Intrinsic value of AU Optronics ADR - AUO

Previous Close

$3.81

  Intrinsic Value

$3.14

stock screener

  Rating & Target

hold

-18%

  Value-price divergence*

+4886%

Previous close

$3.81

 
Intrinsic value

$3.14

 
Up/down potential

-18%

 
Rating

hold

 
Value-price divergence*

+4886%

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

We calculate the intrinsic value of AUO 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, %
  -8.68
  24.50
  22.55
  20.80
  19.22
  17.79
  16.51
  15.36
  14.33
  13.39
  12.55
  11.80
  11.12
  10.51
  9.96
  9.46
  9.01
  8.61
  8.25
  7.93
  7.63
  7.37
  7.13
  6.92
  6.73
  6.56
  6.40
  6.26
  6.13
  6.02
  5.92
Revenue, $m
  10,580
  13,172
  16,142
  19,499
  23,246
  27,382
  31,905
  36,806
  42,079
  47,715
  53,706
  60,043
  66,719
  73,730
  81,071
  88,741
  96,741
  105,073
  113,744
  122,760
  132,132
  141,871
  151,992
  162,510
  173,444
  184,814
  196,642
  208,951
  221,768
  235,120
  249,036
Variable operating expenses, $m
 
  12,966
  15,881
  19,176
  22,854
  26,914
  31,353
  36,164
  41,340
  46,872
  52,752
  58,936
  65,489
  72,371
  79,576
  87,105
  94,957
  103,137
  111,647
  120,498
  129,697
  139,256
  149,190
  159,515
  170,247
  181,408
  193,018
  205,100
  217,681
  230,787
  244,446
Fixed operating expenses, $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
Total operating expenses, $m
  10,215
  12,966
  15,881
  19,176
  22,854
  26,914
  31,353
  36,164
  41,340
  46,872
  52,752
  58,936
  65,489
  72,371
  79,576
  87,105
  94,957
  103,137
  111,647
  120,498
  129,697
  139,256
  149,190
  159,515
  170,247
  181,408
  193,018
  205,100
  217,681
  230,787
  244,446
Operating income, $m
  365
  206
  261
  323
  392
  468
  552
  642
  739
  843
  954
  1,107
  1,230
  1,359
  1,494
  1,636
  1,783
  1,937
  2,096
  2,263
  2,435
  2,615
  2,801
  2,995
  3,197
  3,406
  3,624
  3,851
  4,087
  4,333
  4,590
EBITDA, $m
  1,641
  1,117
  1,369
  1,654
  1,972
  2,323
  2,706
  3,122
  3,570
  4,048
  4,556
  5,093
  5,660
  6,255
  6,877
  7,528
  8,207
  8,913
  9,649
  10,414
  11,209
  12,035
  12,894
  13,786
  14,713
  15,678
  16,681
  17,726
  18,813
  19,945
  21,126
Interest expense (income), $m
  68
  119
  182
  255
  337
  428
  528
  639
  758
  886
  1,024
  1,169
  1,324
  1,486
  1,657
  1,836
  2,022
  2,217
  2,420
  2,631
  2,851
  3,079
  3,316
  3,562
  3,819
  4,085
  4,362
  4,650
  4,949
  5,261
  5,586
Earnings before tax, $m
  360
  87
  79
  68
  56
  41
  23
  3
  -19
  -43
  -70
  -63
  -94
  -127
  -163
  -200
  -239
  -281
  -324
  -369
  -415
  -464
  -515
  -567
  -622
  -678
  -737
  -798
  -862
  -928
  -996
Tax expense, $m
  148
  23
  21
  18
  15
  11
  6
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  251
  63
  57
  50
  41
  30
  17
  3
  -19
  -43
  -70
  -63
  -94
  -127
  -163
  -200
  -239
  -281
  -324
  -369
  -415
  -464
  -515
  -567
  -622
  -678
  -737
  -798
  -862
  -928
  -996

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,596
  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
  13,817
  13,968
  17,118
  20,678
  24,651
  29,038
  33,833
  39,031
  44,623
  50,600
  56,952
  63,672
  70,752
  78,186
  85,971
  94,105
  102,588
  111,424
  120,619
  130,180
  140,119
  150,446
  161,179
  172,333
  183,928
  195,985
  208,528
  221,582
  235,173
  249,332
  264,089
Adjusted assets (=assets-cash), $m
  11,221
  13,968
  17,118
  20,678
  24,651
  29,038
  33,833
  39,031
  44,623
  50,600
  56,952
  63,672
  70,752
  78,186
  85,971
  94,105
  102,588
  111,424
  120,619
  130,180
  140,119
  150,446
  161,179
  172,333
  183,928
  195,985
  208,528
  221,582
  235,173
  249,332
  264,089
Revenue / Adjusted assets
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
  0.943
Average production assets, $m
  7,027
  8,746
  10,719
  12,947
  15,435
  18,182
  21,185
  24,439
  27,941
  31,683
  35,661
  39,868
  44,302
  48,956
  53,831
  58,924
  64,236
  69,769
  75,526
  81,513
  87,736
  94,202
  100,922
  107,907
  115,167
  122,716
  130,570
  138,744
  147,254
  156,120
  165,360
Working capital, $m
  1,481
  -606
  -743
  -897
  -1,069
  -1,260
  -1,468
  -1,693
  -1,936
  -2,195
  -2,470
  -2,762
  -3,069
  -3,392
  -3,729
  -4,082
  -4,450
  -4,833
  -5,232
  -5,647
  -6,078
  -6,526
  -6,992
  -7,475
  -7,978
  -8,501
  -9,046
  -9,612
  -10,201
  -10,816
  -11,456
Total debt, $m
  4,041
  5,214
  7,281
  9,616
  12,222
  15,100
  18,245
  21,655
  25,324
  29,244
  33,412
  37,820
  42,464
  47,341
  52,448
  57,784
  63,349
  69,145
  75,177
  81,449
  87,969
  94,744
  101,784
  109,101
  116,708
  124,617
  132,845
  141,409
  150,325
  159,613
  169,293
Total liabilities, $m
  7,990
  9,163
  11,230
  13,565
  16,171
  19,049
  22,194
  25,604
  29,273
  33,193
  37,361
  41,769
  46,413
  51,290
  56,397
  61,733
  67,298
  73,094
  79,126
  85,398
  91,918
  98,693
  105,733
  113,050
  120,657
  128,566
  136,794
  145,358
  154,274
  163,562
  173,242
Total equity, $m
  5,827
  4,805
  5,889
  7,113
  8,480
  9,989
  11,639
  13,427
  15,350
  17,406
  19,592
  21,903
  24,339
  26,896
  29,574
  32,372
  35,290
  38,330
  41,493
  44,782
  48,201
  51,754
  55,445
  59,282
  63,271
  67,419
  71,734
  76,224
  80,900
  85,770
  90,846
Total liabilities and equity, $m
  13,817
  13,968
  17,119
  20,678
  24,651
  29,038
  33,833
  39,031
  44,623
  50,599
  56,953
  63,672
  70,752
  78,186
  85,971
  94,105
  102,588
  111,424
  120,619
  130,180
  140,119
  150,447
  161,178
  172,332
  183,928
  195,985
  208,528
  221,582
  235,174
  249,332
  264,088
Debt-to-equity ratio
  0.693
  1.090
  1.240
  1.350
  1.440
  1.510
  1.570
  1.610
  1.650
  1.680
  1.710
  1.730
  1.740
  1.760
  1.770
  1.780
  1.800
  1.800
  1.810
  1.820
  1.830
  1.830
  1.840
  1.840
  1.840
  1.850
  1.850
  1.860
  1.860
  1.860
  1.860
Adjusted equity ratio
  0.289
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  251
  63
  57
  50
  41
  30
  17
  3
  -19
  -43
  -70
  -63
  -94
  -127
  -163
  -200
  -239
  -281
  -324
  -369
  -415
  -464
  -515
  -567
  -622
  -678
  -737
  -798
  -862
  -928
  -996
Depreciation, amort., depletion, $m
  1,276
  911
  1,108
  1,331
  1,580
  1,854
  2,155
  2,480
  2,830
  3,205
  3,602
  3,987
  4,430
  4,896
  5,383
  5,892
  6,424
  6,977
  7,553
  8,151
  8,774
  9,420
  10,092
  10,791
  11,517
  12,272
  13,057
  13,874
  14,725
  15,612
  16,536
Funds from operations, $m
  678
  974
  1,166
  1,381
  1,620
  1,884
  2,172
  2,483
  2,812
  3,161
  3,532
  3,924
  4,336
  4,768
  5,220
  5,692
  6,184
  6,696
  7,229
  7,783
  8,358
  8,956
  9,578
  10,223
  10,895
  11,593
  12,320
  13,076
  13,864
  14,684
  15,539
Change in working capital, $m
  -502
  -119
  -137
  -154
  -172
  -190
  -208
  -225
  -243
  -259
  -276
  -291
  -307
  -322
  -338
  -353
  -368
  -383
  -399
  -415
  -431
  -448
  -466
  -484
  -503
  -523
  -544
  -566
  -590
  -614
  -640
Cash from operations, $m
  1,180
  1,094
  1,302
  1,535
  1,793
  2,074
  2,380
  2,708
  3,054
  3,421
  3,808
  4,216
  4,643
  5,091
  5,558
  6,045
  6,552
  7,080
  7,628
  8,197
  8,789
  9,404
  10,043
  10,707
  11,398
  12,116
  12,864
  13,642
  14,453
  15,298
  16,180
Maintenance CAPEX, $m
  0
  -703
  -875
  -1,072
  -1,295
  -1,544
  -1,818
  -2,118
  -2,444
  -2,794
  -3,168
  -3,566
  -3,987
  -4,430
  -4,896
  -5,383
  -5,892
  -6,424
  -6,977
  -7,553
  -8,151
  -8,774
  -9,420
  -10,092
  -10,791
  -11,517
  -12,272
  -13,057
  -13,874
  -14,725
  -15,612
New CAPEX, $m
  -1,492
  -1,719
  -1,972
  -2,229
  -2,488
  -2,747
  -3,003
  -3,255
  -3,501
  -3,742
  -3,978
  -4,208
  -4,433
  -4,655
  -4,874
  -5,093
  -5,312
  -5,533
  -5,757
  -5,987
  -6,223
  -6,467
  -6,720
  -6,984
  -7,260
  -7,550
  -7,854
  -8,174
  -8,510
  -8,865
  -9,240
Cash from investing activities, $m
  -1,359
  -2,422
  -2,847
  -3,301
  -3,783
  -4,291
  -4,821
  -5,373
  -5,945
  -6,536
  -7,146
  -7,774
  -8,420
  -9,085
  -9,770
  -10,476
  -11,204
  -11,957
  -12,734
  -13,540
  -14,374
  -15,241
  -16,140
  -17,076
  -18,051
  -19,067
  -20,126
  -21,231
  -22,384
  -23,590
  -24,852
Free cash flow, $m
  -179
  -1,328
  -1,545
  -1,765
  -1,990
  -2,216
  -2,441
  -2,665
  -2,891
  -3,116
  -3,338
  -3,558
  -3,777
  -3,994
  -4,212
  -4,431
  -4,652
  -4,877
  -5,106
  -5,342
  -5,585
  -5,836
  -6,097
  -6,369
  -6,653
  -6,950
  -7,262
  -7,588
  -7,932
  -8,293
  -8,672
Issuance/(repayment) of debt, $m
  485
  1,800
  2,066
  2,335
  2,607
  2,877
  3,146
  3,410
  3,668
  3,921
  4,167
  4,408
  4,644
  4,877
  5,107
  5,336
  5,565
  5,797
  6,032
  6,272
  6,519
  6,775
  7,040
  7,317
  7,606
  7,910
  8,228
  8,563
  8,916
  9,288
  9,680
Issuance/(repurchase) of shares, $m
  0
  884
  1,026
  1,175
  1,326
  1,479
  1,633
  1,786
  1,942
  2,099
  2,255
  2,374
  2,529
  2,685
  2,841
  2,998
  3,158
  3,320
  3,487
  3,658
  3,834
  4,017
  4,207
  4,404
  4,610
  4,826
  5,052
  5,289
  5,537
  5,798
  6,073
Cash from financing (excl. dividends), $m  
  453
  2,684
  3,092
  3,510
  3,933
  4,356
  4,779
  5,196
  5,610
  6,020
  6,422
  6,782
  7,173
  7,562
  7,948
  8,334
  8,723
  9,117
  9,519
  9,930
  10,353
  10,792
  11,247
  11,721
  12,216
  12,736
  13,280
  13,852
  14,453
  15,086
  15,753
Total cash flow (excl. dividends), $m
  150
  1,355
  1,548
  1,744
  1,943
  2,141
  2,337
  2,530
  2,720
  2,904
  3,085
  3,224
  3,397
  3,567
  3,735
  3,903
  4,071
  4,240
  4,412
  4,588
  4,769
  4,956
  5,150
  5,352
  5,564
  5,786
  6,019
  6,264
  6,522
  6,794
  7,081
Retained Cash Flow (-), $m
  24
  -947
  -1,084
  -1,225
  -1,367
  -1,509
  -1,650
  -1,788
  -1,942
  -2,099
  -2,255
  -2,374
  -2,529
  -2,685
  -2,841
  -2,998
  -3,158
  -3,320
  -3,487
  -3,658
  -3,834
  -4,017
  -4,207
  -4,404
  -4,610
  -4,826
  -5,052
  -5,289
  -5,537
  -5,798
  -6,073
Prev. year cash balance distribution, $m
 
  1,969
  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
 
  2,377
  464
  520
  576
  632
  688
  742
  777
  805
  829
  850
  868
  883
  895
  905
  913
  920
  925
  930
  935
  939
  943
  948
  953
  959
  967
  975
  984
  995
  1,008
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  2,279
  425
  452
  474
  490
  499
  502
  486
  462
  435
  404
  370
  336
  300
  266
  232
  200
  170
  143
  119
  97
  78
  62
  49
  37
  28
  21
  15
  11
  8
Current shareholders' claim on cash, %
  100
  75.3
  57.7
  44.9
  35.5
  28.4
  23.0
  18.9
  15.7
  13.1
  11.0
  9.4
  8.1
  7.0
  6.1
  5.3
  4.7
  4.1
  3.6
  3.2
  2.9
  2.6
  2.3
  2.1
  1.9
  1.7
  1.5
  1.4
  1.2
  1.1
  1.0

AU Optronics Corp. researches, develops, produces, and sells thin film transistor liquid crystal displays and other flat panel displays. The company operates through two segments, Display and Solar. The Display segment designs, develops, manufactures, assembles, and markets flat panel displays for use in televisions; desktop monitors; mobile PCs, such as notebooks and tablets; mobile phones; and commercial and other applications, including displays for automobiles, industrial PCs, automated teller machines, point of sale terminals, pachinko machines, and others. It sells its panels to original equipment manufacturing service providers; and brand companies. The Solar segment manufactures upstream and midstream products comprising polysilicon, ingots, and solar wafers and cells; designs, develops, and manufactures solar photovoltaic modules and systems; and provides various value-added services for solar systems projects. This segment sells its ingot and solar wafer products primarily to solar cell manufacturers; and solar modules to installers, solar system integrators, property developers, and other value-added resellers. The company operates in the People’s Republic of China, Japan, Singapore, Malaysia, and internationally. AU Optronics Corp. was founded in 1996 and is headquartered in Hsinchu, Taiwan.

FINANCIAL RATIOS  of  AU Optronics ADR (AUO)

Valuation Ratios
P/E Ratio 146.1
Price to Sales 3.5
Price to Book 6.3
Price to Tangible Book
Price to Cash Flow 31.1
Price to Free Cash Flow -117.5
Growth Rates
Sales Growth Rate -8.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 37.5%
Cap. Spend. - 3 Yr. Gr. Rate 11.3%
Financial Strength
Quick Ratio 4
Current Ratio 0.1
LT Debt to Equity 58.6%
Total Debt to Equity 69.3%
Interest Coverage 6
Management Effectiveness
Return On Assets 2.1%
Ret/ On Assets - 3 Yr. Avg. 2.6%
Return On Total Capital 2.6%
Ret/ On T. Cap. - 3 Yr. Avg. 3.2%
Return On Equity 4.3%
Return On Equity - 3 Yr. Avg. 6.1%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 10.5%
Gross Margin - 3 Yr. Avg. 11.1%
EBITDA Margin 16.1%
EBITDA Margin - 3 Yr. Avg. 17.3%
Operating Margin 3.4%
Oper. Margin - 3 Yr. Avg. 3.3%
Pre-Tax Margin 3.4%
Pre-Tax Margin - 3 Yr. Avg. 3.5%
Net Profit Margin 2.4%
Net Profit Margin - 3 Yr. Avg. 2.6%
Effective Tax Rate 41.1%
Eff/ Tax Rate - 3 Yr. Avg. 31.1%
Payout Ratio 43%

AUO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AUO stock intrinsic value calculation we used $10580 million for the last fiscal year's total revenue generated by AU Optronics ADR. The default revenue input number comes from 2016 income statement of AU Optronics ADR. 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 AUO stock valuation model: a) initial revenue growth rate of 24.5% 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 4.3%, whose default value for AUO is calculated based on our internal credit rating of AU Optronics ADR, 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 AU Optronics ADR.
    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 AUO stock the variable cost ratio is equal to 98.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AUO 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 AU Optronics ADR.

Corporate tax rate of 27% is the nominal tax rate for AU Optronics ADR. 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 AUO 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 AUO are equal to 66.4%.

Life of production assets of 10 years is the average useful life of capital assets used in AU Optronics ADR 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 AUO is equal to -4.6%. 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 - $5827 million for AU Optronics ADR - 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 966.408 million for AU Optronics ADR 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 AU Optronics ADR at the current share price and the inputted number of shares is $3.7 billion.

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COMPANY NEWS

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▶ ETFs with exposure to AU Optronics Corp. : August 8, 2017   [Aug-08-17 04:00PM  Capital Cube]
▶ AU Optronics posts 2Q profit   [Jul-26-17 09:54PM  Associated Press]
▶ ETFs with exposure to AU Optronics Corp. : June 28, 2017   [Jun-28-17 02:33PM  Capital Cube]
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▶ Flat Panel Display Stocks: Why It's Time to Sell   [Jun-07-17 09:00PM  Barrons.com]
▶ ETFs with exposure to AU Optronics Corp. : June 5, 2017   [Jun-05-17 02:01PM  Capital Cube]
▶ ETFs with exposure to AU Optronics Corp. : May 25, 2017   [May-25-17 12:35PM  Capital Cube]
▶ 3 Top Stocks Under $5   [May-20-17 09:11AM  Motley Fool]
▶ IIROC Trading Resumption - AUO.P   [May-19-17 04:10PM  PR Newswire]
▶ IIROC Trading Resumption - AUO.P   [04:10PM  CNW Group]
▶ IIROC Trading Halt - AUO.P   [07:52AM  CNW Group]
▶ Top Ranked Value Stocks to Buy for May 9th   [May-09-17 11:04AM  Zacks]
▶ AU Optronics posts 1Q profit   [Apr-27-17 05:00AM  Associated Press]
▶ AU Optronics Corp. Files 2016 Annual Report on Form 20-F   [Mar-30-17 08:59AM  PR Newswire]
▶ Top Ranked Momentum Stocks to Buy for March 1st   [Mar-01-17 10:49AM  Zacks]
▶ AU Optronics posts 4Q profit   [Feb-14-17 05:03AM  AP]
▶ JPMorgan Turns Sour On LCD Display   [Feb-12-17 10:57PM  at Barrons.com]
▶ Is AU Optronics Corp (ADR) (AUO) Going to Burn These Hedge Funds?   [Dec-12-16 11:21AM  at Insider Monkey]
▶ AU Optronics reports 2Q loss   [Jul-27-16 05:03AM  AP]
▶ 10 Fresh Analyst Stocks Under $10 With Massive Upside Calls   [Jul-24-16 10:15AM  at 24/7 Wall St.]
▶ Credit Suisse Sees Large Shift In TV Market   [Jun-29-16 01:52AM  at Barrons.com]
▶ 5 Top Stocks Under $5   [Jun-04-16 09:04AM  at Motley Fool]
▶ AU Optronics Corp. Files 2015 Annual Report on Form 20-F   [Apr-01-16 03:08AM  PR Newswire]
▶ Apple's OLED iPhone Looks More Inevitable by the Day   [Jan-20-16 02:15PM  at Motley Fool]
▶ What Stands Behind These Stocks Bullish Moves Today?   [Dec-21  03:41PM  at Insider Monkey]
▶ Is AU Optronics Corp. (ADR) (AUO) A Good Stock To Buy?   [Nov-27  11:58AM  at Insider Monkey]
▶ Here Is What Hedge Funds Think of CAE, Inc. (USA) (CAE)   [Nov-23  07:24PM  at Insider Monkey]
▶ The Best 3 Dividend Stocks Under $5   [Oct-27  11:51AM  at Investopedia]
Stock chart of AUO Financial statements of AUO
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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