Intrinsic value of Williams - WMB

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$30.75

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$30.75

 
Intrinsic value

$1.38

 
Up/down potential

-96%

 
Rating

str. 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 WMB 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 25.9

 

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, %
  1.89
  9.60
  9.14
  8.73
  8.35
  8.02
  7.72
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
Revenue, $m
  7,499
  8,219
  8,970
  9,753
  10,568
  11,415
  12,296
  13,211
  14,162
  15,151
  16,178
  17,247
  18,358
  19,514
  20,718
  21,972
  23,279
  24,641
  26,062
  27,546
  29,094
  30,711
  32,402
  34,168
  36,016
  37,949
  39,972
  42,089
  44,306
  46,628
  49,061
Variable operating expenses, $m
 
  9,485
  10,352
  11,255
  12,195
  13,173
  14,189
  15,246
  16,343
  17,484
  18,670
  19,903
  21,185
  22,520
  23,909
  25,356
  26,864
  28,436
  30,076
  31,788
  33,574
  35,441
  37,391
  39,430
  41,563
  43,793
  46,127
  48,571
  51,129
  53,809
  56,616
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
  7,229
  9,485
  10,352
  11,255
  12,195
  13,173
  14,189
  15,246
  16,343
  17,484
  18,670
  19,903
  21,185
  22,520
  23,909
  25,356
  26,864
  28,436
  30,076
  31,788
  33,574
  35,441
  37,391
  39,430
  41,563
  43,793
  46,127
  48,571
  51,129
  53,809
  56,616
Operating income, $m
  270
  -1,266
  -1,381
  -1,502
  -1,627
  -1,758
  -1,894
  -2,034
  -2,181
  -2,333
  -2,491
  -2,656
  -2,827
  -3,005
  -3,191
  -3,384
  -3,585
  -3,795
  -4,014
  -4,242
  -4,480
  -4,730
  -4,990
  -5,262
  -5,546
  -5,844
  -6,156
  -6,482
  -6,823
  -7,181
  -7,555
EBITDA, $m
  2,033
  669
  731
  794
  861
  930
  1,002
  1,076
  1,154
  1,234
  1,318
  1,405
  1,495
  1,590
  1,688
  1,790
  1,896
  2,007
  2,123
  2,244
  2,370
  2,502
  2,639
  2,783
  2,934
  3,091
  3,256
  3,428
  3,609
  3,798
  3,996
Interest expense (income), $m
  1,152
  1,120
  1,308
  1,510
  1,720
  1,938
  2,166
  2,402
  2,648
  2,903
  3,168
  3,444
  3,731
  4,029
  4,339
  4,662
  4,999
  5,349
  5,715
  6,096
  6,494
  6,909
  7,343
  7,797
  8,271
  8,767
  9,285
  9,828
  10,396
  10,991
  11,614
Earnings before tax, $m
  -375
  -2,386
  -2,690
  -3,012
  -3,347
  -3,696
  -4,059
  -4,437
  -4,829
  -5,236
  -5,660
  -6,100
  -6,558
  -7,034
  -7,530
  -8,046
  -8,584
  -9,144
  -9,728
  -10,338
  -10,974
  -11,639
  -12,333
  -13,059
  -13,818
  -14,611
  -15,441
  -16,310
  -17,220
  -18,172
  -19,170
Tax expense, $m
  -25
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -424
  -2,386
  -2,690
  -3,012
  -3,347
  -3,696
  -4,059
  -4,437
  -4,829
  -5,236
  -5,660
  -6,100
  -6,558
  -7,034
  -7,530
  -8,046
  -8,584
  -9,144
  -9,728
  -10,338
  -10,974
  -11,639
  -12,333
  -13,059
  -13,818
  -14,611
  -15,441
  -16,310
  -17,220
  -18,172
  -19,170

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  170
  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
  46,835
  51,049
  55,715
  60,577
  65,637
  70,900
  76,370
  82,056
  87,964
  94,104
  100,486
  107,122
  114,025
  121,208
  128,685
  136,474
  144,590
  153,052
  161,879
  171,090
  180,708
  190,754
  201,252
  212,226
  223,702
  235,708
  248,272
  261,424
  275,194
  289,616
  304,725
Adjusted assets (=assets-cash), $m
  46,665
  51,049
  55,715
  60,577
  65,637
  70,900
  76,370
  82,056
  87,964
  94,104
  100,486
  107,122
  114,025
  121,208
  128,685
  136,474
  144,590
  153,052
  161,879
  171,090
  180,708
  190,754
  201,252
  212,226
  223,702
  235,708
  248,272
  261,424
  275,194
  289,616
  304,725
Revenue / Adjusted assets
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
Average production assets, $m
  38,844
  42,574
  46,465
  50,520
  54,740
  59,129
  63,691
  68,433
  73,360
  78,481
  83,804
  89,338
  95,095
  101,085
  107,321
  113,816
  120,585
  127,642
  135,004
  142,686
  150,707
  159,085
  167,840
  176,992
  186,563
  196,576
  207,054
  218,022
  229,506
  241,534
  254,134
Working capital, $m
  -1,487
  -855
  -933
  -1,014
  -1,099
  -1,187
  -1,279
  -1,374
  -1,473
  -1,576
  -1,683
  -1,794
  -1,909
  -2,030
  -2,155
  -2,285
  -2,421
  -2,563
  -2,710
  -2,865
  -3,026
  -3,194
  -3,370
  -3,554
  -3,746
  -3,947
  -4,157
  -4,377
  -4,608
  -4,849
  -5,102
Total debt, $m
  23,502
  27,254
  31,453
  35,829
  40,383
  45,120
  50,043
  55,160
  60,478
  66,004
  71,748
  77,720
  83,932
  90,397
  97,127
  104,136
  111,441
  119,057
  127,001
  135,291
  143,947
  152,988
  162,436
  172,313
  182,642
  193,448
  204,755
  216,591
  228,985
  241,965
  255,562
Total liabilities, $m
  42,192
  45,944
  50,143
  54,519
  59,073
  63,810
  68,733
  73,850
  79,168
  84,694
  90,438
  96,410
  102,622
  109,087
  115,817
  122,826
  130,131
  137,747
  145,691
  153,981
  162,637
  171,678
  181,126
  191,003
  201,332
  212,138
  223,445
  235,281
  247,675
  260,655
  274,252
Total equity, $m
  4,643
  5,105
  5,571
  6,058
  6,564
  7,090
  7,637
  8,206
  8,796
  9,410
  10,049
  10,712
  11,402
  12,121
  12,869
  13,647
  14,459
  15,305
  16,188
  17,109
  18,071
  19,075
  20,125
  21,223
  22,370
  23,571
  24,827
  26,142
  27,519
  28,962
  30,472
Total liabilities and equity, $m
  46,835
  51,049
  55,714
  60,577
  65,637
  70,900
  76,370
  82,056
  87,964
  94,104
  100,487
  107,122
  114,024
  121,208
  128,686
  136,473
  144,590
  153,052
  161,879
  171,090
  180,708
  190,753
  201,251
  212,226
  223,702
  235,709
  248,272
  261,423
  275,194
  289,617
  304,724
Debt-to-equity ratio
  5.062
  5.340
  5.650
  5.910
  6.150
  6.360
  6.550
  6.720
  6.880
  7.010
  7.140
  7.260
  7.360
  7.460
  7.550
  7.630
  7.710
  7.780
  7.850
  7.910
  7.970
  8.020
  8.070
  8.120
  8.160
  8.210
  8.250
  8.290
  8.320
  8.350
  8.390
Adjusted equity ratio
  0.098
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -424
  -2,386
  -2,690
  -3,012
  -3,347
  -3,696
  -4,059
  -4,437
  -4,829
  -5,236
  -5,660
  -6,100
  -6,558
  -7,034
  -7,530
  -8,046
  -8,584
  -9,144
  -9,728
  -10,338
  -10,974
  -11,639
  -12,333
  -13,059
  -13,818
  -14,611
  -15,441
  -16,310
  -17,220
  -18,172
  -19,170
Depreciation, amort., depletion, $m
  1,763
  1,935
  2,112
  2,296
  2,488
  2,688
  2,895
  3,111
  3,335
  3,567
  3,809
  4,061
  4,322
  4,595
  4,878
  5,173
  5,481
  5,802
  6,137
  6,486
  6,850
  7,231
  7,629
  8,045
  8,480
  8,935
  9,412
  9,910
  10,432
  10,979
  11,552
Funds from operations, $m
  4,520
  -450
  -578
  -715
  -859
  -1,009
  -1,164
  -1,326
  -1,494
  -1,669
  -1,850
  -2,039
  -2,235
  -2,439
  -2,651
  -2,872
  -3,102
  -3,342
  -3,592
  -3,852
  -4,124
  -4,408
  -4,704
  -5,014
  -5,337
  -5,676
  -6,030
  -6,400
  -6,787
  -7,193
  -7,618
Change in working capital, $m
  856
  -75
  -78
  -81
  -85
  -88
  -92
  -95
  -99
  -103
  -107
  -111
  -116
  -120
  -125
  -130
  -136
  -142
  -148
  -154
  -161
  -168
  -176
  -184
  -192
  -201
  -210
  -220
  -231
  -241
  -253
Cash from operations, $m
  3,664
  -1,128
  -499
  -634
  -774
  -920
  -1,073
  -1,231
  -1,395
  -1,566
  -1,744
  -1,928
  -2,120
  -2,319
  -2,526
  -2,742
  -2,966
  -3,200
  -3,444
  -3,698
  -3,963
  -4,240
  -4,528
  -4,830
  -5,145
  -5,475
  -5,819
  -6,180
  -6,557
  -6,952
  -7,365
Maintenance CAPEX, $m
  0
  -1,766
  -1,935
  -2,112
  -2,296
  -2,488
  -2,688
  -2,895
  -3,111
  -3,335
  -3,567
  -3,809
  -4,061
  -4,322
  -4,595
  -4,878
  -5,173
  -5,481
  -5,802
  -6,137
  -6,486
  -6,850
  -7,231
  -7,629
  -8,045
  -8,480
  -8,935
  -9,412
  -9,910
  -10,432
  -10,979
New CAPEX, $m
  -2,051
  -3,730
  -3,891
  -4,055
  -4,220
  -4,389
  -4,563
  -4,742
  -4,927
  -5,121
  -5,323
  -5,534
  -5,757
  -5,990
  -6,236
  -6,495
  -6,769
  -7,057
  -7,361
  -7,682
  -8,021
  -8,378
  -8,755
  -9,152
  -9,571
  -10,013
  -10,478
  -10,968
  -11,484
  -12,028
  -12,600
Cash from investing activities, $m
  -416
  -5,496
  -5,826
  -6,167
  -6,516
  -6,877
  -7,251
  -7,637
  -8,038
  -8,456
  -8,890
  -9,343
  -9,818
  -10,312
  -10,831
  -11,373
  -11,942
  -12,538
  -13,163
  -13,819
  -14,507
  -15,228
  -15,986
  -16,781
  -17,616
  -18,493
  -19,413
  -20,380
  -21,394
  -22,460
  -23,579
Free cash flow, $m
  3,248
  -6,624
  -6,326
  -6,801
  -7,291
  -7,798
  -8,323
  -8,867
  -9,433
  -10,021
  -10,634
  -11,272
  -11,937
  -12,632
  -13,357
  -14,116
  -14,909
  -15,739
  -16,607
  -17,517
  -18,470
  -19,468
  -20,515
  -21,611
  -22,761
  -23,968
  -25,232
  -26,559
  -27,951
  -29,412
  -30,944
Issuance/(repayment) of debt, $m
  -972
  3,922
  4,199
  4,376
  4,554
  4,737
  4,924
  5,117
  5,317
  5,526
  5,744
  5,972
  6,212
  6,464
  6,730
  7,010
  7,305
  7,616
  7,944
  8,290
  8,656
  9,041
  9,448
  9,877
  10,329
  10,805
  11,307
  11,836
  12,393
  12,980
  13,597
Issuance/(repurchase) of shares, $m
  9
  3,164
  2,593
  2,911
  3,243
  3,587
  3,946
  4,319
  4,707
  5,109
  5,528
  5,963
  6,415
  6,885
  7,375
  7,885
  8,416
  8,969
  9,546
  10,148
  10,776
  11,431
  12,116
  12,832
  13,580
  14,363
  15,181
  16,038
  16,935
  17,874
  18,857
Cash from financing (excl. dividends), $m  
  -1,917
  7,086
  6,792
  7,287
  7,797
  8,324
  8,870
  9,436
  10,024
  10,635
  11,272
  11,935
  12,627
  13,349
  14,105
  14,895
  15,721
  16,585
  17,490
  18,438
  19,432
  20,472
  21,564
  22,709
  23,909
  25,168
  26,488
  27,874
  29,328
  30,854
  32,454
Total cash flow (excl. dividends), $m
  1,331
  -2,702
  -2,127
  -2,425
  -2,737
  -3,061
  -3,399
  -3,750
  -4,116
  -4,495
  -4,889
  -5,299
  -5,725
  -6,167
  -6,627
  -7,106
  -7,604
  -8,123
  -8,663
  -9,226
  -9,814
  -10,427
  -11,066
  -11,735
  -12,433
  -13,162
  -13,925
  -14,723
  -15,558
  -16,432
  -17,346
Retained Cash Flow (-), $m
  1,505
  -462
  -467
  -486
  -506
  -526
  -547
  -569
  -591
  -614
  -638
  -664
  -690
  -718
  -748
  -779
  -812
  -846
  -883
  -921
  -962
  -1,005
  -1,050
  -1,097
  -1,148
  -1,201
  -1,256
  -1,315
  -1,377
  -1,442
  -1,511
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
 
  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
Discount rate, %
 
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.10
  33.71
  35.40
  37.17
  39.02
  40.97
  43.02
  45.17
  47.43
  49.81
PV of cash for 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
Current shareholders' claim on cash, %
  100
  89.1
  81.6
  74.6
  68.1
  62.0
  56.4
  51.2
  46.4
  42.0
  38.0
  34.3
  31.0
  28.0
  25.2
  22.7
  20.5
  18.4
  16.6
  14.9
  13.4
  12.0
  10.8
  9.7
  8.7
  7.8
  7.0
  6.2
  5.6
  5.0
  4.5

The Williams Companies, Inc. operates as an energy infrastructure company primarily in the United States. The company operates through Williams Partners, Williams NGL (natural gas liquids) & Petchem Services, and Other segments. It owns and operates natural gas pipeline system extending from Texas, Louisiana, Mississippi, and the offshore Gulf of Mexico through Alabama, Georgia, South Carolina, North Carolina, Virginia, Maryland, Delaware, Pennsylvania, and New Jersey to the New York City metropolitan area. The company also owns and operates a natural gas pipeline system extending from the San Juan basin in northwestern New Mexico and southwestern Colorado through Colorado, Utah, Wyoming, Idaho, Oregon, and Washington to a point on the Canadian border near Sumas, Washington; gulfstream natural gas pipeline system extending from the Mobile Bay area in Alabama to markets in Florida; and constitution pipeline that would connect its gathering system in Susquehanna County, Pennsylvania to the Iroquois Gas Transmission and Tennessee Gas Pipeline systems in New York. In addition, it provides natural gas gathering, treating, processing, and compression; NGL production, fractionation, storage, marketing, and transportation; deepwater production handling and crude oil transportation; and olefin production services, as well as transports and stores natural gas to local natural gas distribution companies, municipal utilities, direct industrial users, electric power generators, and natural gas marketers and producers. Further, the company offers construction management services. As of December 31, 2016, it owned and operated approximately 13,600 miles of pipelines. The Williams Companies, Inc. was founded in 1908 and is headquartered in Tulsa, Oklahoma.

FINANCIAL RATIOS  of  Williams (WMB)

Valuation Ratios
P/E Ratio -54.4
Price to Sales 3.1
Price to Book 5
Price to Tangible Book
Price to Cash Flow 6.3
Price to Free Cash Flow 14.3
Growth Rates
Sales Growth Rate 1.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -35.2%
Cap. Spend. - 3 Yr. Gr. Rate -10.5%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 487.3%
Total Debt to Equity 506.2%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.4%
Ret/ On Assets - 3 Yr. Avg. 2.8%
Return On Total Capital -1.4%
Ret/ On T. Cap. - 3 Yr. Avg. 1.9%
Return On Equity -7.9%
Return On Equity - 3 Yr. Avg. 5.2%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 77%
Gross Margin - 3 Yr. Avg. 71.1%
EBITDA Margin 33.9%
EBITDA Margin - 3 Yr. Avg. 39.8%
Operating Margin 3.6%
Oper. Margin - 3 Yr. Avg. 2.9%
Pre-Tax Margin -5%
Pre-Tax Margin - 3 Yr. Avg. 6.2%
Net Profit Margin -5.7%
Net Profit Margin - 3 Yr. Avg. 4.8%
Effective Tax Rate 6.7%
Eff/ Tax Rate - 3 Yr. Avg. 21.6%
Payout Ratio -297.4%

WMB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WMB stock intrinsic value calculation we used $7499 million for the last fiscal year's total revenue generated by Williams. The default revenue input number comes from 2016 income statement of Williams. 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 WMB stock valuation model: a) initial revenue growth rate of 9.6% 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 12.1%, whose default value for WMB is calculated based on our internal credit rating of Williams, 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 Williams.
    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 WMB stock the variable cost ratio is equal to 115.4%.

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 WMB 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 4.8% for Williams.

Corporate tax rate of 27% is the nominal tax rate for Williams. 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 WMB 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 WMB are equal to 518%.

Life of production assets of 22 years is the average useful life of capital assets used in Williams 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 WMB is equal to -10.4%. 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 - $4643 million for Williams - 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 840.825 million for Williams 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 Williams at the current share price and the inputted number of shares is $25.9 billion.


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COMPANY NEWS

▶ Is Williams Companies Currently Undervalued?   [Apr-25-17 06:05PM  Market Realist]
▶ Analysts Recommendations for Williams Companies   [Apr-19-17 09:07AM  Market Realist]
▶ Fitch Gets Positive on Williams After $2.1B Asset Sale   [Apr-17-17 05:10PM  Barrons.com]
▶ Williams, Williams Partners Analyst Day Set for May 11   [Apr-12-17 04:30PM  Business Wire]
▶ Is Williams Companies Still Undervalued?   [Apr-11-17 11:36AM  Market Realist]
▶ How Will Williams Companies Move This Week?   [10:05AM  Market Realist]
▶ 3 Scorching Hot Dividend Stocks -- Are They Buys?   [Apr-09-17 11:00AM  Motley Fool]
▶ Dow Stocks Wal-Mart, Disney See Upbeat Analyst Moves; Arista Downgraded   [Apr-07-17 04:35PM  Investor's Business Daily]
▶ Probe the Long Side on Williams Cos.   [10:33AM  TheStreet.com]
▶ How Analysts View Williams Companies after Last Weeks Gains   [Apr-05-17 07:36AM  Market Realist]
▶ Short Interest in WMB Stayed Low Last Week   [Apr-04-17 10:37AM  Market Realist]
▶ Williams Companies Inc.: Time to Move On?   [Mar-30-17 10:00AM  Motley Fool]
▶ Williams Companies Inc.: Time to Move On?   [10:00AM  at Motley Fool]
▶ Northwest Pipeline LLC Prices Private Debt Issuance   [Mar-29-17 05:00PM  Business Wire]
▶ A Look Into Billionaire Steve Cohens Major Q4 Additions   [Mar-08-17 09:16AM  at Insider Monkey]
▶ It's Raining Dividend Hikes   [12:15PM  at Barrons.com]
▶ Williams Cos. boosts dividend by 50%   [08:56AM  at MarketWatch]
▶ Williams Announces Quarterly Cash Dividend   [08:50AM  Business Wire]
Stock chart of WMB Financial statements of WMB
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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