Oracle Corporation (ORCL)
Discount cash flow analysis
5% margin of safety What's this?
Sensitivity matrix
|
-1% |
Discount Rate % 0% |
1% |
||
|---|---|---|---|---|
| -1% | $24.39 | $24.01 | $23.64 | |
| Terminal Growth% | 0 | $24.53 | $24.14 | $23.77 |
| +1% | $24.66 | $24.27 | $23.90 |
How does a change in discount rate or terminal growth affect valuation?
This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate
Valuations and comments
- Valuecruncher created a new valuation of $19.62 (overvalued by 6.75%) - 1 hour ago
- SethWellbourne created a new valuation of $21.95 (undervalued by 24.29%) - 3 months ago
- GordonGekko created a new valuation of $19.27 (undervalued by 39.13%) - 3 months ago
- balli created a new valuation of $18.14 (undervalued by 30.97%) - 3 months ago
- balli created a new valuation of $22.53 (undervalued by 62.67%) - 3 months ago
- balli created a new valuation of $20.58 (undervalued by 48.59%) - 3 months ago
- TheCrunchBlog created a new valuation of $24.14 (undervalued by 12.7%) - 1 year ago
- KiwiEMH created a new valuation of $24.66 (undervalued by 9.36%) - 1 year ago
- GordonGekko created a new valuation of $21.64 (undervalued by 2.56%) - 1 year ago
- silas created a new valuation of $15.43 (overvalued by 28.27%) - 1 year ago
Comments
The boring details
| All amounts in millions | Figures |
| Enterprise Value: | 108,581 |
| Net Debt (Long-term borrowings less cash): | 193 |
| Equity Value: | 110,345 |
| Number of Shares Outstanding: | 5,151,000,000 |
| Calculated value per share: | $24.14 |
Enterprise Value is the present value of the post-tax cash flows for a business into the future.
Where:
- C1, C2, C3 - the cash flow in period 1, 2, 3, ...
- r - the discount rate
To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.
Where:
- Cn - the cash flow in the final forecast period.
- LTG - the long-term growth rate
- r - the discount rate
- g - the terminal growth rate
The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.
Where:
- rt - the risk free rate
- t - the tax rate
- B - the beta of the company
- MRP - the Market Risk Premium
Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.
This valuation is part of this blog post:
http://blog.valuecruncher.com/2008/06/valuing-oracle-appears-slightly-undervalued/
Oracle grew revenues from US$11.8 billion in 2005 to US$22.4 billion in 2008 – a 24% compound annual growth rate. Our assumptions of revenues for the next three years are US$25.75 billion in 2009 growing to US$31.5 billion in 2011 – a 12% compound annual growth rate. We have projected EBITDA margins to be flat at 40%. We have used a terminal growth rate of 4%. We calculated this terminal growth rate based on year three growth of 8.6% dropping to a 3% stable growth rate by year 10. We used a terminal capital expenditure number of US$600 million. We have used a WACC (discount rate) of 10.5%.