Intrinsic value of Novartis ADR - NVS

Previous Close

$85.74

  Intrinsic Value

$35.84

stock screener

  Rating & Target

str. sell

-58%

  Value-price divergence*

-23%

Previous close

$85.74

 
Intrinsic value

$35.84

 
Up/down potential

-58%

 
Rating

str. sell

 
Value-price divergence*

-23%

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

We calculate the intrinsic value of NVS 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 2016), $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 223.1

 

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, %
  -1.93
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  49,386
  50,374
  51,532
  52,857
  54,344
  55,991
  57,799
  59,767
  61,898
  64,194
  66,657
  69,293
  72,105
  75,099
  78,282
  81,658
  85,237
  89,025
  93,031
  97,263
  101,732
  106,448
  111,421
  116,663
  122,186
  128,003
  134,127
  140,574
  147,357
  154,494
  162,000
Variable operating expenses, $m
 
  20,793
  21,200
  21,665
  22,187
  22,766
  23,401
  24,092
  24,841
  25,647
  26,513
  24,340
  25,328
  26,380
  27,498
  28,684
  29,941
  31,272
  32,679
  34,166
  35,736
  37,392
  39,139
  40,980
  42,920
  44,963
  47,115
  49,379
  51,762
  54,269
  56,906
Fixed operating expenses, $m
 
  21,701
  22,244
  22,800
  23,370
  23,954
  24,553
  25,167
  25,796
  26,441
  27,102
  27,779
  28,474
  29,186
  29,915
  30,663
  31,430
  32,216
  33,021
  33,847
  34,693
  35,560
  36,449
  37,360
  38,294
  39,252
  40,233
  41,239
  42,270
  43,327
  44,410
Total operating expenses, $m
  41,111
  42,494
  43,444
  44,465
  45,557
  46,720
  47,954
  49,259
  50,637
  52,088
  53,615
  52,119
  53,802
  55,566
  57,413
  59,347
  61,371
  63,488
  65,700
  68,013
  70,429
  72,952
  75,588
  78,340
  81,214
  84,215
  87,348
  90,618
  94,032
  97,596
  101,316
Operating income, $m
  8,275
  7,880
  8,089
  8,392
  8,786
  9,271
  9,845
  10,508
  11,261
  12,105
  13,043
  17,173
  18,303
  19,533
  20,868
  22,311
  23,866
  25,538
  27,331
  29,251
  31,304
  33,496
  35,833
  38,322
  40,971
  43,788
  46,779
  49,956
  53,325
  56,898
  60,685
EBITDA, $m
  14,318
  14,733
  15,028
  15,430
  15,935
  16,543
  17,251
  18,061
  18,973
  19,989
  21,110
  22,338
  23,678
  25,132
  26,704
  28,398
  30,220
  32,174
  34,266
  36,502
  38,888
  41,431
  44,139
  47,019
  50,080
  53,330
  56,778
  60,435
  64,310
  68,415
  72,761
Interest expense (income), $m
  723
  626
  661
  702
  748
  801
  858
  922
  991
  1,066
  1,146
  1,233
  1,325
  1,424
  1,529
  1,640
  1,759
  1,884
  2,017
  2,158
  2,306
  2,463
  2,629
  2,803
  2,987
  3,181
  3,385
  3,600
  3,826
  4,064
  4,314
Earnings before tax, $m
  7,817
  7,253
  7,427
  7,690
  8,038
  8,470
  8,986
  9,586
  10,270
  11,040
  11,896
  15,940
  16,978
  18,110
  19,339
  20,670
  22,107
  23,653
  25,313
  27,093
  28,998
  31,033
  33,204
  35,519
  37,984
  40,607
  43,394
  46,356
  49,499
  52,834
  56,370
Tax expense, $m
  1,119
  1,958
  2,005
  2,076
  2,170
  2,287
  2,426
  2,588
  2,773
  2,981
  3,212
  4,304
  4,584
  4,890
  5,222
  5,581
  5,969
  6,386
  6,835
  7,315
  7,829
  8,379
  8,965
  9,590
  10,256
  10,964
  11,716
  12,516
  13,365
  14,265
  15,220
Net income, $m
  6,712
  5,295
  5,422
  5,614
  5,868
  6,183
  6,560
  6,998
  7,497
  8,059
  8,684
  11,636
  12,394
  13,220
  14,118
  15,089
  16,138
  17,267
  18,479
  19,778
  21,168
  22,654
  24,239
  25,929
  27,728
  29,643
  31,678
  33,840
  36,134
  38,569
  41,150

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  7,546
  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
  130,124
  124,997
  127,872
  131,158
  134,848
  138,936
  143,421
  148,306
  153,593
  159,289
  165,402
  171,942
  178,921
  186,351
  194,247
  202,626
  211,506
  220,906
  230,846
  241,349
  252,438
  264,139
  276,479
  289,486
  303,191
  317,625
  332,822
  348,818
  365,650
  383,359
  401,985
Adjusted assets (=assets-cash), $m
  122,578
  124,997
  127,872
  131,158
  134,848
  138,936
  143,421
  148,306
  153,593
  159,289
  165,402
  171,942
  178,921
  186,351
  194,247
  202,626
  211,506
  220,906
  230,846
  241,349
  252,438
  264,139
  276,479
  289,486
  303,191
  317,625
  332,822
  348,818
  365,650
  383,359
  401,985
Revenue / Adjusted assets
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
  0.403
Average production assets, $m
  48,590
  49,568
  50,708
  52,011
  53,474
  55,095
  56,874
  58,811
  60,908
  63,166
  65,591
  68,184
  70,951
  73,898
  77,029
  80,352
  83,873
  87,601
  91,542
  95,707
  100,105
  104,745
  109,638
  114,796
  120,231
  125,955
  131,981
  138,324
  144,999
  152,022
  159,408
Working capital, $m
  2,722
  1,007
  1,031
  1,057
  1,087
  1,120
  1,156
  1,195
  1,238
  1,284
  1,333
  1,386
  1,442
  1,502
  1,566
  1,633
  1,705
  1,780
  1,861
  1,945
  2,035
  2,129
  2,228
  2,333
  2,444
  2,560
  2,683
  2,811
  2,947
  3,090
  3,240
Total debt, $m
  23,686
  18,893
  20,054
  21,382
  22,872
  24,524
  26,336
  28,310
  30,446
  32,747
  35,217
  37,859
  40,678
  43,680
  46,870
  50,255
  53,842
  57,640
  61,656
  65,899
  70,379
  75,106
  80,092
  85,346
  90,883
  96,714
  102,854
  109,316
  116,117
  123,271
  130,796
Total liabilities, $m
  55,292
  50,499
  51,660
  52,988
  54,478
  56,130
  57,942
  59,916
  62,052
  64,353
  66,823
  69,465
  72,284
  75,286
  78,476
  81,861
  85,448
  89,246
  93,262
  97,505
  101,985
  106,712
  111,698
  116,952
  122,489
  128,320
  134,460
  140,922
  147,723
  154,877
  162,402
Total equity, $m
  74,832
  74,498
  76,212
  78,170
  80,369
  82,806
  85,479
  88,390
  91,541
  94,936
  98,580
  102,478
  106,637
  111,065
  115,771
  120,765
  126,058
  131,660
  137,584
  143,844
  150,453
  157,427
  164,781
  172,534
  180,702
  189,304
  198,362
  207,895
  217,928
  228,482
  239,583
Total liabilities and equity, $m
  130,124
  124,997
  127,872
  131,158
  134,847
  138,936
  143,421
  148,306
  153,593
  159,289
  165,403
  171,943
  178,921
  186,351
  194,247
  202,626
  211,506
  220,906
  230,846
  241,349
  252,438
  264,139
  276,479
  289,486
  303,191
  317,624
  332,822
  348,817
  365,651
  383,359
  401,985
Debt-to-equity ratio
  0.317
  0.250
  0.260
  0.270
  0.280
  0.300
  0.310
  0.320
  0.330
  0.340
  0.360
  0.370
  0.380
  0.390
  0.400
  0.420
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.490
  0.500
  0.510
  0.520
  0.530
  0.530
  0.540
  0.550
Adjusted equity ratio
  0.595
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596
  0.596

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6,712
  5,295
  5,422
  5,614
  5,868
  6,183
  6,560
  6,998
  7,497
  8,059
  8,684
  11,636
  12,394
  13,220
  14,118
  15,089
  16,138
  17,267
  18,479
  19,778
  21,168
  22,654
  24,239
  25,929
  27,728
  29,643
  31,678
  33,840
  36,134
  38,569
  41,150
Depreciation, amort., depletion, $m
  6,043
  6,853
  6,939
  7,038
  7,149
  7,272
  7,407
  7,553
  7,712
  7,883
  8,067
  5,165
  5,375
  5,598
  5,836
  6,087
  6,354
  6,636
  6,935
  7,251
  7,584
  7,935
  8,306
  8,697
  9,108
  9,542
  9,999
  10,479
  10,985
  11,517
  12,076
Funds from operations, $m
  7,970
  12,148
  12,362
  12,652
  13,017
  13,455
  13,967
  14,551
  15,209
  15,942
  16,751
  16,802
  17,769
  18,818
  19,953
  21,177
  22,492
  23,903
  25,414
  27,029
  28,752
  30,589
  32,545
  34,626
  36,837
  39,185
  41,676
  44,319
  47,119
  50,086
  53,227
Change in working capital, $m
  -3,505
  20
  23
  26
  30
  33
  36
  39
  43
  46
  49
  53
  56
  60
  64
  68
  72
  76
  80
  85
  89
  94
  99
  105
  110
  116
  122
  129
  136
  143
  150
Cash from operations, $m
  11,475
  12,128
  12,338
  12,625
  12,987
  13,422
  13,931
  14,512
  15,167
  15,896
  16,702
  16,749
  17,713
  18,758
  19,890
  21,109
  22,421
  23,827
  25,334
  26,944
  28,663
  30,495
  32,446
  34,521
  36,726
  39,069
  41,554
  44,190
  46,983
  49,943
  53,076
Maintenance CAPEX, $m
  0
  -3,681
  -3,755
  -3,841
  -3,940
  -4,051
  -4,174
  -4,309
  -4,455
  -4,614
  -4,785
  -4,969
  -5,165
  -5,375
  -5,598
  -5,836
  -6,087
  -6,354
  -6,636
  -6,935
  -7,251
  -7,584
  -7,935
  -8,306
  -8,697
  -9,108
  -9,542
  -9,999
  -10,479
  -10,985
  -11,517
New CAPEX, $m
  -2,879
  -978
  -1,140
  -1,303
  -1,463
  -1,621
  -1,779
  -1,937
  -2,097
  -2,259
  -2,424
  -2,593
  -2,767
  -2,946
  -3,131
  -3,323
  -3,521
  -3,727
  -3,942
  -4,165
  -4,398
  -4,640
  -4,893
  -5,158
  -5,435
  -5,724
  -6,026
  -6,343
  -6,675
  -7,022
  -7,386
Cash from investing activities, $m
  -3,441
  -4,659
  -4,895
  -5,144
  -5,403
  -5,672
  -5,953
  -6,246
  -6,552
  -6,873
  -7,209
  -7,562
  -7,932
  -8,321
  -8,729
  -9,159
  -9,608
  -10,081
  -10,578
  -11,100
  -11,649
  -12,224
  -12,828
  -13,464
  -14,132
  -14,832
  -15,568
  -16,342
  -17,154
  -18,007
  -18,903
Free cash flow, $m
  8,034
  7,469
  7,443
  7,481
  7,584
  7,750
  7,978
  8,266
  8,615
  9,023
  9,493
  9,187
  9,780
  10,437
  11,160
  11,951
  12,812
  13,746
  14,756
  15,844
  17,015
  18,271
  19,617
  21,057
  22,595
  24,236
  25,986
  27,848
  29,829
  31,936
  34,173
Issuance/(repayment) of debt, $m
  2,055
  996
  1,161
  1,328
  1,491
  1,652
  1,812
  1,973
  2,136
  2,301
  2,470
  2,642
  2,819
  3,002
  3,190
  3,385
  3,587
  3,797
  4,016
  4,243
  4,480
  4,727
  4,985
  5,255
  5,537
  5,831
  6,140
  6,462
  6,800
  7,154
  7,525
Issuance/(repurchase) of shares, $m
  -895
  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  
  1,161
  996
  1,161
  1,328
  1,491
  1,652
  1,812
  1,973
  2,136
  2,301
  2,470
  2,642
  2,819
  3,002
  3,190
  3,385
  3,587
  3,797
  4,016
  4,243
  4,480
  4,727
  4,985
  5,255
  5,537
  5,831
  6,140
  6,462
  6,800
  7,154
  7,525
Total cash flow (excl. dividends), $m
  8,808
  8,465
  8,605
  8,808
  9,074
  9,402
  9,790
  10,240
  10,751
  11,325
  11,962
  11,829
  12,599
  13,439
  14,350
  15,336
  16,399
  17,543
  18,771
  20,087
  21,495
  22,998
  24,602
  26,312
  28,132
  30,068
  32,125
  34,310
  36,630
  39,090
  41,698
Retained Cash Flow (-), $m
  2,214
  -1,423
  -1,713
  -1,959
  -2,199
  -2,437
  -2,673
  -2,911
  -3,151
  -3,395
  -3,643
  -3,898
  -4,159
  -4,428
  -4,706
  -4,994
  -5,292
  -5,602
  -5,924
  -6,260
  -6,609
  -6,974
  -7,355
  -7,752
  -8,168
  -8,603
  -9,058
  -9,534
  -10,032
  -10,554
  -11,101
Prev. year cash balance distribution, $m
 
  1,757
  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
 
  8,799
  6,891
  6,850
  6,875
  6,965
  7,117
  7,329
  7,600
  7,930
  8,319
  7,931
  8,440
  9,010
  9,644
  10,342
  11,107
  11,941
  12,847
  13,827
  14,885
  16,024
  17,248
  18,560
  19,964
  21,465
  23,068
  24,777
  26,598
  28,536
  30,597
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
 
  8,436
  6,309
  5,961
  5,661
  5,399
  5,165
  4,951
  4,750
  4,555
  4,361
  3,766
  3,602
  3,426
  3,238
  3,036
  2,823
  2,598
  2,366
  2,129
  1,891
  1,657
  1,431
  1,216
  1,017
  835
  673
  532
  412
  311
  230
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

Novartis AG is a holding company, which provides healthcare solutions. The Company is engaged in the research, development, manufacturing and marketing of a range of healthcare products led by pharmaceuticals. The Company's segments include Innovative Medicines, Sandoz, Alcon and Corporate activities. Innovative Medicines researches, develops, manufactures, distributes and sells patented prescription medicines to develop health outcomes for patients and healthcare providers. Sandoz develops, manufactures, distributes and sells prescription medicines, as well as pharmaceutical active substances that are not protected by valid and enforceable third-party patents. Alcon researches, develops, manufactures, distributes and sells eye care products. Alcon is a provider of eye care with product offerings in eye care devices and vision care. The Company's range of products includes pharmaceuticals and oncology medicines, generic and biosimilar medicines, and eye care devices.

FINANCIAL RATIOS  of  Novartis ADR (NVS)

Valuation Ratios
P/E Ratio 30.3
Price to Sales 4.1
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 17.7
Price to Free Cash Flow 23.7
Growth Rates
Sales Growth Rate -1.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -17.9%
Cap. Spend. - 3 Yr. Gr. Rate -3.1%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 23.9%
Total Debt to Equity 31.7%
Interest Coverage 12
Management Effectiveness
Return On Assets 5.6%
Ret/ On Assets - 3 Yr. Avg. 9.5%
Return On Total Capital 6.8%
Ret/ On T. Cap. - 3 Yr. Avg. 12.2%
Return On Equity 8.8%
Return On Equity - 3 Yr. Avg. 15.7%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 64.9%
Gross Margin - 3 Yr. Avg. 66.2%
EBITDA Margin 29.5%
EBITDA Margin - 3 Yr. Avg. 30.2%
Operating Margin 16.8%
Oper. Margin - 3 Yr. Avg. 18.3%
Pre-Tax Margin 15.8%
Pre-Tax Margin - 3 Yr. Avg. 18.3%
Net Profit Margin 13.6%
Net Profit Margin - 3 Yr. Avg. 22.6%
Effective Tax Rate 14.3%
Eff/ Tax Rate - 3 Yr. Avg. 13.5%
Payout Ratio 96.5%

NVS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NVS stock intrinsic value calculation we used $49386 million for the last fiscal year's total revenue generated by Novartis ADR. The default revenue input number comes from 2016 income statement of Novartis ADR. 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 NVS stock valuation model: a) initial revenue growth rate of 2% 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 NVS is calculated based on our internal credit rating of Novartis ADR, 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 Novartis ADR.
    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 NVS stock the variable cost ratio is equal to 41.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $21172 million in the base year in the intrinsic value calculation for NVS 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 Novartis ADR.

Corporate tax rate of 27% is the nominal tax rate for Novartis ADR. 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 NVS 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 NVS are equal to 98.4%.

Life of production assets of 13.2 years is the average useful life of capital assets used in Novartis ADR 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 NVS is equal to 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 - $74832 million for Novartis ADR - 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 2601.58 million for Novartis ADR 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 Novartis ADR at the current share price and the inputted number of shares is $223.1 billion.

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COMPANY NEWS

▶ Gilead Slaps Mega-Price on Its Newly Approved CAR-T   [Oct-19-17 07:31PM  Motley Fool]
▶ Drugmaker Novartis to close 450-employee Sandoz plant in Broomfield   [01:00PM  American City Business Journals]
▶ FDA approves Gilead's cancer drug   [07:53AM  CNBC Videos]
▶ Gilead Gets FDA Approval for New Cancer Therapy   [12:02AM  The Wall Street Journal]
▶ Gilead Gets FDA Approval for New Cancer Therapy   [06:49PM  The Wall Street Journal]
▶ Inside Novartiss Performance in 3Q17   [Oct-17-17 05:36PM  Market Realist]
▶ Let's Talk About CAR-T   [Oct-16-17 11:40AM  GuruFocus.com]
▶ Kite Pharma Cancer Treatment Stands Out In Hot CAR-T Field   [07:45AM  Investor's Business Daily]
▶ Changes in GlaxoSmithKlines Valuation   [10:38AM  Market Realist]
▶ IIROC Trade Resumption - NVS   [09:14AM  CNW Group]
▶ [$$] Lilly Faces Off With Pfizer, Novartis   [Oct-02-17 11:14AM  Barrons.com]
▶ Training cells to fight cancer   [Sep-29-17 02:37PM  CNBC Videos]
▶ Historic treatment, historic price   [08:13AM  CNBC Videos]
▶ Novartis Could Acquire This Biotech Why A Deal Is 'Very Logical'   [Sep-28-17 04:50PM  Investor's Business Daily]
▶ IIROC Trading Halt - NVS   [04:28PM  PR Newswire]
▶ IIROC Trading Halt - NVS   [04:28PM  CNW Group]
▶ Oddly, Juno Therapeutics Is Jumping 11.3% Today   [Sep-22-17 04:00PM  Motley Fool]
▶ [$$] Alnylam's New Medicine To Enter Pricing Debate   [07:30AM  The Wall Street Journal]
▶ Why Gilead Sciences Is Flying High With Kite   [Sep-21-17 03:30PM  Forbes]
▶ Why Are Cancer Drugs So Expensive?   [11:19AM  Motley Fool]
▶ An Update on Novartiss Sandostatin, Afinitor, and Exjade   [Sep-19-17 10:38AM  Market Realist]
▶ How Did Novartis Perform in 1H17?   [04:07PM  Market Realist]
▶ AbbVie's New Hepatitis C Drug Chipping Away At Gilead's Share   [Sep-15-17 02:21PM  Investor's Business Daily]
▶ Novartis Sees IBD RS Rating Rise To 72   [03:00AM  Investor's Business Daily]
▶ 5 Ways To Play The Biotech Bull Market   [Sep-11-17 07:30PM  Oilprice.com]
▶ [$$] Investors Chronicle: Redrow, Oxford BioMedica, Halfords   [Sep-08-17 11:07AM  Financial Times]
▶ Understanding Mercks Valuation after 2Q17   [07:38AM  Market Realist]
▶ Novartis Sees Relative Strength Rating Improve To 75   [03:00AM  Investor's Business Daily]
▶ Novartis CEO to step down next year   [06:44AM  CNBC Videos]
▶ [$$] Novartis CEO to Step Down in January   [12:03AM  The Wall Street Journal]
Financial statements of NVS
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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