Intrinsic value of Xylem - XYL

Previous Close

$59.93

  Intrinsic Value

$79.79

stock screener

  Rating & Target

buy

+33%

  Value-price divergence*

+43%

Previous close

$59.93

 
Intrinsic value

$79.79

 
Up/down potential

+33%

 
Rating

buy

 
Value-price divergence*

+43%

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

We calculate the intrinsic value of XYL 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 10.6

 

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, %
  3.23
  26.40
  24.26
  22.33
  20.60
  19.04
  17.64
  16.37
  15.24
  14.21
  13.29
  12.46
  11.72
  11.04
  10.44
  9.90
  9.41
  8.97
  8.57
  8.21
  7.89
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.24
  6.12
  6.01
Revenue, $m
  3,771
  4,767
  5,923
  7,246
  8,738
  10,402
  12,237
  14,240
  16,410
  18,742
  21,233
  23,879
  26,677
  29,623
  32,715
  35,953
  39,334
  42,861
  46,534
  50,355
  54,328
  58,458
  62,750
  67,210
  71,845
  76,664
  81,675
  86,888
  92,314
  97,963
  103,849
Variable operating expenses, $m
 
  4,101
  5,032
  6,097
  7,299
  8,639
  10,116
  11,730
  13,477
  15,354
  17,360
  19,228
  21,480
  23,852
  26,343
  28,949
  31,672
  34,512
  37,469
  40,546
  43,746
  47,071
  50,527
  54,118
  57,850
  61,730
  65,765
  69,963
  74,331
  78,880
  83,619
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
  3,365
  4,101
  5,032
  6,097
  7,299
  8,639
  10,116
  11,730
  13,477
  15,354
  17,360
  19,228
  21,480
  23,852
  26,343
  28,949
  31,672
  34,512
  37,469
  40,546
  43,746
  47,071
  50,527
  54,118
  57,850
  61,730
  65,765
  69,963
  74,331
  78,880
  83,619
Operating income, $m
  406
  665
  891
  1,148
  1,439
  1,763
  2,120
  2,511
  2,933
  3,388
  3,873
  4,652
  5,197
  5,770
  6,373
  7,003
  7,662
  8,349
  9,065
  9,809
  10,583
  11,387
  12,223
  13,092
  13,995
  14,934
  15,910
  16,925
  17,982
  19,083
  20,229
EBITDA, $m
  557
  1,003
  1,246
  1,524
  1,838
  2,188
  2,574
  2,996
  3,452
  3,943
  4,467
  5,024
  5,612
  6,232
  6,883
  7,564
  8,275
  9,017
  9,790
  10,594
  11,430
  12,299
  13,202
  14,140
  15,115
  16,129
  17,183
  18,280
  19,421
  20,610
  21,848
Interest expense (income), $m
  49
  74
  111
  154
  204
  259
  321
  390
  465
  546
  633
  726
  825
  929
  1,039
  1,155
  1,276
  1,402
  1,534
  1,671
  1,813
  1,962
  2,116
  2,276
  2,443
  2,616
  2,796
  2,983
  3,178
  3,380
  3,591
Earnings before tax, $m
  340
  592
  780
  994
  1,235
  1,504
  1,799
  2,121
  2,469
  2,842
  3,240
  3,926
  4,372
  4,841
  5,334
  5,849
  6,387
  6,947
  7,531
  8,138
  8,770
  9,426
  10,107
  10,816
  11,552
  12,318
  13,114
  13,942
  14,805
  15,702
  16,638
Tax expense, $m
  80
  160
  210
  268
  334
  406
  486
  573
  667
  767
  875
  1,060
  1,180
  1,307
  1,440
  1,579
  1,724
  1,876
  2,033
  2,197
  2,368
  2,545
  2,729
  2,920
  3,119
  3,326
  3,541
  3,764
  3,997
  4,240
  4,492
Net income, $m
  260
  432
  569
  726
  902
  1,098
  1,313
  1,548
  1,802
  2,075
  2,365
  2,866
  3,191
  3,534
  3,894
  4,270
  4,662
  5,071
  5,498
  5,941
  6,402
  6,881
  7,378
  7,896
  8,433
  8,992
  9,573
  10,178
  10,807
  11,463
  12,146

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  308
  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
  6,474
  7,788
  9,678
  11,839
  14,278
  16,997
  19,995
  23,269
  26,814
  30,624
  34,695
  39,018
  43,589
  48,403
  53,456
  58,746
  64,272
  70,034
  76,035
  82,279
  88,772
  95,520
  102,533
  109,820
  117,394
  125,268
  133,456
  141,974
  150,839
  160,071
  169,688
Adjusted assets (=assets-cash), $m
  6,166
  7,788
  9,678
  11,839
  14,278
  16,997
  19,995
  23,269
  26,814
  30,624
  34,695
  39,018
  43,589
  48,403
  53,456
  58,746
  64,272
  70,034
  76,035
  82,279
  88,772
  95,520
  102,533
  109,820
  117,394
  125,268
  133,456
  141,974
  150,839
  160,071
  169,688
Revenue / Adjusted assets
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
  0.612
Average production assets, $m
  1,346
  1,702
  2,114
  2,587
  3,120
  3,714
  4,369
  5,084
  5,858
  6,691
  7,580
  8,525
  9,524
  10,575
  11,679
  12,835
  14,042
  15,301
  16,613
  17,977
  19,395
  20,870
  22,402
  23,994
  25,649
  27,369
  29,158
  31,019
  32,956
  34,973
  37,074
Working capital, $m
  601
  701
  871
  1,065
  1,285
  1,529
  1,799
  2,093
  2,412
  2,755
  3,121
  3,510
  3,921
  4,355
  4,809
  5,285
  5,782
  6,301
  6,840
  7,402
  7,986
  8,593
  9,224
  9,880
  10,561
  11,270
  12,006
  12,773
  13,570
  14,401
  15,266
Total debt, $m
  2,368
  3,170
  4,404
  5,815
  7,408
  9,183
  11,141
  13,278
  15,593
  18,082
  20,740
  23,563
  26,548
  29,691
  32,991
  36,445
  40,054
  43,816
  47,735
  51,813
  56,052
  60,459
  65,038
  69,797
  74,742
  79,884
  85,231
  90,793
  96,582
  102,610
  108,890
Total liabilities, $m
  4,284
  5,086
  6,320
  7,731
  9,324
  11,099
  13,057
  15,194
  17,509
  19,998
  22,656
  25,479
  28,464
  31,607
  34,907
  38,361
  41,970
  45,732
  49,651
  53,729
  57,968
  62,375
  66,954
  71,713
  76,658
  81,800
  87,147
  92,709
  98,498
  104,526
  110,806
Total equity, $m
  2,190
  2,703
  3,358
  4,108
  4,955
  5,898
  6,938
  8,074
  9,304
  10,627
  12,039
  13,539
  15,125
  16,796
  18,549
  20,385
  22,302
  24,302
  26,384
  28,551
  30,804
  33,146
  35,579
  38,108
  40,736
  43,468
  46,309
  49,265
  52,341
  55,544
  58,882
Total liabilities and equity, $m
  6,474
  7,789
  9,678
  11,839
  14,279
  16,997
  19,995
  23,268
  26,813
  30,625
  34,695
  39,018
  43,589
  48,403
  53,456
  58,746
  64,272
  70,034
  76,035
  82,280
  88,772
  95,521
  102,533
  109,821
  117,394
  125,268
  133,456
  141,974
  150,839
  160,070
  169,688
Debt-to-equity ratio
  1.081
  1.170
  1.310
  1.420
  1.500
  1.560
  1.610
  1.640
  1.680
  1.700
  1.720
  1.740
  1.760
  1.770
  1.780
  1.790
  1.800
  1.800
  1.810
  1.810
  1.820
  1.820
  1.830
  1.830
  1.830
  1.840
  1.840
  1.840
  1.850
  1.850
  1.850
Adjusted equity ratio
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  260
  432
  569
  726
  902
  1,098
  1,313
  1,548
  1,802
  2,075
  2,365
  2,866
  3,191
  3,534
  3,894
  4,270
  4,662
  5,071
  5,498
  5,941
  6,402
  6,881
  7,378
  7,896
  8,433
  8,992
  9,573
  10,178
  10,807
  11,463
  12,146
Depreciation, amort., depletion, $m
  151
  338
  356
  376
  399
  425
  454
  485
  519
  555
  594
  372
  416
  462
  510
  560
  613
  668
  725
  785
  847
  911
  978
  1,048
  1,120
  1,195
  1,273
  1,355
  1,439
  1,527
  1,619
Funds from operations, $m
  558
  769
  925
  1,102
  1,301
  1,523
  1,767
  2,033
  2,321
  2,630
  2,959
  3,238
  3,607
  3,996
  4,404
  4,830
  5,275
  5,740
  6,223
  6,726
  7,249
  7,792
  8,357
  8,943
  9,553
  10,187
  10,846
  11,532
  12,246
  12,990
  13,765
Change in working capital, $m
  61
  146
  170
  194
  219
  245
  270
  295
  319
  343
  366
  389
  411
  433
  455
  476
  497
  518
  540
  562
  584
  607
  631
  656
  681
  708
  737
  766
  798
  830
  865
Cash from operations, $m
  497
  623
  755
  907
  1,082
  1,279
  1,498
  1,739
  2,002
  2,287
  2,593
  2,849
  3,196
  3,563
  3,949
  4,354
  4,778
  5,221
  5,683
  6,164
  6,665
  7,185
  7,726
  8,288
  8,872
  9,479
  10,110
  10,766
  11,449
  12,160
  12,899
Maintenance CAPEX, $m
  0
  -59
  -74
  -92
  -113
  -136
  -162
  -191
  -222
  -256
  -292
  -331
  -372
  -416
  -462
  -510
  -560
  -613
  -668
  -725
  -785
  -847
  -911
  -978
  -1,048
  -1,120
  -1,195
  -1,273
  -1,355
  -1,439
  -1,527
New CAPEX, $m
  -124
  -356
  -413
  -472
  -533
  -594
  -655
  -715
  -775
  -833
  -889
  -945
  -999
  -1,052
  -1,104
  -1,156
  -1,207
  -1,259
  -1,311
  -1,364
  -1,419
  -1,474
  -1,532
  -1,592
  -1,655
  -1,720
  -1,789
  -1,861
  -1,937
  -2,017
  -2,101
Cash from investing activities, $m
  -1,886
  -415
  -487
  -564
  -646
  -730
  -817
  -906
  -997
  -1,089
  -1,181
  -1,276
  -1,371
  -1,468
  -1,566
  -1,666
  -1,767
  -1,872
  -1,979
  -2,089
  -2,204
  -2,321
  -2,443
  -2,570
  -2,703
  -2,840
  -2,984
  -3,134
  -3,292
  -3,456
  -3,628
Free cash flow, $m
  -1,389
  208
  268
  343
  436
  548
  680
  833
  1,006
  1,199
  1,412
  1,573
  1,825
  2,095
  2,383
  2,688
  3,011
  3,349
  3,704
  4,075
  4,461
  4,864
  5,282
  5,717
  6,169
  6,639
  7,126
  7,632
  8,157
  8,703
  9,271
Issuance/(repayment) of debt, $m
  1,126
  1,062
  1,234
  1,411
  1,593
  1,775
  1,957
  2,138
  2,315
  2,488
  2,658
  2,823
  2,985
  3,144
  3,300
  3,454
  3,608
  3,763
  3,919
  4,077
  4,240
  4,407
  4,579
  4,759
  4,946
  5,141
  5,347
  5,562
  5,789
  6,028
  6,280
Issuance/(repurchase) of shares, $m
  20
  129
  87
  24
  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  
  1,146
  1,191
  1,321
  1,435
  1,593
  1,775
  1,957
  2,138
  2,315
  2,488
  2,658
  2,823
  2,985
  3,144
  3,300
  3,454
  3,608
  3,763
  3,919
  4,077
  4,240
  4,407
  4,579
  4,759
  4,946
  5,141
  5,347
  5,562
  5,789
  6,028
  6,280
Total cash flow (excl. dividends), $m
  -260
  1,399
  1,588
  1,779
  2,029
  2,324
  2,638
  2,971
  3,321
  3,687
  4,070
  4,397
  4,810
  5,239
  5,683
  6,143
  6,619
  7,112
  7,623
  8,152
  8,701
  9,270
  9,862
  10,476
  11,115
  11,780
  12,472
  13,194
  13,947
  14,732
  15,551
Retained Cash Flow (-), $m
  -106
  -561
  -656
  -750
  -846
  -943
  -1,040
  -1,136
  -1,230
  -1,322
  -1,412
  -1,500
  -1,586
  -1,670
  -1,753
  -1,836
  -1,917
  -2,000
  -2,082
  -2,167
  -2,253
  -2,342
  -2,433
  -2,529
  -2,628
  -2,732
  -2,841
  -2,956
  -3,076
  -3,203
  -3,337
Prev. year cash balance distribution, $m
 
  48
  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
 
  886
  932
  1,029
  1,182
  1,380
  1,598
  1,835
  2,090
  2,365
  2,657
  2,896
  3,224
  3,568
  3,929
  4,307
  4,701
  5,112
  5,540
  5,985
  6,448
  6,929
  7,428
  7,947
  8,487
  9,048
  9,631
  10,238
  10,870
  11,528
  12,214
Discount rate, %
 
  7.50
  7.88
  8.27
  8.68
  9.12
  9.57
  10.05
  10.55
  11.08
  11.63
  12.22
  12.83
  13.47
  14.14
  14.85
  15.59
  16.37
  17.19
  18.05
  18.95
  19.90
  20.89
  21.94
  23.04
  24.19
  25.40
  26.67
  28.00
  29.40
  30.87
PV of cash for distribution, $m
 
  824
  801
  810
  847
  892
  923
  938
  937
  918
  884
  815
  758
  690
  617
  540
  463
  388
  319
  256
  200
  153
  114
  83
  59
  40
  27
  17
  11
  7
  4
Current shareholders' claim on cash, %
  100
  98.8
  98.1
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0
  98.0

Xylem Inc. engages in the design, manufacture, and service of engineered solutions for the water and wastewater applications. It operates through three segments: Water Infrastructure, Applied Water, and Sensus. The Water Infrastructure segment offers various products, including water and wastewater pumps, treatment and testing equipment, and controls and systems, as well as filtration, disinfection, and biological treatment equipment under the Flygt, WEDECO, Godwin, WTW, Sanitaire, YSI, and Leopold names for the transportation, treatment, and testing of water and wastewater for public utilities and industrial applications. The Applied Water segment provides pumps, valves, heat exchangers, controls, and dispensing equipment systems under the Goulds Water Technology, Bell & Gossett, A-C Fire Pump, Standard Xchange, Lowara, Jabsco, Flojet, and Flowtronex names for residential and commercial building services, industrial water, and irrigation applications. The Sensus segment provides communications, smart metering, measurement, and control technologies and services that allow customers to use their distribution networks for the delivery of critical resources, such as water, electricity, and natural gas. This segment also offers software and services, including cloud-based analytics, remote monitoring, and data management, as well as sells smart lighting products and solutions. The company markets and sells its products through a network of direct sales force, resellers, distributors, and value-added solution providers in the United States, Europe, the Asia Pacific, and internationally. Xylem Inc. is headquartered in Rye Brook, New York.

FINANCIAL RATIOS  of  Xylem (XYL)

Valuation Ratios
P/E Ratio 41.4
Price to Sales 2.9
Price to Book 4.9
Price to Tangible Book
Price to Cash Flow 21.6
Price to Free Cash Flow 28.8
Growth Rates
Sales Growth Rate 3.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 6%
Cap. Spend. - 3 Yr. Gr. Rate -0.3%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 96.3%
Total Debt to Equity 108.1%
Interest Coverage 8
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 7.1%
Return On Total Capital 6.6%
Ret/ On T. Cap. - 3 Yr. Avg. 8.8%
Return On Equity 12.2%
Return On Equity - 3 Yr. Avg. 14.6%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 38.7%
Gross Margin - 3 Yr. Avg. 38.6%
EBITDA Margin 14.3%
EBITDA Margin - 3 Yr. Avg. 15.4%
Operating Margin 10.8%
Oper. Margin - 3 Yr. Avg. 11.8%
Pre-Tax Margin 9%
Pre-Tax Margin - 3 Yr. Avg. 10.3%
Net Profit Margin 6.9%
Net Profit Margin - 3 Yr. Avg. 8.3%
Effective Tax Rate 23.5%
Eff/ Tax Rate - 3 Yr. Avg. 19.7%
Payout Ratio 43.1%

XYL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the XYL stock intrinsic value calculation we used $3771 million for the last fiscal year's total revenue generated by Xylem. The default revenue input number comes from 2016 income statement of Xylem. 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 XYL stock valuation model: a) initial revenue growth rate of 26.4% 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 7.5%, whose default value for XYL is calculated based on our internal credit rating of Xylem, 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 Xylem.
    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 XYL stock the variable cost ratio is equal to 87.5%.

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 XYL 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 Xylem.

Corporate tax rate of 27% is the nominal tax rate for Xylem. 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 XYL 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 XYL are equal to 35.7%.

Life of production assets of 22.9 years is the average useful life of capital assets used in Xylem 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 XYL is equal to 14.7%. 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 - $2190 million for Xylem - 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 176.186 million for Xylem 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 Xylem at the current share price and the inputted number of shares is $10.6 billion.

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COMPANY NEWS

▶ Jeanne Beliveau-Dunn Appointed to Xylem Board of Directors   [Aug-16-17 06:00PM  Business Wire]
▶ Xylem tops 2Q profit forecasts   [Aug-01-17 09:44PM  Associated Press]
▶ Water Equipment And Services Stock Swimming At Top Of Buy Range   [Jul-13-17 11:02AM  Investor's Business Daily]
▶ ETFs with exposure to Xylem, Inc. : June 30, 2017   [Jun-30-17 03:37PM  Capital Cube]
▶ ETFs with exposure to Xylem, Inc. : June 19, 2017   [Jun-19-17 04:22PM  Capital Cube]
▶ Xylem Inc. declares Q2 dividend of 18 cents per share   [May-11-17 04:30PM  Business Wire]
▶ Xylem Inc. to participate in the Barclays Water Symposium   [May-09-17 09:00AM  Business Wire]
▶ Xylem CEO: Raleigh's Sensus grew 7 percent   [May-04-17 09:50AM  American City Business Journals]
▶ Xylem to host its 2017 Investor and Analyst Day   [Mar-31-17 10:10AM  Business Wire]
▶ Five ways to bet on water -Barron's   [Mar-19-17 02:50PM  Reuters]
▶ [$$] 5 Ways to Invest in Water   [Mar-18-17 01:21AM  at Barrons.com]
▶ Six months after $1.7B Sensus buy, Xylem CEO talks integration   [Feb-07-17 11:04AM  at bizjournals.com]
▶ Hedge Funds Are Buying Autoliv Inc. (ALV)   [Dec-09-16 04:44AM  at Insider Monkey]
▶ Is Xylem Inc (XYL) A Good Stock To Buy?   [Dec-08-16 08:51AM  at Insider Monkey]
▶ Xylem Volunteering to Solve Water Issues (XYL)   [Nov-28-16 02:55PM  at Investopedia]
Stock chart of XYL Financial statements of XYL
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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