Intrinsic value of West Fraser Timber Co. Ltd. - WFT

Previous Close

$72.75

  Intrinsic Value

$550.25

stock screener

  Rating & Target

str. buy

+656%

  Value-price divergence*

0%

Previous close

$72.75

 
Intrinsic value

$550.25

 
Up/down potential

+656%

 
Rating

str. buy

 
Value-price divergence*

0%

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

We calculate the intrinsic value of WFT 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 2016), $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 5.5

 

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, %
  8.54
  19.00
  17.60
  16.34
  15.21
  14.19
  13.27
  12.44
  11.70
  11.03
  10.42
  9.88
  9.39
  8.95
  8.56
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.01
  5.90
  5.81
  5.73
  5.66
Revenue, $m
  4,450
  5,296
  6,228
  7,245
  8,347
  9,531
  10,795
  12,138
  13,558
  15,053
  16,622
  18,264
  19,980
  21,769
  23,632
  25,571
  27,586
  29,681
  31,858
  34,121
  36,472
  38,916
  41,458
  44,103
  46,855
  49,721
  52,707
  55,819
  59,065
  62,451
  65,985
Variable operating expenses, $m
 
  1,769
  2,080
  2,420
  2,788
  3,183
  3,606
  4,054
  4,528
  5,028
  5,552
  6,100
  6,673
  7,271
  7,893
  8,541
  9,214
  9,914
  10,641
  11,396
  12,182
  12,998
  13,847
  14,730
  15,650
  16,607
  17,604
  18,644
  19,728
  20,858
  22,039
Fixed operating expenses, $m
 
  2,606
  2,671
  2,737
  2,806
  2,876
  2,948
  3,022
  3,097
  3,175
  3,254
  3,335
  3,419
  3,504
  3,592
  3,682
  3,774
  3,868
  3,965
  4,064
  4,165
  4,269
  4,376
  4,486
  4,598
  4,713
  4,831
  4,951
  5,075
  5,202
  5,332
Total operating expenses, $m
  3,968
  4,375
  4,751
  5,157
  5,594
  6,059
  6,554
  7,076
  7,625
  8,203
  8,806
  9,435
  10,092
  10,775
  11,485
  12,223
  12,988
  13,782
  14,606
  15,460
  16,347
  17,267
  18,223
  19,216
  20,248
  21,320
  22,435
  23,595
  24,803
  26,060
  27,371
Operating income, $m
  482
  921
  1,477
  2,088
  2,753
  3,471
  4,242
  5,062
  5,932
  6,851
  7,816
  8,829
  9,888
  10,994
  12,147
  13,349
  14,599
  15,900
  17,253
  18,661
  20,125
  21,649
  23,235
  24,887
  26,608
  28,402
  30,272
  32,224
  34,262
  36,390
  38,614
EBITDA, $m
  679
  1,139
  1,733
  2,386
  3,096
  3,864
  4,686
  5,562
  6,490
  7,470
  8,500
  9,580
  10,710
  11,890
  13,120
  14,401
  15,734
  17,121
  18,564
  20,065
  21,626
  23,250
  24,941
  26,701
  28,536
  30,447
  32,441
  34,521
  36,692
  38,960
  41,329
Interest expense (income), $m
  23
  18
  29
  41
  54
  68
  84
  100
  118
  136
  156
  176
  197
  220
  243
  267
  292
  318
  346
  374
  403
  434
  466
  499
  533
  569
  606
  645
  685
  728
  772
Earnings before tax, $m
  444
  903
  1,448
  2,047
  2,699
  3,403
  4,158
  4,962
  5,815
  6,714
  7,661
  8,653
  9,691
  10,774
  11,904
  13,081
  14,307
  15,581
  16,907
  18,287
  19,722
  21,215
  22,769
  24,388
  26,075
  27,833
  29,666
  31,579
  33,577
  35,663
  37,842
Tax expense, $m
  118
  244
  391
  553
  729
  919
  1,123
  1,340
  1,570
  1,813
  2,068
  2,336
  2,616
  2,909
  3,214
  3,532
  3,863
  4,207
  4,565
  4,937
  5,325
  5,728
  6,148
  6,585
  7,040
  7,515
  8,010
  8,526
  9,066
  9,629
  10,217
Net income, $m
  326
  660
  1,057
  1,494
  1,970
  2,484
  3,035
  3,622
  4,245
  4,902
  5,592
  6,317
  7,074
  7,865
  8,690
  9,549
  10,444
  11,374
  12,342
  13,349
  14,397
  15,487
  16,622
  17,803
  19,035
  20,318
  21,656
  23,053
  24,511
  26,034
  27,625

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  50
  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
  3,600
  4,223
  4,966
  5,778
  6,656
  7,600
  8,609
  9,680
  10,812
  12,004
  13,255
  14,565
  15,933
  17,360
  18,845
  20,391
  21,999
  23,669
  25,405
  27,209
  29,085
  31,034
  33,061
  35,170
  37,365
  39,650
  42,031
  44,513
  47,101
  49,801
  52,620
Adjusted assets (=assets-cash), $m
  3,550
  4,223
  4,966
  5,778
  6,656
  7,600
  8,609
  9,680
  10,812
  12,004
  13,255
  14,565
  15,933
  17,360
  18,845
  20,391
  21,999
  23,669
  25,405
  27,209
  29,085
  31,034
  33,061
  35,170
  37,365
  39,650
  42,031
  44,513
  47,101
  49,801
  52,620
Revenue / Adjusted assets
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
  1.254
Average production assets, $m
  2,398
  2,854
  3,357
  3,905
  4,499
  5,137
  5,819
  6,542
  7,308
  8,113
  8,959
  9,845
  10,769
  11,734
  12,738
  13,783
  14,869
  15,998
  17,172
  18,391
  19,658
  20,976
  22,346
  23,771
  25,255
  26,800
  28,409
  30,087
  31,836
  33,661
  35,566
Working capital, $m
  479
  530
  623
  725
  835
  953
  1,080
  1,214
  1,356
  1,505
  1,662
  1,826
  1,998
  2,177
  2,363
  2,557
  2,759
  2,968
  3,186
  3,412
  3,647
  3,892
  4,146
  4,410
  4,686
  4,972
  5,271
  5,582
  5,906
  6,245
  6,598
Total debt, $m
  428
  669
  951
  1,259
  1,592
  1,950
  2,332
  2,738
  3,167
  3,618
  4,093
  4,589
  5,108
  5,648
  6,211
  6,797
  7,406
  8,040
  8,698
  9,381
  10,092
  10,831
  11,599
  12,398
  13,230
  14,096
  14,999
  15,939
  16,920
  17,944
  19,012
Total liabilities, $m
  1,359
  1,600
  1,882
  2,190
  2,523
  2,881
  3,263
  3,669
  4,098
  4,549
  5,024
  5,520
  6,039
  6,579
  7,142
  7,728
  8,337
  8,971
  9,629
  10,312
  11,023
  11,762
  12,530
  13,329
  14,161
  15,027
  15,930
  16,870
  17,851
  18,875
  19,943
Total equity, $m
  2,241
  2,622
  3,084
  3,588
  4,133
  4,720
  5,346
  6,011
  6,714
  7,454
  8,231
  9,045
  9,894
  10,780
  11,703
  12,663
  13,661
  14,699
  15,777
  16,897
  18,062
  19,272
  20,531
  21,840
  23,203
  24,623
  26,101
  27,643
  29,250
  30,926
  32,677
Total liabilities and equity, $m
  3,600
  4,222
  4,966
  5,778
  6,656
  7,601
  8,609
  9,680
  10,812
  12,003
  13,255
  14,565
  15,933
  17,359
  18,845
  20,391
  21,998
  23,670
  25,406
  27,209
  29,085
  31,034
  33,061
  35,169
  37,364
  39,650
  42,031
  44,513
  47,101
  49,801
  52,620
Debt-to-equity ratio
  0.191
  0.260
  0.310
  0.350
  0.390
  0.410
  0.440
  0.460
  0.470
  0.490
  0.500
  0.510
  0.520
  0.520
  0.530
  0.540
  0.540
  0.550
  0.550
  0.560
  0.560
  0.560
  0.560
  0.570
  0.570
  0.570
  0.570
  0.580
  0.580
  0.580
  0.580
Adjusted equity ratio
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  326
  660
  1,057
  1,494
  1,970
  2,484
  3,035
  3,622
  4,245
  4,902
  5,592
  6,317
  7,074
  7,865
  8,690
  9,549
  10,444
  11,374
  12,342
  13,349
  14,397
  15,487
  16,622
  17,803
  19,035
  20,318
  21,656
  23,053
  24,511
  26,034
  27,625
Depreciation, amort., depletion, $m
  197
  218
  256
  298
  343
  392
  444
  499
  558
  619
  684
  751
  822
  896
  972
  1,052
  1,135
  1,221
  1,311
  1,404
  1,501
  1,601
  1,706
  1,815
  1,928
  2,046
  2,169
  2,297
  2,430
  2,570
  2,715
Funds from operations, $m
  761
  877
  1,313
  1,792
  2,314
  2,876
  3,479
  4,122
  4,803
  5,521
  6,276
  7,068
  7,896
  8,761
  9,663
  10,602
  11,579
  12,596
  13,653
  14,753
  15,897
  17,088
  18,327
  19,618
  20,962
  22,364
  23,825
  25,350
  26,941
  28,603
  30,340
Change in working capital, $m
  72
  85
  93
  102
  110
  118
  126
  134
  142
  149
  157
  164
  172
  179
  186
  194
  202
  209
  218
  226
  235
  244
  254
  264
  275
  287
  299
  311
  325
  339
  353
Cash from operations, $m
  689
  793
  1,220
  1,691
  2,203
  2,758
  3,353
  3,987
  4,661
  5,371
  6,119
  6,904
  7,725
  8,582
  9,476
  10,408
  11,377
  12,386
  13,435
  14,527
  15,662
  16,844
  18,073
  19,353
  20,687
  22,077
  23,526
  25,038
  26,617
  28,265
  29,986
Maintenance CAPEX, $m
  0
  -183
  -218
  -256
  -298
  -343
  -392
  -444
  -499
  -558
  -619
  -684
  -751
  -822
  -896
  -972
  -1,052
  -1,135
  -1,221
  -1,311
  -1,404
  -1,501
  -1,601
  -1,706
  -1,815
  -1,928
  -2,046
  -2,169
  -2,297
  -2,430
  -2,570
New CAPEX, $m
  -273
  -456
  -502
  -548
  -594
  -638
  -682
  -724
  -765
  -806
  -846
  -885
  -925
  -964
  -1,004
  -1,045
  -1,086
  -1,129
  -1,173
  -1,219
  -1,267
  -1,318
  -1,370
  -1,425
  -1,484
  -1,545
  -1,609
  -1,677
  -1,749
  -1,825
  -1,905
Cash from investing activities, $m
  -263
  -639
  -720
  -804
  -892
  -981
  -1,074
  -1,168
  -1,264
  -1,364
  -1,465
  -1,569
  -1,676
  -1,786
  -1,900
  -2,017
  -2,138
  -2,264
  -2,394
  -2,530
  -2,671
  -2,819
  -2,971
  -3,131
  -3,299
  -3,473
  -3,655
  -3,846
  -4,046
  -4,255
  -4,475
Free cash flow, $m
  426
  154
  500
  886
  1,312
  1,776
  2,279
  2,819
  3,396
  4,008
  4,654
  5,335
  6,048
  6,796
  7,576
  8,391
  9,239
  10,122
  11,041
  11,997
  12,991
  14,025
  15,102
  16,222
  17,389
  18,604
  19,871
  21,192
  22,571
  24,009
  25,512
Issuance/(repayment) of debt, $m
  -181
  256
  282
  308
  333
  358
  382
  406
  429
  452
  474
  496
  519
  541
  563
  586
  609
  633
  658
  684
  711
  739
  768
  799
  832
  866
  902
  941
  981
  1,023
  1,068
Issuance/(repurchase) of shares, $m
  -190
  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  
  -392
  256
  282
  308
  333
  358
  382
  406
  429
  452
  474
  496
  519
  541
  563
  586
  609
  633
  658
  684
  711
  739
  768
  799
  832
  866
  902
  941
  981
  1,023
  1,068
Total cash flow (excl. dividends), $m
  73
  410
  782
  1,193
  1,645
  2,134
  2,661
  3,225
  3,825
  4,460
  5,128
  5,831
  6,567
  7,336
  8,139
  8,976
  9,848
  10,755
  11,699
  12,680
  13,702
  14,764
  15,870
  17,022
  18,221
  19,471
  20,774
  22,133
  23,551
  25,033
  26,580
Retained Cash Flow (-), $m
  -94
  -416
  -462
  -504
  -546
  -586
  -626
  -665
  -703
  -740
  -777
  -813
  -850
  -886
  -923
  -960
  -998
  -1,037
  -1,078
  -1,120
  -1,164
  -1,210
  -1,259
  -1,310
  -1,363
  -1,419
  -1,479
  -1,541
  -1,607
  -1,677
  -1,750
Prev. year cash balance distribution, $m
 
  35
  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
 
  29
  320
  689
  1,099
  1,548
  2,035
  2,560
  3,122
  3,719
  4,351
  5,018
  5,717
  6,450
  7,217
  8,016
  8,850
  9,718
  10,621
  11,560
  12,537
  13,554
  14,611
  15,712
  16,858
  18,051
  19,295
  20,592
  21,944
  23,356
  24,830
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
 
  27
  293
  600
  905
  1,200
  1,477
  1,730
  1,951
  2,137
  2,281
  2,383
  2,440
  2,453
  2,423
  2,353
  2,249
  2,114
  1,956
  1,780
  1,593
  1,402
  1,212
  1,030
  859
  702
  563
  442
  340
  255
  187
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

West Fraser Timber Co. Ltd. is a diversified wood products company, which produces lumber (spruce-pine-fir (SPF) and southern yellow pine (SYP)), panels (plywood, medium-density fiberboard (MDF) and laminated veneer lumber (LVL)), pulp (northern bleached softwood kraft (NBSK) and bleached chemi-thermomechanical pulp (BCTMP)), newsprint, wood chips and energy. The Company's segments include Lumber, Panels, Pulp & Paper, and Corporate & Other. It offers engineered wood products. The Company holds rights to timber resources that for supplying the fiber required by its Canadian operations and have agreements for the supply of fiber required by its United States operations. It carries on its operations through subsidiaries and joint operations in British Columbia, Alberta and the southern United States. Its operations located in western Canada manufacture all of the products except SYP lumber. Its sawmills located in the southern United States produce SYP lumber and wood chips.

FINANCIAL RATIOS  of  West Fraser Timber Co. Ltd. (WFT)

Valuation Ratios
P/E Ratio 17.4
Price to Sales 1.3
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 8.3
Price to Free Cash Flow 13.7
Growth Rates
Sales Growth Rate 8.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 24.1%
Cap. Spend. - 3 Yr. Gr. Rate -4.2%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 18.4%
Total Debt to Equity 19.1%
Interest Coverage 20
Management Effectiveness
Return On Assets 9.5%
Ret/ On Assets - 3 Yr. Avg. 7.1%
Return On Total Capital 12%
Ret/ On T. Cap. - 3 Yr. Avg. 8.9%
Return On Equity 14.9%
Return On Equity - 3 Yr. Avg. 11%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 33.2%
Gross Margin - 3 Yr. Avg. 32.4%
EBITDA Margin 14.9%
EBITDA Margin - 3 Yr. Avg. 12.9%
Operating Margin 10.8%
Oper. Margin - 3 Yr. Avg. 9.1%
Pre-Tax Margin 10%
Pre-Tax Margin - 3 Yr. Avg. 7.8%
Net Profit Margin 7.3%
Net Profit Margin - 3 Yr. Avg. 5.5%
Effective Tax Rate 26.6%
Eff/ Tax Rate - 3 Yr. Avg. 30.3%
Payout Ratio 6.7%

WFT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WFT stock intrinsic value calculation we used $4450 million for the last fiscal year's total revenue generated by West Fraser Timber Co. Ltd.. The default revenue input number comes from 2016 income statement of West Fraser Timber Co. Ltd.. 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 WFT stock valuation model: a) initial revenue growth rate of 19% 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 WFT is calculated based on our internal credit rating of West Fraser Timber Co. Ltd., 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 West Fraser Timber Co. Ltd..
    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 WFT stock the variable cost ratio is equal to 33.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2542 million in the base year in the intrinsic value calculation for WFT 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 4.3% for West Fraser Timber Co. Ltd..

Corporate tax rate of 27% is the nominal tax rate for West Fraser Timber Co. Ltd.. 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 WFT 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 WFT are equal to 53.9%.

Life of production assets of 13.1 years is the average useful life of capital assets used in West Fraser Timber Co. Ltd. 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 WFT is equal to 10%. 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 - $2241 million for West Fraser Timber Co. Ltd. - 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 75.844 million for West Fraser Timber Co. Ltd. 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 West Fraser Timber Co. Ltd. at the current share price and the inputted number of shares is $5.5 billion.

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Financial statements of WFT
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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