -68,000
  -70,687
  -73,461
Cash from investing activities, $m
  -2,460
  -3,556
  -4,984
  -6,785
  -8,993
  -11,632
  -14,714
  -18,237
  -22,193
  -26,562
  -31,320
  -36,437
  -41,884
  -47,632
  -53,654
  -59,928
  -66,435
  -73,163
  -80,103
  -87,252
  -94,612
  -102,187
  -109,987
  -118,024
  -126,312
  -134,870
  -143,716
  -152,871
  -162,358
  -172,201
Free cash flow, $m
  -889
  -1,261
  -1,688
  -2,145
  -2,601
  -3,012
  -3,326
  -3,487
  -3,436
  -3,112
  -2,583
  -1,559
  -121
  1,762
  4,112
  6,941
  10,253
  14,045
  18,309
  23,032
  28,199
  33,793
  39,797
  46,194
  52,969
  60,109
  67,604
  75,445
  83,626
  92,146
Issuance/(repayment) of debt, $m
  2,478
  3,533
  4,872
  6,521
  8,487
  10,767
  13,344
  16,189
  19,261
  22,516
  25,906
  29,383
  32,904
  36,429
  39,927
  43,374
  46,753
  50,056
  53,280
  56,429
  59,513
  62,545
  65,539
  68,515
  71,492
  74,491
  77,531
  80,634
  83,821
  87,110
Issuance/(repurchase) of shares, $m
  841
  1,009
  1,171
  1,303
  1,371
  1,332
  1,138
  738
  80
  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  
  3,319
  4,542
  6,043
  7,824
  9,858
  12,099
  14,482
  16,927
  19,341
  22,516
  25,906
  29,383
  32,904
  36,429
  39,927
  43,374
  46,753
  50,056
  53,280
  56,429
  59,513
  62,545
  65,539
  68,515
  71,492
  74,491
  77,531
  80,634
  83,821
  87,110
Total cash flow (excl. dividends), $m
  2,431
  3,280
  4,356
  5,679
  7,257
  9,088
  11,156
  13,439
  15,905
  19,403
  23,323
  27,824
  32,783
  38,192
  44,040
  50,315
  57,006
  64,101
  71,589
  79,461
  87,712
  96,338
  105,336
  114,709
  124,462
  134,600
  145,135
  156,079
  167,447
  179,256
Retained Cash Flow (-), $m
  -1,543
  -2,202
  -3,037
  -4,065
  -5,291
  -6,712
  -8,319
  -10,092
  -12,007
  -14,036
  -16,149
  -18,317
  -20,512
  -22,709
  -24,890
  -27,038
  -29,145
  -31,204
  -33,213
  -35,177
  -37,099
  -38,989
  -40,856
  -42,711
  -44,567
  -46,436
  -48,331
  -50,266
  -52,252
  -54,302
Prev. year cash balance distribution, $m
  548
  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
  130
  203
  308
  452
  646
  898
  1,217
  1,613
  2,094
  2,665
  3,333
  4,102
  4,974
  5,950
  7,031
  8,216
  9,503
  10,890
  12,375
  13,956
  15,630
  17,396
  19,252
  21,197
  23,230
  25,351
  27,562
  29,862
  32,255
  34,742
Cash available for distribution, $m
  1,435
  1,078
  1,318
  1,614
  1,967
  2,376
  2,838
  3,348
  3,899
  5,368
  7,174
  9,507
  12,271
  15,483
  19,150
  23,277
  27,862
  32,897
  38,376
  44,285
  50,613
  57,349
  64,480
  71,998
  79,895
  88,164
  96,804
  105,813
  115,195
  124,953
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
  1,376
  987
  1,147
  1,329
  1,524
  1,724
  1,917
  2,092
  2,240
  2,814
  3,407
  4,057
  4,666
  5,198
  5,622
  5,915
  6,062
  6,058
  5,909
  5,627
  5,235
  4,758
  4,226
  3,667
  3,108
  2,572
  2,078
  1,637
  1,257
  941
Current shareholders' claim on cash, %
  95.3
  91.8
  89.2
  87.3
  85.9
  85.0
  84.4
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1
  84.1

Microchip Technology Incorporated is engaged in developing, manufacturing and selling specialized semiconductor products used by its customers for a range of embedded control applications. The Company operates through two segments: semiconductor products and technology licensing. In the semiconductor products segment, the Company designs, develops, manufactures and markets microcontrollers, development tools and analog, interface, mixed signal and timing products. Its functional activities include sales, marketing, manufacturing, information technology, human resources, legal and finance. Its product portfolio comprises general purpose and specialized 8-bit, 16-bit, and 32-bit microcontrollers, a spectrum of linear, mixed-signal, power management, thermal management, radio frequency (RF), timing, safety, security, wired connectivity and wireless connectivity devices, as well as serial electrically erasable programmable read-only memories (EEPROMs) and serial flash memories.

FINANCIAL RATIOS  of  Microchip Technology (MCHP)

Valuation Ratios
P/E Ratio 131
Price to Sales 6.3
Price to Book 6.6
Price to Tangible Book
Price to Cash Flow 20.4
Price to Free Cash Flow 22
Growth Rates
Sales Growth Rate 56.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -23.5%
Cap. Spend. - 3 Yr. Gr. Rate -7.9%
Financial Strength
Quick Ratio 26
Current Ratio 0.1
LT Debt to Equity 88.7%
Total Debt to Equity 90.2%
Interest Coverage 2
Management Effectiveness
Return On Assets 4.9%
Ret/ On Assets - 3 Yr. Avg. 7.2%
Return On Total Capital 3%
Ret/ On T. Cap. - 3 Yr. Avg. 7.1%
Return On Equity 6.1%
Return On Equity - 3 Yr. Avg. 13.1%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 51.6%
Gross Margin - 3 Yr. Avg. 54.8%
EBITDA Margin 18.8%
EBITDA Margin - 3 Yr. Avg. 26.1%
Operating Margin 6.8%
Oper. Margin - 3 Yr. Avg. 13.5%
Pre-Tax Margin 2.6%
Pre-Tax Margin - 3 Yr. Avg. 10.6%
Net Profit Margin 4.8%
Net Profit Margin - 3 Yr. Avg. 12.3%
Effective Tax Rate -90%
Eff/ Tax Rate - 3 Yr. Avg. -36.9%
Payout Ratio 190.9%

MCHP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MCHP stock intrinsic value calculation we used $3408 million for the last fiscal year's total revenue generated by Microchip Technology. The default revenue input number comes from 2017 income statement of Microchip Technology. 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 MCHP stock valuation model: a) initial revenue growth rate of 56.8% 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 MCHP is calculated based on our internal credit rating of Microchip Technology, 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 Microchip Technology.
    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 MCHP stock the variable cost ratio is equal to 83.8%.

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 MCHP 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 Microchip Technology.

Corporate tax rate of 27% is the nominal tax rate for Microchip Technology. 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 MCHP stock is equal to 3.8%.

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 MCHP are equal to 108%.

Life of production assets of 10 years is the average useful life of capital assets used in Microchip Technology 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 MCHP is equal to 7.9%. 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 - $3271 million for Microchip Technology - 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 217 million for Microchip Technology 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 Microchip Technology at the current share price and the inputted number of shares is $20.5 billion.

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