Intrinsic value of Williams - WMB

Previous Close

$31.60

  Intrinsic Value

$1.40

stock screener

  Rating & Target

str. sell

-96%

  Value-price divergence*

-125%

Previous close

$31.60

 
Intrinsic value

$1.40

 
Up/down potential

-96%

 
Rating

str. sell

 
Value-price divergence*

-125%

*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 26.3

 

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
  19.80
  18.32
  16.99
  15.79
  14.71
  13.74
  12.87
  12.08
  11.37
  10.73
  10.16
  9.64
  9.18
  8.76
  8.39
  8.05
  7.74
  7.47
  7.22
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.77
  5.70
Revenue, $m
  7,499
  8,984
  10,630
  12,435
  14,399
  16,517
  18,786
  21,203
  23,764
  26,466
  29,307
  32,285
  35,399
  38,648
  42,035
  45,560
  49,226
  53,037
  56,998
  61,114
  65,392
  69,838
  74,461
  79,269
  84,272
  89,481
  94,906
  100,559
  106,452
  112,599
  119,014
Variable operating expenses, $m
 
  10,367
  12,267
  14,350
  16,616
  19,061
  21,679
  24,468
  27,424
  30,542
  33,821
  37,257
  40,850
  44,600
  48,508
  52,576
  56,807
  61,205
  65,776
  70,526
  75,462
  80,593
  85,928
  91,477
  97,250
  103,261
  109,521
  116,045
  122,845
  129,939
  137,342
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
  10,367
  12,267
  14,350
  16,616
  19,061
  21,679
  24,468
  27,424
  30,542
  33,821
  37,257
  40,850
  44,600
  48,508
  52,576
  56,807
  61,205
  65,776
  70,526
  75,462
  80,593
  85,928
  91,477
  97,250
  103,261
  109,521
  116,045
  122,845
  129,939
  137,342
Operating income, $m
  270
  -1,384
  -1,637
  -1,915
  -2,217
  -2,544
  -2,893
  -3,265
  -3,660
  -4,076
  -4,513
  -4,972
  -5,451
  -5,952
  -6,473
  -7,016
  -7,581
  -8,168
  -8,778
  -9,412
  -10,070
  -10,755
  -11,467
  -12,207
  -12,978
  -13,780
  -14,615
  -15,486
  -16,394
  -17,340
  -18,328
EBITDA, $m
  2,033
  732
  866
  1,013
  1,173
  1,345
  1,530
  1,727
  1,936
  2,156
  2,387
  2,630
  2,883
  3,148
  3,424
  3,711
  4,010
  4,320
  4,643
  4,978
  5,326
  5,689
  6,065
  6,457
  6,864
  7,289
  7,731
  8,191
  8,671
  9,172
  9,694
Interest expense (income), $m
  1,152
  1,128
  1,529
  1,973
  2,460
  2,991
  3,562
  4,175
  4,828
  5,519
  6,249
  7,016
  7,820
  8,661
  9,538
  10,452
  11,404
  12,394
  13,423
  14,492
  15,604
  16,759
  17,959
  19,207
  20,506
  21,856
  23,263
  24,727
  26,254
  27,845
  29,505
Earnings before tax, $m
  -375
  -2,512
  -3,165
  -3,888
  -4,678
  -5,534
  -6,456
  -7,440
  -8,487
  -9,595
  -10,762
  -11,988
  -13,271
  -14,612
  -16,011
  -17,468
  -18,985
  -20,562
  -22,201
  -23,904
  -25,674
  -27,514
  -29,426
  -31,415
  -33,484
  -35,636
  -37,878
  -40,213
  -42,647
  -45,185
  -47,833
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
  -2,512
  -3,165
  -3,888
  -4,678
  -5,534
  -6,456
  -7,440
  -8,487
  -9,595
  -10,762
  -11,988
  -13,271
  -14,612
  -16,011
  -17,468
  -18,985
  -20,562
  -22,201
  -23,904
  -25,674
  -27,514
  -29,426
  -31,415
  -33,484
  -35,636
  -37,878
  -40,213
  -42,647
  -45,185
  -47,833

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
  56,149
  66,435
  77,721
  89,993
  103,231
  117,414
  132,520
  148,527
  165,416
  183,171
  201,782
  221,243
  241,552
  262,717
  284,748
  307,662
  331,483
  356,239
  381,964
  408,699
  436,488
  465,381
  495,432
  526,703
  559,256
  593,161
  628,491
  665,324
  703,744
  743,837
Adjusted assets (=assets-cash), $m
  46,665
  56,149
  66,435
  77,721
  89,993
  103,231
  117,414
  132,520
  148,527
  165,416
  183,171
  201,782
  221,243
  241,552
  262,717
  284,748
  307,662
  331,483
  356,239
  381,964
  408,699
  436,488
  465,381
  495,432
  526,703
  559,256
  593,161
  628,491
  665,324
  703,744
  743,837
Revenue / Adjusted assets
  0.161
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
Average production assets, $m
  38,844
  46,536
  55,062
  64,415
  74,586
  85,558
  97,313
  109,832
  123,099
  137,096
  151,812
  167,237
  183,366
  200,199
  217,740
  235,999
  254,991
  274,733
  295,251
  316,572
  338,730
  361,761
  385,707
  410,614
  436,531
  463,511
  491,612
  520,893
  551,421
  583,263
  616,492
Working capital, $m
  -1,487
  -898
  -1,063
  -1,244
  -1,440
  -1,652
  -1,879
  -2,120
  -2,376
  -2,647
  -2,931
  -3,229
  -3,540
  -3,865
  -4,203
  -4,556
  -4,923
  -5,304
  -5,700
  -6,111
  -6,539
  -6,984
  -7,446
  -7,927
  -8,427
  -8,948
  -9,491
  -10,056
  -10,645
  -11,260
  -11,901
Total debt, $m
  23,502
  31,844
  41,102
  51,259
  62,304
  74,218
  86,983
  100,578
  114,984
  130,184
  146,164
  162,914
  180,428
  198,707
  217,756
  237,583
  258,206
  279,645
  301,925
  325,078
  349,139
  374,149
  400,153
  427,199
  455,342
  484,640
  515,155
  546,952
  580,102
  614,679
  650,763
Total liabilities, $m
  42,192
  50,534
  59,792
  69,949
  80,994
  92,908
  105,673
  119,268
  133,674
  148,874
  164,854
  181,604
  199,118
  217,397
  236,446
  256,273
  276,896
  298,335
  320,615
  343,768
  367,829
  392,839
  418,843
  445,889
  474,032
  503,330
  533,845
  565,642
  598,792
  633,369
  669,453
Total equity, $m
  4,643
  5,615
  6,644
  7,772
  8,999
  10,323
  11,741
  13,252
  14,853
  16,542
  18,317
  20,178
  22,124
  24,155
  26,272
  28,475
  30,766
  33,148
  35,624
  38,196
  40,870
  43,649
  46,538
  49,543
  52,670
  55,926
  59,316
  62,849
  66,532
  70,374
  74,384
Total liabilities and equity, $m
  46,835
  56,149
  66,436
  77,721
  89,993
  103,231
  117,414
  132,520
  148,527
  165,416
  183,171
  201,782
  221,242
  241,552
  262,718
  284,748
  307,662
  331,483
  356,239
  381,964
  408,699
  436,488
  465,381
  495,432
  526,702
  559,256
  593,161
  628,491
  665,324
  703,743
  743,837
Debt-to-equity ratio
  5.062
  5.670
  6.190
  6.600
  6.920
  7.190
  7.410
  7.590
  7.740
  7.870
  7.980
  8.070
  8.160
  8.230
  8.290
  8.340
  8.390
  8.440
  8.480
  8.510
  8.540
  8.570
  8.600
  8.620
  8.650
  8.670
  8.680
  8.700
  8.720
  8.730
  8.750
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
  -2,512
  -3,165
  -3,888
  -4,678
  -5,534
  -6,456
  -7,440
  -8,487
  -9,595
  -10,762
  -11,988
  -13,271
  -14,612
  -16,011
  -17,468
  -18,985
  -20,562
  -22,201
  -23,904
  -25,674
  -27,514
  -29,426
  -31,415
  -33,484
  -35,636
  -37,878
  -40,213
  -42,647
  -45,185
  -47,833
Depreciation, amort., depletion, $m
  1,763
  2,115
  2,503
  2,928
  3,390
  3,889
  4,423
  4,992
  5,595
  6,232
  6,901
  7,602
  8,335
  9,100
  9,897
  10,727
  11,590
  12,488
  13,420
  14,390
  15,397
  16,444
  17,532
  18,664
  19,842
  21,069
  22,346
  23,677
  25,065
  26,512
  28,022
Funds from operations, $m
  4,520
  -396
  -663
  -960
  -1,288
  -1,645
  -2,032
  -2,448
  -2,892
  -3,363
  -3,862
  -4,386
  -4,936
  -5,512
  -6,114
  -6,741
  -7,394
  -8,074
  -8,780
  -9,514
  -10,277
  -11,070
  -11,894
  -12,750
  -13,641
  -14,568
  -15,532
  -16,536
  -17,583
  -18,673
  -19,810
Change in working capital, $m
  856
  -148
  -165
  -181
  -196
  -212
  -227
  -242
  -256
  -270
  -284
  -298
  -311
  -325
  -339
  -352
  -367
  -381
  -396
  -412
  -428
  -445
  -462
  -481
  -500
  -521
  -542
  -565
  -589
  -615
  -641
Cash from operations, $m
  3,664
  -248
  -498
  -779
  -1,091
  -1,433
  -1,805
  -2,206
  -2,636
  -3,093
  -3,578
  -4,088
  -4,625
  -5,188
  -5,775
  -6,389
  -7,028
  -7,693
  -8,384
  -9,103
  -9,850
  -10,625
  -11,432
  -12,270
  -13,141
  -14,047
  -14,990
  -15,971
  -16,993
  -18,058
  -19,169
Maintenance CAPEX, $m
  0
  -1,766
  -2,115
  -2,503
  -2,928
  -3,390
  -3,889
  -4,423
  -4,992
  -5,595
  -6,232
  -6,901
  -7,602
  -8,335
  -9,100
  -9,897
  -10,727
  -11,590
  -12,488
  -13,420
  -14,390
  -15,397
  -16,444
  -17,532
  -18,664
  -19,842
  -21,069
  -22,346
  -23,677
  -25,065
  -26,512
New CAPEX, $m
  -2,051
  -7,693
  -8,525
  -9,354
  -10,171
  -10,972
  -11,755
  -12,520
  -13,266
  -13,997
  -14,716
  -15,425
  -16,129
  -16,833
  -17,541
  -18,259
  -18,991
  -19,743
  -20,518
  -21,321
  -22,158
  -23,031
  -23,946
  -24,907
  -25,917
  -26,980
  -28,100
  -29,282
  -30,528
  -31,842
  -33,229
Cash from investing activities, $m
  -416
  -9,459
  -10,640
  -11,857
  -13,099
  -14,362
  -15,644
  -16,943
  -18,258
  -19,592
  -20,948
  -22,326
  -23,731
  -25,168
  -26,641
  -28,156
  -29,718
  -31,333
  -33,006
  -34,741
  -36,548
  -38,428
  -40,390
  -42,439
  -44,581
  -46,822
  -49,169
  -51,628
  -54,205
  -56,907
  -59,741
Free cash flow, $m
  3,248
  -9,706
  -11,139
  -12,636
  -14,190
  -15,795
  -17,449
  -19,149
  -20,895
  -22,686
  -24,525
  -26,414
  -28,356
  -30,355
  -32,417
  -34,545
  -36,746
  -39,026
  -41,390
  -43,844
  -46,397
  -49,054
  -51,822
  -54,709
  -57,722
  -60,869
  -64,159
  -67,599
  -71,198
  -74,965
  -78,910
Issuance/(repayment) of debt, $m
  -972
  8,342
  9,258
  10,157
  11,044
  11,914
  12,765
  13,595
  14,406
  15,200
  15,980
  16,750
  17,515
  18,279
  19,048
  19,828
  20,623
  21,439
  22,280
  23,153
  24,061
  25,010
  26,004
  27,047
  28,143
  29,298
  30,514
  31,797
  33,150
  34,578
  36,084
Issuance/(repurchase) of shares, $m
  9
  3,483
  4,194
  5,017
  5,905
  6,858
  7,874
  8,951
  10,088
  11,284
  12,538
  13,849
  15,217
  16,643
  18,128
  19,672
  21,276
  22,944
  24,676
  26,477
  28,348
  30,293
  32,315
  34,420
  36,611
  38,892
  41,269
  43,746
  46,331
  49,027
  51,842
Cash from financing (excl. dividends), $m  
  -1,917
  11,825
  13,452
  15,174
  16,949
  18,772
  20,639
  22,546
  24,494
  26,484
  28,518
  30,599
  32,732
  34,922
  37,176
  39,500
  41,899
  44,383
  46,956
  49,630
  52,409
  55,303
  58,319
  61,467
  64,754
  68,190
  71,783
  75,543
  79,481
  83,605
  87,926
Total cash flow (excl. dividends), $m
  1,331
  2,119
  2,313
  2,538
  2,760
  2,977
  3,189
  3,397
  3,599
  3,798
  3,993
  4,185
  4,376
  4,567
  4,759
  4,954
  5,153
  5,357
  5,567
  5,785
  6,012
  6,249
  6,497
  6,758
  7,032
  7,320
  7,624
  7,945
  8,283
  8,639
  9,016
Retained Cash Flow (-), $m
  1,505
  -3,483
  -4,194
  -5,017
  -5,905
  -6,858
  -7,874
  -8,951
  -10,088
  -11,284
  -12,538
  -13,849
  -15,217
  -16,643
  -18,128
  -19,672
  -21,276
  -22,944
  -24,676
  -26,477
  -28,348
  -30,293
  -32,315
  -34,420
  -36,611
  -38,892
  -41,269
  -43,746
  -46,331
  -49,027
  -51,842
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
 
  -1,364
  -1,881
  -2,479
  -3,145
  -3,881
  -4,684
  -5,554
  -6,489
  -7,486
  -8,545
  -9,664
  -10,841
  -12,076
  -13,368
  -14,717
  -16,123
  -17,587
  -19,109
  -20,692
  -22,336
  -24,044
  -25,818
  -27,662
  -29,579
  -31,572
  -33,644
  -35,802
  -38,048
  -40,388
  -42,826
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
 
  -1,217
  -1,481
  -1,702
  -1,862
  -1,954
  -1,979
  -1,940
  -1,845
  -1,704
  -1,530
  -1,336
  -1,134
  -937
  -752
  -587
  -445
  -327
  -233
  -161
  -108
  -69
  -43
  -26
  -15
  -8
  -4
  -2
  -1
  -1
  0
Current shareholders' claim on cash, %
  100
  88.3
  78.0
  68.8
  60.7
  53.5
  47.1
  41.5
  36.6
  32.3
  28.5
  25.1
  22.2
  19.6
  17.3
  15.2
  13.5
  11.9
  10.5
  9.3
  8.2
  7.3
  6.4
  5.7
  5.0
  4.4
  3.9
  3.5
  3.1
  2.7
  2.4

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 -55.9
Price to Sales 3.2
Price to Book 5.1
Price to Tangible Book
Price to Cash Flow 6.5
Price to Free Cash Flow 14.7
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 19.8% 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%. 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 831.539 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 $26.3 billion.

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COMPANY NEWS

▶ Williams Partners Announces Quarterly Cash Distribution   [Jul-24-17 02:36PM  Business Wire]
▶ Is Williams Companies a Buy at Current Price Levels?   [Jul-20-17 12:14PM  Market Realist]
▶ Top Ranked Growth Stocks to Buy for July 13th   [Jul-13-17 11:53AM  Zacks]
▶ What Williams Companies Technical Indicators Are Suggesting   [Jul-12-17 06:05PM  Market Realist]
▶ Williams Companies: The Latest Wall Street Ratings   [Jul-03-17 10:38AM  Market Realist]
▶ Williams Companies Expected Price Range: The Next 7 Days   [Jun-30-17 05:05PM  Market Realist]
▶ [$$] Six MLPs to Buck the Correction   [Jun-29-17 12:06PM  Barrons.com]
▶ Weekly Top Insider Buys Highlight for the Week of June 23   [Jun-24-17 06:40PM  GuruFocus.com]
▶ Can Williams Partners Bounce Back from Its YTD Lows?   [Jun-23-17 05:18PM  Market Realist]
▶ Better Buy: Kinder Morgan, Inc. vs. Williams Partners LP   [Jun-21-17 02:30PM  Motley Fool]
▶ Most Analysts Rate Williams Companies A Buy   [Jun-16-17 10:38AM  Market Realist]
▶ A Look at Williams Companies Price Forecast amid Uncertainty   [Jun-15-17 05:05PM  Market Realist]
▶ Could Williams Companies Bounce Back?   [03:19PM  Market Realist]
▶ 3 Large-Cap Stocks for Savvy Investors   [Jun-09-17 03:03PM  Motley Fool]
▶ Are Wall Street Analysts Bullish on Williams Companies?   [Jun-08-17 09:06AM  Market Realist]
▶ What Do Williams Companies Technical Indicators Suggest?   [Jun-07-17 01:35PM  Market Realist]
▶ What Analysts Recommend for Williams Companies   [Jun-01-17 07:36AM  Market Realist]
▶ Williams Partners Prices $1.45 Billion of Senior Notes   [May-31-17 05:20PM  Business Wire]
▶ Is Williams Companies Relative Valuation Low?   [10:38AM  Market Realist]
▶ Williams Companies Current Valuation: Whats the Story?   [May-25-17 04:06PM  Market Realist]
▶ Can Williams Companies Gain Upward Momentum?   [02:36PM  Market Realist]
▶ ETE, EPD, KMI, and WMB: Analyzing Earnings Growth in 2017   [May-23-17 10:38AM  Market Realist]
▶ The 1 Stock You've Been Overlooking for Your IRA   [May-20-17 12:00PM  Motley Fool]
▶ Williams Announces Quarterly Cash Dividend   [May-18-17 11:48AM  Business Wire]
▶ Williams Companies Updated Ratings after Wells Fargo Upgrade   [May-17-17 09:07AM  Market Realist]
▶ Is Williams Companies Cheaper Compared to Its Peers?   [May-16-17 10:39AM  Market Realist]
Stock chart of WMB Financial statements of WMB Annual reports 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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