Intrinsic value of Ares Management - ARES

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  Intrinsic Value

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  Value-price divergence*

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

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

We calculate the intrinsic value of ARES 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 3.8

 

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, %
  47.30
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  1,199
  1,918
  2,964
  4,433
  6,431
  9,074
  12,474
  16,744
  21,986
  28,291
  35,734
  44,373
  54,251
  65,390
  77,801
  91,481
  106,414
  122,580
  139,953
  158,504
  178,205
  199,031
  220,961
  243,977
  268,068
  293,232
  319,472
  346,798
  375,230
  404,792
  435,518
Variable operating expenses, $m
 
  1,052
  1,618
  2,412
  3,494
  4,923
  6,763
  9,073
  11,909
  15,320
  19,346
  24,006
  29,349
  35,375
  42,090
  49,490
  57,569
  66,315
  75,713
  85,749
  96,407
  107,674
  119,538
  131,989
  145,022
  158,636
  172,831
  187,614
  202,996
  218,988
  235,611
Fixed operating expenses, $m
 
  371
  380
  390
  400
  410
  420
  430
  441
  452
  463
  475
  487
  499
  511
  524
  537
  551
  565
  579
  593
  608
  623
  639
  655
  671
  688
  705
  723
  741
  759
Total operating expenses, $m
  1,016
  1,423
  1,998
  2,802
  3,894
  5,333
  7,183
  9,503
  12,350
  15,772
  19,809
  24,481
  29,836
  35,874
  42,601
  50,014
  58,106
  66,866
  76,278
  86,328
  97,000
  108,282
  120,161
  132,628
  145,677
  159,307
  173,519
  188,319
  203,719
  219,729
  236,370
Operating income, $m
  183
  495
  966
  1,630
  2,538
  3,741
  5,292
  7,241
  9,636
  12,519
  15,924
  19,893
  24,415
  29,516
  35,200
  41,466
  48,308
  55,715
  63,675
  72,176
  81,205
  90,749
  100,800
  111,349
  122,391
  133,925
  145,953
  158,479
  171,512
  185,063
  199,148
EBITDA, $m
  220
  532
  1,015
  1,698
  2,629
  3,863
  5,455
  7,455
  9,913
  12,871
  16,364
  20,421
  25,061
  30,294
  36,126
  42,555
  49,575
  57,174
  65,341
  74,063
  83,326
  93,119
  103,431
  114,253
  125,583
  137,416
  149,756
  162,607
  175,979
  189,882
  204,333
Interest expense (income), $m
  15
  119
  189
  328
  522
  787
  1,136
  1,586
  2,152
  2,845
  3,680
  4,665
  5,808
  7,116
  8,590
  10,233
  12,043
  14,020
  16,159
  18,459
  20,914
  23,521
  26,278
  29,180
  32,226
  35,415
  38,746
  42,218
  45,835
  49,598
  53,511
Earnings before tax, $m
  298
  376
  776
  1,303
  2,016
  2,954
  4,155
  5,655
  7,485
  9,674
  12,245
  15,228
  18,606
  22,400
  26,610
  31,234
  36,265
  41,695
  47,516
  53,718
  60,291
  67,228
  74,522
  82,169
  90,165
  98,510
  107,207
  116,260
  125,676
  135,465
  145,637
Tax expense, $m
  11
  102
  210
  352
  544
  798
  1,122
  1,527
  2,021
  2,612
  3,306
  4,112
  5,024
  6,048
  7,185
  8,433
  9,791
  11,258
  12,829
  14,504
  16,279
  18,152
  20,121
  22,186
  24,345
  26,598
  28,946
  31,390
  33,933
  36,575
  39,322
Net income, $m
  112
  275
  567
  951
  1,472
  2,157
  3,033
  4,128
  5,464
  7,062
  8,939
  11,116
  13,583
  16,352
  19,425
  22,801
  26,473
  30,437
  34,687
  39,214
  44,012
  49,076
  54,401
  59,983
  65,820
  71,913
  78,261
  84,870
  91,744
  98,889
  106,315

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  798
  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
  5,830
  8,061
  12,453
  18,624
  27,023
  38,125
  52,413
  70,354
  92,379
  118,870
  150,142
  186,442
  227,944
  274,749
  326,897
  384,373
  447,118
  515,042
  588,036
  665,982
  748,761
  836,267
  928,407
  1,025,112
  1,126,338
  1,232,069
  1,342,320
  1,457,136
  1,576,596
  1,700,807
  1,829,907
Adjusted assets (=assets-cash), $m
  5,032
  8,061
  12,453
  18,624
  27,023
  38,125
  52,413
  70,354
  92,379
  118,870
  150,142
  186,442
  227,944
  274,749
  326,897
  384,373
  447,118
  515,042
  588,036
  665,982
  748,761
  836,267
  928,407
  1,025,112
  1,126,338
  1,232,069
  1,342,320
  1,457,136
  1,576,596
  1,700,807
  1,829,907
Revenue / Adjusted assets
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
Average production assets, $m
  111
  144
  222
  332
  482
  681
  936
  1,256
  1,649
  2,122
  2,680
  3,328
  4,069
  4,904
  5,835
  6,861
  7,981
  9,194
  10,496
  11,888
  13,365
  14,927
  16,572
  18,298
  20,105
  21,992
  23,960
  26,010
  28,142
  30,359
  32,664
Working capital, $m
  0
  -1,278
  -1,974
  -2,952
  -4,283
  -6,043
  -8,308
  -11,152
  -14,643
  -18,842
  -23,799
  -29,553
  -36,131
  -43,550
  -51,816
  -60,926
  -70,872
  -81,638
  -93,208
  -105,563
  -118,685
  -132,555
  -147,160
  -162,488
  -178,534
  -195,293
  -212,768
  -230,968
  -249,903
  -269,591
  -290,055
Total debt, $m
  3,392
  5,408
  9,362
  14,916
  22,474
  32,467
  45,326
  61,473
  81,295
  105,137
  133,282
  165,952
  203,303
  245,428
  292,361
  344,089
  400,560
  461,692
  527,387
  597,537
  672,039
  750,794
  833,720
  920,755
  1,011,858
  1,107,016
  1,206,242
  1,309,577
  1,417,090
  1,528,880
  1,645,071
Total liabilities, $m
  5,238
  7,254
  11,208
  16,762
  24,320
  34,313
  47,172
  63,319
  83,141
  106,983
  135,128
  167,798
  205,149
  247,274
  294,207
  345,935
  402,406
  463,538
  529,233
  599,383
  673,885
  752,640
  835,566
  922,601
  1,013,704
  1,108,862
  1,208,088
  1,311,423
  1,418,936
  1,530,726
  1,646,917
Total equity, $m
  592
  806
  1,245
  1,862
  2,702
  3,813
  5,241
  7,035
  9,238
  11,887
  15,014
  18,644
  22,794
  27,475
  32,690
  38,437
  44,712
  51,504
  58,804
  66,598
  74,876
  83,627
  92,841
  102,511
  112,634
  123,207
  134,232
  145,714
  157,660
  170,081
  182,991
Total liabilities and equity, $m
  5,830
  8,060
  12,453
  18,624
  27,022
  38,126
  52,413
  70,354
  92,379
  118,870
  150,142
  186,442
  227,943
  274,749
  326,897
  384,372
  447,118
  515,042
  588,037
  665,981
  748,761
  836,267
  928,407
  1,025,112
  1,126,338
  1,232,069
  1,342,320
  1,457,137
  1,576,596
  1,700,807
  1,829,908
Debt-to-equity ratio
  5.730
  6.710
  7.520
  8.010
  8.320
  8.520
  8.650
  8.740
  8.800
  8.840
  8.880
  8.900
  8.920
  8.930
  8.940
  8.950
  8.960
  8.960
  8.970
  8.970
  8.980
  8.980
  8.980
  8.980
  8.980
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
Adjusted equity ratio
  -0.041
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  112
  275
  567
  951
  1,472
  2,157
  3,033
  4,128
  5,464
  7,062
  8,939
  11,116
  13,583
  16,352
  19,425
  22,801
  26,473
  30,437
  34,687
  39,214
  44,012
  49,076
  54,401
  59,983
  65,820
  71,913
  78,261
  84,870
  91,744
  98,889
  106,315
Depreciation, amort., depletion, $m
  37
  37
  50
  67
  91
  122
  163
  214
  276
  351
  440
  528
  646
  778
  926
  1,089
  1,267
  1,459
  1,666
  1,887
  2,121
  2,369
  2,630
  2,904
  3,191
  3,491
  3,803
  4,129
  4,467
  4,819
  5,185
Funds from operations, $m
  -1,530
  312
  616
  1,018
  1,563
  2,279
  3,196
  4,342
  5,740
  7,413
  9,378
  11,645
  14,229
  17,131
  20,352
  23,890
  27,740
  31,897
  36,353
  41,101
  46,134
  51,446
  57,032
  62,888
  69,012
  75,403
  82,065
  88,999
  96,211
  103,708
  111,500
Change in working capital, $m
  -904
  -479
  -696
  -978
  -1,331
  -1,760
  -2,265
  -2,844
  -3,491
  -4,199
  -4,957
  -5,754
  -6,578
  -7,419
  -8,266
  -9,110
  -9,946
  -10,767
  -11,570
  -12,355
  -13,121
  -13,870
  -14,605
  -15,329
  -16,045
  -16,759
  -17,476
  -18,199
  -18,935
  -19,688
  -20,464
Cash from operations, $m
  -626
  759
  1,313
  1,996
  2,894
  4,039
  5,461
  7,185
  9,231
  11,612
  14,335
  17,399
  20,807
  24,550
  28,618
  33,000
  37,686
  42,663
  47,923
  53,456
  59,255
  65,316
  71,637
  78,216
  85,057
  92,163
  99,540
  107,198
  115,146
  123,397
  131,963
Maintenance CAPEX, $m
  0
  -14
  -23
  -35
  -53
  -77
  -108
  -149
  -199
  -262
  -337
  -425
  -528
  -646
  -778
  -926
  -1,089
  -1,267
  -1,459
  -1,666
  -1,887
  -2,121
  -2,369
  -2,630
  -2,904
  -3,191
  -3,491
  -3,803
  -4,129
  -4,467
  -4,819
New CAPEX, $m
  -12
  -53
  -78
  -110
  -150
  -198
  -255
  -320
  -393
  -473
  -558
  -648
  -741
  -835
  -931
  -1,026
  -1,120
  -1,212
  -1,303
  -1,391
  -1,478
  -1,562
  -1,645
  -1,726
  -1,807
  -1,887
  -1,968
  -2,049
  -2,132
  -2,217
  -2,304
Cash from investing activities, $m
  -12
  -67
  -101
  -145
  -203
  -275
  -363
  -469
  -592
  -735
  -895
  -1,073
  -1,269
  -1,481
  -1,709
  -1,952
  -2,209
  -2,479
  -2,762
  -3,057
  -3,365
  -3,683
  -4,014
  -4,356
  -4,711
  -5,078
  -5,459
  -5,852
  -6,261
  -6,684
  -7,123
Free cash flow, $m
  -638
  691
  1,212
  1,851
  2,691
  3,764
  5,098
  6,717
  8,639
  10,878
  13,440
  16,325
  19,538
  23,068
  26,908
  31,048
  35,477
  40,184
  45,161
  50,398
  55,891
  61,633
  67,623
  73,860
  80,345
  87,084
  94,081
  101,345
  108,885
  116,712
  124,840
Issuance/(repayment) of debt, $m
  821
  2,016
  3,954
  5,554
  7,559
  9,992
  12,859
  16,147
  19,823
  23,841
  28,145
  32,670
  37,351
  42,125
  46,933
  51,728
  56,471
  61,132
  65,695
  70,151
  74,501
  78,755
  82,926
  87,035
  91,103
  95,158
  99,226
  103,335
  107,514
  111,790
  116,191
Issuance/(repurchase) of shares, $m
  299
  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  
  1,094
  2,016
  3,954
  5,554
  7,559
  9,992
  12,859
  16,147
  19,823
  23,841
  28,145
  32,670
  37,351
  42,125
  46,933
  51,728
  56,471
  61,132
  65,695
  70,151
  74,501
  78,755
  82,926
  87,035
  91,103
  95,158
  99,226
  103,335
  107,514
  111,790
  116,191
Total cash flow (excl. dividends), $m
  434
  2,707
  5,165
  7,404
  10,250
  13,756
  17,957
  22,863
  28,462
  34,719
  41,585
  48,995
  56,889
  65,193
  73,841
  82,776
  91,947
  101,316
  110,855
  120,549
  130,392
  140,388
  150,549
  160,894
  171,449
  182,242
  193,307
  204,680
  216,399
  228,502
  241,031
Retained Cash Flow (-), $m
  -322
  -1,012
  -439
  -617
  -840
  -1,110
  -1,429
  -1,794
  -2,203
  -2,649
  -3,127
  -3,630
  -4,150
  -4,681
  -5,215
  -5,748
  -6,275
  -6,792
  -7,299
  -7,795
  -8,278
  -8,751
  -9,214
  -9,671
  -10,123
  -10,573
  -11,025
  -11,482
  -11,946
  -12,421
  -12,910
Prev. year cash balance distribution, $m
 
  798
  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
 
  2,493
  4,726
  6,787
  9,410
  12,646
  16,529
  21,069
  26,259
  32,070
  38,458
  45,365
  52,739
  60,512
  68,627
  77,028
  85,673
  94,523
  103,556
  112,755
  122,114
  131,637
  141,335
  151,224
  161,326
  171,669
  182,282
  193,199
  204,453
  216,081
  228,121
Discount rate, %
 
  10.30
  10.82
  11.36
  11.92
  12.52
  13.15
  13.80
  14.49
  15.22
  15.98
  16.78
  17.62
  18.50
  19.42
  20.39
  21.41
  22.48
  23.61
  24.79
  26.03
  27.33
  28.70
  30.13
  31.64
  33.22
  34.88
  36.62
  38.45
  40.38
  42.40
PV of cash for distribution, $m
 
  2,260
  3,848
  4,915
  5,997
  7,012
  7,878
  8,523
  8,893
  8,962
  8,734
  8,237
  7,525
  6,662
  5,719
  4,760
  3,842
  3,008
  2,282
  1,678
  1,195
  824
  549
  354
  220
  132
  76
  42
  23
  12
  6
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

Ares Management, L.P. operates as an alternative asset manager in the United States, Europe, and Asia. The company’s Tradable Credit Group segment manages various types of investment funds, such as commingled and separately managed accounts for institutional investors, and publicly traded vehicles and sub-advised funds for retail investors in the tradable and non-investment grade corporate credit markets. Its Direct Lending Group segment provides financing solutions to small-to-medium sized companies. The company’s Private Equity Group segment focuses on majority or shared-control investments primarily in under-capitalized companies. Its Real Estate Group segment invests in new developments and the repositioning of assets, with a focus on control or majority-control investments; and originates and invests in a range of self-originated financing opportunities for middle-market owners and operators of commercial real estate. Ares Management, L.P. was founded in 1997 and is headquartered in Los Angeles, California. Ares Management GP LLC is the general partner of the company.

FINANCIAL RATIOS  of  Ares Management (ARES)

Valuation Ratios
P/E Ratio 13
Price to Sales 1.2
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow -2.3
Price to Free Cash Flow -2.3
Growth Rates
Sales Growth Rate 47.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 9.1%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 573%
Total Debt to Equity 573%
Interest Coverage 21
Management Effectiveness
Return On Assets 2.5%
Ret/ On Assets - 3 Yr. Avg. 2%
Return On Total Capital 3.3%
Ret/ On T. Cap. - 3 Yr. Avg. 2.2%
Return On Equity 26%
Return On Equity - 3 Yr. Avg. 19.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 29.2%
EBITDA Margin - 3 Yr. Avg. 62.6%
Operating Margin 15.3%
Oper. Margin - 3 Yr. Avg. 17.7%
Pre-Tax Margin 24.9%
Pre-Tax Margin - 3 Yr. Avg. 42.3%
Net Profit Margin 9.3%
Net Profit Margin - 3 Yr. Avg. 29%
Effective Tax Rate 3.7%
Eff/ Tax Rate - 3 Yr. Avg. 9.7%
Payout Ratio 190.2%

ARES stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARES stock intrinsic value calculation we used $1199 million for the last fiscal year's total revenue generated by Ares Management. The default revenue input number comes from 2016 income statement of Ares Management. 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 ARES stock valuation model: a) initial revenue growth rate of 60% 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 10.3%, whose default value for ARES is calculated based on our internal credit rating of Ares Management, 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 Ares Management.
    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 ARES stock the variable cost ratio is equal to 55.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $362 million in the base year in the intrinsic value calculation for ARES 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 3.5% for Ares Management.

Corporate tax rate of 27% is the nominal tax rate for Ares Management. 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 ARES 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 ARES are equal to 7.5%.

Life of production assets of 6.3 years is the average useful life of capital assets used in Ares Management 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 ARES is equal to -66.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $592 million for Ares Management - 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 209.545 million for Ares Management 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 Ares Management at the current share price and the inputted number of shares is $3.8 billion.


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Stock chart of ARES Financial statements of ARES Annual reports of ARES
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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