Intrinsic value of InnerWorkings - INWK

Previous Close

$8.53

  Intrinsic Value

$14.65

stock screener

  Rating & Target

str. buy

+72%

Previous close

$8.53

 
Intrinsic value

$14.65

 
Up/down potential

+72%

 
Rating

str. buy

We calculate the intrinsic value of INWK 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, %
  6.03
  4.20
  4.28
  4.35
  4.42
  4.48
  4.53
  4.57
  4.62
  4.66
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
Revenue, $m
  1,091
  1,184
  1,234
  1,288
  1,345
  1,405
  1,469
  1,536
  1,607
  1,682
  1,761
  1,844
  1,931
  2,023
  2,121
  2,223
  2,330
  2,443
  2,562
  2,687
  2,819
  2,957
  3,102
  3,255
  3,415
  3,584
  3,761
  3,947
  4,142
  4,348
  4,564
Variable operating expenses, $m
 
  941
  981
  1,022
  1,066
  1,113
  1,162
  1,215
  1,270
  1,328
  1,389
  1,431
  1,499
  1,570
  1,645
  1,725
  1,808
  1,896
  1,988
  2,085
  2,187
  2,294
  2,407
  2,525
  2,650
  2,781
  2,918
  3,063
  3,214
  3,374
  3,541
Fixed operating expenses, $m
 
  200
  205
  209
  214
  219
  223
  228
  233
  238
  244
  249
  254
  260
  266
  272
  278
  284
  290
  296
  303
  310
  316
  323
  330
  338
  345
  353
  360
  368
  377
Total operating expenses, $m
  1,071
  1,141
  1,186
  1,231
  1,280
  1,332
  1,385
  1,443
  1,503
  1,566
  1,633
  1,680
  1,753
  1,830
  1,911
  1,997
  2,086
  2,180
  2,278
  2,381
  2,490
  2,604
  2,723
  2,848
  2,980
  3,119
  3,263
  3,416
  3,574
  3,742
  3,918
Operating income, $m
  20
  42
  49
  57
  65
  74
  83
  93
  104
  116
  128
  164
  178
  193
  209
  226
  244
  264
  284
  306
  329
  353
  379
  406
  435
  465
  498
  532
  568
  606
  646
EBITDA, $m
  38
  93
  101
  110
  119
  129
  140
  152
  164
  178
  192
  207
  223
  241
  259
  278
  299
  321
  344
  369
  395
  422
  451
  482
  515
  549
  586
  624
  665
  708
  753
Interest expense (income), $m
  4
  7
  8
  9
  10
  10
  11
  13
  14
  15
  16
  17
  19
  20
  22
  23
  25
  27
  29
  31
  33
  35
  37
  40
  42
  45
  48
  51
  54
  57
  61
Earnings before tax, $m
  15
  35
  41
  48
  55
  63
  72
  81
  90
  101
  112
  147
  159
  173
  188
  203
  219
  237
  255
  275
  296
  318
  341
  366
  393
  420
  450
  481
  514
  549
  586
Tax expense, $m
  11
  10
  11
  13
  15
  17
  19
  22
  24
  27
  30
  40
  43
  47
  51
  55
  59
  64
  69
  74
  80
  86
  92
  99
  106
  113
  121
  130
  139
  148
  158
Net income, $m
  4
  26
  30
  35
  40
  46
  52
  59
  66
  74
  82
  107
  116
  126
  137
  148
  160
  173
  186
  201
  216
  232
  249
  267
  287
  307
  328
  351
  375
  401
  427

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  31
  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
  591
  667
  695
  726
  758
  792
  827
  865
  905
  947
  992
  1,039
  1,088
  1,140
  1,195
  1,252
  1,313
  1,376
  1,443
  1,514
  1,588
  1,666
  1,748
  1,834
  1,924
  2,019
  2,119
  2,224
  2,334
  2,449
  2,571
Adjusted assets (=assets-cash), $m
  560
  667
  695
  726
  758
  792
  827
  865
  905
  947
  992
  1,039
  1,088
  1,140
  1,195
  1,252
  1,313
  1,376
  1,443
  1,514
  1,588
  1,666
  1,748
  1,834
  1,924
  2,019
  2,119
  2,224
  2,334
  2,449
  2,571
Revenue / Adjusted assets
  1.948
  1.775
  1.776
  1.774
  1.774
  1.774
  1.776
  1.776
  1.776
  1.776
  1.775
  1.775
  1.775
  1.775
  1.775
  1.776
  1.775
  1.775
  1.775
  1.775
  1.775
  1.775
  1.775
  1.775
  1.775
  1.775
  1.775
  1.775
  1.775
  1.775
  1.775
Average production assets, $m
  52
  277
  289
  301
  315
  329
  344
  359
  376
  394
  412
  431
  452
  473
  496
  520
  545
  572
  600
  629
  660
  692
  726
  762
  799
  839
  880
  924
  969
  1,017
  1,068
Working capital, $m
  116
  -104
  -109
  -113
  -118
  -124
  -129
  -135
  -141
  -148
  -155
  -162
  -170
  -178
  -187
  -196
  -205
  -215
  -225
  -236
  -248
  -260
  -273
  -286
  -301
  -315
  -331
  -347
  -365
  -383
  -402
Total debt, $m
  107
  144
  159
  176
  194
  212
  232
  253
  274
  298
  322
  348
  375
  403
  433
  465
  498
  533
  569
  608
  649
  691
  736
  783
  833
  885
  939
  997
  1,057
  1,121
  1,187
Total liabilities, $m
  326
  365
  381
  398
  415
  434
  453
  474
  496
  519
  544
  569
  596
  625
  655
  686
  719
  754
  791
  830
  870
  913
  958
  1,005
  1,054
  1,106
  1,161
  1,219
  1,279
  1,342
  1,409
Total equity, $m
  265
  301
  314
  328
  342
  358
  374
  391
  409
  428
  448
  469
  492
  515
  540
  566
  593
  622
  652
  684
  718
  753
  790
  829
  870
  913
  958
  1,005
  1,055
  1,107
  1,162
Total liabilities and equity, $m
  591
  666
  695
  726
  757
  792
  827
  865
  905
  947
  992
  1,038
  1,088
  1,140
  1,195
  1,252
  1,312
  1,376
  1,443
  1,514
  1,588
  1,666
  1,748
  1,834
  1,924
  2,019
  2,119
  2,224
  2,334
  2,449
  2,571
Debt-to-equity ratio
  0.404
  0.480
  0.510
  0.540
  0.570
  0.590
  0.620
  0.650
  0.670
  0.690
  0.720
  0.740
  0.760
  0.780
  0.800
  0.820
  0.840
  0.860
  0.870
  0.890
  0.900
  0.920
  0.930
  0.940
  0.960
  0.970
  0.980
  0.990
  1.000
  1.010
  1.020
Adjusted equity ratio
  0.418
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  26
  30
  35
  40
  46
  52
  59
  66
  74
  82
  107
  116
  126
  137
  148
  160
  173
  186
  201
  216
  232
  249
  267
  287
  307
  328
  351
  375
  401
  427
Depreciation, amort., depletion, $m
  18
  50
  52
  53
  54
  56
  57
  59
  60
  62
  64
  43
  45
  47
  50
  52
  55
  57
  60
  63
  66
  69
  73
  76
  80
  84
  88
  92
  97
  102
  107
Funds from operations, $m
  -19
  76
  82
  88
  95
  102
  109
  118
  126
  136
  146
  150
  162
  174
  187
  200
  215
  230
  246
  264
  282
  301
  322
  343
  366
  391
  416
  443
  472
  502
  534
Change in working capital, $m
  -30
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
Cash from operations, $m
  11
  80
  86
  93
  100
  107
  115
  123
  133
  142
  153
  158
  169
  182
  195
  209
  224
  240
  257
  275
  293
  313
  335
  357
  381
  406
  432
  460
  489
  520
  553
Maintenance CAPEX, $m
  0
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -92
  -97
  -102
New CAPEX, $m
  -13
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -39
  -41
  -44
  -46
  -48
  -50
Cash from investing activities, $m
  -13
  -38
  -40
  -42
  -43
  -45
  -48
  -50
  -53
  -56
  -57
  -60
  -63
  -67
  -70
  -74
  -77
  -81
  -85
  -89
  -94
  -98
  -103
  -109
  -114
  -119
  -125
  -132
  -138
  -145
  -152
Free cash flow, $m
  -2
  42
  47
  51
  56
  61
  67
  73
  80
  87
  95
  97
  106
  115
  125
  136
  147
  159
  172
  185
  200
  215
  231
  249
  267
  286
  307
  328
  351
  375
  401
Issuance/(repayment) of debt, $m
  9
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  57
  60
  63
  67
Issuance/(repurchase) of shares, $m
  3
  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  
  4
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  57
  60
  63
  67
Total cash flow (excl. dividends), $m
  0
  58
  62
  68
  74
  80
  87
  94
  102
  110
  119
  123
  133
  144
  155
  167
  180
  194
  209
  224
  240
  258
  276
  296
  316
  338
  361
  386
  412
  439
  468
Retained Cash Flow (-), $m
  -11
  -11
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
Prev. year cash balance distribution, $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 flow adjustment, $m
 
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  20
  22
  23
  24
  25
  26
Cash available for distribution, $m
 
  46
  49
  54
  59
  65
  71
  77
  84
  91
  99
  101
  110
  120
  130
  141
  153
  165
  178
  192
  207
  223
  239
  257
  276
  295
  316
  338
  362
  386
  413
Discount rate, %
 
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
 
  44
  44
  46
  46
  47
  47
  47
  47
  46
  44
  40
  38
  36
  34
  31
  28
  25
  22
  19
  16
  13
  11
  9
  7
  5
  4
  3
  2
  1
  1
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

InnerWorkings, Inc. is a marketing execution company. The Company's software applications and databases create an integrated solution that stores, analyzes and tracks the production capabilities of its supplier network, as well as detailed pricing data. The Company's segments include North America and International. The North America segment includes operations in the United States and Canada. The International segment includes operations in Mexico, South America, Central America, Europe, the Middle East, Africa and Asia. The Company procures products for clients across a range of industries, such as retail, financial services, hospitality, consumer packaged goods, non-profits, healthcare, pharmaceuticals, food and beverage, broadcasting and cable and transportation. The Company's clients are classified into over two categories, enterprise and transactional. The Company provides marketing materials to its transactional clients on an order-by-order basis.

FINANCIAL RATIOS  of  InnerWorkings (INWK)

Valuation Ratios
P/E Ratio 115.3
Price to Sales 0.4
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 41.9
Price to Free Cash Flow -230.7
Growth Rates
Sales Growth Rate 6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.3%
Cap. Spend. - 3 Yr. Gr. Rate 1.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 40.4%
Total Debt to Equity 40.4%
Interest Coverage 5
Management Effectiveness
Return On Assets 0.8%
Ret/ On Assets - 3 Yr. Avg. 1.4%
Return On Total Capital 1.1%
Ret/ On T. Cap. - 3 Yr. Avg. 1.6%
Return On Equity 1.5%
Return On Equity - 3 Yr. Avg. 1.9%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 24.2%
Gross Margin - 3 Yr. Avg. 23.5%
EBITDA Margin 3.4%
EBITDA Margin - 3 Yr. Avg. 3.4%
Operating Margin 1.8%
Oper. Margin - 3 Yr. Avg. 1.9%
Pre-Tax Margin 1.4%
Pre-Tax Margin - 3 Yr. Avg. 1.3%
Net Profit Margin 0.4%
Net Profit Margin - 3 Yr. Avg. 0.5%
Effective Tax Rate 73.3%
Eff/ Tax Rate - 3 Yr. Avg. 6.8%
Payout Ratio 0%

INWK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the INWK stock intrinsic value calculation we used $1136 million for the last fiscal year's total revenue generated by InnerWorkings. The default revenue input number comes from 2016 income statement of InnerWorkings. 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 INWK stock valuation model: a) initial revenue growth rate of 4.2% 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 5.4%, whose default value for INWK is calculated based on our internal credit rating of InnerWorkings, 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 InnerWorkings.
    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 INWK stock the variable cost ratio is equal to 79.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $196 million in the base year in the intrinsic value calculation for INWK 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 InnerWorkings.

Corporate tax rate of 27% is the nominal tax rate for InnerWorkings. 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 INWK stock is equal to 0.6%.

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 INWK are equal to 23.4%.

Life of production assets of 10 years is the average useful life of capital assets used in InnerWorkings 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 INWK is equal to -8.8%. 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 - $290 million for InnerWorkings - 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 55 million for InnerWorkings 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 InnerWorkings at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

Financial statements of INWK
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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