Intrinsic value of Wal-Mart Stores - WMT

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$74.94

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$74.94

 
Intrinsic value

$73.17

 
Up/down potential

-2%

 
Rating

hold

 
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 WMT 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 2017), $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 231.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  0.78
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  485,873
  495,590
  506,989
  520,019
  534,647
  550,856
  568,640
  588,006
  608,969
  631,554
  655,791
  681,721
  709,389
  738,848
  770,156
  803,378
  838,585
  875,852
  915,263
  956,905
  1,000,872
  1,047,265
  1,096,191
  1,147,762
  1,202,098
  1,259,326
  1,319,580
  1,383,002
  1,449,739
  1,519,950
  1,593,800
Variable operating expenses, $m
 
  470,777
  481,566
  493,898
  507,743
  523,085
  539,918
  558,248
  578,089
  599,465
  622,406
  645,244
  671,432
  699,315
  728,948
  760,392
  793,715
  828,988
  866,290
  905,704
  947,319
  991,230
  1,037,537
  1,086,349
  1,137,778
  1,191,944
  1,248,974
  1,309,002
  1,372,169
  1,438,623
  1,508,521
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
  463,109
  470,777
  481,566
  493,898
  507,743
  523,085
  539,918
  558,248
  578,089
  599,465
  622,406
  645,244
  671,432
  699,315
  728,948
  760,392
  793,715
  828,988
  866,290
  905,704
  947,319
  991,230
  1,037,537
  1,086,349
  1,137,778
  1,191,944
  1,248,974
  1,309,002
  1,372,169
  1,438,623
  1,508,521
Operating income, $m
  22,764
  24,814
  25,423
  26,121
  26,903
  27,771
  28,722
  29,758
  30,880
  32,089
  33,385
  36,476
  37,957
  39,533
  41,208
  42,986
  44,870
  46,864
  48,972
  51,201
  53,553
  56,035
  58,653
  61,413
  64,320
  67,382
  70,606
  74,000
  77,570
  81,327
  85,279
EBITDA, $m
  32,844
  35,483
  36,299
  37,232
  38,280
  39,440
  40,714
  42,100
  43,601
  45,218
  46,953
  48,810
  50,791
  52,900
  55,142
  57,520
  60,041
  62,709
  65,531
  68,513
  71,661
  74,982
  78,485
  82,178
  86,068
  90,165
  94,479
  99,020
  103,799
  108,825
  114,113
Interest expense (income), $m
  0
  1,471
  1,552
  1,649
  1,758
  1,882
  2,019
  2,169
  2,332
  2,509
  2,699
  2,904
  3,122
  3,356
  3,604
  3,868
  4,149
  4,446
  4,760
  5,092
  5,444
  5,815
  6,206
  6,619
  7,054
  7,512
  7,995
  8,503
  9,038
  9,601
  10,193
Earnings before tax, $m
  20,497
  23,343
  23,871
  24,472
  25,145
  25,889
  26,704
  27,590
  28,548
  29,580
  30,686
  33,573
  34,834
  36,177
  37,604
  39,117
  40,721
  42,418
  44,212
  46,108
  48,109
  50,221
  52,447
  54,794
  57,266
  59,870
  62,611
  65,496
  68,532
  71,726
  75,085
Tax expense, $m
  6,204
  6,303
  6,445
  6,607
  6,789
  6,990
  7,210
  7,449
  7,708
  7,987
  8,285
  9,065
  9,405
  9,768
  10,153
  10,562
  10,995
  11,453
  11,937
  12,449
  12,990
  13,560
  14,161
  14,794
  15,462
  16,165
  16,905
  17,684
  18,504
  19,366
  20,273
Net income, $m
  13,643
  17,040
  17,426
  17,865
  18,356
  18,899
  19,494
  20,141
  20,840
  21,593
  22,401
  24,508
  25,429
  26,409
  27,451
  28,556
  29,726
  30,965
  32,275
  33,659
  35,120
  36,661
  38,287
  40,000
  41,804
  43,705
  45,706
  47,812
  50,029
  52,360
  54,812

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,867
  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
  198,825
  195,808
  200,312
  205,460
  211,239
  217,643
  224,670
  232,322
  240,604
  249,527
  259,103
  269,348
  280,280
  291,919
  304,289
  317,415
  331,325
  346,050
  361,621
  378,074
  395,445
  413,775
  433,106
  453,481
  474,950
  497,561
  521,367
  546,425
  572,793
  600,533
  629,711
Adjusted assets (=assets-cash), $m
  191,958
  195,808
  200,312
  205,460
  211,239
  217,643
  224,670
  232,322
  240,604
  249,527
  259,103
  269,348
  280,280
  291,919
  304,289
  317,415
  331,325
  346,050
  361,621
  378,074
  395,445
  413,775
  433,106
  453,481
  474,950
  497,561
  521,367
  546,425
  572,793
  600,533
  629,711
Revenue / Adjusted assets
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
  2.531
Average production assets, $m
  115,347
  117,455
  120,156
  123,244
  126,711
  130,553
  134,768
  139,357
  144,326
  149,678
  155,422
  161,568
  168,125
  175,107
  182,527
  190,401
  198,745
  207,577
  216,917
  226,786
  237,207
  248,202
  259,797
  272,020
  284,897
  298,460
  312,741
  327,771
  343,588
  360,228
  377,731
Working capital, $m
  -9,239
  -12,390
  -12,675
  -13,000
  -13,366
  -13,771
  -14,216
  -14,700
  -15,224
  -15,789
  -16,395
  -17,043
  -17,735
  -18,471
  -19,254
  -20,084
  -20,965
  -21,896
  -22,882
  -23,923
  -25,022
  -26,182
  -27,405
  -28,694
  -30,052
  -31,483
  -32,990
  -34,575
  -36,243
  -37,999
  -39,845
Total debt, $m
  45,938
  44,354
  47,101
  50,241
  53,767
  57,674
  61,960
  66,627
  71,680
  77,123
  82,964
  89,213
  95,882
  102,982
  110,527
  118,534
  127,020
  136,001
  145,500
  155,536
  166,133
  177,314
  189,105
  201,535
  214,630
  228,423
  242,945
  258,230
  274,315
  291,236
  309,035
Total liabilities, $m
  121,027
  119,443
  122,190
  125,330
  128,856
  132,763
  137,049
  141,716
  146,769
  152,212
  158,053
  164,302
  170,971
  178,071
  185,616
  193,623
  202,109
  211,090
  220,589
  230,625
  241,222
  252,403
  264,194
  276,624
  289,719
  303,512
  318,034
  333,319
  349,404
  366,325
  384,124
Total equity, $m
  77,798
  76,365
  78,122
  80,129
  82,383
  84,881
  87,621
  90,605
  93,836
  97,316
  101,050
  105,046
  109,309
  113,849
  118,673
  123,792
  129,217
  134,959
  141,032
  147,449
  154,224
  161,372
  168,911
  176,858
  185,230
  194,049
  203,333
  213,106
  223,389
  234,208
  245,587
Total liabilities and equity, $m
  198,825
  195,808
  200,312
  205,459
  211,239
  217,644
  224,670
  232,321
  240,605
  249,528
  259,103
  269,348
  280,280
  291,920
  304,289
  317,415
  331,326
  346,049
  361,621
  378,074
  395,446
  413,775
  433,105
  453,482
  474,949
  497,561
  521,367
  546,425
  572,793
  600,533
  629,711
Debt-to-equity ratio
  0.590
  0.580
  0.600
  0.630
  0.650
  0.680
  0.710
  0.740
  0.760
  0.790
  0.820
  0.850
  0.880
  0.900
  0.930
  0.960
  0.980
  1.010
  1.030
  1.050
  1.080
  1.100
  1.120
  1.140
  1.160
  1.180
  1.190
  1.210
  1.230
  1.240
  1.260
Adjusted equity ratio
  0.375
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13,643
  17,040
  17,426
  17,865
  18,356
  18,899
  19,494
  20,141
  20,840
  21,593
  22,401
  24,508
  25,429
  26,409
  27,451
  28,556
  29,726
  30,965
  32,275
  33,659
  35,120
  36,661
  38,287
  40,000
  41,804
  43,705
  45,706
  47,812
  50,029
  52,360
  54,812
Depreciation, amort., depletion, $m
  10,080
  10,670
  10,876
  11,112
  11,376
  11,670
  11,991
  12,342
  12,721
  13,130
  13,568
  12,333
  12,834
  13,367
  13,933
  14,534
  15,171
  15,846
  16,559
  17,312
  18,107
  18,947
  19,832
  20,765
  21,748
  22,783
  23,873
  25,021
  26,228
  27,498
  28,834
Funds from operations, $m
  37,720
  27,710
  28,302
  28,976
  29,732
  30,568
  31,485
  32,482
  33,561
  34,723
  35,969
  36,842
  38,263
  39,776
  41,384
  43,090
  44,898
  46,811
  48,834
  50,971
  53,227
  55,608
  58,118
  60,764
  63,552
  66,488
  69,580
  72,833
  76,257
  79,858
  83,647
Change in working capital, $m
  6,190
  -243
  -285
  -326
  -366
  -405
  -445
  -484
  -524
  -565
  -606
  -648
  -692
  -736
  -783
  -831
  -880
  -932
  -985
  -1,041
  -1,099
  -1,160
  -1,223
  -1,289
  -1,358
  -1,431
  -1,506
  -1,586
  -1,668
  -1,755
  -1,846
Cash from operations, $m
  31,530
  26,784
  28,587
  29,302
  30,098
  30,974
  31,930
  32,966
  34,085
  35,287
  36,575
  37,490
  38,955
  40,513
  42,167
  43,921
  45,778
  47,742
  49,819
  52,012
  54,326
  56,768
  59,342
  62,054
  64,911
  67,919
  71,086
  74,419
  77,925
  81,614
  85,493
Maintenance CAPEX, $m
  0
  -8,805
  -8,966
  -9,172
  -9,408
  -9,673
  -9,966
  -10,288
  -10,638
  -11,017
  -11,426
  -11,864
  -12,333
  -12,834
  -13,367
  -13,933
  -14,534
  -15,171
  -15,846
  -16,559
  -17,312
  -18,107
  -18,947
  -19,832
  -20,765
  -21,748
  -22,783
  -23,873
  -25,021
  -26,228
  -27,498
New CAPEX, $m
  -10,619
  -2,108
  -2,701
  -3,088
  -3,467
  -3,842
  -4,215
  -4,590
  -4,968
  -5,352
  -5,744
  -6,145
  -6,557
  -6,982
  -7,420
  -7,874
  -8,344
  -8,832
  -9,340
  -9,869
  -10,420
  -10,995
  -11,595
  -12,222
  -12,878
  -13,563
  -14,280
  -15,031
  -15,817
  -16,640
  -17,502
Cash from investing activities, $m
  -13,987
  -10,913
  -11,667
  -12,260
  -12,875
  -13,515
  -14,181
  -14,878
  -15,606
  -16,369
  -17,170
  -18,009
  -18,890
  -19,816
  -20,787
  -21,807
  -22,878
  -24,003
  -25,186
  -26,428
  -27,732
  -29,102
  -30,542
  -32,054
  -33,643
  -35,311
  -37,063
  -38,904
  -40,838
  -42,868
  -45,000
Free cash flow, $m
  17,543
  15,871
  16,919
  17,042
  17,223
  17,459
  17,749
  18,089
  18,479
  18,918
  19,405
  19,480
  20,064
  20,697
  21,380
  22,114
  22,899
  23,739
  24,633
  25,584
  26,594
  27,665
  28,799
  30,000
  31,268
  32,608
  34,022
  35,515
  37,088
  38,746
  40,492
Issuance/(repayment) of debt, $m
  -3,591
  2,336
  2,747
  3,140
  3,526
  3,907
  4,286
  4,667
  5,052
  5,443
  5,841
  6,249
  6,668
  7,100
  7,546
  8,007
  8,485
  8,982
  9,498
  10,036
  10,597
  11,181
  11,792
  12,429
  13,096
  13,793
  14,522
  15,285
  16,084
  16,922
  17,799
Issuance/(repurchase) of shares, $m
  -8,298
  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  
  -12,713
  2,336
  2,747
  3,140
  3,526
  3,907
  4,286
  4,667
  5,052
  5,443
  5,841
  6,249
  6,668
  7,100
  7,546
  8,007
  8,485
  8,982
  9,498
  10,036
  10,597
  11,181
  11,792
  12,429
  13,096
  13,793
  14,522
  15,285
  16,084
  16,922
  17,799
Total cash flow (excl. dividends), $m
  4,378
  18,207
  19,667
  20,182
  20,749
  21,366
  22,035
  22,756
  23,531
  24,361
  25,246
  25,729
  26,732
  27,797
  28,926
  30,121
  31,385
  32,721
  34,131
  35,620
  37,191
  38,846
  40,591
  42,429
  44,364
  46,401
  48,544
  50,800
  53,172
  55,667
  58,291
Retained Cash Flow (-), $m
  2,748
  -1,514
  -1,756
  -2,008
  -2,254
  -2,498
  -2,740
  -2,984
  -3,230
  -3,480
  -3,735
  -3,995
  -4,263
  -4,539
  -4,824
  -5,119
  -5,425
  -5,743
  -6,073
  -6,417
  -6,775
  -7,149
  -7,539
  -7,947
  -8,373
  -8,818
  -9,285
  -9,773
  -10,284
  -10,819
  -11,379
Prev. year cash balance distribution, $m
 
  2,947
  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
 
  19,640
  17,910
  18,174
  18,494
  18,868
  19,295
  19,772
  20,301
  20,881
  21,511
  21,734
  22,469
  23,258
  24,101
  25,001
  25,960
  26,978
  28,059
  29,204
  30,416
  31,698
  33,052
  34,482
  35,991
  37,582
  39,260
  41,027
  42,889
  44,848
  46,911
Discount rate, %
 
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
 
  18,812
  16,363
  15,767
  15,161
  14,541
  13,902
  13,240
  12,555
  11,846
  11,115
  10,150
  9,407
  8,654
  7,896
  7,142
  6,399
  5,674
  4,977
  4,314
  3,693
  3,119
  2,597
  2,129
  1,718
  1,362
  1,061
  810
  606
  444
  318
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

Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. It operates through three segments: Walmart U.S., Walmart International, and Sam’s Club. The company operates discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, cash and carry stores, home improvement stores, specialty electronics stores, apparel stores, drug stores, convenience stores, and membership-only warehouse clubs; and retail Websites, such as walmart.com and samsclub.com. It offers grocery products, including meat, produce, natural and organics, deli and bakery, dairy, frozen foods, alcoholic and nonalcoholic beverages, floral and dry grocery, as well as consumables, such as health and beauty aids, baby products, household chemicals, paper goods, and pet supplies; and health and wellness products, which include pharmacy, optical services, clinical services, over-the-counter drugs, and other medical products. The company also provides electronics, toys, cameras and supplies, photo processing services, cellular phones, cellular service plan contracts and prepaid service, movies, music, video games, and books; stationery, automotive, hardware and paint, and sporting goods, as well as fabrics, crafts, and seasonal merchandise; apparel for women, girls, men, boys, and infants, as well as shoes, jewelry, and accessories; and home furnishings, housewares and small appliances, bedding, home decor, outdoor living, and horticulture products. The company also provides fuel and financial services and related products, including money orders, prepaid cards, wire transfers, money transfers, check cashing, and bill payment. In addition, it offers brand name merchandise, including hardgoods, softgoods, and selected private-label items, such as Member’s Mark. As of June 20, 2016, it operated 11,527 stores under 63 banners in 28 countries and e-commerce Websites in 11 countries. Wal-Mart Stores, Inc. was founded in 1945 and is headquartered in Bentonville, Arkansas.

FINANCIAL RATIOS  of  Wal-Mart Stores (WMT)

Valuation Ratios
P/E Ratio 16.9
Price to Sales 0.5
Price to Book 3
Price to Tangible Book
Price to Cash Flow 7.3
Price to Free Cash Flow 11
Growth Rates
Sales Growth Rate 0.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -7.5%
Cap. Spend. - 3 Yr. Gr. Rate -4.1%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 54%
Total Debt to Equity 59%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.8%
Ret/ On Assets - 3 Yr. Avg. 7.9%
Return On Total Capital 10.7%
Ret/ On T. Cap. - 3 Yr. Avg. 11.4%
Return On Equity 17.2%
Return On Equity - 3 Yr. Avg. 18.7%
Asset Turnover 2.4
Profitability Ratios
Gross Margin 25.6%
Gross Margin - 3 Yr. Avg. 25.2%
EBITDA Margin 6.3%
EBITDA Margin - 3 Yr. Avg. 6.9%
Operating Margin 4.7%
Oper. Margin - 3 Yr. Avg. 5.1%
Pre-Tax Margin 4.2%
Pre-Tax Margin - 3 Yr. Avg. 4.6%
Net Profit Margin 2.8%
Net Profit Margin - 3 Yr. Avg. 3.1%
Effective Tax Rate 30.3%
Eff/ Tax Rate - 3 Yr. Avg. 30.9%
Payout Ratio 45.6%

WMT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WMT stock intrinsic value calculation we used $485873 million for the last fiscal year's total revenue generated by Wal-Mart Stores. The default revenue input number comes from 2017 income statement of Wal-Mart Stores. 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 WMT stock valuation model: a) initial revenue growth rate of 2% 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 4.4%, whose default value for WMT is calculated based on our internal credit rating of Wal-Mart Stores, 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 Wal-Mart Stores.
    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 WMT stock the variable cost ratio is equal to 95%.

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 WMT stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Wal-Mart Stores.

Corporate tax rate of 27% is the nominal tax rate for Wal-Mart Stores. 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 WMT 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 WMT are equal to 23.7%.

Life of production assets of 13.1 years is the average useful life of capital assets used in Wal-Mart Stores 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 WMT is equal to -2.5%. 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 - $77798 million for Wal-Mart Stores - 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 3094.2 million for Wal-Mart Stores 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 Wal-Mart Stores at the current share price and the inputted number of shares is $231.9 billion.


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Stock chart of WMT Financial statements of WMT
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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