Intrinsic value of American International Group - AIG

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$60.91

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$60.91

 
Intrinsic value

$85.11

 
Up/down potential

+40%

 
Rating

buy

 
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Our model is not good at valuating stocks of financial companies, such as AIG.

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

We calculate the intrinsic value of AIG 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 59.5

 

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, %
  -10.29
  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
  0
  53,911
  55,151
  56,568
  58,160
  59,923
  61,858
  63,964
  66,245
  68,701
  71,338
  74,159
  77,168
  80,373
  83,779
  87,393
  91,223
  95,277
  99,564
  104,094
  108,876
  113,923
  119,245
  124,855
  130,766
  136,991
  143,546
  150,445
  157,705
  165,342
  173,376
Variable operating expenses, $m
 
  18,977
  19,413
  19,912
  20,472
  21,093
  21,774
  22,515
  23,318
  24,183
  25,111
  26,104
  27,163
  28,291
  29,490
  30,762
  32,110
  33,537
  35,046
  36,641
  38,324
  40,101
  41,974
  43,949
  46,030
  48,221
  50,528
  52,957
  55,512
  58,201
  61,028
Fixed operating expenses, $m
 
  35,333
  36,216
  37,121
  38,050
  39,001
  39,976
  40,975
  42,000
  43,050
  44,126
  45,229
  46,360
  47,519
  48,707
  49,924
  51,172
  52,452
  53,763
  55,107
  56,485
  57,897
  59,344
  60,828
  62,349
  63,907
  65,505
  67,143
  68,821
  70,542
  72,305
Total operating expenses, $m
  52,213
  54,310
  55,629
  57,033
  58,522
  60,094
  61,750
  63,490
  65,318
  67,233
  69,237
  71,333
  73,523
  75,810
  78,197
  80,686
  83,282
  85,989
  88,809
  91,748
  94,809
  97,998
  101,318
  104,777
  108,379
  112,128
  116,033
  120,100
  124,333
  128,743
  133,333
Operating income, $m
  641
  -398
  -478
  -465
  -362
  -171
  108
  474
  927
  1,469
  2,101
  2,826
  3,645
  4,563
  5,582
  6,706
  7,940
  9,287
  10,754
  12,346
  14,067
  15,925
  17,927
  20,078
  22,388
  24,863
  27,513
  30,346
  33,372
  36,600
  40,042
EBITDA, $m
  4,731
  -398
  -478
  -465
  -362
  -171
  108
  474
  927
  1,469
  2,101
  2,826
  3,645
  4,563
  5,582
  6,706
  7,940
  9,287
  10,754
  12,346
  14,067
  15,925
  17,927
  20,078
  22,388
  24,863
  27,513
  30,346
  33,372
  36,600
  40,042
Interest expense (income), $m
  1,331
  1,360
  1,748
  2,184
  2,682
  3,242
  3,862
  4,542
  5,283
  6,084
  6,948
  7,875
  8,867
  9,925
  11,052
  12,249
  13,520
  14,866
  16,292
  17,799
  19,391
  21,073
  22,847
  24,719
  26,691
  28,769
  30,958
  33,262
  35,688
  38,240
  40,926
Earnings before tax, $m
  -74
  -1,759
  -2,226
  -2,649
  -3,044
  -3,413
  -3,754
  -4,068
  -4,356
  -4,615
  -4,847
  -5,049
  -5,221
  -5,362
  -5,470
  -5,543
  -5,580
  -5,579
  -5,537
  -5,453
  -5,324
  -5,148
  -4,921
  -4,640
  -4,303
  -3,906
  -3,445
  -2,917
  -2,316
  -1,640
  -883
Tax expense, $m
  185
  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
  -849
  -1,759
  -2,226
  -2,649
  -3,044
  -3,413
  -3,754
  -4,068
  -4,356
  -4,615
  -4,847
  -5,049
  -5,221
  -5,362
  -5,470
  -5,543
  -5,580
  -5,579
  -5,537
  -5,453
  -5,324
  -5,148
  -4,921
  -4,640
  -4,303
  -3,906
  -3,445
  -2,917
  -2,316
  -1,640
  -883

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  498,264
  508,595
  520,293
  533,664
  548,676
  565,311
  583,562
  603,436
  624,949
  648,126
  672,999
  699,609
  728,004
  758,236
  790,365
  824,459
  860,590
  898,835
  939,280
  982,014
  1,027,136
  1,074,746
  1,124,955
  1,177,880
  1,233,642
  1,292,372
  1,354,207
  1,419,293
  1,487,781
  1,559,834
  1,635,622
Adjusted assets (=assets-cash), $m
  498,264
  508,595
  520,293
  533,664
  548,676
  565,311
  583,562
  603,436
  624,949
  648,126
  672,999
  699,609
  728,004
  758,236
  790,365
  824,459
  860,590
  898,835
  939,280
  982,014
  1,027,136
  1,074,746
  1,124,955
  1,177,880
  1,233,642
  1,292,372
  1,354,207
  1,419,293
  1,487,781
  1,559,834
  1,635,622
Revenue / Adjusted assets
  0.000
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
Average production assets, $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
  0
Working capital, $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
  0
Total debt, $m
  30,912
  39,728
  49,636
  60,962
  73,677
  87,766
  103,225
  120,058
  138,280
  157,911
  178,978
  201,517
  225,567
  251,173
  278,387
  307,265
  337,868
  370,261
  404,518
  440,714
  478,932
  519,258
  561,785
  606,612
  653,843
  703,587
  755,961
  811,089
  869,099
  930,128
  994,320
Total liabilities, $m
  421,964
  430,780
  440,688
  452,014
  464,729
  478,818
  494,277
  511,110
  529,332
  548,963
  570,030
  592,569
  616,619
  642,225
  669,439
  698,317
  728,920
  761,313
  795,570
  831,766
  869,984
  910,310
  952,837
  997,664
  1,044,895
  1,094,639
  1,147,013
  1,202,141
  1,260,151
  1,321,180
  1,385,372
Total equity, $m
  76,300
  77,815
  79,605
  81,651
  83,947
  86,493
  89,285
  92,326
  95,617
  99,163
  102,969
  107,040
  111,385
  116,010
  120,926
  126,142
  131,670
  137,522
  143,710
  150,248
  157,152
  164,436
  172,118
  180,216
  188,747
  197,733
  207,194
  217,152
  227,631
  238,655
  250,250
Total liabilities and equity, $m
  498,264
  508,595
  520,293
  533,665
  548,676
  565,311
  583,562
  603,436
  624,949
  648,126
  672,999
  699,609
  728,004
  758,235
  790,365
  824,459
  860,590
  898,835
  939,280
  982,014
  1,027,136
  1,074,746
  1,124,955
  1,177,880
  1,233,642
  1,292,372
  1,354,207
  1,419,293
  1,487,782
  1,559,835
  1,635,622
Debt-to-equity ratio
  0.405
  0.510
  0.620
  0.750
  0.880
  1.010
  1.160
  1.300
  1.450
  1.590
  1.740
  1.880
  2.030
  2.170
  2.300
  2.440
  2.570
  2.690
  2.810
  2.930
  3.050
  3.160
  3.260
  3.370
  3.460
  3.560
  3.650
  3.740
  3.820
  3.900
  3.970
Adjusted equity ratio
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -849
  -1,759
  -2,226
  -2,649
  -3,044
  -3,413
  -3,754
  -4,068
  -4,356
  -4,615
  -4,847
  -5,049
  -5,221
  -5,362
  -5,470
  -5,543
  -5,580
  -5,579
  -5,537
  -5,453
  -5,324
  -5,148
  -4,921
  -4,640
  -4,303
  -3,906
  -3,445
  -2,917
  -2,316
  -1,640
  -883
Depreciation, amort., depletion, $m
  4,090
  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
Funds from operations, $m
  -813
  -1,759
  -2,226
  -2,649
  -3,044
  -3,413
  -3,754
  -4,068
  -4,356
  -4,615
  -4,847
  -5,049
  -5,221
  -5,362
  -5,470
  -5,543
  -5,580
  -5,579
  -5,537
  -5,453
  -5,324
  -5,148
  -4,921
  -4,640
  -4,303
  -3,906
  -3,445
  -2,917
  -2,316
  -1,640
  -883
Change in working capital, $m
  -3,196
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from operations, $m
  2,383
  -1,759
  -2,226
  -2,649
  -3,044
  -3,413
  -3,754
  -4,068
  -4,356
  -4,615
  -4,847
  -5,049
  -5,221
  -5,362
  -5,470
  -5,543
  -5,580
  -5,579
  -5,537
  -5,453
  -5,324
  -5,148
  -4,921
  -4,640
  -4,303
  -3,906
  -3,445
  -2,917
  -2,316
  -1,640
  -883
Maintenance CAPEX, $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
  0
New CAPEX, $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
  0
Cash from investing activities, $m
  4,744
  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
Free cash flow, $m
  7,127
  -1,759
  -2,226
  -2,649
  -3,044
  -3,413
  -3,754
  -4,068
  -4,356
  -4,615
  -4,847
  -5,049
  -5,221
  -5,362
  -5,470
  -5,543
  -5,580
  -5,579
  -5,537
  -5,453
  -5,324
  -5,148
  -4,921
  -4,640
  -4,303
  -3,906
  -3,445
  -2,917
  -2,316
  -1,640
  -883
Issuance/(repayment) of debt, $m
  1,872
  8,816
  9,908
  11,326
  12,715
  14,089
  15,459
  16,833
  18,222
  19,631
  21,068
  22,539
  24,050
  25,606
  27,214
  28,878
  30,603
  32,394
  34,257
  36,196
  38,218
  40,326
  42,527
  44,827
  47,231
  49,744
  52,374
  55,127
  58,010
  61,029
  64,192
Issuance/(repurchase) of shares, $m
  -11,460
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -5,461
  8,816
  9,908
  11,326
  12,715
  14,089
  15,459
  16,833
  18,222
  19,631
  21,068
  22,539
  24,050
  25,606
  27,214
  28,878
  30,603
  32,394
  34,257
  36,196
  38,218
  40,326
  42,527
  44,827
  47,231
  49,744
  52,374
  55,127
  58,010
  61,029
  64,192
Total cash flow (excl. dividends), $m
  1,718
  7,058
  7,682
  8,677
  9,671
  10,677
  11,705
  12,765
  13,866
  15,015
  16,221
  17,490
  18,829
  20,244
  21,744
  23,335
  25,023
  26,815
  28,719
  30,743
  32,893
  35,178
  37,607
  40,187
  42,927
  45,838
  48,929
  52,211
  55,694
  59,389
  63,309
Retained Cash Flow (-), $m
  13,358
  -1,515
  -1,790
  -2,046
  -2,297
  -2,545
  -2,792
  -3,041
  -3,292
  -3,546
  -3,806
  -4,071
  -4,344
  -4,625
  -4,916
  -5,216
  -5,528
  -5,852
  -6,188
  -6,538
  -6,904
  -7,284
  -7,682
  -8,097
  -8,532
  -8,986
  -9,461
  -9,958
  -10,479
  -11,024
  -11,596
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
 
  5,542
  5,892
  6,631
  7,374
  8,132
  8,913
  9,724
  10,575
  11,469
  12,415
  13,418
  14,484
  15,619
  16,828
  18,118
  19,495
  20,964
  22,531
  24,205
  25,990
  27,894
  29,925
  32,089
  34,396
  36,853
  39,469
  42,253
  45,215
  48,365
  51,713
Discount rate, %
 
  6.60
  6.93
  7.28
  7.64
  8.02
  8.42
  8.84
  9.29
  9.75
  10.24
  10.75
  11.29
  11.85
  12.45
  13.07
  13.72
  14.41
  15.13
  15.88
  16.68
  17.51
  18.39
  19.31
  20.27
  21.29
  22.35
  23.47
  24.64
  25.87
  27.17
PV of cash for distribution, $m
 
  5,199
  5,153
  5,371
  5,493
  5,529
  5,486
  5,373
  5,197
  4,964
  4,684
  4,364
  4,013
  3,641
  3,257
  2,871
  2,492
  2,127
  1,785
  1,471
  1,189
  941
  730
  553
  410
  296
  208
  143
  95
  61
  38
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

American International Group, Inc. provides insurance products for commercial, institutional, and individual customers primarily in the United States, Europe, and Japan. The company’s Commercial Insurance segment offers general liability, environmental, commercial automobile liability, workers’ compensation, excess casualty, and crisis management insurance products, as well as various risk-sharing and other customized structured programs; commercial, industrial, and energy-related property insurance; aerospace, political risk, trade credit, surety, and marine insurance; and various insurance products for small and medium sized enterprises. It also provides professional liability insurance products for a range of businesses and risks, including directors and officers liability, fidelity, employment practices, fiduciary liability, cybersecurity risk, kidnap and ransom, and errors and omissions insurance. This segment sells its products through independent retail and wholesale brokers. Its Consumer Insurance segment offers fixed annuities, fixed index annuities, variable annuities, and retail mutual funds; group mutual funds, fixed annuities, and variable annuities, as well as individual annuity and investment products, and financial planning and advisory services; and term life and universal life insurance. Its products include personal auto and property insurance, voluntary and sponsor-paid personal accident, and supplemental health products; travel insurance products; and extended warranty insurance. This segment sells its products through independent marketing organizations, independent insurance agents, financial advisors, direct marketing, banks, wirehouses, and broker-dealers. The company also provides stable value wrap products, and structured settlement and terminal funding annuities; and corporate- and bank-owned life insurance and guaranteed investment contracts. American International Group, Inc. was founded in 1919 and is based in New York, New York.

FINANCIAL RATIOS  of  American International Group (AIG)

Valuation Ratios
P/E Ratio -71.4
Price to Sales 1.1
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 25.4
Price to Free Cash Flow 25.4
Growth Rates
Sales Growth Rate -10.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 40.5%
Total Debt to Equity 40.5%
Interest Coverage 1
Management Effectiveness
Return On Assets 0.8%
Ret/ On Assets - 3 Yr. Avg. 1.1%
Return On Total Capital -0.8%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity -1%
Return On Equity - 3 Yr. Avg. 2.8%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 10.1%
EBITDA Margin - 3 Yr. Avg. 18.1%
Operating Margin 1.2%
Oper. Margin - 3 Yr. Avg. 8.2%
Pre-Tax Margin -0.1%
Pre-Tax Margin - 3 Yr. Avg. 7.2%
Net Profit Margin -1.6%
Net Profit Margin - 3 Yr. Avg. 4.6%
Effective Tax Rate -250%
Eff/ Tax Rate - 3 Yr. Avg. -63.3%
Payout Ratio -161.6%

AIG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AIG stock intrinsic value calculation we used $52854 million for the last fiscal year's total revenue generated by American International Group. The default revenue input number comes from 2016 income statement of American International Group. 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 AIG 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 6.6%, whose default value for AIG is calculated based on our internal credit rating of American International Group, 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 American International Group.
    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 AIG stock the variable cost ratio is equal to 35.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $34471 million in the base year in the intrinsic value calculation for AIG 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 American International Group.

Corporate tax rate of 27% is the nominal tax rate for American International Group. 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 AIG 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 AIG are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in American International Group 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 AIG is equal to 0%. 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 - $76300 million for American International Group - 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 977.415 million for American International Group 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 American International Group at the current share price and the inputted number of shares is $59.5 billion.


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COMPANY NEWS

▶ Steven Romick Comments on AIG   [Apr-24-17 04:17PM  GuruFocus.com]
▶ 3 Underdog Stocks We're Watching   [Apr-23-17 10:45AM  Motley Fool]
▶ [$$] AIG Considers Greenberg Acolyte as Next CEO   [Apr-22-17 12:08AM  The Wall Street Journal]
▶ [$$] AIG Considers Greenberg Acolyte as Next CEO   [Apr-21-17 04:04PM  The Wall Street Journal]
▶ Top 7 Financial Stocks to Own for 2017   [12:45PM  TheStreet.com]
▶ Stocks struggle ahead of French elections   [10:51AM  Yahoo Finance Video]
▶ AIG Announces Consumer Insurance Investor Day   [Apr-12-17 04:16PM  Business Wire]
▶ These 4 Stocks Could Be Toxic to Your Portfolio in 2017   [Apr-07-17 09:32AM  TheStreet.com]
▶ AIG to Report First Quarter 2017 Results on May 3, 2017   [Apr-05-17 04:16PM  Business Wire]
▶ [$$] AIG on Track Despite Turmoil at the Top   [12:26AM  The Wall Street Journal]
▶ AIG 'Morale Problem' Seen Hurting Returns   [Apr-03-17 08:56PM  Bloomberg Video]
▶ [$$] Greenberg Doesnt Want Buffett to Buy AIG   [Mar-31-17 12:12AM  at The Wall Street Journal]
▶ [$$] Greenberg Doesn't Want Buffett to Buy AIG   [Mar-30-17 06:58PM  at The Wall Street Journal]
▶ Trump Should Tell Yellen: 'You're Fired'   [Mar-23-17 09:36PM  at Forbes]
▶ [$$] AIG CEO to Receive $5 Million for Transition Service   [Mar-17-17 07:15PM  at The Wall Street Journal]
▶ [$$] Demanding and Direct: HSBCs New Chairman Mark Tucker   [12:02AM  at The Wall Street Journal]
▶ [$$] Demanding and Direct: HSBC's New Chairman Mark Tucker   [02:29PM  at The Wall Street Journal]
▶ [$$] AIG and Berkshire: Analyst Sees Perfect Fit   [12:49AM  at The Wall Street Journal]
▶ [$$] HSBC To Name AIA CEO Mark Tucker as Chairman   [Mar-12-17 06:39PM  at The Wall Street Journal]
▶ The Case for Warren Buffett to Buy AIG   [03:07PM  at The Wall Street Journal]
▶ AIG CEO Peter Hancock to Step Down   [09:53AM  at Investopedia]
▶ Who Might Replace Peter Hancock as AIG CEO   [04:35PM  at The Wall Street Journal]
▶ [$$] AIG Needs a New Boss, But at Least It Has a Plan   [03:13PM  at The Wall Street Journal]
▶ AIG CEO Peter Hancock Plans to Resign   [12:44PM  at Investopedia]
▶ AIG Chief Resigns, Carl Icahn Tweets Huzzah   [09:46AM  at Barrons.com]
Stock chart of AIG Financial statements of AIG
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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