Intrinsic value of George Weston Limited - WN

Previous Close

$116.12

  Intrinsic Value

$145.00

stock screener

  Rating & Target

buy

+25%

  Value-price divergence*

-10%

Previous close

$116.12

 
Intrinsic value

$145.00

 
Up/down potential

+25%

 
Rating

buy

 
Value-price divergence*

-10%

*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 14.8

 

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
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  47,999
  48,959
  50,085
  51,372
  52,817
  54,419
  56,176
  58,089
  60,160
  62,391
  64,785
  67,347
  70,080
  72,990
  76,083
  79,365
  82,843
  86,525
  90,418
  94,532
  98,875
  103,458
  108,292
  113,386
  118,754
  124,408
  130,360
  136,626
  143,219
  150,155
  157,450
Variable operating expenses, $m
 
  34,507
  35,291
  36,187
  37,192
  38,307
  39,529
  40,861
  42,302
  43,855
  45,521
  46,867
  48,769
  50,794
  52,947
  55,231
  57,651
  60,213
  62,923
  65,785
  68,808
  71,998
  75,361
  78,907
  82,642
  86,576
  90,719
  95,079
  99,667
  104,494
  109,571
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
  47,016
  48,113
  49,329
  50,663
  52,115
  53,682
  55,368
  57,171
  59,096
  61,143
  62,880
  65,182
  67,617
  70,191
  72,906
  75,768
  78,783
  81,957
  85,295
  88,806
  92,496
  96,371
  100,442
  104,716
  109,202
  113,910
  118,850
  124,032
  129,468
  135,170
Operating income, $m
  2,255
  1,943
  1,972
  2,043
  2,154
  2,304
  2,493
  2,721
  2,988
  3,295
  3,642
  4,467
  4,898
  5,372
  5,892
  6,459
  7,075
  7,742
  8,461
  9,236
  10,070
  10,963
  11,921
  12,945
  14,039
  15,206
  16,450
  17,776
  19,186
  20,686
  22,281
EBITDA, $m
  3,909
  3,776
  3,838
  3,945
  4,097
  4,293
  4,532
  4,815
  5,141
  5,512
  5,927
  6,388
  6,897
  7,455
  8,063
  8,724
  9,439
  10,210
  11,041
  11,934
  12,891
  13,915
  15,011
  16,180
  17,427
  18,756
  20,170
  21,674
  23,273
  24,971
  26,773
Interest expense (income), $m
  570
  490
  515
  543
  576
  613
  654
  698
  747
  800
  857
  918
  983
  1,053
  1,127
  1,206
  1,289
  1,378
  1,472
  1,571
  1,676
  1,786
  1,903
  2,026
  2,156
  2,293
  2,437
  2,588
  2,748
  2,916
  3,093
Earnings before tax, $m
  1,555
  1,453
  1,458
  1,500
  1,578
  1,691
  1,840
  2,023
  2,241
  2,495
  2,785
  3,549
  3,915
  4,320
  4,766
  5,254
  5,786
  6,364
  6,990
  7,666
  8,394
  9,177
  10,018
  10,918
  11,883
  12,913
  14,014
  15,187
  16,438
  17,770
  19,188
Tax expense, $m
  465
  392
  394
  405
  426
  457
  497
  546
  605
  674
  752
  958
  1,057
  1,166
  1,287
  1,418
  1,562
  1,718
  1,887
  2,070
  2,266
  2,478
  2,705
  2,948
  3,208
  3,487
  3,784
  4,101
  4,438
  4,798
  5,181
Net income, $m
  550
  1,061
  1,064
  1,095
  1,152
  1,235
  1,343
  1,477
  1,636
  1,821
  2,033
  2,591
  2,858
  3,153
  3,479
  3,835
  4,224
  4,646
  5,102
  5,596
  6,128
  6,699
  7,313
  7,970
  8,674
  9,427
  10,230
  11,087
  12,000
  12,972
  14,007

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
  36,079
  36,909
  37,857
  38,922
  40,102
  41,397
  42,807
  44,333
  45,977
  47,741
  49,629
  51,643
  53,788
  56,067
  58,486
  61,049
  63,762
  66,631
  69,662
  72,863
  76,241
  79,802
  83,557
  87,512
  91,679
  96,065
  100,682
  105,541
  110,652
  116,028
Adjusted assets (=assets-cash), $m
  35,375
  36,079
  36,909
  37,857
  38,922
  40,102
  41,397
  42,807
  44,333
  45,977
  47,741
  49,629
  51,643
  53,788
  56,067
  58,486
  61,049
  63,762
  66,631
  69,662
  72,863
  76,241
  79,802
  83,557
  87,512
  91,679
  96,065
  100,682
  105,541
  110,652
  116,028
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
  20,954
  21,436
  21,987
  22,606
  23,291
  24,043
  24,862
  25,748
  26,703
  27,728
  28,824
  29,994
  31,240
  32,564
  33,968
  35,457
  37,033
  38,699
  40,460
  42,319
  44,280
  46,349
  48,529
  50,827
  53,247
  55,794
  58,476
  61,298
  64,266
  67,389
Working capital, $m
  3,750
  2,986
  3,055
  3,134
  3,222
  3,320
  3,427
  3,543
  3,670
  3,806
  3,952
  4,108
  4,275
  4,452
  4,641
  4,841
  5,053
  5,278
  5,516
  5,766
  6,031
  6,311
  6,606
  6,917
  7,244
  7,589
  7,952
  8,334
  8,736
  9,159
  9,604
Total debt, $m
  13,141
  11,966
  12,634
  13,396
  14,252
  15,201
  16,242
  17,376
  18,603
  19,924
  21,343
  22,861
  24,480
  26,204
  28,037
  29,981
  32,042
  34,223
  36,530
  38,968
  41,541
  44,256
  47,120
  50,139
  53,319
  56,669
  60,195
  63,907
  67,814
  71,923
  76,246
Total liabilities, $m
  30,182
  29,007
  29,675
  30,437
  31,293
  32,242
  33,283
  34,417
  35,644
  36,965
  38,384
  39,902
  41,521
  43,245
  45,078
  47,022
  49,083
  51,264
  53,571
  56,009
  58,582
  61,297
  64,161
  67,180
  70,360
  73,710
  77,236
  80,948
  84,855
  88,964
  93,287
Total equity, $m
  7,764
  7,071
  7,234
  7,420
  7,629
  7,860
  8,114
  8,390
  8,689
  9,011
  9,357
  9,727
  10,122
  10,542
  10,989
  11,463
  11,966
  12,497
  13,060
  13,654
  14,281
  14,943
  15,641
  16,377
  17,152
  17,969
  18,829
  19,734
  20,686
  21,688
  22,742
Total liabilities and equity, $m
  37,946
  36,078
  36,909
  37,857
  38,922
  40,102
  41,397
  42,807
  44,333
  45,976
  47,741
  49,629
  51,643
  53,787
  56,067
  58,485
  61,049
  63,761
  66,631
  69,663
  72,863
  76,240
  79,802
  83,557
  87,512
  91,679
  96,065
  100,682
  105,541
  110,652
  116,029
Debt-to-equity ratio
  1.693
  1.690
  1.750
  1.810
  1.870
  1.930
  2.000
  2.070
  2.140
  2.210
  2.280
  2.350
  2.420
  2.490
  2.550
  2.620
  2.680
  2.740
  2.800
  2.850
  2.910
  2.960
  3.010
  3.060
  3.110
  3.150
  3.200
  3.240
  3.280
  3.320
  3.350
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
  1,061
  1,064
  1,095
  1,152
  1,235
  1,343
  1,477
  1,636
  1,821
  2,033
  2,591
  2,858
  3,153
  3,479
  3,835
  4,224
  4,646
  5,102
  5,596
  6,128
  6,699
  7,313
  7,970
  8,674
  9,427
  10,230
  11,087
  12,000
  12,972
  14,007
Depreciation, amort., depletion, $m
  1,654
  1,833
  1,865
  1,902
  1,943
  1,989
  2,039
  2,094
  2,153
  2,217
  2,285
  1,922
  2,000
  2,083
  2,171
  2,265
  2,364
  2,469
  2,580
  2,697
  2,821
  2,952
  3,090
  3,235
  3,388
  3,550
  3,720
  3,898
  4,087
  4,284
  4,493
Funds from operations, $m
  3,452
  2,894
  2,930
  2,997
  3,095
  3,224
  3,382
  3,570
  3,789
  4,038
  4,318
  4,512
  4,857
  5,236
  5,650
  6,100
  6,587
  7,114
  7,682
  8,293
  8,949
  9,651
  10,403
  11,206
  12,063
  12,976
  13,950
  14,985
  16,086
  17,257
  18,500
Change in working capital, $m
  -308
  59
  69
  79
  88
  98
  107
  117
  126
  136
  146
  156
  167
  178
  189
  200
  212
  225
  237
  251
  265
  280
  295
  311
  327
  345
  363
  382
  402
  423
  445
Cash from operations, $m
  3,760
  2,835
  2,861
  2,919
  3,007
  3,126
  3,275
  3,454
  3,663
  3,902
  4,172
  4,356
  4,691
  5,059
  5,461
  5,900
  6,375
  6,890
  7,445
  8,042
  8,684
  9,372
  10,108
  10,895
  11,735
  12,632
  13,586
  14,603
  15,684
  16,834
  18,055
Maintenance CAPEX, $m
  0
  -1,368
  -1,397
  -1,429
  -1,466
  -1,507
  -1,553
  -1,603
  -1,657
  -1,717
  -1,780
  -1,849
  -1,922
  -2,000
  -2,083
  -2,171
  -2,265
  -2,364
  -2,469
  -2,580
  -2,697
  -2,821
  -2,952
  -3,090
  -3,235
  -3,388
  -3,550
  -3,720
  -3,898
  -4,087
  -4,284
New CAPEX, $m
  -1,465
  -428
  -482
  -551
  -619
  -685
  -752
  -819
  -886
  -955
  -1,025
  -1,096
  -1,170
  -1,246
  -1,324
  -1,405
  -1,489
  -1,576
  -1,666
  -1,761
  -1,859
  -1,962
  -2,069
  -2,181
  -2,297
  -2,420
  -2,548
  -2,682
  -2,822
  -2,969
  -3,122
Cash from investing activities, $m
  -1,324
  -1,796
  -1,879
  -1,980
  -2,085
  -2,192
  -2,305
  -2,422
  -2,543
  -2,672
  -2,805
  -2,945
  -3,092
  -3,246
  -3,407
  -3,576
  -3,754
  -3,940
  -4,135
  -4,341
  -4,556
  -4,783
  -5,021
  -5,271
  -5,532
  -5,808
  -6,098
  -6,402
  -6,720
  -7,056
  -7,406
Free cash flow, $m
  2,436
  1,039
  982
  939
  923
  934
  970
  1,032
  1,119
  1,230
  1,367
  1,411
  1,599
  1,813
  2,055
  2,324
  2,622
  2,950
  3,310
  3,702
  4,128
  4,589
  5,087
  5,625
  6,203
  6,823
  7,489
  8,202
  8,964
  9,779
  10,648
Issuance/(repayment) of debt, $m
  -457
  581
  667
  763
  856
  949
  1,041
  1,134
  1,227
  1,322
  1,419
  1,518
  1,619
  1,724
  1,833
  1,945
  2,061
  2,181
  2,307
  2,437
  2,573
  2,715
  2,864
  3,019
  3,180
  3,350
  3,527
  3,712
  3,906
  4,110
  4,322
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
  581
  667
  763
  856
  949
  1,041
  1,134
  1,227
  1,322
  1,419
  1,518
  1,619
  1,724
  1,833
  1,945
  2,061
  2,181
  2,307
  2,437
  2,573
  2,715
  2,864
  3,019
  3,180
  3,350
  3,527
  3,712
  3,906
  4,110
  4,322
Total cash flow (excl. dividends), $m
  412
  1,620
  1,649
  1,701
  1,779
  1,882
  2,011
  2,166
  2,346
  2,552
  2,786
  2,929
  3,219
  3,538
  3,887
  4,268
  4,683
  5,132
  5,616
  6,139
  6,701
  7,304
  7,951
  8,643
  9,383
  10,173
  11,016
  11,914
  12,870
  13,888
  14,970
Retained Cash Flow (-), $m
  -83
  -122
  -163
  -186
  -209
  -231
  -254
  -276
  -299
  -322
  -346
  -370
  -395
  -420
  -447
  -474
  -502
  -532
  -562
  -594
  -627
  -662
  -698
  -736
  -775
  -817
  -860
  -905
  -952
  -1,002
  -1,054
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
 
  2,313
  1,487
  1,515
  1,570
  1,651
  1,757
  1,889
  2,047
  2,230
  2,440
  2,559
  2,824
  3,117
  3,440
  3,794
  4,180
  4,600
  5,054
  5,545
  6,074
  6,642
  7,253
  7,907
  8,608
  9,356
  10,156
  11,009
  11,918
  12,886
  13,917
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
 
  2,170
  1,300
  1,227
  1,170
  1,123
  1,082
  1,044
  1,006
  965
  921
  832
  782
  727
  666
  601
  534
  467
  400
  337
  278
  224
  177
  136
  103
  75
  54
  37
  25
  16
  10
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
Price to Sales 0.3
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 3.9
Price to Free Cash Flow 6.5
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% 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 127.609 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 $14.8 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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