Intrinsic value of Taiwan Semiconductor Manufacturing ADR - TSM

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$35.51

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$35.51

 
Intrinsic value

$47.39

 
Up/down potential

+33%

 
Rating

buy

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

We calculate the intrinsic value of TSM 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 177.3

 

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, %
  12.38
  14.90
  13.91
  13.02
  12.22
  11.50
  10.85
  10.26
  9.74
  9.26
  8.84
  8.45
  8.11
  7.80
  7.52
  7.26
  7.04
  6.83
  6.65
  6.49
  6.34
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
Revenue, $m
  30,475
  35,016
  39,886
  45,079
  50,587
  56,402
  62,519
  68,934
  75,645
  82,651
  89,954
  97,557
  105,465
  113,687
  122,233
  131,113
  140,341
  149,932
  159,904
  170,276
  181,066
  192,299
  203,997
  216,186
  228,892
  242,144
  255,972
  270,408
  285,485
  301,239
  317,705
Variable operating expenses, $m
 
  15,544
  17,704
  20,006
  22,448
  25,026
  27,738
  30,582
  33,558
  36,664
  39,902
  43,253
  46,760
  50,405
  54,194
  58,131
  62,222
  66,475
  70,896
  75,495
  80,279
  85,259
  90,446
  95,850
  101,483
  107,359
  113,490
  119,890
  126,575
  133,559
  140,860
Fixed operating expenses, $m
 
  5,037
  5,163
  5,292
  5,424
  5,560
  5,699
  5,841
  5,987
  6,137
  6,290
  6,448
  6,609
  6,774
  6,943
  7,117
  7,295
  7,477
  7,664
  7,856
  8,052
  8,253
  8,460
  8,671
  8,888
  9,110
  9,338
  9,571
  9,811
  10,056
  10,307
Total operating expenses, $m
  18,329
  20,581
  22,867
  25,298
  27,872
  30,586
  33,437
  36,423
  39,545
  42,801
  46,192
  49,701
  53,369
  57,179
  61,137
  65,248
  69,517
  73,952
  78,560
  83,351
  88,331
  93,512
  98,906
  104,521
  110,371
  116,469
  122,828
  129,461
  136,386
  143,615
  151,167
Operating income, $m
  12,146
  14,435
  17,020
  19,781
  22,715
  25,816
  29,082
  32,511
  36,100
  39,850
  43,762
  47,856
  52,097
  56,508
  61,095
  65,865
  70,823
  75,980
  81,344
  86,925
  92,735
  98,787
  105,092
  111,665
  118,521
  125,675
  133,145
  140,947
  149,100
  157,624
  166,538
EBITDA, $m
  19,342
  21,352
  24,897
  28,681
  32,700
  36,947
  41,418
  46,110
  51,021
  56,152
  61,502
  67,074
  72,873
  78,905
  85,175
  91,694
  98,471
  105,517
  112,845
  120,470
  128,406
  136,670
  145,279
  154,254
  163,613
  173,378
  183,571
  194,217
  205,341
  216,968
  229,126
Interest expense (income), $m
  106
  172
  240
  312
  389
  471
  557
  648
  743
  842
  946
  1,054
  1,167
  1,284
  1,406
  1,533
  1,664
  1,801
  1,943
  2,091
  2,245
  2,405
  2,571
  2,745
  2,925
  3,114
  3,310
  3,515
  3,729
  3,952
  4,186
Earnings before tax, $m
  12,408
  14,262
  16,780
  19,469
  22,326
  25,345
  28,525
  31,863
  35,357
  39,008
  42,816
  46,801
  50,930
  55,224
  59,689
  64,332
  69,159
  74,179
  79,401
  84,834
  90,491
  96,382
  102,521
  108,920
  115,596
  122,562
  129,835
  137,432
  145,371
  153,671
  162,352
Tax expense, $m
  1,659
  3,851
  4,531
  5,257
  6,028
  6,843
  7,702
  8,603
  9,547
  10,532
  11,560
  12,636
  13,751
  14,910
  16,116
  17,370
  18,673
  20,028
  21,438
  22,905
  24,433
  26,023
  27,681
  29,409
  31,211
  33,092
  35,055
  37,107
  39,250
  41,491
  43,835
Net income, $m
  10,746
  10,412
  12,250
  14,213
  16,298
  18,502
  20,823
  23,260
  25,811
  28,476
  31,255
  34,165
  37,179
  40,314
  43,573
  46,962
  50,486
  54,151
  57,963
  61,929
  66,058
  70,359
  74,840
  79,512
  84,385
  89,470
  94,779
  100,325
  106,121
  112,180
  118,517

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  20,448
  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
  60,648
  46,195
  52,621
  59,471
  66,737
  74,409
  82,479
  90,942
  99,796
  109,038
  118,672
  128,703
  139,136
  149,983
  161,257
  172,972
  185,146
  197,800
  210,955
  224,638
  238,874
  253,693
  269,126
  285,206
  301,968
  319,451
  337,694
  356,739
  376,630
  397,413
  419,136
Adjusted assets (=assets-cash), $m
  40,200
  46,195
  52,621
  59,471
  66,737
  74,409
  82,479
  90,942
  99,796
  109,038
  118,672
  128,703
  139,136
  149,983
  161,257
  172,972
  185,146
  197,800
  210,955
  224,638
  238,874
  253,693
  269,126
  285,206
  301,968
  319,451
  337,694
  356,739
  376,630
  397,413
  419,136
Revenue / Adjusted assets
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
  0.758
Average production assets, $m
  30,024
  34,491
  39,288
  44,403
  49,828
  55,556
  61,581
  67,900
  74,510
  81,411
  88,604
  96,093
  103,883
  111,982
  120,399
  129,146
  138,236
  147,683
  157,506
  167,721
  178,351
  189,415
  200,937
  212,943
  225,459
  238,512
  252,133
  266,352
  281,203
  296,720
  312,940
Working capital, $m
  16,058
  -1,506
  -1,715
  -1,938
  -2,175
  -2,425
  -2,688
  -2,964
  -3,253
  -3,554
  -3,868
  -4,195
  -4,535
  -4,889
  -5,256
  -5,638
  -6,035
  -6,447
  -6,876
  -7,322
  -7,786
  -8,269
  -8,772
  -9,296
  -9,842
  -10,412
  -11,007
  -11,628
  -12,276
  -12,953
  -13,661
Total debt, $m
  8,011
  6,855
  8,917
  11,116
  13,449
  15,911
  18,502
  21,218
  24,060
  27,027
  30,120
  33,340
  36,689
  40,171
  43,789
  47,550
  51,458
  55,520
  59,743
  64,135
  68,705
  73,461
  78,415
  83,577
  88,958
  94,570
  100,426
  106,539
  112,924
  119,595
  126,569
Total liabilities, $m
  15,985
  14,829
  16,891
  19,090
  21,423
  23,885
  26,476
  29,192
  32,034
  35,001
  38,094
  41,314
  44,663
  48,145
  51,763
  55,524
  59,432
  63,494
  67,717
  72,109
  76,679
  81,435
  86,389
  91,551
  96,932
  102,544
  108,400
  114,513
  120,898
  127,569
  134,543
Total equity, $m
  44,663
  31,366
  35,729
  40,381
  45,314
  50,524
  56,003
  61,750
  67,761
  74,037
  80,579
  87,389
  94,473
  101,839
  109,493
  117,448
  125,714
  134,306
  143,239
  152,529
  162,195
  172,257
  182,736
  193,655
  205,037
  216,908
  229,294
  242,226
  255,732
  269,843
  284,594
Total liabilities and equity, $m
  60,648
  46,195
  52,620
  59,471
  66,737
  74,409
  82,479
  90,942
  99,795
  109,038
  118,673
  128,703
  139,136
  149,984
  161,256
  172,972
  185,146
  197,800
  210,956
  224,638
  238,874
  253,692
  269,125
  285,206
  301,969
  319,452
  337,694
  356,739
  376,630
  397,412
  419,137
Debt-to-equity ratio
  0.179
  0.220
  0.250
  0.280
  0.300
  0.310
  0.330
  0.340
  0.360
  0.370
  0.370
  0.380
  0.390
  0.390
  0.400
  0.400
  0.410
  0.410
  0.420
  0.420
  0.420
  0.430
  0.430
  0.430
  0.430
  0.440
  0.440
  0.440
  0.440
  0.440
  0.440
Adjusted equity ratio
  0.649
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679
  0.679

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  10,746
  10,412
  12,250
  14,213
  16,298
  18,502
  20,823
  23,260
  25,811
  28,476
  31,255
  34,165
  37,179
  40,314
  43,573
  46,962
  50,486
  54,151
  57,963
  61,929
  66,058
  70,359
  74,840
  79,512
  84,385
  89,470
  94,779
  100,325
  106,121
  112,180
  118,517
Depreciation, amort., depletion, $m
  7,196
  6,917
  7,877
  8,900
  9,985
  11,130
  12,336
  13,599
  14,921
  16,302
  17,740
  19,219
  20,777
  22,396
  24,080
  25,829
  27,647
  29,537
  31,501
  33,544
  35,670
  37,883
  40,187
  42,589
  45,092
  47,702
  50,427
  53,270
  56,241
  59,344
  62,588
Funds from operations, $m
  15,394
  17,329
  20,126
  23,113
  26,283
  29,633
  33,159
  36,859
  40,732
  44,777
  48,996
  53,384
  57,955
  62,710
  67,653
  72,792
  78,133
  83,687
  89,464
  95,473
  101,728
  108,242
  115,028
  122,101
  129,477
  137,172
  145,206
  153,596
  162,361
  171,524
  181,105
Change in working capital, $m
  -1,961
  -195
  -209
  -223
  -237
  -250
  -263
  -276
  -289
  -301
  -314
  -327
  -340
  -354
  -367
  -382
  -397
  -412
  -429
  -446
  -464
  -483
  -503
  -524
  -546
  -570
  -595
  -621
  -648
  -677
  -708
Cash from operations, $m
  17,355
  19,854
  20,336
  23,336
  26,519
  29,883
  33,422
  37,135
  41,021
  45,079
  49,310
  53,711
  58,295
  63,064
  68,021
  73,173
  78,530
  84,100
  89,892
  95,919
  102,192
  108,725
  115,531
  122,625
  130,023
  137,742
  145,801
  154,216
  163,010
  172,201
  181,813
Maintenance CAPEX, $m
  0
  -6,005
  -6,898
  -7,858
  -8,881
  -9,966
  -11,111
  -12,316
  -13,580
  -14,902
  -16,282
  -17,721
  -19,219
  -20,777
  -22,396
  -24,080
  -25,829
  -27,647
  -29,537
  -31,501
  -33,544
  -35,670
  -37,883
  -40,187
  -42,589
  -45,092
  -47,702
  -50,427
  -53,270
  -56,241
  -59,344
New CAPEX, $m
  -10,709
  -4,467
  -4,798
  -5,115
  -5,425
  -5,728
  -6,025
  -6,319
  -6,610
  -6,901
  -7,193
  -7,489
  -7,790
  -8,099
  -8,417
  -8,747
  -9,090
  -9,448
  -9,822
  -10,216
  -10,629
  -11,064
  -11,523
  -12,006
  -12,516
  -13,053
  -13,621
  -14,219
  -14,851
  -15,517
  -16,220
Cash from investing activities, $m
  -12,713
  -10,472
  -11,696
  -12,973
  -14,306
  -15,694
  -17,136
  -18,635
  -20,190
  -21,803
  -23,475
  -25,210
  -27,009
  -28,876
  -30,813
  -32,827
  -34,919
  -37,095
  -39,359
  -41,717
  -44,173
  -46,734
  -49,406
  -52,193
  -55,105
  -58,145
  -61,323
  -64,646
  -68,121
  -71,758
  -75,564
Free cash flow, $m
  4,642
  9,383
  8,640
  10,363
  12,214
  14,189
  16,285
  18,500
  20,831
  23,276
  25,834
  28,501
  31,287
  34,188
  37,207
  40,347
  43,611
  47,005
  50,533
  54,202
  58,019
  61,991
  66,125
  70,431
  74,919
  79,597
  84,477
  89,570
  94,888
  100,444
  106,249
Issuance/(repayment) of debt, $m
  -145
  1,932
  2,063
  2,199
  2,332
  2,463
  2,591
  2,717
  2,842
  2,967
  3,093
  3,220
  3,349
  3,482
  3,619
  3,761
  3,908
  4,062
  4,223
  4,392
  4,570
  4,757
  4,954
  5,162
  5,381
  5,612
  5,856
  6,113
  6,385
  6,671
  6,973
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  -71
  1,932
  2,063
  2,199
  2,332
  2,463
  2,591
  2,717
  2,842
  2,967
  3,093
  3,220
  3,349
  3,482
  3,619
  3,761
  3,908
  4,062
  4,223
  4,392
  4,570
  4,757
  4,954
  5,162
  5,381
  5,612
  5,856
  6,113
  6,385
  6,671
  6,973
Total cash flow (excl. dividends), $m
  4,313
  11,315
  10,703
  12,562
  14,546
  16,652
  18,876
  21,217
  23,673
  26,243
  28,927
  31,721
  34,636
  37,670
  40,826
  44,107
  47,519
  51,067
  54,756
  58,594
  62,589
  66,747
  71,079
  75,593
  80,300
  85,209
  90,333
  95,684
  101,273
  107,115
  113,223
Retained Cash Flow (-), $m
  -5,388
  -4,063
  -4,363
  -4,652
  -4,933
  -5,209
  -5,480
  -5,747
  -6,011
  -6,276
  -6,542
  -6,810
  -7,084
  -7,365
  -7,655
  -7,954
  -8,266
  -8,592
  -8,933
  -9,290
  -9,666
  -10,062
  -10,479
  -10,918
  -11,382
  -11,871
  -12,387
  -12,931
  -13,506
  -14,112
  -14,750
Prev. year cash balance distribution, $m
 
  17,360
  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
 
  24,611
  6,340
  7,911
  9,613
  11,443
  13,396
  15,470
  17,661
  19,967
  22,385
  24,910
  27,552
  30,305
  33,171
  36,153
  39,253
  42,475
  45,824
  49,304
  52,922
  56,685
  60,600
  64,675
  68,918
  73,338
  77,946
  82,752
  87,768
  93,003
  98,472
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
 
  23,596
  5,804
  6,884
  7,915
  8,869
  9,722
  10,451
  11,039
  11,470
  11,736
  11,829
  11,757
  11,522
  11,136
  10,614
  9,975
  9,242
  8,439
  7,591
  6,725
  5,863
  5,028
  4,239
  3,510
  2,853
  2,274
  1,776
  1,358
  1,015
  741
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

Taiwan Semiconductor Manufacturing Company Limited engages in the computer-aided design, manufacture, packaging, testing, sale, and marketing of integrated circuits, color filters, and other semiconductor devices. The company is also involved in manufacturing masks; and wholesaling and retailing electronic materials. In addition, it provides marketing and engineering support services; and customer service and technical support services, as well as sells electronic parts and solar related products. The company operates in Taiwan, the United States, Asia, Europe, the Middle East, Africa, and internationally. Taiwan Semiconductor Manufacturing Company Limited was founded in 1987 and is headquartered in Hsinchu, Taiwan.

FINANCIAL RATIOS  of  Taiwan Semiconductor Manufacturing ADR (TSM)

Valuation Ratios
P/E Ratio 85.7
Price to Sales 30.2
Price to Book 20.6
Price to Tangible Book
Price to Cash Flow 53.1
Price to Free Cash Flow 138.5
Growth Rates
Sales Growth Rate 12.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 27.2%
Cap. Spend. - 3 Yr. Gr. Rate 2.8%
Financial Strength
Quick Ratio 7
Current Ratio 0
LT Debt to Equity 11%
Total Debt to Equity 17.9%
Interest Coverage 118
Management Effectiveness
Return On Assets 19%
Ret/ On Assets - 3 Yr. Avg. 19.3%
Return On Total Capital 21.5%
Ret/ On T. Cap. - 3 Yr. Avg. 21.9%
Return On Equity 25.6%
Return On Equity - 3 Yr. Avg. 26.8%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 50.1%
Gross Margin - 3 Yr. Avg. 49.4%
EBITDA Margin 64.7%
EBITDA Margin - 3 Yr. Avg. 66.4%
Operating Margin 39.9%
Oper. Margin - 3 Yr. Avg. 38.8%
Pre-Tax Margin 40.7%
Pre-Tax Margin - 3 Yr. Avg. 40.6%
Net Profit Margin 35.3%
Net Profit Margin - 3 Yr. Avg. 35.4%
Effective Tax Rate 13.4%
Eff/ Tax Rate - 3 Yr. Avg. 12.9%
Payout Ratio 46.5%

TSM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TSM stock intrinsic value calculation we used $30475 million for the last fiscal year's total revenue generated by Taiwan Semiconductor Manufacturing ADR. The default revenue input number comes from 2016 income statement of Taiwan Semiconductor Manufacturing ADR. 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 TSM stock valuation model: a) initial revenue growth rate of 14.9% 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 TSM is calculated based on our internal credit rating of Taiwan Semiconductor Manufacturing ADR, 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 Taiwan Semiconductor Manufacturing ADR.
    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 TSM stock the variable cost ratio is equal to 44.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $4914 million in the base year in the intrinsic value calculation for TSM 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 Taiwan Semiconductor Manufacturing ADR.

Corporate tax rate of 27% is the nominal tax rate for Taiwan Semiconductor Manufacturing ADR. 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 TSM 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 TSM are equal to 98.5%.

Life of production assets of 4.2 years is the average useful life of capital assets used in Taiwan Semiconductor Manufacturing ADR 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 TSM is equal to -4.3%. 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 - $44663 million for Taiwan Semiconductor Manufacturing ADR - 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 4991.57 million for Taiwan Semiconductor Manufacturing ADR 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 Taiwan Semiconductor Manufacturing ADR at the current share price and the inputted number of shares is $177.3 billion.


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Stock chart of TSM Financial statements of TSM Annual reports of TSM
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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