Intrinsic value of Mohawk Industries - MHK

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$234.93

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$234.93

 
Intrinsic value

$383.97

 
Up/down potential

+63%

 
Rating

str. buy

 
Value-price divergence* premium content

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

We calculate the intrinsic value of MHK 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 17.5

 

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, %
  10.99
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
Revenue, $m
  8,959
  9,792
  10,661
  11,565
  12,506
  13,484
  14,501
  15,557
  16,655
  17,796
  18,982
  20,216
  21,499
  22,835
  24,227
  25,676
  27,188
  28,764
  30,408
  32,125
  33,918
  35,791
  37,749
  39,796
  41,937
  44,178
  46,523
  48,979
  51,550
  54,244
  57,066
Variable operating expenses, $m
 
  4,895
  5,309
  5,740
  6,188
  6,654
  7,139
  7,642
  8,165
  8,709
  9,275
  9,635
  10,247
  10,884
  11,547
  12,238
  12,958
  13,709
  14,493
  15,311
  16,166
  17,058
  17,992
  18,967
  19,988
  21,056
  22,174
  23,344
  24,570
  25,854
  27,199
Fixed operating expenses, $m
 
  3,346
  3,429
  3,515
  3,603
  3,693
  3,785
  3,880
  3,977
  4,076
  4,178
  4,283
  4,390
  4,499
  4,612
  4,727
  4,845
  4,967
  5,091
  5,218
  5,348
  5,482
  5,619
  5,760
  5,904
  6,051
  6,203
  6,358
  6,517
  6,679
  6,846
Total operating expenses, $m
  7,679
  8,241
  8,738
  9,255
  9,791
  10,347
  10,924
  11,522
  12,142
  12,785
  13,453
  13,918
  14,637
  15,383
  16,159
  16,965
  17,803
  18,676
  19,584
  20,529
  21,514
  22,540
  23,611
  24,727
  25,892
  27,107
  28,377
  29,702
  31,087
  32,533
  34,045
Operating income, $m
  1,280
  1,552
  1,923
  2,311
  2,715
  3,137
  3,577
  4,035
  4,513
  5,010
  5,529
  6,298
  6,863
  7,452
  8,068
  8,711
  9,384
  10,088
  10,824
  11,595
  12,403
  13,250
  14,138
  15,069
  16,046
  17,071
  18,147
  19,277
  20,464
  21,711
  23,021
EBITDA, $m
  1,689
  2,068
  2,465
  2,879
  3,311
  3,762
  4,232
  4,721
  5,231
  5,763
  6,316
  6,894
  7,497
  8,126
  8,782
  9,469
  10,186
  10,936
  11,721
  12,543
  13,404
  14,306
  15,251
  16,242
  17,282
  18,374
  19,519
  20,721
  21,984
  23,310
  24,704
Interest expense (income), $m
  57
  84
  98
  113
  128
  144
  160
  178
  196
  214
  234
  254
  275
  296
  319
  343
  367
  393
  419
  447
  476
  507
  539
  572
  606
  643
  681
  720
  762
  806
  851
Earnings before tax, $m
  1,241
  1,468
  1,825
  2,198
  2,587
  2,993
  3,416
  3,857
  4,317
  4,796
  5,296
  6,044
  6,588
  7,156
  7,749
  8,369
  9,017
  9,695
  10,405
  11,148
  11,927
  12,743
  13,599
  14,497
  15,439
  16,428
  17,466
  18,557
  19,702
  20,905
  22,170
Tax expense, $m
  307
  396
  493
  593
  699
  808
  922
  1,041
  1,166
  1,295
  1,430
  1,632
  1,779
  1,932
  2,092
  2,260
  2,435
  2,618
  2,809
  3,010
  3,220
  3,441
  3,672
  3,914
  4,169
  4,436
  4,716
  5,010
  5,320
  5,644
  5,986
Net income, $m
  930
  1,072
  1,332
  1,605
  1,889
  2,185
  2,494
  2,816
  3,151
  3,501
  3,866
  4,412
  4,809
  5,224
  5,657
  6,109
  6,582
  7,077
  7,596
  8,138
  8,707
  9,303
  9,927
  10,583
  11,271
  11,992
  12,750
  13,546
  14,382
  15,261
  16,184

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  10,231
  11,052
  12,032
  13,053
  14,115
  15,219
  16,366
  17,559
  18,798
  20,086
  21,424
  22,817
  24,266
  25,774
  27,344
  28,980
  30,686
  32,465
  34,321
  36,258
  38,282
  40,396
  42,606
  44,916
  47,333
  49,862
  52,509
  55,281
  58,183
  61,223
  64,408
Adjusted assets (=assets-cash), $m
  10,109
  11,052
  12,032
  13,053
  14,115
  15,219
  16,366
  17,559
  18,798
  20,086
  21,424
  22,817
  24,266
  25,774
  27,344
  28,980
  30,686
  32,465
  34,321
  36,258
  38,282
  40,396
  42,606
  44,916
  47,333
  49,862
  52,509
  55,281
  58,183
  61,223
  64,408
Revenue / Adjusted assets
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
  0.886
Average production assets, $m
  4,145
  4,534
  4,936
  5,355
  5,790
  6,243
  6,714
  7,203
  7,711
  8,239
  8,789
  9,360
  9,954
  10,573
  11,217
  11,888
  12,588
  13,318
  14,079
  14,874
  15,704
  16,571
  17,478
  18,426
  19,417
  20,454
  21,540
  22,677
  23,868
  25,115
  26,421
Working capital, $m
  754
  2,203
  2,399
  2,602
  2,814
  3,034
  3,263
  3,500
  3,747
  4,004
  4,271
  4,549
  4,837
  5,138
  5,451
  5,777
  6,117
  6,472
  6,842
  7,228
  7,631
  8,053
  8,493
  8,954
  9,436
  9,940
  10,468
  11,020
  11,599
  12,205
  12,840
Total debt, $m
  2,511
  2,797
  3,218
  3,656
  4,111
  4,585
  5,077
  5,589
  6,120
  6,673
  7,247
  7,844
  8,466
  9,113
  9,787
  10,488
  11,220
  11,983
  12,780
  13,611
  14,479
  15,386
  16,334
  17,325
  18,362
  19,447
  20,583
  21,771
  23,017
  24,321
  25,687
Total liabilities, $m
  4,454
  4,741
  5,162
  5,600
  6,055
  6,529
  7,021
  7,533
  8,064
  8,617
  9,191
  9,788
  10,410
  11,057
  11,731
  12,432
  13,164
  13,927
  14,724
  15,555
  16,423
  17,330
  18,278
  19,269
  20,306
  21,391
  22,527
  23,715
  24,961
  26,265
  27,631
Total equity, $m
  5,776
  6,311
  6,871
  7,453
  8,060
  8,690
  9,345
  10,026
  10,733
  11,469
  12,233
  13,028
  13,856
  14,717
  15,613
  16,548
  17,522
  18,537
  19,597
  20,703
  21,859
  23,066
  24,328
  25,647
  27,027
  28,471
  29,983
  31,565
  33,223
  34,958
  36,777
Total liabilities and equity, $m
  10,230
  11,052
  12,033
  13,053
  14,115
  15,219
  16,366
  17,559
  18,797
  20,086
  21,424
  22,816
  24,266
  25,774
  27,344
  28,980
  30,686
  32,464
  34,321
  36,258
  38,282
  40,396
  42,606
  44,916
  47,333
  49,862
  52,510
  55,280
  58,184
  61,223
  64,408
Debt-to-equity ratio
  0.435
  0.440
  0.470
  0.490
  0.510
  0.530
  0.540
  0.560
  0.570
  0.580
  0.590
  0.600
  0.610
  0.620
  0.630
  0.630
  0.640
  0.650
  0.650
  0.660
  0.660
  0.670
  0.670
  0.680
  0.680
  0.680
  0.690
  0.690
  0.690
  0.700
  0.700
Adjusted equity ratio
  0.559
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  930
  1,072
  1,332
  1,605
  1,889
  2,185
  2,494
  2,816
  3,151
  3,501
  3,866
  4,412
  4,809
  5,224
  5,657
  6,109
  6,582
  7,077
  7,596
  8,138
  8,707
  9,303
  9,927
  10,583
  11,271
  11,992
  12,750
  13,546
  14,382
  15,261
  16,184
Depreciation, amort., depletion, $m
  409
  516
  542
  568
  596
  625
  655
  686
  719
  752
  787
  596
  634
  673
  714
  757
  802
  848
  897
  947
  1,000
  1,055
  1,113
  1,174
  1,237
  1,303
  1,372
  1,444
  1,520
  1,600
  1,683
Funds from operations, $m
  1,221
  1,588
  1,874
  2,173
  2,485
  2,810
  3,149
  3,502
  3,870
  4,253
  4,653
  5,008
  5,443
  5,897
  6,371
  6,866
  7,384
  7,926
  8,492
  9,086
  9,707
  10,358
  11,041
  11,756
  12,507
  13,295
  14,122
  14,991
  15,903
  16,860
  17,867
Change in working capital, $m
  -107
  187
  195
  203
  212
  220
  229
  238
  247
  257
  267
  278
  289
  301
  313
  326
  340
  355
  370
  386
  403
  421
  441
  461
  482
  504
  528
  552
  579
  606
  635
Cash from operations, $m
  1,328
  1,462
  1,679
  1,970
  2,273
  2,590
  2,920
  3,264
  3,623
  3,997
  4,386
  4,731
  5,155
  5,597
  6,058
  6,540
  7,044
  7,571
  8,122
  8,699
  9,304
  9,937
  10,600
  11,296
  12,026
  12,791
  13,595
  14,438
  15,324
  16,254
  17,232
Maintenance CAPEX, $m
  0
  -264
  -289
  -314
  -341
  -369
  -398
  -428
  -459
  -491
  -525
  -560
  -596
  -634
  -673
  -714
  -757
  -802
  -848
  -897
  -947
  -1,000
  -1,055
  -1,113
  -1,174
  -1,237
  -1,303
  -1,372
  -1,444
  -1,520
  -1,600
New CAPEX, $m
  -672
  -389
  -402
  -419
  -436
  -453
  -471
  -489
  -508
  -528
  -549
  -571
  -594
  -619
  -644
  -671
  -700
  -730
  -761
  -795
  -830
  -867
  -907
  -948
  -991
  -1,037
  -1,086
  -1,137
  -1,191
  -1,247
  -1,307
Cash from investing activities, $m
  -672
  -653
  -691
  -733
  -777
  -822
  -869
  -917
  -967
  -1,019
  -1,074
  -1,131
  -1,190
  -1,253
  -1,317
  -1,385
  -1,457
  -1,532
  -1,609
  -1,692
  -1,777
  -1,867
  -1,962
  -2,061
  -2,165
  -2,274
  -2,389
  -2,509
  -2,635
  -2,767
  -2,907
Free cash flow, $m
  656
  809
  988
  1,236
  1,497
  1,768
  2,052
  2,348
  2,656
  2,977
  3,312
  3,600
  3,964
  4,344
  4,741
  5,155
  5,587
  6,040
  6,513
  7,008
  7,526
  8,069
  8,638
  9,235
  9,860
  10,517
  11,206
  11,929
  12,689
  13,487
  14,325
Issuance/(repayment) of debt, $m
  -630
  408
  421
  438
  456
  474
  492
  512
  532
  552
  574
  597
  622
  647
  674
  702
  732
  763
  796
  831
  868
  907
  948
  991
  1,037
  1,085
  1,136
  1,189
  1,245
  1,304
  1,366
Issuance/(repurchase) of shares, $m
  9
  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  
  -624
  408
  421
  438
  456
  474
  492
  512
  532
  552
  574
  597
  622
  647
  674
  702
  732
  763
  796
  831
  868
  907
  948
  991
  1,037
  1,085
  1,136
  1,189
  1,245
  1,304
  1,366
Total cash flow (excl. dividends), $m
  40
  1,217
  1,408
  1,674
  1,952
  2,242
  2,544
  2,859
  3,187
  3,530
  3,887
  4,197
  4,586
  4,991
  5,414
  5,857
  6,319
  6,803
  7,309
  7,839
  8,394
  8,976
  9,586
  10,226
  10,897
  11,602
  12,342
  13,118
  13,934
  14,791
  15,692
Retained Cash Flow (-), $m
  -922
  -535
  -560
  -583
  -606
  -630
  -655
  -681
  -708
  -735
  -765
  -795
  -827
  -861
  -897
  -934
  -974
  -1,016
  -1,060
  -1,106
  -1,155
  -1,207
  -1,262
  -1,319
  -1,380
  -1,444
  -1,511
  -1,582
  -1,657
  -1,736
  -1,819
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
 
  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
 
  682
  849
  1,091
  1,346
  1,611
  1,889
  2,178
  2,480
  2,794
  3,122
  3,402
  3,758
  4,130
  4,518
  4,922
  5,345
  5,787
  6,249
  6,733
  7,239
  7,769
  8,324
  8,907
  9,517
  10,158
  10,830
  11,536
  12,277
  13,055
  13,873
Discount rate, %
 
  4.50
  4.73
  4.96
  5.21
  5.47
  5.74
  6.03
  6.33
  6.65
  6.98
  7.33
  7.70
  8.08
  8.49
  8.91
  9.36
  9.82
  10.31
  10.83
  11.37
  11.94
  12.54
  13.16
  13.82
  14.51
  15.24
  16.00
  16.80
  17.64
  18.52
PV of cash for distribution, $m
 
  653
  774
  944
  1,098
  1,235
  1,351
  1,446
  1,517
  1,566
  1,590
  1,563
  1,544
  1,504
  1,444
  1,368
  1,278
  1,177
  1,068
  954
  840
  727
  619
  518
  426
  343
  271
  210
  159
  117
  85
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

Mohawk Industries, Inc. designs, manufactures, sources, distributes, and markets flooring products for remodeling and new constructions of residential and commercial spaces worldwide. It operates through three segments: Global Ceramic, Flooring North America (Flooring NA), and Flooring Rest of the World (Flooring ROW). The Global Ceramic segment provides a range of ceramic tile, porcelain tile, and natural stone products; and sources, markets, and distributes other tile related products. This segment markets and distributes its products under the American Olean, Daltile, KAI, Kerama Marazzi, Marazzi, and Ragno brands. The Flooring NA segment offers product lines in a range of colors, textures, and patterns, including carpets, rugs, and carpet pads; hardwood and laminate products; and vinyl products, such as luxury vinyl tiles. This segment markets and distributes its flooring products under the Aladdin, Bigelow, Columbia Flooring, Durkan, Horizon, IVC, Karastan, Lees, Mohawk, Pergo, Portico, QuickStep, and SmartStrand brands. The Flooring ROW segment provides laminate and hardwood flooring, as well as roofing elements, insulation boards, medium-density fiberboards, chipboards, and vinyl flooring products under the IVC, Moduleo, Pergo, Quick-Step, and Unilin brands; and licenses patents related to flooring manufacturers. The company sells its products through independent distributors, home center retailers, independent and individual floor covering retailers, ceramic specialists, commercial contractors, commercial end users, mass merchandisers, department stores, shop at home, buying groups, retailers, and wholesalers, as well as private labeling programs. Mohawk Industries, Inc. was founded in 1988 and is headquartered in Calhoun, Georgia.

FINANCIAL RATIOS  of  Mohawk Industries (MHK)

Valuation Ratios
P/E Ratio 18.7
Price to Sales 1.9
Price to Book 3
Price to Tangible Book
Price to Cash Flow 13.1
Price to Free Cash Flow 26.6
Growth Rates
Sales Growth Rate 11%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.3%
Cap. Spend. - 3 Yr. Gr. Rate 12.9%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 19.5%
Total Debt to Equity 43.5%
Interest Coverage 23
Management Effectiveness
Return On Assets 9.6%
Ret/ On Assets - 3 Yr. Avg. 8.1%
Return On Total Capital 11.4%
Ret/ On T. Cap. - 3 Yr. Avg. 9.2%
Return On Equity 17.5%
Return On Equity - 3 Yr. Avg. 14.2%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 31.8%
Gross Margin - 3 Yr. Avg. 30.1%
EBITDA Margin 19.1%
EBITDA Margin - 3 Yr. Avg. 16%
Operating Margin 14.3%
Oper. Margin - 3 Yr. Avg. 11.5%
Pre-Tax Margin 13.9%
Pre-Tax Margin - 3 Yr. Avg. 10.5%
Net Profit Margin 10.4%
Net Profit Margin - 3 Yr. Avg. 8.3%
Effective Tax Rate 24.7%
Eff/ Tax Rate - 3 Yr. Avg. 20.7%
Payout Ratio 0%

MHK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MHK stock intrinsic value calculation we used $8959 million for the last fiscal year's total revenue generated by Mohawk Industries. The default revenue input number comes from 2016 income statement of Mohawk Industries. 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 MHK stock valuation model: a) initial revenue growth rate of 9.3% 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 4.5%, whose default value for MHK is calculated based on our internal credit rating of Mohawk Industries, 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 Mohawk Industries.
    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 MHK stock the variable cost ratio is equal to 50.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $3264 million in the base year in the intrinsic value calculation for MHK 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 Mohawk Industries.

Corporate tax rate of 27% is the nominal tax rate for Mohawk Industries. 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 MHK 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 MHK are equal to 46.3%.

Life of production assets of 15.7 years is the average useful life of capital assets used in Mohawk Industries 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 MHK is equal to 22.5%. 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 - $5776 million for Mohawk Industries - 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 74.382 million for Mohawk Industries 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 Mohawk Industries at the current share price and the inputted number of shares is $17.5 billion.


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COMPANY NEWS

▶ Mohawk Industries beats Street 4Q forecasts   [04:43PM  Associated Press]
▶ Best Midcap Stocks To Buy According To Billionaire Loeb   [Dec-09-16 03:38PM  at Insider Monkey]
▶ Heres What Smart Money Thinks of Mohawk Industries, Inc. (MHK)   [Nov-29-16 03:18PM  at Insider Monkey]
▶ Merrill Lynch Makes 2 Huge New Additions to US 1 Stock List   [Nov-16-16 10:10AM  at 24/7 Wall St.]
▶ Five Consumer Durable Stocks Hedge Funds Are Bullish On   [Aug-29-16 11:38AM  at Insider Monkey]
▶ Giverny Capital Reveals Favorite Long-Term Consumer Stocks   [Aug-12-16 11:50AM  at Insider Monkey]
Stock chart of MHK Financial statements of MHK
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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