Intrinsic value of McKesson - MCK

Previous Close

$150.78

  Intrinsic Value

$795.25

stock screener

  Rating & Target

str. buy

+427%

  Value-price divergence*

+156%

Previous close

$150.78

 
Intrinsic value

$795.25

 
Up/down potential

+427%

 
Rating

str. buy

 
Value-price divergence*

+156%

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

We calculate the intrinsic value of MCK 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 31.9

 

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, %
  4.01
  2.70
  2.93
  3.14
  3.32
  3.49
  3.64
  3.78
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
Revenue, $m
  198,533
  203,893
  209,867
  216,451
  223,644
  231,452
  239,881
  248,943
  258,651
  269,023
  280,077
  291,835
  304,320
  317,559
  331,581
  346,415
  362,095
  378,657
  396,137
  414,577
  434,018
  454,505
  476,086
  498,812
  522,736
  547,914
  574,405
  602,271
  631,579
  662,398
  694,801
Variable operating expenses, $m
 
  109,054
  112,219
  115,706
  119,516
  123,651
  128,116
  132,916
  138,058
  143,551
  149,406
  154,576
  161,189
  168,201
  175,628
  183,485
  191,790
  200,562
  209,821
  219,588
  229,885
  240,737
  252,168
  264,205
  276,876
  290,212
  304,244
  319,004
  334,527
  350,851
  368,014
Fixed operating expenses, $m
 
  89,458
  91,694
  93,987
  96,336
  98,745
  101,213
  103,744
  106,337
  108,996
  111,721
  114,514
  117,377
  120,311
  123,319
  126,402
  129,562
  132,801
  136,121
  139,524
  143,012
  146,587
  150,252
  154,008
  157,858
  161,805
  165,850
  169,996
  174,246
  178,602
  183,067
Total operating expenses, $m
  191,434
  198,512
  203,913
  209,693
  215,852
  222,396
  229,329
  236,660
  244,395
  252,547
  261,127
  269,090
  278,566
  288,512
  298,947
  309,887
  321,352
  333,363
  345,942
  359,112
  372,897
  387,324
  402,420
  418,213
  434,734
  452,017
  470,094
  489,000
  508,773
  529,453
  551,081
Operating income, $m
  7,099
  5,381
  5,954
  6,759
  7,792
  9,056
  10,552
  12,283
  14,256
  16,476
  18,950
  22,746
  25,755
  29,047
  32,634
  36,529
  40,743
  45,294
  50,195
  55,465
  61,121
  67,181
  73,667
  80,599
  88,001
  95,897
  104,311
  113,271
  122,806
  132,945
  143,720
EBITDA, $m
  8,009
  6,768
  7,351
  8,165
  9,211
  10,487
  11,996
  13,743
  15,731
  17,967
  20,459
  23,215
  26,245
  29,558
  33,168
  37,086
  41,326
  45,903
  50,833
  56,132
  61,819
  67,912
  74,433
  81,402
  88,842
  96,778
  105,235
  114,241
  123,822
  134,011
  144,838
Interest expense (income), $m
  315
  278
  328
  384
  445
  512
  584
  663
  747
  838
  934
  1,037
  1,147
  1,263
  1,386
  1,517
  1,655
  1,801
  1,955
  2,118
  2,289
  2,470
  2,661
  2,862
  3,074
  3,297
  3,531
  3,778
  4,037
  4,310
  4,597
Earnings before tax, $m
  6,891
  5,104
  5,627
  6,375
  7,347
  8,544
  9,967
  11,621
  13,509
  15,638
  18,016
  21,708
  24,608
  27,785
  31,248
  35,012
  39,089
  43,493
  48,240
  53,347
  58,831
  64,711
  71,006
  77,737
  84,927
  92,600
  100,780
  109,494
  118,769
  128,635
  139,123
Tax expense, $m
  1,614
  1,378
  1,519
  1,721
  1,984
  2,307
  2,691
  3,138
  3,647
  4,222
  4,864
  5,861
  6,644
  7,502
  8,437
  9,453
  10,554
  11,743
  13,025
  14,404
  15,884
  17,472
  19,171
  20,989
  22,930
  25,002
  27,211
  29,563
  32,068
  34,731
  37,563
Net income, $m
  5,070
  3,726
  4,107
  4,654
  5,364
  6,237
  7,276
  8,483
  9,861
  11,416
  13,151
  15,847
  17,964
  20,283
  22,811
  25,559
  28,535
  31,750
  35,215
  38,943
  42,947
  47,239
  51,834
  56,748
  61,997
  67,598
  73,569
  79,930
  86,701
  93,904
  101,560

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,783
  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
  60,969
  59,758
  61,509
  63,438
  65,546
  67,835
  70,305
  72,961
  75,806
  78,846
  82,086
  85,532
  89,191
  93,071
  97,181
  101,528
  106,124
  110,978
  116,101
  121,506
  127,203
  133,208
  139,533
  146,193
  153,205
  160,584
  168,348
  176,516
  185,105
  194,138
  203,634
Adjusted assets (=assets-cash), $m
  58,186
  59,758
  61,509
  63,438
  65,546
  67,835
  70,305
  72,961
  75,806
  78,846
  82,086
  85,532
  89,191
  93,071
  97,181
  101,528
  106,124
  110,978
  116,101
  121,506
  127,203
  133,208
  139,533
  146,193
  153,205
  160,584
  168,348
  176,516
  185,105
  194,138
  203,634
Revenue / Adjusted assets
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
  3.412
Average production assets, $m
  5,628
  5,709
  5,876
  6,061
  6,262
  6,481
  6,717
  6,970
  7,242
  7,533
  7,842
  8,171
  8,521
  8,892
  9,284
  9,700
  10,139
  10,602
  11,092
  11,608
  12,152
  12,726
  13,330
  13,967
  14,637
  15,342
  16,083
  16,864
  17,684
  18,547
  19,454
Working capital, $m
  1,336
  -204
  -210
  -216
  -224
  -231
  -240
  -249
  -259
  -269
  -280
  -292
  -304
  -318
  -332
  -346
  -362
  -379
  -396
  -415
  -434
  -455
  -476
  -499
  -523
  -548
  -574
  -602
  -632
  -662
  -695
Total debt, $m
  8,545
  8,628
  10,092
  11,705
  13,468
  15,381
  17,446
  19,666
  22,045
  24,586
  27,295
  30,176
  33,235
  36,479
  39,914
  43,549
  47,391
  51,449
  55,732
  60,250
  65,013
  70,033
  75,320
  80,889
  86,751
  92,920
  99,410
  106,238
  113,419
  120,970
  128,909
Total liabilities, $m
  49,874
  49,957
  51,421
  53,034
  54,797
  56,710
  58,775
  60,995
  63,374
  65,915
  68,624
  71,505
  74,564
  77,808
  81,243
  84,878
  88,720
  92,778
  97,061
  101,579
  106,342
  111,362
  116,649
  122,218
  128,080
  134,249
  140,739
  147,567
  154,748
  162,299
  170,238
Total equity, $m
  11,095
  9,800
  10,087
  10,404
  10,750
  11,125
  11,530
  11,966
  12,432
  12,931
  13,462
  14,027
  14,627
  15,264
  15,938
  16,651
  17,404
  18,200
  19,041
  19,927
  20,861
  21,846
  22,883
  23,976
  25,126
  26,336
  27,609
  28,949
  30,357
  31,839
  33,396
Total liabilities and equity, $m
  60,969
  59,757
  61,508
  63,438
  65,547
  67,835
  70,305
  72,961
  75,806
  78,846
  82,086
  85,532
  89,191
  93,072
  97,181
  101,529
  106,124
  110,978
  116,102
  121,506
  127,203
  133,208
  139,532
  146,194
  153,206
  160,585
  168,348
  176,516
  185,105
  194,138
  203,634
Debt-to-equity ratio
  0.770
  0.880
  1.000
  1.130
  1.250
  1.380
  1.510
  1.640
  1.770
  1.900
  2.030
  2.150
  2.270
  2.390
  2.500
  2.620
  2.720
  2.830
  2.930
  3.020
  3.120
  3.210
  3.290
  3.370
  3.450
  3.530
  3.600
  3.670
  3.740
  3.800
  3.860
Adjusted equity ratio
  0.146
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,070
  3,726
  4,107
  4,654
  5,364
  6,237
  7,276
  8,483
  9,861
  11,416
  13,151
  15,847
  17,964
  20,283
  22,811
  25,559
  28,535
  31,750
  35,215
  38,943
  42,947
  47,239
  51,834
  56,748
  61,997
  67,598
  73,569
  79,930
  86,701
  93,904
  101,560
Depreciation, amort., depletion, $m
  910
  1,387
  1,396
  1,407
  1,418
  1,431
  1,445
  1,459
  1,475
  1,492
  1,509
  470
  490
  511
  534
  557
  583
  609
  637
  667
  698
  731
  766
  803
  841
  882
  924
  969
  1,016
  1,066
  1,118
Funds from operations, $m
  6,066
  5,112
  5,504
  6,061
  6,782
  7,668
  8,721
  9,942
  11,336
  12,907
  14,661
  16,317
  18,454
  20,794
  23,345
  26,116
  29,117
  32,359
  35,853
  39,611
  43,645
  47,970
  52,600
  57,551
  62,838
  68,480
  74,494
  80,900
  87,718
  94,969
  102,678
Change in working capital, $m
  1,322
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
Cash from operations, $m
  4,744
  5,118
  5,510
  6,067
  6,789
  7,676
  8,729
  9,951
  11,346
  12,918
  14,672
  16,329
  18,466
  20,807
  23,359
  26,131
  29,133
  32,376
  35,870
  39,629
  43,665
  47,991
  52,622
  57,573
  62,862
  68,505
  74,520
  80,928
  87,747
  95,000
  102,710
Maintenance CAPEX, $m
  0
  -323
  -328
  -338
  -348
  -360
  -372
  -386
  -401
  -416
  -433
  -451
  -470
  -490
  -511
  -534
  -557
  -583
  -609
  -637
  -667
  -698
  -731
  -766
  -803
  -841
  -882
  -924
  -969
  -1,016
  -1,066
New CAPEX, $m
  -562
  -81
  -167
  -184
  -201
  -219
  -236
  -254
  -272
  -290
  -310
  -329
  -350
  -371
  -393
  -415
  -439
  -464
  -489
  -516
  -544
  -574
  -604
  -636
  -670
  -705
  -742
  -780
  -821
  -863
  -907
Cash from investing activities, $m
  -3,796
  -404
  -495
  -522
  -549
  -579
  -608
  -640
  -673
  -706
  -743
  -780
  -820
  -861
  -904
  -949
  -996
  -1,047
  -1,098
  -1,153
  -1,211
  -1,272
  -1,335
  -1,402
  -1,473
  -1,546
  -1,624
  -1,704
  -1,790
  -1,879
  -1,973
Free cash flow, $m
  948
  4,713
  5,014
  5,545
  6,240
  7,097
  8,121
  9,311
  10,674
  12,211
  13,929
  15,549
  17,647
  19,947
  22,455
  25,182
  28,137
  31,329
  34,772
  38,475
  42,453
  46,718
  51,286
  56,171
  61,390
  66,959
  72,897
  79,223
  85,957
  93,121
  100,737
Issuance/(repayment) of debt, $m
  393
  1,323
  1,464
  1,613
  1,762
  1,913
  2,065
  2,220
  2,379
  2,541
  2,708
  2,881
  3,059
  3,244
  3,435
  3,635
  3,842
  4,058
  4,283
  4,518
  4,763
  5,020
  5,288
  5,568
  5,862
  6,169
  6,491
  6,828
  7,181
  7,551
  7,939
Issuance/(repurchase) of shares, $m
  -2,191
  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  
  -1,816
  1,323
  1,464
  1,613
  1,762
  1,913
  2,065
  2,220
  2,379
  2,541
  2,708
  2,881
  3,059
  3,244
  3,435
  3,635
  3,842
  4,058
  4,283
  4,518
  4,763
  5,020
  5,288
  5,568
  5,862
  6,169
  6,491
  6,828
  7,181
  7,551
  7,939
Total cash flow (excl. dividends), $m
  -1,012
  6,037
  6,478
  7,158
  8,002
  9,010
  10,186
  11,532
  13,052
  14,752
  16,638
  18,429
  20,706
  23,190
  25,891
  28,817
  31,978
  35,387
  39,055
  42,993
  47,216
  51,738
  56,574
  61,739
  67,251
  73,128
  79,388
  86,051
  93,138
  100,672
  108,676
Retained Cash Flow (-), $m
  -2,171
  -248
  -287
  -316
  -346
  -375
  -405
  -436
  -467
  -499
  -531
  -565
  -600
  -636
  -674
  -713
  -754
  -796
  -840
  -886
  -934
  -985
  -1,037
  -1,092
  -1,150
  -1,210
  -1,273
  -1,339
  -1,409
  -1,481
  -1,557
Prev. year cash balance distribution, $m
 
  1,543
  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
 
  7,331
  6,191
  6,842
  7,656
  8,635
  9,781
  11,096
  12,586
  14,254
  16,106
  17,864
  20,106
  22,554
  25,217
  28,104
  31,225
  34,591
  38,214
  42,107
  46,282
  50,754
  55,537
  60,647
  66,101
  71,918
  78,114
  84,711
  91,729
  99,191
  107,119
Discount rate, %
 
  4.50
  4.73
  4.96
  5.21
  5.47
  5.74
  6.03
  6.33
  6.65
  6.98
  7.33
  7.70
  8.08
  8.49
  8.91
  9.36
  9.82
  10.31
  10.83
  11.37
  11.94
  12.54
  13.16
  13.82
  14.51
  15.24
  16.00
  16.80
  17.64
  18.52
PV of cash for distribution, $m
 
  7,016
  5,645
  5,917
  6,249
  6,617
  6,996
  7,365
  7,701
  7,986
  8,202
  8,205
  8,259
  8,212
  8,063
  7,812
  7,466
  7,034
  6,529
  5,969
  5,370
  4,751
  4,131
  3,528
  2,957
  2,429
  1,955
  1,540
  1,186
  892
  654
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

McKesson Corporation (McKesson) is engaged in delivering pharmaceuticals, medical supplies and healthcare information technology. The Company operates through two segments: McKesson Distribution Solutions and Technology Solutions. The McKesson Distribution Solutions segment distributes drugs and equipment, and health and beauty care products across North America and internationally. The Distribution Solutions segment provides pharmaceutical solutions for biotech and pharmaceutical manufacturers, and practice management, technology, clinical support and business solutions to oncology and other specialty practices operating in the community setting. The Technology Solutions segment delivers clinical, patient care, financial, supply chain and strategic management software solutions, as well as connectivity, outsourcing and other services. Its McKesson Health Solutions portfolio includes ClarityQx, which is a payment technology.

FINANCIAL RATIOS  of  McKesson (MCK)

Valuation Ratios
P/E Ratio 6.3
Price to Sales 0.2
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 6.7
Price to Free Cash Flow 7.6
Growth Rates
Sales Growth Rate 4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -17%
Cap. Spend. - 3 Yr. Gr. Rate 6.3%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 65.8%
Total Debt to Equity 77%
Interest Coverage 23
Management Effectiveness
Return On Assets 9%
Ret/ On Assets - 3 Yr. Avg. 5.6%
Return On Total Capital 27.6%
Ret/ On T. Cap. - 3 Yr. Avg. 16.2%
Return On Equity 50.7%
Return On Equity - 3 Yr. Avg. 31.7%
Asset Turnover 3.4
Profitability Ratios
Gross Margin 5.7%
Gross Margin - 3 Yr. Avg. 6%
EBITDA Margin 4.1%
EBITDA Margin - 3 Yr. Avg. 2.9%
Operating Margin 3.6%
Oper. Margin - 3 Yr. Avg. 2.4%
Pre-Tax Margin 3.5%
Pre-Tax Margin - 3 Yr. Avg. 2.2%
Net Profit Margin 2.6%
Net Profit Margin - 3 Yr. Avg. 1.5%
Effective Tax Rate 23.4%
Eff/ Tax Rate - 3 Yr. Avg. 27.3%
Payout Ratio 5%

MCK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MCK stock intrinsic value calculation we used $198533 million for the last fiscal year's total revenue generated by McKesson. The default revenue input number comes from 2017 income statement of McKesson. 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 MCK stock valuation model: a) initial revenue growth rate of 2.7% 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 4.5%, whose default value for MCK is calculated based on our internal credit rating of McKesson, 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 McKesson.
    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 MCK stock the variable cost ratio is equal to 53.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $87276 million in the base year in the intrinsic value calculation for MCK 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 3.8% for McKesson.

Corporate tax rate of 27% is the nominal tax rate for McKesson. 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 MCK 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 MCK are equal to 2.8%.

Life of production assets of 17.4 years is the average useful life of capital assets used in McKesson 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 MCK is equal to -0.1%. 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 - $11095 million for McKesson - 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 211.275 million for McKesson 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 McKesson at the current share price and the inputted number of shares is $31.9 billion.

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COMPANY NEWS

▶ The Intrinsic Value Of McKesson Corp   [Oct-18-17 11:02AM  Forbes]
▶ 3 Dividend Healthcare Stocks   [10:00AM  Motley Fool]
▶ Is There Now An Opportunity In McKesson Corporation (MCK)?   [Oct-16-17 06:57PM  Simply Wall St.]
▶ Insiders Roundup: Twitter, McKesson Make Biggest Trades   [Sep-29-17 04:54PM  GuruFocus.com]
▶ This $300 Billion Amazon Rumor Just Won't Die   [Sep-28-17 01:30PM  Investor's Business Daily]
▶ The Pharma Stocks We're Buying Now   [Sep-26-17 04:57PM  GuruFocus.com]
▶ Investing in a market near all-time highs   [Sep-25-17 05:06PM  Yahoo Finance Video]
▶ States expand investigation of opioid makers, distributors   [Sep-19-17 02:55PM  Associated Press]
▶ Drug Distributors: Bear Vs. Bull Debate   [Aug-21-17 10:50AM  Barrons.com]
▶ 3 Healthcare Stocks That Are Looking Cheap Right Now   [Aug-14-17 09:39PM  Motley Fool]
▶ Drug Distributor Has Some Upside   [Aug-13-17 11:03PM  GuruFocus.com]
▶ Falling U.S. Generic Drug Prices Hurt Manufacturers, Wholesalers   [Aug-04-17 11:45PM  The Wall Street Journal]
▶ Why AmerisourceBergen Corp. Fell Dramatically Today   [Aug-03-17 06:19PM  Motley Fool]
▶ McKesson to open distribution center in Roseville, employing about 166   [Aug-02-17 04:44PM  American City Business Journals]
▶ How Safe Is McCormick's Dividend?   [Aug-01-17 07:49AM  Motley Fool]
▶ McKesson misses Street 1Q forecasts   [Jul-27-17 11:37PM  Associated Press]
▶ Drug wholesaler to make board change after opioid protest   [Jul-26-17 06:21PM  Associated Press]
▶ High-Quality Stocks Gurus Are Buying   [Jul-19-17 05:21PM  GuruFocus.com]
▶ McCormick mustard merger on National Hotdog Day   [01:28PM  Yahoo Finance Video]
▶ Execution drug challenge survives, but Arkansas lacks doses   [Jul-12-17 07:29PM  Associated Press]
Financial statements of MCK
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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