Intrinsic value of Leucadia National - LUK

Previous Close

$24.66

  Intrinsic Value

$93.14

stock screener

  Rating & Target

str. buy

+278%

  Value-price divergence*

+453%

Previous close

$24.66

 
Intrinsic value

$93.14

 
Up/down potential

+278%

 
Rating

str. buy

 
Value-price divergence*

+453%

Our model is not good at valuating stocks of financial companies, such as LUK.

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

We calculate the intrinsic value of LUK 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 9.0

 

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, %
  -7.31
  42.40
  38.66
  35.29
  32.26
  29.54
  27.08
  24.88
  22.89
  21.10
  19.49
  18.04
  16.74
  15.56
  14.51
  13.56
  12.70
  11.93
  11.24
  10.61
  10.05
  9.55
  9.09
  8.68
  8.31
  7.98
  7.68
  7.42
  7.17
  6.96
  6.76
Revenue, $m
  10,033
  14,287
  19,810
  26,802
  35,450
  45,921
  58,358
  72,876
  89,556
  108,451
  129,588
  152,967
  178,568
  206,358
  236,294
  268,325
  302,403
  338,481
  376,517
  416,479
  458,344
  502,102
  547,755
  595,316
  644,815
  696,293
  749,802
  805,411
  863,198
  923,253
  985,680
Variable operating expenses, $m
 
  13,786
  19,049
  25,711
  33,952
  43,930
  55,781
  69,615
  85,509
  103,515
  123,656
  145,761
  170,157
  196,638
  225,163
  255,686
  288,159
  322,537
  358,782
  396,861
  436,755
  478,451
  521,953
  567,275
  614,442
  663,495
  714,484
  767,473
  822,538
  879,765
  939,251
Fixed operating expenses, $m
 
  35
  36
  37
  38
  38
  39
  40
  41
  42
  44
  45
  46
  47
  48
  49
  50
  52
  53
  54
  56
  57
  59
  60
  61
  63
  65
  66
  68
  70
  71
Total operating expenses, $m
  9,762
  13,821
  19,085
  25,748
  33,990
  43,968
  55,820
  69,655
  85,550
  103,557
  123,700
  145,806
  170,203
  196,685
  225,211
  255,735
  288,209
  322,589
  358,835
  396,915
  436,811
  478,508
  522,012
  567,335
  614,503
  663,558
  714,549
  767,539
  822,606
  879,835
  939,322
Operating income, $m
  271
  467
  726
  1,054
  1,461
  1,953
  2,538
  3,221
  4,005
  4,894
  5,889
  7,161
  8,365
  9,673
  11,082
  12,590
  14,194
  15,892
  17,682
  19,563
  21,534
  23,594
  25,743
  27,982
  30,312
  32,735
  35,254
  37,872
  40,592
  43,419
  46,358
EBITDA, $m
  438
  806
  1,130
  1,541
  2,049
  2,665
  3,396
  4,249
  5,230
  6,342
  7,585
  8,960
  10,466
  12,100
  13,861
  15,746
  17,750
  19,873
  22,111
  24,462
  26,925
  29,499
  32,185
  34,983
  37,896
  40,924
  44,072
  47,344
  50,744
  54,278
  57,951
Interest expense (income), $m
  957
  853
  1,542
  2,433
  3,562
  4,958
  6,648
  8,656
  11,000
  13,693
  16,743
  20,155
  23,929
  28,062
  32,548
  37,381
  42,552
  48,054
  53,878
  60,018
  66,469
  73,228
  80,292
  87,662
  95,340
  103,331
  111,641
  120,279
  129,256
  138,585
  148,280
Earnings before tax, $m
  316
  -386
  -816
  -1,379
  -2,101
  -3,005
  -4,111
  -5,436
  -6,994
  -8,798
  -10,854
  -12,994
  -15,564
  -18,389
  -21,466
  -24,791
  -28,358
  -32,162
  -36,195
  -40,455
  -44,935
  -49,634
  -54,549
  -59,680
  -65,028
  -70,596
  -76,387
  -82,408
  -88,665
  -95,166
  -101,923
Tax expense, $m
  122
  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
Net income, $m
  130
  -386
  -816
  -1,379
  -2,101
  -3,005
  -4,111
  -5,436
  -6,994
  -8,798
  -10,854
  -12,994
  -15,564
  -18,389
  -21,466
  -24,791
  -28,358
  -32,162
  -36,195
  -40,455
  -44,935
  -49,634
  -54,549
  -59,680
  -65,028
  -70,596
  -76,387
  -82,408
  -88,665
  -95,166
  -101,923

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  12,408
  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
  45,071
  56,470
  78,302
  105,938
  140,118
  181,506
  230,666
  288,046
  353,975
  428,662
  512,206
  604,611
  705,802
  815,644
  933,967
  1,060,574
  1,195,271
  1,337,870
  1,488,210
  1,646,162
  1,811,637
  1,984,593
  2,165,038
  2,353,029
  2,548,677
  2,752,145
  2,963,646
  3,183,443
  3,411,849
  3,649,222
  3,895,967
Adjusted assets (=assets-cash), $m
  32,663
  56,470
  78,302
  105,938
  140,118
  181,506
  230,666
  288,046
  353,975
  428,662
  512,206
  604,611
  705,802
  815,644
  933,967
  1,060,574
  1,195,271
  1,337,870
  1,488,210
  1,646,162
  1,811,637
  1,984,593
  2,165,038
  2,353,029
  2,548,677
  2,752,145
  2,963,646
  3,183,443
  3,411,849
  3,649,222
  3,895,967
Revenue / Adjusted assets
  0.307
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
  0.253
Average production assets, $m
  2,078
  2,957
  4,101
  5,548
  7,338
  9,506
  12,080
  15,085
  18,538
  22,449
  26,825
  31,664
  36,964
  42,716
  48,913
  55,543
  62,598
  70,066
  77,939
  86,211
  94,877
  103,935
  113,385
  123,230
  133,477
  144,133
  155,209
  166,720
  178,682
  191,113
  204,036
Working capital, $m
  856
  -1,429
  -1,981
  -2,680
  -3,545
  -4,592
  -5,836
  -7,288
  -8,956
  -10,845
  -12,959
  -15,297
  -17,857
  -20,636
  -23,629
  -26,833
  -30,240
  -33,848
  -37,652
  -41,648
  -45,834
  -50,210
  -54,775
  -59,532
  -64,482
  -69,629
  -74,980
  -80,541
  -86,320
  -92,325
  -98,568
Total debt, $m
  18,669
  32,799
  51,770
  75,786
  105,488
  141,455
  184,175
  234,038
  291,330
  356,233
  428,833
  509,133
  597,068
  692,521
  795,343
  905,365
  1,022,416
  1,146,335
  1,276,981
  1,414,241
  1,558,039
  1,708,338
  1,865,144
  2,028,508
  2,198,527
  2,375,340
  2,559,134
  2,750,138
  2,948,622
  3,154,900
  3,369,321
Total liabilities, $m
  34,943
  49,073
  68,044
  92,060
  121,762
  157,729
  200,449
  250,312
  307,604
  372,507
  445,107
  525,407
  613,342
  708,795
  811,617
  921,639
  1,038,690
  1,162,609
  1,293,255
  1,430,515
  1,574,313
  1,724,612
  1,881,418
  2,044,782
  2,214,801
  2,391,614
  2,575,408
  2,766,412
  2,964,896
  3,171,174
  3,385,595
Total equity, $m
  10,128
  7,398
  10,258
  13,878
  18,355
  23,777
  30,217
  37,734
  46,371
  56,155
  67,099
  79,204
  92,460
  106,849
  122,350
  138,935
  156,580
  175,261
  194,956
  215,647
  237,324
  259,982
  283,620
  308,247
  333,877
  360,531
  388,238
  417,031
  446,952
  478,048
  510,372
Total liabilities and equity, $m
  45,071
  56,471
  78,302
  105,938
  140,117
  181,506
  230,666
  288,046
  353,975
  428,662
  512,206
  604,611
  705,802
  815,644
  933,967
  1,060,574
  1,195,270
  1,337,870
  1,488,211
  1,646,162
  1,811,637
  1,984,594
  2,165,038
  2,353,029
  2,548,678
  2,752,145
  2,963,646
  3,183,443
  3,411,848
  3,649,222
  3,895,967
Debt-to-equity ratio
  1.843
  4.430
  5.050
  5.460
  5.750
  5.950
  6.100
  6.200
  6.280
  6.340
  6.390
  6.430
  6.460
  6.480
  6.500
  6.520
  6.530
  6.540
  6.550
  6.560
  6.570
  6.570
  6.580
  6.580
  6.580
  6.590
  6.590
  6.590
  6.600
  6.600
  6.600
Adjusted equity ratio
  -0.054
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  130
  -386
  -816
  -1,379
  -2,101
  -3,005
  -4,111
  -5,436
  -6,994
  -8,798
  -10,854
  -12,994
  -15,564
  -18,389
  -21,466
  -24,791
  -28,358
  -32,162
  -36,195
  -40,455
  -44,935
  -49,634
  -54,549
  -59,680
  -65,028
  -70,596
  -76,387
  -82,408
  -88,665
  -95,166
  -101,923
Depreciation, amort., depletion, $m
  167
  340
  405
  487
  589
  712
  858
  1,029
  1,225
  1,447
  1,696
  1,799
  2,100
  2,427
  2,779
  3,156
  3,557
  3,981
  4,428
  4,898
  5,391
  5,905
  6,442
  7,002
  7,584
  8,189
  8,819
  9,473
  10,152
  10,859
  11,593
Funds from operations, $m
  592
  -47
  -411
  -892
  -1,513
  -2,293
  -3,253
  -4,407
  -5,770
  -7,351
  -9,158
  -11,195
  -13,464
  -15,962
  -18,687
  -21,635
  -24,802
  -28,181
  -31,767
  -35,556
  -39,545
  -43,729
  -48,107
  -52,679
  -57,444
  -62,407
  -67,569
  -72,935
  -78,512
  -84,308
  -90,330
Change in working capital, $m
  -12
  -425
  -552
  -699
  -865
  -1,047
  -1,244
  -1,452
  -1,668
  -1,890
  -2,114
  -2,338
  -2,560
  -2,779
  -2,994
  -3,203
  -3,408
  -3,608
  -3,804
  -3,996
  -4,187
  -4,376
  -4,565
  -4,756
  -4,950
  -5,148
  -5,351
  -5,561
  -5,779
  -6,006
  -6,243
Cash from operations, $m
  604
  379
  141
  -193
  -648
  -1,246
  -2,009
  -2,955
  -4,102
  -5,461
  -7,045
  -8,858
  -10,903
  -13,183
  -15,694
  -18,432
  -21,394
  -24,573
  -27,964
  -31,560
  -35,358
  -39,353
  -43,542
  -47,922
  -52,494
  -57,259
  -62,218
  -67,374
  -72,734
  -78,302
  -84,087
Maintenance CAPEX, $m
  0
  -118
  -168
  -233
  -315
  -417
  -540
  -686
  -857
  -1,053
  -1,276
  -1,524
  -1,799
  -2,100
  -2,427
  -2,779
  -3,156
  -3,557
  -3,981
  -4,428
  -4,898
  -5,391
  -5,905
  -6,442
  -7,002
  -7,584
  -8,189
  -8,819
  -9,473
  -10,152
  -10,859
New CAPEX, $m
  -319
  -880
  -1,143
  -1,447
  -1,790
  -2,168
  -2,575
  -3,005
  -3,453
  -3,911
  -4,375
  -4,839
  -5,299
  -5,753
  -6,197
  -6,631
  -7,054
  -7,468
  -7,873
  -8,272
  -8,666
  -9,058
  -9,450
  -9,845
  -10,246
  -10,656
  -11,077
  -11,511
  -11,962
  -12,431
  -12,922
Cash from investing activities, $m
  -640
  -998
  -1,311
  -1,680
  -2,105
  -2,585
  -3,115
  -3,691
  -4,310
  -4,964
  -5,651
  -6,363
  -7,098
  -7,853
  -8,624
  -9,410
  -10,210
  -11,025
  -11,854
  -12,700
  -13,564
  -14,449
  -15,355
  -16,287
  -17,248
  -18,240
  -19,266
  -20,330
  -21,435
  -22,583
  -23,781
Free cash flow, $m
  -36
  -619
  -1,170
  -1,873
  -2,753
  -3,831
  -5,123
  -6,647
  -8,411
  -10,426
  -12,695
  -15,221
  -18,002
  -21,036
  -24,317
  -27,842
  -31,604
  -35,598
  -39,818
  -44,261
  -48,923
  -53,802
  -58,897
  -64,210
  -69,743
  -75,499
  -81,483
  -87,704
  -94,168
  -100,886
  -107,868
Issuance/(repayment) of debt, $m
  216
  14,656
  18,972
  24,016
  29,703
  35,966
  42,720
  49,863
  57,292
  64,903
  72,600
  80,300
  87,935
  95,454
  102,822
  110,022
  117,051
  123,919
  130,645
  137,260
  143,798
  150,299
  156,806
  163,364
  170,018
  176,813
  183,794
  191,004
  198,485
  206,277
  214,422
Issuance/(repurchase) of shares, $m
  -94
  2,591
  3,676
  4,999
  6,579
  8,427
  10,550
  12,952
  15,631
  18,582
  21,798
  25,100
  28,820
  32,778
  36,966
  41,377
  46,004
  50,842
  55,890
  61,146
  66,613
  72,291
  78,187
  84,307
  90,658
  97,250
  104,094
  111,201
  118,586
  126,262
  134,246
Cash from financing (excl. dividends), $m  
  322
  17,247
  22,648
  29,015
  36,282
  44,393
  53,270
  62,815
  72,923
  83,485
  94,398
  105,400
  116,755
  128,232
  139,788
  151,399
  163,055
  174,761
  186,535
  198,406
  210,411
  222,590
  234,993
  247,671
  260,676
  274,063
  287,888
  302,205
  317,071
  332,539
  348,668
Total cash flow (excl. dividends), $m
  260
  16,627
  21,477
  27,142
  33,528
  40,563
  48,147
  56,169
  64,512
  73,059
  81,703
  90,178
  98,753
  107,196
  115,471
  123,557
  131,451
  139,163
  146,718
  154,146
  161,488
  168,789
  176,097
  183,461
  190,934
  198,565
  206,404
  214,501
  222,902
  231,654
  240,800
Retained Cash Flow (-), $m
  273
  -2,591
  -3,676
  -4,999
  -6,579
  -8,427
  -10,550
  -12,952
  -15,631
  -18,582
  -21,798
  -25,100
  -28,820
  -32,778
  -36,966
  -41,377
  -46,004
  -50,842
  -55,890
  -61,146
  -66,613
  -72,291
  -78,187
  -84,307
  -90,658
  -97,250
  -104,094
  -111,201
  -118,586
  -126,262
  -134,246
Prev. year cash balance distribution, $m
 
  4,935
  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
 
  18,971
  17,801
  22,142
  26,949
  32,136
  37,596
  43,217
  48,881
  54,477
  59,904
  65,079
  69,933
  74,418
  78,505
  82,180
  85,447
  88,321
  90,827
  92,999
  94,875
  96,498
  97,909
  99,154
  100,276
  101,315
  102,311
  103,300
  104,316
  105,391
  106,554
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
 
  17,797
  15,569
  17,935
  20,075
  21,848
  23,142
  23,878
  24,021
  23,579
  22,600
  21,165
  19,377
  17,349
  15,196
  13,023
  10,921
  8,961
  7,195
  5,650
  4,339
  3,257
  2,388
  1,710
  1,195
  814
  540
  348
  219
  133
  79
Current shareholders' claim on cash, %
  100
  64.1
  41.2
  26.7
  17.4
  11.5
  7.7
  5.2
  3.5
  2.4
  1.7
  1.2
  0.9
  0.6
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Leucadia National Corporation, a diversified holding company, engages in investment banking and capital markets, beef processing, manufacturing, oil and gas exploration and production, and asset management activities. Its services include equities research, sales, and trading; financing, securities lending, and other brokerage; wealth management; fixed income sales and trading; trade execution in foreign exchange, spot, forward, swap, and option contracts across currencies; equity and debt capital markets, as well as financial advisory in the areas of mergers and acquisition, restructuring, and recapitalization; equity and debt financing to companies, financial sponsors, and government entities; and investment management services to pension funds, insurance companies, and other institutional investors. The company also provides investment advisory, portfolio management, and operational services to accredited investors and qualified purchasers; and online foreign exchange trading and related services. In addition, it develops and owns residential and mixed-use real estate properties in California, New York, Florida, Virginia, South Carolina, and Maine; provides capital solutions, investment sales advisory, research, and services for multifamily and commercial properties; and purchases automobile installment contracts, as well as leases used Harley-Davidson motorcycles. Further, it processes and markets beef, beef by-products, pork, and leather; owns oil and gas properties in the Bakken field, as well as leases and develops oil and gas properties in Texas and Oklahoma; owns and operates 27 automobile dealerships; offers fixed wireless broadband services in Italy; manufactures and markets plastic netting and wood products; and mines gold and silver ores. The company was formerly known as Talcott National Corp. and changed its name to Leucadia National Corporation in June 1980. Leucadia National Corporation was founded in 1968 and is headquartered in New York, New York.

FINANCIAL RATIOS  of  Leucadia National (LUK)

Valuation Ratios
P/E Ratio 68.2
Price to Sales 0.9
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 14.7
Price to Free Cash Flow 31.1
Growth Rates
Sales Growth Rate -7.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 7.8%
Cap. Spend. - 3 Yr. Gr. Rate 14%
Financial Strength
Quick Ratio 24
Current Ratio 0
LT Debt to Equity 179.1%
Total Debt to Equity 184.3%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.6%
Ret/ On Assets - 3 Yr. Avg. 1.4%
Return On Total Capital 0.4%
Ret/ On T. Cap. - 3 Yr. Avg. 0.6%
Return On Equity 1.3%
Return On Equity - 3 Yr. Avg. 2%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 31.7%
Gross Margin - 3 Yr. Avg. 30.2%
EBITDA Margin 14.4%
EBITDA Margin - 3 Yr. Avg. 13.2%
Operating Margin 2.7%
Oper. Margin - 3 Yr. Avg. 2.8%
Pre-Tax Margin 3.1%
Pre-Tax Margin - 3 Yr. Avg. 2.5%
Net Profit Margin 1.3%
Net Profit Margin - 3 Yr. Avg. 1.9%
Effective Tax Rate 38.6%
Eff/ Tax Rate - 3 Yr. Avg. 50.5%
Payout Ratio 70%

LUK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LUK stock intrinsic value calculation we used $10033 million for the last fiscal year's total revenue generated by Leucadia National. The default revenue input number comes from 2016 income statement of Leucadia National. 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 LUK stock valuation model: a) initial revenue growth rate of 42.4% 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 LUK is calculated based on our internal credit rating of Leucadia National, 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 Leucadia National.
    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 LUK stock the variable cost ratio is equal to 97%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $34 million in the base year in the intrinsic value calculation for LUK 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 4.7% for Leucadia National.

Corporate tax rate of 27% is the nominal tax rate for Leucadia National. 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 LUK 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 LUK are equal to 20.7%.

Life of production assets of 17.6 years is the average useful life of capital assets used in Leucadia National 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 LUK is equal to -10%. 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 - $10128 million for Leucadia National - 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 366.544 million for Leucadia National 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 Leucadia National at the current share price and the inputted number of shares is $9.0 billion.

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COMPANY NEWS

▶ Leucadia and Jefferies to Host Annual Investor Meeting   [Aug-11-17 10:54AM  Business Wire]
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▶ Leucadia posts 2Q profit   [Jul-27-17 11:05PM  Associated Press]
▶ Dow, S&P 500 slide as telecom, utilities shares retreat   [Jul-24-17 11:09AM  MarketWatch]
▶ [$$] A Mini-Berkshire Ready to Break Out   [Jul-22-17 01:54AM  Barrons.com]
▶ Jefferies' Gammel Sees Oil Price, Inventory Recovery   [Jul-14-17 09:39AM  Bloomberg Video]
▶ Jefferies' Darby Likes Chinese Government Bonds   [Jul-10-17 11:15PM  Bloomberg Video]
▶ [$$] Jefferies Revenue Rises on Investment Banking Unit   [08:13AM  The Wall Street Journal]
▶ M Science Launches M Data Enhanced   [Jun-06-17 08:00AM  Business Wire]
▶ Wall St. CEO: Here are 20 things every intern should know   [Jun-01-17 09:18AM  Yahoo Finance]
▶ FXCM Group Names Brendan Callan as CEO   [02:00AM  GlobeNewswire]
▶ Leucadia Turns Things Around on Jefferies Recovery   [Apr-28-17 07:03PM  Motley Fool]
▶ Leucadia posts 1Q profit   [Apr-27-17 06:56PM  Associated Press]
▶ M Science Adds Senior Analyst Byrne Hobart   [08:00AM  Business Wire]
▶ Backstone Buys Into Permian For $2 Billion   [Apr-23-17 01:00AM  Oilprice.com]
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▶ [$$] Former banker fined for sharing information on WhatsApp   [Mar-30-17 09:57AM  Financial Times]
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▶ Why Bank Stocks are Getting Crushed   [Mar-21-17 05:55PM  at Barrons.com]
Stock chart of LUK Financial statements of LUK
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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