Intrinsic value of Willis Towers Watson - WLTW

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$132.62

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$132.62

 
Intrinsic value

$4,291

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence* premium content

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

We calculate the intrinsic value of WLTW stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 17.9

 

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, %
  105.98
  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
  7,887
  12,619
  19,497
  29,157
  42,306
  59,687
  82,056
  110,143
  144,625
  186,098
  235,056
  291,887
  356,860
  430,136
  511,777
  601,758
  699,989
  806,329
  920,606
  1,042,634
  1,172,230
  1,309,225
  1,453,476
  1,604,874
  1,763,349
  1,928,877
  2,101,482
  2,281,234
  2,468,255
  2,662,714
  2,864,829
Variable operating expenses, $m
 
  10,581
  15,780
  23,083
  33,023
  46,163
  63,074
  84,307
  110,374
  141,726
  178,738
  220,658
  269,776
  325,171
  386,889
  454,913
  529,173
  609,563
  695,953
  788,203
  886,174
  989,738
  1,098,788
  1,213,241
  1,333,043
  1,458,178
  1,588,663
  1,724,550
  1,865,933
  2,012,939
  2,165,732
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
  7,336
  10,581
  15,780
  23,083
  33,023
  46,163
  63,074
  84,307
  110,374
  141,726
  178,738
  220,658
  269,776
  325,171
  386,889
  454,913
  529,173
  609,563
  695,953
  788,203
  886,174
  989,738
  1,098,788
  1,213,241
  1,333,043
  1,458,178
  1,588,663
  1,724,550
  1,865,933
  2,012,939
  2,165,732
Operating income, $m
  551
  2,038
  3,716
  6,074
  9,282
  13,524
  18,983
  25,837
  34,251
  44,372
  56,319
  71,228
  87,083
  104,965
  124,888
  146,846
  170,817
  196,766
  224,653
  254,431
  286,056
  319,487
  354,688
  391,633
  430,305
  470,699
  512,819
  556,684
  602,322
  649,775
  699,097
EBITDA, $m
  1,320
  3,481
  5,378
  8,043
  11,670
  16,465
  22,635
  30,383
  39,895
  51,335
  64,841
  80,518
  98,440
  118,654
  141,175
  165,996
  193,094
  222,428
  253,951
  287,613
  323,362
  361,153
  400,945
  442,708
  486,424
  532,085
  579,698
  629,283
  680,874
  734,516
  790,269
Interest expense (income), $m
  143
  134
  609
  1,297
  2,263
  3,578
  5,316
  7,553
  10,361
  13,810
  17,957
  22,853
  28,536
  35,033
  42,361
  50,525
  59,523
  69,346
  79,980
  91,408
  103,610
  116,570
  130,270
  144,695
  159,834
  175,682
  192,235
  209,495
  227,470
  246,173
  265,618
Earnings before tax, $m
  340
  1,904
  3,107
  4,777
  7,020
  9,946
  13,667
  18,284
  23,890
  30,562
  38,362
  48,376
  58,548
  69,932
  82,527
  96,321
  111,294
  127,420
  144,673
  163,024
  182,446
  202,917
  224,418
  246,938
  270,471
  295,017
  320,584
  347,188
  374,851
  403,603
  433,478
Tax expense, $m
  -96
  514
  839
  1,290
  1,895
  2,686
  3,690
  4,937
  6,450
  8,252
  10,358
  13,061
  15,808
  18,882
  22,282
  26,007
  30,049
  34,403
  39,062
  44,016
  49,260
  54,788
  60,593
  66,673
  73,027
  79,655
  86,558
  93,741
  101,210
  108,973
  117,039
Net income, $m
  420
  1,390
  2,268
  3,487
  5,124
  7,261
  9,977
  13,347
  17,440
  22,310
  28,004
  35,314
  42,740
  51,050
  60,245
  70,314
  81,244
  93,017
  105,611
  119,007
  133,185
  148,129
  163,825
  180,265
  197,444
  215,362
  234,027
  253,447
  273,641
  294,630
  316,439

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  870
  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
  30,253
  47,087
  72,749
  108,796
  157,857
  222,714
  306,180
  410,983
  539,647
  694,394
  877,076
  1,089,130
  1,331,565
  1,604,984
  1,909,614
  2,245,367
  2,611,901
  3,008,691
  3,435,096
  3,890,425
  4,373,993
  4,885,169
  5,423,419
  5,988,335
  6,579,660
  7,197,303
  7,841,349
  8,512,067
  9,209,906
  9,935,500
  10,689,661
Adjusted assets (=assets-cash), $m
  29,383
  47,087
  72,749
  108,796
  157,857
  222,714
  306,180
  410,983
  539,647
  694,394
  877,076
  1,089,130
  1,331,565
  1,604,984
  1,909,614
  2,245,367
  2,611,901
  3,008,691
  3,435,096
  3,890,425
  4,373,993
  4,885,169
  5,423,419
  5,988,335
  6,579,660
  7,197,303
  7,841,349
  8,512,067
  9,209,906
  9,935,500
  10,689,661
Revenue / Adjusted assets
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
  0.268
Average production assets, $m
  3,443
  5,502
  8,501
  12,713
  18,445
  26,024
  35,777
  48,023
  63,057
  81,139
  102,485
  127,263
  155,591
  187,539
  223,135
  262,367
  305,195
  351,560
  401,384
  454,588
  511,092
  570,822
  633,716
  699,725
  768,820
  840,990
  916,246
  994,618
  1,076,159
  1,160,943
  1,249,066
Working capital, $m
  422
  101
  156
  233
  338
  477
  656
  881
  1,157
  1,489
  1,880
  2,335
  2,855
  3,441
  4,094
  4,814
  5,600
  6,451
  7,365
  8,341
  9,378
  10,474
  11,628
  12,839
  14,107
  15,431
  16,812
  18,250
  19,746
  21,302
  22,919
Total debt, $m
  3,865
  15,225
  32,419
  56,570
  89,441
  132,895
  188,818
  259,036
  345,240
  448,921
  571,318
  713,394
  875,826
  1,059,016
  1,263,118
  1,488,073
  1,733,651
  1,999,500
  2,285,191
  2,590,262
  2,914,252
  3,256,740
  3,617,368
  3,995,861
  4,392,049
  4,805,870
  5,237,381
  5,686,762
  6,154,314
  6,640,462
  7,145,750
Total liabilities, $m
  20,188
  31,548
  48,742
  72,893
  105,764
  149,218
  205,141
  275,359
  361,563
  465,244
  587,641
  729,717
  892,149
  1,075,339
  1,279,441
  1,504,396
  1,749,974
  2,015,823
  2,301,514
  2,606,585
  2,930,575
  3,273,063
  3,633,691
  4,012,184
  4,408,372
  4,822,193
  5,253,704
  5,703,085
  6,170,637
  6,656,785
  7,162,073
Total equity, $m
  10,065
  15,539
  24,007
  35,903
  52,093
  73,495
  101,039
  135,624
  178,083
  229,150
  289,435
  359,413
  439,417
  529,645
  630,173
  740,971
  861,927
  992,868
  1,133,582
  1,283,840
  1,443,418
  1,612,106
  1,789,728
  1,976,151
  2,171,288
  2,375,110
  2,587,645
  2,808,982
  3,039,269
  3,278,715
  3,527,588
Total liabilities and equity, $m
  30,253
  47,087
  72,749
  108,796
  157,857
  222,713
  306,180
  410,983
  539,646
  694,394
  877,076
  1,089,130
  1,331,566
  1,604,984
  1,909,614
  2,245,367
  2,611,901
  3,008,691
  3,435,096
  3,890,425
  4,373,993
  4,885,169
  5,423,419
  5,988,335
  6,579,660
  7,197,303
  7,841,349
  8,512,067
  9,209,906
  9,935,500
  10,689,661
Debt-to-equity ratio
  0.384
  0.980
  1.350
  1.580
  1.720
  1.810
  1.870
  1.910
  1.940
  1.960
  1.970
  1.980
  1.990
  2.000
  2.000
  2.010
  2.010
  2.010
  2.020
  2.020
  2.020
  2.020
  2.020
  2.020
  2.020
  2.020
  2.020
  2.020
  2.020
  2.030
  2.030
Adjusted equity ratio
  0.313
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  420
  1,390
  2,268
  3,487
  5,124
  7,261
  9,977
  13,347
  17,440
  22,310
  28,004
  35,314
  42,740
  51,050
  60,245
  70,314
  81,244
  93,017
  105,611
  119,007
  133,185
  148,129
  163,825
  180,265
  197,444
  215,362
  234,027
  253,447
  273,641
  294,630
  316,439
Depreciation, amort., depletion, $m
  769
  1,443
  1,662
  1,969
  2,388
  2,941
  3,653
  4,547
  5,644
  6,964
  8,522
  9,289
  11,357
  13,689
  16,287
  19,151
  22,277
  25,661
  29,298
  33,182
  37,306
  41,666
  46,257
  51,075
  56,118
  61,386
  66,879
  72,600
  78,552
  84,740
  91,173
Funds from operations, $m
  812
  2,833
  3,930
  5,457
  7,512
  10,202
  13,630
  17,894
  23,084
  29,274
  36,526
  44,603
  54,097
  64,739
  76,532
  89,465
  103,521
  118,678
  134,909
  152,189
  170,491
  189,795
  210,082
  231,340
  253,562
  276,748
  300,906
  326,047
  352,193
  379,370
  407,612
Change in working capital, $m
  -108
  38
  55
  77
  105
  139
  179
  225
  276
  332
  392
  455
  520
  586
  653
  720
  786
  851
  914
  976
  1,037
  1,096
  1,154
  1,211
  1,268
  1,324
  1,381
  1,438
  1,496
  1,556
  1,617
Cash from operations, $m
  920
  4,559
  3,875
  5,379
  7,407
  10,063
  13,451
  17,669
  22,808
  28,942
  36,135
  44,149
  53,577
  64,153
  75,879
  88,745
  102,736
  117,827
  133,995
  151,213
  169,455
  188,699
  208,928
  230,129
  252,294
  275,424
  299,525
  324,609
  350,697
  377,815
  405,995
Maintenance CAPEX, $m
  0
  -251
  -402
  -620
  -928
  -1,346
  -1,900
  -2,611
  -3,505
  -4,603
  -5,923
  -7,481
  -9,289
  -11,357
  -13,689
  -16,287
  -19,151
  -22,277
  -25,661
  -29,298
  -33,182
  -37,306
  -41,666
  -46,257
  -51,075
  -56,118
  -61,386
  -66,879
  -72,600
  -78,552
  -84,740
New CAPEX, $m
  -303
  -2,059
  -2,999
  -4,212
  -5,733
  -7,578
  -9,753
  -12,246
  -15,034
  -18,082
  -21,346
  -24,778
  -28,328
  -31,948
  -35,595
  -39,232
  -42,829
  -46,364
  -49,825
  -53,204
  -56,504
  -59,730
  -62,893
  -66,009
  -69,095
  -72,170
  -75,256
  -78,372
  -81,541
  -84,784
  -88,122
Cash from investing activities, $m
  195
  -2,310
  -3,401
  -4,832
  -6,661
  -8,924
  -11,653
  -14,857
  -18,539
  -22,685
  -27,269
  -32,259
  -37,617
  -43,305
  -49,284
  -55,519
  -61,980
  -68,641
  -75,486
  -82,502
  -89,686
  -97,036
  -104,559
  -112,266
  -120,170
  -128,288
  -136,642
  -145,251
  -154,141
  -163,336
  -172,862
Free cash flow, $m
  1,115
  2,249
  475
  547
  746
  1,138
  1,798
  2,812
  4,268
  6,258
  8,866
  11,890
  15,960
  20,848
  26,594
  33,226
  40,756
  49,186
  58,509
  68,710
  79,769
  91,663
  104,369
  117,863
  132,124
  147,136
  162,883
  179,358
  196,556
  214,479
  233,132
Issuance/(repayment) of debt, $m
  -128
  11,868
  17,194
  24,151
  32,871
  43,454
  55,922
  70,218
  86,205
  103,681
  122,397
  142,076
  162,432
  183,190
  204,102
  224,954
  245,578
  265,849
  285,691
  305,070
  323,990
  342,488
  360,628
  378,494
  396,188
  413,821
  431,511
  449,381
  467,552
  486,148
  505,288
Issuance/(repurchase) of shares, $m
  -333
  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  
  -563
  11,868
  17,194
  24,151
  32,871
  43,454
  55,922
  70,218
  86,205
  103,681
  122,397
  142,076
  162,432
  183,190
  204,102
  224,954
  245,578
  265,849
  285,691
  305,070
  323,990
  342,488
  360,628
  378,494
  396,188
  413,821
  431,511
  449,381
  467,552
  486,148
  505,288
Total cash flow (excl. dividends), $m
  537
  14,117
  17,669
  24,698
  33,617
  44,592
  57,721
  73,030
  90,473
  109,938
  131,263
  153,966
  178,392
  204,038
  230,696
  258,180
  286,334
  315,035
  344,201
  373,781
  403,759
  434,151
  464,996
  496,357
  528,312
  560,956
  594,394
  628,739
  664,108
  700,627
  738,420
Retained Cash Flow (-), $m
  -7,836
  -5,836
  -8,469
  -11,896
  -16,190
  -21,403
  -27,544
  -34,585
  -42,459
  -51,067
  -60,285
  -69,978
  -80,004
  -90,228
  -100,528
  -110,798
  -120,956
  -130,941
  -140,714
  -150,259
  -159,577
  -168,688
  -177,623
  -186,422
  -195,137
  -203,822
  -212,535
  -221,337
  -230,287
  -239,446
  -248,873
Prev. year cash balance distribution, $m
 
  362
  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
 
  8,643
  9,200
  12,803
  17,427
  23,189
  30,177
  38,445
  48,014
  58,872
  70,978
  83,988
  98,388
  113,810
  130,169
  147,382
  165,378
  184,095
  203,487
  223,522
  244,182
  265,463
  287,374
  309,934
  333,175
  357,134
  381,859
  407,402
  433,821
  461,181
  489,547
Discount rate, %
 
  5.20
  5.46
  5.73
  6.02
  6.32
  6.64
  6.97
  7.32
  7.68
  8.07
  8.47
  8.89
  9.34
  9.81
  10.30
  10.81
  11.35
  11.92
  12.51
  13.14
  13.80
  14.49
  15.21
  15.97
  16.77
  17.61
  18.49
  19.41
  20.38
  21.40
PV of cash for distribution, $m
 
  8,216
  8,272
  10,831
  13,794
  17,069
  20,523
  23,991
  27,291
  30,241
  32,674
  34,340
  35,392
  35,656
  35,138
  33,890
  32,003
  29,597
  26,810
  23,788
  20,672
  17,589
  14,649
  11,937
  9,511
  7,405
  5,629
  4,175
  3,018
  2,125
  1,455
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

Willis Towers Watson Public Limited Company operates as an advisory, broking, and solutions company worldwide. The company operates through four business segments: Corporate Risk and Broking; Exchange Solutions; Human Capital and Benefits; and Investment, Risk, and Reinsurance. It designs and delivers solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Willis Towers Watson Public Limited serves multinational corporations, middle-market companies in various industries, public institutions, and individual clients. The company was formerly known as Willis Group Holdings Public Limited Company and changed its name to Willis Towers Watson Public Limited Company in January 2016. Willis Towers Watson Public Limited Company was founded in 1828 and is based in London, the United Kingdom.

FINANCIAL RATIOS  of  Willis Towers Watson (WLTW)

Valuation Ratios
P/E Ratio 43
Price to Sales 2.3
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 19.6
Price to Free Cash Flow 29.3
Growth Rates
Sales Growth Rate 106%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 91.8%
Cap. Spend. - 3 Yr. Gr. Rate 20.6%
Financial Strength
Quick Ratio 2
Current Ratio 0.8
LT Debt to Equity 33.4%
Total Debt to Equity 38.4%
Interest Coverage 3
Management Effectiveness
Return On Assets 2.5%
Ret/ On Assets - 3 Yr. Avg. 2.8%
Return On Total Capital 4.3%
Ret/ On T. Cap. - 3 Yr. Avg. 6.7%
Return On Equity 6.8%
Return On Equity - 3 Yr. Avg. 13.9%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 15.9%
EBITDA Margin - 3 Yr. Avg. 17.7%
Operating Margin 7%
Oper. Margin - 3 Yr. Avg. 11.7%
Pre-Tax Margin 4.3%
Pre-Tax Margin - 3 Yr. Avg. 8.9%
Net Profit Margin 5.3%
Net Profit Margin - 3 Yr. Avg. 8.2%
Effective Tax Rate -28.2%
Eff/ Tax Rate - 3 Yr. Avg. -2.4%
Payout Ratio 47.4%

WLTW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WLTW stock intrinsic value calculation we used $7887 million for the last fiscal year's total revenue generated by Willis Towers Watson. The default revenue input number comes from 2016 income statement of Willis Towers Watson. 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 WLTW 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 5.2%, whose default value for WLTW is calculated based on our internal credit rating of Willis Towers Watson, 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 Willis Towers Watson.
    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 WLTW stock the variable cost ratio is equal to 88.8%.

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 WLTW 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 4% for Willis Towers Watson.

Corporate tax rate of 27% is the nominal tax rate for Willis Towers Watson. 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 WLTW 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 WLTW are equal to 43.6%.

Life of production assets of 13.7 years is the average useful life of capital assets used in Willis Towers Watson 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 WLTW is equal to 0.8%. 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 - $10065 million for Willis Towers Watson - 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 135.228 million for Willis Towers Watson 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 Willis Towers Watson at the current share price and the inputted number of shares is $17.9 billion.


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COMPANY NEWS

▶ [$$] Market Talk: Daily Analysis Roundup   [Apr-21-17 04:48PM  The Wall Street Journal]
▶ Willis Towers Watson announces program for RIMS 2017   [Mar-20-17 09:05AM  GlobeNewswire]
▶ Highly Regarded Value Investors New Stock Moves   [10:14AM  at Insider Monkey]
▶ Investors look for ways to work assets harder   [Mar-02-17 09:19AM  GlobeNewswire]
▶ MOVES-SocGen, eVestment, Marketaxess   [Feb-27-17 04:25PM  Reuters]
▶ Willis Towers Watson launches Asset Management Exchange   [Feb-21-17 09:05AM  GlobeNewswire]
▶ Global pension fund assets edge upward in 2016   [Jan-30-17 09:05AM  GlobeNewswire]
▶ Insurers under pressure to digitalize   [Jan-17-17 09:05AM  GlobeNewswire]
▶ Willis Towers Watson Announces Upcoming Conference Call   [Jan-05-17 04:12PM  GlobeNewswire]
▶ [$$] Changing Cyber Risk Landscape Hard to Tackle   [Dec-16-16 05:08PM  at The Wall Street Journal]
▶ Alliance Trust PLC : Outcome of Strategic Review   [Dec-15-16 02:01AM  GlobeNewswire]
▶ Should You Buy Willis Towers Watson PLC (WLTW)?   [07:52AM  at Insider Monkey]
Stock chart of WLTW Financial statements of WLTW
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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