Intrinsic value of Discovery Series A - DISCA

Previous Close

$31.92

  Intrinsic Value

$1,842

stock screener

  Rating & Target

str. buy

+999%

Previous close

$31.92

 
Intrinsic value

$1,842

 
Up/down potential

+999%

 
Rating

str. buy

We calculate the intrinsic value of DISCA 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  1.61
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  6,497
  10,997
  16,990
  25,409
  36,867
  52,013
  71,507
  95,983
  126,031
  162,172
  204,836
  254,360
  310,980
  374,835
  445,980
  524,393
  609,995
  702,663
  802,247
  908,587
  1,021,521
  1,140,903
  1,266,609
  1,398,542
  1,536,642
  1,680,889
  1,831,303
  1,987,945
  2,150,921
  2,320,380
  2,496,510
Variable operating expenses, $m
 
  6,933
  10,086
  14,516
  20,545
  28,515
  38,771
  51,650
  67,461
  86,477
  108,926
  133,837
  163,629
  197,228
  234,663
  275,921
  320,963
  369,722
  422,121
  478,074
  537,497
  600,313
  666,456
  735,875
  808,540
  884,439
  963,582
  1,046,003
  1,131,757
  1,220,922
  1,313,597
Fixed operating expenses, $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
Total operating expenses, $m
  4,501
  6,933
  10,086
  14,516
  20,545
  28,515
  38,771
  51,650
  67,461
  86,477
  108,926
  133,837
  163,629
  197,228
  234,663
  275,921
  320,963
  369,722
  422,121
  478,074
  537,497
  600,313
  666,456
  735,875
  808,540
  884,439
  963,582
  1,046,003
  1,131,757
  1,220,922
  1,313,597
Operating income, $m
  1,996
  4,064
  6,904
  10,893
  16,322
  23,499
  32,735
  44,333
  58,570
  75,695
  95,910
  120,523
  147,350
  177,607
  211,317
  248,471
  289,032
  332,940
  380,126
  430,513
  484,024
  540,590
  600,153
  662,666
  728,102
  796,450
  867,720
  941,941
  1,019,164
  1,099,458
  1,182,913
EBITDA, $m
  4,091
  5,551
  8,577
  12,827
  18,611
  26,258
  36,098
  48,455
  63,624
  81,869
  103,407
  128,408
  156,991
  189,227
  225,142
  264,727
  307,942
  354,723
  404,996
  458,679
  515,691
  575,958
  639,418
  706,021
  775,738
  848,558
  924,490
  1,003,568
  1,085,842
  1,171,390
  1,260,305
Interest expense (income), $m
  343
  798
  1,160
  1,885
  2,903
  4,288
  6,119
  8,476
  11,435
  15,068
  19,437
  24,595
  30,582
  37,427
  45,147
  53,748
  63,228
  73,577
  84,780
  96,819
  109,675
  123,328
  137,761
  152,958
  168,908
  185,604
  203,043
  221,227
  240,165
  259,868
  280,354
Earnings before tax, $m
  1,671
  3,266
  5,743
  9,008
  13,419
  19,211
  26,616
  35,857
  47,136
  60,627
  76,473
  95,928
  116,768
  140,180
  166,170
  194,723
  225,804
  259,364
  295,346
  333,694
  374,349
  417,262
  462,392
  509,708
  559,194
  610,846
  664,677
  720,714
  778,999
  839,590
  902,558
Tax expense, $m
  453
  882
  1,551
  2,432
  3,623
  5,187
  7,186
  9,681
  12,727
  16,369
  20,648
  25,901
  31,527
  37,849
  44,866
  52,575
  60,967
  70,028
  79,744
  90,097
  101,074
  112,661
  124,846
  137,621
  150,982
  164,928
  179,463
  194,593
  210,330
  226,689
  243,691
Net income, $m
  1,194
  2,384
  4,193
  6,576
  9,796
  14,024
  19,430
  26,175
  34,409
  44,258
  55,826
  70,027
  85,241
  102,331
  121,304
  142,148
  164,837
  189,336
  215,603
  243,596
  273,275
  304,601
  337,546
  372,087
  408,211
  445,918
  485,214
  526,121
  568,669
  612,901
  658,868

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  300
  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
  15,672
  27,355
  42,264
  63,206
  91,708
  129,387
  177,877
  238,763
  313,511
  403,412
  509,543
  632,736
  773,581
  932,425
  1,109,402
  1,304,459
  1,517,400
  1,747,917
  1,995,640
  2,260,166
  2,541,097
  2,838,068
  3,150,768
  3,478,959
  3,822,493
  4,181,316
  4,555,479
  4,945,136
  5,350,550
  5,772,088
  6,210,223
Adjusted assets (=assets-cash), $m
  15,372
  27,355
  42,264
  63,206
  91,708
  129,387
  177,877
  238,763
  313,511
  403,412
  509,543
  632,736
  773,581
  932,425
  1,109,402
  1,304,459
  1,517,400
  1,747,917
  1,995,640
  2,260,166
  2,541,097
  2,838,068
  3,150,768
  3,478,959
  3,822,493
  4,181,316
  4,555,479
  4,945,136
  5,350,550
  5,772,088
  6,210,223
Revenue / Adjusted assets
  0.423
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
Average production assets, $m
  3,925
  10,227
  15,801
  23,630
  34,286
  48,373
  66,501
  89,264
  117,209
  150,820
  190,498
  236,555
  289,211
  348,596
  414,761
  487,685
  567,295
  653,476
  746,090
  844,986
  950,015
  1,061,040
  1,177,946
  1,300,644
  1,429,077
  1,563,227
  1,703,111
  1,848,789
  2,000,357
  2,157,953
  2,321,754
Working capital, $m
  941
  1,342
  2,073
  3,100
  4,498
  6,346
  8,724
  11,710
  15,376
  19,785
  24,990
  31,032
  37,940
  45,730
  54,410
  63,976
  74,419
  85,725
  97,874
  110,848
  124,626
  139,190
  154,526
  170,622
  187,470
  205,068
  223,419
  242,529
  262,412
  283,086
  304,574
Total debt, $m
  7,923
  21,490
  34,907
  53,755
  79,407
  113,318
  156,959
  211,757
  279,030
  359,941
  455,458
  566,333
  693,093
  836,053
  995,332
  1,170,883
  1,362,530
  1,569,995
  1,792,946
  2,031,019
  2,283,858
  2,551,131
  2,832,561
  3,127,933
  3,437,114
  3,760,055
  4,096,801
  4,447,493
  4,812,365
  5,191,750
  5,586,071
Total liabilities, $m
  10,505
  24,620
  38,037
  56,885
  82,537
  116,448
  160,089
  214,887
  282,160
  363,071
  458,588
  569,463
  696,223
  839,183
  998,462
  1,174,013
  1,365,660
  1,573,125
  1,796,076
  2,034,149
  2,286,988
  2,554,261
  2,835,691
  3,131,063
  3,440,244
  3,763,185
  4,099,931
  4,450,623
  4,815,495
  5,194,880
  5,589,201
Total equity, $m
  5,167
  2,736
  4,226
  6,321
  9,171
  12,939
  17,788
  23,876
  31,351
  40,341
  50,954
  63,274
  77,358
  93,243
  110,940
  130,446
  151,740
  174,792
  199,564
  226,017
  254,110
  283,807
  315,077
  347,896
  382,249
  418,132
  455,548
  494,514
  535,055
  577,209
  621,022
Total liabilities and equity, $m
  15,672
  27,356
  42,263
  63,206
  91,708
  129,387
  177,877
  238,763
  313,511
  403,412
  509,542
  632,737
  773,581
  932,426
  1,109,402
  1,304,459
  1,517,400
  1,747,917
  1,995,640
  2,260,166
  2,541,098
  2,838,068
  3,150,768
  3,478,959
  3,822,493
  4,181,317
  4,555,479
  4,945,137
  5,350,550
  5,772,089
  6,210,223
Debt-to-equity ratio
  1.533
  7.860
  8.260
  8.500
  8.660
  8.760
  8.820
  8.870
  8.900
  8.920
  8.940
  8.950
  8.960
  8.970
  8.970
  8.980
  8.980
  8.980
  8.980
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
Adjusted equity ratio
  0.317
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,194
  2,384
  4,193
  6,576
  9,796
  14,024
  19,430
  26,175
  34,409
  44,258
  55,826
  70,027
  85,241
  102,331
  121,304
  142,148
  164,837
  189,336
  215,603
  243,596
  273,275
  304,601
  337,546
  372,087
  408,211
  445,918
  485,214
  526,121
  568,669
  612,901
  658,868
Depreciation, amort., depletion, $m
  2,095
  1,488
  1,673
  1,934
  2,289
  2,759
  3,363
  4,122
  5,054
  6,174
  7,497
  7,885
  9,640
  11,620
  13,825
  16,256
  18,910
  21,783
  24,870
  28,166
  31,667
  35,368
  39,265
  43,355
  47,636
  52,108
  56,770
  61,626
  66,679
  71,932
  77,392
Funds from operations, $m
  -705
  3,871
  5,866
  8,510
  12,085
  16,783
  22,793
  30,298
  39,463
  50,432
  63,322
  77,912
  94,881
  113,951
  135,130
  158,404
  183,747
  211,118
  240,473
  271,762
  304,942
  339,969
  376,811
  415,442
  455,847
  498,025
  541,985
  587,748
  635,348
  684,833
  736,259
Change in working capital, $m
  -2,078
  503
  731
  1,027
  1,398
  1,848
  2,378
  2,986
  3,666
  4,409
  5,205
  6,042
  6,908
  7,790
  8,680
  9,566
  10,443
  11,305
  12,149
  12,973
  13,778
  14,565
  15,336
  16,096
  16,848
  17,598
  18,350
  19,110
  19,883
  20,674
  21,488
Cash from operations, $m
  1,373
  3,368
  5,135
  7,483
  10,687
  14,935
  20,415
  27,311
  35,797
  46,023
  58,117
  71,871
  87,974
  106,161
  126,450
  148,838
  173,303
  199,813
  228,323
  258,789
  291,164
  325,405
  361,475
  399,346
  438,999
  480,427
  523,634
  568,637
  615,465
  664,159
  714,772
Maintenance CAPEX, $m
  0
  -213
  -341
  -527
  -788
  -1,143
  -1,612
  -2,217
  -2,975
  -3,907
  -5,027
  -6,350
  -7,885
  -9,640
  -11,620
  -13,825
  -16,256
  -18,910
  -21,783
  -24,870
  -28,166
  -31,667
  -35,368
  -39,265
  -43,355
  -47,636
  -52,108
  -56,770
  -61,626
  -66,679
  -71,932
New CAPEX, $m
  -88
  -3,833
  -5,574
  -7,829
  -10,656
  -14,087
  -18,129
  -22,763
  -27,945
  -33,611
  -39,678
  -46,057
  -52,656
  -59,385
  -66,165
  -72,924
  -79,610
  -86,181
  -92,614
  -98,896
  -105,029
  -111,026
  -116,906
  -122,698
  -128,434
  -134,150
  -139,884
  -145,677
  -151,568
  -157,596
  -163,801
Cash from investing activities, $m
  -256
  -4,046
  -5,915
  -8,356
  -11,444
  -15,230
  -19,741
  -24,980
  -30,920
  -37,518
  -44,705
  -52,407
  -60,541
  -69,025
  -77,785
  -86,749
  -95,866
  -105,091
  -114,397
  -123,766
  -133,195
  -142,693
  -152,274
  -161,963
  -171,789
  -181,786
  -191,992
  -202,447
  -213,194
  -224,275
  -235,733
Free cash flow, $m
  1,117
  -678
  -780
  -873
  -756
  -294
  674
  2,332
  4,876
  8,505
  13,412
  19,463
  27,432
  37,135
  48,666
  62,088
  77,437
  94,721
  113,927
  135,024
  157,969
  182,712
  209,201
  237,383
  267,211
  298,641
  331,642
  366,190
  402,271
  439,884
  479,039
Issuance/(repayment) of debt, $m
  289
  6,705
  13,418
  18,848
  25,652
  33,911
  43,641
  54,797
  67,273
  80,911
  95,517
  110,874
  126,760
  142,960
  159,279
  175,552
  191,646
  207,466
  222,950
  238,074
  252,838
  267,274
  281,430
  295,372
  309,180
  322,941
  336,746
  350,691
  364,873
  379,385
  394,321
Issuance/(repurchase) of shares, $m
  -1,431
  1,180
  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  
  -1,177
  7,885
  13,418
  18,848
  25,652
  33,911
  43,641
  54,797
  67,273
  80,911
  95,517
  110,874
  126,760
  142,960
  159,279
  175,552
  191,646
  207,466
  222,950
  238,074
  252,838
  267,274
  281,430
  295,372
  309,180
  322,941
  336,746
  350,691
  364,873
  379,385
  394,321
Total cash flow (excl. dividends), $m
  -90
  7,206
  12,638
  17,974
  24,896
  33,616
  44,315
  57,129
  72,149
  89,416
  108,929
  130,338
  154,192
  180,095
  207,945
  237,640
  269,083
  302,187
  336,877
  373,097
  410,807
  449,986
  490,631
  532,756
  576,391
  621,582
  668,389
  716,881
  767,143
  819,268
  873,360
Retained Cash Flow (-), $m
  284
  -3,564
  -1,491
  -2,094
  -2,850
  -3,768
  -4,849
  -6,089
  -7,475
  -8,990
  -10,613
  -12,319
  -14,084
  -15,884
  -17,698
  -19,506
  -21,294
  -23,052
  -24,772
  -26,453
  -28,093
  -29,697
  -31,270
  -32,819
  -34,353
  -35,882
  -37,416
  -38,966
  -40,541
  -42,154
  -43,813
Prev. year cash balance distribution, $m
 
  5,438
  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
 
  9,081
  11,147
  15,880
  22,046
  29,849
  39,466
  51,041
  64,674
  80,426
  98,316
  118,018
  140,108
  164,210
  190,247
  218,134
  247,789
  279,135
  312,105
  346,645
  382,714
  420,289
  459,361
  499,937
  542,038
  585,700
  630,972
  677,915
  726,602
  777,114
  829,546
Discount rate, %
 
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.12
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.82
  25.01
  26.26
  27.58
PV of cash for distribution, $m
 
  8,510
  9,730
  12,823
  16,352
  20,180
  24,122
  27,959
  31,457
  34,392
  36,574
  37,767
  38,113
  37,492
  35,971
  33,671
  30,757
  27,419
  23,853
  20,246
  16,762
  13,529
  10,641
  8,150
  6,074
  4,402
  3,098
  2,116
  1,401
  898
  557
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Discovery Communications, Inc. (Discovery) is a global media company. The Company provides content across multiple distribution platforms, including pay-television (pay-TV), free-to-air (FTA) and broadcast television, Websites, digital distribution arrangements and content licensing agreements. Its segments include U.S. Networks, which consists principally of domestic television networks and digital content services; International Networks, consisting primarily of international television networks and digital content services, and Education and Other, which consists principally of curriculum-based product and service offerings, and production studios. The Company's portfolio of networks includes television brands, such as Discovery Channel, Animal Planet, ID, Velocity (known as Turbo outside of the United States) and Eurosport. It is also engaged in extending content distribution across various platforms, including brand-aligned Websites, Web-native networks and online streaming.

FINANCIAL RATIOS  of  Discovery Series A (DISCA)

Valuation Ratios
P/E Ratio 10.4
Price to Sales 1.9
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 9.1
Price to Free Cash Flow 9.7
Growth Rates
Sales Growth Rate 1.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -14.6%
Cap. Spend. - 3 Yr. Gr. Rate -5.2%
Financial Strength
Quick Ratio 4
Current Ratio 0.2
LT Debt to Equity 151.8%
Total Debt to Equity 153.3%
Interest Coverage 6
Management Effectiveness
Return On Assets 9.2%
Ret/ On Assets - 3 Yr. Avg. 8.6%
Return On Total Capital 9.1%
Ret/ On T. Cap. - 3 Yr. Avg. 8.7%
Return On Equity 22.5%
Return On Equity - 3 Yr. Avg. 20.2%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 62.6%
Gross Margin - 3 Yr. Avg. 64%
EBITDA Margin 63.2%
EBITDA Margin - 3 Yr. Avg. 62.5%
Operating Margin 30.7%
Oper. Margin - 3 Yr. Avg. 31.6%
Pre-Tax Margin 25.7%
Pre-Tax Margin - 3 Yr. Avg. 26%
Net Profit Margin 18.4%
Net Profit Margin - 3 Yr. Avg. 17.6%
Effective Tax Rate 27.1%
Eff/ Tax Rate - 3 Yr. Avg. 31.6%
Payout Ratio 0%

DISCA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DISCA stock intrinsic value calculation we used $6873 million for the last fiscal year's total revenue generated by Discovery Series A. The default revenue input number comes from 2016 income statement of Discovery Series A. 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 DISCA stock valuation model: a) initial revenue growth rate of 60% 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 6.7%, whose default value for DISCA is calculated based on our internal credit rating of Discovery Series A, 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 Discovery Series A.
    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 DISCA stock the variable cost ratio is equal to 69.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for DISCA 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 5.4% for Discovery Series A.

Corporate tax rate of 27% is the nominal tax rate for Discovery Series A. 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 DISCA 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 DISCA are equal to 93%.

Life of production assets of 37.1 years is the average useful life of capital assets used in Discovery Series A 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 DISCA is equal to 12.2%. 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 - $4610 million for Discovery Series A - 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 156.245 million for Discovery Series A 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 Discovery Series A at the current share price and the inputted number of shares is $5.0 billion.

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Financial statements of DISCA
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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