Intrinsic value of Aluminum Corp. of China ADR - ACH

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$12.43

  Intrinsic Value

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  Value-price divergence*

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$12.43

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

We calculate the intrinsic value of ACH 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 9.7

 

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, %
  16.68
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  20,842
  125,915
  128,811
  132,121
  135,838
  139,956
  144,475
  149,395
  154,721
  160,459
  166,617
  173,205
  180,235
  187,719
  195,674
  204,115
  213,060
  222,528
  232,541
  243,121
  254,292
  266,079
  278,510
  291,612
  305,418
  319,958
  335,266
  351,380
  368,336
  386,174
  404,937
Variable operating expenses, $m
 
  135,484
  138,601
  142,163
  146,162
  150,593
  155,455
  160,749
  166,480
  172,654
  179,280
  186,369
  193,933
  201,986
  210,545
  219,627
  229,252
  239,440
  250,214
  261,598
  273,618
  286,301
  299,676
  313,775
  328,629
  344,274
  360,747
  378,085
  396,329
  415,524
  435,713
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
  19,999
  135,484
  138,601
  142,163
  146,162
  150,593
  155,455
  160,749
  166,480
  172,654
  179,280
  186,369
  193,933
  201,986
  210,545
  219,627
  229,252
  239,440
  250,214
  261,598
  273,618
  286,301
  299,676
  313,775
  328,629
  344,274
  360,747
  378,085
  396,329
  415,524
  435,713
Operating income, $m
  843
  -9,570
  -9,790
  -10,041
  -10,324
  -10,637
  -10,980
  -11,354
  -11,759
  -12,195
  -12,663
  -13,164
  -13,698
  -14,267
  -14,871
  -15,513
  -16,193
  -16,912
  -17,673
  -18,477
  -19,326
  -20,222
  -21,167
  -22,163
  -23,212
  -24,317
  -25,480
  -26,705
  -27,994
  -29,349
  -30,775
EBITDA, $m
  1,827
  -2,450
  -2,506
  -2,571
  -2,643
  -2,723
  -2,811
  -2,907
  -3,010
  -3,122
  -3,242
  -3,370
  -3,507
  -3,652
  -3,807
  -3,971
  -4,145
  -4,330
  -4,525
  -4,730
  -4,948
  -5,177
  -5,419
  -5,674
  -5,942
  -6,225
  -6,523
  -6,837
  -7,167
  -7,514
  -7,879
Interest expense (income), $m
  727
  4,628
  4,769
  4,930
  5,114
  5,321
  5,550
  5,801
  6,075
  6,371
  6,690
  7,033
  7,399
  7,790
  8,206
  8,648
  9,118
  9,615
  10,142
  10,698
  11,287
  11,908
  12,563
  13,255
  13,983
  14,751
  15,559
  16,411
  17,307
  18,249
  19,241
Earnings before tax, $m
  240
  -14,198
  -14,559
  -14,972
  -15,438
  -15,958
  -16,530
  -17,155
  -17,834
  -18,566
  -19,353
  -20,196
  -21,097
  -22,056
  -23,077
  -24,161
  -25,310
  -26,527
  -27,815
  -29,176
  -30,613
  -32,130
  -33,730
  -35,417
  -37,195
  -39,068
  -41,040
  -43,115
  -45,300
  -47,599
  -50,017
Tax expense, $m
  58
  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
  58
  -14,198
  -14,559
  -14,972
  -15,438
  -15,958
  -16,530
  -17,155
  -17,834
  -18,566
  -19,353
  -20,196
  -21,097
  -22,056
  -23,077
  -24,161
  -25,310
  -26,527
  -27,815
  -29,176
  -30,613
  -32,130
  -33,730
  -35,417
  -37,195
  -39,068
  -41,040
  -43,115
  -45,300
  -47,599
  -50,017

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,582
  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
  27,499
  172,015
  175,971
  180,494
  185,571
  191,197
  197,370
  204,092
  211,368
  219,206
  227,619
  236,619
  246,222
  256,447
  267,314
  278,845
  291,065
  304,000
  317,679
  332,133
  347,394
  363,496
  380,478
  398,378
  417,237
  437,101
  458,014
  480,027
  503,191
  527,561
  553,193
Adjusted assets (=assets-cash), $m
  23,917
  172,015
  175,971
  180,494
  185,571
  191,197
  197,370
  204,092
  211,368
  219,206
  227,619
  236,619
  246,222
  256,447
  267,314
  278,845
  291,065
  304,000
  317,679
  332,133
  347,394
  363,496
  380,478
  398,378
  417,237
  437,101
  458,014
  480,027
  503,191
  527,561
  553,193
Revenue / Adjusted assets
  0.871
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
Average production assets, $m
  14,940
  57,669
  58,995
  60,512
  62,214
  64,100
  66,169
  68,423
  70,862
  73,490
  76,311
  79,328
  82,548
  85,975
  89,619
  93,485
  97,581
  101,918
  106,504
  111,350
  116,466
  121,864
  127,557
  133,558
  139,881
  146,541
  153,552
  160,932
  168,698
  176,868
  185,461
Working capital, $m
  -2,390
  17,124
  17,518
  17,969
  18,474
  19,034
  19,649
  20,318
  21,042
  21,822
  22,660
  23,556
  24,512
  25,530
  26,612
  27,760
  28,976
  30,264
  31,626
  33,064
  34,584
  36,187
  37,877
  39,659
  41,537
  43,514
  45,596
  47,788
  50,094
  52,520
  55,071
Total debt, $m
  16,060
  89,986
  93,025
  96,498
  100,398
  104,718
  109,459
  114,621
  120,209
  126,230
  132,690
  139,602
  146,978
  154,830
  163,176
  172,032
  181,417
  191,351
  201,857
  212,957
  224,677
  237,044
  250,086
  263,833
  278,317
  293,572
  309,634
  326,540
  344,330
  363,046
  382,731
Total liabilities, $m
  21,986
  132,107
  135,146
  138,619
  142,519
  146,839
  151,580
  156,742
  162,330
  168,351
  174,811
  181,723
  189,099
  196,951
  205,297
  214,153
  223,538
  233,472
  243,978
  255,078
  266,798
  279,165
  292,207
  305,954
  320,438
  335,693
  351,755
  368,661
  386,451
  405,167
  424,852
Total equity, $m
  5,513
  39,907
  40,825
  41,875
  43,052
  44,358
  45,790
  47,349
  49,037
  50,856
  52,808
  54,896
  57,124
  59,496
  62,017
  64,692
  67,527
  70,528
  73,702
  77,055
  80,595
  84,331
  88,271
  92,424
  96,799
  101,407
  106,259
  111,366
  116,740
  122,394
  128,341
Total liabilities and equity, $m
  27,499
  172,014
  175,971
  180,494
  185,571
  191,197
  197,370
  204,091
  211,367
  219,207
  227,619
  236,619
  246,223
  256,447
  267,314
  278,845
  291,065
  304,000
  317,680
  332,133
  347,393
  363,496
  380,478
  398,378
  417,237
  437,100
  458,014
  480,027
  503,191
  527,561
  553,193
Debt-to-equity ratio
  2.913
  2.250
  2.280
  2.300
  2.330
  2.360
  2.390
  2.420
  2.450
  2.480
  2.510
  2.540
  2.570
  2.600
  2.630
  2.660
  2.690
  2.710
  2.740
  2.760
  2.790
  2.810
  2.830
  2.850
  2.880
  2.890
  2.910
  2.930
  2.950
  2.970
  2.980
Adjusted equity ratio
  0.231
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  58
  -14,198
  -14,559
  -14,972
  -15,438
  -15,958
  -16,530
  -17,155
  -17,834
  -18,566
  -19,353
  -20,196
  -21,097
  -22,056
  -23,077
  -24,161
  -25,310
  -26,527
  -27,815
  -29,176
  -30,613
  -32,130
  -33,730
  -35,417
  -37,195
  -39,068
  -41,040
  -43,115
  -45,300
  -47,599
  -50,017
Depreciation, amort., depletion, $m
  984
  7,120
  7,283
  7,471
  7,681
  7,914
  8,169
  8,447
  8,748
  9,073
  9,421
  9,794
  10,191
  10,614
  11,064
  11,541
  12,047
  12,582
  13,149
  13,747
  14,378
  15,045
  15,748
  16,489
  17,269
  18,091
  18,957
  19,868
  20,827
  21,836
  22,896
Funds from operations, $m
  1,427
  -7,078
  -7,276
  -7,501
  -7,757
  -8,044
  -8,361
  -8,708
  -9,085
  -9,493
  -9,932
  -10,403
  -10,906
  -11,442
  -12,013
  -12,620
  -13,263
  -13,945
  -14,666
  -15,429
  -16,234
  -17,085
  -17,982
  -18,928
  -19,926
  -20,976
  -22,083
  -23,247
  -24,473
  -25,763
  -27,120
Change in working capital, $m
  -239
  336
  394
  450
  505
  560
  615
  669
  724
  780
  837
  896
  956
  1,018
  1,082
  1,148
  1,217
  1,288
  1,362
  1,439
  1,519
  1,603
  1,691
  1,782
  1,878
  1,977
  2,082
  2,191
  2,306
  2,426
  2,552
Cash from operations, $m
  1,666
  -53,572
  -7,669
  -7,951
  -8,263
  -8,604
  -8,976
  -9,377
  -9,810
  -10,273
  -10,769
  -11,299
  -11,862
  -12,460
  -13,095
  -13,768
  -14,480
  -15,233
  -16,028
  -16,868
  -17,754
  -18,688
  -19,673
  -20,710
  -21,803
  -22,954
  -24,165
  -25,439
  -26,779
  -28,189
  -29,672
Maintenance CAPEX, $m
  0
  -6,987
  -7,120
  -7,283
  -7,471
  -7,681
  -7,914
  -8,169
  -8,447
  -8,748
  -9,073
  -9,421
  -9,794
  -10,191
  -10,614
  -11,064
  -11,541
  -12,047
  -12,582
  -13,149
  -13,747
  -14,378
  -15,045
  -15,748
  -16,489
  -17,269
  -18,091
  -18,957
  -19,868
  -20,827
  -21,836
New CAPEX, $m
  -906
  -1,072
  -1,326
  -1,516
  -1,702
  -1,886
  -2,069
  -2,254
  -2,439
  -2,628
  -2,820
  -3,017
  -3,220
  -3,428
  -3,643
  -3,866
  -4,097
  -4,337
  -4,586
  -4,846
  -5,116
  -5,399
  -5,693
  -6,001
  -6,323
  -6,659
  -7,011
  -7,380
  -7,766
  -8,170
  -8,593
Cash from investing activities, $m
  -723
  -8,059
  -8,446
  -8,799
  -9,173
  -9,567
  -9,983
  -10,423
  -10,886
  -11,376
  -11,893
  -12,438
  -13,014
  -13,619
  -14,257
  -14,930
  -15,638
  -16,384
  -17,168
  -17,995
  -18,863
  -19,777
  -20,738
  -21,749
  -22,812
  -23,928
  -25,102
  -26,337
  -27,634
  -28,997
  -30,429
Free cash flow, $m
  943
  -61,631
  -16,115
  -16,751
  -17,436
  -18,171
  -18,959
  -19,800
  -20,696
  -21,650
  -22,663
  -23,737
  -24,875
  -26,079
  -27,352
  -28,698
  -30,118
  -31,616
  -33,196
  -34,862
  -36,617
  -38,465
  -40,411
  -42,459
  -44,615
  -46,882
  -49,267
  -51,776
  -54,413
  -57,186
  -60,101
Issuance/(repayment) of debt, $m
  -479
  2,656
  3,038
  3,473
  3,899
  4,321
  4,741
  5,162
  5,588
  6,020
  6,461
  6,912
  7,375
  7,853
  8,346
  8,856
  9,385
  9,934
  10,506
  11,100
  11,720
  12,367
  13,042
  13,747
  14,484
  15,255
  16,062
  16,906
  17,790
  18,716
  19,686
Issuance/(repurchase) of shares, $m
  0
  59,715
  13,995
  14,327
  14,714
  15,156
  15,650
  16,197
  16,796
  17,448
  18,154
  18,913
  19,728
  20,599
  21,528
  22,517
  23,568
  24,683
  25,864
  27,115
  28,437
  29,834
  31,309
  32,865
  34,506
  36,235
  38,058
  39,977
  41,997
  44,124
  46,362
Cash from financing (excl. dividends), $m  
  -530
  62,371
  17,033
  17,800
  18,613
  19,477
  20,391
  21,359
  22,384
  23,468
  24,615
  25,825
  27,103
  28,452
  29,874
  31,373
  32,953
  34,617
  36,370
  38,215
  40,157
  42,201
  44,351
  46,612
  48,990
  51,490
  54,120
  56,883
  59,787
  62,840
  66,048
Total cash flow (excl. dividends), $m
  442
  -58,975
  -13,077
  -13,278
  -13,536
  -13,850
  -14,218
  -14,637
  -15,108
  -15,630
  -16,202
  -16,825
  -17,500
  -18,226
  -19,007
  -19,842
  -20,733
  -21,682
  -22,691
  -23,762
  -24,897
  -26,098
  -27,369
  -28,712
  -30,130
  -31,627
  -33,206
  -34,870
  -36,623
  -38,470
  -40,415
Retained Cash Flow (-), $m
  268
  -740
  -918
  -1,049
  -1,178
  -1,305
  -1,432
  -1,559
  -1,688
  -1,819
  -1,952
  -2,088
  -2,228
  -2,372
  -2,521
  -2,675
  -2,835
  -3,001
  -3,174
  -3,353
  -3,540
  -3,736
  -3,940
  -4,153
  -4,375
  -4,608
  -4,852
  -5,107
  -5,374
  -5,654
  -5,947
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
 
  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
Discount rate, %
 
  9.90
  10.40
  10.91
  11.46
  12.03
  12.64
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.83
  25.02
  26.27
  27.58
  28.96
  30.41
  31.93
  33.52
  35.20
  36.96
  38.81
  40.75
PV of cash for 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
Current shareholders' claim on cash, %
  100
  31.5
  21.0
  14.0
  9.3
  6.2
  4.1
  2.7
  1.8
  1.2
  0.8
  0.5
  0.3
  0.2
  0.2
  0.1
  0.1
  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

Aluminum Corporation of China Limited, together with its subsidiaries, engages in the manufacture and distribution of alumina, and primary aluminum and energy products in China. It operates through Alumina, Primary Aluminum, Energy, and Trading segments. The Alumina segment is involved in the mining and purchasing of bauxite and other raw materials; refining of bauxite into alumina; sale of alumina; and production and sale of chemical alumina and metal gallium. The Primary Aluminum segment procures alumina and other raw materials, supplemental materials, and electricity power; and produces and sells primary aluminum, as well as carbon products, aluminum alloy products, and other aluminum products. The Energy segment engages in the research and development, production, and operation of energy products, including coal mining; generates and sells electricity to regional power grid corporations using thermal power, wind power, and solar power sources; and manufacture of energy related equipment. The Trading segment trades in alumina, primary aluminum, aluminum fabrication products, other non-ferrous metal products, coal products, raw materials, and supplemental materials; and provides logistics and transport services to internal manufacturing plants and external customers. The company also manufactures, acquires, and distributes bauxite mines, limestone ore, aluminum magnesium ore, and related nonferrous metal products. The company was founded in 2001 and is based in Beijing, the People's Republic of China.

FINANCIAL RATIOS  of  Aluminum Corp. of China ADR (ACH)

Valuation Ratios
P/E Ratio 3194
Price to Sales 8.9
Price to Book 33.6
Price to Tangible Book
Price to Cash Flow 111.2
Price to Free Cash Flow 243.8
Growth Rates
Sales Growth Rate 16.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -32.9%
Cap. Spend. - 3 Yr. Gr. Rate -6%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 126.2%
Total Debt to Equity 291.3%
Interest Coverage 1
Management Effectiveness
Return On Assets 2.2%
Ret/ On Assets - 3 Yr. Avg. 2%
Return On Total Capital 0.3%
Ret/ On T. Cap. - 3 Yr. Avg. -3.5%
Return On Equity 1%
Return On Equity - 3 Yr. Avg. -14.4%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 7.3%
Gross Margin - 3 Yr. Avg. 3.3%
EBITDA Margin 9.4%
EBITDA Margin - 3 Yr. Avg. 6.3%
Operating Margin 4%
Oper. Margin - 3 Yr. Avg. 0.2%
Pre-Tax Margin 1.2%
Pre-Tax Margin - 3 Yr. Avg. -3.3%
Net Profit Margin 0.3%
Net Profit Margin - 3 Yr. Avg. -3.7%
Effective Tax Rate 24.2%
Eff/ Tax Rate - 3 Yr. Avg. -49.2%
Payout Ratio 0%

ACH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ACH stock intrinsic value calculation we used $123446 million for the last fiscal year's total revenue generated by Aluminum Corp. of China ADR. The default revenue input number comes from 2016 income statement of Aluminum Corp. of China 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 ACH stock valuation model: a) initial revenue growth rate of 2% 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 9.9%, whose default value for ACH is calculated based on our internal credit rating of Aluminum Corp. of China 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 Aluminum Corp. of China 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 ACH stock the variable cost ratio is equal to 107.6%.

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 ACH 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 5.3% for Aluminum Corp. of China ADR.

Corporate tax rate of 27% is the nominal tax rate for Aluminum Corp. of China 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 ACH 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 ACH are equal to 45.8%.

Life of production assets of 8.1 years is the average useful life of capital assets used in Aluminum Corp. of China 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 ACH is equal to 13.6%. 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 - $39167 million for Aluminum Corp. of China 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 780.995 million for Aluminum Corp. of China 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 Aluminum Corp. of China ADR at the current share price and the inputted number of shares is $9.7 billion.


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Stock chart of ACH Financial statements of ACH Annual reports of ACH
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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