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.
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- Balance Sheet: Liabilities and Stockholders’ Equity
- Common-Size Income Statement
- Analysis of Liquidity Ratios
- Common Stock Valuation Ratios
- Present Value of Free Cash Flow to Equity (FCFE)
- Net Profit Margin since 2005
- Return on Equity (ROE) since 2005
- Current Ratio since 2005
- Price to Earnings (P/E) since 2005
- Price to Sales (P/S) since 2005
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Intrinsic Stock Value (Valuation Summary)
Year | Value | DPS_{t} or Terminal value (TV_{t}) | Calculation | Present value at |
---|---|---|---|---|
0 | DPS_{0}^{1} | |||
1 | DPS_{1} | = × (1 + ) | ||
2 | DPS_{2} | = × (1 + ) | ||
3 | DPS_{3} | = × (1 + ) | ||
4 | DPS_{4} | = × (1 + ) | ||
5 | DPS_{5} | = × (1 + ) | ||
5 | Terminal value (TV_{5}) | = × (1 + ) ÷ ( – ) | ||
Intrinsic value of Oracle Corp. common stock (per share) | ||||
Current share price |
Based on: 10-K (reporting date: 2022-05-31).
^{1} DPS_{0} = Sum of the last year dividends per share of Oracle Corp. 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)
Assumptions | ||
Rate of return on LT Treasury Composite^{1} | R_{F} | |
Expected rate of return on market portfolio^{2} | E(R_{M}) | |
Systematic risk of Oracle Corp. common stock | β_{ORCL} | |
Required rate of return on Oracle Corp. common stock^{3} | r_{ORCL} |
^{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).
^{2} See details »
^{3} r_{ORCL} = R_{F} + β_{ORCL} [E(R_{M}) – R_{F}]
= + [ – ]
=
Dividend Growth Rate (g)
Based on: 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31), 10-K (reporting date: 2018-05-31), 10-K (reporting date: 2017-05-31).
2022 Calculations
^{1} Retention rate = (Net income – Cash dividends declared) ÷ Net income
= ( – ) ÷
=
^{2} Profit margin = 100 × Net income ÷ Revenues
= 100 × ÷
=
^{3} Asset turnover = Revenues ÷ Total assets
= ÷
=
^{4} Financial leverage = Total assets ÷ Total Oracle Corporation stockholders’ equity (deficit)
= ÷
=
^{5} g = Retention rate × Profit margin × Asset turnover × Financial leverage
= × × ×
=
Dividend growth rate (g) implied by Gordon growth model
g = 100 × (P_{0} × r – D_{0}) ÷ (P_{0} + D_{0})
= 100 × ( × – ) ÷ ( + )
=
where:
P_{0} = current price of share of Oracle Corp. common stock
D_{0} = the last year dividends per share of Oracle Corp. common stock
r = required rate of return on Oracle Corp. common stock
Year | Value | g_{t} |
---|---|---|
1 | g_{1} | |
2 | g_{2} | |
3 | g_{3} | |
4 | g_{4} | |
5 and thereafter | g_{5} |
where:
g_{1} is implied by PRAT model
g_{5} is implied by Gordon growth model
g_{2}, g_{3} and g_{4} are calculated using linear interpoltion between g_{1} and g_{5}
Calculations
g_{2} = g_{1} + (g_{5} – g_{1}) × (2 – 1) ÷ (5 – 1)
= + ( – ) × (2 – 1) ÷ (5 – 1)
=
g_{3} = g_{1} + (g_{5} – g_{1}) × (3 – 1) ÷ (5 – 1)
= + ( – ) × (3 – 1) ÷ (5 – 1)
=
g_{4} = g_{1} + (g_{5} – g_{1}) × (4 – 1) ÷ (5 – 1)
= + ( – ) × (4 – 1) ÷ (5 – 1)
=