Intrinsic value of Vertex Pharmaceuticals Incorporated - VRTX

Previous Close

$181.53

  Intrinsic Value

$475.09

stock screener

  Rating & Target

str. buy

+162%

Previous close

$181.53

 
Intrinsic value

$475.09

 
Up/down potential

+162%

 
Rating

str. buy

We calculate the intrinsic value of VRTX 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 46.4

 

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, %
  33.50
  30.65
  28.09
  25.78
  23.70
  21.83
  20.15
  18.63
  17.27
  16.04
  14.94
  13.94
  13.05
  12.24
  11.52
  10.87
  10.28
  9.75
  9.28
  8.85
  8.46
  8.12
  7.81
  7.53
  7.27
  7.05
  6.84
  6.66
  6.49
  6.34
Revenue, $m
  4,069
  5,316
  6,809
  8,565
  10,594
  12,907
  15,507
  18,396
  21,573
  25,034
  28,773
  32,785
  37,063
  41,601
  46,394
  51,436
  56,724
  62,256
  68,032
  74,053
  80,321
  86,842
  93,622
  100,667
  107,989
  115,598
  123,507
  131,729
  140,280
  149,177
Variable operating expenses, $m
  771
  1,006
  1,288
  1,618
  2,001
  2,436
  2,926
  3,470
  4,068
  4,720
  5,420
  6,175
  6,981
  7,836
  8,739
  9,688
  10,684
  11,727
  12,814
  13,949
  15,129
  16,358
  17,635
  18,962
  20,341
  21,774
  23,264
  24,812
  26,423
  28,099
Fixed operating expenses, $m
  1,977
  2,020
  2,064
  2,110
  2,156
  2,204
  2,252
  2,302
  2,352
  2,404
  2,457
  2,511
  2,566
  2,623
  2,681
  2,739
  2,800
  2,861
  2,924
  2,989
  3,054
  3,122
  3,190
  3,260
  3,332
  3,405
  3,480
  3,557
  3,635
  3,715
Total operating expenses, $m
  2,748
  3,026
  3,352
  3,728
  4,157
  4,640
  5,178
  5,772
  6,420
  7,124
  7,877
  8,686
  9,547
  10,459
  11,420
  12,427
  13,484
  14,588
  15,738
  16,938
  18,183
  19,480
  20,825
  22,222
  23,673
  25,179
  26,744
  28,369
  30,058
  31,814
Operating income, $m
  1,321
  2,290
  3,457
  4,836
  6,437
  8,267
  10,329
  12,624
  15,152
  17,909
  20,896
  24,098
  27,516
  31,142
  34,974
  39,008
  43,240
  47,668
  52,293
  57,116
  62,138
  67,363
  72,797
  78,445
  84,316
  90,419
  96,763
  103,360
  110,222
  117,363
EBITDA, $m
  1,419
  2,416
  3,617
  5,036
  6,683
  8,566
  10,687
  13,048
  15,648
  18,484
  21,551
  24,844
  28,359
  32,089
  36,030
  40,178
  44,530
  49,085
  53,841
  58,800
  63,965
  69,339
  74,927
  80,736
  86,773
  93,049
  99,573
  106,356
  113,413
  120,757
Interest expense (income), $m
  84
  34
  68
  110
  160
  219
  288
  366
  453
  550
  657
  774
  900
  1,035
  1,179
  1,332
  1,493
  1,663
  1,841
  2,027
  2,222
  2,424
  2,635
  2,855
  3,083
  3,320
  3,567
  3,823
  4,089
  4,366
  4,654
Earnings before tax, $m
  1,287
  2,222
  3,347
  4,676
  6,218
  7,979
  9,963
  12,171
  14,602
  17,252
  20,122
  23,199
  26,481
  29,964
  33,643
  37,515
  41,577
  45,827
  50,266
  54,894
  59,713
  64,728
  69,942
  75,362
  80,996
  86,852
  92,940
  99,270
  105,856
  112,709
Tax expense, $m
  348
  600
  904
  1,263
  1,679
  2,154
  2,690
  3,286
  3,942
  4,658
  5,433
  6,264
  7,150
  8,090
  9,084
  10,129
  11,226
  12,373
  13,572
  14,821
  16,123
  17,476
  18,884
  20,348
  21,869
  23,450
  25,094
  26,803
  28,581
  30,431
Net income, $m
  940
  1,622
  2,443
  3,414
  4,539
  5,825
  7,273
  8,885
  10,659
  12,594
  14,689
  16,935
  19,331
  21,873
  24,559
  27,386
  30,351
  33,454
  36,694
  40,073
  43,591
  47,251
  51,058
  55,014
  59,127
  63,402
  67,846
  72,467
  77,275
  82,278

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
  5,589
  7,303
  9,353
  11,764
  14,553
  17,729
  21,301
  25,270
  29,633
  34,387
  39,523
  45,034
  50,911
  57,145
  63,728
  70,653
  77,917
  85,517
  93,451
  101,721
  110,331
  119,289
  128,601
  138,279
  148,337
  158,789
  169,652
  180,946
  192,693
  204,914
Adjusted assets (=assets-cash), $m
  5,589
  7,303
  9,353
  11,764
  14,553
  17,729
  21,301
  25,270
  29,633
  34,387
  39,523
  45,034
  50,911
  57,145
  63,728
  70,653
  77,917
  85,517
  93,451
  101,721
  110,331
  119,289
  128,601
  138,279
  148,337
  158,789
  169,652
  180,946
  192,693
  204,914
Revenue / Adjusted assets
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
  0.728
Average production assets, $m
  1,111
  1,451
  1,859
  2,338
  2,892
  3,524
  4,233
  5,022
  5,889
  6,834
  7,855
  8,950
  10,118
  11,357
  12,665
  14,042
  15,486
  16,996
  18,573
  20,216
  21,928
  23,708
  25,559
  27,482
  29,481
  31,558
  33,717
  35,962
  38,297
  40,725
Working capital, $m
  -582
  -760
  -974
  -1,225
  -1,515
  -1,846
  -2,218
  -2,631
  -3,085
  -3,580
  -4,115
  -4,688
  -5,300
  -5,949
  -6,634
  -7,355
  -8,112
  -8,903
  -9,729
  -10,590
  -11,486
  -12,418
  -13,388
  -14,395
  -15,442
  -16,531
  -17,661
  -18,837
  -20,060
  -21,332
Total debt, $m
  1,194
  1,931
  2,812
  3,849
  5,048
  6,414
  7,950
  9,656
  11,533
  13,577
  15,785
  18,155
  20,682
  23,363
  26,193
  29,171
  32,295
  35,563
  38,974
  42,530
  46,233
  50,085
  54,089
  58,251
  62,575
  67,070
  71,741
  76,597
  81,648
  86,904
Total liabilities, $m
  2,403
  3,140
  4,022
  5,059
  6,258
  7,624
  9,159
  10,866
  12,742
  14,786
  16,995
  19,365
  21,892
  24,572
  27,403
  30,381
  33,504
  36,772
  40,184
  43,740
  47,443
  51,294
  55,298
  59,460
  63,785
  68,279
  72,950
  77,807
  82,858
  88,113
Total equity, $m
  3,186
  4,162
  5,331
  6,706
  8,295
  10,106
  12,142
  14,404
  16,891
  19,600
  22,528
  25,670
  29,019
  32,572
  36,325
  40,272
  44,413
  48,744
  53,267
  57,981
  62,889
  67,995
  73,303
  78,819
  84,552
  90,510
  96,702
  103,139
  109,835
  116,801
Total liabilities and equity, $m
  5,589
  7,302
  9,353
  11,765
  14,553
  17,730
  21,301
  25,270
  29,633
  34,386
  39,523
  45,035
  50,911
  57,144
  63,728
  70,653
  77,917
  85,516
  93,451
  101,721
  110,332
  119,289
  128,601
  138,279
  148,337
  158,789
  169,652
  180,946
  192,693
  204,914
Debt-to-equity ratio
  0.370
  0.460
  0.530
  0.570
  0.610
  0.630
  0.650
  0.670
  0.680
  0.690
  0.700
  0.710
  0.710
  0.720
  0.720
  0.720
  0.730
  0.730
  0.730
  0.730
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
  0.740
Adjusted equity ratio
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  940
  1,622
  2,443
  3,414
  4,539
  5,825
  7,273
  8,885
  10,659
  12,594
  14,689
  16,935
  19,331
  21,873
  24,559
  27,386
  30,351
  33,454
  36,694
  40,073
  43,591
  47,251
  51,058
  55,014
  59,127
  63,402
  67,846
  72,467
  77,275
  82,278
Depreciation, amort., depletion, $m
  98
  126
  160
  200
  246
  299
  358
  424
  496
  575
  655
  746
  843
  946
  1,055
  1,170
  1,290
  1,416
  1,548
  1,685
  1,827
  1,976
  2,130
  2,290
  2,457
  2,630
  2,810
  2,997
  3,191
  3,394
Funds from operations, $m
  1,037
  1,748
  2,603
  3,613
  4,785
  6,123
  7,631
  9,308
  11,155
  13,168
  15,344
  17,681
  20,174
  22,820
  25,615
  28,556
  31,642
  34,870
  38,242
  41,757
  45,418
  49,227
  53,188
  57,305
  61,584
  66,032
  70,656
  75,464
  80,466
  85,672
Change in working capital, $m
  -146
  -178
  -214
  -251
  -290
  -331
  -372
  -413
  -454
  -495
  -535
  -574
  -612
  -649
  -685
  -721
  -756
  -791
  -826
  -861
  -896
  -932
  -969
  -1,008
  -1,047
  -1,088
  -1,131
  -1,176
  -1,223
  -1,272
Cash from operations, $m
  1,183
  1,926
  2,817
  3,864
  5,075
  6,454
  8,003
  9,722
  11,609
  13,663
  15,879
  18,255
  20,786
  23,469
  26,300
  29,277
  32,398
  35,661
  39,068
  42,618
  46,314
  50,159
  54,157
  58,312
  62,631
  67,120
  71,787
  76,640
  81,689
  86,944
Maintenance CAPEX, $m
  -69
  -93
  -121
  -155
  -195
  -241
  -294
  -353
  -419
  -491
  -570
  -655
  -746
  -843
  -946
  -1,055
  -1,170
  -1,290
  -1,416
  -1,548
  -1,685
  -1,827
  -1,976
  -2,130
  -2,290
  -2,457
  -2,630
  -2,810
  -2,997
  -3,191
New CAPEX, $m
  -278
  -340
  -408
  -479
  -554
  -631
  -710
  -789
  -867
  -945
  -1,021
  -1,095
  -1,168
  -1,239
  -1,308
  -1,376
  -1,444
  -1,510
  -1,577
  -1,644
  -1,711
  -1,780
  -1,851
  -1,924
  -1,999
  -2,077
  -2,159
  -2,245
  -2,334
  -2,429
Cash from investing activities, $m
  -347
  -433
  -529
  -634
  -749
  -872
  -1,004
  -1,142
  -1,286
  -1,436
  -1,591
  -1,750
  -1,914
  -2,082
  -2,254
  -2,431
  -2,614
  -2,800
  -2,993
  -3,192
  -3,396
  -3,607
  -3,827
  -4,054
  -4,289
  -4,534
  -4,789
  -5,055
  -5,331
  -5,620
Free cash flow, $m
  836
  1,493
  2,288
  3,230
  4,326
  5,582
  6,999
  8,580
  10,324
  12,228
  14,288
  16,505
  18,872
  21,387
  24,045
  26,845
  29,784
  32,861
  36,075
  39,427
  42,918
  46,552
  50,331
  54,259
  58,342
  62,586
  66,998
  71,586
  76,358
  81,324
Issuance/(repayment) of debt, $m
  603
  737
  882
  1,037
  1,199
  1,366
  1,536
  1,707
  1,876
  2,044
  2,209
  2,370
  2,527
  2,680
  2,831
  2,978
  3,123
  3,268
  3,412
  3,556
  3,703
  3,852
  4,004
  4,162
  4,325
  4,494
  4,671
  4,857
  5,051
  5,255
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  
  603
  737
  882
  1,037
  1,199
  1,366
  1,536
  1,707
  1,876
  2,044
  2,209
  2,370
  2,527
  2,680
  2,831
  2,978
  3,123
  3,268
  3,412
  3,556
  3,703
  3,852
  4,004
  4,162
  4,325
  4,494
  4,671
  4,857
  5,051
  5,255
Total cash flow (excl. dividends), $m
  1,439
  2,230
  3,170
  4,267
  5,525
  6,948
  8,535
  10,287
  12,200
  14,272
  16,497
  18,874
  21,399
  24,067
  26,876
  29,823
  32,907
  36,128
  39,486
  42,983
  46,621
  50,403
  54,335
  58,421
  62,667
  67,080
  71,669
  76,442
  81,409
  86,579
Retained Cash Flow (-), $m
  -799
  -976
  -1,169
  -1,374
  -1,589
  -1,811
  -2,036
  -2,262
  -2,487
  -2,710
  -2,928
  -3,141
  -3,350
  -3,553
  -3,752
  -3,948
  -4,140
  -4,332
  -4,522
  -4,714
  -4,908
  -5,106
  -5,308
  -5,517
  -5,733
  -5,958
  -6,192
  -6,438
  -6,695
  -6,966
Prev. year cash balance distribution, $m
  2,048
  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
  2,688
  1,253
  2,001
  2,893
  3,936
  5,137
  6,499
  8,025
  9,713
  11,562
  13,569
  15,733
  18,049
  20,514
  23,124
  25,875
  28,767
  31,797
  34,964
  38,269
  41,713
  45,298
  49,027
  52,904
  56,934
  61,123
  65,477
  70,004
  74,713
  79,613
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
  2,577
  1,147
  1,742
  2,382
  3,051
  3,728
  4,391
  5,016
  5,579
  6,062
  6,444
  6,714
  6,863
  6,887
  6,789
  6,575
  6,259
  5,856
  5,383
  4,863
  4,315
  3,759
  3,213
  2,694
  2,215
  1,783
  1,405
  1,083
  816
  599
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
  100.0
  100.0

Vertex Pharmaceuticals Incorporated is engaged in discovering, developing, manufacturing and commercializing medicines for serious diseases. The Company is focused on developing and commercializing therapies for the treatment of cystic fibrosis (CF) and advancing its research and development programs in other indications. The Company's marketed medicines are ORKAMBI and KALYDECO. ORKAMBI (lumacaftor in combination with ivacaftor) is approved as a treatment for patients having two copies (homozygous) of the Delta-F508 (F508del) mutation in their cystic fibrosis transmembrane conductance regulator (CFTR) gene. KALYDECO (ivacaftor) is approved for the treatment of CF patients having the G551D mutation or other specified mutations in their CFTR gene. The Company's development programs in the field of CF include Tezacaftor (VX-661), VX-152, VX-440, VX-659, VX-445 and VX-371. VX-152, VX-440, VX-659 and VX-445 are CFTR corrector compounds.

FINANCIAL RATIOS  of  Vertex Pharmaceuticals Incorporated (VRTX)

Valuation Ratios
P/E Ratio -402.4
Price to Sales 26.5
Price to Book 39
Price to Tangible Book
Price to Cash Flow 191
Price to Free Cash Flow 251.8
Growth Rates
Sales Growth Rate 64.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 26.7%
Cap. Spend. - 3 Yr. Gr. Rate 2.2%
Financial Strength
Quick Ratio 4
Current Ratio 0.1
LT Debt to Equity 45.1%
Total Debt to Equity 72.7%
Interest Coverage 0
Management Effectiveness
Return On Assets -0.2%
Ret/ On Assets - 3 Yr. Avg. -16.1%
Return On Total Capital -6%
Ret/ On T. Cap. - 3 Yr. Avg. -25.2%
Return On Equity -10.7%
Return On Equity - 3 Yr. Avg. -42.2%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 87.8%
Gross Margin - 3 Yr. Avg. 89.9%
EBITDA Margin 4.6%
EBITDA Margin - 3 Yr. Avg. -46.4%
Operating Margin 0.6%
Oper. Margin - 3 Yr. Avg. -52.6%
Pre-Tax Margin -3.9%
Pre-Tax Margin - 3 Yr. Avg. -61.6%
Net Profit Margin -6.6%
Net Profit Margin - 3 Yr. Avg. -62.6%
Effective Tax Rate -25.4%
Eff/ Tax Rate - 3 Yr. Avg. -10.6%
Payout Ratio 0%

VRTX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VRTX stock intrinsic value calculation we used $3048 million for the last fiscal year's total revenue generated by Vertex Pharmaceuticals Incorporated. The default revenue input number comes from 0001 income statement of Vertex Pharmaceuticals Incorporated. 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 VRTX stock valuation model: a) initial revenue growth rate of 33.5% 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 VRTX is calculated based on our internal credit rating of Vertex Pharmaceuticals Incorporated, 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 Vertex Pharmaceuticals Incorporated.
    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 VRTX stock the variable cost ratio is equal to 19%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1934 million in the base year in the intrinsic value calculation for VRTX 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 5.7% for Vertex Pharmaceuticals Incorporated.

Corporate tax rate of 27% is the nominal tax rate for Vertex Pharmaceuticals Incorporated. 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 VRTX 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 VRTX are equal to 27.3%.

Life of production assets of 12 years is the average useful life of capital assets used in Vertex Pharmaceuticals Incorporated 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 VRTX is equal to -14.3%. 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 - $4435.203 million for Vertex Pharmaceuticals Incorporated - 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 255.675 million for Vertex Pharmaceuticals Incorporated 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 Vertex Pharmaceuticals Incorporated at the current share price and the inputted number of shares is $46.4 billion.

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