The Hanover Insurance Group, Inc. is a holding company. The Company is engaged in providing property and casualty insurance products and services. The Company has four segments: Commercial Lines, Personal Lines, Chaucer and Other. It markets its domestic products and services through independent agents and brokers in the United States, and conducts business internationally through a subsidiary, Chaucer Holdings Limited, which operates through the Society and Corporation of Lloyd's (Lloyd's). Its Commercial Lines product suite provides agents and customers with products designed for small, middle and specialized markets. Its Personal Lines coverages include other personal lines, which consist of umbrella and fire, among others. The Chaucer segment consists of international business written through Lloyd's, including marine and aviation, and property. The Other segment consists of Opus Investment Management, Inc. (Opus), which provides investment advisory services to affiliates.
FINANCIAL RATIOS of Hanover Insurance Group (THG)
Valuation Ratios 

P/E Ratio  35.3 
Price to Sales  1.1 
Price to Book  1.9 
Price to Tangible Book  
Price to Cash Flow  7.4 
Price to Free Cash Flow  7.6 
Growth Rates 

Sales Growth Rate  1.7% 
Sales  3 Yr. Growth Rate  % 
EPS Growth Rate  % 
EPS  3 Yr. Growth Rate  % 
Capital Spending Gr. Rate  20% 
Cap. Spend.  3 Yr. Gr. Rate  7% 
Financial Strength 

Quick Ratio  NaN 
Current Ratio  NaN 
LT Debt to Equity  27.5% 
Total Debt to Equity  27.5% 
Interest Coverage  5 
Management Effectiveness 

Return On Assets  1.4% 
Ret/ On Assets  3 Yr. Avg.  2.2% 
Return On Total Capital  4.3% 
Ret/ On T. Cap.  3 Yr. Avg.  7% 
Return On Equity  5.4% 
Return On Equity  3 Yr. Avg.  9.2% 
Asset Turnover  0.4 
Profitability Ratios 

Gross Margin  0% 
Gross Margin  3 Yr. Avg.  0% 
EBITDA Margin  5.5% 
EBITDA Margin  3 Yr. Avg.  8.5% 
Operating Margin  5% 
Oper. Margin  3 Yr. Avg.  7.9% 
PreTax Margin  3.9% 
PreTax Margin  3 Yr. Avg.  6.7% 
Net Profit Margin  3.1% 
Net Profit Margin  3 Yr. Avg.  5.1% 
Effective Tax Rate  18.8% 
Eff/ Tax Rate  3 Yr. Avg.  22.9% 
Payout Ratio  51.6% 
THG stock valuation input parameters
Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the THG stock intrinsic value calculation we used $5184 million for the last fiscal year's total revenue generated by Hanover Insurance Group. The default revenue input number comes from 2017 income statement of Hanover Insurance Group. 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 THG stock valuation model: a) initial revenue growth rate of 4.8% 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 13%, whose default value for THG is calculated based on our internal credit rating of Hanover Insurance Group, 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 Hanover Insurance Group.
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 THG stock the variable cost ratio is equal to 93.2%.
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 THG stock. These expenses increase with the level of inflation in subsequent years.
Interest rate on debt is the average allin rate of interest paid by the company on its debt. It is set at 5.4% for Hanover Insurance Group.
Corporate tax rate of 27% is the nominal tax rate for Hanover Insurance Group. 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 optionsrelated 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 THG stock is equal to 0.2%.
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 THG are equal to 292.1%.
Life of production assets of 10 years is the average useful life of capital assets used in Hanover Insurance Group 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 THG is equal to 236.9%. 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 inkind financing to others or is not good at managing its inventories.
Book value of equity  $0 million for Hanover Insurance Group  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 43 million for Hanover Insurance Group 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 Hanover Insurance Group at the current share price and the inputted number of shares is $5.6 billion.