Intrinsic value of LG Display ADR - LPL

Previous Close

$13.32

  Intrinsic Value

$16.76

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  Rating & Target

buy

+26%

Previous close

$13.32

 
Intrinsic value

$16.76

 
Up/down potential

+26%

 
Rating

buy

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

We calculate the intrinsic value of LPL 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 9.7

 

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, %
  -6.62
  13.20
  12.38
  11.64
  10.98
  10.38
  9.84
  9.36
  8.92
  8.53
  8.18
  7.86
  7.57
  7.32
  7.08
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
  5.65
  5.59
  5.53
  5.48
  5.43
  5.39
Revenue, $m
  22,871
  25,890
  29,095
  32,482
  36,048
  39,790
  43,706
  47,796
  52,061
  56,501
  61,121
  65,925
  70,918
  76,106
  81,497
  87,101
  92,927
  98,985
  105,288
  111,848
  118,679
  125,797
  133,215
  140,952
  149,024
  157,450
  166,249
  175,442
  185,051
  195,097
  205,606
Variable operating expenses, $m
 
  23,118
  25,979
  29,003
  32,186
  35,526
  39,021
  42,672
  46,478
  50,442
  54,565
  58,844
  63,300
  67,931
  72,743
  77,745
  82,945
  88,352
  93,978
  99,834
  105,931
  112,284
  118,906
  125,811
  133,016
  140,537
  148,391
  156,597
  165,173
  174,141
  183,521
Fixed operating expenses, $m
 
  1,393
  1,428
  1,463
  1,500
  1,538
  1,576
  1,615
  1,656
  1,697
  1,740
  1,783
  1,828
  1,873
  1,920
  1,968
  2,017
  2,068
  2,120
  2,173
  2,227
  2,283
  2,340
  2,398
  2,458
  2,520
  2,582
  2,647
  2,713
  2,781
  2,851
Total operating expenses, $m
  21,758
  24,511
  27,407
  30,466
  33,686
  37,064
  40,597
  44,287
  48,134
  52,139
  56,305
  60,627
  65,128
  69,804
  74,663
  79,713
  84,962
  90,420
  96,098
  102,007
  108,158
  114,567
  121,246
  128,209
  135,474
  143,057
  150,973
  159,244
  167,886
  176,922
  186,372
Operating income, $m
  1,113
  1,379
  1,688
  2,016
  2,363
  2,727
  3,109
  3,509
  3,927
  4,362
  4,816
  5,298
  5,790
  6,302
  6,834
  7,388
  7,964
  8,565
  9,190
  9,842
  10,521
  11,230
  11,970
  12,742
  13,549
  14,393
  15,275
  16,198
  17,164
  18,175
  19,235
EBITDA, $m
  3,720
  3,744
  4,345
  4,982
  5,652
  6,357
  7,096
  7,868
  8,674
  9,514
  10,388
  11,297
  12,243
  13,227
  14,250
  15,314
  16,421
  17,572
  18,771
  20,020
  21,321
  22,677
  24,092
  25,569
  27,111
  28,721
  30,404
  32,163
  34,004
  35,929
  37,945
Interest expense (income), $m
  108
  124
  169
  216
  267
  320
  375
  433
  494
  558
  624
  692
  764
  838
  915
  995
  1,078
  1,165
  1,255
  1,348
  1,446
  1,547
  1,653
  1,763
  1,878
  1,998
  2,123
  2,254
  2,391
  2,533
  2,683
Earnings before tax, $m
  1,136
  1,254
  1,519
  1,800
  2,096
  2,407
  2,734
  3,076
  3,433
  3,805
  4,193
  4,606
  5,026
  5,464
  5,919
  6,393
  6,886
  7,400
  7,935
  8,493
  9,075
  9,683
  10,317
  10,979
  11,671
  12,395
  13,152
  13,944
  14,773
  15,642
  16,552
Tax expense, $m
  332
  339
  410
  486
  566
  650
  738
  830
  927
  1,027
  1,132
  1,244
  1,357
  1,475
  1,598
  1,726
  1,859
  1,998
  2,143
  2,293
  2,450
  2,614
  2,785
  2,964
  3,151
  3,347
  3,551
  3,765
  3,989
  4,223
  4,469
Net income, $m
  782
  916
  1,109
  1,314
  1,530
  1,757
  1,996
  2,245
  2,506
  2,778
  3,061
  3,362
  3,669
  3,989
  4,321
  4,667
  5,027
  5,402
  5,793
  6,200
  6,625
  7,068
  7,531
  8,015
  8,520
  9,048
  9,601
  10,179
  10,785
  11,419
  12,083

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,287
  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
  21,473
  21,720
  24,409
  27,250
  30,242
  33,381
  36,666
  40,097
  43,675
  47,400
  51,276
  55,306
  59,495
  63,847
  68,370
  73,071
  77,959
  83,041
  88,329
  93,832
  99,563
  105,534
  111,758
  118,248
  125,020
  132,089
  139,471
  147,183
  155,244
  163,672
  172,488
Adjusted assets (=assets-cash), $m
  19,186
  21,720
  24,409
  27,250
  30,242
  33,381
  36,666
  40,097
  43,675
  47,400
  51,276
  55,306
  59,495
  63,847
  68,370
  73,071
  77,959
  83,041
  88,329
  93,832
  99,563
  105,534
  111,758
  118,248
  125,020
  132,089
  139,471
  147,183
  155,244
  163,672
  172,488
Revenue / Adjusted assets
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
  1.192
Average production assets, $m
  10,397
  11,780
  13,238
  14,779
  16,402
  18,104
  19,886
  21,747
  23,688
  25,708
  27,810
  29,996
  32,267
  34,628
  37,081
  39,631
  42,282
  45,038
  47,906
  50,891
  53,999
  57,237
  60,613
  64,133
  67,806
  71,640
  75,643
  79,826
  84,198
  88,769
  93,551
Working capital, $m
  2,956
  1,398
  1,571
  1,754
  1,947
  2,149
  2,360
  2,581
  2,811
  3,051
  3,301
  3,560
  3,830
  4,110
  4,401
  4,703
  5,018
  5,345
  5,686
  6,040
  6,409
  6,793
  7,194
  7,611
  8,047
  8,502
  8,977
  9,474
  9,993
  10,535
  11,103
Total debt, $m
  4,124
  4,821
  6,182
  7,620
  9,133
  10,722
  12,384
  14,120
  15,931
  17,816
  19,777
  21,816
  23,935
  26,138
  28,426
  30,805
  33,278
  35,850
  38,525
  41,310
  44,210
  47,231
  50,380
  53,664
  57,091
  60,668
  64,403
  68,306
  72,384
  76,649
  81,110
Total liabilities, $m
  10,293
  10,990
  12,351
  13,789
  15,302
  16,891
  18,553
  20,289
  22,100
  23,985
  25,946
  27,985
  30,104
  32,307
  34,595
  36,974
  39,447
  42,019
  44,694
  47,479
  50,379
  53,400
  56,549
  59,833
  63,260
  66,837
  70,572
  74,475
  78,553
  82,818
  87,279
Total equity, $m
  11,180
  10,730
  12,058
  13,462
  14,939
  16,490
  18,113
  19,808
  21,575
  23,416
  25,330
  27,321
  29,390
  31,540
  33,775
  36,097
  38,512
  41,022
  43,634
  46,353
  49,184
  52,134
  55,208
  58,415
  61,760
  65,252
  68,898
  72,708
  76,690
  80,854
  85,209
Total liabilities and equity, $m
  21,473
  21,720
  24,409
  27,251
  30,241
  33,381
  36,666
  40,097
  43,675
  47,401
  51,276
  55,306
  59,494
  63,847
  68,370
  73,071
  77,959
  83,041
  88,328
  93,832
  99,563
  105,534
  111,757
  118,248
  125,020
  132,089
  139,470
  147,183
  155,243
  163,672
  172,488
Debt-to-equity ratio
  0.369
  0.450
  0.510
  0.570
  0.610
  0.650
  0.680
  0.710
  0.740
  0.760
  0.780
  0.800
  0.810
  0.830
  0.840
  0.850
  0.860
  0.870
  0.880
  0.890
  0.900
  0.910
  0.910
  0.920
  0.920
  0.930
  0.930
  0.940
  0.940
  0.950
  0.950
Adjusted equity ratio
  0.469
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  782
  916
  1,109
  1,314
  1,530
  1,757
  1,996
  2,245
  2,506
  2,778
  3,061
  3,362
  3,669
  3,989
  4,321
  4,667
  5,027
  5,402
  5,793
  6,200
  6,625
  7,068
  7,531
  8,015
  8,520
  9,048
  9,601
  10,179
  10,785
  11,419
  12,083
Depreciation, amort., depletion, $m
  2,607
  2,365
  2,657
  2,965
  3,290
  3,630
  3,987
  4,359
  4,747
  5,151
  5,572
  5,999
  6,453
  6,926
  7,416
  7,926
  8,456
  9,008
  9,581
  10,178
  10,800
  11,447
  12,123
  12,827
  13,561
  14,328
  15,129
  15,965
  16,840
  17,754
  18,710
Funds from operations, $m
  2,183
  3,281
  3,766
  4,279
  4,820
  5,388
  5,983
  6,604
  7,253
  7,929
  8,632
  9,362
  10,123
  10,914
  11,737
  12,593
  13,483
  14,410
  15,374
  16,378
  17,425
  18,516
  19,654
  20,841
  22,081
  23,376
  24,729
  26,144
  27,624
  29,172
  30,793
Change in working capital, $m
  -959
  163
  173
  183
  193
  202
  211
  221
  230
  240
  249
  259
  270
  280
  291
  303
  315
  327
  340
  354
  369
  384
  401
  418
  436
  455
  475
  496
  519
  543
  567
Cash from operations, $m
  3,142
  3,118
  3,593
  4,096
  4,627
  5,186
  5,771
  6,383
  7,023
  7,689
  8,383
  9,102
  9,853
  10,634
  11,446
  12,290
  13,169
  14,082
  15,034
  16,024
  17,056
  18,131
  19,253
  20,423
  21,645
  22,921
  24,254
  25,648
  27,105
  28,630
  30,226
Maintenance CAPEX, $m
  0
  -2,079
  -2,356
  -2,648
  -2,956
  -3,280
  -3,621
  -3,977
  -4,349
  -4,738
  -5,142
  -5,562
  -5,999
  -6,453
  -6,926
  -7,416
  -7,926
  -8,456
  -9,008
  -9,581
  -10,178
  -10,800
  -11,447
  -12,123
  -12,827
  -13,561
  -14,328
  -15,129
  -15,965
  -16,840
  -17,754
New CAPEX, $m
  -3,573
  -1,383
  -1,458
  -1,541
  -1,622
  -1,703
  -1,782
  -1,861
  -1,940
  -2,021
  -2,102
  -2,186
  -2,272
  -2,361
  -2,453
  -2,550
  -2,651
  -2,757
  -2,868
  -2,985
  -3,108
  -3,238
  -3,375
  -3,520
  -3,673
  -3,834
  -4,004
  -4,183
  -4,372
  -4,571
  -4,781
Cash from investing activities, $m
  -2,752
  -3,462
  -3,814
  -4,189
  -4,578
  -4,983
  -5,403
  -5,838
  -6,289
  -6,759
  -7,244
  -7,748
  -8,271
  -8,814
  -9,379
  -9,966
  -10,577
  -11,213
  -11,876
  -12,566
  -13,286
  -14,038
  -14,822
  -15,643
  -16,500
  -17,395
  -18,332
  -19,312
  -20,337
  -21,411
  -22,535
Free cash flow, $m
  390
  -344
  -221
  -93
  49
  203
  368
  545
  733
  931
  1,139
  1,354
  1,582
  1,820
  2,067
  2,324
  2,592
  2,870
  3,158
  3,458
  3,769
  4,093
  4,430
  4,781
  5,146
  5,526
  5,923
  6,336
  6,768
  7,219
  7,690
Issuance/(repayment) of debt, $m
  435
  1,274
  1,361
  1,438
  1,514
  1,588
  1,662
  1,736
  1,810
  1,885
  1,961
  2,039
  2,119
  2,202
  2,289
  2,379
  2,473
  2,572
  2,676
  2,785
  2,900
  3,021
  3,149
  3,284
  3,427
  3,577
  3,735
  3,903
  4,079
  4,265
  4,461
Issuance/(repurchase) of shares, $m
  0
  344
  219
  90
  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  
  420
  1,618
  1,580
  1,528
  1,514
  1,588
  1,662
  1,736
  1,810
  1,885
  1,961
  2,039
  2,119
  2,202
  2,289
  2,379
  2,473
  2,572
  2,676
  2,785
  2,900
  3,021
  3,149
  3,284
  3,427
  3,577
  3,735
  3,903
  4,079
  4,265
  4,461
Total cash flow (excl. dividends), $m
  850
  1,274
  1,359
  1,435
  1,563
  1,791
  2,031
  2,281
  2,543
  2,816
  3,100
  3,394
  3,702
  4,022
  4,356
  4,703
  5,065
  5,441
  5,834
  6,243
  6,669
  7,115
  7,579
  8,065
  8,572
  9,103
  9,658
  10,239
  10,847
  11,484
  12,151
Retained Cash Flow (-), $m
  -658
  -1,260
  -1,328
  -1,404
  -1,478
  -1,551
  -1,623
  -1,695
  -1,767
  -1,840
  -1,915
  -1,991
  -2,069
  -2,150
  -2,234
  -2,322
  -2,414
  -2,511
  -2,612
  -2,719
  -2,831
  -2,950
  -3,074
  -3,206
  -3,345
  -3,492
  -3,647
  -3,810
  -3,982
  -4,164
  -4,355
Prev. year cash balance distribution, $m
 
  1,710
  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
 
  1,724
  30
  32
  85
  240
  408
  586
  776
  976
  1,186
  1,403
  1,633
  1,872
  2,121
  2,381
  2,650
  2,931
  3,222
  3,524
  3,838
  4,165
  4,505
  4,859
  5,227
  5,611
  6,011
  6,429
  6,865
  7,320
  7,796
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  1,653
  28
  27
  70
  186
  296
  396
  485
  560
  622
  666
  697
  712
  712
  699
  674
  638
  593
  543
  488
  431
  374
  318
  266
  218
  175
  138
  106
  80
  59
Current shareholders' claim on cash, %
  100
  96.0
  93.8
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0

LG Display Co., Ltd. manufactures thin-film transistor liquid crystal display, organic light emitting diode and other display panel technologies. The Company manufactures display panels in a range of sizes and specifications primarily for use in televisions, notebook computers, desktop monitors, tablet computers and various other applications, including mobile devices. The Company supplies ultra-high definition television panels. It also manufactures display panels for industrial and other applications, including entertainment systems, automotive displays, portable navigation devices and medical diagnostic equipment. It operates fabrication facilities, which include separately designated sets of fabrication production lines housed in certain facilities, located in its Display Clusters in Gumi and Paju, Korea and in Guangzhou China, and approximately four separately designated sets of fabrication production lines housed in certain facilities.

FINANCIAL RATIOS  of  LG Display ADR (LPL)

Valuation Ratios
P/E Ratio 6.1
Price to Sales 0.2
Price to Book 0.4
Price to Tangible Book
Price to Cash Flow 1.5
Price to Free Cash Flow -11.1
Growth Rates
Sales Growth Rate -6.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 55.7%
Cap. Spend. - 3 Yr. Gr. Rate 2.5%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 31.7%
Total Debt to Equity 36.9%
Interest Coverage 12
Management Effectiveness
Return On Assets 4.2%
Ret/ On Assets - 3 Yr. Avg. 4.5%
Return On Total Capital 5.3%
Ret/ On T. Cap. - 3 Yr. Avg. 5.8%
Return On Equity 7.2%
Return On Equity - 3 Yr. Avg. 7.9%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 14.1%
Gross Margin - 3 Yr. Avg. 14.6%
EBITDA Margin 16.8%
EBITDA Margin - 3 Yr. Avg. 17.6%
Operating Margin 4.9%
Oper. Margin - 3 Yr. Avg. 4.9%
Pre-Tax Margin 5%
Pre-Tax Margin - 3 Yr. Avg. 4.9%
Net Profit Margin 3.4%
Net Profit Margin - 3 Yr. Avg. 3.4%
Effective Tax Rate 29.2%
Eff/ Tax Rate - 3 Yr. Avg. 28%
Payout Ratio 19.7%

LPL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LPL stock intrinsic value calculation we used $22871 million for the last fiscal year's total revenue generated by LG Display ADR. The default revenue input number comes from 2016 income statement of LG Display ADR. 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 LPL stock valuation model: a) initial revenue growth rate of 13.2% 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 4.3%, whose default value for LPL is calculated based on our internal credit rating of LG Display ADR, 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 LG Display ADR.
    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 LPL stock the variable cost ratio is equal to 89.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1359 million in the base year in the intrinsic value calculation for LPL 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 LG Display ADR.

Corporate tax rate of 27% is the nominal tax rate for LG Display ADR. 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 LPL 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 LPL are equal to 45.5%.

Life of production assets of 4 years is the average useful life of capital assets used in LG Display ADR 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 LPL is equal to 5.4%. 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 - $11180 million for LG Display ADR - 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 725.976 million for LG Display ADR 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 LG Display ADR at the current share price and the inputted number of shares is $9.7 billion.

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Financial statements of LPL
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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