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Microsoft Excel LibreOffice Calc


Dividend Discount Model (DDM)

Difficulty: Intermediate

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Automatic Data Processing Inc., dividends per share (DPS) forecast

USD $

Microsoft Excel LibreOffice Calc
Year Value DPSt or Terminal value (TVt) Calculation Present value at hidden
0 DPS01 hidden
1 DPS1 hidden = hidden × (1 + hidden) hidden
2 DPS2 hidden = hidden × (1 + hidden) hidden
3 DPS3 hidden = hidden × (1 + hidden) hidden
4 DPS4 hidden = hidden × (1 + hidden) hidden
5 DPS5 hidden = hidden × (1 + hidden) hidden
5 Terminal value (TV5) hidden = hidden × (1 + hidden) ÷ (hiddenhidden) hidden
Intrinsic value of ADP's common stock (per share) $hidden
Current share price $hidden

Based on: 10-K (filing date: 2018-08-03).

1 DPS0 = Sum of last year dividends per share of ADP's common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF hidden
Expected rate of return on market portfolio2 E(RM) hidden
Systematic risk (β) of ADP's common stock βADP hidden
Required rate of return on ADP's common stock3 rADP hidden

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

Calculations

2 See Details »

3 rADP = RF + βADP [E(RM) – RF]
= hidden + hidden [hiddenhidden]
= hidden


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Automatic Data Processing Inc., PRAT model

Microsoft Excel LibreOffice Calc
Average Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013
Selected Financial Data (USD $ in thousands)
Dividends hidden hidden hidden hidden hidden hidden
Net earnings hidden hidden hidden hidden hidden hidden
Revenues hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Stockholders' equity hidden hidden hidden hidden hidden hidden
Ratios
Retention rate1 hidden hidden hidden hidden hidden hidden
Profit margin2 hidden hidden hidden hidden hidden hidden
Asset turnover3 hidden hidden hidden hidden hidden hidden
Financial leverage4 hidden hidden hidden hidden hidden hidden
Averages
Retention rate hidden
Profit margin hidden
Asset turnover hidden
Financial leverage hidden
Dividend growth rate (g)5 hidden

Based on: 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08), 10-K (filing date: 2013-08-19).

2018 Calculations

1 Retention rate = (Net earnings – Dividends) ÷ Net earnings
= (hiddenhidden) ÷ hidden = hidden

2 Profit margin = 100 × Net earnings ÷ Revenues
= 100 × hidden ÷ hidden = hidden

3 Asset turnover = Revenues ÷ Total assets
= hidden ÷ hidden = hidden

4 Financial leverage = Total assets ÷ Stockholders' equity
= hidden ÷ hidden = hidden

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= hidden × hidden × hidden × hidden = hidden


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($hidden × hidden – $hidden) ÷ ($hidden + $hidden) = hidden

where:
P0 = current price of share of ADP's common stock
D0 = last year dividends per share of ADP's common stock
r = required rate of return on ADP's common stock


Dividend growth rate (g) forecast

Automatic Data Processing Inc., H-model

Microsoft Excel LibreOffice Calc
Year Value gt
1 g1 hidden
2 g2 hidden
3 g3 hidden
4 g4 hidden
5 and thereafter g5 hidden

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= hidden + (hiddenhidden) × (2 – 1) ÷ (5 – 1) = hidden

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= hidden + (hiddenhidden) × (3 – 1) ÷ (5 – 1) = hidden

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= hidden + (hiddenhidden) × (4 – 1) ÷ (5 – 1) = hidden