Intrinsic value of Waste Management - WM

Previous Close

$77.73

  Intrinsic Value

$33.86

stock screener

  Rating & Target

str. sell

-56%

Previous close

$77.73

 
Intrinsic value

$33.86

 
Up/down potential

-56%

 
Rating

str. sell

We calculate the intrinsic value of WM 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 34.2

 

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, %
  5.00
  7.40
  7.16
  6.94
  6.75
  6.57
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
  5.14
  5.13
  5.11
Revenue, $m
  13,609
  14,616
  15,663
  16,750
  17,881
  19,056
  20,279
  21,552
  22,877
  24,257
  25,695
  27,195
  28,760
  30,393
  32,098
  33,879
  35,740
  37,686
  39,721
  41,851
  44,079
  46,411
  48,854
  51,412
  54,092
  56,900
  59,843
  62,928
  66,162
  69,553
  73,110
Variable operating expenses, $m
 
  12,889
  13,768
  14,680
  15,629
  16,616
  17,643
  18,711
  19,823
  20,981
  22,188
  22,826
  24,139
  25,510
  26,941
  28,436
  29,998
  31,631
  33,339
  35,126
  36,997
  38,954
  41,004
  43,152
  45,401
  47,758
  50,228
  52,817
  55,532
  58,378
  61,363
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
  11,317
  12,889
  13,768
  14,680
  15,629
  16,616
  17,643
  18,711
  19,823
  20,981
  22,188
  22,826
  24,139
  25,510
  26,941
  28,436
  29,998
  31,631
  33,339
  35,126
  36,997
  38,954
  41,004
  43,152
  45,401
  47,758
  50,228
  52,817
  55,532
  58,378
  61,363
Operating income, $m
  2,292
  1,727
  1,895
  2,070
  2,251
  2,440
  2,637
  2,841
  3,054
  3,276
  3,507
  4,369
  4,621
  4,883
  5,157
  5,443
  5,742
  6,055
  6,382
  6,724
  7,082
  7,457
  7,849
  8,260
  8,691
  9,142
  9,615
  10,111
  10,630
  11,175
  11,746
EBITDA, $m
  3,593
  3,257
  3,490
  3,732
  3,984
  4,246
  4,519
  4,802
  5,098
  5,405
  5,726
  6,060
  6,409
  6,772
  7,152
  7,549
  7,964
  8,398
  8,851
  9,326
  9,822
  10,342
  10,886
  11,456
  12,053
  12,679
  13,335
  14,022
  14,743
  15,499
  16,291
Interest expense (income), $m
  375
  380
  428
  477
  528
  581
  636
  694
  753
  815
  880
  947
  1,017
  1,091
  1,167
  1,247
  1,331
  1,418
  1,509
  1,604
  1,704
  1,808
  1,918
  2,032
  2,152
  2,277
  2,409
  2,547
  2,691
  2,843
  3,001
Earnings before tax, $m
  1,822
  1,346
  1,467
  1,592
  1,723
  1,859
  2,000
  2,148
  2,301
  2,461
  2,627
  3,422
  3,603
  3,792
  3,990
  4,196
  4,412
  4,637
  4,873
  5,120
  5,378
  5,649
  5,932
  6,228
  6,539
  6,865
  7,206
  7,564
  7,939
  8,332
  8,745
Tax expense, $m
  642
  364
  396
  430
  465
  502
  540
  580
  621
  664
  709
  924
  973
  1,024
  1,077
  1,133
  1,191
  1,252
  1,316
  1,382
  1,452
  1,525
  1,602
  1,682
  1,766
  1,853
  1,946
  2,042
  2,144
  2,250
  2,361
Net income, $m
  1,182
  983
  1,071
  1,162
  1,258
  1,357
  1,460
  1,568
  1,680
  1,796
  1,918
  2,498
  2,630
  2,768
  2,913
  3,063
  3,221
  3,385
  3,557
  3,738
  3,926
  4,123
  4,330
  4,547
  4,774
  5,011
  5,260
  5,522
  5,795
  6,083
  6,384

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  32
  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
  20,859
  22,383
  23,986
  25,651
  27,382
  29,183
  31,055
  33,004
  35,033
  37,147
  39,350
  41,647
  44,043
  46,543
  49,154
  51,882
  54,732
  57,712
  60,829
  64,090
  67,502
  71,074
  74,814
  78,732
  82,836
  87,136
  91,643
  96,367
  101,320
  106,514
  111,960
Adjusted assets (=assets-cash), $m
  20,827
  22,383
  23,986
  25,651
  27,382
  29,183
  31,055
  33,004
  35,033
  37,147
  39,350
  41,647
  44,043
  46,543
  49,154
  51,882
  54,732
  57,712
  60,829
  64,090
  67,502
  71,074
  74,814
  78,732
  82,836
  87,136
  91,643
  96,367
  101,320
  106,514
  111,960
Revenue / Adjusted assets
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
  0.653
Average production assets, $m
  11,342
  12,175
  13,047
  13,953
  14,895
  15,874
  16,893
  17,953
  19,056
  20,206
  21,404
  22,654
  23,957
  25,317
  26,737
  28,221
  29,772
  31,393
  33,088
  34,861
  36,718
  38,661
  40,695
  42,826
  45,058
  47,398
  49,849
  52,419
  55,113
  57,938
  60,900
Working capital, $m
  -418
  -29
  -31
  -34
  -36
  -38
  -41
  -43
  -46
  -49
  -51
  -54
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -84
  -88
  -93
  -98
  -103
  -108
  -114
  -120
  -126
  -132
  -139
  -146
Total debt, $m
  9,310
  10,446
  11,641
  12,884
  14,175
  15,518
  16,915
  18,369
  19,883
  21,460
  23,103
  24,816
  26,604
  28,469
  30,417
  32,452
  34,578
  36,801
  39,126
  41,559
  44,104
  46,769
  49,559
  52,482
  55,544
  58,752
  62,114
  65,638
  69,333
  73,207
  77,270
Total liabilities, $m
  15,562
  16,698
  17,893
  19,136
  20,427
  21,770
  23,167
  24,621
  26,135
  27,712
  29,355
  31,068
  32,856
  34,721
  36,669
  38,704
  40,830
  43,053
  45,378
  47,811
  50,356
  53,021
  55,811
  58,734
  61,796
  65,004
  68,366
  71,890
  75,585
  79,459
  83,522
Total equity, $m
  5,297
  5,685
  6,092
  6,515
  6,955
  7,412
  7,888
  8,383
  8,898
  9,435
  9,995
  10,578
  11,187
  11,822
  12,485
  13,178
  13,902
  14,659
  15,451
  16,279
  17,145
  18,053
  19,003
  19,998
  21,040
  22,133
  23,277
  24,477
  25,735
  27,054
  28,438
Total liabilities and equity, $m
  20,859
  22,383
  23,985
  25,651
  27,382
  29,182
  31,055
  33,004
  35,033
  37,147
  39,350
  41,646
  44,043
  46,543
  49,154
  51,882
  54,732
  57,712
  60,829
  64,090
  67,501
  71,074
  74,814
  78,732
  82,836
  87,137
  91,643
  96,367
  101,320
  106,513
  111,960
Debt-to-equity ratio
  1.758
  1.840
  1.910
  1.980
  2.040
  2.090
  2.140
  2.190
  2.230
  2.270
  2.310
  2.350
  2.380
  2.410
  2.440
  2.460
  2.490
  2.510
  2.530
  2.550
  2.570
  2.590
  2.610
  2.620
  2.640
  2.650
  2.670
  2.680
  2.690
  2.710
  2.720
Adjusted equity ratio
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,182
  983
  1,071
  1,162
  1,258
  1,357
  1,460
  1,568
  1,680
  1,796
  1,918
  2,498
  2,630
  2,768
  2,913
  3,063
  3,221
  3,385
  3,557
  3,738
  3,926
  4,123
  4,330
  4,547
  4,774
  5,011
  5,260
  5,522
  5,795
  6,083
  6,384
Depreciation, amort., depletion, $m
  1,301
  1,530
  1,595
  1,663
  1,733
  1,806
  1,882
  1,961
  2,044
  2,129
  2,219
  1,691
  1,788
  1,889
  1,995
  2,106
  2,222
  2,343
  2,469
  2,602
  2,740
  2,885
  3,037
  3,196
  3,363
  3,537
  3,720
  3,912
  4,113
  4,324
  4,545
Funds from operations, $m
  3,037
  2,513
  2,666
  2,825
  2,991
  3,163
  3,342
  3,529
  3,723
  3,926
  4,137
  4,189
  4,418
  4,658
  4,908
  5,169
  5,442
  5,728
  6,027
  6,339
  6,666
  7,009
  7,367
  7,743
  8,136
  8,548
  8,981
  9,433
  9,908
  10,406
  10,929
Change in working capital, $m
  77
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Cash from operations, $m
  2,960
  2,515
  2,668
  2,827
  2,993
  3,166
  3,345
  3,532
  3,726
  3,928
  4,139
  4,192
  4,421
  4,661
  4,911
  5,173
  5,446
  5,732
  6,031
  6,343
  6,671
  7,013
  7,372
  7,748
  8,141
  8,554
  8,986
  9,440
  9,915
  10,413
  10,936
Maintenance CAPEX, $m
  0
  -846
  -909
  -974
  -1,041
  -1,112
  -1,185
  -1,261
  -1,340
  -1,422
  -1,508
  -1,597
  -1,691
  -1,788
  -1,889
  -1,995
  -2,106
  -2,222
  -2,343
  -2,469
  -2,602
  -2,740
  -2,885
  -3,037
  -3,196
  -3,363
  -3,537
  -3,720
  -3,912
  -4,113
  -4,324
New CAPEX, $m
  -1,339
  -834
  -872
  -906
  -942
  -979
  -1,019
  -1,060
  -1,104
  -1,150
  -1,198
  -1,249
  -1,303
  -1,360
  -1,420
  -1,484
  -1,551
  -1,621
  -1,695
  -1,774
  -1,856
  -1,943
  -2,035
  -2,131
  -2,232
  -2,339
  -2,452
  -2,570
  -2,694
  -2,825
  -2,962
Cash from investing activities, $m
  -1,932
  -1,680
  -1,781
  -1,880
  -1,983
  -2,091
  -2,204
  -2,321
  -2,444
  -2,572
  -2,706
  -2,846
  -2,994
  -3,148
  -3,309
  -3,479
  -3,657
  -3,843
  -4,038
  -4,243
  -4,458
  -4,683
  -4,920
  -5,168
  -5,428
  -5,702
  -5,989
  -6,290
  -6,606
  -6,938
  -7,286
Free cash flow, $m
  1,028
  835
  888
  948
  1,010
  1,075
  1,142
  1,211
  1,282
  1,357
  1,433
  1,345
  1,428
  1,513
  1,602
  1,694
  1,790
  1,889
  1,993
  2,101
  2,213
  2,330
  2,452
  2,580
  2,713
  2,852
  2,998
  3,150
  3,309
  3,475
  3,650
Issuance/(repayment) of debt, $m
  375
  1,168
  1,196
  1,243
  1,292
  1,343
  1,397
  1,454
  1,514
  1,577
  1,643
  1,713
  1,787
  1,865
  1,948
  2,035
  2,126
  2,223
  2,325
  2,432
  2,546
  2,665
  2,790
  2,922
  3,062
  3,208
  3,362
  3,524
  3,695
  3,874
  4,063
Issuance/(repurchase) of shares, $m
  -662
  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  
  -309
  1,168
  1,196
  1,243
  1,292
  1,343
  1,397
  1,454
  1,514
  1,577
  1,643
  1,713
  1,787
  1,865
  1,948
  2,035
  2,126
  2,223
  2,325
  2,432
  2,546
  2,665
  2,790
  2,922
  3,062
  3,208
  3,362
  3,524
  3,695
  3,874
  4,063
Total cash flow (excl. dividends), $m
  719
  2,003
  2,083
  2,190
  2,302
  2,418
  2,539
  2,665
  2,796
  2,933
  3,077
  3,058
  3,215
  3,378
  3,550
  3,729
  3,916
  4,112
  4,318
  4,533
  4,758
  4,995
  5,243
  5,502
  5,775
  6,060
  6,360
  6,674
  7,004
  7,350
  7,712
Retained Cash Flow (-), $m
  48
  -388
  -407
  -423
  -440
  -457
  -476
  -495
  -515
  -537
  -559
  -583
  -609
  -635
  -663
  -693
  -724
  -757
  -792
  -828
  -867
  -907
  -950
  -995
  -1,042
  -1,092
  -1,145
  -1,200
  -1,258
  -1,319
  -1,383
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
 
  1,614
  1,676
  1,767
  1,862
  1,961
  2,063
  2,170
  2,281
  2,397
  2,517
  2,475
  2,606
  2,743
  2,886
  3,036
  3,192
  3,355
  3,526
  3,705
  3,892
  4,088
  4,293
  4,507
  4,732
  4,968
  5,215
  5,474
  5,746
  6,030
  6,329
Discount rate, %
 
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
 
  1,492
  1,421
  1,363
  1,296
  1,219
  1,135
  1,046
  952
  856
  760
  623
  540
  460
  386
  318
  257
  204
  159
  121
  90
  65
  46
  32
  22
  14
  9
  5
  3
  2
  1
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

Waste Management, Inc. (WM) is a holding company. The Company, through its subsidiaries, is a provider of waste management environmental services. The Company's segments include Solid Waste and Other. The Company's Solid Waste segment includes its solid waste business. The Other segment includes its Strategic Business Solutions (WMSBS) organization; its landfill gas-to-energy operations and third-party subcontract and administration services managed by its Energy and Environmental Services and WM Renewable Energy organizations; its recycling brokerage services, and its service offerings and solutions, such as portable self-storage and long distance moving services, fluorescent lamp recycling and interests it holds in oil and gas producing properties. As of December 31, 2016, the Company owned or operated 243 solid waste landfills and five secure hazardous waste landfills. Its recycling brokerage services involve managing the marketing of recyclable materials for third parties.

FINANCIAL RATIOS  of  Waste Management (WM)

Valuation Ratios
P/E Ratio 28.9
Price to Sales 2.5
Price to Book 6.4
Price to Tangible Book
Price to Cash Flow 11.5
Price to Free Cash Flow 21.1
Growth Rates
Sales Growth Rate 5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 8.6%
Cap. Spend. - 3 Yr. Gr. Rate 1%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 167.9%
Total Debt to Equity 175.8%
Interest Coverage 6
Management Effectiveness
Return On Assets 6.9%
Ret/ On Assets - 3 Yr. Avg. 6.5%
Return On Total Capital 8.2%
Ret/ On T. Cap. - 3 Yr. Avg. 7.2%
Return On Equity 22.2%
Return On Equity - 3 Yr. Avg. 19.4%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 45.6%
Gross Margin - 3 Yr. Avg. 44.7%
EBITDA Margin 25.7%
EBITDA Margin - 3 Yr. Avg. 23.8%
Operating Margin 16.8%
Oper. Margin - 3 Yr. Avg. 14.9%
Pre-Tax Margin 13.4%
Pre-Tax Margin - 3 Yr. Avg. 11.4%
Net Profit Margin 8.7%
Net Profit Margin - 3 Yr. Avg. 7.9%
Effective Tax Rate 35.2%
Eff/ Tax Rate - 3 Yr. Avg. 29.3%
Payout Ratio 61.4%

WM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WM stock intrinsic value calculation we used $13609 million for the last fiscal year's total revenue generated by Waste Management. The default revenue input number comes from 2016 income statement of Waste 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 WM stock valuation model: a) initial revenue growth rate of 7.4% 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 8.2%, whose default value for WM is calculated based on our internal credit rating of Waste 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 Waste 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 WM stock the variable cost ratio is equal to 88.5%.

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 WM 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 4.1% for Waste Management.

Corporate tax rate of 27% is the nominal tax rate for Waste 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 WM 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 WM are equal to 83.3%.

Life of production assets of 13.4 years is the average useful life of capital assets used in Waste 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 WM is equal to -0.2%. 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 - $5297 million for Waste 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 439.985 million for Waste 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 Waste Management at the current share price and the inputted number of shares is $34.2 billion.

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Financial statements of WM
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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