Intrinsic value of Quality Systems - QSII

Previous Close

$22.35

  Intrinsic Value

$7.36

stock screener

  Rating & Target

str. sell

-67%

Previous close

$22.35

 
Intrinsic value

$7.36

 
Up/down potential

-67%

 
Rating

str. sell

We calculate the intrinsic value of QSII 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 1.4

 

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, %
  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
  542
  554
  568
  584
  602
  621
  643
  666
  690
  717
  745
  775
  807
  842
  878
  917
  957
  1,000
  1,046
  1,094
  1,145
  1,198
  1,254
  1,314
  1,376
  1,442
  1,512
  1,584
  1,661
  1,742
Variable operating expenses, $m
  512
  523
  536
  550
  566
  583
  602
  622
  644
  668
  661
  688
  716
  746
  779
  813
  849
  887
  928
  970
  1,015
  1,063
  1,113
  1,165
  1,221
  1,279
  1,341
  1,405
  1,473
  1,545
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
  512
  523
  536
  550
  566
  583
  602
  622
  644
  668
  661
  688
  716
  746
  779
  813
  849
  887
  928
  970
  1,015
  1,063
  1,113
  1,165
  1,221
  1,279
  1,341
  1,405
  1,473
  1,545
Operating income, $m
  29
  31
  32
  34
  36
  38
  41
  43
  46
  49
  84
  88
  91
  95
  99
  104
  108
  113
  118
  124
  129
  136
  142
  149
  156
  163
  171
  179
  188
  197
EBITDA, $m
  84
  86
  88
  90
  93
  96
  99
  103
  107
  111
  115
  120
  125
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  234
  245
  257
  269
Interest expense (income), $m
  2
  5
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  15
  16
  18
  19
  21
  23
  24
  26
  29
  31
  33
  36
  38
  41
  44
  47
  50
  54
  57
Earnings before tax, $m
  25
  26
  27
  28
  29
  30
  32
  33
  35
  37
  71
  73
  75
  78
  80
  83
  86
  89
  92
  95
  99
  102
  106
  110
  115
  119
  124
  129
  134
  140
Tax expense, $m
  7
  7
  7
  7
  8
  8
  9
  9
  10
  10
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
Net income, $m
  18
  19
  19
  20
  21
  22
  23
  24
  26
  27
  52
  53
  55
  57
  59
  60
  63
  65
  67
  69
  72
  75
  78
  81
  84
  87
  91
  94
  98
  102

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
  526
  538
  552
  567
  585
  603
  624
  646
  670
  696
  723
  753
  784
  817
  852
  890
  929
  971
  1,015
  1,062
  1,111
  1,163
  1,218
  1,276
  1,336
  1,400
  1,467
  1,538
  1,613
  1,691
Adjusted assets (=assets-cash), $m
  526
  538
  552
  567
  585
  603
  624
  646
  670
  696
  723
  753
  784
  817
  852
  890
  929
  971
  1,015
  1,062
  1,111
  1,163
  1,218
  1,276
  1,336
  1,400
  1,467
  1,538
  1,613
  1,691
Revenue / Adjusted assets
  1.030
  1.030
  1.029
  1.030
  1.029
  1.030
  1.030
  1.031
  1.030
  1.030
  1.030
  1.029
  1.029
  1.031
  1.031
  1.030
  1.030
  1.030
  1.031
  1.030
  1.031
  1.030
  1.030
  1.030
  1.030
  1.030
  1.031
  1.030
  1.030
  1.030
Average production assets, $m
  178
  182
  186
  192
  197
  204
  211
  218
  226
  235
  244
  254
  265
  276
  288
  301
  314
  328
  343
  359
  375
  393
  411
  431
  451
  473
  496
  520
  545
  571
Working capital, $m
  -24
  -25
  -26
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -56
  -59
  -62
  -65
  -68
  -71
  -75
  -78
Total debt, $m
  41
  45
  50
  56
  63
  70
  77
  86
  95
  104
  114
  125
  137
  149
  163
  177
  191
  207
  223
  241
  259
  279
  299
  320
  343
  367
  392
  418
  446
  475
Total liabilities, $m
  196
  201
  206
  212
  218
  225
  233
  241
  250
  260
  270
  281
  292
  305
  318
  332
  347
  362
  379
  396
  414
  434
  454
  476
  498
  522
  547
  574
  602
  631
Total equity, $m
  330
  337
  346
  356
  366
  378
  391
  405
  420
  436
  454
  472
  492
  512
  534
  558
  583
  609
  637
  666
  697
  729
  764
  800
  838
  878
  920
  965
  1,011
  1,060
Total liabilities and equity, $m
  526
  538
  552
  568
  584
  603
  624
  646
  670
  696
  724
  753
  784
  817
  852
  890
  930
  971
  1,016
  1,062
  1,111
  1,163
  1,218
  1,276
  1,336
  1,400
  1,467
  1,539
  1,613
  1,691
Debt-to-equity ratio
  0.120
  0.130
  0.150
  0.160
  0.170
  0.180
  0.200
  0.210
  0.230
  0.240
  0.250
  0.270
  0.280
  0.290
  0.300
  0.320
  0.330
  0.340
  0.350
  0.360
  0.370
  0.380
  0.390
  0.400
  0.410
  0.420
  0.430
  0.430
  0.440
  0.450
Adjusted equity ratio
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  18
  19
  19
  20
  21
  22
  23
  24
  26
  27
  52
  53
  55
  57
  59
  60
  63
  65
  67
  69
  72
  75
  78
  81
  84
  87
  91
  94
  98
  102
Depreciation, amort., depletion, $m
  54
  55
  56
  56
  57
  58
  59
  60
  61
  62
  31
  32
  34
  35
  36
  38
  40
  42
  43
  45
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
Funds from operations, $m
  72
  74
  75
  76
  78
  80
  82
  84
  86
  89
  83
  86
  88
  92
  95
  99
  102
  106
  110
  115
  120
  124
  130
  135
  141
  147
  153
  160
  167
  174
Change in working capital, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
Cash from operations, $m
  73
  74
  76
  77
  79
  81
  83
  85
  87
  90
  84
  87
  90
  93
  97
  100
  104
  108
  113
  117
  122
  127
  132
  138
  144
  150
  156
  163
  171
  178
Maintenance CAPEX, $m
  -22
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -40
  -42
  -43
  -45
  -48
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
New CAPEX, $m
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -21
  -22
  -23
  -24
  -25
  -26
Cash from investing activities, $m
  -26
  -26
  -28
  -29
  -30
  -31
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -57
  -59
  -62
  -66
  -68
  -71
  -76
  -79
  -83
  -87
  -91
  -95
Free cash flow, $m
  47
  48
  48
  48
  49
  49
  50
  51
  52
  53
  45
  46
  47
  48
  50
  51
  53
  54
  56
  58
  60
  62
  64
  66
  69
  71
  74
  77
  80
  83
Issuance/(repayment) of debt, $m
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  22
  23
  24
  25
  26
  28
  29
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  22
  23
  24
  25
  26
  28
  29
Total cash flow (excl. dividends), $m
  51
  52
  53
  54
  55
  56
  58
  59
  61
  62
  55
  57
  59
  61
  63
  65
  67
  70
  73
  75
  78
  81
  84
  88
  91
  95
  99
  103
  107
  112
Retained Cash Flow (-), $m
  -6
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
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
  45
  44
  44
  44
  44
  45
  45
  45
  46
  46
  38
  39
  39
  40
  41
  42
  43
  44
  45
  46
  47
  49
  50
  52
  53
  55
  57
  59
  61
  63
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
  43
  41
  39
  37
  34
  32
  30
  28
  26
  24
  18
  16
  15
  13
  12
  11
  9
  8
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Quality Systems, Inc. (QSI) primarily, through its NextGen Healthcare subsidiary, provides technology-based solutions and services to the ambulatory care market in the United States. The Company is engaged in developing and marketing software and services that automate certain aspects of practice management (PM) and electronic health records (EHR) for medical and dental practices. The Company operates through three segments: the NextGen Division, the RCM Services Division and the QSI Dental Division. It also provides implementation, training, support and maintenance for software and complementary services, such as revenue cycle management (RCM) and electronic data interchange (EDI). The Company's clients include single and small practice physicians, networks of practices, such as physician hospital organizations (PHOs), management service organizations (MSOs), accountable care organizations (ACOs), ambulatory care centers, community health centers, and medical and dental schools.

FINANCIAL RATIOS  of  Quality Systems (QSII)

Valuation Ratios
P/E Ratio 77.5
Price to Sales 2.7
Price to Book 4.6
Price to Tangible Book
Price to Cash Flow 12.6
Price to Free Cash Flow 15.3
Growth Rates
Sales Growth Rate 3.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -31%
Cap. Spend. - 3 Yr. Gr. Rate -7.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 4.9%
Total Debt to Equity 4.9%
Interest Coverage 13
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. 3.8%
Return On Total Capital 5.2%
Ret/ On T. Cap. - 3 Yr. Avg. 5.4%
Return On Equity 6.3%
Return On Equity - 3 Yr. Avg. 5.9%
Asset Turnover 1
Profitability Ratios
Gross Margin 56.1%
Gross Margin - 3 Yr. Avg. 54.9%
EBITDA Margin 12.9%
EBITDA Margin - 3 Yr. Avg. 11.2%
Operating Margin 5.3%
Oper. Margin - 3 Yr. Avg. 4.7%
Pre-Tax Margin 4.7%
Pre-Tax Margin - 3 Yr. Avg. 4.4%
Net Profit Margin 3.5%
Net Profit Margin - 3 Yr. Avg. 3.4%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 16.7%
Payout Ratio 0%

QSII stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the QSII stock intrinsic value calculation we used $531.019 million for the last fiscal year's total revenue generated by Quality Systems. The default revenue input number comes from 0001 income statement of Quality Systems. 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 QSII 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 QSII is calculated based on our internal credit rating of Quality Systems, 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 Quality Systems.
    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 QSII stock the variable cost ratio is equal to 94.7%.

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 QSII 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 12.8% for Quality Systems.

Corporate tax rate of 27% is the nominal tax rate for Quality Systems. 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 QSII 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 QSII are equal to 32.8%.

Life of production assets of 7.9 years is the average useful life of capital assets used in Quality Systems 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 QSII is equal to -4.5%. 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 - $323.41 million for Quality Systems - 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 64.217 million for Quality Systems 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 Quality Systems at the current share price and the inputted number of shares is $1.4 billion.

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