Intrinsic value of Western Digital - WDC

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$88.03

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$88.03

 
Intrinsic value

$67.68

 
Up/down potential

-23%

 
Rating

sell

 
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 WDC 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 25.0

 

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, %
  -10.83
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  12,994
  13,254
  13,559
  13,907
  14,298
  14,732
  15,207
  15,725
  16,286
  16,890
  17,538
  18,232
  18,972
  19,759
  20,597
  21,485
  22,427
  23,423
  24,477
  25,591
  26,767
  28,008
  29,316
  30,695
  32,148
  33,679
  35,290
  36,986
  38,771
  40,649
  42,624
Variable operating expenses, $m
 
  3,612
  3,672
  3,741
  3,818
  3,903
  3,997
  4,100
  4,210
  4,330
  4,457
  3,599
  3,745
  3,901
  4,066
  4,242
  4,427
  4,624
  4,832
  5,052
  5,284
  5,529
  5,788
  6,060
  6,347
  6,649
  6,967
  7,302
  7,654
  8,025
  8,415
Fixed operating expenses, $m
 
  9,416
  9,651
  9,892
  10,140
  10,393
  10,653
  10,919
  11,192
  11,472
  11,759
  12,053
  12,354
  12,663
  12,980
  13,304
  13,637
  13,978
  14,327
  14,685
  15,052
  15,429
  15,814
  16,210
  16,615
  17,030
  17,456
  17,892
  18,340
  18,798
  19,268
Total operating expenses, $m
  12,528
  13,028
  13,323
  13,633
  13,958
  14,296
  14,650
  15,019
  15,402
  15,802
  16,216
  15,652
  16,099
  16,564
  17,046
  17,546
  18,064
  18,602
  19,159
  19,737
  20,336
  20,958
  21,602
  22,270
  22,962
  23,679
  24,423
  25,194
  25,994
  26,823
  27,683
Operating income, $m
  466
  227
  236
  274
  341
  435
  557
  707
  884
  1,088
  1,322
  2,580
  2,872
  3,196
  3,551
  3,940
  4,363
  4,822
  5,318
  5,854
  6,430
  7,050
  7,714
  8,426
  9,187
  10,000
  10,867
  11,792
  12,777
  13,826
  14,941
EBITDA, $m
  1,620
  1,791
  1,813
  1,866
  1,950
  2,063
  2,205
  2,377
  2,578
  2,809
  3,070
  3,362
  3,686
  4,044
  4,435
  4,862
  5,325
  5,827
  6,369
  6,952
  7,579
  8,252
  8,973
  9,743
  10,567
  11,445
  12,382
  13,380
  14,442
  15,571
  16,771
Interest expense (income), $m
  113
  478
  491
  506
  523
  542
  564
  587
  613
  641
  671
  703
  737
  774
  813
  854
  898
  945
  994
  1,046
  1,101
  1,160
  1,221
  1,286
  1,354
  1,426
  1,502
  1,582
  1,666
  1,754
  1,847
Earnings before tax, $m
  153
  -252
  -255
  -232
  -182
  -107
  -7
  119
  270
  448
  651
  1,877
  2,135
  2,422
  2,738
  3,085
  3,464
  3,877
  4,324
  4,807
  5,329
  5,890
  6,493
  7,140
  7,833
  8,574
  9,365
  10,211
  11,112
  12,072
  13,094
Tax expense, $m
  -89
  0
  0
  0
  0
  0
  0
  32
  73
  121
  176
  507
  576
  654
  739
  833
  935
  1,047
  1,167
  1,298
  1,439
  1,590
  1,753
  1,928
  2,115
  2,315
  2,529
  2,757
  3,000
  3,259
  3,535
Net income, $m
  242
  -252
  -255
  -232
  -182
  -107
  -7
  87
  197
  327
  475
  1,370
  1,559
  1,768
  1,999
  2,252
  2,529
  2,830
  3,156
  3,509
  3,890
  4,300
  4,740
  5,212
  5,718
  6,259
  6,837
  7,454
  8,112
  8,812
  9,559

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8,378
  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
  32,862
  24,960
  25,534
  26,191
  26,927
  27,744
  28,639
  29,615
  30,671
  31,808
  33,029
  34,335
  35,728
  37,212
  38,789
  40,462
  42,235
  44,112
  46,097
  48,194
  50,409
  52,745
  55,209
  57,807
  60,543
  63,425
  66,460
  69,654
  73,016
  76,552
  80,271
Adjusted assets (=assets-cash), $m
  24,484
  24,960
  25,534
  26,191
  26,927
  27,744
  28,639
  29,615
  30,671
  31,808
  33,029
  34,335
  35,728
  37,212
  38,789
  40,462
  42,235
  44,112
  46,097
  48,194
  50,409
  52,745
  55,209
  57,807
  60,543
  63,425
  66,460
  69,654
  73,016
  76,552
  80,271
Revenue / Adjusted assets
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
Average production assets, $m
  5,917
  6,031
  6,169
  6,328
  6,506
  6,703
  6,919
  7,155
  7,410
  7,685
  7,980
  8,295
  8,632
  8,991
  9,372
  9,776
  10,204
  10,658
  11,137
  11,644
  12,179
  12,743
  13,339
  13,966
  14,628
  15,324
  16,057
  16,829
  17,641
  18,495
  19,394
Working capital, $m
  5,635
  596
  610
  626
  643
  663
  684
  708
  733
  760
  789
  820
  854
  889
  927
  967
  1,009
  1,054
  1,101
  1,152
  1,205
  1,260
  1,319
  1,381
  1,447
  1,516
  1,588
  1,664
  1,745
  1,829
  1,918
Total debt, $m
  16,994
  14,022
  14,453
  14,946
  15,499
  16,112
  16,785
  17,518
  18,311
  19,165
  20,082
  21,062
  22,109
  23,223
  24,407
  25,664
  26,995
  28,405
  29,896
  31,471
  33,134
  34,889
  36,739
  38,690
  40,745
  42,910
  45,189
  47,587
  50,112
  52,767
  55,561
Total liabilities, $m
  21,717
  18,745
  19,176
  19,669
  20,222
  20,835
  21,508
  22,241
  23,034
  23,888
  24,805
  25,785
  26,832
  27,946
  29,130
  30,387
  31,718
  33,128
  34,619
  36,194
  37,857
  39,612
  41,462
  43,413
  45,468
  47,633
  49,912
  52,310
  54,835
  57,490
  60,284
Total equity, $m
  11,145
  6,215
  6,358
  6,521
  6,705
  6,908
  7,131
  7,374
  7,637
  7,920
  8,224
  8,549
  8,896
  9,266
  9,658
  10,075
  10,517
  10,984
  11,478
  12,000
  12,552
  13,134
  13,747
  14,394
  15,075
  15,793
  16,549
  17,344
  18,181
  19,061
  19,988
Total liabilities and equity, $m
  32,862
  24,960
  25,534
  26,190
  26,927
  27,743
  28,639
  29,615
  30,671
  31,808
  33,029
  34,334
  35,728
  37,212
  38,788
  40,462
  42,235
  44,112
  46,097
  48,194
  50,409
  52,746
  55,209
  57,807
  60,543
  63,426
  66,461
  69,654
  73,016
  76,551
  80,272
Debt-to-equity ratio
  1.525
  2.260
  2.270
  2.290
  2.310
  2.330
  2.350
  2.380
  2.400
  2.420
  2.440
  2.460
  2.490
  2.510
  2.530
  2.550
  2.570
  2.590
  2.600
  2.620
  2.640
  2.660
  2.670
  2.690
  2.700
  2.720
  2.730
  2.740
  2.760
  2.770
  2.780
Adjusted equity ratio
  0.235
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  242
  -252
  -255
  -232
  -182
  -107
  -7
  87
  197
  327
  475
  1,370
  1,559
  1,768
  1,999
  2,252
  2,529
  2,830
  3,156
  3,509
  3,890
  4,300
  4,740
  5,212
  5,718
  6,259
  6,837
  7,454
  8,112
  8,812
  9,559
Depreciation, amort., depletion, $m
  1,154
  1,564
  1,577
  1,592
  1,609
  1,627
  1,648
  1,670
  1,694
  1,720
  1,748
  783
  814
  848
  884
  922
  963
  1,005
  1,051
  1,098
  1,149
  1,202
  1,258
  1,318
  1,380
  1,446
  1,515
  1,588
  1,664
  1,745
  1,830
Funds from operations, $m
  2,360
  1,312
  1,322
  1,360
  1,427
  1,520
  1,641
  1,757
  1,892
  2,047
  2,223
  2,153
  2,373
  2,616
  2,883
  3,175
  3,492
  3,836
  4,207
  4,608
  5,039
  5,502
  5,998
  6,530
  7,098
  7,704
  8,352
  9,041
  9,776
  10,557
  11,388
Change in working capital, $m
  377
  12
  14
  16
  18
  20
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  69
  73
  76
  80
  84
  89
Cash from operations, $m
  1,983
  3,921
  1,308
  1,345
  1,409
  1,501
  1,620
  1,734
  1,866
  2,020
  2,194
  2,121
  2,340
  2,581
  2,845
  3,135
  3,449
  3,791
  4,160
  4,558
  4,986
  5,446
  5,939
  6,468
  7,032
  7,636
  8,279
  8,965
  9,695
  10,473
  11,299
Maintenance CAPEX, $m
  0
  -558
  -569
  -582
  -597
  -614
  -632
  -653
  -675
  -699
  -725
  -753
  -783
  -814
  -848
  -884
  -922
  -963
  -1,005
  -1,051
  -1,098
  -1,149
  -1,202
  -1,258
  -1,318
  -1,380
  -1,446
  -1,515
  -1,588
  -1,664
  -1,745
New CAPEX, $m
  -584
  -114
  -139
  -159
  -178
  -197
  -216
  -236
  -255
  -275
  -295
  -316
  -337
  -358
  -381
  -404
  -428
  -453
  -480
  -507
  -535
  -565
  -595
  -628
  -661
  -696
  -733
  -772
  -812
  -854
  -899
Cash from investing activities, $m
  -9,608
  -672
  -708
  -741
  -775
  -811
  -848
  -889
  -930
  -974
  -1,020
  -1,069
  -1,120
  -1,172
  -1,229
  -1,288
  -1,350
  -1,416
  -1,485
  -1,558
  -1,633
  -1,714
  -1,797
  -1,886
  -1,979
  -2,076
  -2,179
  -2,287
  -2,400
  -2,518
  -2,644
Free cash flow, $m
  -7,625
  3,249
  601
  604
  634
  690
  771
  845
  936
  1,046
  1,174
  1,053
  1,220
  1,408
  1,616
  1,846
  2,099
  2,375
  2,675
  3,000
  3,353
  3,733
  4,142
  4,582
  5,054
  5,559
  6,100
  6,678
  7,296
  7,954
  8,656
Issuance/(repayment) of debt, $m
  11,929
  362
  431
  493
  553
  613
  673
  732
  793
  854
  917
  981
  1,047
  1,114
  1,184
  1,257
  1,332
  1,410
  1,491
  1,575
  1,663
  1,755
  1,851
  1,951
  2,055
  2,165
  2,279
  2,399
  2,524
  2,656
  2,793
Issuance/(repurchase) of shares, $m
  466
  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  
  11,215
  362
  431
  493
  553
  613
  673
  732
  793
  854
  917
  981
  1,047
  1,114
  1,184
  1,257
  1,332
  1,410
  1,491
  1,575
  1,663
  1,755
  1,851
  1,951
  2,055
  2,165
  2,279
  2,399
  2,524
  2,656
  2,793
Total cash flow (excl. dividends), $m
  3,591
  3,611
  1,032
  1,097
  1,187
  1,303
  1,444
  1,578
  1,729
  1,900
  2,091
  2,034
  2,267
  2,522
  2,800
  3,103
  3,430
  3,784
  4,165
  4,575
  5,016
  5,487
  5,992
  6,532
  7,109
  7,724
  8,379
  9,077
  9,820
  10,610
  11,449
Retained Cash Flow (-), $m
  -1,926
  -114
  -143
  -163
  -183
  -203
  -223
  -243
  -263
  -283
  -304
  -325
  -347
  -369
  -393
  -417
  -442
  -467
  -494
  -522
  -551
  -582
  -614
  -647
  -681
  -718
  -756
  -795
  -837
  -880
  -926
Prev. year cash balance distribution, $m
 
  5,044
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  8,541
  889
  934
  1,004
  1,100
  1,221
  1,335
  1,466
  1,617
  1,787
  1,709
  1,920
  2,153
  2,408
  2,686
  2,989
  3,317
  3,671
  4,053
  4,464
  4,906
  5,379
  5,886
  6,427
  7,006
  7,624
  8,282
  8,983
  9,729
  10,523
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
 
  8,012
  778
  756
  748
  748
  751
  738
  721
  700
  674
  556
  532
  502
  466
  426
  382
  337
  291
  246
  204
  166
  131
  102
  77
  56
  40
  28
  19
  12
  8
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

Western Digital Corporation, together with its subsidiaries, develops, manufactures, and sells data storage devices and solutions worldwide. It offers performance hard disk drives (HDDs) that are used in enterprise servers, data analysis, and other enterprise applications; capacity HDDs and drive configurations for use in data storage systems and tiered storage models, as well as for use in storage of data for years; and enterprise solid state drives (SSDs), including NAND-flash SSDs and software solutions that are designed to enhance the performance in various enterprise workload environments. The company also provides InfiniFlash System, a system solution that offers petabyte scalable capacity with performance metrics; higher value data storage platforms and systems; datacenter software and systems; and HDDs and SSDs for desktop PCs, notebook PCs, gaming consoles, set top boxes, security surveillance systems, and other computing devices. In addition, it offers embedded NAND-flash storage products, including custom embedded solutions; and iNAND embedded flash products, such as multi-chip package solutions that combine NAND and mobile dynamic random-access memory in an integrated package for mobile phones, tablets, notebook PCs, and other portable and wearable devices, as well as in automotive and connected home applications, and NAND-flash wafers. Further, it provides HDDs embedded into WD- and HGST-branded external storage products; and NAND-flash products, which include cards, universal serial bus flash drives, and wireless drives. Additionally, the company licenses its technologies. The company sells its products under the HGST, SanDisk, and WD brands to original equipment manufacturers (OEMs), distributors, resellers, cloud infrastructure players, and retailers. It serves storage subsystem suppliers, OEMs, Internet and social media infrastructure players, and PC and Mac OEMs. The company was founded in 1970 and is headquartered in Irvine, California.

FINANCIAL RATIOS  of  Western Digital (WDC)

Valuation Ratios
P/E Ratio 103.3
Price to Sales 1.9
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 12.6
Price to Free Cash Flow 17.9
Growth Rates
Sales Growth Rate -10.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -4.6%
Cap. Spend. - 3 Yr. Gr. Rate -9.3%
Financial Strength
Quick Ratio 3
Current Ratio 0.1
LT Debt to Equity 122.6%
Total Debt to Equity 152.5%
Interest Coverage 2
Management Effectiveness
Return On Assets 1.8%
Ret/ On Assets - 3 Yr. Avg. 7.6%
Return On Total Capital 1.2%
Ret/ On T. Cap. - 3 Yr. Avg. 9.7%
Return On Equity 2.4%
Return On Equity - 3 Yr. Avg. 12.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 26.4%
Gross Margin - 3 Yr. Avg. 28.1%
EBITDA Margin 10.9%
EBITDA Margin - 3 Yr. Avg. 16.6%
Operating Margin 3.6%
Oper. Margin - 3 Yr. Avg. 8.8%
Pre-Tax Margin 1.2%
Pre-Tax Margin - 3 Yr. Avg. 7.9%
Net Profit Margin 1.9%
Net Profit Margin - 3 Yr. Avg. 7.5%
Effective Tax Rate -58.2%
Eff/ Tax Rate - 3 Yr. Avg. -14.5%
Payout Ratio 191.7%

WDC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WDC stock intrinsic value calculation we used $12994 million for the last fiscal year's total revenue generated by Western Digital. The default revenue input number comes from 2016 income statement of Western Digital. 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 WDC stock valuation model: a) initial revenue growth rate of 2% 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 WDC is calculated based on our internal credit rating of Western Digital, 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 Western Digital.
    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 WDC stock the variable cost ratio is equal to 27.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $9186 million in the base year in the intrinsic value calculation for WDC 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 Western Digital.

Corporate tax rate of 27% is the nominal tax rate for Western Digital. 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 WDC 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 WDC are equal to 45.5%.

Life of production assets of 10.6 years is the average useful life of capital assets used in Western Digital 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 WDC is equal to 4.5%. 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 - $11145 million for Western Digital - 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 283.897 million for Western Digital 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 Western Digital at the current share price and the inputted number of shares is $25.0 billion.


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Stock chart of WDC Financial statements of WDC Annual reports of WDC
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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