Intrinsic value of Time Warner - TWX

Previous Close

$98.77

  Intrinsic Value

$106.74

stock screener

  Rating & Target

hold

+8%

Previous close

$98.77

 
Intrinsic value

$106.74

 
Up/down potential

+8%

 
Rating

hold

We calculate the intrinsic value of TWX 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 76.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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, %
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
Revenue, $m
  33,366
  35,545
  37,812
  40,171
  42,627
  45,187
  47,854
  50,636
  53,538
  56,568
  59,732
  63,037
  66,491
  70,103
  73,881
  77,834
  81,971
  86,302
  90,837
  95,587
  100,564
  105,780
  111,246
  116,976
  122,983
  129,282
  135,888
  142,817
  150,085
  157,709
Variable operating expenses, $m
  24,554
  25,927
  27,354
  28,840
  30,388
  32,000
  33,680
  35,432
  37,261
  39,169
  37,625
  39,707
  41,883
  44,158
  46,538
  49,028
  51,633
  54,362
  57,218
  60,211
  63,346
  66,631
  70,074
  73,683
  77,467
  81,435
  85,596
  89,961
  94,539
  99,341
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
  24,554
  25,927
  27,354
  28,840
  30,388
  32,000
  33,680
  35,432
  37,261
  39,169
  37,625
  39,707
  41,883
  44,158
  46,538
  49,028
  51,633
  54,362
  57,218
  60,211
  63,346
  66,631
  70,074
  73,683
  77,467
  81,435
  85,596
  89,961
  94,539
  99,341
Operating income, $m
  8,812
  9,618
  10,457
  11,330
  12,240
  13,187
  14,174
  15,204
  16,278
  17,399
  22,107
  23,330
  24,608
  25,945
  27,343
  28,806
  30,337
  31,940
  33,619
  35,377
  37,219
  39,149
  41,172
  43,292
  45,516
  47,847
  50,292
  52,856
  55,546
  58,368
EBITDA, $m
  16,409
  17,481
  18,596
  19,756
  20,964
  22,223
  23,535
  24,903
  26,330
  27,820
  29,376
  31,001
  32,700
  34,477
  36,335
  38,279
  40,313
  42,443
  44,673
  47,010
  49,457
  52,022
  54,710
  57,528
  60,483
  63,581
  66,830
  70,237
  73,812
  77,561
Interest expense (income), $m
  1,391
  1,282
  1,429
  1,583
  1,742
  1,909
  2,082
  2,262
  2,450
  2,646
  2,851
  3,064
  3,287
  3,520
  3,764
  4,018
  4,285
  4,563
  4,855
  5,160
  5,480
  5,815
  6,166
  6,533
  6,918
  7,322
  7,746
  8,190
  8,655
  9,144
  9,656
Earnings before tax, $m
  7,530
  8,189
  8,875
  9,588
  10,331
  11,105
  11,912
  12,753
  13,631
  14,548
  19,042
  20,042
  21,088
  22,181
  23,325
  24,521
  25,774
  27,085
  28,458
  29,897
  31,404
  32,983
  34,639
  36,374
  38,193
  40,101
  42,102
  44,201
  46,402
  48,712
Tax expense, $m
  2,033
  2,211
  2,396
  2,589
  2,789
  2,998
  3,216
  3,443
  3,681
  3,928
  5,141
  5,411
  5,694
  5,989
  6,298
  6,621
  6,959
  7,313
  7,684
  8,072
  8,479
  8,905
  9,352
  9,821
  10,312
  10,827
  11,368
  11,934
  12,529
  13,152
Net income, $m
  5,497
  5,978
  6,479
  6,999
  7,542
  8,107
  8,696
  9,310
  9,951
  10,620
  13,901
  14,631
  15,394
  16,192
  17,027
  17,901
  18,815
  19,772
  20,775
  21,825
  22,925
  24,078
  25,286
  26,553
  27,881
  29,274
  30,735
  32,267
  33,874
  35,560

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
  73,819
  78,639
  83,654
  88,874
  94,309
  99,971
  105,872
  112,027
  118,448
  125,150
  132,150
  139,462
  147,105
  155,096
  163,454
  172,199
  181,351
  190,933
  200,967
  211,477
  222,487
  234,026
  246,119
  258,795
  272,086
  286,023
  300,638
  315,967
  332,046
  348,915
Adjusted assets (=assets-cash), $m
  73,819
  78,639
  83,654
  88,874
  94,309
  99,971
  105,872
  112,027
  118,448
  125,150
  132,150
  139,462
  147,105
  155,096
  163,454
  172,199
  181,351
  190,933
  200,967
  211,477
  222,487
  234,026
  246,119
  258,795
  272,086
  286,023
  300,638
  315,967
  332,046
  348,915
Revenue / Adjusted assets
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
Average production assets, $m
  40,607
  43,258
  46,017
  48,888
  51,878
  54,992
  58,239
  61,624
  65,156
  68,843
  72,694
  76,716
  80,920
  85,316
  89,913
  94,724
  99,758
  105,029
  110,549
  116,330
  122,387
  128,734
  135,386
  142,359
  149,670
  157,336
  165,376
  173,808
  182,653
  191,932
Working capital, $m
  2,936
  3,128
  3,327
  3,535
  3,751
  3,976
  4,211
  4,456
  4,711
  4,978
  5,256
  5,547
  5,851
  6,169
  6,502
  6,849
  7,213
  7,595
  7,994
  8,412
  8,850
  9,309
  9,790
  10,294
  10,823
  11,377
  11,958
  12,568
  13,207
  13,878
Total debt, $m
  26,463
  29,307
  32,266
  35,345
  38,552
  41,893
  45,375
  49,006
  52,794
  56,749
  60,878
  65,193
  69,702
  74,417
  79,348
  84,507
  89,907
  95,560
  101,480
  107,681
  114,178
  120,985
  128,120
  135,599
  143,441
  151,663
  160,286
  169,330
  178,817
  188,770
Total liabilities, $m
  43,553
  46,397
  49,356
  52,435
  55,642
  58,983
  62,465
  66,096
  69,884
  73,839
  77,968
  82,283
  86,792
  91,507
  96,438
  101,597
  106,997
  112,650
  118,570
  124,771
  131,268
  138,075
  145,210
  152,689
  160,531
  168,753
  177,376
  186,420
  195,907
  205,860
Total equity, $m
  30,266
  32,242
  34,298
  36,438
  38,666
  40,988
  43,408
  45,931
  48,564
  51,312
  54,181
  57,180
  60,313
  63,589
  67,016
  70,601
  74,354
  78,282
  82,396
  86,705
  91,220
  95,951
  100,909
  106,106
  111,555
  117,269
  123,262
  129,546
  136,139
  143,055
Total liabilities and equity, $m
  73,819
  78,639
  83,654
  88,873
  94,308
  99,971
  105,873
  112,027
  118,448
  125,151
  132,149
  139,463
  147,105
  155,096
  163,454
  172,198
  181,351
  190,932
  200,966
  211,476
  222,488
  234,026
  246,119
  258,795
  272,086
  286,022
  300,638
  315,966
  332,046
  348,915
Debt-to-equity ratio
  0.870
  0.910
  0.940
  0.970
  1.000
  1.020
  1.050
  1.070
  1.090
  1.110
  1.120
  1.140
  1.160
  1.170
  1.180
  1.200
  1.210
  1.220
  1.230
  1.240
  1.250
  1.260
  1.270
  1.280
  1.290
  1.290
  1.300
  1.310
  1.310
  1.320
Adjusted equity ratio
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,497
  5,978
  6,479
  6,999
  7,542
  8,107
  8,696
  9,310
  9,951
  10,620
  13,901
  14,631
  15,394
  16,192
  17,027
  17,901
  18,815
  19,772
  20,775
  21,825
  22,925
  24,078
  25,286
  26,553
  27,881
  29,274
  30,735
  32,267
  33,874
  35,560
Depreciation, amort., depletion, $m
  7,597
  7,863
  8,138
  8,425
  8,724
  9,036
  9,361
  9,699
  10,052
  10,421
  7,269
  7,672
  8,092
  8,532
  8,991
  9,472
  9,976
  10,503
  11,055
  11,633
  12,239
  12,873
  13,539
  14,236
  14,967
  15,734
  16,538
  17,381
  18,265
  19,193
Funds from operations, $m
  13,094
  13,841
  14,617
  15,425
  16,266
  17,143
  18,056
  19,009
  20,003
  21,041
  21,170
  22,303
  23,486
  24,724
  26,018
  27,373
  28,791
  30,275
  31,829
  33,458
  35,164
  36,951
  38,825
  40,789
  42,848
  45,008
  47,272
  49,647
  52,139
  54,753
Change in working capital, $m
  184
  192
  199
  208
  216
  225
  235
  245
  255
  267
  278
  291
  304
  318
  332
  348
  364
  381
  399
  418
  438
  459
  481
  504
  529
  554
  581
  610
  640
  671
Cash from operations, $m
  12,910
  13,649
  14,417
  15,217
  16,050
  16,917
  17,822
  18,764
  19,748
  20,775
  20,892
  22,012
  23,182
  24,406
  25,686
  27,025
  28,427
  29,894
  31,430
  33,040
  34,726
  36,492
  38,344
  40,285
  42,320
  44,453
  46,691
  49,038
  51,499
  54,082
Maintenance CAPEX, $m
  -3,806
  -4,061
  -4,326
  -4,602
  -4,889
  -5,188
  -5,499
  -5,824
  -6,162
  -6,516
  -6,884
  -7,269
  -7,672
  -8,092
  -8,532
  -8,991
  -9,472
  -9,976
  -10,503
  -11,055
  -11,633
  -12,239
  -12,873
  -13,539
  -14,236
  -14,967
  -15,734
  -16,538
  -17,381
  -18,265
New CAPEX, $m
  -2,545
  -2,652
  -2,759
  -2,871
  -2,990
  -3,115
  -3,246
  -3,385
  -3,532
  -3,687
  -3,850
  -4,022
  -4,204
  -4,396
  -4,598
  -4,810
  -5,035
  -5,271
  -5,519
  -5,781
  -6,057
  -6,347
  -6,652
  -6,973
  -7,311
  -7,666
  -8,040
  -8,432
  -8,845
  -9,279
Cash from investing activities, $m
  -6,351
  -6,713
  -7,085
  -7,473
  -7,879
  -8,303
  -8,745
  -9,209
  -9,694
  -10,203
  -10,734
  -11,291
  -11,876
  -12,488
  -13,130
  -13,801
  -14,507
  -15,247
  -16,022
  -16,836
  -17,690
  -18,586
  -19,525
  -20,512
  -21,547
  -22,633
  -23,774
  -24,970
  -26,226
  -27,544
Free cash flow, $m
  6,559
  6,937
  7,333
  7,744
  8,171
  8,615
  9,076
  9,555
  10,053
  10,572
  10,157
  10,720
  11,307
  11,918
  12,557
  13,223
  13,920
  14,647
  15,408
  16,203
  17,036
  17,907
  18,818
  19,773
  20,773
  21,820
  22,918
  24,068
  25,274
  26,538
Issuance/(repayment) of debt, $m
  2,719
  2,844
  2,959
  3,079
  3,207
  3,341
  3,482
  3,631
  3,788
  3,954
  4,130
  4,314
  4,509
  4,715
  4,931
  5,159
  5,400
  5,653
  5,920
  6,201
  6,496
  6,808
  7,135
  7,479
  7,842
  8,222
  8,623
  9,044
  9,487
  9,952
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  
  2,719
  2,844
  2,959
  3,079
  3,207
  3,341
  3,482
  3,631
  3,788
  3,954
  4,130
  4,314
  4,509
  4,715
  4,931
  5,159
  5,400
  5,653
  5,920
  6,201
  6,496
  6,808
  7,135
  7,479
  7,842
  8,222
  8,623
  9,044
  9,487
  9,952
Total cash flow (excl. dividends), $m
  9,278
  9,781
  10,292
  10,824
  11,378
  11,956
  12,558
  13,186
  13,842
  14,526
  14,287
  15,034
  15,816
  16,633
  17,488
  18,383
  19,320
  20,301
  21,328
  22,404
  23,532
  24,714
  25,953
  27,252
  28,614
  30,043
  31,541
  33,112
  34,760
  36,490
Retained Cash Flow (-), $m
  -1,891
  -1,976
  -2,056
  -2,140
  -2,228
  -2,321
  -2,420
  -2,523
  -2,633
  -2,748
  -2,870
  -2,998
  -3,134
  -3,276
  -3,427
  -3,585
  -3,752
  -3,929
  -4,114
  -4,309
  -4,514
  -4,731
  -4,958
  -5,197
  -5,449
  -5,714
  -5,992
  -6,285
  -6,593
  -6,916
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  219
  234
  249
  265
  281
  298
  316
  335
  354
  375
  396
  418
  441
  465
  491
  517
  545
  574
  604
  636
  669
  704
  740
  779
  819
  861
  905
  951
  1,000
  1,051
Cash available for distribution, $m
  7,387
  7,804
  8,236
  8,684
  9,150
  9,634
  10,138
  10,663
  11,209
  11,778
  11,417
  12,036
  12,682
  13,357
  14,061
  14,798
  15,567
  16,372
  17,214
  18,095
  19,018
  19,983
  20,995
  22,055
  23,165
  24,329
  25,548
  26,827
  28,168
  29,574
Discount rate, %
  6.60
  6.93
  7.28
  7.64
  8.02
  8.42
  8.84
  9.29
  9.75
  10.24
  10.75
  11.29
  11.85
  12.45
  13.07
  13.72
  14.41
  15.13
  15.88
  16.68
  17.51
  18.39
  19.31
  20.27
  21.29
  22.35
  23.47
  24.64
  25.87
  27.17
PV of cash for distribution, $m
  6,930
  6,826
  6,671
  6,469
  6,221
  5,930
  5,602
  5,240
  4,852
  4,444
  3,713
  3,335
  2,957
  2,585
  2,228
  1,891
  1,579
  1,297
  1,046
  828
  642
  487
  362
  263
  186
  128
  86
  56
  36
  22
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

Time Warner Inc. is a media and entertainment company. The Company operates through three segments: Turner, which consists of cable networks and digital media properties; Home Box Office, which consists of premium pay television and over the top (OTT) services and premium pay, basic tier television and OTT services internationally, and Warner Bros., which consists of television, feature film, home video, and videogame production and distribution. It also holds interests in companies that operate broadcast networks. The Company holds interest in Central European Media Enterprises Ltd. (CME), which is a broadcasting company that operates television networks in Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic and Slovenia and The CW broadcast network (The CW), which includes a lineup of advertising-supported original programming, such as The 100, Arrow, Crazy Ex-Girlfriend, DC's Legends of Tomorrow, The Flash, Frequency, iZombie, Jane the Virgin and No Tomorrow.

FINANCIAL RATIOS  of  Time Warner (TWX)

Valuation Ratios
P/E Ratio 19.4
Price to Sales 2.6
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 16.3
Price to Free Cash Flow 18
Growth Rates
Sales Growth Rate 4.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.1%
Cap. Spend. - 3 Yr. Gr. Rate -5.3%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 92%
Total Debt to Equity 100%
Interest Coverage 5
Management Effectiveness
Return On Assets 7.7%
Ret/ On Assets - 3 Yr. Avg. 7.5%
Return On Total Capital 8.2%
Ret/ On T. Cap. - 3 Yr. Avg. 8.1%
Return On Equity 16.4%
Return On Equity - 3 Yr. Avg. 15.5%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 44.4%
Gross Margin - 3 Yr. Avg. 43%
EBITDA Margin 24.7%
EBITDA Margin - 3 Yr. Avg. 25.1%
Operating Margin 25.7%
Oper. Margin - 3 Yr. Avg. 24%
Pre-Tax Margin 17.7%
Pre-Tax Margin - 3 Yr. Avg. 18.1%
Net Profit Margin 13.4%
Net Profit Margin - 3 Yr. Avg. 13.7%
Effective Tax Rate 24.7%
Eff/ Tax Rate - 3 Yr. Avg. 23.9%
Payout Ratio 32.3%

TWX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TWX stock intrinsic value calculation we used $31271 million for the last fiscal year's total revenue generated by Time Warner. The default revenue input number comes from 2017 income statement of Time Warner. 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 TWX stock valuation model: a) initial revenue growth rate of 6.7% 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 6.6%, whose default value for TWX is calculated based on our internal credit rating of Time Warner, 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 Time Warner.
    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 TWX stock the variable cost ratio is equal to 74.3%.

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 TWX 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 Time Warner.

Corporate tax rate of 27% is the nominal tax rate for Time Warner. 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 TWX stock is equal to 0.7%.

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 TWX are equal to 121.7%.

Life of production assets of 10 years is the average useful life of capital assets used in Time Warner 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 TWX is equal to 8.8%. 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 - $28375 million for Time Warner - 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 777 million for Time Warner 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 Time Warner at the current share price and the inputted number of shares is $76.7 billion.

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