Intrinsic value of Westlake Chemical - WLK

Previous Close

$83.10

  Intrinsic Value

$443.75

stock screener

  Rating & Target

str. buy

+434%

  Value-price divergence*

+271%

Previous close

$83.10

 
Intrinsic value

$443.75

 
Up/down potential

+434%

 
Rating

str. buy

 
Value-price divergence*

+271%

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

We calculate the intrinsic value of WLK 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 10.8

 

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, %
  13.71
  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
  5,075
  8,120
  12,545
  18,762
  27,222
  38,407
  52,800
  70,873
  93,061
  119,747
  151,250
  187,819
  229,626
  276,777
  329,310
  387,210
  450,418
  518,844
  592,377
  670,897
  754,288
  842,439
  935,260
  1,032,678
  1,134,651
  1,241,163
  1,352,228
  1,467,892
  1,588,233
  1,713,360
  1,843,414
Variable operating expenses, $m
 
  6,285
  9,659
  14,397
  20,847
  29,374
  40,346
  54,124
  71,039
  91,383
  115,399
  143,182
  175,053
  210,998
  251,046
  295,185
  343,372
  395,535
  451,592
  511,452
  575,024
  642,225
  712,986
  787,252
  864,990
  946,188
  1,030,857
  1,119,032
  1,210,773
  1,306,163
  1,405,308
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
  4,506
  6,285
  9,659
  14,397
  20,847
  29,374
  40,346
  54,124
  71,039
  91,383
  115,399
  143,182
  175,053
  210,998
  251,046
  295,185
  343,372
  395,535
  451,592
  511,452
  575,024
  642,225
  712,986
  787,252
  864,990
  946,188
  1,030,857
  1,119,032
  1,210,773
  1,306,163
  1,405,308
Operating income, $m
  569
  1,835
  2,887
  4,364
  6,375
  9,033
  12,454
  16,749
  22,022
  28,364
  35,851
  44,637
  54,573
  65,779
  78,264
  92,024
  107,046
  123,308
  140,784
  159,446
  179,264
  200,214
  222,274
  245,426
  269,661
  294,975
  321,371
  348,859
  377,460
  407,197
  438,106
EBITDA, $m
  947
  2,483
  3,835
  5,736
  8,323
  11,742
  16,142
  21,668
  28,451
  36,610
  46,241
  57,421
  70,203
  84,618
  100,679
  118,380
  137,705
  158,624
  181,105
  205,111
  230,606
  257,556
  285,934
  315,717
  346,893
  379,457
  413,412
  448,774
  485,565
  523,820
  563,581
Interest expense (income), $m
  46
  129
  280
  500
  809
  1,230
  1,786
  2,502
  3,401
  4,504
  5,832
  7,398
  9,217
  11,296
  13,641
  16,254
  19,133
  22,277
  25,680
  29,337
  33,242
  37,389
  41,773
  46,390
  51,234
  56,306
  61,603
  67,127
  72,879
  78,864
  85,087
Earnings before tax, $m
  558
  1,706
  2,607
  3,864
  5,566
  7,803
  10,667
  14,247
  18,621
  23,860
  30,020
  37,239
  45,356
  54,483
  64,623
  75,770
  87,913
  101,032
  115,104
  130,109
  146,022
  162,825
  180,501
  199,037
  218,427
  238,669
  259,767
  281,733
  304,581
  328,333
  353,019
Tax expense, $m
  138
  461
  704
  1,043
  1,503
  2,107
  2,880
  3,847
  5,028
  6,442
  8,105
  10,054
  12,246
  14,710
  17,448
  20,458
  23,737
  27,279
  31,078
  35,129
  39,426
  43,963
  48,735
  53,740
  58,975
  64,441
  70,137
  76,068
  82,237
  88,650
  95,315
Net income, $m
  399
  1,246
  1,903
  2,821
  4,063
  5,696
  7,787
  10,400
  13,594
  17,418
  21,914
  27,184
  33,110
  39,772
  47,174
  55,312
  64,176
  73,753
  84,026
  94,979
  106,596
  118,862
  131,765
  145,297
  159,452
  174,228
  189,630
  205,665
  222,344
  239,683
  257,704

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  459
  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
  10,890
  16,674
  25,761
  38,525
  55,898
  78,864
  108,419
  145,530
  191,091
  245,887
  310,576
  385,664
  471,512
  568,330
  676,201
  795,092
  924,883
  1,065,388
  1,216,379
  1,377,613
  1,548,845
  1,729,855
  1,920,451
  2,120,490
  2,329,880
  2,548,589
  2,776,648
  3,014,151
  3,261,259
  3,518,194
  3,785,245
Adjusted assets (=assets-cash), $m
  10,431
  16,674
  25,761
  38,525
  55,898
  78,864
  108,419
  145,530
  191,091
  245,887
  310,576
  385,664
  471,512
  568,330
  676,201
  795,092
  924,883
  1,065,388
  1,216,379
  1,377,613
  1,548,845
  1,729,855
  1,920,451
  2,120,490
  2,329,880
  2,548,589
  2,776,648
  3,014,151
  3,261,259
  3,518,194
  3,785,245
Revenue / Adjusted assets
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
Average production assets, $m
  5,181
  8,291
  12,809
  19,156
  27,794
  39,213
  53,909
  72,362
  95,015
  122,262
  154,427
  191,763
  234,448
  282,589
  336,225
  395,341
  459,877
  529,739
  604,816
  684,986
  770,128
  860,130
  954,900
  1,054,365
  1,158,479
  1,267,227
  1,380,624
  1,498,717
  1,621,586
  1,749,341
  1,882,126
Working capital, $m
  1,225
  1,470
  2,271
  3,396
  4,927
  6,952
  9,557
  12,828
  16,844
  21,674
  27,376
  33,995
  41,562
  50,097
  59,605
  70,085
  81,526
  93,911
  107,220
  121,432
  136,526
  152,481
  169,282
  186,915
  205,372
  224,650
  244,753
  265,688
  287,470
  310,118
  333,658
Total debt, $m
  3,830
  8,002
  14,290
  23,123
  35,145
  51,038
  71,490
  97,171
  128,699
  166,618
  211,382
  263,344
  322,750
  389,749
  464,395
  546,668
  636,483
  733,712
  838,198
  949,772
  1,068,265
  1,193,523
  1,325,416
  1,463,843
  1,608,741
  1,760,088
  1,917,904
  2,082,257
  2,253,255
  2,431,054
  2,615,853
Total liabilities, $m
  7,367
  11,538
  17,826
  26,659
  38,681
  54,574
  75,026
  100,707
  132,235
  170,154
  214,918
  266,880
  326,286
  393,285
  467,931
  550,204
  640,019
  737,248
  841,734
  953,308
  1,071,801
  1,197,059
  1,328,952
  1,467,379
  1,612,277
  1,763,624
  1,921,440
  2,085,793
  2,256,791
  2,434,590
  2,619,389
Total equity, $m
  3,524
  5,135
  7,934
  11,866
  17,217
  24,290
  33,393
  44,823
  58,856
  75,733
  95,657
  118,785
  145,226
  175,046
  208,270
  244,888
  284,864
  328,139
  374,645
  424,305
  477,044
  532,795
  591,499
  653,111
  717,603
  784,965
  855,208
  928,359
  1,004,468
  1,083,604
  1,165,855
Total liabilities and equity, $m
  10,891
  16,673
  25,760
  38,525
  55,898
  78,864
  108,419
  145,530
  191,091
  245,887
  310,575
  385,665
  471,512
  568,331
  676,201
  795,092
  924,883
  1,065,387
  1,216,379
  1,377,613
  1,548,845
  1,729,854
  1,920,451
  2,120,490
  2,329,880
  2,548,589
  2,776,648
  3,014,152
  3,261,259
  3,518,194
  3,785,244
Debt-to-equity ratio
  1.087
  1.560
  1.800
  1.950
  2.040
  2.100
  2.140
  2.170
  2.190
  2.200
  2.210
  2.220
  2.220
  2.230
  2.230
  2.230
  2.230
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
Adjusted equity ratio
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  399
  1,246
  1,903
  2,821
  4,063
  5,696
  7,787
  10,400
  13,594
  17,418
  21,914
  27,184
  33,110
  39,772
  47,174
  55,312
  64,176
  73,753
  84,026
  94,979
  106,596
  118,862
  131,765
  145,297
  159,452
  174,228
  189,630
  205,665
  222,344
  239,683
  257,704
Depreciation, amort., depletion, $m
  378
  647
  949
  1,372
  1,948
  2,709
  3,689
  4,919
  6,429
  8,245
  10,390
  12,784
  15,630
  18,839
  22,415
  26,356
  30,658
  35,316
  40,321
  45,666
  51,342
  57,342
  63,660
  70,291
  77,232
  84,482
  92,042
  99,914
  108,106
  116,623
  125,475
Funds from operations, $m
  795
  1,893
  2,852
  4,192
  6,011
  8,405
  11,476
  15,319
  20,023
  25,663
  32,304
  39,968
  48,740
  58,612
  69,590
  81,669
  94,835
  109,069
  124,347
  140,645
  157,938
  176,204
  195,425
  215,588
  236,684
  258,710
  281,672
  305,579
  330,450
  356,306
  383,179
Change in working capital, $m
  -39
  551
  801
  1,125
  1,531
  2,024
  2,605
  3,271
  4,016
  4,830
  5,702
  6,619
  7,567
  8,534
  9,508
  10,480
  11,441
  12,385
  13,309
  14,212
  15,094
  15,955
  16,800
  17,633
  18,457
  19,279
  20,103
  20,935
  21,782
  22,648
  23,540
Cash from operations, $m
  834
  1,342
  2,051
  3,067
  4,479
  6,381
  8,871
  12,048
  16,007
  20,833
  26,602
  33,350
  41,173
  50,077
  60,081
  71,189
  83,394
  96,684
  111,038
  126,433
  142,844
  160,249
  178,625
  197,955
  218,226
  239,432
  261,569
  284,644
  308,668
  333,658
  359,639
Maintenance CAPEX, $m
  0
  -345
  -553
  -854
  -1,277
  -1,853
  -2,614
  -3,594
  -4,824
  -6,334
  -8,151
  -10,295
  -12,784
  -15,630
  -18,839
  -22,415
  -26,356
  -30,658
  -35,316
  -40,321
  -45,666
  -51,342
  -57,342
  -63,660
  -70,291
  -77,232
  -84,482
  -92,042
  -99,914
  -108,106
  -116,623
New CAPEX, $m
  -628
  -3,110
  -4,518
  -6,347
  -8,638
  -11,419
  -14,696
  -18,453
  -22,654
  -27,246
  -32,165
  -37,336
  -42,686
  -48,141
  -53,636
  -59,116
  -64,536
  -69,863
  -75,077
  -80,170
  -85,142
  -90,003
  -94,770
  -99,465
  -104,114
  -108,748
  -113,397
  -118,093
  -122,868
  -127,755
  -132,785
Cash from investing activities, $m
  -2,563
  -3,455
  -5,071
  -7,201
  -9,915
  -13,272
  -17,310
  -22,047
  -27,478
  -33,580
  -40,316
  -47,631
  -55,470
  -63,771
  -72,475
  -81,531
  -90,892
  -100,521
  -110,393
  -120,491
  -130,808
  -141,345
  -152,112
  -163,125
  -174,405
  -185,980
  -197,879
  -210,135
  -222,782
  -235,861
  -249,408
Free cash flow, $m
  -1,729
  -2,113
  -3,020
  -4,133
  -5,436
  -6,892
  -8,439
  -9,999
  -11,471
  -12,748
  -13,713
  -14,282
  -14,297
  -13,693
  -12,394
  -10,342
  -7,497
  -3,837
  645
  5,942
  12,037
  18,904
  26,513
  34,830
  43,821
  53,451
  63,690
  74,509
  85,885
  97,797
  110,232
Issuance/(repayment) of debt, $m
  1,899
  4,323
  6,288
  8,833
  12,022
  15,892
  20,453
  25,681
  31,528
  37,919
  44,764
  51,961
  59,406
  66,998
  74,646
  82,273
  89,815
  97,229
  104,486
  111,574
  118,493
  125,258
  131,893
  138,427
  144,898
  151,347
  157,817
  164,352
  170,998
  177,799
  184,799
Issuance/(repurchase) of shares, $m
  -65
  674
  896
  1,111
  1,288
  1,377
  1,316
  1,030
  439
  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  
  1,630
  4,997
  7,184
  9,944
  13,310
  17,269
  21,769
  26,711
  31,967
  37,919
  44,764
  51,961
  59,406
  66,998
  74,646
  82,273
  89,815
  97,229
  104,486
  111,574
  118,493
  125,258
  131,893
  138,427
  144,898
  151,347
  157,817
  164,352
  170,998
  177,799
  184,799
Total cash flow (excl. dividends), $m
  -106
  2,884
  4,164
  5,810
  7,874
  10,378
  13,329
  16,712
  20,495
  25,172
  31,051
  37,680
  45,109
  53,305
  62,252
  71,930
  82,318
  93,392
  105,131
  117,516
  130,530
  144,163
  158,406
  173,257
  188,719
  204,798
  221,507
  238,862
  256,883
  275,596
  295,031
Retained Cash Flow (-), $m
  -258
  -1,919
  -2,799
  -3,931
  -5,351
  -7,073
  -9,103
  -11,430
  -14,033
  -16,877
  -19,924
  -23,127
  -26,441
  -29,820
  -33,224
  -36,618
  -39,976
  -43,275
  -46,505
  -49,660
  -52,740
  -55,751
  -58,704
  -61,612
  -64,492
  -67,362
  -70,242
  -73,151
  -76,109
  -79,136
  -82,252
Prev. year cash balance distribution, $m
 
  308
  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
 
  1,272
  1,365
  1,879
  2,523
  3,305
  4,226
  5,282
  6,463
  8,294
  11,127
  14,552
  18,668
  23,485
  29,028
  35,312
  42,342
  50,117
  58,626
  67,856
  77,790
  88,412
  99,702
  111,645
  124,227
  137,436
  151,265
  165,711
  180,774
  196,460
  212,779
Discount rate, %
 
  7.20
  7.56
  7.94
  8.33
  8.75
  9.19
  9.65
  10.13
  10.64
  11.17
  11.73
  12.31
  12.93
  13.58
  14.26
  14.97
  15.72
  16.50
  17.33
  18.19
  19.10
  20.06
  21.06
  22.11
  23.22
  24.38
  25.60
  26.88
  28.22
  29.64
PV of cash for distribution, $m
 
  1,187
  1,180
  1,494
  1,832
  2,172
  2,494
  2,772
  2,986
  3,339
  3,859
  4,297
  4,633
  4,833
  4,884
  4,784
  4,545
  4,190
  3,750
  3,258
  2,748
  2,249
  1,787
  1,376
  1,027
  743
  520
  352
  230
  145
  88
Current shareholders' claim on cash, %
  100
  93.6
  88.6
  84.7
  81.8
  79.7
  78.3
  77.6
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3

Westlake Chemical Corporation is a global manufacturer and marketer of basic chemicals, vinyls, polymers and building products. The Company's products include a range of chemicals, which are fundamental to various consumer and industrial markets, including flexible and rigid packaging, automotive products, coatings, water treatment, refrigerants, residential and commercial construction, as well as other durable and non-durable goods. Its segments include Olefins and Vinyls. It manufactures ethylene (through Westlake Chemical OpCo LP (OpCo)), polyethylene, styrene and associated co-products at its manufacturing facility in Lake Charles and polyethylene at its Longview facility. The Company's products in its Vinyls segment include polyvinyl chloride (PVC), vinyl chloride monomer (VCM), ethylene dichloride (EDC), chlor-alkali (chlorine and caustic soda) and chlorinated derivative products and, through OpCo, ethylene. It also manufactures and sells building products fabricated from PVC.

FINANCIAL RATIOS  of  Westlake Chemical (WLK)

Valuation Ratios
P/E Ratio 26.9
Price to Sales 2.1
Price to Book 3
Price to Tangible Book
Price to Cash Flow 12.8
Price to Free Cash Flow 52
Growth Rates
Sales Growth Rate 13.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 27.9%
Cap. Spend. - 3 Yr. Gr. Rate -1.5%
Financial Strength
Quick Ratio 3
Current Ratio 0.1
LT Debt to Equity 104.4%
Total Debt to Equity 108.7%
Interest Coverage 13
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 10.9%
Return On Total Capital 7%
Ret/ On T. Cap. - 3 Yr. Avg. 14.5%
Return On Equity 11.8%
Return On Equity - 3 Yr. Avg. 19.4%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 19.3%
Gross Margin - 3 Yr. Avg. 25.2%
EBITDA Margin 19.3%
EBITDA Margin - 3 Yr. Avg. 25.7%
Operating Margin 11.2%
Oper. Margin - 3 Yr. Avg. 19.5%
Pre-Tax Margin 11%
Pre-Tax Margin - 3 Yr. Avg. 19%
Net Profit Margin 7.9%
Net Profit Margin - 3 Yr. Avg. 12.6%
Effective Tax Rate 24.7%
Eff/ Tax Rate - 3 Yr. Avg. 30.8%
Payout Ratio 24.3%

WLK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WLK stock intrinsic value calculation we used $5075 million for the last fiscal year's total revenue generated by Westlake Chemical. The default revenue input number comes from 2016 income statement of Westlake Chemical. 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 WLK 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 7.2%, whose default value for WLK is calculated based on our internal credit rating of Westlake Chemical, 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 Westlake Chemical.
    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 WLK stock the variable cost ratio is equal to 78.1%.

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 WLK 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 Westlake Chemical.

Corporate tax rate of 27% is the nominal tax rate for Westlake Chemical. 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 WLK 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 WLK are equal to 102.1%.

Life of production assets of 15 years is the average useful life of capital assets used in Westlake Chemical 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 WLK is equal to 18.1%. 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 - $3524 million for Westlake Chemical - 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 130.067 million for Westlake Chemical 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 Westlake Chemical at the current share price and the inputted number of shares is $10.8 billion.

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COMPANY NEWS

▶ At $22.7, Is Westlake Chemical Partners LP (WLKP) A Buy?   [Oct-02-17 11:57AM  Simply Wall St.]
▶ Whats Driving Eastman Chemicals Stock Price?   [09:07AM  Market Realist]
▶ These 3 Stocks Just Raised Their Dividends   [Sep-02-17 06:33AM  Motley Fool]
▶ Analysts Consensus on Westlake Chemical   [Aug-31-17 10:37AM  Market Realist]
▶ Westlake Chemical Has a Low Dividend Yield   [09:07AM  Market Realist]
▶ Company News For August 22, 2017   [Aug-22-17 10:11AM  Zacks]
▶ Westlake Chemical Partners posts 2Q profit   [08:29AM  Associated Press]
▶ Westlake tops 2Q profit forecasts   [07:49AM  Associated Press]
▶ LyondellBasell Stock Rose, Earnings Beat Estimates   [Jul-31-17 12:05PM  Market Realist]
▶ Taking Stock of Celaneses Current Debt Position   [Jun-30-17 10:05AM  Market Realist]
▶ LyondellBasells Debt Is on the Rise   [Jun-28-17 11:05AM  Market Realist]
▶ Top Ranked Value Stocks to Buy for June 8th   [Jun-08-17 10:56AM  Zacks]
▶ Top Ranked Value Stocks to Buy for June 6th   [Jun-06-17 10:54AM  Zacks]
▶ Westlake Chemical Corporation Declares Quarterly Dividend   [May-19-17 05:39PM  Business Wire]
▶ Westlake Chemical Partners posts 1Q profit   [06:43AM  Associated Press]
▶ Westlake beats 1Q profit forecasts   [06:39AM  Associated Press]
▶ Chemicals Industry Stock Outlook - March 2017   [Mar-29-17 03:46PM  Investopedia]
▶ Chemicals Industry Stock Outlook - March 2017   [03:46PM  at Investopedia]
▶ Westlake Chemical Commences Registered Exchange Offer   [Mar-27-17 04:01PM  Business Wire]
Financial statements of WLK
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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