Intrinsic value of Dow Chemical - DOW

Previous Close

$63.94

  Intrinsic Value

$208.93

stock screener

  Rating & Target

str. buy

+227%

  Value-price divergence*

+136%

Previous close

$63.94

 
Intrinsic value

$208.93

 
Up/down potential

+227%

 
Rating

str. buy

 
Value-price divergence*

+136%

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

We calculate the intrinsic value of DOW 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 76.8

 

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, %
  -1.27
  23.60
  21.74
  20.07
  18.56
  17.20
  15.98
  14.88
  13.90
  13.01
  12.21
  11.49
  10.84
  10.25
  9.73
  9.26
  8.83
  8.45
  8.10
  7.79
  7.51
  7.26
  7.04
  6.83
  6.65
  6.48
  6.34
  6.20
  6.08
  5.97
  5.88
Revenue, $m
  48,158
  59,523
  72,464
  87,004
  103,152
  120,897
  140,220
  161,092
  183,478
  207,342
  232,651
  259,371
  287,479
  316,955
  347,788
  379,976
  413,526
  448,455
  484,789
  522,562
  561,820
  602,616
  645,011
  689,076
  734,890
  782,537
  832,113
  883,719
  937,463
  993,462
  1,051,838
Variable operating expenses, $m
 
  46,782
  56,620
  67,675
  79,952
  93,444
  108,135
  124,003
  141,023
  159,167
  178,409
  197,197
  218,567
  240,977
  264,419
  288,891
  314,399
  340,955
  368,579
  397,298
  427,145
  458,162
  490,394
  523,896
  558,728
  594,953
  632,646
  671,881
  712,742
  755,317
  799,700
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
  43,436
  46,782
  56,620
  67,675
  79,952
  93,444
  108,135
  124,003
  141,023
  159,167
  178,409
  197,197
  218,567
  240,977
  264,419
  288,891
  314,399
  340,955
  368,579
  397,298
  427,145
  458,162
  490,394
  523,896
  558,728
  594,953
  632,646
  671,881
  712,742
  755,317
  799,700
Operating income, $m
  4,722
  12,741
  15,843
  19,329
  23,200
  27,453
  32,085
  37,089
  42,455
  48,175
  54,242
  62,175
  68,912
  75,978
  83,369
  91,085
  99,127
  107,500
  116,210
  125,265
  134,675
  144,454
  154,617
  165,180
  176,162
  187,584
  199,468
  211,838
  224,721
  238,145
  252,139
EBITDA, $m
  7,584
  16,567
  20,168
  24,215
  28,710
  33,649
  39,027
  44,836
  51,067
  57,709
  64,753
  72,190
  80,013
  88,217
  96,798
  105,757
  115,095
  124,816
  134,929
  145,442
  156,369
  167,723
  179,523
  191,787
  204,538
  217,800
  231,598
  245,961
  260,920
  276,506
  292,753
Interest expense (income), $m
  1,192
  1,268
  2,037
  2,913
  3,898
  4,992
  6,193
  7,502
  8,915
  10,431
  12,048
  13,761
  15,571
  17,475
  19,471
  21,559
  23,739
  26,011
  28,376
  30,837
  33,395
  36,053
  38,816
  41,687
  44,671
  47,774
  51,001
  54,358
  57,853
  61,493
  65,285
Earnings before tax, $m
  4,413
  11,473
  13,806
  16,415
  19,301
  22,462
  25,892
  29,587
  33,539
  37,744
  42,194
  48,413
  53,341
  58,503
  63,898
  69,526
  75,389
  81,490
  87,834
  94,428
  101,280
  108,401
  115,801
  123,493
  131,491
  139,810
  148,467
  157,480
  166,869
  176,652
  186,854
Tax expense, $m
  9
  3,098
  3,728
  4,432
  5,211
  6,065
  6,991
  7,988
  9,056
  10,191
  11,392
  13,072
  14,402
  15,796
  17,253
  18,772
  20,355
  22,002
  23,715
  25,496
  27,346
  29,268
  31,266
  33,343
  35,502
  37,749
  40,086
  42,520
  45,054
  47,696
  50,451
Net income, $m
  4,318
  8,375
  10,079
  11,983
  14,090
  16,397
  18,901
  21,598
  24,484
  27,553
  30,802
  35,342
  38,939
  42,707
  46,646
  50,754
  55,034
  59,487
  64,119
  68,932
  73,935
  79,133
  84,535
  90,150
  95,988
  102,061
  108,381
  114,961
  121,814
  128,956
  136,403

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,607
  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
  79,511
  90,050
  109,627
  131,625
  156,054
  182,901
  212,134
  243,710
  277,576
  313,680
  351,968
  392,392
  434,916
  479,508
  526,154
  574,850
  625,607
  678,450
  733,417
  790,564
  849,955
  911,673
  975,811
  1,042,475
  1,111,785
  1,183,869
  1,258,870
  1,336,942
  1,418,250
  1,502,968
  1,591,284
Adjusted assets (=assets-cash), $m
  72,904
  90,050
  109,627
  131,625
  156,054
  182,901
  212,134
  243,710
  277,576
  313,680
  351,968
  392,392
  434,916
  479,508
  526,154
  574,850
  625,607
  678,450
  733,417
  790,564
  849,955
  911,673
  975,811
  1,042,475
  1,111,785
  1,183,869
  1,258,870
  1,336,942
  1,418,250
  1,502,968
  1,591,284
Revenue / Adjusted assets
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
Average production assets, $m
  25,492
  31,488
  38,333
  46,025
  54,567
  63,955
  74,177
  85,218
  97,060
  109,684
  123,072
  137,207
  152,076
  167,669
  183,980
  201,007
  218,755
  237,233
  256,453
  276,436
  297,203
  318,784
  341,211
  364,521
  388,757
  413,962
  440,188
  467,487
  495,918
  525,541
  556,423
Working capital, $m
  11,055
  6,607
  8,043
  9,657
  11,450
  13,420
  15,564
  17,881
  20,366
  23,015
  25,824
  28,790
  31,910
  35,182
  38,604
  42,177
  45,901
  49,779
  53,812
  58,004
  62,362
  66,890
  71,596
  76,487
  81,573
  86,862
  92,365
  98,093
  104,058
  110,274
  116,754
Total debt, $m
  21,363
  32,855
  46,990
  62,872
  80,510
  99,893
  121,000
  143,797
  168,249
  194,316
  221,960
  251,146
  281,848
  314,044
  347,722
  382,881
  419,527
  457,680
  497,366
  538,626
  581,507
  626,067
  672,375
  720,506
  770,547
  822,592
  876,743
  933,111
  991,815
  1,052,982
  1,116,746
Total liabilities, $m
  53,524
  65,016
  79,151
  95,033
  112,671
  132,054
  153,161
  175,958
  200,410
  226,477
  254,121
  283,307
  314,009
  346,205
  379,883
  415,042
  451,688
  489,841
  529,527
  570,787
  613,668
  658,228
  704,536
  752,667
  802,708
  854,753
  908,904
  965,272
  1,023,976
  1,085,143
  1,148,907
Total equity, $m
  25,987
  25,034
  30,476
  36,592
  43,383
  50,846
  58,973
  67,751
  77,166
  87,203
  97,847
  109,085
  120,907
  133,303
  146,271
  159,808
  173,919
  188,609
  203,890
  219,777
  236,288
  253,445
  271,276
  289,808
  309,076
  329,116
  349,966
  371,670
  394,273
  417,825
  442,377
Total liabilities and equity, $m
  79,511
  90,050
  109,627
  131,625
  156,054
  182,900
  212,134
  243,709
  277,576
  313,680
  351,968
  392,392
  434,916
  479,508
  526,154
  574,850
  625,607
  678,450
  733,417
  790,564
  849,956
  911,673
  975,812
  1,042,475
  1,111,784
  1,183,869
  1,258,870
  1,336,942
  1,418,249
  1,502,968
  1,591,284
Debt-to-equity ratio
  0.822
  1.310
  1.540
  1.720
  1.860
  1.960
  2.050
  2.120
  2.180
  2.230
  2.270
  2.300
  2.330
  2.360
  2.380
  2.400
  2.410
  2.430
  2.440
  2.450
  2.460
  2.470
  2.480
  2.490
  2.490
  2.500
  2.510
  2.510
  2.520
  2.520
  2.520
Adjusted equity ratio
  0.270
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4,318
  8,375
  10,079
  11,983
  14,090
  16,397
  18,901
  21,598
  24,484
  27,553
  30,802
  35,342
  38,939
  42,707
  46,646
  50,754
  55,034
  59,487
  64,119
  68,932
  73,935
  79,133
  84,535
  90,150
  95,988
  102,061
  108,381
  114,961
  121,814
  128,956
  136,403
Depreciation, amort., depletion, $m
  2,862
  3,826
  4,325
  4,887
  5,510
  6,195
  6,942
  7,747
  8,612
  9,533
  10,511
  10,015
  11,100
  12,239
  13,429
  14,672
  15,968
  17,316
  18,719
  20,178
  21,694
  23,269
  24,906
  26,607
  28,376
  30,216
  32,131
  34,123
  36,198
  38,361
  40,615
Funds from operations, $m
  6,230
  12,201
  14,404
  16,870
  19,600
  22,593
  25,843
  29,346
  33,096
  37,086
  41,312
  45,357
  50,040
  54,946
  60,075
  65,426
  71,001
  76,804
  82,838
  89,110
  95,628
  102,402
  109,441
  116,757
  124,365
  132,277
  140,511
  149,084
  158,012
  167,317
  177,018
Change in working capital, $m
  752
  1,262
  1,436
  1,614
  1,792
  1,970
  2,145
  2,317
  2,485
  2,649
  2,809
  2,966
  3,120
  3,272
  3,422
  3,573
  3,724
  3,877
  4,033
  4,193
  4,358
  4,528
  4,706
  4,891
  5,085
  5,289
  5,503
  5,728
  5,966
  6,216
  6,480
Cash from operations, $m
  5,478
  10,939
  12,967
  15,256
  17,808
  20,623
  23,698
  27,029
  30,611
  34,437
  38,503
  42,391
  46,920
  51,674
  56,652
  61,853
  67,277
  72,927
  78,805
  84,917
  91,271
  97,873
  104,735
  111,866
  119,279
  126,989
  135,009
  143,355
  152,047
  161,101
  170,538
Maintenance CAPEX, $m
  0
  -1,861
  -2,298
  -2,798
  -3,360
  -3,983
  -4,668
  -5,414
  -6,220
  -7,085
  -8,006
  -8,983
  -10,015
  -11,100
  -12,239
  -13,429
  -14,672
  -15,968
  -17,316
  -18,719
  -20,178
  -21,694
  -23,269
  -24,906
  -26,607
  -28,376
  -30,216
  -32,131
  -34,123
  -36,198
  -38,361
New CAPEX, $m
  -3,804
  -5,996
  -6,845
  -7,692
  -8,542
  -9,387
  -10,222
  -11,041
  -11,842
  -12,624
  -13,388
  -14,135
  -14,869
  -15,593
  -16,311
  -17,027
  -17,748
  -18,477
  -19,220
  -19,982
  -20,767
  -21,581
  -22,427
  -23,310
  -24,235
  -25,206
  -26,226
  -27,299
  -28,431
  -29,623
  -30,881
Cash from investing activities, $m
  -3,479
  -7,857
  -9,143
  -10,490
  -11,902
  -13,370
  -14,890
  -16,455
  -18,062
  -19,709
  -21,394
  -23,118
  -24,884
  -26,693
  -28,550
  -30,456
  -32,420
  -34,445
  -36,536
  -38,701
  -40,945
  -43,275
  -45,696
  -48,216
  -50,842
  -53,582
  -56,442
  -59,430
  -62,554
  -65,821
  -69,242
Free cash flow, $m
  1,999
  3,082
  3,824
  4,766
  5,906
  7,252
  8,808
  10,574
  12,548
  14,728
  17,109
  19,272
  22,035
  24,981
  28,103
  31,397
  34,857
  38,482
  42,268
  46,216
  50,326
  54,599
  59,039
  63,650
  68,437
  73,406
  78,567
  83,926
  89,493
  95,279
  101,296
Issuance/(repayment) of debt, $m
  -589
  12,399
  14,135
  15,882
  17,638
  19,383
  21,106
  22,798
  24,452
  26,067
  27,644
  29,187
  30,702
  32,196
  33,678
  35,159
  36,646
  38,152
  39,687
  41,260
  42,881
  44,560
  46,308
  48,132
  50,041
  52,045
  54,151
  56,368
  58,704
  61,166
  63,764
Issuance/(repurchase) of shares, $m
  -518
  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  
  -1,430
  12,399
  14,135
  15,882
  17,638
  19,383
  21,106
  22,798
  24,452
  26,067
  27,644
  29,187
  30,702
  32,196
  33,678
  35,159
  36,646
  38,152
  39,687
  41,260
  42,881
  44,560
  46,308
  48,132
  50,041
  52,045
  54,151
  56,368
  58,704
  61,166
  63,764
Total cash flow (excl. dividends), $m
  492
  15,482
  17,958
  20,648
  23,544
  26,636
  29,914
  33,371
  37,000
  40,795
  44,753
  48,459
  52,737
  57,177
  61,782
  66,555
  71,504
  76,634
  81,955
  87,475
  93,206
  99,159
  105,346
  111,781
  118,478
  125,451
  132,718
  140,294
  148,197
  156,446
  165,060
Retained Cash Flow (-), $m
  -613
  -4,747
  -5,442
  -6,115
  -6,791
  -7,463
  -8,127
  -8,778
  -9,415
  -10,037
  -10,644
  -11,238
  -11,821
  -12,397
  -12,968
  -13,537
  -14,110
  -14,690
  -15,281
  -15,887
  -16,511
  -17,158
  -17,830
  -18,533
  -19,268
  -20,039
  -20,850
  -21,704
  -22,603
  -23,552
  -24,552
Prev. year cash balance distribution, $m
 
  5,700
  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
 
  16,435
  12,516
  14,533
  16,753
  19,172
  21,787
  24,593
  27,585
  30,758
  34,109
  37,221
  40,916
  44,780
  48,814
  53,018
  57,393
  61,944
  66,674
  71,589
  76,695
  82,002
  87,516
  93,249
  99,210
  105,412
  111,867
  118,590
  125,593
  132,894
  140,508
Discount rate, %
 
  5.80
  6.09
  6.39
  6.71
  7.05
  7.40
  7.77
  8.16
  8.57
  9.00
  9.45
  9.92
  10.42
  10.94
  11.48
  12.06
  12.66
  13.29
  13.96
  14.66
  15.39
  16.16
  16.97
  17.81
  18.71
  19.64
  20.62
  21.65
  22.74
  23.87
PV of cash for distribution, $m
 
  15,534
  11,120
  12,067
  12,918
  13,638
  14,194
  14,563
  14,727
  14,676
  14,411
  13,788
  13,151
  12,350
  11,415
  10,381
  9,285
  8,163
  7,051
  5,979
  4,975
  4,058
  3,243
  2,536
  1,940
  1,449
  1,056
  751
  519
  349
  228
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

The Dow Chemical Company manufactures and supplies products that are used primarily as raw materials in the manufacture of customer products and services worldwide. It operates through five segments: Agricultural Sciences, Consumer Solutions, Infrastructure Solutions, Performance Materials & Chemicals, and Performance Plastics segments. The Agricultural Sciences segment provides crop protection and seed/plant biotechnology products and technologies, urban pest management solutions, and healthy oils. The Consumer Solutions segment offers semiconductors and organic light-emitting diodes, adhesives, and foams for use in the transportation industry; cellulosics and other polymers for pharmaceutical formulations and food solutions; and silicone solutions used in consumer goods and automotive applications. The Infrastructure Solutions segment provides architectural and industrial coatings, construction material ingredients, building insulation products, adhesives, and microbial protection products for the oil and gas industry, telecommunications, and light and water technologies. The Performance Materials & Chemicals segment offers chlorine and caustic soda; industrial solutions; and propylene oxides, propylene glycols, polyether polyols, and aromatic isocyanates. The Performance Plastics segment provides elastomers, polyolefin plastomers, and ethylene propylene diene monomer elastomers; wire and cable insulation, semiconductive, and jacketing compound solutions, as well as bio-based plasticizers; acrylics, polyethylene, and polyolefin plastomers; and ethylene, propylene, benzene, butadiene, octene, aromatics co-products, and crude c4. The company was founded in 1897 and is based in Midland, Michigan.

FINANCIAL RATIOS  of  Dow Chemical (DOW)

Valuation Ratios
P/E Ratio 17.9
Price to Sales 1.6
Price to Book 3
Price to Tangible Book
Price to Cash Flow 14.1
Price to Free Cash Flow 46.3
Growth Rates
Sales Growth Rate -1.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 1.5%
Cap. Spend. - 3 Yr. Gr. Rate 10.6%
Financial Strength
Quick Ratio 7
Current Ratio 0.1
LT Debt to Equity 78.7%
Total Debt to Equity 82.2%
Interest Coverage 5
Management Effectiveness
Return On Assets 7.5%
Ret/ On Assets - 3 Yr. Avg. 8.9%
Return On Total Capital 9.6%
Ret/ On T. Cap. - 3 Yr. Avg. 12.1%
Return On Equity 16.8%
Return On Equity - 3 Yr. Avg. 21.4%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 22.5%
Gross Margin - 3 Yr. Avg. 21.2%
EBITDA Margin 17.6%
EBITDA Margin - 3 Yr. Avg. 20.3%
Operating Margin 9.8%
Oper. Margin - 3 Yr. Avg. 13.3%
Pre-Tax Margin 9.2%
Pre-Tax Margin - 3 Yr. Avg. 12.9%
Net Profit Margin 9%
Net Profit Margin - 3 Yr. Avg. 10.4%
Effective Tax Rate 0.2%
Eff/ Tax Rate - 3 Yr. Avg. 16.3%
Payout Ratio 57%

DOW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DOW stock intrinsic value calculation we used $48158 million for the last fiscal year's total revenue generated by Dow Chemical. The default revenue input number comes from 2016 income statement of Dow Chemical. 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 DOW stock valuation model: a) initial revenue growth rate of 23.6% 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 5.8%, whose default value for DOW is calculated based on our internal credit rating of Dow Chemical, 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 Dow Chemical.
    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 DOW stock the variable cost ratio is equal to 79.2%.

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 DOW 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 6.2% for Dow Chemical.

Corporate tax rate of 27% is the nominal tax rate for Dow Chemical. 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 DOW 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 DOW are equal to 52.9%.

Life of production assets of 13.7 years is the average useful life of capital assets used in Dow Chemical 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 DOW is equal to 11.1%. 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 - $25987 million for Dow Chemical - 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 1200.76 million for Dow Chemical 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 Dow Chemical at the current share price and the inputted number of shares is $76.8 billion.

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COMPANY NEWS

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▶ Activists Challenge Plans to Break Up DowDuPont   [Jul-31-17 04:50PM  Investopedia]
▶ Dow Chemicals 2Q17 Earnings Beat Estimates   [09:49AM  Market Realist]
▶ [$$] Four Activists Challenge Plans to Carve Up DowDuPont   [12:41AM  The Wall Street Journal]
▶ [$$] Four Activists Challenge Plans to Carve Up DowDuPont   [Jul-30-17 08:15PM  The Wall Street Journal]
▶ [$$] How Dow Chemical Wants to Reshape Materials   [09:32AM  The Wall Street Journal]
▶ DuPonts Revenue Rose in 2Q17 Due to Higher Volumes   [Jul-28-17 09:07AM  Market Realist]
▶ Dow Chemical beats Street 2Q forecasts   [01:34AM  Associated Press]
▶ Chemical giants see growth in green, clean tech   [Jul-27-17 03:23PM  Reuters]
▶ Dow Chemical tops profit, sales estimates   [06:55AM  MarketWatch]
▶ Dow Reports Second Quarter Results   [06:45AM  Business Wire]
▶ Understanding DOWs High 2Q17 Revenue Hopes   [01:05PM  Market Realist]
▶ Dow Trades Lower as Home Depot Tumbles, Consumer Names Rise   [Jul-20-17 01:40PM  TheStreet.com]
▶ The Best Stock in Delaware: DuPont   [11:10AM  Kiplinger]
▶ PPG Industries High Hopes on New Launches   [01:35PM  Market Realist]
▶ Dow Declares Quarterly Dividend of 46 Cents per Share   [Jul-13-17 04:33PM  Business Wire]
Stock chart of DOW Financial statements of DOW
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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