Intrinsic value of Archer Daniels Midland - ADM

Previous Close

$40.05

  Intrinsic Value

$7.84

stock screener

  Rating & Target

str. sell

-80%

Previous close

$40.05

 
Intrinsic value

$7.84

 
Up/down potential

-80%

 
Rating

str. sell

We calculate the intrinsic value of ADM 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 22.5

 

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, %
  -7.91
  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
  62,346
  63,593
  65,056
  66,727
  68,605
  70,684
  72,966
  75,451
  78,141
  81,039
  84,149
  87,477
  91,027
  94,807
  98,824
  103,087
  107,605
  112,387
  117,444
  122,788
  128,429
  134,382
  140,660
  147,278
  154,250
  161,594
  169,325
  177,463
  186,027
  195,036
  204,512
Variable operating expenses, $m
 
  62,067
  63,494
  65,126
  66,958
  68,988
  71,215
  73,641
  76,266
  79,094
  82,130
  85,377
  88,842
  92,532
  96,453
  100,613
  105,023
  109,690
  114,626
  119,841
  125,347
  131,157
  137,285
  143,743
  150,548
  157,715
  165,261
  173,204
  181,562
  190,355
  199,604
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
  60,762
  62,067
  63,494
  65,126
  66,958
  68,988
  71,215
  73,641
  76,266
  79,094
  82,130
  85,377
  88,842
  92,532
  96,453
  100,613
  105,023
  109,690
  114,626
  119,841
  125,347
  131,157
  137,285
  143,743
  150,548
  157,715
  165,261
  173,204
  181,562
  190,355
  199,604
Operating income, $m
  1,584
  1,526
  1,561
  1,601
  1,647
  1,696
  1,751
  1,811
  1,875
  1,945
  2,020
  2,099
  2,185
  2,275
  2,372
  2,474
  2,583
  2,697
  2,819
  2,947
  3,082
  3,225
  3,376
  3,535
  3,702
  3,878
  4,064
  4,259
  4,465
  4,681
  4,908
EBITDA, $m
  2,484
  2,446
  2,502
  2,567
  2,639
  2,719
  2,807
  2,902
  3,006
  3,117
  3,237
  3,365
  3,502
  3,647
  3,801
  3,965
  4,139
  4,323
  4,518
  4,723
  4,940
  5,169
  5,411
  5,665
  5,933
  6,216
  6,513
  6,826
  7,156
  7,502
  7,867
Interest expense (income), $m
  283
  286
  306
  329
  355
  385
  417
  453
  492
  534
  579
  628
  680
  736
  795
  858
  924
  995
  1,070
  1,149
  1,233
  1,321
  1,414
  1,513
  1,616
  1,725
  1,840
  1,961
  2,089
  2,223
  2,364
Earnings before tax, $m
  1,822
  1,240
  1,255
  1,272
  1,291
  1,312
  1,334
  1,358
  1,384
  1,411
  1,440
  1,471
  1,505
  1,540
  1,577
  1,616
  1,658
  1,702
  1,749
  1,798
  1,849
  1,904
  1,962
  2,022
  2,086
  2,153
  2,224
  2,298
  2,376
  2,458
  2,545
Tax expense, $m
  534
  335
  339
  344
  349
  354
  360
  367
  374
  381
  389
  397
  406
  416
  426
  436
  448
  460
  472
  485
  499
  514
  530
  546
  563
  581
  600
  620
  642
  664
  687
Net income, $m
  1,279
  905
  916
  929
  943
  958
  974
  991
  1,010
  1,030
  1,051
  1,074
  1,098
  1,124
  1,151
  1,180
  1,210
  1,243
  1,277
  1,312
  1,350
  1,390
  1,432
  1,476
  1,523
  1,572
  1,623
  1,677
  1,734
  1,794
  1,858

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  915
  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
  39,769
  39,622
  40,533
  41,575
  42,744
  44,040
  45,462
  47,010
  48,686
  50,492
  52,430
  54,503
  56,715
  59,070
  61,573
  64,229
  67,044
  70,023
  73,174
  76,503
  80,018
  83,727
  87,639
  91,762
  96,106
  100,681
  105,499
  110,569
  115,905
  121,518
  127,422
Adjusted assets (=assets-cash), $m
  38,854
  39,622
  40,533
  41,575
  42,744
  44,040
  45,462
  47,010
  48,686
  50,492
  52,430
  54,503
  56,715
  59,070
  61,573
  64,229
  67,044
  70,023
  73,174
  76,503
  80,018
  83,727
  87,639
  91,762
  96,106
  100,681
  105,499
  110,569
  115,905
  121,518
  127,422
Revenue / Adjusted assets
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
Average production assets, $m
  13,501
  13,800
  14,117
  14,480
  14,887
  15,339
  15,834
  16,373
  16,957
  17,586
  18,260
  18,982
  19,753
  20,573
  21,445
  22,370
  23,350
  24,388
  25,485
  26,645
  27,869
  29,161
  30,523
  31,959
  33,472
  35,066
  36,744
  38,510
  40,368
  42,323
  44,379
Working capital, $m
  7,872
  7,504
  7,677
  7,874
  8,095
  8,341
  8,610
  8,903
  9,221
  9,563
  9,930
  10,322
  10,741
  11,187
  11,661
  12,164
  12,697
  13,262
  13,858
  14,489
  15,155
  15,857
  16,598
  17,379
  18,202
  19,068
  19,980
  20,941
  21,951
  23,014
  24,132
Total debt, $m
  6,931
  6,959
  7,479
  8,074
  8,742
  9,482
  10,294
  11,178
  12,135
  13,166
  14,272
  15,456
  16,719
  18,064
  19,493
  21,010
  22,617
  24,318
  26,117
  28,018
  30,025
  32,143
  34,377
  36,731
  39,212
  41,824
  44,575
  47,470
  50,517
  53,722
  57,093
Total liabilities, $m
  22,596
  22,624
  23,144
  23,739
  24,407
  25,147
  25,959
  26,843
  27,800
  28,831
  29,937
  31,121
  32,384
  33,729
  35,158
  36,675
  38,282
  39,983
  41,782
  43,683
  45,690
  47,808
  50,042
  52,396
  54,877
  57,489
  60,240
  63,135
  66,182
  69,387
  72,758
Total equity, $m
  17,173
  16,998
  17,389
  17,836
  18,337
  18,893
  19,503
  20,167
  20,886
  21,661
  22,492
  23,382
  24,331
  25,341
  26,415
  27,554
  28,762
  30,040
  31,392
  32,820
  34,328
  35,919
  37,597
  39,366
  41,229
  43,192
  45,259
  47,434
  49,723
  52,131
  54,664
Total liabilities and equity, $m
  39,769
  39,622
  40,533
  41,575
  42,744
  44,040
  45,462
  47,010
  48,686
  50,492
  52,429
  54,503
  56,715
  59,070
  61,573
  64,229
  67,044
  70,023
  73,174
  76,503
  80,018
  83,727
  87,639
  91,762
  96,106
  100,681
  105,499
  110,569
  115,905
  121,518
  127,422
Debt-to-equity ratio
  0.404
  0.410
  0.430
  0.450
  0.480
  0.500
  0.530
  0.550
  0.580
  0.610
  0.630
  0.660
  0.690
  0.710
  0.740
  0.760
  0.790
  0.810
  0.830
  0.850
  0.870
  0.890
  0.910
  0.930
  0.950
  0.970
  0.980
  1.000
  1.020
  1.030
  1.040
Adjusted equity ratio
  0.422
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,279
  905
  916
  929
  943
  958
  974
  991
  1,010
  1,030
  1,051
  1,074
  1,098
  1,124
  1,151
  1,180
  1,210
  1,243
  1,277
  1,312
  1,350
  1,390
  1,432
  1,476
  1,523
  1,572
  1,623
  1,677
  1,734
  1,794
  1,858
Depreciation, amort., depletion, $m
  900
  920
  941
  965
  992
  1,023
  1,056
  1,092
  1,130
  1,172
  1,217
  1,265
  1,317
  1,372
  1,430
  1,491
  1,557
  1,626
  1,699
  1,776
  1,858
  1,944
  2,035
  2,131
  2,231
  2,338
  2,450
  2,567
  2,691
  2,822
  2,959
Funds from operations, $m
  890
  1,825
  1,857
  1,894
  1,935
  1,980
  2,029
  2,083
  2,140
  2,202
  2,269
  2,340
  2,415
  2,496
  2,581
  2,671
  2,767
  2,868
  2,976
  3,089
  3,208
  3,334
  3,467
  3,607
  3,754
  3,909
  4,073
  4,245
  4,426
  4,616
  4,816
Change in working capital, $m
  -585
  147
  173
  197
  221
  245
  269
  293
  317
  342
  367
  393
  419
  446
  474
  503
  533
  564
  597
  631
  666
  702
  741
  781
  823
  867
  912
  960
  1,011
  1,063
  1,118
Cash from operations, $m
  1,475
  1,678
  1,685
  1,697
  1,714
  1,735
  1,760
  1,790
  1,823
  1,860
  1,902
  1,947
  1,996
  2,049
  2,107
  2,168
  2,234
  2,304
  2,379
  2,458
  2,542
  2,632
  2,726
  2,826
  2,931
  3,043
  3,160
  3,284
  3,415
  3,553
  3,698
Maintenance CAPEX, $m
  0
  -900
  -920
  -941
  -965
  -992
  -1,023
  -1,056
  -1,092
  -1,130
  -1,172
  -1,217
  -1,265
  -1,317
  -1,372
  -1,430
  -1,491
  -1,557
  -1,626
  -1,699
  -1,776
  -1,858
  -1,944
  -2,035
  -2,131
  -2,231
  -2,338
  -2,450
  -2,567
  -2,691
  -2,822
New CAPEX, $m
  -882
  -299
  -317
  -363
  -407
  -451
  -495
  -539
  -584
  -629
  -675
  -722
  -770
  -820
  -872
  -925
  -980
  -1,038
  -1,097
  -1,160
  -1,224
  -1,292
  -1,362
  -1,436
  -1,513
  -1,594
  -1,678
  -1,766
  -1,858
  -1,955
  -2,056
Cash from investing activities, $m
  -1,211
  -1,199
  -1,237
  -1,304
  -1,372
  -1,443
  -1,518
  -1,595
  -1,676
  -1,759
  -1,847
  -1,939
  -2,035
  -2,137
  -2,244
  -2,355
  -2,471
  -2,595
  -2,723
  -2,859
  -3,000
  -3,150
  -3,306
  -3,471
  -3,644
  -3,825
  -4,016
  -4,216
  -4,425
  -4,646
  -4,878
Free cash flow, $m
  264
  479
  447
  393
  341
  291
  242
  195
  148
  101
  55
  8
  -40
  -88
  -137
  -186
  -238
  -290
  -344
  -400
  -458
  -518
  -580
  -645
  -712
  -782
  -855
  -931
  -1,010
  -1,093
  -1,180
Issuance/(repayment) of debt, $m
  1,088
  455
  520
  595
  668
  740
  812
  884
  957
  1,031
  1,106
  1,184
  1,263
  1,345
  1,429
  1,517
  1,607
  1,701
  1,799
  1,901
  2,007
  2,118
  2,233
  2,354
  2,480
  2,613
  2,751
  2,895
  3,047
  3,205
  3,371
Issuance/(repurchase) of shares, $m
  -1,000
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  36
  75
  116
  158
  201
  246
  293
  341
  391
  443
  498
  555
  614
  675
Cash from financing (excl. dividends), $m  
  122
  455
  520
  595
  668
  740
  812
  884
  957
  1,031
  1,106
  1,184
  1,263
  1,345
  1,429
  1,517
  1,607
  1,737
  1,874
  2,017
  2,165
  2,319
  2,479
  2,647
  2,821
  3,004
  3,194
  3,393
  3,602
  3,819
  4,046
Total cash flow (excl. dividends), $m
  386
  934
  968
  988
  1,009
  1,031
  1,054
  1,079
  1,105
  1,132
  1,161
  1,191
  1,223
  1,257
  1,293
  1,330
  1,370
  1,447
  1,530
  1,616
  1,707
  1,801
  1,899
  2,002
  2,109
  2,222
  2,339
  2,462
  2,591
  2,725
  2,867
Retained Cash Flow (-), $m
  726
  -313
  -391
  -447
  -502
  -556
  -610
  -664
  -719
  -775
  -831
  -889
  -949
  -1,010
  -1,074
  -1,139
  -1,208
  -1,278
  -1,352
  -1,428
  -1,508
  -1,591
  -1,678
  -1,769
  -1,864
  -1,963
  -2,067
  -2,175
  -2,289
  -2,408
  -2,533
Prev. year cash balance distribution, $m
 
  488
  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
 
  1,110
  577
  541
  507
  475
  444
  415
  386
  358
  330
  302
  274
  247
  219
  191
  162
  168
  178
  188
  199
  210
  221
  233
  246
  259
  272
  287
  302
  317
  334
Discount rate, %
 
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
 
  1,053
  517
  455
  398
  346
  298
  254
  215
  179
  147
  119
  95
  74
  56
  42
  30
  25
  22
  18
  15
  13
  10
  8
  6
  5
  3
  2
  2
  1
  1
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
  99.9
  99.7
  99.4
  99.1
  98.6
  98.1
  97.5
  96.9
  96.2
  95.5
  94.7
  93.8
  93.0
  92.0

Archer-Daniels-Midland Company is a processor of oilseeds, corn, wheat, cocoa and other agricultural commodities. The Company manufactures protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other food and feed ingredients. Its segments include Agricultural Services, which utilizes its United States grain elevator, global transportation network and port operations to buy, store, clean and transport agricultural commodities, such as oilseeds, wheat, milo, oats, rice and barley, and resells these commodities primarily as food and feed ingredients and as raw materials for the agricultural processing industry; Corn Processing, which is engaged in corn wet milling and dry milling activities; Oilseeds Processing, which includes global activities related to the origination, merchandising, crushing and further processing of oilseeds; Wild Flavors and Specialty Ingredients products, which include flavors, sweeteners and health ingredients; Other, and Corporate.

FINANCIAL RATIOS  of  Archer Daniels Midland (ADM)

Valuation Ratios
P/E Ratio 17.9
Price to Sales 0.4
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 15.6
Price to Free Cash Flow 38.7
Growth Rates
Sales Growth Rate -7.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21.6%
Cap. Spend. - 3 Yr. Gr. Rate -0.7%
Financial Strength
Quick Ratio 2
Current Ratio 0.5
LT Debt to Equity 37.9%
Total Debt to Equity 40.4%
Interest Coverage 7
Management Effectiveness
Return On Assets 3.7%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital 5.3%
Ret/ On T. Cap. - 3 Yr. Avg. 7.2%
Return On Equity 7.3%
Return On Equity - 3 Yr. Avg. 9.5%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 5.9%
Gross Margin - 3 Yr. Avg. 5.9%
EBITDA Margin 4.8%
EBITDA Margin - 3 Yr. Avg. 5.1%
Operating Margin 2.5%
Oper. Margin - 3 Yr. Avg. 2.8%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. 3.4%
Net Profit Margin 2.1%
Net Profit Margin - 3 Yr. Avg. 2.5%
Effective Tax Rate 29.3%
Eff/ Tax Rate - 3 Yr. Avg. 25.5%
Payout Ratio 54.8%

ADM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ADM stock intrinsic value calculation we used $62346 million for the last fiscal year's total revenue generated by Archer Daniels Midland. The default revenue input number comes from 2016 income statement of Archer Daniels Midland. 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 ADM 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 5.4%, whose default value for ADM is calculated based on our internal credit rating of Archer Daniels Midland, 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 Archer Daniels Midland.
    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 ADM stock the variable cost ratio is equal to 97.6%.

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 ADM 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 4.4% for Archer Daniels Midland.

Corporate tax rate of 27% is the nominal tax rate for Archer Daniels Midland. 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 ADM 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 ADM are equal to 21.7%.

Life of production assets of 15 years is the average useful life of capital assets used in Archer Daniels Midland 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 ADM is equal to 11.8%. 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 - $17173 million for Archer Daniels Midland - 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 562.428 million for Archer Daniels Midland 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 Archer Daniels Midland at the current share price and the inputted number of shares is $22.5 billion.

Management's discussion and analysis

This MD&A should be read in conjunction with the accompanying consolidated financial statements.

The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products.  The Company uses its significant global asset base to originate and transport agricultural commodities, connecting to markets in 163countries.  The Company also processes corn, oilseeds, and wheat into products for food, animal feed, chemical and energy uses.  The Company uses its global asset network, business acumen, and its relationships with suppliers and customers to efficiently connect the harvest to the home thereby generating returns for our shareholders, principally from margins earned on these activities.

The Company’s operations are organized, managed, and classified into four reportable business segments: Agricultural Services, Corn Processing, Oilseeds Processing, and Wild Flavors and Specialty Ingredients.  Each of these segments is organized based upon the nature of products and services offered.  The Company’s remaining operations are not reportable business segments, as defined by the applicable accounting standard, and are classified as Other. See Note 17 of Item 8 for more information about the Company’s business segments.

The Company’s recent significant portfolio actions and announcements include:

   

the purchase in February 2016 of a controlling stake in Harvest Innovations, an industry leader in minimally processed, expeller-pressed soy proteins, oils, and gluten-free ingredients;

   

the purchase in April 2016 of a 50% interest in Cairo-based Medsofts Group, a consolidated joint venture that owns and manages merchandising and supply chain operations;

   

the sale in May 2016 of the sugarcane ethanol operations in Limeira do Oeste in the Brazilian state of Minas Gerais;

   

the purchase in May 2016 of the remaining 60% interest in Amazon Flavors, a leading Brazilian manufacturer of natural extracts, emulsions and compounds;

   

the acquisition in June 2016 of a Casablanca, Morocco-based corn wet mill that produces glucose and native starch;

   

the purchase in September 2016 of Caterina Foods, a leading toll manufacturer of specialty gluten-free and high-protein pastas;

   

the expansion in November 2016 of Olenex, a 37.5% joint venture with Wilmar, from a sales and marketing venture to a full function joint venture which owns and operates specialty oils and fats, palm refining, and tropical oils processing plants in Europe;

   

the sale in December 2016 of the Company's 19.8% ownership interest in GrainCorp;

   

the announcement in January 2017 of the sale of the Company's crop risk services businesses to Validus Holdings, a global group of insurance and reinsurance companies, which is subject to regulatory approval and expected to close in the first half of 2017; and

   

the acquisition in February 2017 of Crosswind Industries, Inc., an industry leader in the manufacture of contract and private label pet treats and foods, as well as specialty ingredients.

As part of the implementation of the Company’s strategic plan, the Company continues to evaluate the capital intensity of its operations and portfolio, seeking ways to reduce and redeploy capital in its efforts to drive long-term returns.

Operating Performance Indicators

The Company’s agricultural services and oilseeds processing operations are principally agricultural commodity-based businesses where changes in selling prices move in relationship to changes in prices of the commodity-based agricultural raw materials. Therefore, changes in agricultural commodity prices have relatively equal impacts on both revenues and cost of products sold. Thus, changes in revenues of these businesses do not necessarily correspond to the changes in margins or gross profit.

The Company’s corn processing operations and Wild Flavors and Specialty Ingredients businesses also utilize agricultural commodities (or products derived from agricultural commodities) as raw materials. However, in these operations, agricultural commodity market price changes do not necessarily equal changes in cost of products sold. Thus, changes in revenues of these businesses may correspond to changes in margins or gross profit.

The Company has consolidated subsidiaries in 76 countries.  For the majority of the Company’s subsidiaries located outside the United States, the local currency is the functional currency. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the weighted average exchange rates for the applicable periods. For the majority of the Company’s business activities in Brazil, the functional currency is the U.S. dollar; however, certain transactions, including taxes, occur in local currency and require conversion to the functional currency. Changes in revenues are expected to be correlated to changes in expenses reported by the Company caused by fluctuations in the exchange rates of foreign currencies, primarily the Euro, British pound, Canadian dollar, and Brazilian real, as compared to the U.S. dollar.

The Company measures its performance using key financial metrics including net earnings, segment operating profit, return on invested capital, EBITDA, economic value added, manufacturing expenses, and selling, general, and administrative expenses. The Company’s financial results can vary significantly due to changes in factors such as fluctuations in energy prices, weather conditions, crop plantings, government programs and policies, changes in global demand, general global economic conditions, changes in standards of living, and global production of similar and competitive crops. Due to these unpredictable factors, the Company undertakes no responsibility for updating any forward-looking information contained within “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

As an agricultural commodity-based business, the Company is subject to a variety of market factors which affect the Company's operating results. Agricultural Services was negatively impacted in the first half of the year by weak U.S. grain export competitiveness and decreased global merchandising opportunities. Starting in the third quarter, export volumes and margins improved due to the U.S. harvest and weather conditions in South America. In Corn Processing, global demand for sweeteners and starches and U.S. exports, principally to Mexico, continued to grow. In Europe, raw material costs improved resulting in improved margins. Corn-based ethanol remained a very competitive transportation fuel, and domestic blending was strong as U.S. gasoline demand was up compared to 2015. U.S. ethanol also continued to be the one of the cheapest oxygenates in the world, driving strong export volumes throughout 2016. Industry production levels remained high during the year limiting margins. In Oilseeds Processing, global crushing operations achieved strong capacity utilization although margins were weaker mainly due to higher supply of soybean meal from Argentina, and other protein meal substitutes. Softseed margins improved due to better seed supply and oil demand. Vegetable oils continued to maintain a steady demand from the food industry. Additionally, vegetable oil sales volumes benefited from demand driven by the U.S. 2016 biodiesel blenders credit. The Wild Flavors and Specialty Ingredients business benefited from increased demand for flavor ingredients and flavor systems, specialty proteins, natural health and nutrition products, and polyols, but was adversely impacted by soft market conditions in non-flavor food ingredient markets and a strong U.S. dollar, as well as operational issues at the specialty commodities unit.

Net earnings attributable to controlling interests decreased $0.6 billion to $1.3 billion. Segment operating profit decreased $0.6 billion to $2.7 billion, primarily due to the prior year gain on sale of the global cocoa and chocolate businesses and lower earnings in the current year due to the sale of those businesses, weaker global crushing and origination margins, and lower international merchandising results, partially offset by better ethanol results. Corporate results in the current year include a charge of $19 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves, compared to a credit of $2 million in the prior year and a decrease of approximately $70 million in the Company’s share of the results of Compagnie Industrielle et Financiere des Produits Amylaces SA (Luxembourg) (CIP).

Income taxes increased $96 million due to a higher effective tax rate partially offset by lower earnings before income taxes. The Company’s effective tax rate for 2016 increased to 29.3% compared to 19.2% for 2015 due primarily to low tax rates on significant gains related to portfolio actions in 2015, a $71 million prior year discrete tax benefit resulting mainly from the release of a $66 million valuation allowance compared to a $49 million discrete tax expense in the current year, and changes in the geographic mix of pretax earnings (see Note 13 in Item 8 for more information).

Revenues and cost of products sold in a commodity merchandising and processing business are affected by the underlying commodity prices and volumes. In periods of significant changes in commodity prices, the underlying performance of the Company is better evaluated by looking at margins since both revenues and cost of products sold, particularly in Oilseeds Processing and Agricultural Services, generally have a relatively equal impact from commodity price changes which generally result in an insignificant impact to gross profit.

Revenues decreased $5.4 billion, or 8%, to $62.3 billion due to lower average sales prices ($3.5 billion), including $0.6 billion in foreign currency translation impacts, and lower overall sales volumes ($1.9 billion). The decrease in sales prices was due principally to lower underlying agricultural commodity prices, in particular prices of corn, soybeans, and soybean-related products. The decrease in sales volumes was due principally to the sale of the cocoa business and decreased sales volumes of ethanol and South American grain and oilseed origination. Agricultural Services revenues decreased 6% to $27.9 billion due to lower average sales prices ($2.5 billion) partially offset by higher sales volumes ($0.7 billion). Corn Processing revenues decreased 5% to $9.5 billion due to lower sales volumes ($0.5 billion) due principally to ethanol and the sale of the sugar ethanol business partially offset by sales volumes from the acquisition of Eaststarch C.V. Oilseeds Processing revenues decreased 12% to $22.2 billion due to lower average sales prices ($0.8 billion) and lower sales volumes ($2.3 billion) principally due to South American grains and oilseeds and the sale of the cocoa business. WFSI revenues were flat due to lower average sales prices ($0.2 billion) which were offset by higher sales volumes ($0.2 billion).

Cost of products sold decreased $5.0 billion to $58.7 billion due principally to lower average commodity costs, including $0.6 billion in foreign currency translation impacts, and lower manufacturing costs. Included in cost of products sold is a charge of $19 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves compared to a credit of $2 million in the prior year. Manufacturing expenses decreased $0.2 billion to $5.2 billion primarily due to the sale of the cocoa business, lower energy usage and prices, and decreased repairs and maintenance expenses.

Gross profit decreased $0.3 billion, or 8%, to $3.7 billion. The decrease in gross profit consists principally of lower soy crush margins ($309 million), reduced merchandising results ($95 million) primarily due to Agricultural Services global trade execution and positioning losses, lower volumes and freight rates in barge operations ($24 million), the sale of the cocoa business in the prior period ($78 million), partially offset by contribution of the recent Eaststarch C.V. acquisition ($85 million), and higher results in sweeteners and starches ($169 million). These factors are explained in the segment operating profit discussion on page 31. The effect of changes in agricultural commodity prices on LIFO inventory valuation reserves had a $19 million negative impact on gross profit compared to a positive impact of $2 million in the prior year. The decrease in underlying commodity prices did not result in a significant decrease in margins or gross profit as lower underlying commodity prices had a relatively equal impact on revenues and cost of products sold.

Selling, general, and administrative expenses of $2.0 billion were comparable to the prior year. Decreased expenses related to the sale of the cocoa business and a U.S. retiree medical benefit plan curtailment gain were offset by legal settlements, costs, and legal fees, increased transaction fees due to increased trading volume from the brokerage business, and expenses for the recently consolidated Eaststarch C.V.

Asset impairment, exit, and restructuring costs decreased $145 million to $55 million. Prior year charges include long-lived asset impairments of $129 million related to certain Oilseeds Processing facilities, sugar ethanol facilities in Brazil, a facility in the Corn Processing segment, and capitalized software costs and restructuring and exit costs of $71 million related principally to an international pension plan settlement, sugar ethanol facilities in Brazil, and several individually insignificant restructuring and exit costs. Current year charges include $11 millionof software impairment in Corporate, $6 million of other-than-temporary impairment charges on the Company’s investment in two available for sale equity securities in Corporate, and $17 million and $21 million of individually insignificant fixed asset impairment and restructuring charges, respectively.

Interest expense declined $15 million to $293 million primarily due to lower interest rates on long-term debt and the $8 million effect of the revaluation of the mandatorily redeemable 10% interest in Harvest Innovations.

Equity in earnings of unconsolidated affiliates decreased $98 million to $292 million primarily due to lower earnings from the Company’s investments in Wilmar and CIP and a decrease in equity earnings from Eaststarch C.V. which is now fully consolidated following the acquisition of the remaining interest in November 2015, partially offset by increased earnings from other equity investees.

Other income - net decreased $203 million to $147 million. Prior year income consisted primarily of gain on sales of $256 million related primarily to the sale of the cocoa, chocolate, and lactic businesses, a gain of $212 million on the revaluation of the Company’s previously held equity investments in North Star Shipping, Minmetal, and Eaststarch C.V. in conjunction with the acquisition of the remaining interests, and a gain of $62 million on the sale of a 50% interest in the Barcarena export terminal facility in Brazil to Glencore plc, partially offset by a $189 million loss on debt extinguishment related to the repurchase of outstanding debt and loss provisions of $45 million related to sugar ethanol facilities in Brazil. Current year income includes $48 million of realized additional consideration related to the sale of the Company’s equity investment in Gruma S.A.B. de C.V. in December 2012, a $59 million gain, including recovery of loss provisions, related to the sale of the Company’s Brazilian sugar ethanol facilities, a $12 million gain related to the revaluation of the remaining interest to settlement value in conjunction with the acquisition of Amazon Flavors, and a $10 million loss on sale of other individually immaterial assets.

Agricultural Services operating profit decreased 16%. Merchandising and Handling operating results declined primarily due to compressed grain handling margins in the first half of 2016. International merchandising results were down driven by poor execution and low market volatility which limited forward merchandising opportunities. Strong origination results in Argentina and the addition of destination marketing in Egypt through the Company’s Medsofts joint venture were partially offset by the absence of a $27 million prior year gain on the revaluation of the Company’s previously held investments in North Star Shipping and Minmetal in conjunction with the acquisition of the remaining interest. Milling and Other results increased 12%. Current period results include additional realized consideration related to the sale of the Company’s equity investment in Gruma S.A.B de C.V. in December 2012 of $48 million. Transportation operating profit declined due to weak barge demand and lower freight rates.

Corn Processing operating profit increased 25%. Sweeteners and Starches operating profit increased as the business continued to perform well with higher volumes and pricing and improved margins from optimizing flex grind in the Company’s corn wet mills. The integration of the recent Eaststarch C.V. and Morocco acquisitions has progressed smoothly, significantly exceeding the Company's earnings accretion target. Bioproducts profit improved due to higher ethanol margins towards the end of the year, a $59 million gain, including recovery of loss provisions, related to the sale of the Company’s Brazilian sugar ethanol facilities, and the absence of prior year's restructuring and fixed asset impairment charges of $75 million related to the sugar ethanol business.

Oilseeds Processing operating profit decreased 45%. Crushing and Origination operating profit declined driven primarily by lower global soy crush margins which were high last year, lower South American grain origination results caused by smaller soybean and corn crops in the region and year-over-year slower farmer-selling, absence of a $62 million prior year gain related to the sale of the 50% interest in the Barcarena export terminal facility in Brazil to Glencore plc, partially offset by strong softseed volumes and margins in North America. Refining, Packaging, Biodiesel, and Other results declined due to the gain of $244 million on the sale of the global cocoa and chocolate businesses in October 2015 and lower earnings in the current year due to the sale of these businesses, partially offset by good demand and improved margins for refined and packaged oils and improved European biodiesel results. Asia results declined due primarily to equity losses of $48 million from the Company’s investment in Wilmar that was recorded in the Company's results in the third quarter of 2016.

Wild Flavors and Specialty Ingredients (WFSI) operating profit increased 2% due to strong results in flavors and systems, polyols, and natural health and nutrition products and a gain of $12 million related to the acquisition of the remaining interest in Amazon Flavors. These increases were partially offset by weaker sales of hydrocolloids and fibers, a short edible beans crop impacting volumes and costs, and operational issues at the specialty commodities unit.

Other - Financial operating profit increased on higher volumes from the Company’s futures commission brokerage business and improved results from its captive insurance operations.

Corporate results were a net charge of $882 million in the current year compared to $988 million in the prior year. The effect of changes in agricultural commodity prices on LIFO inventory valuation reserves resulted in a charge of $19 million in the current year compared to a credit of $2 million in the prior year. Interest expense - net declined $15 million due principally to lower interest rates on long-term debt and the effect of the revaluation of the mandatorily redeemable 10% interest in Harvest Innovations. Unallocated corporate costs increased $24 million due primarily to increased spending on the Company’s ERP program and various strategic business improvement projects. Other charges in the current year included legal settlement costs and legal fees, a software impairment charge, other-than-temporary impairment charges on the Company’s investments in two available for sale equity securities, a loss on the sale of an investment, other asset impairment and restructuring charges, partially offset by a gain related to a U.S. retiree medical benefit plan curtailment. Other charges in the prior year consisted of the $189 million loss on debt extinguishment related to the repurchase of outstanding debt, restructuring charges of $29 million related principally to an international pension plan settlement, and asset impairment and settlement charges of $24 million. The increase in minority interest and other expense is due to a decrease of approximately $70 million in the Company’s share of the results of CIP.

[Source: Form 10-K dated 2017-02-17]

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▶ ADM Statement on Signing Ceremony in China   [12:10AM  Business Wire]
▶ [$$] Global Oversupply of Grains Puts a Squeeze on Giant Processors   [Nov-03-17 09:33PM  The Wall Street Journal]
▶ Top Rated NYSE Dividend Stocks   [09:02AM  Simply Wall St.]
▶ ADM Directors Declare Cash Dividend   [Nov-02-17 11:00AM  Business Wire]
▶ ADM misses Street 3Q forecasts   [08:14AM  Associated Press]
▶ Corrections & Amplifications   [12:14AM  The Wall Street Journal]
▶ Corrections & Amplifications   [Oct-23-17 09:18PM  The Wall Street Journal]
▶ Why CSXs Merchandise Segment Revenue Fell in 3Q17   [Oct-18-17 04:57PM  Market Realist]
▶ Why Trade Is So Crucial for Food Companies   [Oct-16-17 12:17AM  The Wall Street Journal]
▶ Why Genesee & Wyomings North American Volumes Fell in August   [Sep-19-17 08:08AM  Market Realist]
▶ 3 Top Dividend Stocks in Commodities   [Sep-12-17 08:15AM  Motley Fool]
▶ 3 Dividend Stocks for Retirement   [Sep-07-17 07:30PM  Motley Fool]
▶ Should You Buy Archer-Daniels-Midland Company (ADM)?   [Sep-05-17 09:01PM  Simply Wall St.]
Financial statements of ADM
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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