Intrinsic value of Taiwan Semiconductor Manufacturing ADR - TSM

Previous Close

$38.52

  Intrinsic Value

$138.05

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  Rating & Target

str. buy

+258%

Previous close

$38.52

 
Intrinsic value

$138.05

 
Up/down potential

+258%

 
Rating

str. buy

We calculate the intrinsic value of TSM 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 0001), $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 41.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  11.90
  11.21
  10.59
  10.03
  9.53
  9.07
  8.67
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
Revenue, $m
  36,812
  40,939
  45,274
  49,815
  54,561
  59,512
  64,670
  70,037
  75,620
  81,422
  87,452
  93,718
  100,230
  107,000
  114,039
  121,361
  128,981
  136,914
  145,178
  153,790
  162,769
  172,137
  181,913
  192,121
  202,785
  213,928
  225,578
  237,763
  250,509
  263,849
Variable operating expenses, $m
  22,118
  24,593
  27,192
  29,914
  32,760
  35,728
  38,820
  42,039
  45,385
  48,864
  52,432
  56,189
  60,093
  64,152
  68,372
  72,762
  77,330
  82,087
  87,041
  92,205
  97,588
  103,204
  109,066
  115,186
  121,579
  128,261
  135,246
  142,550
  150,193
  158,191
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
  22,118
  24,593
  27,192
  29,914
  32,760
  35,728
  38,820
  42,039
  45,385
  48,864
  52,432
  56,189
  60,093
  64,152
  68,372
  72,762
  77,330
  82,087
  87,041
  92,205
  97,588
  103,204
  109,066
  115,186
  121,579
  128,261
  135,246
  142,550
  150,193
  158,191
Operating income, $m
  14,694
  16,346
  18,082
  19,901
  21,801
  23,784
  25,849
  27,999
  30,234
  32,558
  35,020
  37,529
  40,137
  42,848
  45,667
  48,599
  51,650
  54,827
  58,136
  61,585
  65,181
  68,932
  72,847
  76,935
  81,205
  85,668
  90,333
  95,212
  100,316
  105,658
EBITDA, $m
  22,258
  24,754
  27,375
  30,121
  32,990
  35,984
  39,103
  42,348
  45,723
  49,232
  52,878
  56,667
  60,604
  64,698
  68,954
  73,381
  77,988
  82,785
  87,782
  92,989
  98,418
  104,082
  109,994
  116,166
  122,614
  129,352
  136,396
  143,763
  151,470
  159,536
Interest expense (income), $m
  106
  283
  378
  477
  581
  690
  804
  923
  1,047
  1,176
  1,310
  1,449
  1,594
  1,745
  1,901
  2,064
  2,233
  2,409
  2,592
  2,782
  2,981
  3,188
  3,403
  3,628
  3,863
  4,108
  4,365
  4,632
  4,912
  5,205
  5,511
Earnings before tax, $m
  14,411
  15,968
  17,605
  19,320
  21,111
  22,980
  24,926
  26,952
  29,058
  31,248
  33,571
  35,935
  38,393
  40,947
  43,603
  46,366
  49,242
  52,235
  55,354
  58,604
  61,993
  65,529
  69,219
  73,072
  77,097
  81,303
  85,701
  90,300
  95,112
  100,147
Tax expense, $m
  3,891
  4,311
  4,753
  5,216
  5,700
  6,205
  6,730
  7,277
  7,846
  8,437
  9,064
  9,703
  10,366
  11,056
  11,773
  12,519
  13,295
  14,104
  14,946
  15,823
  16,738
  17,693
  18,689
  19,729
  20,816
  21,952
  23,139
  24,381
  25,680
  27,040
Net income, $m
  10,520
  11,657
  12,852
  14,103
  15,411
  16,775
  18,196
  19,675
  21,213
  22,811
  24,507
  26,233
  28,027
  29,891
  31,830
  33,847
  35,946
  38,132
  40,408
  42,781
  45,255
  47,836
  50,530
  53,342
  56,281
  59,351
  62,562
  65,919
  69,432
  73,108

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  62,499
  69,506
  76,866
  84,575
  92,633
  101,039
  109,796
  118,909
  128,386
  138,238
  148,475
  159,114
  170,171
  181,664
  193,614
  206,046
  218,982
  232,451
  246,481
  261,103
  276,348
  292,252
  308,851
  326,182
  344,286
  363,206
  382,986
  403,671
  425,313
  447,961
Adjusted assets (=assets-cash), $m
  62,499
  69,506
  76,866
  84,575
  92,633
  101,039
  109,796
  118,909
  128,386
  138,238
  148,475
  159,114
  170,171
  181,664
  193,614
  206,046
  218,982
  232,451
  246,481
  261,103
  276,348
  292,252
  308,851
  326,182
  344,286
  363,206
  382,986
  403,671
  425,313
  447,961
Revenue / Adjusted assets
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
Average production assets, $m
  37,585
  41,799
  46,225
  50,861
  55,707
  60,762
  66,028
  71,508
  77,208
  83,132
  89,288
  95,686
  102,335
  109,247
  116,434
  123,909
  131,689
  139,789
  148,226
  157,019
  166,187
  175,751
  185,733
  196,156
  207,043
  218,421
  230,316
  242,756
  255,770
  269,390
Working capital, $m
  -4,602
  -5,117
  -5,659
  -6,227
  -6,820
  -7,439
  -8,084
  -8,755
  -9,452
  -10,178
  -10,931
  -11,715
  -12,529
  -13,375
  -14,255
  -15,170
  -16,123
  -17,114
  -18,147
  -19,224
  -20,346
  -21,517
  -22,739
  -24,015
  -25,348
  -26,741
  -28,197
  -29,720
  -31,314
  -32,981
Total debt, $m
  6,996
  8,832
  10,760
  12,780
  14,891
  17,094
  19,388
  21,776
  24,259
  26,840
  29,522
  32,309
  35,206
  38,217
  41,349
  44,606
  47,995
  51,524
  55,200
  59,031
  63,025
  67,192
  71,540
  76,081
  80,825
  85,782
  90,964
  96,384
  102,054
  107,987
Total liabilities, $m
  16,375
  18,210
  20,139
  22,159
  24,270
  26,472
  28,766
  31,154
  33,637
  36,218
  38,901
  41,688
  44,585
  47,596
  50,727
  53,984
  57,373
  60,902
  64,578
  68,409
  72,403
  76,570
  80,919
  85,460
  90,203
  95,160
  100,342
  105,762
  111,432
  117,366
Total equity, $m
  46,125
  51,295
  56,727
  62,417
  68,363
  74,567
  81,029
  87,755
  94,749
  102,019
  109,575
  117,426
  125,586
  134,068
  142,887
  152,062
  161,609
  171,549
  181,903
  192,694
  203,945
  215,682
  227,932
  240,722
  254,083
  268,046
  282,643
  297,910
  313,881
  330,595
Total liabilities and equity, $m
  62,500
  69,505
  76,866
  84,576
  92,633
  101,039
  109,795
  118,909
  128,386
  138,237
  148,476
  159,114
  170,171
  181,664
  193,614
  206,046
  218,982
  232,451
  246,481
  261,103
  276,348
  292,252
  308,851
  326,182
  344,286
  363,206
  382,985
  403,672
  425,313
  447,961
Debt-to-equity ratio
  0.150
  0.170
  0.190
  0.200
  0.220
  0.230
  0.240
  0.250
  0.260
  0.260
  0.270
  0.280
  0.280
  0.290
  0.290
  0.290
  0.300
  0.300
  0.300
  0.310
  0.310
  0.310
  0.310
  0.320
  0.320
  0.320
  0.320
  0.320
  0.330
  0.330
Adjusted equity ratio
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  10,520
  11,657
  12,852
  14,103
  15,411
  16,775
  18,196
  19,675
  21,213
  22,811
  24,507
  26,233
  28,027
  29,891
  31,830
  33,847
  35,946
  38,132
  40,408
  42,781
  45,255
  47,836
  50,530
  53,342
  56,281
  59,351
  62,562
  65,919
  69,432
  73,108
Depreciation, amort., depletion, $m
  7,565
  8,407
  9,293
  10,220
  11,189
  12,200
  13,253
  14,349
  15,489
  16,674
  17,858
  19,137
  20,467
  21,849
  23,287
  24,782
  26,338
  27,958
  29,645
  31,404
  33,237
  35,150
  37,147
  39,231
  41,409
  43,684
  46,063
  48,551
  51,154
  53,878
Funds from operations, $m
  18,085
  20,064
  22,144
  24,323
  26,600
  28,975
  31,449
  34,024
  36,702
  39,485
  42,364
  45,370
  48,494
  51,741
  55,117
  58,629
  62,284
  66,090
  70,054
  74,185
  78,493
  82,986
  87,676
  92,574
  97,689
  103,035
  108,625
  114,470
  120,586
  126,986
Change in working capital, $m
  -489
  -516
  -542
  -568
  -593
  -619
  -645
  -671
  -698
  -725
  -754
  -783
  -814
  -846
  -880
  -915
  -952
  -992
  -1,033
  -1,077
  -1,122
  -1,171
  -1,222
  -1,276
  -1,333
  -1,393
  -1,456
  -1,523
  -1,593
  -1,667
Cash from operations, $m
  18,574
  20,580
  22,686
  24,891
  27,193
  29,594
  32,094
  34,695
  37,400
  40,210
  43,118
  46,153
  49,308
  52,587
  55,997
  59,544
  63,237
  67,081
  71,087
  75,261
  79,615
  84,157
  88,898
  93,850
  99,022
  104,428
  110,081
  115,993
  122,179
  128,653
Maintenance CAPEX, $m
  -6,717
  -7,517
  -8,360
  -9,245
  -10,172
  -11,141
  -12,152
  -13,206
  -14,302
  -15,442
  -16,626
  -17,858
  -19,137
  -20,467
  -21,849
  -23,287
  -24,782
  -26,338
  -27,958
  -29,645
  -31,404
  -33,237
  -35,150
  -37,147
  -39,231
  -41,409
  -43,684
  -46,063
  -48,551
  -51,154
New CAPEX, $m
  -4,000
  -4,213
  -4,426
  -4,636
  -4,846
  -5,055
  -5,266
  -5,480
  -5,699
  -5,924
  -6,157
  -6,398
  -6,649
  -6,912
  -7,187
  -7,476
  -7,780
  -8,100
  -8,437
  -8,793
  -9,168
  -9,564
  -9,982
  -10,422
  -10,887
  -11,378
  -11,895
  -12,440
  -13,014
  -13,620
Cash from investing activities, $m
  -10,717
  -11,730
  -12,786
  -13,881
  -15,018
  -16,196
  -17,418
  -18,686
  -20,001
  -21,366
  -22,783
  -24,256
  -25,786
  -27,379
  -29,036
  -30,763
  -32,562
  -34,438
  -36,395
  -38,438
  -40,572
  -42,801
  -45,132
  -47,569
  -50,118
  -52,787
  -55,579
  -58,503
  -61,565
  -64,774
Free cash flow, $m
  7,857
  8,850
  9,901
  11,010
  12,176
  13,398
  14,676
  16,009
  17,399
  18,844
  20,335
  21,898
  23,521
  25,208
  26,961
  28,782
  30,675
  32,644
  34,692
  36,823
  39,043
  41,356
  43,766
  46,280
  48,904
  51,642
  54,502
  57,490
  60,613
  63,879
Issuance/(repayment) of debt, $m
  1,761
  1,836
  1,928
  2,020
  2,111
  2,202
  2,294
  2,388
  2,483
  2,581
  2,682
  2,787
  2,897
  3,011
  3,131
  3,257
  3,389
  3,529
  3,676
  3,831
  3,994
  4,167
  4,349
  4,541
  4,743
  4,957
  5,182
  5,420
  5,670
  5,934
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  1,761
  1,836
  1,928
  2,020
  2,111
  2,202
  2,294
  2,388
  2,483
  2,581
  2,682
  2,787
  2,897
  3,011
  3,131
  3,257
  3,389
  3,529
  3,676
  3,831
  3,994
  4,167
  4,349
  4,541
  4,743
  4,957
  5,182
  5,420
  5,670
  5,934
Total cash flow (excl. dividends), $m
  9,617
  10,685
  11,829
  13,029
  14,287
  15,600
  16,970
  18,397
  19,882
  21,426
  23,017
  24,685
  26,418
  28,219
  30,092
  32,039
  34,064
  36,173
  38,368
  40,654
  43,037
  45,522
  48,115
  50,821
  53,647
  56,599
  59,684
  62,910
  66,283
  69,813
Retained Cash Flow (-), $m
  -4,927
  -5,171
  -5,432
  -5,690
  -5,946
  -6,204
  -6,463
  -6,726
  -6,994
  -7,270
  -7,555
  -7,851
  -8,160
  -8,482
  -8,820
  -9,174
  -9,547
  -9,940
  -10,354
  -10,791
  -11,251
  -11,737
  -12,250
  -12,790
  -13,361
  -13,963
  -14,597
  -15,266
  -15,971
  -16,714
Prev. year cash balance distribution, $m
  9,077
  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
  13,767
  5,515
  6,397
  7,340
  8,340
  9,397
  10,507
  11,671
  12,887
  14,155
  15,462
  16,834
  18,259
  19,737
  21,272
  22,865
  24,517
  26,232
  28,013
  29,863
  31,786
  33,785
  35,865
  38,031
  40,286
  42,636
  45,087
  47,644
  50,312
  53,099
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
  13,200
  5,049
  5,567
  6,044
  6,465
  6,819
  7,099
  7,295
  7,403
  7,421
  7,343
  7,184
  6,942
  6,626
  6,245
  5,810
  5,335
  4,831
  4,313
  3,795
  3,288
  2,803
  2,351
  1,937
  1,567
  1,244
  968
  737
  549
  400
Current shareholders' claim on cash, %
  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

Taiwan Semiconductor Manufacturing Company Limited (TSMC) is a semiconductor foundry. The Company is engaged in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. It operates through foundry segment. The foundry segment is engaged in manufacturing, selling, packaging, testing and computer-aided design of integrated circuits (IC) and other semiconductor devices and the manufacturing of masks. It operates three 12-inch wafer fabs, four eight-inch wafer fabs, one six-inch wafer fab (fab 2) and two backend fabs (advanced backend fab 1 and 2). It also manages two eight-inch fabs at its subsidiaries, WaferTech, LLC in the United States and TSMC China Company Limited. Its exploratory work focuses on transistors and technologies, such as three dimensional (3D) structures, strained-layer complementary metal-oxide semiconductor (CMOS), high-mobility materials and 3D IC devices.

FINANCIAL RATIOS  of  Taiwan Semiconductor Manufacturing ADR (TSM)

Valuation Ratios
P/E Ratio 92.9
Price to Sales 32.8
Price to Book 22.4
Price to Tangible Book
Price to Cash Flow 57.6
Price to Free Cash Flow 149.7
Growth Rates
Sales Growth Rate 12.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 26.9%
Cap. Spend. - 3 Yr. Gr. Rate 2.7%
Financial Strength
Quick Ratio 7
Current Ratio 0
LT Debt to Equity 11%
Total Debt to Equity 17.9%
Interest Coverage 118
Management Effectiveness
Return On Assets 19%
Ret/ On Assets - 3 Yr. Avg. 19.3%
Return On Total Capital 21.5%
Ret/ On T. Cap. - 3 Yr. Avg. 21.9%
Return On Equity 25.6%
Return On Equity - 3 Yr. Avg. 26.8%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 50.1%
Gross Margin - 3 Yr. Avg. 49.4%
EBITDA Margin 64.7%
EBITDA Margin - 3 Yr. Avg. 66.4%
Operating Margin 39.9%
Oper. Margin - 3 Yr. Avg. 38.8%
Pre-Tax Margin 40.7%
Pre-Tax Margin - 3 Yr. Avg. 40.6%
Net Profit Margin 35.3%
Net Profit Margin - 3 Yr. Avg. 35.4%
Effective Tax Rate 13.4%
Eff/ Tax Rate - 3 Yr. Avg. 12.9%
Payout Ratio 46.5%

TSM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TSM stock intrinsic value calculation we used $32897.3882606 million for the last fiscal year's total revenue generated by Taiwan Semiconductor Manufacturing ADR. The default revenue input number comes from 0001 income statement of Taiwan Semiconductor Manufacturing 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 TSM stock valuation model: a) initial revenue growth rate of 11.9% 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 TSM is calculated based on our internal credit rating of Taiwan Semiconductor Manufacturing 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 Taiwan Semiconductor Manufacturing 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 TSM stock the variable cost ratio is equal to 60.1%.

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 TSM 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 5.4% for Taiwan Semiconductor Manufacturing ADR.

Corporate tax rate of 27% is the nominal tax rate for Taiwan Semiconductor Manufacturing 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 TSM 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 TSM are equal to 102.1%.

Life of production assets of 3.9 years is the average useful life of capital assets used in Taiwan Semiconductor Manufacturing 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 TSM is equal to -12.5%. 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 - $50274.1922456 million for Taiwan Semiconductor Manufacturing 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 1068.16 million for Taiwan Semiconductor Manufacturing 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 Taiwan Semiconductor Manufacturing ADR at the current share price and the inputted number of shares is $41.1 billion.

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