Intrinsic value of Alon USA Energy - ALJ

Previous Close

$13.32

  Intrinsic Value

$978.00

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+5000%

Previous close

$13.32

 
Intrinsic value

$978.00

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+5000%

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

We calculate the intrinsic value of ALJ 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 1.0

 

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, %
  -9.80
  35.40
  32.36
  29.62
  27.16
  24.95
  22.95
  21.16
  19.54
  18.09
  16.78
  15.60
  14.54
  13.59
  12.73
  11.95
  11.26
  10.63
  10.07
  9.56
  9.11
  8.70
  8.33
  7.99
  7.69
  7.42
  7.18
  6.96
  6.77
  6.59
  6.43
Revenue, $m
  3,913
  5,298
  7,013
  9,090
  11,559
  14,443
  17,757
  21,514
  25,718
  30,369
  35,465
  40,997
  46,958
  53,338
  60,126
  67,314
  74,893
  82,856
  91,200
  99,921
  109,021
  118,501
  128,368
  138,629
  149,296
  160,381
  171,900
  183,871
  196,315
  209,254
  222,713
Variable operating expenses, $m
 
  1,916
  2,534
  3,282
  4,172
  5,211
  6,406
  7,760
  9,275
  10,951
  12,787
  14,775
  16,923
  19,222
  21,669
  24,259
  26,991
  29,861
  32,867
  36,011
  39,290
  42,707
  46,262
  49,960
  53,805
  57,800
  61,951
  66,265
  70,750
  75,413
  80,264
Fixed operating expenses, $m
 
  2,693
  2,760
  2,829
  2,900
  2,972
  3,047
  3,123
  3,201
  3,281
  3,363
  3,447
  3,533
  3,621
  3,712
  3,805
  3,900
  3,997
  4,097
  4,200
  4,305
  4,412
  4,523
  4,636
  4,752
  4,870
  4,992
  5,117
  5,245
  5,376
  5,510
Total operating expenses, $m
  3,981
  4,609
  5,294
  6,111
  7,072
  8,183
  9,453
  10,883
  12,476
  14,232
  16,150
  18,222
  20,456
  22,843
  25,381
  28,064
  30,891
  33,858
  36,964
  40,211
  43,595
  47,119
  50,785
  54,596
  58,557
  62,670
  66,943
  71,382
  75,995
  80,789
  85,774
Operating income, $m
  -67
  690
  1,719
  2,979
  4,487
  6,259
  8,305
  10,632
  13,242
  16,138
  19,314
  22,775
  26,502
  30,494
  34,745
  39,250
  44,002
  48,998
  54,235
  59,711
  65,426
  71,382
  77,583
  84,033
  90,739
  97,711
  104,957
  112,489
  120,320
  128,465
  136,939
EBITDA, $m
  79
  884
  1,974
  3,308
  4,904
  6,778
  8,942
  11,402
  14,162
  17,222
  20,580
  24,231
  28,169
  32,387
  36,880
  41,640
  46,661
  51,940
  57,473
  63,258
  69,296
  75,589
  82,140
  88,954
  96,039
  103,404
  111,059
  119,016
  127,290
  135,894
  144,846
Interest expense (income), $m
  62
  58
  121
  199
  293
  405
  536
  687
  857
  1,048
  1,259
  1,490
  1,741
  2,012
  2,301
  2,609
  2,936
  3,280
  3,641
  4,020
  4,415
  4,828
  5,259
  5,706
  6,172
  6,656
  7,159
  7,682
  8,225
  8,790
  9,377
Earnings before tax, $m
  -127
  631
  1,598
  2,780
  4,194
  5,854
  7,769
  9,945
  12,385
  15,090
  18,055
  21,285
  24,760
  28,482
  32,444
  36,640
  41,067
  45,719
  50,594
  55,691
  61,010
  66,554
  72,324
  78,326
  84,567
  91,054
  97,797
  104,807
  112,095
  119,675
  127,562
Tax expense, $m
  -47
  170
  431
  751
  1,132
  1,581
  2,098
  2,685
  3,344
  4,074
  4,875
  5,747
  6,685
  7,690
  8,760
  9,893
  11,088
  12,344
  13,660
  15,037
  16,473
  17,969
  19,527
  21,148
  22,833
  24,585
  26,405
  28,298
  30,266
  32,312
  34,442
Net income, $m
  -83
  461
  1,166
  2,029
  3,062
  4,273
  5,671
  7,260
  9,041
  11,015
  13,180
  15,538
  18,075
  20,792
  23,684
  26,748
  29,979
  33,375
  36,934
  40,655
  44,538
  48,584
  52,796
  57,178
  61,734
  66,470
  71,392
  76,509
  81,829
  87,363
  93,120

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  136
  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
  2,095
  2,653
  3,512
  4,552
  5,788
  7,232
  8,892
  10,773
  12,878
  15,208
  17,759
  20,529
  23,514
  26,709
  30,108
  33,707
  37,503
  41,490
  45,668
  50,036
  54,592
  59,339
  64,280
  69,419
  74,760
  80,311
  86,079
  92,074
  98,305
  104,784
  111,524
Adjusted assets (=assets-cash), $m
  1,959
  2,653
  3,512
  4,552
  5,788
  7,232
  8,892
  10,773
  12,878
  15,208
  17,759
  20,529
  23,514
  26,709
  30,108
  33,707
  37,503
  41,490
  45,668
  50,036
  54,592
  59,339
  64,280
  69,419
  74,760
  80,311
  86,079
  92,074
  98,305
  104,784
  111,524
Revenue / Adjusted assets
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
  1.997
Average production assets, $m
  1,391
  1,881
  2,490
  3,227
  4,104
  5,127
  6,304
  7,638
  9,130
  10,781
  12,590
  14,554
  16,670
  18,935
  21,345
  23,896
  26,587
  29,414
  32,376
  35,472
  38,702
  42,068
  45,571
  49,213
  53,000
  56,935
  61,024
  65,274
  69,692
  74,285
  79,063
Working capital, $m
  25
  -127
  -168
  -218
  -277
  -347
  -426
  -516
  -617
  -729
  -851
  -984
  -1,127
  -1,280
  -1,443
  -1,616
  -1,797
  -1,989
  -2,189
  -2,398
  -2,616
  -2,844
  -3,081
  -3,327
  -3,583
  -3,849
  -4,126
  -4,413
  -4,712
  -5,022
  -5,345
Total debt, $m
  528
  1,063
  1,746
  2,573
  3,556
  4,704
  6,023
  7,519
  9,192
  11,044
  13,072
  15,275
  17,648
  20,188
  22,890
  25,751
  28,769
  31,939
  35,260
  38,732
  42,355
  46,129
  50,057
  54,142
  58,388
  62,801
  67,387
  72,153
  77,106
  82,257
  87,615
Total liabilities, $m
  1,574
  2,109
  2,792
  3,619
  4,602
  5,750
  7,069
  8,565
  10,238
  12,090
  14,118
  16,321
  18,694
  21,234
  23,936
  26,797
  29,815
  32,985
  36,306
  39,778
  43,401
  47,175
  51,103
  55,188
  59,434
  63,847
  68,433
  73,199
  78,152
  83,303
  88,661
Total equity, $m
  521
  544
  720
  933
  1,187
  1,483
  1,823
  2,209
  2,640
  3,118
  3,641
  4,209
  4,820
  5,475
  6,172
  6,910
  7,688
  8,506
  9,362
  10,257
  11,191
  12,165
  13,177
  14,231
  15,326
  16,464
  17,646
  18,875
  20,153
  21,481
  22,862
Total liabilities and equity, $m
  2,095
  2,653
  3,512
  4,552
  5,789
  7,233
  8,892
  10,774
  12,878
  15,208
  17,759
  20,530
  23,514
  26,709
  30,108
  33,707
  37,503
  41,491
  45,668
  50,035
  54,592
  59,340
  64,280
  69,419
  74,760
  80,311
  86,079
  92,074
  98,305
  104,784
  111,523
Debt-to-equity ratio
  1.013
  1.950
  2.430
  2.760
  3.000
  3.170
  3.300
  3.400
  3.480
  3.540
  3.590
  3.630
  3.660
  3.690
  3.710
  3.730
  3.740
  3.760
  3.770
  3.780
  3.780
  3.790
  3.800
  3.800
  3.810
  3.810
  3.820
  3.820
  3.830
  3.830
  3.830
Adjusted equity ratio
  0.197
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205
  0.205

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -83
  461
  1,166
  2,029
  3,062
  4,273
  5,671
  7,260
  9,041
  11,015
  13,180
  15,538
  18,075
  20,792
  23,684
  26,748
  29,979
  33,375
  36,934
  40,655
  44,538
  48,584
  52,796
  57,178
  61,734
  66,470
  71,392
  76,509
  81,829
  87,363
  93,120
Depreciation, amort., depletion, $m
  146
  194
  255
  329
  417
  519
  637
  770
  919
  1,084
  1,265
  1,455
  1,667
  1,893
  2,134
  2,390
  2,659
  2,941
  3,238
  3,547
  3,870
  4,207
  4,557
  4,921
  5,300
  5,694
  6,102
  6,527
  6,969
  7,429
  7,906
Funds from operations, $m
  27
  655
  1,422
  2,358
  3,478
  4,792
  6,308
  8,030
  9,961
  12,100
  14,446
  16,993
  19,742
  22,685
  25,819
  29,137
  32,637
  36,316
  40,171
  44,202
  48,408
  52,791
  57,354
  62,100
  67,034
  72,163
  77,495
  83,036
  88,798
  94,791
  101,027
Change in working capital, $m
  -33
  -33
  -41
  -50
  -59
  -69
  -80
  -90
  -101
  -112
  -122
  -133
  -143
  -153
  -163
  -173
  -182
  -191
  -200
  -209
  -218
  -228
  -237
  -246
  -256
  -266
  -276
  -287
  -299
  -311
  -323
Cash from operations, $m
  60
  689
  1,463
  2,408
  3,538
  4,862
  6,387
  8,120
  10,061
  12,211
  14,568
  17,126
  19,885
  22,839
  25,981
  29,310
  32,819
  36,507
  40,371
  44,411
  48,626
  53,018
  57,590
  62,346
  67,290
  72,429
  77,771
  83,324
  89,097
  95,102
  101,350
Maintenance CAPEX, $m
  0
  -139
  -188
  -249
  -323
  -410
  -513
  -630
  -764
  -913
  -1,078
  -1,259
  -1,455
  -1,667
  -1,893
  -2,134
  -2,390
  -2,659
  -2,941
  -3,238
  -3,547
  -3,870
  -4,207
  -4,557
  -4,921
  -5,300
  -5,694
  -6,102
  -6,527
  -6,969
  -7,429
New CAPEX, $m
  -88
  -490
  -609
  -737
  -877
  -1,024
  -1,177
  -1,334
  -1,492
  -1,651
  -1,809
  -1,964
  -2,116
  -2,265
  -2,410
  -2,552
  -2,691
  -2,827
  -2,962
  -3,096
  -3,230
  -3,366
  -3,503
  -3,643
  -3,787
  -3,935
  -4,089
  -4,250
  -4,418
  -4,593
  -4,778
Cash from investing activities, $m
  -94
  -629
  -797
  -986
  -1,200
  -1,434
  -1,690
  -1,964
  -2,256
  -2,564
  -2,887
  -3,223
  -3,571
  -3,932
  -4,303
  -4,686
  -5,081
  -5,486
  -5,903
  -6,334
  -6,777
  -7,236
  -7,710
  -8,200
  -8,708
  -9,235
  -9,783
  -10,352
  -10,945
  -11,562
  -12,207
Free cash flow, $m
  -34
  60
  666
  1,422
  2,338
  3,428
  4,698
  6,156
  7,805
  9,647
  11,681
  13,903
  16,314
  18,907
  21,678
  24,624
  27,739
  31,022
  34,468
  38,077
  41,849
  45,783
  49,881
  54,146
  58,582
  63,194
  67,988
  72,971
  78,152
  83,539
  89,143
Issuance/(repayment) of debt, $m
  -36
  551
  683
  827
  983
  1,148
  1,320
  1,496
  1,674
  1,852
  2,028
  2,202
  2,373
  2,540
  2,702
  2,861
  3,017
  3,170
  3,322
  3,472
  3,622
  3,774
  3,928
  4,085
  4,246
  4,413
  4,586
  4,766
  4,954
  5,151
  5,358
Issuance/(repurchase) of shares, $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 financing (excl. dividends), $m  
  -20
  551
  683
  827
  983
  1,148
  1,320
  1,496
  1,674
  1,852
  2,028
  2,202
  2,373
  2,540
  2,702
  2,861
  3,017
  3,170
  3,322
  3,472
  3,622
  3,774
  3,928
  4,085
  4,246
  4,413
  4,586
  4,766
  4,954
  5,151
  5,358
Total cash flow (excl. dividends), $m
  -55
  611
  1,349
  2,249
  3,321
  4,575
  6,018
  7,652
  9,479
  11,499
  13,710
  16,106
  18,687
  21,446
  24,381
  27,485
  30,756
  34,192
  37,790
  41,549
  45,471
  49,557
  53,809
  58,231
  62,828
  67,607
  72,574
  77,737
  83,106
  88,690
  94,501
Retained Cash Flow (-), $m
  118
  -143
  -176
  -213
  -253
  -296
  -340
  -386
  -432
  -477
  -523
  -568
  -612
  -655
  -697
  -738
  -778
  -817
  -856
  -895
  -934
  -973
  -1,013
  -1,053
  -1,095
  -1,138
  -1,182
  -1,229
  -1,277
  -1,328
  -1,382
Prev. year cash balance distribution, $m
 
  120
  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
 
  588
  1,173
  2,035
  3,068
  4,279
  5,677
  7,266
  9,047
  11,021
  13,186
  15,538
  18,075
  20,792
  23,684
  26,747
  29,978
  33,374
  36,933
  40,654
  44,537
  48,584
  52,796
  57,178
  61,733
  66,469
  71,391
  76,508
  81,829
  87,362
  93,119
Discount rate, %
 
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.12
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.82
  25.01
  26.26
  27.58
PV of cash for distribution, $m
 
  551
  1,024
  1,644
  2,275
  2,893
  3,470
  3,980
  4,401
  4,713
  4,905
  4,972
  4,917
  4,747
  4,478
  4,129
  3,721
  3,278
  2,823
  2,374
  1,951
  1,564
  1,223
  932
  692
  500
  351
  239
  158
  101
  62
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

Alon USA Energy, Inc. refines and markets petroleum products, primarily in the South Central, Southwestern, and Western regions of the United States. It operates in three segments: Refining and Marketing, Asphalt, and Retail. The Refining and Marketing segment operates sour crude oil refinery located in Big Spring, Texas with a crude oil throughput capacity of approximately 73,000 barrels per day (bpd); light sweet crude oil refinery located in Krotz Springs, Louisiana with a crude oil throughput capacity of approximately 74,000 bpd; and heavy crude oil refineries located in Paramount, Bakersfield and Long Beach, California. This segment refines crude oil into petroleum products, such as gasoline, diesel, jet fuel, petrochemicals, petrochemical feedstocks, asphalt, and other petroleum-based products. It also markets motor fuels to third-party distributors under the Alon brand, as well as licenses Alon brand name. The Asphalt segment offers asphalt primarily as paving asphalt to road and materials manufacturers, and as ground tire rubber polymer modified or emulsion asphalt to highway construction/maintenance contractors. The Retail segment operates convenience stores that offer various grades of gasoline, diesel, food products and services, tobacco products, non-alcoholic and alcoholic beverages, and general merchandise, as well as money orders to the public primarily under the 7-Eleven and Alon brands. As of December 31, 2015, this segment operated 309 owned and leased convenience store sites primarily in Central and West Texas, and New Mexico. Alon USA Energy, Inc. was founded in 2000 and is headquartered in Dallas, Texas.

FINANCIAL RATIOS  of  Alon USA Energy (ALJ)

Valuation Ratios
P/E Ratio -11.5
Price to Sales 0.2
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 15.9
Price to Free Cash Flow -34.1
Growth Rates
Sales Growth Rate -9.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -35.8%
Cap. Spend. - 3 Yr. Gr. Rate 2.7%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 98.3%
Total Debt to Equity 101.3%
Interest Coverage -1
Management Effectiveness
Return On Assets -2.1%
Ret/ On Assets - 3 Yr. Avg. 2.6%
Return On Total Capital -7.4%
Ret/ On T. Cap. - 3 Yr. Avg. 0.1%
Return On Equity -14.3%
Return On Equity - 3 Yr. Avg. 0.1%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 13.9%
Gross Margin - 3 Yr. Avg. 15.1%
EBITDA Margin 2.1%
EBITDA Margin - 3 Yr. Avg. 4.8%
Operating Margin -1.7%
Oper. Margin - 3 Yr. Avg. 2%
Pre-Tax Margin -3.2%
Pre-Tax Margin - 3 Yr. Avg. 0.4%
Net Profit Margin -2.1%
Net Profit Margin - 3 Yr. Avg. -0.1%
Effective Tax Rate 37%
Eff/ Tax Rate - 3 Yr. Avg. 33%
Payout Ratio -51.8%

ALJ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ALJ stock intrinsic value calculation we used $3913 million for the last fiscal year's total revenue generated by Alon USA Energy. The default revenue input number comes from 2016 income statement of Alon USA Energy. 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 ALJ stock valuation model: a) initial revenue growth rate of 35.4% 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 6.7%, whose default value for ALJ is calculated based on our internal credit rating of Alon USA Energy, 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 Alon USA Energy.
    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 ALJ stock the variable cost ratio is equal to 36.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2627 million in the base year in the intrinsic value calculation for ALJ 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 11.4% for Alon USA Energy.

Corporate tax rate of 27% is the nominal tax rate for Alon USA Energy. 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 ALJ 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 ALJ are equal to 35.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Alon USA Energy 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 ALJ is equal to -2.4%. 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 - $521 million for Alon USA Energy - 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 74.796 million for Alon USA Energy 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 Alon USA Energy at the current share price and the inputted number of shares is $1.0 billion.

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Stock chart of ALJ Financial statements of ALJ Annual reports of ALJ
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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