Intrinsic value of Time Warner - TWX

Previous Close

$101.83

  Intrinsic Value

$143.32

stock screener

  Rating & Target

buy

+41%

  Value-price divergence*

-36%

Previous close

$101.83

 
Intrinsic value

$143.32

 
Up/down potential

+41%

 
Rating

buy

 
Value-price divergence*

-36%

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

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 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 79.3

 

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, %
  4.27
  4.30
  4.37
  4.43
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.89
  4.91
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
Revenue, $m
  29,318
  30,579
  31,915
  33,330
  34,826
  36,408
  38,077
  39,840
  41,698
  43,657
  45,722
  47,896
  50,186
  52,596
  55,132
  57,801
  60,607
  63,559
  66,663
  69,926
  73,356
  76,962
  80,751
  84,733
  88,917
  93,313
  97,932
  102,784
  107,881
  113,236
  118,860
Variable operating expenses, $m
 
  13,091
  13,541
  14,019
  14,524
  15,057
  15,620
  16,215
  16,842
  17,503
  18,199
  16,157
  16,930
  17,743
  18,598
  19,499
  20,445
  21,441
  22,488
  23,589
  24,746
  25,962
  27,241
  28,584
  29,995
  31,478
  33,036
  34,673
  36,393
  38,199
  40,097
Fixed operating expenses, $m
 
  9,577
  9,816
  10,061
  10,313
  10,571
  10,835
  11,106
  11,384
  11,668
  11,960
  12,259
  12,565
  12,879
  13,201
  13,531
  13,870
  14,216
  14,572
  14,936
  15,310
  15,692
  16,085
  16,487
  16,899
  17,321
  17,754
  18,198
  18,653
  19,120
  19,598
Total operating expenses, $m
  21,771
  22,668
  23,357
  24,080
  24,837
  25,628
  26,455
  27,321
  28,226
  29,171
  30,159
  28,416
  29,495
  30,622
  31,799
  33,030
  34,315
  35,657
  37,060
  38,525
  40,056
  41,654
  43,326
  45,071
  46,894
  48,799
  50,790
  52,871
  55,046
  57,319
  59,695
Operating income, $m
  7,547
  7,911
  8,558
  9,250
  9,990
  10,780
  11,622
  12,519
  13,473
  14,487
  15,563
  19,480
  20,691
  21,974
  23,333
  24,771
  26,292
  27,902
  29,603
  31,401
  33,301
  35,307
  37,426
  39,662
  42,022
  44,513
  47,141
  49,912
  52,835
  55,917
  59,166
EBITDA, $m
  8,216
  11,050
  11,711
  12,420
  13,178
  13,987
  14,849
  15,767
  16,743
  17,780
  18,881
  20,049
  21,286
  22,598
  23,987
  25,457
  27,012
  28,656
  30,394
  32,231
  34,171
  36,220
  38,384
  40,668
  43,078
  45,621
  48,303
  51,132
  54,115
  57,261
  60,577
Interest expense (income), $m
  1,391
  1,322
  1,422
  1,528
  1,640
  1,758
  1,884
  2,016
  2,156
  2,303
  2,459
  2,622
  2,795
  2,976
  3,167
  3,368
  3,580
  3,803
  4,037
  4,283
  4,541
  4,813
  5,099
  5,400
  5,715
  6,047
  6,396
  6,762
  7,147
  7,551
  7,975
Earnings before tax, $m
  5,195
  6,589
  7,136
  7,722
  8,350
  9,021
  9,738
  10,503
  11,317
  12,183
  13,104
  16,858
  17,896
  18,998
  20,165
  21,402
  22,712
  24,099
  25,566
  27,118
  28,759
  30,494
  32,326
  34,262
  36,307
  38,466
  40,745
  43,151
  45,689
  48,366
  51,191
Tax expense, $m
  1,281
  1,779
  1,927
  2,085
  2,255
  2,436
  2,629
  2,836
  3,056
  3,290
  3,538
  4,552
  4,832
  5,129
  5,445
  5,779
  6,132
  6,507
  6,903
  7,322
  7,765
  8,233
  8,728
  9,251
  9,803
  10,386
  11,001
  11,651
  12,336
  13,059
  13,822
Net income, $m
  3,926
  4,810
  5,209
  5,637
  6,096
  6,586
  7,109
  7,667
  8,261
  8,894
  9,566
  12,306
  13,064
  13,868
  14,721
  15,624
  16,580
  17,592
  18,663
  19,796
  20,994
  22,260
  23,598
  25,012
  26,504
  28,080
  29,744
  31,500
  33,353
  35,307
  37,369

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,539
  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
  65,966
  67,206
  70,143
  73,252
  76,541
  80,017
  83,687
  87,560
  91,644
  95,951
  100,488
  105,267
  110,299
  115,596
  121,170
  127,035
  133,203
  139,691
  146,512
  153,684
  161,223
  169,146
  177,474
  186,226
  195,421
  205,083
  215,234
  225,899
  237,102
  248,870
  261,231
Adjusted assets (=assets-cash), $m
  64,427
  67,206
  70,143
  73,252
  76,541
  80,017
  83,687
  87,560
  91,644
  95,951
  100,488
  105,267
  110,299
  115,596
  121,170
  127,035
  133,203
  139,691
  146,512
  153,684
  161,223
  169,146
  177,474
  186,226
  195,421
  205,083
  215,234
  225,899
  237,102
  248,870
  261,231
Revenue / Adjusted assets
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
Average production assets, $m
  10,436
  10,886
  11,362
  11,865
  12,398
  12,961
  13,556
  14,183
  14,845
  15,542
  16,277
  17,051
  17,866
  18,724
  19,627
  20,577
  21,576
  22,627
  23,732
  24,894
  26,115
  27,398
  28,747
  30,165
  31,654
  33,219
  34,864
  36,591
  38,406
  40,312
  42,314
Working capital, $m
  3,782
  4,373
  4,564
  4,766
  4,980
  5,206
  5,445
  5,697
  5,963
  6,243
  6,538
  6,849
  7,177
  7,521
  7,884
  8,266
  8,667
  9,089
  9,533
  9,999
  10,490
  11,006
  11,547
  12,117
  12,715
  13,344
  14,004
  14,698
  15,427
  16,193
  16,997
Total debt, $m
  24,339
  24,510
  26,337
  28,271
  30,317
  32,478
  34,761
  37,170
  39,711
  42,389
  45,211
  48,184
  51,314
  54,609
  58,076
  61,723
  65,560
  69,596
  73,838
  78,299
  82,988
  87,917
  93,097
  98,540
  104,260
  110,270
  116,584
  123,217
  130,185
  137,505
  145,194
Total liabilities, $m
  41,631
  41,802
  43,629
  45,563
  47,609
  49,770
  52,053
  54,462
  57,003
  59,681
  62,503
  65,476
  68,606
  71,901
  75,368
  79,015
  82,852
  86,888
  91,130
  95,591
  100,280
  105,209
  110,389
  115,832
  121,552
  127,562
  133,876
  140,509
  147,477
  154,797
  162,486
Total equity, $m
  24,335
  25,404
  26,514
  27,689
  28,933
  30,246
  31,634
  33,098
  34,642
  36,269
  37,984
  39,791
  41,693
  43,695
  45,802
  48,019
  50,351
  52,803
  55,382
  58,092
  60,942
  63,937
  67,085
  70,393
  73,869
  77,521
  81,359
  85,390
  89,624
  94,073
  98,745
Total liabilities and equity, $m
  65,966
  67,206
  70,143
  73,252
  76,542
  80,016
  83,687
  87,560
  91,645
  95,950
  100,487
  105,267
  110,299
  115,596
  121,170
  127,034
  133,203
  139,691
  146,512
  153,683
  161,222
  169,146
  177,474
  186,225
  195,421
  205,083
  215,235
  225,899
  237,101
  248,870
  261,231
Debt-to-equity ratio
  1.000
  0.960
  0.990
  1.020
  1.050
  1.070
  1.100
  1.120
  1.150
  1.170
  1.190
  1.210
  1.230
  1.250
  1.270
  1.290
  1.300
  1.320
  1.330
  1.350
  1.360
  1.380
  1.390
  1.400
  1.410
  1.420
  1.430
  1.440
  1.450
  1.460
  1.470
Adjusted equity ratio
  0.354
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378
  0.378

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,926
  4,810
  5,209
  5,637
  6,096
  6,586
  7,109
  7,667
  8,261
  8,894
  9,566
  12,306
  13,064
  13,868
  14,721
  15,624
  16,580
  17,592
  18,663
  19,796
  20,994
  22,260
  23,598
  25,012
  26,504
  28,080
  29,744
  31,500
  33,353
  35,307
  37,369
Depreciation, amort., depletion, $m
  669
  3,138
  3,154
  3,171
  3,188
  3,207
  3,227
  3,248
  3,270
  3,293
  3,318
  568
  596
  624
  654
  686
  719
  754
  791
  830
  870
  913
  958
  1,005
  1,055
  1,107
  1,162
  1,220
  1,280
  1,344
  1,410
Funds from operations, $m
  -5,315
  7,948
  8,363
  8,808
  9,284
  9,793
  10,336
  10,915
  11,531
  12,187
  12,884
  12,875
  13,660
  14,492
  15,375
  16,310
  17,299
  18,347
  19,455
  20,626
  21,865
  23,174
  24,556
  26,017
  27,559
  29,188
  30,906
  32,720
  34,633
  36,651
  38,780
Change in working capital, $m
  -9,981
  180
  191
  202
  214
  226
  239
  252
  266
  280
  295
  311
  327
  345
  363
  382
  401
  422
  444
  467
  491
  516
  542
  569
  598
  629
  660
  694
  729
  766
  804
Cash from operations, $m
  4,666
  7,768
  8,172
  8,606
  9,070
  9,567
  10,097
  10,663
  11,266
  11,907
  12,589
  12,564
  13,332
  14,148
  15,012
  15,928
  16,898
  17,924
  19,011
  20,160
  21,374
  22,658
  24,015
  25,448
  26,961
  28,559
  30,246
  32,026
  33,904
  35,885
  37,976
Maintenance CAPEX, $m
  0
  -348
  -363
  -379
  -396
  -413
  -432
  -452
  -473
  -495
  -518
  -543
  -568
  -596
  -624
  -654
  -686
  -719
  -754
  -791
  -830
  -870
  -913
  -958
  -1,005
  -1,055
  -1,107
  -1,162
  -1,220
  -1,280
  -1,344
New CAPEX, $m
  -432
  -450
  -476
  -504
  -533
  -563
  -594
  -627
  -662
  -697
  -735
  -774
  -815
  -858
  -903
  -950
  -999
  -1,051
  -1,105
  -1,162
  -1,221
  -1,284
  -1,349
  -1,418
  -1,490
  -1,565
  -1,644
  -1,727
  -1,815
  -1,906
  -2,002
Cash from investing activities, $m
  -1,360
  -798
  -839
  -883
  -929
  -976
  -1,026
  -1,079
  -1,135
  -1,192
  -1,253
  -1,317
  -1,383
  -1,454
  -1,527
  -1,604
  -1,685
  -1,770
  -1,859
  -1,953
  -2,051
  -2,154
  -2,262
  -2,376
  -2,495
  -2,620
  -2,751
  -2,889
  -3,035
  -3,186
  -3,346
Free cash flow, $m
  3,306
  6,970
  7,333
  7,723
  8,142
  8,591
  9,071
  9,584
  10,131
  10,715
  11,336
  11,247
  11,949
  12,694
  13,485
  14,324
  15,213
  16,154
  17,151
  18,207
  19,323
  20,504
  21,752
  23,072
  24,466
  25,939
  27,494
  29,136
  30,870
  32,699
  34,630
Issuance/(repayment) of debt, $m
  512
  1,710
  1,827
  1,934
  2,046
  2,162
  2,283
  2,409
  2,541
  2,678
  2,822
  2,973
  3,130
  3,295
  3,467
  3,648
  3,837
  4,035
  4,243
  4,461
  4,689
  4,929
  5,180
  5,443
  5,720
  6,010
  6,314
  6,633
  6,968
  7,320
  7,689
Issuance/(repurchase) of shares, $m
  -2,150
  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  
  -2,653
  1,710
  1,827
  1,934
  2,046
  2,162
  2,283
  2,409
  2,541
  2,678
  2,822
  2,973
  3,130
  3,295
  3,467
  3,648
  3,837
  4,035
  4,243
  4,461
  4,689
  4,929
  5,180
  5,443
  5,720
  6,010
  6,314
  6,633
  6,968
  7,320
  7,689
Total cash flow (excl. dividends), $m
  653
  8,680
  9,160
  9,657
  10,187
  10,752
  11,354
  11,993
  12,672
  13,393
  14,158
  14,220
  15,079
  15,989
  16,952
  17,972
  19,050
  20,190
  21,394
  22,668
  24,012
  25,433
  26,932
  28,515
  30,186
  31,948
  33,808
  35,769
  37,838
  40,019
  42,318
Retained Cash Flow (-), $m
  -716
  -1,069
  -1,110
  -1,175
  -1,243
  -1,314
  -1,387
  -1,464
  -1,544
  -1,628
  -1,715
  -1,807
  -1,902
  -2,002
  -2,107
  -2,217
  -2,332
  -2,452
  -2,579
  -2,711
  -2,850
  -2,995
  -3,148
  -3,308
  -3,476
  -3,652
  -3,837
  -4,031
  -4,235
  -4,448
  -4,673
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
 
  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
 
  7,611
  8,050
  8,482
  8,944
  9,439
  9,966
  10,529
  11,128
  11,765
  12,443
  12,413
  13,177
  13,987
  14,845
  15,755
  16,718
  17,737
  18,816
  19,957
  21,163
  22,437
  23,784
  25,207
  26,710
  28,296
  29,971
  31,738
  33,603
  35,571
  37,646
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  7,249
  7,267
  7,221
  7,142
  7,027
  6,876
  6,687
  6,459
  6,195
  5,895
  5,246
  4,922
  4,573
  4,205
  3,824
  3,436
  3,049
  2,669
  2,304
  1,959
  1,640
  1,350
  1,091
  866
  674
  513
  383
  279
  198
  137
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

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 20
Price to Sales 2.7
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 16.8
Price to Free Cash Flow 18.6
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 $29318 million for the last fiscal year's total revenue generated by Time Warner. The default revenue input number comes from 2016 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 4.3% 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 5%, 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 43.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $9343 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 5.8% 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%.

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 35.6%.

Life of production assets of 57 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 14.3%. 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 - $24335 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 778.545 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 $79.3 billion.

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COMPANY NEWS

▶ Is Time-Warner AT&Ts Saving Grace?   [09:09AM  Market Realist]
▶ The Aims of the AT&T-Time Warner Merger   [10:39AM  Market Realist]
▶ The True Cost of the AT&T-Time Warner Deal   [09:10AM  Market Realist]
▶ Politics tainting the NFL   [01:36PM  Yahoo Finance Video]
▶ Yahoo Finance Live: Market Movers - Oct 13th, 2017   [07:20AM  Yahoo Finance Video]
▶ AT&T Stock Falls, Under Key Level For Time Warner Deal   [04:11PM  Investor's Business Daily]
▶ Bank beats not enough to impress Wall Street   [11:24AM  Yahoo Finance Video]
▶ Trump NBC Attack Follows Criticism Of Time Warner's CNN, Amazon   [Oct-11-17 04:38PM  Investor's Business Daily]
▶ Collaboration tool used by WeWork and HBO gets new round of funding   [Oct-10-17 02:40PM  American City Business Journals]
▶ AT&T wants to keep the Time Warner culture intact, but questions remain   [Oct-09-17 05:30PM  American City Business Journals]
▶ 3 Reasons Why I Bought AT&T Inc. (T) Stock   [10:12AM  InvestorPlace]
▶ AT&T Boss Randall Stephenson's Big Data Strategy   [Oct-04-17 05:52PM  TheStreet.com]
▶ Verizons (VZ) Stock Dividend Likely to Get Slashed   [Oct-03-17 02:35PM  InvestorPlace]
▶ Shrinking TV ads are crushing advertisers   [12:33PM  Yahoo Finance Video]
▶ Yahoo Finance Live: Midday Movers   [09:20AM  Yahoo Finance Video]
▶ AT&T takes a step toward finalizing acquisition of Time Warner   [02:40PM  American City Business Journals]
▶ 5 Companies That Can Eat Netflix's Lunch   [11:31AM  Motley Fool]
▶ Trump's Top Merger Watchdog Approved   [05:36PM  Bloomberg]
▶ AMC invests $20 million in VR startup backed by Steven Spielberg   [Sep-26-17 03:00PM  American City Business Journals]
▶ John Oliver blasts parent company Time Warner and pending AT&T deal   [03:10PM  American City Business Journals]
Financial statements of TWX
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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