Intrinsic value of Ares Management - ARES

Previous Close

$17.70

  Intrinsic Value

$521.44

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+5000%

Previous close

$17.70

 
Intrinsic value

$521.44

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+5000%

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 3.7

 

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
  527
  1,008
  1,686
  2,612
  3,840
  5,422
  7,411
  9,855
  12,797
  16,271
  20,305
  24,919
  30,124
  35,924
  42,317
  49,297
  56,855
  64,977
  73,650
  82,862
  92,600
  102,855
  113,618
  124,884
  136,653
  148,924
  161,704
  175,001
  188,827
  203,198
Interest expense (income), $m
  15
  119
  228
  388
  612
  917
  1,320
  1,839
  2,490
  3,290
  4,252
  5,387
  6,706
  8,213
  9,912
  11,806
  13,893
  16,171
  18,638
  21,288
  24,119
  27,125
  30,302
  33,648
  37,160
  40,835
  44,675
  48,678
  52,847
  57,185
  61,696
Earnings before tax, $m
  298
  376
  738
  1,243
  1,926
  2,824
  3,972
  5,402
  7,146
  9,229
  11,673
  14,505
  17,709
  21,303
  25,288
  29,660
  34,415
  39,543
  45,037
  50,888
  57,086
  63,625
  70,498
  77,701
  85,232
  93,090
  101,278
  109,801
  118,664
  127,877
  137,452
Tax expense, $m
  11
  102
  199
  336
  520
  763
  1,072
  1,459
  1,930
  2,492
  3,152
  3,916
  4,781
  5,752
  6,828
  8,008
  9,292
  10,677
  12,160
  13,740
  15,413
  17,179
  19,034
  20,979
  23,013
  25,134
  27,345
  29,646
  32,039
  34,527
  37,112
Net income, $m
  112
  275
  538
  907
  1,406
  2,062
  2,899
  3,944
  5,217
  6,738
  8,521
  10,589
  12,928
  15,551
  18,460
  21,652
  25,123
  28,867
  32,877
  37,148
  41,673
  46,446
  51,463
  56,722
  62,219
  67,956
  73,933
  80,155
  86,625
  93,351
  100,340

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
  9,313
  14,388
  21,517
  31,220
  44,048
  60,555
  81,283
  106,729
  137,335
  173,465
  215,404
  263,352
  317,428
  377,677
  444,081
  516,573
  595,049
  679,382
  769,435
  865,073
  966,172
  1,072,625
  1,184,353
  1,301,303
  1,423,458
  1,550,835
  1,683,488
  1,821,504
  1,965,009
  2,114,165
Adjusted assets (=assets-cash), $m
  5,032
  9,313
  14,388
  21,517
  31,220
  44,048
  60,555
  81,283
  106,729
  137,335
  173,465
  215,404
  263,352
  317,428
  377,677
  444,081
  516,573
  595,049
  679,382
  769,435
  865,073
  966,172
  1,072,625
  1,184,353
  1,301,303
  1,423,458
  1,550,835
  1,683,488
  1,821,504
  1,965,009
  2,114,165
Revenue / Adjusted assets
  0.238
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
Average production assets, $m
  111
  178
  276
  412
  598
  844
  1,160
  1,557
  2,045
  2,631
  3,323
  4,127
  5,045
  6,081
  7,236
  8,508
  9,897
  11,400
  13,016
  14,741
  16,573
  18,510
  20,549
  22,690
  24,930
  27,271
  29,711
  32,252
  34,896
  37,646
  40,503
Working capital, $m
  0
  -192
  -296
  -443
  -643
  -907
  -1,247
  -1,674
  -2,199
  -2,829
  -3,573
  -4,437
  -5,425
  -6,539
  -7,780
  -9,148
  -10,641
  -12,258
  -13,995
  -15,850
  -17,821
  -19,903
  -22,096
  -24,398
  -26,807
  -29,323
  -31,947
  -34,680
  -37,523
  -40,479
  -43,552
Total debt, $m
  3,392
  6,517
  11,074
  17,476
  26,190
  37,709
  52,533
  71,146
  93,997
  121,481
  153,926
  191,587
  234,645
  283,205
  337,308
  396,939
  462,036
  532,508
  608,239
  689,107
  774,990
  865,777
  961,372
  1,061,703
  1,166,724
  1,276,419
  1,390,804
  1,509,926
  1,633,864
  1,762,733
  1,896,674
Total liabilities, $m
  5,238
  8,363
  12,920
  19,322
  28,036
  39,555
  54,379
  72,992
  95,843
  123,327
  155,772
  193,433
  236,491
  285,051
  339,154
  398,785
  463,882
  534,354
  610,085
  690,953
  776,836
  867,623
  963,218
  1,063,549
  1,168,570
  1,278,265
  1,392,650
  1,511,772
  1,635,710
  1,764,579
  1,898,520
Total equity, $m
  592
  950
  1,468
  2,195
  3,184
  4,493
  6,177
  8,291
  10,886
  14,008
  17,693
  21,971
  26,862
  32,378
  38,523
  45,296
  52,690
  60,695
  69,297
  78,482
  88,237
  98,550
  109,408
  120,804
  132,733
  145,193
  158,185
  171,716
  185,793
  200,431
  215,645
Total liabilities and equity, $m
  5,830
  9,313
  14,388
  21,517
  31,220
  44,048
  60,556
  81,283
  106,729
  137,335
  173,465
  215,404
  263,353
  317,429
  377,677
  444,081
  516,572
  595,049
  679,382
  769,435
  865,073
  966,173
  1,072,626
  1,184,353
  1,301,303
  1,423,458
  1,550,835
  1,683,488
  1,821,503
  1,965,010
  2,114,165
Debt-to-equity ratio
  5.730
  6.860
  7.550
  7.960
  8.220
  8.390
  8.510
  8.580
  8.630
  8.670
  8.700
  8.720
  8.740
  8.750
  8.760
  8.760
  8.770
  8.770
  8.780
  8.780
  8.780
  8.790
  8.790
  8.790
  8.790
  8.790
  8.790
  8.790
  8.790
  8.790
  8.800
Adjusted equity ratio
  -0.041
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  112
  275
  538
  907
  1,406
  2,062
  2,899
  3,944
  5,217
  6,738
  8,521
  10,589
  12,928
  15,551
  18,460
  21,652
  25,123
  28,867
  32,877
  37,148
  41,673
  46,446
  51,463
  56,722
  62,219
  67,956
  73,933
  80,155
  86,625
  93,351
  100,340
Depreciation, amort., depletion, $m
  37
  32
  42
  56
  74
  99
  130
  170
  219
  278
  347
  413
  505
  608
  724
  851
  990
  1,140
  1,302
  1,474
  1,657
  1,851
  2,055
  2,269
  2,493
  2,727
  2,971
  3,225
  3,490
  3,765
  4,050
Funds from operations, $m
  -1,530
  307
  580
  963
  1,481
  2,161
  3,030
  4,114
  5,436
  7,015
  8,868
  11,002
  13,432
  16,159
  19,184
  22,503
  26,112
  30,007
  34,179
  38,622
  43,330
  48,297
  53,518
  58,991
  64,712
  70,683
  76,904
  83,380
  90,114
  97,115
  104,390
Change in working capital, $m
  -904
  -72
  -105
  -147
  -200
  -264
  -340
  -427
  -524
  -630
  -744
  -864
  -988
  -1,114
  -1,241
  -1,368
  -1,493
  -1,617
  -1,737
  -1,855
  -1,970
  -2,083
  -2,193
  -2,302
  -2,409
  -2,516
  -2,624
  -2,733
  -2,843
  -2,956
  -3,073
Cash from operations, $m
  -626
  379
  685
  1,110
  1,680
  2,425
  3,370
  4,541
  5,960
  7,645
  9,612
  11,866
  14,420
  17,273
  20,425
  23,871
  27,606
  31,623
  35,916
  40,477
  45,300
  50,380
  55,711
  61,292
  67,121
  73,199
  79,528
  86,112
  92,958
  100,071
  107,463
Maintenance CAPEX, $m
  0
  -11
  -18
  -28
  -41
  -60
  -84
  -116
  -156
  -204
  -263
  -332
  -413
  -505
  -608
  -724
  -851
  -990
  -1,140
  -1,302
  -1,474
  -1,657
  -1,851
  -2,055
  -2,269
  -2,493
  -2,727
  -2,971
  -3,225
  -3,490
  -3,765
New CAPEX, $m
  -12
  -67
  -97
  -137
  -186
  -246
  -316
  -397
  -488
  -586
  -692
  -803
  -919
  -1,036
  -1,154
  -1,272
  -1,389
  -1,503
  -1,616
  -1,725
  -1,832
  -1,937
  -2,039
  -2,140
  -2,241
  -2,340
  -2,440
  -2,541
  -2,644
  -2,749
  -2,858
Cash from investing activities, $m
  -12
  -78
  -115
  -165
  -227
  -306
  -400
  -513
  -644
  -790
  -955
  -1,135
  -1,332
  -1,541
  -1,762
  -1,996
  -2,240
  -2,493
  -2,756
  -3,027
  -3,306
  -3,594
  -3,890
  -4,195
  -4,510
  -4,833
  -5,167
  -5,512
  -5,869
  -6,239
  -6,623
Free cash flow, $m
  -638
  300
  570
  946
  1,453
  2,119
  2,969
  4,028
  5,317
  6,855
  8,657
  10,730
  13,089
  15,733
  18,663
  21,875
  25,366
  29,130
  33,160
  37,450
  41,994
  46,786
  51,821
  57,097
  62,612
  68,366
  74,361
  80,600
  87,088
  93,832
  100,841
Issuance/(repayment) of debt, $m
  821
  3,125
  4,558
  6,402
  8,713
  11,519
  14,824
  18,613
  22,851
  27,484
  32,445
  37,661
  43,057
  48,560
  54,103
  59,631
  65,098
  70,471
  75,731
  80,868
  85,883
  90,787
  95,595
  100,331
  105,021
  109,695
  114,385
  119,122
  123,939
  128,868
  133,942
Issuance/(repurchase) of shares, $m
  299
  83
  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
  3,208
  4,558
  6,402
  8,713
  11,519
  14,824
  18,613
  22,851
  27,484
  32,445
  37,661
  43,057
  48,560
  54,103
  59,631
  65,098
  70,471
  75,731
  80,868
  85,883
  90,787
  95,595
  100,331
  105,021
  109,695
  114,385
  119,122
  123,939
  128,868
  133,942
Total cash flow (excl. dividends), $m
  434
  3,508
  5,128
  7,348
  10,167
  13,638
  17,793
  22,641
  28,168
  34,338
  41,102
  48,391
  56,146
  64,293
  72,766
  81,506
  90,464
  99,601
  108,891
  118,318
  127,877
  137,572
  147,416
  157,428
  167,633
  178,061
  188,746
  199,722
  211,027
  222,700
  234,782
Retained Cash Flow (-), $m
  -322
  -358
  -518
  -727
  -990
  -1,308
  -1,684
  -2,114
  -2,596
  -3,122
  -3,685
  -4,278
  -4,891
  -5,516
  -6,145
  -6,773
  -7,394
  -8,005
  -8,602
  -9,185
  -9,755
  -10,312
  -10,858
  -11,396
  -11,929
  -12,460
  -12,992
  -13,531
  -14,078
  -14,638
  -15,214
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
 
  3,150
  4,610
  6,620
  9,177
  12,330
  16,109
  20,527
  25,572
  31,217
  37,416
  44,113
  51,255
  58,777
  66,621
  74,733
  83,070
  91,597
  100,289
  109,133
  118,122
  127,260
  136,558
  146,032
  155,704
  165,602
  175,753
  186,191
  196,949
  208,063
  219,569
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
 
  2,856
  3,754
  4,795
  5,848
  6,836
  7,678
  8,303
  8,660
  8,724
  8,497
  8,010
  7,313
  6,471
  5,552
  4,618
  3,726
  2,914
  2,210
  1,624
  1,156
  797
  531
  342
  212
  127
  74
  41
  22
  11
  5
Current shareholders' claim on cash, %
  100
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8

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 12.8
Price to Sales 1.2
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow -2.3
Price to Free Cash Flow -2.2
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 9.3%.

Life of production assets of 10 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 -10%. 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 $3.7 billion.

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COMPANY NEWS

▶ How Wall Street Analysts View Alternative Asset Managers   [Aug-17-17 10:37AM  Market Realist]
▶ Ares Management meets 2Q profit forecasts   [Aug-04-17 09:42PM  Associated Press]
▶ [$$] LightBay, Founded by Former Ares Executives, Seeks $450 Million   [Aug-03-17 01:08PM  The Wall Street Journal]
▶ Ares Management Announces Pricing of $1.1 Billion CLO   [Jul-17-17 06:30AM  Business Wire]
▶ Apollos Credit Segment to Benefit from Mid-Cap Acquisition   [Jun-29-17 02:05PM  Market Realist]
▶ 3 Stocks With Clayton Williams-Like Return Potential   [May-27-17 09:10AM  Motley Fool]
▶ Ares Management reports 1Q loss   [09:48AM  Associated Press]
▶ [$$] Boart Longyear Seeks U.S. Bankruptcy Protection   [Apr-28-17 05:04PM  The Wall Street Journal]
▶ [$$] OB Hospitalist Group Retains Banks to Explore Sale   [Mar-17-17 12:10PM  The Wall Street Journal]
▶ [$$] OB Hospitalist Group Retains Banks to Explore Sale   [12:10PM  at The Wall Street Journal]
▶ [$$] KeyW to Buy Ares-Backed Sotera Defense   [Mar-08-17 06:08PM  The Wall Street Journal]
▶ [$$] KeyW to Buy Ares-Backed Sotera Defense   [06:08PM  at The Wall Street Journal]
▶ Why Shares of Ares Management Dropped Today   [11:59AM  at Motley Fool]
▶ [$$] How Bill Waltons Son Nate Made $1 Billion In The Oil Patch   [Feb-17-17 11:33PM  at The Wall Street Journal]
▶ [$$] How Bill Walton's Son Made $1 Billion in the Oil Patch   [11:48AM  at The Wall Street Journal]
Stock chart of ARES Financial statements 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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