Intrinsic value of American International Group - AIG

Previous Close

$62.97

  Intrinsic Value

$175.05

stock screener

  Rating & Target

str. buy

+178%

  Value-price divergence*

-52%

Previous close

$62.97

 
Intrinsic value

$175.05

 
Up/down potential

+178%

 
Rating

str. buy

 
Value-price divergence*

-52%

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 61.6

 

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
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
Revenue, $m
  0
  55,972
  59,224
  62,617
  66,159
  69,858
  73,722
  77,760
  81,983
  86,400
  91,021
  95,858
  100,922
  106,224
  111,778
  117,598
  123,695
  130,086
  136,786
  143,810
  151,175
  158,900
  167,001
  175,499
  184,414
  193,767
  203,581
  213,878
  224,684
  236,024
  247,925
Variable operating expenses, $m
 
  19,702
  20,847
  22,041
  23,288
  24,590
  25,950
  27,372
  28,858
  30,413
  32,039
  33,742
  35,524
  37,391
  39,346
  41,394
  43,541
  45,790
  48,149
  50,621
  53,214
  55,933
  58,784
  61,776
  64,914
  68,206
  71,660
  75,285
  79,089
  83,080
  87,270
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
  55,035
  57,063
  59,162
  61,338
  63,591
  65,926
  68,347
  70,858
  73,463
  76,165
  78,971
  81,884
  84,910
  88,053
  91,318
  94,713
  98,242
  101,912
  105,728
  109,699
  113,830
  118,128
  122,604
  127,263
  132,113
  137,165
  142,428
  147,910
  153,622
  159,575
Operating income, $m
  641
  937
  2,161
  3,455
  4,822
  6,267
  7,796
  9,414
  11,126
  12,938
  14,856
  16,887
  19,038
  21,315
  23,726
  26,279
  28,982
  31,844
  34,874
  38,082
  41,477
  45,070
  48,872
  52,895
  57,152
  61,654
  66,415
  71,450
  76,774
  82,402
  88,350
EBITDA, $m
  4,731
  937
  2,161
  3,455
  4,822
  6,267
  7,796
  9,414
  11,126
  12,938
  14,856
  16,887
  19,038
  21,315
  23,726
  26,279
  28,982
  31,844
  34,874
  38,082
  41,477
  45,070
  48,872
  52,895
  57,152
  61,654
  66,415
  71,450
  76,774
  82,402
  88,350
Interest expense (income), $m
  1,331
  1,360
  2,473
  3,616
  4,809
  6,054
  7,355
  8,713
  10,133
  11,618
  13,171
  14,795
  16,496
  18,276
  20,141
  22,093
  24,139
  26,283
  28,530
  30,886
  33,355
  35,945
  38,660
  41,509
  44,497
  47,631
  50,919
  54,370
  57,990
  61,789
  65,776
Earnings before tax, $m
  -74
  -423
  -311
  -162
  13
  213
  441
  700
  992
  1,320
  1,685
  2,092
  2,542
  3,038
  3,585
  4,186
  4,843
  5,561
  6,344
  7,196
  8,122
  9,125
  10,212
  11,387
  12,655
  14,023
  15,496
  17,081
  18,784
  20,613
  22,574
Tax expense, $m
  185
  0
  0
  0
  3
  57
  119
  189
  268
  356
  455
  565
  686
  820
  968
  1,130
  1,308
  1,502
  1,713
  1,943
  2,193
  2,464
  2,757
  3,074
  3,417
  3,786
  4,184
  4,612
  5,072
  5,565
  6,095
Net income, $m
  -849
  -423
  -311
  -162
  9
  155
  322
  511
  724
  964
  1,230
  1,527
  1,855
  2,218
  2,617
  3,055
  3,535
  4,060
  4,631
  5,253
  5,929
  6,662
  7,455
  8,312
  9,238
  10,237
  11,312
  12,469
  13,712
  15,047
  16,479

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
  528,041
  558,721
  590,730
  624,142
  659,035
  695,489
  733,590
  773,427
  815,095
  858,691
  904,321
  952,091
  1,002,115
  1,054,514
  1,109,411
  1,166,937
  1,227,230
  1,290,433
  1,356,698
  1,426,183
  1,499,052
  1,575,481
  1,655,651
  1,739,755
  1,827,991
  1,920,572
  2,017,717
  2,119,659
  2,226,641
  2,338,916
Adjusted assets (=assets-cash), $m
  498,264
  528,041
  558,721
  590,730
  624,142
  659,035
  695,489
  733,590
  773,427
  815,095
  858,691
  904,321
  952,091
  1,002,115
  1,054,514
  1,109,411
  1,166,937
  1,227,230
  1,290,433
  1,356,698
  1,426,183
  1,499,052
  1,575,481
  1,655,651
  1,739,755
  1,827,991
  1,920,572
  2,017,717
  2,119,659
  2,226,641
  2,338,916
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
  56,199
  82,184
  109,296
  137,596
  167,150
  198,027
  230,298
  264,041
  299,333
  336,260
  374,908
  415,369
  457,740
  502,121
  548,619
  597,344
  648,412
  701,945
  758,071
  816,925
  878,645
  943,380
  1,011,285
  1,082,520
  1,157,257
  1,235,672
  1,317,955
  1,404,299
  1,494,913
  1,590,010
Total liabilities, $m
  421,964
  447,251
  473,236
  500,348
  528,648
  558,202
  589,079
  621,350
  655,093
  690,385
  727,312
  765,960
  806,421
  848,792
  893,173
  939,671
  988,396
  1,039,464
  1,092,997
  1,149,123
  1,207,977
  1,269,697
  1,334,432
  1,402,337
  1,473,572
  1,548,309
  1,626,724
  1,709,007
  1,795,351
  1,885,965
  1,981,062
Total equity, $m
  76,300
  80,790
  85,484
  90,382
  95,494
  100,832
  106,410
  112,239
  118,334
  124,709
  131,380
  138,361
  145,670
  153,324
  161,341
  169,740
  178,541
  187,766
  197,436
  207,575
  218,206
  229,355
  241,049
  253,315
  266,182
  279,683
  293,848
  308,711
  324,308
  340,676
  357,854
Total liabilities and equity, $m
  498,264
  528,041
  558,720
  590,730
  624,142
  659,034
  695,489
  733,589
  773,427
  815,094
  858,692
  904,321
  952,091
  1,002,116
  1,054,514
  1,109,411
  1,166,937
  1,227,230
  1,290,433
  1,356,698
  1,426,183
  1,499,052
  1,575,481
  1,655,652
  1,739,754
  1,827,992
  1,920,572
  2,017,718
  2,119,659
  2,226,641
  2,338,916
Debt-to-equity ratio
  0.405
  0.700
  0.960
  1.210
  1.440
  1.660
  1.860
  2.050
  2.230
  2.400
  2.560
  2.710
  2.850
  2.990
  3.110
  3.230
  3.350
  3.450
  3.560
  3.650
  3.740
  3.830
  3.910
  3.990
  4.070
  4.140
  4.210
  4.270
  4.330
  4.390
  4.440
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
  -423
  -311
  -162
  9
  155
  322
  511
  724
  964
  1,230
  1,527
  1,855
  2,218
  2,617
  3,055
  3,535
  4,060
  4,631
  5,253
  5,929
  6,662
  7,455
  8,312
  9,238
  10,237
  11,312
  12,469
  13,712
  15,047
  16,479
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
  -423
  -311
  -162
  9
  155
  322
  511
  724
  964
  1,230
  1,527
  1,855
  2,218
  2,617
  3,055
  3,535
  4,060
  4,631
  5,253
  5,929
  6,662
  7,455
  8,312
  9,238
  10,237
  11,312
  12,469
  13,712
  15,047
  16,479
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
  -423
  -311
  -162
  9
  155
  322
  511
  724
  964
  1,230
  1,527
  1,855
  2,218
  2,617
  3,055
  3,535
  4,060
  4,631
  5,253
  5,929
  6,662
  7,455
  8,312
  9,238
  10,237
  11,312
  12,469
  13,712
  15,047
  16,479
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
  -423
  -311
  -162
  9
  155
  322
  511
  724
  964
  1,230
  1,527
  1,855
  2,218
  2,617
  3,055
  3,535
  4,060
  4,631
  5,253
  5,929
  6,662
  7,455
  8,312
  9,238
  10,237
  11,312
  12,469
  13,712
  15,047
  16,479
Issuance/(repayment) of debt, $m
  1,872
  25,287
  25,985
  27,112
  28,300
  29,554
  30,877
  32,271
  33,742
  35,293
  36,926
  38,648
  40,461
  42,371
  44,381
  46,498
  48,725
  51,068
  53,533
  56,126
  58,853
  61,721
  64,735
  67,904
  71,235
  74,736
  78,416
  82,282
  86,345
  90,613
  95,098
Issuance/(repurchase) of shares, $m
  -11,460
  4,913
  5,005
  5,059
  5,103
  5,183
  5,255
  5,318
  5,371
  5,412
  5,440
  5,454
  5,453
  5,436
  5,400
  5,344
  5,266
  5,165
  5,039
  4,885
  4,702
  4,488
  4,239
  3,954
  3,630
  3,264
  2,853
  2,394
  1,885
  1,321
  699
Cash from financing (excl. dividends), $m  
  -5,461
  30,200
  30,990
  32,171
  33,403
  34,737
  36,132
  37,589
  39,113
  40,705
  42,366
  44,102
  45,914
  47,807
  49,781
  51,842
  53,991
  56,233
  58,572
  61,011
  63,555
  66,209
  68,974
  71,858
  74,865
  78,000
  81,269
  84,676
  88,230
  91,934
  95,797
Total cash flow (excl. dividends), $m
  1,718
  29,777
  30,679
  32,009
  33,412
  34,893
  36,454
  38,101
  39,837
  41,668
  43,597
  45,629
  47,770
  50,025
  52,398
  54,897
  57,526
  60,293
  63,203
  66,265
  69,484
  72,870
  76,429
  80,170
  84,103
  88,237
  92,581
  97,145
  101,942
  106,981
  112,276
Retained Cash Flow (-), $m
  13,358
  -4,913
  -5,005
  -5,059
  -5,112
  -5,339
  -5,577
  -5,829
  -6,095
  -6,375
  -6,670
  -6,981
  -7,309
  -7,654
  -8,017
  -8,399
  -8,802
  -9,225
  -9,670
  -10,139
  -10,631
  -11,149
  -11,694
  -12,266
  -12,868
  -13,500
  -14,165
  -14,863
  -15,597
  -16,368
  -17,178
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
 
  24,864
  25,674
  26,950
  28,300
  29,554
  30,877
  32,271
  33,742
  35,293
  36,926
  38,648
  40,461
  42,371
  44,381
  46,498
  48,725
  51,068
  53,533
  56,126
  58,853
  61,721
  64,735
  67,904
  71,235
  74,736
  78,416
  82,282
  86,345
  90,613
  95,098
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
 
  23,325
  22,454
  21,830
  21,081
  20,093
  19,006
  17,831
  16,582
  15,276
  13,931
  12,569
  11,211
  9,878
  8,591
  7,368
  6,227
  5,182
  4,240
  3,410
  2,692
  2,083
  1,579
  1,171
  849
  600
  414
  278
  181
  115
  70
Current shareholders' claim on cash, %
  100
  92.6
  86.0
  80.1
  74.9
  70.2
  65.9
  62.1
  58.6
  55.5
  52.6
  50.1
  47.7
  45.6
  43.7
  42.0
  40.4
  39.0
  37.8
  36.7
  35.7
  34.8
  34.0
  33.3
  32.7
  32.2
  31.8
  31.5
  31.3
  31.1
  31.1

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 -73.8
Price to Sales 1.2
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 26.3
Price to Free Cash Flow 26.3
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 5.9% 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 10 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 978.338 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 $61.6 billion.

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COMPANY NEWS

▶ How Monetary Policy and Rate Hikes Could Impact Berkshire   [Aug-10-17 10:35AM  Market Realist]
▶ Company News For August 04, 2017   [10:23AM  Zacks]
▶ AIG: Two Cheers for Accretion   [01:24PM  The Wall Street Journal]
▶ [$$] New CEO Needs to Solve AIGs Old Problems   [12:48AM  The Wall Street Journal]
▶ [$$] Insurers Operating Incomes Rise   [12:48AM  The Wall Street Journal]
▶ American International Group posts 2Q profit   [Aug-02-17 10:10PM  Associated Press]
▶ [$$] Insurers' Operating Incomes Rise   [06:54PM  The Wall Street Journal]
▶ [$$] New CEO Needs to Solve AIG's Old Problems   [05:14PM  The Wall Street Journal]
▶ AIG's stock rallies after profit beat   [04:34PM  MarketWatch]
▶ AIG beats the Street   [04:22PM  CNBC Videos]
▶ AIG Reports Second Quarter 2017 Results   [04:21PM  Business Wire]
▶ Warren Seeks Inquiry Into Icahn and AIG   [05:47PM  TheStreet.com]
▶ 3 Top Stocks for the Second Half of 2017   [Jul-24-17 04:11PM  Motley Fool]
▶ [$$] From Fort Knox Clerk to Insurance Kingpin: The Rise of AIGs New CEO   [Jul-22-17 12:36AM  The Wall Street Journal]
▶ The Market In 5 Minutes   [09:22AM  Benzinga]
▶ [$$] The Rise of AIG's New CEO   [06:20AM  The Wall Street Journal]
▶ AIG Chart Showing a Rally in the Making?   [Jul-17-17 03:32PM  TheStreet.com]
▶ What Berkshires Analyst Ratings Tell Us about Performance   [Jul-14-17 07:36AM  Market Realist]
▶ [$$] AIG CEO Taps Peter Zaffino as Key Lieutenant   [06:08PM  The Wall Street Journal]
▶ Hancock Might Not Be the Man for HSBC   [01:44AM  Bloomberg]
▶ PRESS DIGEST- British Business - July 4   [Jul-03-17 07:32PM  Reuters]
▶ Can Hedge Funds See Into The Future?   [Jul-02-17 03:28PM  Insider Monkey]
▶ Billionaire Investor Carl Icahn Giving Up on AIG Breakup   [Jun-29-17 03:23PM  TheStreet.com]
▶ [$$] New AIG Chief: Lets Make a Deal   [12:10AM  The Wall Street Journal]
▶ [$$] New AIG Chief: Let's Make a Deal   [03:05PM  The Wall Street Journal]
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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