Intrinsic value of Vertex Pharmaceuticals - VRTX

Previous Close

$156.99

  Intrinsic Value

$376.30

stock screener

  Rating & Target

str. buy

+140%

Previous close

$156.99

 
Intrinsic value

$376.30

 
Up/down potential

+140%

 
Rating

str. buy

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

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  64.92
  39.60
  36.14
  33.03
  30.22
  27.70
  25.43
  23.39
  21.55
  19.89
  18.40
  17.06
  15.86
  14.77
  13.79
  12.92
  12.12
  11.41
  10.77
  10.19
  9.67
  9.21
  8.79
  8.41
  8.07
  7.76
  7.48
  7.24
  7.01
  6.81
  6.63
Revenue, $m
  1,702
  2,376
  3,235
  4,303
  5,603
  7,156
  8,975
  11,075
  13,461
  16,139
  19,109
  22,370
  25,918
  29,746
  33,850
  38,222
  42,855
  47,746
  52,888
  58,279
  63,917
  69,802
  75,935
  82,319
  88,959
  95,862
  103,036
  110,492
  118,239
  126,292
  134,665
Variable operating expenses, $m
 
  687
  934
  1,240
  1,614
  2,059
  2,582
  3,184
  3,869
  4,638
  5,491
  6,422
  7,440
  8,539
  9,717
  10,972
  12,302
  13,706
  15,182
  16,730
  18,348
  20,037
  21,798
  23,631
  25,537
  27,518
  29,578
  31,718
  33,942
  36,254
  38,657
Fixed operating expenses, $m
 
  1,260
  1,291
  1,323
  1,357
  1,391
  1,425
  1,461
  1,497
  1,535
  1,573
  1,613
  1,653
  1,694
  1,737
  1,780
  1,824
  1,870
  1,917
  1,965
  2,014
  2,064
  2,116
  2,169
  2,223
  2,278
  2,335
  2,394
  2,454
  2,515
  2,578
Total operating expenses, $m
  1,692
  1,947
  2,225
  2,563
  2,971
  3,450
  4,007
  4,645
  5,366
  6,173
  7,064
  8,035
  9,093
  10,233
  11,454
  12,752
  14,126
  15,576
  17,099
  18,695
  20,362
  22,101
  23,914
  25,800
  27,760
  29,796
  31,913
  34,112
  36,396
  38,769
  41,235
Operating income, $m
  10
  429
  1,010
  1,739
  2,633
  3,706
  4,969
  6,430
  8,094
  9,966
  12,046
  14,336
  16,825
  19,513
  22,396
  25,470
  28,729
  32,170
  35,789
  39,585
  43,555
  47,700
  52,021
  56,519
  61,199
  66,065
  71,123
  76,380
  81,843
  87,523
  93,430
EBITDA, $m
  71
  513
  1,122
  1,887
  2,824
  3,949
  5,272
  6,802
  8,547
  10,507
  12,685
  15,079
  17,686
  20,501
  23,521
  26,739
  30,152
  33,756
  37,546
  41,521
  45,678
  50,019
  54,543
  59,253
  64,154
  69,249
  74,545
  80,050
  85,771
  91,718
  97,903
Interest expense (income), $m
  84
  53
  95
  162
  245
  347
  468
  610
  774
  960
  1,170
  1,402
  1,656
  1,933
  2,232
  2,553
  2,894
  3,256
  3,638
  4,039
  4,460
  4,901
  5,360
  5,839
  6,338
  6,856
  7,395
  7,956
  8,538
  9,143
  9,772
Earnings before tax, $m
  -67
  376
  915
  1,577
  2,388
  3,359
  4,501
  5,819
  7,320
  9,006
  10,876
  12,935
  15,169
  17,580
  20,164
  22,917
  25,835
  28,914
  32,151
  35,545
  39,095
  42,799
  46,661
  50,680
  54,862
  59,209
  63,728
  68,424
  73,306
  78,381
  83,658
Tax expense, $m
  17
  102
  247
  426
  645
  907
  1,215
  1,571
  1,977
  2,432
  2,937
  3,492
  4,096
  4,747
  5,444
  6,188
  6,975
  7,807
  8,681
  9,597
  10,556
  11,556
  12,598
  13,684
  14,813
  15,986
  17,206
  18,475
  19,793
  21,163
  22,588
Net income, $m
  -112
  275
  668
  1,152
  1,743
  2,452
  3,285
  4,248
  5,344
  6,574
  7,940
  9,442
  11,073
  12,833
  14,720
  16,729
  18,859
  21,107
  23,471
  25,948
  28,539
  31,244
  34,062
  36,997
  40,049
  43,223
  46,521
  49,950
  53,513
  57,218
  61,070

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,435
  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
  2,897
  2,041
  2,779
  3,697
  4,814
  6,147
  7,711
  9,514
  11,564
  13,865
  16,417
  19,218
  22,266
  25,555
  29,081
  32,836
  36,817
  41,019
  45,437
  50,068
  54,912
  59,967
  65,236
  70,720
  76,425
  82,356
  88,519
  94,924
  101,580
  108,498
  115,692
Adjusted assets (=assets-cash), $m
  1,462
  2,041
  2,779
  3,697
  4,814
  6,147
  7,711
  9,514
  11,564
  13,865
  16,417
  19,218
  22,266
  25,555
  29,081
  32,836
  36,817
  41,019
  45,437
  50,068
  54,912
  59,967
  65,236
  70,720
  76,425
  82,356
  88,519
  94,924
  101,580
  108,498
  115,692
Revenue / Adjusted assets
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
  1.164
Average production assets, $m
  633
  884
  1,203
  1,601
  2,084
  2,662
  3,339
  4,120
  5,008
  6,004
  7,109
  8,322
  9,641
  11,066
  12,592
  14,218
  15,942
  17,761
  19,674
  21,680
  23,777
  25,966
  28,248
  30,623
  33,093
  35,661
  38,329
  41,103
  43,985
  46,981
  50,095
Working capital, $m
  1,039
  -107
  -146
  -194
  -252
  -322
  -404
  -498
  -606
  -726
  -860
  -1,007
  -1,166
  -1,339
  -1,523
  -1,720
  -1,928
  -2,149
  -2,380
  -2,623
  -2,876
  -3,141
  -3,417
  -3,704
  -4,003
  -4,314
  -4,637
  -4,972
  -5,321
  -5,683
  -6,060
Total debt, $m
  841
  938
  1,602
  2,428
  3,434
  4,634
  6,041
  7,664
  9,509
  11,580
  13,876
  16,398
  19,140
  22,101
  25,273
  28,654
  32,237
  36,018
  39,994
  44,162
  48,522
  53,071
  57,813
  62,749
  67,884
  73,221
  78,768
  84,533
  90,523
  96,750
  103,223
Total liabilities, $m
  1,740
  1,837
  2,501
  3,327
  4,333
  5,533
  6,940
  8,563
  10,408
  12,479
  14,775
  17,297
  20,039
  23,000
  26,172
  29,553
  33,136
  36,917
  40,893
  45,061
  49,421
  53,970
  58,712
  63,648
  68,783
  74,120
  79,667
  85,432
  91,422
  97,649
  104,122
Total equity, $m
  1,157
  204
  278
  370
  481
  615
  771
  951
  1,156
  1,387
  1,642
  1,922
  2,227
  2,556
  2,908
  3,284
  3,682
  4,102
  4,544
  5,007
  5,491
  5,997
  6,524
  7,072
  7,643
  8,236
  8,852
  9,492
  10,158
  10,850
  11,569
Total liabilities and equity, $m
  2,897
  2,041
  2,779
  3,697
  4,814
  6,148
  7,711
  9,514
  11,564
  13,866
  16,417
  19,219
  22,266
  25,556
  29,080
  32,837
  36,818
  41,019
  45,437
  50,068
  54,912
  59,967
  65,236
  70,720
  76,426
  82,356
  88,519
  94,924
  101,580
  108,499
  115,691
Debt-to-equity ratio
  0.727
  4.600
  5.760
  6.570
  7.130
  7.540
  7.830
  8.060
  8.220
  8.350
  8.450
  8.530
  8.600
  8.650
  8.690
  8.730
  8.760
  8.780
  8.800
  8.820
  8.840
  8.850
  8.860
  8.870
  8.880
  8.890
  8.900
  8.910
  8.910
  8.920
  8.920
Adjusted equity ratio
  0.015
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -112
  275
  668
  1,152
  1,743
  2,452
  3,285
  4,248
  5,344
  6,574
  7,940
  9,442
  11,073
  12,833
  14,720
  16,729
  18,859
  21,107
  23,471
  25,948
  28,539
  31,244
  34,062
  36,997
  40,049
  43,223
  46,521
  49,950
  53,513
  57,218
  61,070
Depreciation, amort., depletion, $m
  61
  84
  112
  148
  191
  243
  303
  373
  452
  541
  640
  743
  861
  988
  1,124
  1,270
  1,423
  1,586
  1,757
  1,936
  2,123
  2,318
  2,522
  2,734
  2,955
  3,184
  3,422
  3,670
  3,927
  4,195
  4,473
Funds from operations, $m
  234
  359
  781
  1,299
  1,934
  2,695
  3,589
  4,621
  5,796
  7,115
  8,579
  10,185
  11,934
  13,821
  15,844
  17,999
  20,283
  22,693
  25,227
  27,884
  30,662
  33,562
  36,584
  39,731
  43,004
  46,406
  49,943
  53,620
  57,440
  61,413
  65,543
Change in working capital, $m
  -2
  -30
  -39
  -48
  -59
  -70
  -82
  -94
  -107
  -121
  -134
  -147
  -160
  -172
  -185
  -197
  -209
  -220
  -231
  -243
  -254
  -265
  -276
  -287
  -299
  -311
  -323
  -335
  -349
  -362
  -377
Cash from operations, $m
  236
  389
  819
  1,348
  1,993
  2,765
  3,670
  4,716
  5,903
  7,236
  8,713
  10,332
  12,094
  13,994
  16,029
  18,196
  20,491
  22,913
  25,459
  28,126
  30,916
  33,827
  36,860
  40,018
  43,302
  46,717
  50,266
  53,955
  57,789
  61,775
  65,920
Maintenance CAPEX, $m
  0
  -57
  -79
  -107
  -143
  -186
  -238
  -298
  -368
  -447
  -536
  -635
  -743
  -861
  -988
  -1,124
  -1,270
  -1,423
  -1,586
  -1,757
  -1,936
  -2,123
  -2,318
  -2,522
  -2,734
  -2,955
  -3,184
  -3,422
  -3,670
  -3,927
  -4,195
New CAPEX, $m
  -57
  -251
  -319
  -397
  -484
  -577
  -677
  -781
  -888
  -996
  -1,105
  -1,213
  -1,320
  -1,424
  -1,526
  -1,626
  -1,724
  -1,819
  -1,913
  -2,005
  -2,097
  -2,189
  -2,281
  -2,375
  -2,470
  -2,568
  -2,669
  -2,773
  -2,882
  -2,996
  -3,115
Cash from investing activities, $m
  104
  -308
  -398
  -504
  -627
  -763
  -915
  -1,079
  -1,256
  -1,443
  -1,641
  -1,848
  -2,063
  -2,285
  -2,514
  -2,750
  -2,994
  -3,242
  -3,499
  -3,762
  -4,033
  -4,312
  -4,599
  -4,897
  -5,204
  -5,523
  -5,853
  -6,195
  -6,552
  -6,923
  -7,310
Free cash flow, $m
  340
  82
  421
  843
  1,366
  2,001
  2,756
  3,637
  4,648
  5,793
  7,072
  8,484
  10,031
  11,709
  13,514
  15,445
  17,498
  19,670
  21,960
  24,364
  26,883
  29,515
  32,261
  35,121
  38,098
  41,194
  44,413
  47,759
  51,237
  54,852
  58,611
Issuance/(repayment) of debt, $m
  -7
  416
  664
  826
  1,006
  1,200
  1,407
  1,623
  1,845
  2,071
  2,297
  2,521
  2,743
  2,960
  3,173
  3,380
  3,583
  3,781
  3,976
  4,168
  4,359
  4,550
  4,742
  4,936
  5,134
  5,337
  5,547
  5,764
  5,990
  6,227
  6,474
Issuance/(repurchase) of shares, $m
  68
  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  
  133
  416
  664
  826
  1,006
  1,200
  1,407
  1,623
  1,845
  2,071
  2,297
  2,521
  2,743
  2,960
  3,173
  3,380
  3,583
  3,781
  3,976
  4,168
  4,359
  4,550
  4,742
  4,936
  5,134
  5,337
  5,547
  5,764
  5,990
  6,227
  6,474
Total cash flow (excl. dividends), $m
  469
  498
  1,085
  1,669
  2,372
  3,201
  4,163
  5,260
  6,493
  7,863
  9,369
  11,006
  12,774
  14,669
  16,687
  18,825
  21,081
  23,452
  25,936
  28,533
  31,242
  34,065
  37,002
  40,057
  43,232
  46,532
  49,961
  53,524
  57,227
  61,079
  65,084
Retained Cash Flow (-), $m
  -217
  -163
  -74
  -92
  -112
  -133
  -156
  -180
  -205
  -230
  -255
  -280
  -305
  -329
  -353
  -376
  -398
  -420
  -442
  -463
  -484
  -506
  -527
  -548
  -570
  -593
  -616
  -640
  -666
  -692
  -719
Prev. year cash balance distribution, $m
 
  1,116
  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
 
  1,451
  1,011
  1,577
  2,260
  3,068
  4,007
  5,079
  6,288
  7,633
  9,113
  10,725
  12,469
  14,340
  16,334
  18,450
  20,683
  23,032
  25,494
  28,070
  30,758
  33,559
  36,475
  39,509
  42,662
  45,939
  49,344
  52,883
  56,562
  60,387
  64,365
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
 
  1,391
  925
  1,372
  1,861
  2,378
  2,908
  3,431
  3,930
  4,385
  4,778
  5,093
  5,321
  5,452
  5,484
  5,417
  5,256
  5,011
  4,695
  4,322
  3,908
  3,471
  3,027
  2,589
  2,173
  1,787
  1,440
  1,135
  875
  659
  485
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

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 (VRTX)

Valuation Ratios
P/E Ratio -348
Price to Sales 22.9
Price to Book 33.7
Price to Tangible Book
Price to Cash Flow 165.2
Price to Free Cash Flow 217.8
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 $1702 million for the last fiscal year's total revenue generated by Vertex Pharmaceuticals. The default revenue input number comes from 2016 income statement of Vertex Pharmaceuticals. 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 39.6% 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, 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.
    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 29%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1229 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 10.1% for Vertex Pharmaceuticals.

Corporate tax rate of 27% is the nominal tax rate for Vertex Pharmaceuticals. 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 37.2%.

Life of production assets of 11.2 years is the average useful life of capital assets used in Vertex Pharmaceuticals 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 -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 - $1157 million for Vertex Pharmaceuticals - 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 255.105 million for Vertex Pharmaceuticals 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 at the current share price and the inputted number of shares is $40.0 billion.

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Financial statements of VRTX
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