Intrinsic value of Lam Research - LRCX

Previous Close

$173.02

  Intrinsic Value

$3,322

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+2158%

Previous close

$173.02

 
Intrinsic value

$3,322

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+2158%

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

We calculate the intrinsic value of LRCX 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 2017), $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 27.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  36.15
  51.70
  47.03
  42.83
  39.04
  35.64
  32.58
  29.82
  27.34
  25.10
  23.09
  21.28
  19.65
  18.19
  16.87
  15.68
  14.62
  13.65
  12.79
  12.01
  11.31
  10.68
  10.11
  9.60
  9.14
  8.73
  8.35
  8.02
  7.72
  7.44
  7.20
Revenue, $m
  8,014
  12,157
  17,875
  25,530
  35,498
  48,149
  63,835
  82,869
  105,522
  132,012
  162,496
  197,081
  235,817
  278,711
  325,731
  376,817
  431,889
  490,858
  553,630
  620,117
  690,243
  763,945
  841,179
  921,922
  1,006,177
  1,093,967
  1,185,341
  1,280,374
  1,379,162
  1,481,827
  1,588,513
Variable operating expenses, $m
 
  7,563
  11,055
  15,730
  21,817
  29,544
  39,123
  50,747
  64,582
  80,759
  99,376
  120,358
  144,015
  170,210
  198,926
  230,124
  263,757
  299,769
  338,105
  378,709
  421,535
  466,545
  513,712
  563,023
  614,477
  668,091
  723,894
  781,931
  842,262
  904,960
  970,114
Fixed operating expenses, $m
 
  1,174
  1,203
  1,233
  1,264
  1,295
  1,328
  1,361
  1,395
  1,430
  1,466
  1,502
  1,540
  1,578
  1,618
  1,658
  1,700
  1,742
  1,786
  1,830
  1,876
  1,923
  1,971
  2,020
  2,071
  2,123
  2,176
  2,230
  2,286
  2,343
  2,402
Total operating expenses, $m
  6,148
  8,737
  12,258
  16,963
  23,081
  30,839
  40,451
  52,108
  65,977
  82,189
  100,842
  121,860
  145,555
  171,788
  200,544
  231,782
  265,457
  301,511
  339,891
  380,539
  423,411
  468,468
  515,683
  565,043
  616,548
  670,214
  726,070
  784,161
  844,548
  907,303
  972,516
Operating income, $m
  1,866
  3,421
  5,617
  8,567
  12,417
  17,310
  23,384
  30,761
  39,546
  49,823
  61,655
  75,220
  90,262
  106,922
  125,188
  145,035
  166,432
  189,346
  213,739
  239,578
  266,832
  295,477
  325,495
  356,879
  389,628
  423,753
  459,271
  496,213
  534,615
  574,524
  615,998
EBITDA, $m
  2,173
  3,770
  6,066
  9,149
  13,171
  18,284
  24,630
  32,337
  41,515
  52,252
  64,613
  78,639
  94,354
  111,758
  130,839
  151,572
  173,925
  197,862
  223,344
  250,337
  278,807
  308,731
  340,089
  372,874
  407,085
  442,732
  479,836
  518,426
  558,542
  600,233
  643,558
Interest expense (income), $m
  105
  68
  148
  258
  405
  596
  839
  1,140
  1,506
  1,940
  2,449
  3,034
  3,698
  4,442
  5,266
  6,168
  7,149
  8,207
  9,339
  10,544
  11,820
  13,167
  14,582
  16,065
  17,615
  19,233
  20,918
  22,673
  24,497
  26,394
  28,365
Earnings before tax, $m
  1,812
  3,352
  5,469
  8,309
  12,012
  16,714
  22,545
  29,621
  38,040
  47,882
  59,206
  72,186
  86,564
  102,480
  119,922
  138,866
  159,283
  181,139
  204,401
  229,034
  255,011
  282,310
  310,913
  340,814
  372,013
  404,520
  438,353
  473,540
  510,117
  548,131
  587,633
Tax expense, $m
  114
  905
  1,477
  2,244
  3,243
  4,513
  6,087
  7,998
  10,271
  12,928
  15,986
  19,490
  23,372
  27,670
  32,379
  37,494
  43,006
  48,908
  55,188
  61,839
  68,853
  76,224
  83,947
  92,020
  100,444
  109,220
  118,355
  127,856
  137,732
  147,995
  158,661
Net income, $m
  1,698
  2,447
  3,992
  6,066
  8,769
  12,201
  16,458
  21,623
  27,769
  34,954
  43,220
  52,696
  63,192
  74,811
  87,543
  101,372
  116,277
  132,232
  149,212
  167,195
  186,158
  206,086
  226,967
  248,794
  271,570
  295,300
  319,998
  345,684
  372,386
  400,135
  428,972

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,041
  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
  12,123
  9,224
  13,562
  19,370
  26,933
  36,532
  48,433
  62,875
  80,063
  100,161
  123,290
  149,530
  178,920
  211,465
  247,140
  285,901
  327,685
  372,426
  420,053
  470,499
  523,705
  579,624
  638,224
  699,486
  763,412
  830,020
  899,348
  971,452
  1,046,405
  1,124,300
  1,205,245
Adjusted assets (=assets-cash), $m
  6,082
  9,224
  13,562
  19,370
  26,933
  36,532
  48,433
  62,875
  80,063
  100,161
  123,290
  149,530
  178,920
  211,465
  247,140
  285,901
  327,685
  372,426
  420,053
  470,499
  523,705
  579,624
  638,224
  699,486
  763,412
  830,020
  899,348
  971,452
  1,046,405
  1,124,300
  1,205,245
Revenue / Adjusted assets
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
Average production assets, $m
  1,151
  1,751
  2,574
  3,676
  5,112
  6,934
  9,192
  11,933
  15,195
  19,010
  23,399
  28,380
  33,958
  40,134
  46,905
  54,262
  62,192
  70,683
  79,723
  89,297
  99,395
  110,008
  121,130
  132,757
  144,889
  157,531
  170,689
  184,374
  198,599
  213,383
  228,746
Working capital, $m
  6,193
  1,605
  2,359
  3,370
  4,686
  6,356
  8,426
  10,939
  13,929
  17,426
  21,450
  26,015
  31,128
  36,790
  42,996
  49,740
  57,009
  64,793
  73,079
  81,855
  91,112
  100,841
  111,036
  121,694
  132,815
  144,404
  156,465
  169,009
  182,049
  195,601
  209,684
Total debt, $m
  2,863
  4,226
  7,362
  11,562
  17,030
  23,970
  32,574
  43,015
  55,442
  69,973
  86,696
  105,667
  126,916
  150,446
  176,239
  204,263
  234,473
  266,821
  301,255
  337,728
  376,196
  416,625
  458,993
  503,285
  549,504
  597,662
  647,786
  699,917
  754,108
  810,426
  868,949
Total liabilities, $m
  5,305
  6,669
  9,805
  14,005
  19,473
  26,413
  35,017
  45,458
  57,885
  72,416
  89,139
  108,110
  129,359
  152,889
  178,682
  206,706
  236,916
  269,264
  303,698
  340,171
  378,639
  419,068
  461,436
  505,728
  551,947
  600,105
  650,229
  702,360
  756,551
  812,869
  871,392
Total equity, $m
  6,817
  2,555
  3,757
  5,366
  7,461
  10,119
  13,416
  17,416
  22,177
  27,744
  34,151
  41,420
  49,561
  58,576
  68,458
  79,194
  90,769
  103,162
  116,355
  130,328
  145,066
  160,556
  176,788
  193,758
  211,465
  229,916
  249,119
  269,092
  289,854
  311,431
  333,853
Total liabilities and equity, $m
  12,122
  9,224
  13,562
  19,371
  26,934
  36,532
  48,433
  62,874
  80,062
  100,160
  123,290
  149,530
  178,920
  211,465
  247,140
  285,900
  327,685
  372,426
  420,053
  470,499
  523,705
  579,624
  638,224
  699,486
  763,412
  830,021
  899,348
  971,452
  1,046,405
  1,124,300
  1,205,245
Debt-to-equity ratio
  0.420
  1.650
  1.960
  2.150
  2.280
  2.370
  2.430
  2.470
  2.500
  2.520
  2.540
  2.550
  2.560
  2.570
  2.570
  2.580
  2.580
  2.590
  2.590
  2.590
  2.590
  2.590
  2.600
  2.600
  2.600
  2.600
  2.600
  2.600
  2.600
  2.600
  2.600
Adjusted equity ratio
  0.128
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,698
  2,447
  3,992
  6,066
  8,769
  12,201
  16,458
  21,623
  27,769
  34,954
  43,220
  52,696
  63,192
  74,811
  87,543
  101,372
  116,277
  132,232
  149,212
  167,195
  186,158
  206,086
  226,967
  248,794
  271,570
  295,300
  319,998
  345,684
  372,386
  400,135
  428,972
Depreciation, amort., depletion, $m
  307
  350
  449
  582
  754
  974
  1,246
  1,576
  1,969
  2,429
  2,958
  3,419
  4,091
  4,835
  5,651
  6,538
  7,493
  8,516
  9,605
  10,759
  11,975
  13,254
  14,594
  15,995
  17,457
  18,980
  20,565
  22,214
  23,928
  25,709
  27,560
Funds from operations, $m
  1,718
  2,797
  4,441
  6,647
  9,523
  13,175
  17,704
  23,199
  29,739
  37,383
  46,178
  56,115
  67,283
  79,646
  93,194
  107,910
  123,770
  140,748
  158,818
  177,954
  198,134
  219,340
  241,561
  264,789
  289,026
  314,279
  340,563
  367,898
  396,313
  425,844
  456,532
Change in working capital, $m
  -311
  547
  755
  1,010
  1,316
  1,670
  2,070
  2,513
  2,990
  3,497
  4,024
  4,565
  5,113
  5,662
  6,207
  6,743
  7,270
  7,784
  8,286
  8,776
  9,257
  9,729
  10,195
  10,658
  11,122
  11,588
  12,061
  12,544
  13,040
  13,552
  14,083
Cash from operations, $m
  2,029
  2,250
  3,686
  5,637
  8,208
  11,505
  15,634
  20,687
  26,748
  33,887
  42,154
  51,550
  62,170
  73,984
  86,988
  101,167
  116,500
  132,964
  150,532
  169,177
  188,877
  209,611
  231,366
  254,131
  277,905
  302,691
  328,501
  355,354
  383,273
  412,292
  442,450
Maintenance CAPEX, $m
  0
  -139
  -211
  -310
  -443
  -616
  -835
  -1,107
  -1,438
  -1,831
  -2,290
  -2,819
  -3,419
  -4,091
  -4,835
  -5,651
  -6,538
  -7,493
  -8,516
  -9,605
  -10,759
  -11,975
  -13,254
  -14,594
  -15,995
  -17,457
  -18,980
  -20,565
  -22,214
  -23,928
  -25,709
New CAPEX, $m
  -157
  -600
  -823
  -1,102
  -1,435
  -1,822
  -2,259
  -2,741
  -3,262
  -3,814
  -4,390
  -4,980
  -5,578
  -6,177
  -6,771
  -7,356
  -7,930
  -8,491
  -9,039
  -9,574
  -10,098
  -10,613
  -11,122
  -11,627
  -12,133
  -12,642
  -13,158
  -13,685
  -14,226
  -14,784
  -15,363
Cash from investing activities, $m
  -2,059
  -739
  -1,034
  -1,412
  -1,878
  -2,438
  -3,094
  -3,848
  -4,700
  -5,645
  -6,680
  -7,799
  -8,997
  -10,268
  -11,606
  -13,007
  -14,468
  -15,984
  -17,555
  -19,179
  -20,857
  -22,588
  -24,376
  -26,221
  -28,128
  -30,099
  -32,138
  -34,250
  -36,440
  -38,712
  -41,072
Free cash flow, $m
  -30
  1,511
  2,652
  4,224
  6,329
  9,068
  12,540
  16,838
  22,049
  28,241
  35,474
  43,750
  53,173
  63,716
  75,381
  88,159
  102,032
  116,980
  132,976
  149,998
  168,020
  187,023
  206,990
  227,910
  249,777
  272,593
  296,364
  321,104
  346,834
  373,581
  401,378
Issuance/(repayment) of debt, $m
  -1,688
  2,271
  3,136
  4,199
  5,468
  6,940
  8,604
  10,441
  12,427
  14,531
  16,723
  18,972
  21,249
  23,530
  25,793
  28,024
  30,210
  32,348
  34,434
  36,472
  38,468
  40,430
  42,367
  44,293
  46,218
  48,158
  50,124
  52,131
  54,191
  56,318
  58,524
Issuance/(repurchase) of shares, $m
  -799
  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  
  -2,388
  2,271
  3,136
  4,199
  5,468
  6,940
  8,604
  10,441
  12,427
  14,531
  16,723
  18,972
  21,249
  23,530
  25,793
  28,024
  30,210
  32,348
  34,434
  36,472
  38,468
  40,430
  42,367
  44,293
  46,218
  48,158
  50,124
  52,131
  54,191
  56,318
  58,524
Total cash flow (excl. dividends), $m
  -2,418
  3,782
  5,789
  8,424
  11,797
  16,008
  21,144
  27,280
  34,475
  42,772
  52,197
  62,722
  74,422
  87,246
  101,174
  116,182
  132,243
  149,327
  167,411
  186,470
  206,488
  227,453
  249,357
  272,203
  295,996
  320,751
  346,488
  373,235
  401,025
  429,899
  459,901
Retained Cash Flow (-), $m
  -922
  -871
  -1,202
  -1,609
  -2,095
  -2,659
  -3,296
  -4,000
  -4,761
  -5,567
  -6,407
  -7,269
  -8,141
  -9,015
  -9,882
  -10,737
  -11,574
  -12,393
  -13,193
  -13,974
  -14,738
  -15,490
  -16,232
  -16,970
  -17,707
  -18,451
  -19,204
  -19,973
  -20,762
  -21,577
  -22,422
Prev. year cash balance distribution, $m
 
  5,133
  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
 
  8,044
  4,587
  6,815
  9,702
  13,349
  17,847
  23,280
  29,714
  37,205
  45,790
  55,454
  66,281
  78,231
  91,292
  105,446
  120,668
  136,934
  154,218
  172,497
  191,750
  211,963
  233,125
  255,233
  278,288
  302,300
  327,284
  353,262
  380,263
  408,322
  437,480
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  7,712
  4,199
  5,931
  7,989
  10,347
  12,952
  15,727
  18,572
  21,372
  24,006
  26,334
  28,284
  29,745
  30,648
  30,957
  30,664
  29,795
  28,401
  26,560
  24,366
  21,924
  19,343
  16,728
  14,174
  11,760
  9,549
  7,582
  5,883
  4,457
  3,294
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

Lam Research Corporation is a supplier of wafer fabrication equipment and services to the semiconductor industry. The Company designs, manufactures, markets, refurbishes and services semiconductor processing systems that are used in the fabrication of integrated circuits (ICs). It operates through manufacturing and servicing of wafer processing semiconductor manufacturing equipment segment. Its products are designed to enable its customers build a range of devices that are used in a range of electronic products, including cell phones, tablets, computers, storage devices, and networking equipment. Its customer base includes semiconductor memory, foundry, and integrated device manufacturers (IDMs) that make products, such as dynamic random-access memory (DRAM), negative-AND (NAND) memory and logic devices. It offers a portfolio of products that are used in several areas of the semiconductor manufacturing process flow, including thin film deposition, plasma etch and single-wafer clean.

FINANCIAL RATIOS  of  Lam Research (LRCX)

Valuation Ratios
P/E Ratio 16.5
Price to Sales 3.5
Price to Book 4.1
Price to Tangible Book
Price to Cash Flow 13.8
Price to Free Cash Flow 14.9
Growth Rates
Sales Growth Rate 36.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -10.3%
Cap. Spend. - 3 Yr. Gr. Rate 1.5%
Financial Strength
Quick Ratio 7
Current Ratio 0
LT Debt to Equity 28.7%
Total Debt to Equity 42%
Interest Coverage 18
Management Effectiveness
Return On Assets 14.7%
Ret/ On Assets - 3 Yr. Avg. 10.5%
Return On Total Capital 16.9%
Ret/ On T. Cap. - 3 Yr. Avg. 12.1%
Return On Equity 26.7%
Return On Equity - 3 Yr. Avg. 18.8%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 45%
Gross Margin - 3 Yr. Avg. 44.3%
EBITDA Margin 27.8%
EBITDA Margin - 3 Yr. Avg. 23.3%
Operating Margin 23.3%
Oper. Margin - 3 Yr. Avg. 18.8%
Pre-Tax Margin 22.6%
Pre-Tax Margin - 3 Yr. Avg. 17.7%
Net Profit Margin 21.2%
Net Profit Margin - 3 Yr. Avg. 16.4%
Effective Tax Rate 6.3%
Eff/ Tax Rate - 3 Yr. Avg. 7.5%
Payout Ratio 14.4%

LRCX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LRCX stock intrinsic value calculation we used $8014 million for the last fiscal year's total revenue generated by Lam Research. The default revenue input number comes from 2017 income statement of Lam Research. 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 LRCX stock valuation model: a) initial revenue growth rate of 51.7% 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 4.3%, whose default value for LRCX is calculated based on our internal credit rating of Lam Research, 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 Lam Research.
    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 LRCX stock the variable cost ratio is equal to 62.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1145 million in the base year in the intrinsic value calculation for LRCX 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 3.5% for Lam Research.

Corporate tax rate of 27% is the nominal tax rate for Lam Research. 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 LRCX 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 LRCX are equal to 14.4%.

Life of production assets of 8.3 years is the average useful life of capital assets used in Lam Research 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 LRCX is equal to 13.2%. 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 - $6817 million for Lam Research - 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 161.472 million for Lam Research 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 Lam Research at the current share price and the inputted number of shares is $27.9 billion.

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Financial statements of LRCX
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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