Intrinsic value of George Weston Limited - WN

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$118.87

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$118.87

 
Intrinsic value

$159.88

 
Up/down potential

+34%

 
Rating

buy

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

We calculate the intrinsic value of WN 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 15.1

 

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, %
  2.36
  2.40
  2.66
  2.89
  3.10
  3.29
  3.46
  3.62
  3.76
  3.88
  3.99
  4.09
  4.18
  4.27
  4.34
  4.41
  4.46
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
Revenue, $m
  47,999
  49,151
  50,458
  51,919
  53,531
  55,294
  57,210
  59,280
  61,506
  63,893
  66,444
  69,164
  72,058
  75,132
  78,392
  81,845
  85,500
  89,363
  93,443
  97,751
  102,295
  107,086
  112,136
  117,456
  123,058
  128,956
  135,163
  141,694
  148,564
  155,790
  163,389
Variable operating expenses, $m
 
  34,641
  35,551
  36,567
  37,689
  38,916
  40,249
  41,690
  43,239
  44,900
  46,676
  48,132
  50,146
  52,285
  54,554
  56,957
  59,500
  62,188
  65,028
  68,026
  71,188
  74,522
  78,036
  81,738
  85,637
  89,741
  94,061
  98,606
  103,387
  108,416
  113,704
Fixed operating expenses, $m
 
  12,509
  12,822
  13,142
  13,471
  13,808
  14,153
  14,507
  14,869
  15,241
  15,622
  16,013
  16,413
  16,823
  17,244
  17,675
  18,117
  18,570
  19,034
  19,510
  19,998
  20,498
  21,010
  21,535
  22,074
  22,626
  23,191
  23,771
  24,365
  24,974
  25,599
Total operating expenses, $m
  45,744
  47,150
  48,373
  49,709
  51,160
  52,724
  54,402
  56,197
  58,108
  60,141
  62,298
  64,145
  66,559
  69,108
  71,798
  74,632
  77,617
  80,758
  84,062
  87,536
  91,186
  95,020
  99,046
  103,273
  107,711
  112,367
  117,252
  122,377
  127,752
  133,390
  139,303
Operating income, $m
  2,255
  2,001
  2,086
  2,209
  2,371
  2,570
  2,808
  3,083
  3,398
  3,752
  4,147
  5,020
  5,499
  6,024
  6,594
  7,213
  7,883
  8,605
  9,381
  10,215
  11,109
  12,066
  13,090
  14,182
  15,347
  16,589
  17,911
  19,317
  20,812
  22,400
  24,087
EBITDA, $m
  3,909
  3,840
  3,962
  4,127
  4,335
  4,584
  4,876
  5,211
  5,589
  6,011
  6,479
  6,993
  7,555
  8,167
  8,831
  9,549
  10,322
  11,154
  12,048
  13,004
  14,028
  15,122
  16,289
  17,533
  18,858
  20,268
  21,767
  23,360
  25,051
  26,845
  28,749
Interest expense (income), $m
  570
  490
  519
  553
  590
  631
  676
  725
  777
  834
  895
  960
  1,029
  1,103
  1,181
  1,264
  1,352
  1,445
  1,544
  1,648
  1,758
  1,873
  1,995
  2,124
  2,260
  2,402
  2,553
  2,711
  2,877
  3,052
  3,236
Earnings before tax, $m
  1,555
  1,511
  1,566
  1,657
  1,781
  1,939
  2,132
  2,359
  2,620
  2,918
  3,252
  4,060
  4,470
  4,921
  5,413
  5,949
  6,530
  7,159
  7,837
  8,567
  9,352
  10,193
  11,094
  12,058
  13,088
  14,186
  15,358
  16,606
  17,935
  19,348
  20,850
Tax expense, $m
  465
  408
  423
  447
  481
  524
  576
  637
  707
  788
  878
  1,096
  1,207
  1,329
  1,462
  1,606
  1,763
  1,933
  2,116
  2,313
  2,525
  2,752
  2,995
  3,256
  3,534
  3,830
  4,147
  4,484
  4,842
  5,224
  5,630
Net income, $m
  550
  1,103
  1,143
  1,209
  1,300
  1,416
  1,556
  1,722
  1,913
  2,130
  2,374
  2,963
  3,263
  3,592
  3,952
  4,343
  4,767
  5,226
  5,721
  6,254
  6,827
  7,441
  8,099
  8,802
  9,554
  10,356
  11,211
  12,123
  13,092
  14,124
  15,221

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,571
  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
  37,946
  36,220
  37,184
  38,260
  39,448
  40,747
  42,159
  43,684
  45,325
  47,084
  48,964
  50,969
  53,101
  55,366
  57,769
  60,313
  63,006
  65,853
  68,860
  72,034
  75,383
  78,914
  82,635
  86,555
  90,684
  95,030
  99,604
  104,417
  109,480
  114,805
  120,405
Adjusted assets (=assets-cash), $m
  35,375
  36,220
  37,184
  38,260
  39,448
  40,747
  42,159
  43,684
  45,325
  47,084
  48,964
  50,969
  53,101
  55,366
  57,769
  60,313
  63,006
  65,853
  68,860
  72,034
  75,383
  78,914
  82,635
  86,555
  90,684
  95,030
  99,604
  104,417
  109,480
  114,805
  120,405
Revenue / Adjusted assets
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
  1.357
Average production assets, $m
  20,527
  21,037
  21,596
  22,221
  22,911
  23,666
  24,486
  25,372
  26,325
  27,346
  28,438
  29,602
  30,841
  32,157
  33,552
  35,030
  36,594
  38,247
  39,994
  41,837
  43,782
  45,833
  47,994
  50,271
  52,669
  55,193
  57,850
  60,645
  63,585
  66,678
  69,930
Working capital, $m
  3,750
  2,998
  3,078
  3,167
  3,265
  3,373
  3,490
  3,616
  3,752
  3,897
  4,053
  4,219
  4,396
  4,583
  4,782
  4,993
  5,215
  5,451
  5,700
  5,963
  6,240
  6,532
  6,840
  7,165
  7,507
  7,866
  8,245
  8,643
  9,062
  9,503
  9,967
Total debt, $m
  13,141
  12,080
  12,855
  13,720
  14,675
  15,720
  16,855
  18,081
  19,401
  20,815
  22,326
  23,938
  25,652
  27,473
  29,405
  31,451
  33,616
  35,905
  38,323
  40,875
  43,567
  46,406
  49,398
  52,550
  55,869
  59,363
  63,041
  66,910
  70,981
  75,262
  79,764
Total liabilities, $m
  30,182
  29,121
  29,896
  30,761
  31,716
  32,761
  33,896
  35,122
  36,442
  37,856
  39,367
  40,979
  42,693
  44,514
  46,446
  48,492
  50,657
  52,946
  55,364
  57,916
  60,608
  63,447
  66,439
  69,591
  72,910
  76,404
  80,082
  83,951
  88,022
  92,303
  96,805
Total equity, $m
  7,764
  7,099
  7,288
  7,499
  7,732
  7,986
  8,263
  8,562
  8,884
  9,229
  9,597
  9,990
  10,408
  10,852
  11,323
  11,821
  12,349
  12,907
  13,497
  14,119
  14,775
  15,467
  16,197
  16,965
  17,774
  18,626
  19,522
  20,466
  21,458
  22,502
  23,599
Total liabilities and equity, $m
  37,946
  36,220
  37,184
  38,260
  39,448
  40,747
  42,159
  43,684
  45,326
  47,085
  48,964
  50,969
  53,101
  55,366
  57,769
  60,313
  63,006
  65,853
  68,861
  72,035
  75,383
  78,914
  82,636
  86,556
  90,684
  95,030
  99,604
  104,417
  109,480
  114,805
  120,404
Debt-to-equity ratio
  1.693
  1.700
  1.760
  1.830
  1.900
  1.970
  2.040
  2.110
  2.180
  2.260
  2.330
  2.400
  2.460
  2.530
  2.600
  2.660
  2.720
  2.780
  2.840
  2.900
  2.950
  3.000
  3.050
  3.100
  3.140
  3.190
  3.230
  3.270
  3.310
  3.340
  3.380
Adjusted equity ratio
  0.185
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196
  0.196

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  550
  1,103
  1,143
  1,209
  1,300
  1,416
  1,556
  1,722
  1,913
  2,130
  2,374
  2,963
  3,263
  3,592
  3,952
  4,343
  4,767
  5,226
  5,721
  6,254
  6,827
  7,441
  8,099
  8,802
  9,554
  10,356
  11,211
  12,123
  13,092
  14,124
  15,221
Depreciation, amort., depletion, $m
  1,654
  1,839
  1,876
  1,918
  1,964
  2,014
  2,069
  2,128
  2,191
  2,259
  2,332
  1,973
  2,056
  2,144
  2,237
  2,335
  2,440
  2,550
  2,666
  2,789
  2,919
  3,056
  3,200
  3,351
  3,511
  3,680
  3,857
  4,043
  4,239
  4,445
  4,662
Funds from operations, $m
  3,452
  2,942
  3,020
  3,127
  3,264
  3,430
  3,625
  3,850
  4,104
  4,389
  4,706
  4,937
  5,319
  5,736
  6,188
  6,678
  7,207
  7,776
  8,388
  9,043
  9,746
  10,496
  11,298
  12,154
  13,065
  14,036
  15,068
  16,166
  17,331
  18,569
  19,883
Change in working capital, $m
  -308
  70
  80
  89
  98
  108
  117
  126
  136
  146
  156
  166
  177
  188
  199
  211
  223
  236
  249
  263
  277
  292
  308
  325
  342
  360
  379
  398
  419
  441
  464
Cash from operations, $m
  3,760
  2,754
  2,940
  3,038
  3,166
  3,322
  3,508
  3,723
  3,968
  4,244
  4,550
  4,771
  5,143
  5,548
  5,989
  6,467
  6,984
  7,540
  8,139
  8,781
  9,468
  10,204
  10,990
  11,829
  12,723
  13,676
  14,689
  15,767
  16,912
  18,128
  19,419
Maintenance CAPEX, $m
  0
  -1,368
  -1,402
  -1,440
  -1,481
  -1,527
  -1,578
  -1,632
  -1,691
  -1,755
  -1,823
  -1,896
  -1,973
  -2,056
  -2,144
  -2,237
  -2,335
  -2,440
  -2,550
  -2,666
  -2,789
  -2,919
  -3,056
  -3,200
  -3,351
  -3,511
  -3,680
  -3,857
  -4,043
  -4,239
  -4,445
New CAPEX, $m
  -1,465
  -510
  -560
  -625
  -690
  -755
  -820
  -886
  -953
  -1,022
  -1,092
  -1,164
  -1,239
  -1,316
  -1,395
  -1,478
  -1,564
  -1,653
  -1,747
  -1,844
  -1,945
  -2,051
  -2,161
  -2,277
  -2,398
  -2,524
  -2,657
  -2,795
  -2,941
  -3,093
  -3,252
Cash from investing activities, $m
  -1,324
  -1,878
  -1,962
  -2,065
  -2,171
  -2,282
  -2,398
  -2,518
  -2,644
  -2,777
  -2,915
  -3,060
  -3,212
  -3,372
  -3,539
  -3,715
  -3,899
  -4,093
  -4,297
  -4,510
  -4,734
  -4,970
  -5,217
  -5,477
  -5,749
  -6,035
  -6,337
  -6,652
  -6,984
  -7,332
  -7,697
Free cash flow, $m
  2,436
  876
  978
  973
  994
  1,040
  1,110
  1,205
  1,324
  1,467
  1,635
  1,711
  1,931
  2,177
  2,450
  2,753
  3,085
  3,447
  3,842
  4,271
  4,734
  5,235
  5,774
  6,353
  6,974
  7,640
  8,353
  9,115
  9,929
  10,797
  11,722
Issuance/(repayment) of debt, $m
  -457
  695
  775
  865
  955
  1,045
  1,135
  1,226
  1,319
  1,414
  1,511
  1,611
  1,715
  1,821
  1,932
  2,046
  2,165
  2,289
  2,418
  2,552
  2,692
  2,839
  2,992
  3,152
  3,319
  3,494
  3,678
  3,870
  4,071
  4,281
  4,502
Issuance/(repurchase) of shares, $m
  -771
  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  
  -2,010
  695
  775
  865
  955
  1,045
  1,135
  1,226
  1,319
  1,414
  1,511
  1,611
  1,715
  1,821
  1,932
  2,046
  2,165
  2,289
  2,418
  2,552
  2,692
  2,839
  2,992
  3,152
  3,319
  3,494
  3,678
  3,870
  4,071
  4,281
  4,502
Total cash flow (excl. dividends), $m
  412
  1,571
  1,752
  1,838
  1,949
  2,085
  2,245
  2,431
  2,643
  2,881
  3,147
  3,323
  3,645
  3,998
  4,382
  4,799
  5,250
  5,736
  6,260
  6,823
  7,427
  8,073
  8,765
  9,505
  10,293
  11,135
  12,031
  12,985
  13,999
  15,078
  16,224
Retained Cash Flow (-), $m
  -83
  -150
  -189
  -211
  -233
  -255
  -277
  -299
  -322
  -345
  -368
  -393
  -418
  -444
  -471
  -499
  -528
  -558
  -589
  -622
  -656
  -692
  -729
  -768
  -809
  -852
  -897
  -943
  -992
  -1,044
  -1,098
Prev. year cash balance distribution, $m
 
  815
  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
 
  2,236
  1,564
  1,628
  1,716
  1,830
  1,969
  2,132
  2,322
  2,537
  2,778
  2,930
  3,227
  3,554
  3,911
  4,300
  4,722
  5,178
  5,671
  6,201
  6,770
  7,381
  8,036
  8,736
  9,484
  10,283
  11,134
  12,041
  13,007
  14,034
  15,126
Discount rate, %
 
  6.60
  6.93
  7.28
  7.64
  8.02
  8.42
  8.84
  9.29
  9.75
  10.24
  10.75
  11.29
  11.85
  12.45
  13.07
  13.72
  14.41
  15.13
  15.88
  16.68
  17.51
  18.39
  19.31
  20.27
  21.29
  22.35
  23.47
  24.64
  25.87
  27.17
PV of cash for distribution, $m
 
  2,097
  1,367
  1,318
  1,279
  1,244
  1,212
  1,178
  1,141
  1,098
  1,048
  953
  894
  829
  757
  681
  603
  525
  449
  377
  310
  249
  196
  151
  113
  83
  59
  41
  27
  18
  11
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

George Weston Limited engages in food processing and distribution business in Canada and internationally. It operates in two segments, Weston Foods and Loblaw. The Weston Foods segment produces fresh, frozen, and specialty bakery products, including breads, rolls, bagels, tortillas, donuts, cakes, pies, cookies, crackers, and other baked goods through national and regional supermarkets, wholesale and club stores, convenience stores, food service distributors, and outlets, as well as other food retailing customers. This segment also supplies ice cream cones and sandwich wafers to the dairy industry, as well as offers Girl Scout cookies. The Loblaw segment provides grocery, pharmacy, health and beauty, apparel, general merchandise, banking, and wireless mobile products and services. This segment operates approximately 2,300 corporate, franchised, and associate-owned locations. It operates retail drug stores under the Shoppers Drug Mart and Pharmaprix names that offer over-the-counter medications, health and beauty aids, cosmetics and fragrances, seasonal products, and household essentials; and Shoppers Home Health Care stores, which sells and services assisted-living devices, medical equipment, home-care products, and durable mobility equipment to institutional and retail customers. This segment also provides specialty drug distribution, pharmacy, and patient support services, as well as pharmaceutical products and services to long-term care facilities. In addition, it owns, manages, and develops retail and commercial real estate with a portfolio consisting of 435 properties primarily focusing on supermarket-anchored shopping centres, supermarkets, and other commercial properties. Further, this segment offers financial services under the PresidentÂ’s Choice Financial brand. The company was founded in 1882 and is based in Toronto, Canada. George Weston Limited is a subsidiary of Wittington Investments, Limited.

FINANCIAL RATIOS  of  George Weston Limited (WN)

Valuation Ratios
P/E Ratio 27.6
Price to Sales 0.3
Price to Book 2
Price to Tangible Book
Price to Cash Flow 4
Price to Free Cash Flow 6.6
Growth Rates
Sales Growth Rate 2.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.3%
Cap. Spend. - 3 Yr. Gr. Rate 8.2%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 146.6%
Total Debt to Equity 169.3%
Interest Coverage 4
Management Effectiveness
Return On Assets 2.5%
Ret/ On Assets - 3 Yr. Avg. 2.3%
Return On Total Capital 2.6%
Ret/ On T. Cap. - 3 Yr. Avg. 1.9%
Return On Equity 7.1%
Return On Equity - 3 Yr. Avg. 5.3%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 28.9%
Gross Margin - 3 Yr. Avg. 27.4%
EBITDA Margin 7.9%
EBITDA Margin - 3 Yr. Avg. 6.9%
Operating Margin 4.7%
Oper. Margin - 3 Yr. Avg. 3.7%
Pre-Tax Margin 3.2%
Pre-Tax Margin - 3 Yr. Avg. 2.1%
Net Profit Margin 1.1%
Net Profit Margin - 3 Yr. Avg. 0.8%
Effective Tax Rate 29.9%
Eff/ Tax Rate - 3 Yr. Avg. 26.2%
Payout Ratio 48.2%

WN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WN stock intrinsic value calculation we used $47999 million for the last fiscal year's total revenue generated by George Weston Limited. The default revenue input number comes from 2016 income statement of George Weston Limited. 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 WN stock valuation model: a) initial revenue growth rate of 2.4% 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 6.6%, whose default value for WN is calculated based on our internal credit rating of George Weston Limited, 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 George Weston Limited.
    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 WN stock the variable cost ratio is equal to 70.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $12204 million in the base year in the intrinsic value calculation for WN 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 George Weston Limited.

Corporate tax rate of 27% is the nominal tax rate for George Weston Limited. 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 WN 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 WN are equal to 42.8%.

Life of production assets of 15 years is the average useful life of capital assets used in George Weston Limited 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 WN is equal to 6.1%. 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 - $7764 million for George Weston Limited - 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 127.125 million for George Weston Limited 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 George Weston Limited at the current share price and the inputted number of shares is $15.1 billion.


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Stock chart of WN Financial statements of WN
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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