Time Warner Inc. (TWX)

Discount cash flow analysis

Sell Overvalued by 80.3%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for Time Warner Inc., based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Price history

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $15.32 $15.01 $14.71
Terminal Growth% 0 $15.39 $15.08 $14.77
  +1% $15.46 $15.15 $14.84

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $88.00 (undervalued by 14.79%) - 10 months ago
  • GordonGekko created a new valuation of $29.12 (undervalued by 7.06%) - over 7 years ago
  • dianekim227 created a new valuation of $15.07 (overvalued by 40.83%) - 8 years ago
  • dianekim227 created a new valuation of $15.07 (overvalued by 40.83%) - 8 years ago
  • dianekim227 created a new valuation of $15.07 (overvalued by 40.83%) - 8 years ago
  • dianekim227 created a new valuation of $15.07 (overvalued by 40.83%) - 8 years ago
  • dianekim227 created a new valuation of $15.07 (overvalued by 40.83%) - 8 years ago
  • GordonGekko created a new valuation of $17.25 (overvalued by 24.47%) - 8 years ago
  • SethWellbourne created a new valuation of $5.10 (overvalued by 72.02%) - over 8 years ago
  • GordonGekko created a new valuation of $8.15 (undervalued by 9.1%) - over 8 years ago
  • KiwiEMH created a new valuation of $14.57 (overvalued by 1.55%) - 9 years ago
  • contrarian created a new valuation of $18.93 (undervalued by 24.62%) - 9 years ago
  • TheCrunchBlog created a new valuation of $15.08 (overvalued by 0.72%) - 9 years ago

Comments

Valuing TWX

This valuation is part of the following blog post:

http://blog.valuecruncher.com/2008/06/thinking-about-valuation-of-traditional-media/

Time Warner grew revenues from US$39.5 billion in 2003 to US$46.5 billion in 2007 – a 4% compound annual growth rate. Our assumptions of revenues for the next three years are US$48.0 billion in 2008 growing to US$52.0 billion in 2010. We have projected EBITDA margins increasing from 22% in 2008 to 25% in 2010. We have used a terminal growth rate of 2%. We calculated this terminal growth rate based on year three growth of 4% dropping to a 2% stable growth rate by year 10. We used a terminal capital expenditure number of US$4.5 billion. We have used a WACC (discount rate) of 8.5%.

By TheCrunchBlog, about 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 309,929
Net Debt (Long-term borrowings less cash): 35,614
Equity Value: 54,354
Number of Shares Outstanding: 3,578,000,000
Calculated value per share: $15.08

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.