Intrinsic value of Pearson ADR - PSO

Previous Close

$10.39

  Intrinsic Value

$4.31

stock screener

  Rating & Target

str. sell

-58%

Previous close

$10.39

 
Intrinsic value

$4.31

 
Up/down potential

-58%

 
Rating

str. sell

We calculate the intrinsic value of PSO 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 0.3

 

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, %
  8.50
  8.15
  7.83
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.16
Revenue, $m
  6,617
  7,156
  7,717
  8,300
  8,905
  9,535
  10,189
  10,869
  11,576
  12,312
  13,078
  13,875
  14,706
  15,572
  16,475
  17,418
  18,402
  19,429
  20,503
  21,625
  22,798
  24,025
  25,309
  26,653
  28,060
  29,534
  31,077
  32,695
  34,389
  36,165
Variable operating expenses, $m
  10,306
  11,106
  11,937
  12,800
  13,698
  14,630
  15,599
  16,607
  17,655
  18,745
  19,380
  20,561
  21,793
  23,076
  24,415
  25,812
  27,270
  28,792
  30,383
  32,046
  33,785
  35,603
  37,506
  39,498
  41,583
  43,766
  46,054
  48,450
  50,961
  53,594
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
  10,306
  11,106
  11,937
  12,800
  13,698
  14,630
  15,599
  16,607
  17,655
  18,745
  19,380
  20,561
  21,793
  23,076
  24,415
  25,812
  27,270
  28,792
  30,383
  32,046
  33,785
  35,603
  37,506
  39,498
  41,583
  43,766
  46,054
  48,450
  50,961
  53,594
Operating income, $m
  -3,689
  -3,949
  -4,220
  -4,500
  -4,792
  -5,095
  -5,411
  -5,738
  -6,079
  -6,434
  -6,302
  -6,686
  -7,087
  -7,504
  -7,940
  -8,394
  -8,868
  -9,363
  -9,880
  -10,421
  -10,986
  -11,578
  -12,197
  -12,844
  -13,522
  -14,233
  -14,976
  -15,756
  -16,572
  -17,428
EBITDA, $m
  -2,531
  -2,737
  -2,952
  -3,175
  -3,406
  -3,647
  -3,897
  -4,157
  -4,428
  -4,709
  -5,002
  -5,307
  -5,625
  -5,956
  -6,302
  -6,662
  -7,039
  -7,432
  -7,842
  -8,272
  -8,720
  -9,190
  -9,681
  -10,195
  -10,733
  -11,297
  -11,887
  -12,506
  -13,154
  -13,833
Interest expense (income), $m
  81
  97
  126
  157
  188
  221
  256
  291
  328
  367
  407
  449
  492
  537
  584
  633
  685
  738
  794
  852
  913
  976
  1,043
  1,112
  1,185
  1,261
  1,341
  1,424
  1,512
  1,603
  1,699
Earnings before tax, $m
  -3,786
  -4,075
  -4,376
  -4,689
  -5,014
  -5,351
  -5,702
  -6,067
  -6,446
  -6,841
  -6,751
  -7,178
  -7,624
  -8,089
  -8,573
  -9,078
  -9,606
  -10,157
  -10,732
  -11,334
  -11,963
  -12,621
  -13,309
  -14,029
  -14,784
  -15,573
  -16,401
  -17,267
  -18,176
  -19,128
Tax expense, $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
Net income, $m
  -3,786
  -4,075
  -4,376
  -4,689
  -5,014
  -5,351
  -5,702
  -6,067
  -6,446
  -6,841
  -6,751
  -7,178
  -7,624
  -8,089
  -8,573
  -9,078
  -9,606
  -10,157
  -10,732
  -11,334
  -11,963
  -12,621
  -13,309
  -14,029
  -14,784
  -15,573
  -16,401
  -17,267
  -18,176
  -19,128

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
  11,568
  12,511
  13,491
  14,510
  15,569
  16,669
  17,812
  19,001
  20,238
  21,524
  22,863
  24,257
  25,710
  27,224
  28,803
  30,451
  32,171
  33,967
  35,844
  37,806
  39,857
  42,002
  44,247
  46,597
  49,057
  51,633
  54,331
  57,158
  60,121
  63,226
Adjusted assets (=assets-cash), $m
  11,568
  12,511
  13,491
  14,510
  15,569
  16,669
  17,812
  19,001
  20,238
  21,524
  22,863
  24,257
  25,710
  27,224
  28,803
  30,451
  32,171
  33,967
  35,844
  37,806
  39,857
  42,002
  44,247
  46,597
  49,057
  51,633
  54,331
  57,158
  60,121
  63,226
Revenue / Adjusted assets
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
  0.572
Average production assets, $m
  3,289
  3,557
  3,835
  4,125
  4,426
  4,739
  5,064
  5,402
  5,753
  6,119
  6,500
  6,896
  7,309
  7,739
  8,188
  8,657
  9,146
  9,656
  10,190
  10,748
  11,331
  11,941
  12,579
  13,247
  13,946
  14,678
  15,445
  16,249
  17,091
  17,974
Working capital, $m
  589
  637
  687
  739
  793
  849
  907
  967
  1,030
  1,096
  1,164
  1,235
  1,309
  1,386
  1,466
  1,550
  1,638
  1,729
  1,825
  1,925
  2,029
  2,138
  2,253
  2,372
  2,497
  2,629
  2,766
  2,910
  3,061
  3,219
Total debt, $m
  1,910
  2,373
  2,854
  3,354
  3,874
  4,414
  4,976
  5,559
  6,166
  6,798
  7,455
  8,140
  8,853
  9,597
  10,372
  11,181
  12,026
  12,908
  13,829
  14,792
  15,799
  16,853
  17,955
  19,109
  20,317
  21,581
  22,906
  24,294
  25,749
  27,274
Total liabilities, $m
  5,680
  6,143
  6,624
  7,124
  7,644
  8,184
  8,746
  9,330
  9,937
  10,568
  11,226
  11,910
  12,623
  13,367
  14,142
  14,951
  15,796
  16,678
  17,599
  18,563
  19,570
  20,623
  21,725
  22,879
  24,087
  25,352
  26,677
  28,065
  29,519
  31,044
Total equity, $m
  5,888
  6,368
  6,867
  7,386
  7,925
  8,485
  9,067
  9,672
  10,301
  10,956
  11,637
  12,347
  13,086
  13,857
  14,661
  15,499
  16,375
  17,289
  18,245
  19,243
  20,287
  21,379
  22,522
  23,718
  24,970
  26,281
  27,655
  29,094
  30,602
  32,182
Total liabilities and equity, $m
  11,568
  12,511
  13,491
  14,510
  15,569
  16,669
  17,813
  19,002
  20,238
  21,524
  22,863
  24,257
  25,709
  27,224
  28,803
  30,450
  32,171
  33,967
  35,844
  37,806
  39,857
  42,002
  44,247
  46,597
  49,057
  51,633
  54,332
  57,159
  60,121
  63,226
Debt-to-equity ratio
  0.320
  0.370
  0.420
  0.450
  0.490
  0.520
  0.550
  0.570
  0.600
  0.620
  0.640
  0.660
  0.680
  0.690
  0.710
  0.720
  0.730
  0.750
  0.760
  0.770
  0.780
  0.790
  0.800
  0.810
  0.810
  0.820
  0.830
  0.840
  0.840
  0.850
Adjusted equity ratio
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -3,786
  -4,075
  -4,376
  -4,689
  -5,014
  -5,351
  -5,702
  -6,067
  -6,446
  -6,841
  -6,751
  -7,178
  -7,624
  -8,089
  -8,573
  -9,078
  -9,606
  -10,157
  -10,732
  -11,334
  -11,963
  -12,621
  -13,309
  -14,029
  -14,784
  -15,573
  -16,401
  -17,267
  -18,176
  -19,128
Depreciation, amort., depletion, $m
  1,158
  1,212
  1,268
  1,326
  1,386
  1,448
  1,513
  1,581
  1,651
  1,724
  1,300
  1,379
  1,462
  1,548
  1,638
  1,731
  1,829
  1,931
  2,038
  2,150
  2,266
  2,388
  2,516
  2,649
  2,789
  2,936
  3,089
  3,250
  3,418
  3,595
Funds from operations, $m
  -2,628
  -2,863
  -3,108
  -3,363
  -3,628
  -3,903
  -4,189
  -4,486
  -4,795
  -5,116
  -5,451
  -5,799
  -6,162
  -6,541
  -6,935
  -7,347
  -7,777
  -8,225
  -8,694
  -9,184
  -9,697
  -10,233
  -10,793
  -11,380
  -11,994
  -12,638
  -13,312
  -14,018
  -14,757
  -15,533
Change in working capital, $m
  46
  48
  50
  52
  54
  56
  58
  61
  63
  65
  68
  71
  74
  77
  80
  84
  88
  91
  96
  100
  104
  109
  114
  120
  125
  131
  137
  144
  151
  158
Cash from operations, $m
  -2,674
  -2,911
  -3,158
  -3,415
  -3,682
  -3,959
  -4,247
  -4,546
  -4,858
  -5,182
  -5,519
  -5,870
  -6,236
  -6,618
  -7,016
  -7,431
  -7,864
  -8,317
  -8,790
  -9,284
  -9,801
  -10,342
  -10,908
  -11,500
  -12,120
  -12,769
  -13,449
  -14,162
  -14,908
  -15,691
Maintenance CAPEX, $m
  -606
  -658
  -711
  -767
  -825
  -885
  -948
  -1,013
  -1,080
  -1,151
  -1,224
  -1,300
  -1,379
  -1,462
  -1,548
  -1,638
  -1,731
  -1,829
  -1,931
  -2,038
  -2,150
  -2,266
  -2,388
  -2,516
  -2,649
  -2,789
  -2,936
  -3,089
  -3,250
  -3,418
New CAPEX, $m
  -257
  -268
  -279
  -290
  -301
  -313
  -325
  -338
  -351
  -366
  -381
  -396
  -413
  -430
  -449
  -468
  -489
  -511
  -534
  -558
  -583
  -610
  -638
  -668
  -699
  -732
  -767
  -804
  -842
  -883
Cash from investing activities, $m
  -863
  -926
  -990
  -1,057
  -1,126
  -1,198
  -1,273
  -1,351
  -1,431
  -1,517
  -1,605
  -1,696
  -1,792
  -1,892
  -1,997
  -2,106
  -2,220
  -2,340
  -2,465
  -2,596
  -2,733
  -2,876
  -3,026
  -3,184
  -3,348
  -3,521
  -3,703
  -3,893
  -4,092
  -4,301
Free cash flow, $m
  -3,537
  -3,837
  -4,148
  -4,472
  -4,808
  -5,157
  -5,520
  -5,897
  -6,290
  -6,698
  -7,123
  -7,567
  -8,028
  -8,510
  -9,012
  -9,537
  -10,085
  -10,657
  -11,255
  -11,880
  -12,534
  -13,218
  -13,934
  -14,683
  -15,468
  -16,290
  -17,152
  -18,054
  -19,000
  -19,992
Issuance/(repayment) of debt, $m
  444
  463
  481
  500
  520
  540
  561
  584
  607
  632
  657
  685
  713
  743
  775
  809
  845
  882
  922
  963
  1,007
  1,053
  1,102
  1,154
  1,208
  1,265
  1,325
  1,388
  1,455
  1,525
Issuance/(repurchase) of shares, $m
  4,251
  4,555
  4,875
  5,207
  5,552
  5,911
  6,284
  6,672
  7,075
  7,495
  7,432
  7,888
  8,363
  8,859
  9,377
  9,917
  10,481
  11,071
  11,688
  12,332
  13,007
  13,713
  14,452
  15,225
  16,036
  16,885
  17,774
  18,706
  19,684
  20,708
Cash from financing (excl. dividends), $m  
  4,695
  5,018
  5,356
  5,707
  6,072
  6,451
  6,845
  7,256
  7,682
  8,127
  8,089
  8,573
  9,076
  9,602
  10,152
  10,726
  11,326
  11,953
  12,610
  13,295
  14,014
  14,766
  15,554
  16,379
  17,244
  18,150
  19,099
  20,094
  21,139
  22,233
Total cash flow (excl. dividends), $m
  1,158
  1,181
  1,208
  1,236
  1,265
  1,295
  1,326
  1,359
  1,393
  1,429
  966
  1,006
  1,048
  1,093
  1,140
  1,189
  1,241
  1,296
  1,354
  1,416
  1,480
  1,548
  1,620
  1,696
  1,775
  1,859
  1,947
  2,040
  2,138
  2,241
Retained Cash Flow (-), $m
  -4,251
  -4,555
  -4,875
  -5,207
  -5,552
  -5,911
  -6,284
  -6,672
  -7,075
  -7,495
  -7,432
  -7,888
  -8,363
  -8,859
  -9,377
  -9,917
  -10,481
  -11,071
  -11,688
  -12,332
  -13,007
  -13,713
  -14,452
  -15,225
  -16,036
  -16,885
  -17,774
  -18,706
  -19,684
  -20,708
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
  -3,094
  -3,374
  -3,667
  -3,971
  -4,288
  -4,617
  -4,958
  -5,313
  -5,682
  -6,066
  -6,466
  -6,882
  -7,315
  -7,767
  -8,237
  -8,728
  -9,240
  -9,775
  -10,333
  -10,917
  -11,527
  -12,164
  -12,832
  -13,530
  -14,260
  -15,026
  -15,827
  -16,666
  -17,546
  -18,467
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
  -2,966
  -3,089
  -3,191
  -3,270
  -3,324
  -3,350
  -3,350
  -3,321
  -3,264
  -3,180
  -3,071
  -2,937
  -2,781
  -2,607
  -2,418
  -2,218
  -2,010
  -1,800
  -1,591
  -1,387
  -1,192
  -1,009
  -841
  -689
  -555
  -438
  -340
  -258
  -192
  -139
Current shareholders' claim on cash, %
  47.2
  22.4
  10.7
  5.1
  2.5
  1.2
  0.6
  0.3
  0.1
  0.1
  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
  0.0
  0.0
  0.0
  0.0
  0.0

Pearson plc (Pearson) is a learning company. The Company delivers learning through providing a range of educational products and services to institutions, governments, professional bodies and individual learners. The Company operates through three segments, which include North America, Core and Growth. The Company's North America segment includes Courseware, Assessments and Services businesses in the United States and Canada. The Company's Core segment includes Courseware, Assessments and Services businesses in more mature markets including the United Kingdom, Australia and Italy. The Company's Growth segment includes Courseware, Assessments and Services businesses in emerging markets including Brazil, China, India and South Africa. The Company provides content, assessment and digital services to schools, colleges and universities, as well as professional and vocational education to learners to help increase their skills and employability prospects.

FINANCIAL RATIOS  of  Pearson ADR (PSO)

Valuation Ratios
P/E Ratio -3
Price to Sales 1.5
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 17
Price to Free Cash Flow 42.3
Growth Rates
Sales Growth Rate 1.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -0.7%
Cap. Spend. - 3 Yr. Gr. Rate 6.2%
Financial Strength
Quick Ratio 34
Current Ratio 0.5
LT Debt to Equity 55.8%
Total Debt to Equity 56.8%
Interest Coverage -37
Management Effectiveness
Return On Assets -21%
Ret/ On Assets - 3 Yr. Avg. -2.8%
Return On Total Capital -30%
Ret/ On T. Cap. - 3 Yr. Avg. -4.8%
Return On Equity -43.4%
Return On Equity - 3 Yr. Avg. -7.4%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 54%
Gross Margin - 3 Yr. Avg. 55%
EBITDA Margin -46.7%
EBITDA Margin - 3 Yr. Avg. -3.8%
Operating Margin -54.8%
Oper. Margin - 3 Yr. Avg. -18.7%
Pre-Tax Margin -56.2%
Pre-Tax Margin - 3 Yr. Avg. -20.1%
Net Profit Margin -51.3%
Net Profit Margin - 3 Yr. Avg. -7.5%
Effective Tax Rate 8.7%
Eff/ Tax Rate - 3 Yr. Avg. 16.4%
Payout Ratio -18.1%

PSO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PSO stock intrinsic value calculation we used $6098.64864865 million for the last fiscal year's total revenue generated by Pearson ADR. The default revenue input number comes from 0001 income statement of Pearson 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 PSO stock valuation model: a) initial revenue growth rate of 8.5% 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 PSO is calculated based on our internal credit rating of Pearson 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 Pearson 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 PSO stock the variable cost ratio is equal to 156.4%.

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 PSO 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 6.6% for Pearson ADR.

Corporate tax rate of 27% is the nominal tax rate for Pearson 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 PSO 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 PSO are equal to 49.7%.

Life of production assets of 0 years is the average useful life of capital assets used in Pearson 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 PSO is equal to 8.9%. 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 - $5422.97297297 million for Pearson 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 24.132 million for Pearson 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 Pearson ADR at the current share price and the inputted number of shares is $0.3 billion.

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