Intrinsic value of AU Optronics ADR - AUO

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$4.39

  Intrinsic Value

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  Value-price divergence*

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$4.39

 
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*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 4.2

 

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
  10.10
  9.59
  9.13
  8.72
  8.35
  8.01
  7.71
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
Revenue, $m
  10,580
  362,327
  397,074
  433,331
  471,108
  510,428
  551,320
  593,829
  638,006
  683,913
  731,622
  781,213
  832,776
  886,410
  942,222
  1,000,326
  1,060,846
  1,123,914
  1,189,669
  1,258,259
  1,329,841
  1,404,578
  1,482,645
  1,564,224
  1,649,506
  1,738,691
  1,831,992
  1,929,628
  2,031,832
  2,138,846
  2,250,927
Variable operating expenses, $m
 
  356,778
  390,885
  426,474
  463,555
  502,150
  542,289
  584,014
  627,377
  672,438
  719,268
  766,817
  817,430
  870,076
  924,859
  981,892
  1,041,297
  1,103,203
  1,167,746
  1,235,072
  1,305,334
  1,378,695
  1,455,323
  1,535,398
  1,619,109
  1,706,651
  1,798,232
  1,894,069
  1,994,389
  2,099,432
  2,209,447
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
  356,778
  390,885
  426,474
  463,555
  502,150
  542,289
  584,014
  627,377
  672,438
  719,268
  766,817
  817,430
  870,076
  924,859
  981,892
  1,041,297
  1,103,203
  1,167,746
  1,235,072
  1,305,334
  1,378,695
  1,455,323
  1,535,398
  1,619,109
  1,706,651
  1,798,232
  1,894,069
  1,994,389
  2,099,432
  2,209,447
Operating income, $m
  365
  5,549
  6,189
  6,857
  7,553
  8,278
  9,032
  9,815
  10,629
  11,475
  12,354
  14,396
  15,346
  16,335
  17,363
  18,434
  19,549
  20,711
  21,923
  23,187
  24,506
  25,883
  27,322
  28,825
  30,397
  32,041
  33,760
  35,559
  37,442
  39,415
  41,480
EBITDA, $m
  1,641
  48,157
  52,775
  57,594
  62,615
  67,841
  73,276
  78,926
  84,798
  90,899
  97,240
  103,832
  110,685
  117,813
  125,231
  132,954
  140,998
  149,380
  158,120
  167,236
  176,750
  186,683
  197,059
  207,902
  219,237
  231,091
  243,491
  256,468
  270,052
  284,276
  299,172
Interest expense (income), $m
  68
  3,717
  4,523
  5,369
  6,251
  7,171
  8,128
  9,124
  10,159
  11,235
  12,352
  13,514
  14,722
  15,977
  17,283
  18,642
  20,056
  21,530
  23,066
  24,667
  26,337
  28,079
  29,899
  31,800
  33,786
  35,863
  38,034
  40,306
  42,683
  45,171
  47,777
Earnings before tax, $m
  360
  1,832
  1,667
  1,489
  1,302
  1,107
  903
  691
  470
  240
  2
  882
  625
  358
  80
  -208
  -507
  -819
  -1,142
  -1,479
  -1,830
  -2,196
  -2,577
  -2,974
  -3,389
  -3,822
  -4,274
  -4,747
  -5,240
  -5,757
  -6,297
Tax expense, $m
  148
  495
  450
  402
  352
  299
  244
  187
  127
  65
  0
  238
  169
  97
  22
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  251
  1,338
  1,217
  1,087
  951
  808
  659
  504
  343
  175
  1
  644
  456
  261
  59
  -208
  -507
  -819
  -1,142
  -1,479
  -1,830
  -2,196
  -2,577
  -2,974
  -3,389
  -3,822
  -4,274
  -4,747
  -5,240
  -5,757
  -6,297

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
  384,228
  421,075
  459,524
  499,585
  541,281
  584,645
  629,723
  676,571
  725,252
  775,845
  828,434
  883,114
  939,990
  999,175
  1,060,791
  1,124,970
  1,191,849
  1,261,579
  1,334,315
  1,410,223
  1,489,479
  1,572,264
  1,658,774
  1,749,211
  1,843,787
  1,942,727
  2,046,265
  2,154,647
  2,268,130
  2,386,985
Adjusted assets (=assets-cash), $m
  11,221
  384,228
  421,075
  459,524
  499,585
  541,281
  584,645
  629,723
  676,571
  725,252
  775,845
  828,434
  883,114
  939,990
  999,175
  1,060,791
  1,124,970
  1,191,849
  1,261,579
  1,334,315
  1,410,223
  1,489,479
  1,572,264
  1,658,774
  1,749,211
  1,843,787
  1,942,727
  2,046,265
  2,154,647
  2,268,130
  2,386,985
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
  240,585
  263,657
  287,732
  312,816
  338,924
  366,077
  394,303
  423,636
  454,118
  485,797
  518,725
  552,964
  588,577
  625,635
  664,217
  704,402
  746,279
  789,940
  835,484
  883,014
  932,640
  984,476
  1,038,645
  1,095,272
  1,154,491
  1,216,442
  1,281,273
  1,349,136
  1,420,194
  1,494,615
Working capital, $m
  1,481
  -16,667
  -18,265
  -19,933
  -21,671
  -23,480
  -25,361
  -27,316
  -29,348
  -31,460
  -33,655
  -35,936
  -38,308
  -40,775
  -43,342
  -46,015
  -48,799
  -51,700
  -54,725
  -57,880
  -61,173
  -64,611
  -68,202
  -71,954
  -75,877
  -79,980
  -84,272
  -88,763
  -93,464
  -98,387
  -103,543
Total debt, $m
  4,041
  129,216
  153,387
  178,610
  204,890
  232,242
  260,689
  290,261
  320,992
  352,928
  386,116
  420,614
  456,485
  493,795
  532,621
  573,041
  615,142
  659,015
  704,758
  752,473
  802,269
  854,260
  908,567
  965,318
  1,024,644
  1,086,686
  1,151,591
  1,219,512
  1,290,610
  1,365,055
  1,443,024
Total liabilities, $m
  7,990
  252,054
  276,225
  301,448
  327,728
  355,080
  383,527
  413,099
  443,830
  475,766
  508,954
  543,452
  579,323
  616,633
  655,459
  695,879
  737,980
  781,853
  827,596
  875,311
  925,107
  977,098
  1,031,405
  1,088,156
  1,147,482
  1,209,524
  1,274,429
  1,342,350
  1,413,448
  1,487,893
  1,565,862
Total equity, $m
  5,827
  132,174
  144,850
  158,076
  171,857
  186,201
  201,118
  216,625
  232,740
  249,487
  266,891
  284,981
  303,791
  323,357
  343,716
  364,912
  386,990
  409,996
  433,983
  459,004
  485,117
  512,381
  540,859
  570,618
  601,728
  634,263
  668,298
  703,915
  741,198
  780,237
  821,123
Total liabilities and equity, $m
  13,817
  384,228
  421,075
  459,524
  499,585
  541,281
  584,645
  629,724
  676,570
  725,253
  775,845
  828,433
  883,114
  939,990
  999,175
  1,060,791
  1,124,970
  1,191,849
  1,261,579
  1,334,315
  1,410,224
  1,489,479
  1,572,264
  1,658,774
  1,749,210
  1,843,787
  1,942,727
  2,046,265
  2,154,646
  2,268,130
  2,386,985
Debt-to-equity ratio
  0.693
  0.980
  1.060
  1.130
  1.190
  1.250
  1.300
  1.340
  1.380
  1.410
  1.450
  1.480
  1.500
  1.530
  1.550
  1.570
  1.590
  1.610
  1.620
  1.640
  1.650
  1.670
  1.680
  1.690
  1.700
  1.710
  1.720
  1.730
  1.740
  1.750
  1.760
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
  1,338
  1,217
  1,087
  951
  808
  659
  504
  343
  175
  1
  644
  456
  261
  59
  -208
  -507
  -819
  -1,142
  -1,479
  -1,830
  -2,196
  -2,577
  -2,974
  -3,389
  -3,822
  -4,274
  -4,747
  -5,240
  -5,757
  -6,297
Depreciation, amort., depletion, $m
  1,276
  42,608
  46,586
  50,737
  55,062
  59,563
  64,245
  69,111
  74,169
  79,424
  84,886
  89,435
  95,339
  101,479
  107,868
  114,520
  121,449
  128,669
  136,197
  144,049
  152,244
  160,800
  169,737
  179,077
  188,840
  199,050
  209,731
  220,909
  232,610
  244,861
  257,692
Funds from operations, $m
  678
  43,946
  47,803
  51,824
  56,012
  60,371
  64,904
  69,616
  74,512
  79,600
  84,887
  90,079
  95,795
  101,740
  107,927
  114,312
  120,941
  127,850
  135,054
  142,570
  150,414
  158,604
  167,160
  176,102
  185,451
  195,228
  205,457
  216,163
  227,369
  239,104
  251,395
Change in working capital, $m
  -502
  -1,529
  -1,598
  -1,668
  -1,738
  -1,809
  -1,881
  -1,955
  -2,032
  -2,112
  -2,195
  -2,281
  -2,372
  -2,467
  -2,567
  -2,673
  -2,784
  -2,901
  -3,025
  -3,155
  -3,293
  -3,438
  -3,591
  -3,753
  -3,923
  -4,103
  -4,292
  -4,491
  -4,701
  -4,923
  -5,156
Cash from operations, $m
  1,180
  51,966
  49,401
  53,492
  57,750
  62,180
  66,785
  71,571
  76,544
  81,711
  87,082
  92,361
  98,167
  104,207
  110,494
  116,985
  123,725
  130,751
  138,079
  145,725
  153,706
  162,042
  170,751
  179,855
  189,374
  199,331
  209,749
  220,654
  232,071
  244,027
  256,551
Maintenance CAPEX, $m
  0
  -37,685
  -41,480
  -45,458
  -49,609
  -53,934
  -58,435
  -63,117
  -67,983
  -73,041
  -78,296
  -83,758
  -89,435
  -95,339
  -101,479
  -107,868
  -114,520
  -121,449
  -128,669
  -136,197
  -144,049
  -152,244
  -160,800
  -169,737
  -179,077
  -188,840
  -199,050
  -209,731
  -220,909
  -232,610
  -244,861
New CAPEX, $m
  -1,492
  -22,014
  -23,072
  -24,075
  -25,084
  -26,108
  -27,153
  -28,226
  -29,333
  -30,482
  -31,679
  -32,929
  -34,238
  -35,613
  -37,059
  -38,581
  -40,185
  -41,877
  -43,661
  -45,544
  -47,530
  -49,626
  -51,836
  -54,168
  -56,627
  -59,219
  -61,951
  -64,830
  -67,863
  -71,058
  -74,421
Cash from investing activities, $m
  -1,359
  -59,699
  -64,552
  -69,533
  -74,693
  -80,042
  -85,588
  -91,343
  -97,316
  -103,523
  -109,975
  -116,687
  -123,673
  -130,952
  -138,538
  -146,449
  -154,705
  -163,326
  -172,330
  -181,741
  -191,579
  -201,870
  -212,636
  -223,905
  -235,704
  -248,059
  -261,001
  -274,561
  -288,772
  -303,668
  -319,282
Free cash flow, $m
  -179
  -7,732
  -15,151
  -16,041
  -16,943
  -17,862
  -18,803
  -19,771
  -20,773
  -21,811
  -22,893
  -24,326
  -25,507
  -26,745
  -28,043
  -29,464
  -30,980
  -32,574
  -34,251
  -36,016
  -37,873
  -39,828
  -41,885
  -44,051
  -46,330
  -48,729
  -51,253
  -53,908
  -56,702
  -59,641
  -62,731
Issuance/(repayment) of debt, $m
  485
  23,029
  24,172
  25,222
  26,280
  27,353
  28,447
  29,571
  30,732
  31,935
  33,189
  34,498
  35,870
  37,311
  38,825
  40,420
  42,101
  43,873
  45,743
  47,715
  49,796
  51,991
  54,307
  56,750
  59,326
  62,042
  64,905
  67,921
  71,098
  74,445
  77,969
Issuance/(repurchase) of shares, $m
  0
  0
  3,655
  4,045
  4,444
  4,853
  5,273
  5,707
  6,156
  6,623
  7,108
  7,918
  8,447
  8,999
  9,578
  10,240
  10,957
  11,708
  12,496
  13,322
  14,189
  15,100
  16,056
  17,060
  18,114
  19,221
  20,383
  21,604
  22,887
  24,234
  25,649
Cash from financing (excl. dividends), $m  
  453
  23,029
  27,827
  29,267
  30,724
  32,206
  33,720
  35,278
  36,888
  38,558
  40,297
  42,416
  44,317
  46,310
  48,403
  50,660
  53,058
  55,581
  58,239
  61,037
  63,985
  67,091
  70,363
  73,810
  77,440
  81,263
  85,288
  89,525
  93,985
  98,679
  103,618
Total cash flow (excl. dividends), $m
  150
  15,297
  9,021
  9,181
  9,337
  9,491
  9,644
  9,800
  9,959
  10,124
  10,296
  10,172
  10,363
  10,566
  10,782
  10,956
  11,121
  11,299
  11,491
  11,699
  11,923
  12,164
  12,422
  12,700
  12,996
  13,314
  13,652
  14,013
  14,397
  14,804
  15,238
Retained Cash Flow (-), $m
  24
  -12,181
  -12,676
  -13,226
  -13,781
  -14,343
  -14,917
  -15,507
  -16,115
  -16,747
  -17,404
  -18,091
  -18,810
  -19,565
  -20,360
  -21,196
  -22,077
  -23,007
  -23,987
  -25,021
  -26,112
  -27,264
  -28,478
  -29,759
  -31,110
  -32,534
  -34,035
  -35,617
  -37,283
  -39,038
  -40,886
Prev. year cash balance distribution, $m
 
  61,252
  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
 
  64,367
  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
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
 
  61,713
  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
Current shareholders' claim on cash, %
  100
  100.0
  96.2
  92.5
  88.9
  85.5
  82.2
  79.0
  75.9
  72.9
  70.1
  67.2
  64.5
  61.9
  59.4
  56.9
  54.6
  52.3
  50.1
  48.0
  46.0
  44.1
  42.2
  40.3
  38.6
  36.9
  35.3
  33.7
  32.2
  30.8
  29.4

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 168.3
Price to Sales 4
Price to Book 7.3
Price to Tangible Book
Price to Cash Flow 35.8
Price to Free Cash Flow -135.4
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 $329089 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 10.1% 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 5.8 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 - $181245 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 $4.2 billion.


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Stock chart of AUO Financial statements of AUO Annual reports 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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