Intrinsic value of Walter Investment Management - WAC

Previous Close

$0.32

  Intrinsic Value

$16.49

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+3895%

Previous close

$0.32

 
Intrinsic value

$16.49

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+3895%

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

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

We calculate the intrinsic value of WAC 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 0.0

 

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, %
  -21.82
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  996
  1,594
  2,462
  3,682
  5,343
  7,538
  10,362
  13,909
  18,264
  23,501
  29,684
  36,861
  45,066
  54,319
  64,629
  75,992
  88,397
  101,826
  116,258
  131,668
  148,034
  165,334
  183,550
  202,669
  222,682
  243,586
  265,383
  288,083
  311,700
  336,258
  361,781
Variable operating expenses, $m
 
  2,133
  3,292
  4,921
  7,138
  10,069
  13,840
  18,576
  24,390
  31,383
  39,638
  49,216
  60,171
  72,526
  86,291
  101,463
  118,026
  135,956
  155,225
  175,800
  197,652
  220,751
  245,073
  270,600
  297,321
  325,231
  354,334
  384,643
  416,176
  448,965
  483,044
Fixed operating expenses, $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
Total operating expenses, $m
  1,777
  2,133
  3,292
  4,921
  7,138
  10,069
  13,840
  18,576
  24,390
  31,383
  39,638
  49,216
  60,171
  72,526
  86,291
  101,463
  118,026
  135,956
  155,225
  175,800
  197,652
  220,751
  245,073
  270,600
  297,321
  325,231
  354,334
  384,643
  416,176
  448,965
  483,044
Operating income, $m
  -782
  -539
  -830
  -1,239
  -1,796
  -2,531
  -3,478
  -4,667
  -6,126
  -7,882
  -9,954
  -12,355
  -15,105
  -18,207
  -21,662
  -25,471
  -29,629
  -34,130
  -38,967
  -44,132
  -49,618
  -55,417
  -61,523
  -67,931
  -74,639
  -81,645
  -88,951
  -96,560
  -104,476
  -112,707
  -121,262
EBITDA, $m
  -701
  -420
  -648
  -970
  -1,407
  -1,985
  -2,729
  -3,663
  -4,810
  -6,190
  -7,818
  -9,708
  -11,870
  -14,307
  -17,022
  -20,015
  -23,282
  -26,819
  -30,620
  -34,679
  -38,990
  -43,546
  -48,344
  -53,380
  -58,651
  -64,156
  -69,897
  -75,876
  -82,097
  -88,565
  -95,287
Interest expense (income), $m
  269
  261
  738
  1,547
  2,682
  4,227
  6,269
  8,898
  12,198
  16,250
  21,124
  26,877
  33,555
  41,190
  49,800
  59,394
  69,967
  81,510
  94,006
  107,434
  121,774
  137,002
  153,100
  170,051
  187,841
  206,463
  225,914
  246,197
  267,319
  289,296
  312,146
Earnings before tax, $m
  -790
  -800
  -1,569
  -2,786
  -4,477
  -6,758
  -9,747
  -13,565
  -18,325
  -24,132
  -31,078
  -39,232
  -48,660
  -59,396
  -71,462
  -84,865
  -99,596
  -115,640
  -132,973
  -151,567
  -171,392
  -192,419
  -214,623
  -237,982
  -262,480
  -288,109
  -314,866
  -342,757
  -371,795
  -402,003
  -433,408
Tax expense, $m
  -261
  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
  -529
  -800
  -1,569
  -2,786
  -4,477
  -6,758
  -9,747
  -13,565
  -18,325
  -24,132
  -31,078
  -39,232
  -48,660
  -59,396
  -71,462
  -84,865
  -99,596
  -115,640
  -132,973
  -151,567
  -171,392
  -192,419
  -214,623
  -237,982
  -262,480
  -288,109
  -314,866
  -342,757
  -371,795
  -402,003
  -433,408

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  225
  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
  16,759
  27,010
  41,731
  62,408
  90,551
  127,755
  175,633
  235,751
  309,556
  398,324
  503,115
  624,755
  763,823
  920,664
  1,095,408
  1,288,005
  1,498,259
  1,725,869
  1,970,467
  2,231,656
  2,509,044
  2,802,269
  3,111,024
  3,435,076
  3,774,277
  4,128,574
  4,498,017
  4,882,759
  5,283,059
  5,699,280
  6,131,888
Adjusted assets (=assets-cash), $m
  16,534
  27,010
  41,731
  62,408
  90,551
  127,755
  175,633
  235,751
  309,556
  398,324
  503,115
  624,755
  763,823
  920,664
  1,095,408
  1,288,005
  1,498,259
  1,725,869
  1,970,467
  2,231,656
  2,509,044
  2,802,269
  3,111,024
  3,435,076
  3,774,277
  4,128,574
  4,498,017
  4,882,759
  5,283,059
  5,699,280
  6,131,888
Revenue / Adjusted assets
  0.060
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
  0.059
Average production assets, $m
  1,552
  2,483
  3,836
  5,737
  8,324
  11,743
  16,145
  21,671
  28,455
  36,615
  46,247
  57,429
  70,212
  84,629
  100,692
  118,396
  137,723
  158,645
  181,129
  205,138
  230,636
  257,590
  285,972
  315,759
  346,939
  379,507
  413,467
  448,833
  485,629
  523,889
  563,655
Working capital, $m
  0
  797
  1,231
  1,841
  2,671
  3,769
  5,181
  6,955
  9,132
  11,751
  14,842
  18,430
  22,533
  27,160
  32,315
  37,996
  44,199
  50,913
  58,129
  65,834
  74,017
  82,667
  91,775
  101,335
  111,341
  121,793
  132,691
  144,041
  155,850
  168,129
  180,891
Total debt, $m
  4,276
  12,106
  25,355
  43,964
  69,293
  102,776
  145,867
  199,973
  266,398
  346,288
  440,601
  550,077
  675,238
  816,394
  973,664
  1,147,002
  1,336,230
  1,541,079
  1,761,217
  1,996,288
  2,245,937
  2,509,839
  2,787,719
  3,079,366
  3,384,646
  3,703,514
  4,036,012
  4,382,280
  4,742,550
  5,117,149
  5,506,496
Total liabilities, $m
  16,479
  24,309
  37,558
  56,167
  81,496
  114,979
  158,070
  212,176
  278,601
  358,491
  452,804
  562,280
  687,441
  828,597
  985,867
  1,159,205
  1,348,433
  1,553,282
  1,773,420
  2,008,491
  2,258,140
  2,522,042
  2,799,922
  3,091,569
  3,396,849
  3,715,717
  4,048,215
  4,394,483
  4,754,753
  5,129,352
  5,518,699
Total equity, $m
  280
  2,701
  4,173
  6,241
  9,055
  12,775
  17,563
  23,575
  30,956
  39,832
  50,312
  62,476
  76,382
  92,066
  109,541
  128,801
  149,826
  172,587
  197,047
  223,166
  250,904
  280,227
  311,102
  343,508
  377,428
  412,857
  449,802
  488,276
  528,306
  569,928
  613,189
Total liabilities and equity, $m
  16,759
  27,010
  41,731
  62,408
  90,551
  127,754
  175,633
  235,751
  309,557
  398,323
  503,116
  624,756
  763,823
  920,663
  1,095,408
  1,288,006
  1,498,259
  1,725,869
  1,970,467
  2,231,657
  2,509,044
  2,802,269
  3,111,024
  3,435,077
  3,774,277
  4,128,574
  4,498,017
  4,882,759
  5,283,059
  5,699,280
  6,131,888
Debt-to-equity ratio
  15.271
  4.480
  6.080
  7.040
  7.650
  8.040
  8.310
  8.480
  8.610
  8.690
  8.760
  8.800
  8.840
  8.870
  8.890
  8.910
  8.920
  8.930
  8.940
  8.950
  8.950
  8.960
  8.960
  8.960
  8.970
  8.970
  8.970
  8.980
  8.980
  8.980
  8.980
Adjusted equity ratio
  0.003
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -529
  -800
  -1,569
  -2,786
  -4,477
  -6,758
  -9,747
  -13,565
  -18,325
  -24,132
  -31,078
  -39,232
  -48,660
  -59,396
  -71,462
  -84,865
  -99,596
  -115,640
  -132,973
  -151,567
  -171,392
  -192,419
  -214,623
  -237,982
  -262,480
  -288,109
  -314,866
  -342,757
  -371,795
  -402,003
  -433,408
Depreciation, amort., depletion, $m
  81
  119
  182
  269
  388
  546
  749
  1,003
  1,316
  1,692
  2,136
  2,646
  3,236
  3,900
  4,640
  5,456
  6,347
  7,311
  8,347
  9,453
  10,628
  11,871
  13,178
  14,551
  15,988
  17,489
  19,054
  20,684
  22,379
  24,142
  25,975
Funds from operations, $m
  768
  -681
  -1,387
  -2,516
  -4,089
  -6,212
  -8,999
  -12,561
  -17,009
  -22,440
  -28,942
  -36,585
  -45,424
  -55,496
  -66,822
  -79,409
  -93,249
  -108,329
  -124,626
  -142,113
  -160,763
  -180,548
  -201,444
  -223,431
  -246,492
  -270,620
  -295,812
  -322,073
  -349,416
  -377,860
  -407,433
Change in working capital, $m
  316
  299
  434
  610
  830
  1,098
  1,412
  1,773
  2,177
  2,619
  3,091
  3,588
  4,103
  4,627
  5,155
  5,682
  6,202
  6,714
  7,216
  7,705
  8,183
  8,650
  9,108
  9,560
  10,006
  10,452
  10,899
  11,350
  11,809
  12,279
  12,762
Cash from operations, $m
  452
  -979
  -1,821
  -3,126
  -4,919
  -7,310
  -10,411
  -14,335
  -19,186
  -25,059
  -32,033
  -40,173
  -49,527
  -60,123
  -71,977
  -85,090
  -99,452
  -115,044
  -131,842
  -149,818
  -168,946
  -189,198
  -210,553
  -232,990
  -256,499
  -281,072
  -306,710
  -333,423
  -361,225
  -390,139
  -420,195
Maintenance CAPEX, $m
  0
  -72
  -114
  -177
  -264
  -384
  -541
  -744
  -999
  -1,311
  -1,687
  -2,131
  -2,646
  -3,236
  -3,900
  -4,640
  -5,456
  -6,347
  -7,311
  -8,347
  -9,453
  -10,628
  -11,871
  -13,178
  -14,551
  -15,988
  -17,489
  -19,054
  -20,684
  -22,379
  -24,142
New CAPEX, $m
  -43
  -931
  -1,353
  -1,901
  -2,587
  -3,420
  -4,401
  -5,526
  -6,784
  -8,160
  -9,633
  -11,181
  -12,783
  -14,417
  -16,063
  -17,704
  -19,327
  -20,922
  -22,484
  -24,009
  -25,498
  -26,954
  -28,381
  -29,787
  -31,180
  -32,568
  -33,960
  -35,366
  -36,796
  -38,260
  -39,766
Cash from investing activities, $m
  700
  -1,003
  -1,467
  -2,078
  -2,851
  -3,804
  -4,942
  -6,270
  -7,783
  -9,471
  -11,320
  -13,312
  -15,429
  -17,653
  -19,963
  -22,344
  -24,783
  -27,269
  -29,795
  -32,356
  -34,951
  -37,582
  -40,252
  -42,965
  -45,731
  -48,556
  -51,449
  -54,420
  -57,480
  -60,639
  -63,908
Free cash flow, $m
  1,152
  -1,982
  -3,289
  -5,204
  -7,771
  -11,113
  -15,353
  -20,605
  -26,969
  -34,530
  -43,353
  -53,486
  -64,957
  -77,776
  -91,940
  -107,434
  -124,235
  -142,313
  -161,637
  -182,174
  -203,898
  -226,781
  -250,805
  -275,956
  -302,230
  -329,627
  -358,159
  -387,843
  -418,705
  -450,778
  -484,104
Issuance/(repayment) of debt, $m
  -687
  7,830
  13,248
  18,610
  25,329
  33,483
  43,091
  54,106
  66,425
  79,891
  94,312
  109,476
  125,161
  141,157
  157,270
  173,337
  189,229
  204,849
  220,138
  235,070
  249,649
  263,902
  277,880
  291,647
  305,281
  318,867
  332,499
  346,268
  360,270
  374,599
  389,347
Issuance/(repurchase) of shares, $m
  0
  3,221
  3,041
  4,853
  7,292
  10,478
  14,535
  19,577
  25,705
  33,009
  41,557
  51,396
  62,567
  75,080
  88,937
  104,124
  120,622
  138,401
  157,433
  177,686
  199,130
  221,741
  245,498
  270,387
  296,400
  323,538
  351,810
  381,231
  411,825
  443,625
  476,669
Cash from financing (excl. dividends), $m  
  -1,130
  11,051
  16,289
  23,463
  32,621
  43,961
  57,626
  73,683
  92,130
  112,900
  135,869
  160,872
  187,728
  216,237
  246,207
  277,461
  309,851
  343,250
  377,571
  412,756
  448,779
  485,643
  523,378
  562,034
  601,681
  642,405
  684,309
  727,499
  772,095
  818,224
  866,016
Total cash flow (excl. dividends), $m
  22
  9,069
  13,000
  18,259
  24,850
  32,849
  42,273
  53,078
  65,161
  78,370
  92,516
  107,385
  122,771
  138,461
  154,267
  170,028
  185,615
  200,937
  215,934
  230,582
  244,882
  258,863
  272,573
  286,077
  299,451
  312,779
  326,149
  339,656
  353,391
  367,446
  381,912
Retained Cash Flow (-), $m
  525
  -3,221
  -3,041
  -4,853
  -7,292
  -10,478
  -14,535
  -19,577
  -25,705
  -33,009
  -41,557
  -51,396
  -62,567
  -75,080
  -88,937
  -104,124
  -120,622
  -138,401
  -157,433
  -177,686
  -199,130
  -221,741
  -245,498
  -270,387
  -296,400
  -323,538
  -351,810
  -381,231
  -411,825
  -443,625
  -476,669
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
 
  5,848
  9,960
  13,406
  17,558
  22,370
  27,737
  33,501
  39,456
  45,361
  50,959
  55,990
  60,205
  63,381
  65,330
  65,903
  64,994
  62,536
  58,502
  52,896
  45,752
  37,122
  27,075
  15,691
  3,051
  -10,760
  -25,660
  -41,575
  -58,435
  -76,179
  -94,757
Discount rate, %
 
  14.00
  14.70
  15.44
  16.21
  17.02
  17.87
  18.76
  19.70
  20.68
  21.72
  22.80
  23.94
  25.14
  26.40
  27.72
  29.10
  30.56
  32.09
  33.69
  35.38
  37.15
  39.00
  40.95
  43.00
  45.15
  47.41
  49.78
  52.27
  54.88
  57.63
PV of cash for distribution, $m
 
  5,130
  7,570
  8,715
  9,628
  10,196
  10,344
  10,054
  9,362
  8,353
  7,139
  5,845
  4,580
  3,433
  2,459
  1,679
  1,091
  672
  390
  213
  107
  49
  19
  6
  1
  -1
  -1
  -1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  5.7
  2.2
  0.8
  0.3
  0.1
  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
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Walter Investment Management Corp., a diversified mortgage banking firm, focuses primarily on the servicing and origination of residential loans in the United States. The company operates in three segments: Servicing, Originations, and Reverse Mortgage. The Servicing segment performs services for third-party credit owners of mortgage loans, as well as its mortgage loan portfolio. This segment also operates complementary businesses consisting of an insurance agency serving residential loan borrowers and credit owners; and a collections agency that performs collections of post charge-off deficiency balances for third parties and the company. In addition, it holds the assets and mortgage-backed debt of the residual trusts. The Originations segment originates and purchases mortgage loans for third parties while retaining the servicing rights. The Reverse Mortgage segment primarily focuses on the origination, securitization, and servicing of reverse loans. This segment also performs servicing for third-party credit owners of reverse loans; and provides other services for the reverse mortgage market, such as real estate owned property management and disposition. Walter Investment Management Corp. was founded in 1958 and is based in Tampa, Florida.

FINANCIAL RATIOS  of  Walter Investment Management (WAC)

Valuation Ratios
P/E Ratio -0
Price to Sales 0
Price to Book 0
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate -21.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -85.3%
Cap. Spend. - 3 Yr. Gr. Rate -42.3%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 1097.5%
Total Debt to Equity 1527.1%
Interest Coverage -2
Management Effectiveness
Return On Assets -2%
Ret/ On Assets - 3 Yr. Avg. -0.5%
Return On Total Capital -10.7%
Ret/ On T. Cap. - 3 Yr. Avg. -5.6%
Return On Equity -97.5%
Return On Equity - 3 Yr. Avg. -45.1%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin -44.2%
EBITDA Margin - 3 Yr. Avg. -8.2%
Operating Margin -78.4%
Oper. Margin - 3 Yr. Avg. -40.6%
Pre-Tax Margin -79.3%
Pre-Tax Margin - 3 Yr. Avg. -39.7%
Net Profit Margin -53.1%
Net Profit Margin - 3 Yr. Avg. -27.1%
Effective Tax Rate 33%
Eff/ Tax Rate - 3 Yr. Avg. 25.2%
Payout Ratio 0%

WAC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WAC stock intrinsic value calculation we used $996 million for the last fiscal year's total revenue generated by Walter Investment Management. The default revenue input number comes from 2016 income statement of Walter Investment Management. 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 WAC stock valuation model: a) initial revenue growth rate of 60% 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 14%, whose default value for WAC is calculated based on our internal credit rating of Walter Investment Management, 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 Walter Investment Management.
    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 WAC stock the variable cost ratio is equal to 134%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for WAC 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 6.1% for Walter Investment Management.

Corporate tax rate of 27% is the nominal tax rate for Walter Investment Management. 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 WAC 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 WAC are equal to 155.8%.

Life of production assets of 21.7 years is the average useful life of capital assets used in Walter Investment Management 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 WAC is equal to 50%. 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 - $280 million for Walter Investment Management - 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 35.285 million for Walter Investment Management 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 Walter Investment Management at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ [$$] Companies to Watch - June 5, 2017   [Jun-05-17 11:33AM  The Wall Street Journal]
▶ Tampas worst-performing company moves executive offices out of state   [08:15AM  American City Business Journals]
▶ Walter Investment posts 1Q profit   [06:24AM  Associated Press]
▶ Mortgage Mayhem: New Residential Falls as Ocwen Plummets   [Apr-20-17 04:58PM  Barrons.com]
▶ Tampa mortgage firm stays in-house for new top lawyer   [Apr-17-17 08:00AM  American City Business Journals]
▶ Longtime directors leave troubled Tampa mortgage firm board   [07:50AM  American City Business Journals]
▶ CEO of Tampa Bay's worst performing company got a $5M pay package   [12:00PM  American City Business Journals]
Stock chart of WAC Financial statements of WAC
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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