Intrinsic value of Alcoa - AA

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$33.31

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$33.31

 
Intrinsic value

$7.26

 
Up/down potential

-78%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of AA 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 6.3

 

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, %
  -16.80
  3.50
  3.65
  3.78
  3.91
  4.02
  4.11
  4.20
  4.28
  4.35
  4.42
  4.48
  4.53
  4.58
  4.62
  4.66
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
Revenue, $m
  9,318
  9,644
  9,996
  10,374
  10,780
  11,213
  11,674
  12,165
  12,686
  13,238
  13,823
  14,442
  15,096
  15,787
  16,516
  17,285
  18,096
  18,950
  19,850
  20,798
  21,796
  22,846
  23,951
  25,113
  26,335
  27,621
  28,972
  30,392
  31,886
  33,455
  35,104
Variable operating expenses, $m
 
  9,663
  10,015
  10,393
  10,799
  11,232
  11,693
  12,184
  12,705
  13,258
  13,843
  14,447
  15,101
  15,792
  16,521
  17,291
  18,102
  18,957
  19,857
  20,805
  21,803
  22,854
  23,959
  25,122
  26,344
  27,630
  28,982
  30,403
  31,896
  33,466
  35,116
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
  9,326
  9,663
  10,015
  10,393
  10,799
  11,232
  11,693
  12,184
  12,705
  13,258
  13,843
  14,447
  15,101
  15,792
  16,521
  17,291
  18,102
  18,957
  19,857
  20,805
  21,803
  22,854
  23,959
  25,122
  26,344
  27,630
  28,982
  30,403
  31,896
  33,466
  35,116
Operating income, $m
  -8
  -19
  -19
  -19
  -19
  -19
  -19
  -20
  -20
  -20
  -20
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
EBITDA, $m
  710
  729
  755
  784
  815
  847
  882
  919
  959
  1,000
  1,044
  1,091
  1,141
  1,193
  1,248
  1,306
  1,367
  1,432
  1,500
  1,571
  1,647
  1,726
  1,810
  1,898
  1,990
  2,087
  2,189
  2,296
  2,409
  2,528
  2,652
Interest expense (income), $m
  226
  386
  496
  609
  731
  862
  1,001
  1,150
  1,308
  1,476
  1,654
  1,843
  2,042
  2,253
  2,476
  2,711
  2,959
  3,220
  3,495
  3,785
  4,091
  4,413
  4,751
  5,107
  5,482
  5,876
  6,290
  6,726
  7,183
  7,665
  8,171
Earnings before tax, $m
  -162
  -405
  -515
  -628
  -750
  -881
  -1,021
  -1,170
  -1,328
  -1,496
  -1,674
  -1,847
  -2,047
  -2,258
  -2,481
  -2,716
  -2,965
  -3,226
  -3,502
  -3,792
  -4,098
  -4,420
  -4,759
  -5,116
  -5,491
  -5,885
  -6,300
  -6,736
  -7,194
  -7,676
  -8,182
Tax expense, $m
  184
  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
Net income, $m
  -400
  -405
  -515
  -628
  -750
  -881
  -1,021
  -1,170
  -1,328
  -1,496
  -1,674
  -1,847
  -2,047
  -2,258
  -2,481
  -2,716
  -2,965
  -3,226
  -3,502
  -3,792
  -4,098
  -4,420
  -4,759
  -5,116
  -5,491
  -5,885
  -6,300
  -6,736
  -7,194
  -7,676
  -8,182

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  853
  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
  16,741
  16,458
  17,058
  17,704
  18,396
  19,134
  19,921
  20,759
  21,648
  22,590
  23,589
  24,645
  25,761
  26,940
  28,184
  29,497
  30,880
  32,338
  33,875
  35,492
  37,195
  38,987
  40,872
  42,855
  44,941
  47,134
  49,440
  51,864
  54,412
  57,090
  59,904
Adjusted assets (=assets-cash), $m
  15,888
  16,458
  17,058
  17,704
  18,396
  19,134
  19,921
  20,759
  21,648
  22,590
  23,589
  24,645
  25,761
  26,940
  28,184
  29,497
  30,880
  32,338
  33,875
  35,492
  37,195
  38,987
  40,872
  42,855
  44,941
  47,134
  49,440
  51,864
  54,412
  57,090
  59,904
Revenue / Adjusted assets
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
Average production assets, $m
  9,478
  9,808
  10,166
  10,551
  10,963
  11,403
  11,872
  12,371
  12,901
  13,463
  14,058
  14,687
  15,353
  16,055
  16,797
  17,579
  18,403
  19,273
  20,188
  21,152
  22,167
  23,235
  24,358
  25,540
  26,783
  28,090
  29,464
  30,909
  32,428
  34,024
  35,701
Working capital, $m
  360
  -492
  -510
  -529
  -550
  -572
  -595
  -620
  -647
  -675
  -705
  -737
  -770
  -805
  -842
  -882
  -923
  -966
  -1,012
  -1,061
  -1,112
  -1,165
  -1,221
  -1,281
  -1,343
  -1,409
  -1,478
  -1,550
  -1,626
  -1,706
  -1,790
Total debt, $m
  1,445
  1,829
  2,248
  2,698
  3,180
  3,695
  4,243
  4,827
  5,446
  6,103
  6,799
  7,535
  8,313
  9,135
  10,002
  10,917
  11,882
  12,898
  13,969
  15,096
  16,283
  17,532
  18,846
  20,228
  21,682
  23,211
  24,818
  26,507
  28,283
  30,150
  32,111
Total liabilities, $m
  11,087
  11,471
  11,890
  12,340
  12,822
  13,337
  13,885
  14,469
  15,088
  15,745
  16,441
  17,177
  17,955
  18,777
  19,644
  20,559
  21,524
  22,540
  23,611
  24,738
  25,925
  27,174
  28,488
  29,870
  31,324
  32,853
  34,460
  36,149
  37,925
  39,792
  41,753
Total equity, $m
  5,654
  4,987
  5,169
  5,364
  5,574
  5,798
  6,036
  6,290
  6,559
  6,845
  7,147
  7,467
  7,806
  8,163
  8,540
  8,937
  9,357
  9,799
  10,264
  10,754
  11,270
  11,813
  12,384
  12,985
  13,617
  14,282
  14,980
  15,715
  16,487
  17,298
  18,151
Total liabilities and equity, $m
  16,741
  16,458
  17,059
  17,704
  18,396
  19,135
  19,921
  20,759
  21,647
  22,590
  23,588
  24,644
  25,761
  26,940
  28,184
  29,496
  30,881
  32,339
  33,875
  35,492
  37,195
  38,987
  40,872
  42,855
  44,941
  47,135
  49,440
  51,864
  54,412
  57,090
  59,904
Debt-to-equity ratio
  0.256
  0.370
  0.430
  0.500
  0.570
  0.640
  0.700
  0.770
  0.830
  0.890
  0.950
  1.010
  1.070
  1.120
  1.170
  1.220
  1.270
  1.320
  1.360
  1.400
  1.440
  1.480
  1.520
  1.560
  1.590
  1.630
  1.660
  1.690
  1.720
  1.740
  1.770
Adjusted equity ratio
  0.302
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -400
  -405
  -515
  -628
  -750
  -881
  -1,021
  -1,170
  -1,328
  -1,496
  -1,674
  -1,847
  -2,047
  -2,258
  -2,481
  -2,716
  -2,965
  -3,226
  -3,502
  -3,792
  -4,098
  -4,420
  -4,759
  -5,116
  -5,491
  -5,885
  -6,300
  -6,736
  -7,194
  -7,676
  -8,182
Depreciation, amort., depletion, $m
  718
  747
  774
  803
  834
  866
  902
  939
  978
  1,020
  1,065
  1,096
  1,146
  1,198
  1,253
  1,312
  1,373
  1,438
  1,507
  1,578
  1,654
  1,734
  1,818
  1,906
  1,999
  2,096
  2,199
  2,307
  2,420
  2,539
  2,664
Funds from operations, $m
  -1,228
  343
  260
  175
  83
  -14
  -119
  -231
  -350
  -476
  -610
  -751
  -901
  -1,060
  -1,228
  -1,405
  -1,591
  -1,788
  -1,995
  -2,214
  -2,444
  -2,686
  -2,941
  -3,210
  -3,492
  -3,789
  -4,101
  -4,429
  -4,774
  -5,137
  -5,518
Change in working capital, $m
  -917
  -17
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -48
  -51
  -54
  -56
  -59
  -62
  -66
  -69
  -72
  -76
  -80
  -84
Cash from operations, $m
  -311
  341
  278
  194
  104
  8
  -96
  -206
  -323
  -448
  -580
  -720
  -868
  -1,025
  -1,190
  -1,365
  -1,550
  -1,744
  -1,950
  -2,166
  -2,393
  -2,633
  -2,885
  -3,150
  -3,430
  -3,723
  -4,032
  -4,357
  -4,698
  -5,057
  -5,434
Maintenance CAPEX, $m
  0
  -707
  -732
  -759
  -787
  -818
  -851
  -886
  -923
  -963
  -1,005
  -1,049
  -1,096
  -1,146
  -1,198
  -1,253
  -1,312
  -1,373
  -1,438
  -1,507
  -1,578
  -1,654
  -1,734
  -1,818
  -1,906
  -1,999
  -2,096
  -2,199
  -2,307
  -2,420
  -2,539
New CAPEX, $m
  -404
  -330
  -358
  -385
  -412
  -440
  -469
  -499
  -530
  -562
  -595
  -629
  -665
  -703
  -742
  -782
  -825
  -869
  -915
  -964
  -1,015
  -1,068
  -1,124
  -1,182
  -1,243
  -1,307
  -1,374
  -1,445
  -1,518
  -1,596
  -1,677
Cash from investing activities, $m
  1,077
  -1,037
  -1,090
  -1,144
  -1,199
  -1,258
  -1,320
  -1,385
  -1,453
  -1,525
  -1,600
  -1,678
  -1,761
  -1,849
  -1,940
  -2,035
  -2,137
  -2,242
  -2,353
  -2,471
  -2,593
  -2,722
  -2,858
  -3,000
  -3,149
  -3,306
  -3,470
  -3,644
  -3,825
  -4,016
  -4,216
Free cash flow, $m
  766
  -696
  -812
  -949
  -1,095
  -1,251
  -1,416
  -1,591
  -1,776
  -1,972
  -2,179
  -2,398
  -2,629
  -2,873
  -3,130
  -3,401
  -3,686
  -3,987
  -4,303
  -4,636
  -4,986
  -5,355
  -5,743
  -6,150
  -6,579
  -7,029
  -7,503
  -8,000
  -8,523
  -9,073
  -9,650
Issuance/(repayment) of debt, $m
  -38
  405
  419
  450
  482
  515
  549
  584
  620
  657
  696
  736
  778
  822
  867
  915
  964
  1,016
  1,071
  1,127
  1,187
  1,249
  1,314
  1,382
  1,454
  1,529
  1,607
  1,690
  1,776
  1,866
  1,961
Issuance/(repurchase) of shares, $m
  10
  0
  576
  695
  823
  960
  1,106
  1,261
  1,426
  1,601
  1,786
  1,982
  2,190
  2,409
  2,640
  2,884
  3,141
  3,412
  3,698
  3,999
  4,316
  4,649
  5,000
  5,369
  5,757
  6,165
  6,594
  7,045
  7,519
  8,018
  8,541
Cash from financing (excl. dividends), $m  
  -483
  405
  995
  1,145
  1,305
  1,475
  1,655
  1,845
  2,046
  2,258
  2,482
  2,718
  2,968
  3,231
  3,507
  3,799
  4,105
  4,428
  4,769
  5,126
  5,503
  5,898
  6,314
  6,751
  7,211
  7,694
  8,201
  8,735
  9,295
  9,884
  10,502
Total cash flow (excl. dividends), $m
  296
  -291
  -394
  -499
  -613
  -736
  -867
  -1,007
  -1,156
  -1,315
  -1,484
  -1,662
  -1,851
  -2,051
  -2,263
  -2,486
  -2,722
  -2,971
  -3,233
  -3,509
  -3,800
  -4,106
  -4,428
  -4,768
  -5,125
  -5,500
  -5,895
  -6,311
  -6,747
  -7,206
  -7,689
Retained Cash Flow (-), $m
  3,788
  -165
  -182
  -196
  -210
  -224
  -239
  -254
  -269
  -286
  -302
  -320
  -338
  -357
  -377
  -398
  -419
  -442
  -465
  -490
  -516
  -543
  -571
  -601
  -632
  -665
  -699
  -734
  -772
  -811
  -853
Prev. year cash balance distribution, $m
 
  832
  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
 
  376
  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
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
 
  361
  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
Current shareholders' claim on cash, %
  100
  100.0
  90.6
  80.9
  71.1
  61.6
  52.6
  44.3
  36.8
  30.2
  24.5
  19.6
  15.5
  12.2
  9.4
  7.2
  5.5
  4.1
  3.1
  2.3
  1.7
  1.2
  0.9
  0.6
  0.5
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1

Alcoa Corporation engages in mining and production of bauxite, alumina, and aluminum products. It owns seven bauxite mines located near principal Atlantic and Pacific markets; and provides smelter grade alumina to aluminum manufacturers in Asia, the Middle East, and Latin America, as well as non-metallurgical grade alumina for industrial chemical operations in North America, Latin America, Europe, and Asia. The company is also involved in mining, refining, smelting, casting, and rolling aluminum products; production of aluminum billets, foundry ingots, rolling slabs, rods, powders, and proprietary alloys; and generation and sale of renewable energy. In addition, it produces and sells rolled aluminum sheets used in packaging, including aluminum bottles and food cans. The company was formerly known as Alcoa Upstream Corporation and changed its name to Alcoa Corporation in October 2016. Alcoa Corporation is based in New York, New York.

FINANCIAL RATIOS  of  Alcoa (AA)

Valuation Ratios
P/E Ratio -15.2
Price to Sales 0.7
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow -19.6
Price to Free Cash Flow -8.5
Growth Rates
Sales Growth Rate -16.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 3.3%
Cap. Spend. - 3 Yr. Gr. Rate -6.6%
Financial Strength
Quick Ratio 41
Current Ratio 0
LT Debt to Equity 25.2%
Total Debt to Equity 25.6%
Interest Coverage 0
Management Effectiveness
Return On Assets 0.5%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital -4.8%
Ret/ On T. Cap. - 3 Yr. Avg. -5.9%
Return On Equity -5.3%
Return On Equity - 3 Yr. Avg. -6.2%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 15.2%
Gross Margin - 3 Yr. Avg. 18.1%
EBITDA Margin 8.4%
EBITDA Margin - 3 Yr. Avg. 8%
Operating Margin -0.1%
Oper. Margin - 3 Yr. Avg. 0.7%
Pre-Tax Margin -1.7%
Pre-Tax Margin - 3 Yr. Avg. -1.7%
Net Profit Margin -4.3%
Net Profit Margin - 3 Yr. Avg. -4.6%
Effective Tax Rate -113.6%
Eff/ Tax Rate - 3 Yr. Avg. -227.9%
Payout Ratio 0%

AA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AA stock intrinsic value calculation we used $9318 million for the last fiscal year's total revenue generated by Alcoa. The default revenue input number comes from 2016 income statement of Alcoa. 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 AA stock valuation model: a) initial revenue growth rate of 3.5% 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 AA is calculated based on our internal credit rating of Alcoa, 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 Alcoa.
    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 AA stock the variable cost ratio is equal to 100.2%.

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 AA 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 27.1% for Alcoa.

Corporate tax rate of 27% is the nominal tax rate for Alcoa. 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 AA 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 AA are equal to 101.7%.

Life of production assets of 13.4 years is the average useful life of capital assets used in Alcoa 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 AA is equal to -5.1%. 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 - $5654 million for Alcoa - 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 189.244 million for Alcoa 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 Alcoa at the current share price and the inputted number of shares is $6.3 billion.


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COMPANY NEWS

▶ Iron Ore Forecast at $41 in 2018   [Apr-24-17 07:13PM  Bloomberg Video]
▶ Alcoa beats 1Q profit forecasts   [04:22PM  Associated Press]
▶ Alcoa Q1 EPS beats, revenues miss   [04:17PM  CNBC Videos]
▶ [$$] A Moment of Truth for Alcoa-Arconic Split   [12:03AM  The Wall Street Journal]
▶ [$$] A Moment of Truth for Alcoa-Arconic Split   [Apr-23-17 01:13PM  The Wall Street Journal]
▶ [$$] Alcoa's Split Is a Hit in the Market   [Apr-22-17 12:25AM  Barrons.com]
▶ Jim Cramer Expects a Bad Quarter From Arconic   [Apr-21-17 01:17PM  TheStreet.com]
▶ [$$] Kleinfeld's Leaving Arconic Shows Investors Like All to Play Nice   [Apr-20-17 06:28PM  The Wall Street Journal]
▶ Fitzgerald: Delegation's pitch helped bring Alcoa home   [02:52PM  American City Business Journals]
▶ Alcoa Corp. moving headquarters back to Pittsburgh   [Apr-19-17 08:06PM  American City Business Journals]
▶ [$$] Alcoa to Close New York Headquarters   [06:45PM  The Wall Street Journal]
▶ Will Alcoa Beat 1Q17 Earnings Estimates?   [10:38AM  Market Realist]
▶ Arconic: CEO's Exit is Good News But   [10:02AM  Barrons.com]
▶ [$$] Inside the Activist Battle That Felled Arconics Klaus Kleinfeld   [Apr-17-17 11:57PM  The Wall Street Journal]
▶ Arconic Jumps As CEO Kleinfeld Exits Amid Proxy Fight   [04:06PM  Investor's Business Daily]
▶ Kleinfeld out as chair and CEO of Arconic   [10:56AM  American City Business Journals]
▶ Kleinfeld Out as Chairman, CEO of Arconic   [10:30AM  24/7 Wall St.]
▶ [$$] Chinese Aluminum Giant Faces Credit Crunch   [Apr-15-17 12:32AM  The Wall Street Journal]
▶ [$$] Aluminum Giant Faces Fraud Allegations, Credit Squeeze   [Apr-14-17 06:12AM  The Wall Street Journal]
▶ Get Ready To Be Surprised This Earnings Season   [Apr-11-17 03:20PM  Zacks]
▶ Analysts View on Norsk Hydros 1Q17 Earnings   [11:05AM  Market Realist]
▶ Aluminum Prices: Why Aluminum Is Hot in 2017   [07:44AM  Market Realist]
▶ [$$] Buy Alcoa Before It Gets Bought   [Apr-10-17 01:00PM  Barrons.com]
▶ 3 Top Aluminum Stocks to Buy in 2017   [Apr-08-17 08:07AM  Motley Fool]
▶ Deficit or Surplus: Wheres Aluminum Headed in 2017?   [Apr-05-17 07:36AM  Market Realist]
▶ Is There a Disconnect Between Alcoa and Aluminum Prices?   [Apr-04-17 01:05PM  Market Realist]
▶ Better Buy: Alcoa Corp. vs. Silver Wheaton Corp.   [Apr-03-17 05:35PM  Motley Fool]
▶ Alcoa: A Good Entry Point?   [10:16AM  Barrons.com]
▶ Alcoa: 4 Reasons to Buy   [Mar-31-17 01:54PM  Barrons.com]
▶ Why Alcoa is Flying   [01:33PM  at Barrons.com]
▶ Better Buy: Alcoa Inc. vs. Hecla Mining   [Mar-17-17 07:48AM  at Motley Fool]
Stock chart of AA Financial statements of AA
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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