Intrinsic value of BHP Billiton ADR - BBL

Previous Close

$37.76

  Intrinsic Value

$4.89

stock screener

  Rating & Target

str. sell

-87%

  Value-price divergence*

-76%

Previous close

$37.76

 
Intrinsic value

$4.89

 
Up/down potential

-87%

 
Rating

str. sell

 
Value-price divergence*

-76%

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

We calculate the intrinsic value of BBL 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 2017), $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 110.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  23.85
  23.90
  22.01
  20.31
  18.78
  17.40
  16.16
  15.04
  14.04
  13.14
  12.32
  11.59
  10.93
  10.34
  9.80
  9.32
  8.89
  8.50
  8.15
  7.84
  7.55
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
Revenue, $m
  38,285
  47,435
  57,876
  69,630
  82,705
  97,095
  112,786
  129,754
  147,971
  167,409
  188,037
  209,831
  232,767
  256,831
  282,011
  308,305
  335,717
  364,260
  393,955
  424,828
  456,916
  490,261
  524,913
  560,928
  598,371
  637,310
  677,823
  719,991
  763,904
  809,655
  857,345
Variable operating expenses, $m
 
  57,017
  69,566
  83,695
  99,411
  116,709
  135,569
  155,965
  177,862
  201,225
  226,021
  252,217
  279,787
  308,711
  338,977
  370,582
  403,532
  437,841
  473,534
  510,644
  549,213
  589,294
  630,945
  674,236
  719,241
  766,047
  814,743
  865,429
  918,212
  973,205
  1,030,529
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
  26,532
  57,017
  69,566
  83,695
  99,411
  116,709
  135,569
  155,965
  177,862
  201,225
  226,021
  252,217
  279,787
  308,711
  338,977
  370,582
  403,532
  437,841
  473,534
  510,644
  549,213
  589,294
  630,945
  674,236
  719,241
  766,047
  814,743
  865,429
  918,212
  973,205
  1,030,529
Operating income, $m
  11,753
  -9,582
  -11,691
  -14,065
  -16,706
  -19,613
  -22,783
  -26,210
  -29,890
  -33,817
  -37,984
  -42,386
  -47,019
  -51,880
  -56,966
  -62,278
  -67,815
  -73,581
  -79,579
  -85,815
  -92,297
  -99,033
  -106,032
  -113,307
  -120,871
  -128,737
  -136,920
  -145,438
  -154,309
  -163,550
  -173,184
EBITDA, $m
  19,472
  -411
  -502
  -603
  -717
  -841
  -977
  -1,125
  -1,282
  -1,451
  -1,630
  -1,819
  -2,017
  -2,226
  -2,444
  -2,672
  -2,910
  -3,157
  -3,414
  -3,682
  -3,960
  -4,249
  -4,549
  -4,861
  -5,186
  -5,523
  -5,874
  -6,240
  -6,620
  -7,017
  -7,430
Interest expense (income), $m
  1,149
  1,023
  1,515
  2,074
  2,703
  3,403
  4,173
  5,013
  5,922
  6,897
  7,938
  9,042
  10,209
  11,437
  12,725
  14,073
  15,480
  16,948
  18,476
  20,066
  21,719
  23,436
  25,222
  27,077
  29,005
  31,009
  33,094
  35,263
  37,520
  39,871
  42,320
Earnings before tax, $m
  10,322
  -10,605
  -13,206
  -16,139
  -19,409
  -23,016
  -26,956
  -31,224
  -35,812
  -40,714
  -45,921
  -51,428
  -57,228
  -63,316
  -69,691
  -76,350
  -83,295
  -90,529
  -98,055
  -105,881
  -114,016
  -122,469
  -131,254
  -140,384
  -149,876
  -159,746
  -170,014
  -180,701
  -191,829
  -203,421
  -215,504
Tax expense, $m
  4,100
  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
Net income, $m
  5,890
  -10,605
  -13,206
  -16,139
  -19,409
  -23,016
  -26,956
  -31,224
  -35,812
  -40,714
  -45,921
  -51,428
  -57,228
  -63,316
  -69,691
  -76,350
  -83,295
  -90,529
  -98,055
  -105,881
  -114,016
  -122,469
  -131,254
  -140,384
  -149,876
  -159,746
  -170,014
  -180,701
  -191,829
  -203,421
  -215,504

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  14,225
  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
  117,006
  127,514
  155,580
  187,176
  222,324
  261,009
  303,189
  348,802
  397,773
  450,024
  505,477
  564,061
  625,719
  690,405
  758,094
  828,776
  902,465
  979,195
  1,059,019
  1,142,012
  1,228,269
  1,317,906
  1,411,056
  1,507,871
  1,608,523
  1,713,199
  1,822,104
  1,935,460
  2,053,504
  2,176,491
  2,304,691
Adjusted assets (=assets-cash), $m
  102,781
  127,514
  155,580
  187,176
  222,324
  261,009
  303,189
  348,802
  397,773
  450,024
  505,477
  564,061
  625,719
  690,405
  758,094
  828,776
  902,465
  979,195
  1,059,019
  1,142,012
  1,228,269
  1,317,906
  1,411,056
  1,507,871
  1,608,523
  1,713,199
  1,822,104
  1,935,460
  2,053,504
  2,176,491
  2,304,691
Revenue / Adjusted assets
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
  0.372
Average production assets, $m
  44,395
  55,025
  67,136
  80,770
  95,937
  112,631
  130,832
  150,515
  171,647
  194,194
  218,123
  243,404
  270,010
  297,924
  327,133
  357,633
  389,432
  422,542
  456,988
  492,801
  530,023
  568,703
  608,899
  650,677
  694,110
  739,280
  786,274
  835,190
  886,128
  939,199
  994,520
Working capital, $m
  9,690
  -4,079
  -4,977
  -5,988
  -7,113
  -8,350
  -9,700
  -11,159
  -12,726
  -14,397
  -16,171
  -18,045
  -20,018
  -22,087
  -24,253
  -26,514
  -28,872
  -31,326
  -33,880
  -36,535
  -39,295
  -42,162
  -45,142
  -48,240
  -51,460
  -54,809
  -58,293
  -61,919
  -65,696
  -69,630
  -73,732
Total debt, $m
  30,474
  43,281
  59,251
  77,229
  97,229
  119,240
  143,241
  169,194
  197,059
  226,789
  258,342
  291,677
  326,760
  363,567
  402,081
  442,300
  484,229
  527,888
  573,308
  620,531
  669,611
  720,614
  773,617
  828,705
  885,976
  945,536
  1,007,503
  1,072,003
  1,139,170
  1,209,149
  1,282,095
Total liabilities, $m
  59,748
  72,555
  88,525
  106,503
  126,503
  148,514
  172,515
  198,468
  226,333
  256,063
  287,616
  320,951
  356,034
  392,841
  431,355
  471,574
  513,503
  557,162
  602,582
  649,805
  698,885
  749,888
  802,891
  857,979
  915,250
  974,810
  1,036,777
  1,101,277
  1,168,444
  1,238,423
  1,311,369
Total equity, $m
  57,258
  54,958
  67,055
  80,673
  95,822
  112,495
  130,675
  150,334
  171,440
  193,960
  217,860
  243,110
  269,685
  297,565
  326,738
  357,202
  388,963
  422,033
  456,437
  492,207
  529,384
  568,017
  608,165
  649,892
  693,273
  738,389
  785,327
  834,183
  885,060
  938,068
  993,322
Total liabilities and equity, $m
  117,006
  127,513
  155,580
  187,176
  222,325
  261,009
  303,190
  348,802
  397,773
  450,023
  505,476
  564,061
  625,719
  690,406
  758,093
  828,776
  902,466
  979,195
  1,059,019
  1,142,012
  1,228,269
  1,317,905
  1,411,056
  1,507,871
  1,608,523
  1,713,199
  1,822,104
  1,935,460
  2,053,504
  2,176,491
  2,304,691
Debt-to-equity ratio
  0.532
  0.790
  0.880
  0.960
  1.010
  1.060
  1.100
  1.130
  1.150
  1.170
  1.190
  1.200
  1.210
  1.220
  1.230
  1.240
  1.240
  1.250
  1.260
  1.260
  1.260
  1.270
  1.270
  1.280
  1.280
  1.280
  1.280
  1.290
  1.290
  1.290
  1.290
Adjusted equity ratio
  0.419
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,890
  -10,605
  -13,206
  -16,139
  -19,409
  -23,016
  -26,956
  -31,224
  -35,812
  -40,714
  -45,921
  -51,428
  -57,228
  -63,316
  -69,691
  -76,350
  -83,295
  -90,529
  -98,055
  -105,881
  -114,016
  -122,469
  -131,254
  -140,384
  -149,876
  -159,746
  -170,014
  -180,701
  -191,829
  -203,421
  -215,504
Depreciation, amort., depletion, $m
  7,719
  9,171
  11,189
  13,462
  15,990
  18,772
  21,805
  25,086
  28,608
  32,366
  36,354
  40,567
  45,002
  49,654
  54,522
  59,606
  64,905
  70,424
  76,165
  82,133
  88,337
  94,784
  101,483
  108,446
  115,685
  123,213
  131,046
  139,198
  147,688
  156,533
  165,753
Funds from operations, $m
  13,879
  -1,434
  -2,016
  -2,677
  -3,420
  -4,244
  -5,151
  -6,138
  -7,204
  -8,348
  -9,567
  -10,861
  -12,226
  -13,662
  -15,169
  -16,745
  -18,390
  -20,105
  -21,890
  -23,748
  -25,679
  -27,685
  -29,771
  -31,938
  -34,191
  -36,532
  -38,968
  -41,503
  -44,141
  -46,888
  -49,751
Change in working capital, $m
  -2,925
  -787
  -898
  -1,011
  -1,124
  -1,238
  -1,349
  -1,459
  -1,567
  -1,672
  -1,774
  -1,874
  -1,973
  -2,069
  -2,165
  -2,261
  -2,357
  -2,455
  -2,554
  -2,655
  -2,760
  -2,868
  -2,980
  -3,097
  -3,220
  -3,349
  -3,484
  -3,626
  -3,776
  -3,935
  -4,101
Cash from operations, $m
  16,804
  -647
  -1,119
  -1,666
  -2,295
  -3,007
  -3,801
  -4,679
  -5,638
  -6,676
  -7,793
  -8,986
  -10,253
  -11,593
  -13,003
  -14,484
  -16,033
  -17,650
  -19,337
  -21,092
  -22,919
  -24,818
  -26,791
  -28,841
  -30,970
  -33,184
  -35,484
  -37,876
  -40,364
  -42,953
  -45,649
Maintenance CAPEX, $m
  0
  -7,399
  -9,171
  -11,189
  -13,462
  -15,990
  -18,772
  -21,805
  -25,086
  -28,608
  -32,366
  -36,354
  -40,567
  -45,002
  -49,654
  -54,522
  -59,606
  -64,905
  -70,424
  -76,165
  -82,133
  -88,337
  -94,784
  -101,483
  -108,446
  -115,685
  -123,213
  -131,046
  -139,198
  -147,688
  -156,533
New CAPEX, $m
  -5,220
  -10,630
  -12,111
  -13,635
  -15,167
  -16,693
  -18,201
  -19,683
  -21,132
  -22,547
  -23,929
  -25,281
  -26,607
  -27,913
  -29,209
  -30,501
  -31,798
  -33,110
  -34,446
  -35,813
  -37,222
  -38,680
  -40,196
  -41,778
  -43,433
  -45,170
  -46,995
  -48,915
  -50,938
  -53,071
  -55,321
Cash from investing activities, $m
  -4,161
  -18,029
  -21,282
  -24,824
  -28,629
  -32,683
  -36,973
  -41,488
  -46,218
  -51,155
  -56,295
  -61,635
  -67,174
  -72,915
  -78,863
  -85,023
  -91,404
  -98,015
  -104,870
  -111,978
  -119,355
  -127,017
  -134,980
  -143,261
  -151,879
  -160,855
  -170,208
  -179,961
  -190,136
  -200,759
  -211,854
Free cash flow, $m
  12,643
  -18,677
  -22,400
  -26,490
  -30,924
  -35,690
  -40,775
  -46,167
  -51,855
  -57,831
  -64,088
  -70,621
  -77,427
  -84,508
  -91,866
  -99,507
  -107,437
  -115,666
  -124,206
  -133,070
  -142,274
  -151,835
  -161,770
  -172,102
  -182,850
  -194,038
  -205,692
  -217,837
  -230,501
  -243,713
  -257,503
Issuance/(repayment) of debt, $m
  -5,543
  14,048
  15,969
  17,978
  19,999
  22,012
  24,000
  25,954
  27,865
  29,731
  31,553
  33,335
  35,083
  36,807
  38,515
  40,218
  41,929
  43,659
  45,420
  47,223
  49,080
  51,003
  53,002
  55,088
  57,271
  59,561
  61,967
  64,499
  67,167
  69,980
  72,946
Issuance/(repurchase) of shares, $m
  -108
  21,289
  25,302
  29,757
  34,558
  39,690
  45,136
  50,883
  56,919
  63,234
  69,821
  76,678
  83,802
  91,196
  98,865
  106,815
  115,055
  123,599
  132,459
  141,651
  151,193
  161,102
  171,401
  182,112
  193,256
  204,861
  216,952
  229,557
  242,706
  256,429
  270,758
Cash from financing (excl. dividends), $m  
  -6,212
  35,337
  41,271
  47,735
  54,557
  61,702
  69,136
  76,837
  84,784
  92,965
  101,374
  110,013
  118,885
  128,003
  137,380
  147,033
  156,984
  167,258
  177,879
  188,874
  200,273
  212,105
  224,403
  237,200
  250,527
  264,422
  278,919
  294,056
  309,873
  326,409
  343,704
Total cash flow (excl. dividends), $m
  6,753
  16,661
  18,871
  21,245
  23,633
  26,012
  28,361
  30,669
  32,928
  35,133
  37,286
  39,392
  41,458
  43,495
  45,513
  47,526
  49,548
  51,592
  53,673
  55,804
  57,999
  60,271
  62,633
  65,098
  67,677
  70,383
  73,227
  76,219
  79,372
  82,695
  86,201
Retained Cash Flow (-), $m
  -2,968
  -21,289
  -25,302
  -29,757
  -34,558
  -39,690
  -45,136
  -50,883
  -56,919
  -63,234
  -69,821
  -76,678
  -83,802
  -91,196
  -98,865
  -106,815
  -115,055
  -123,599
  -132,459
  -141,651
  -151,193
  -161,102
  -171,401
  -182,112
  -193,256
  -204,861
  -216,952
  -229,557
  -242,706
  -256,429
  -270,758
Prev. year cash balance distribution, $m
 
  12,984
  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
 
  8,356
  -6,431
  -8,512
  -10,925
  -13,678
  -16,774
  -20,213
  -23,991
  -28,101
  -32,535
  -37,286
  -42,344
  -47,702
  -53,352
  -59,288
  -65,507
  -72,007
  -78,786
  -85,847
  -93,194
  -100,832
  -108,768
  -117,014
  -125,579
  -134,478
  -143,725
  -153,338
  -163,334
  -173,733
  -184,557
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
 
  8,011
  -5,887
  -7,408
  -8,996
  -10,602
  -12,174
  -13,656
  -14,995
  -16,142
  -17,057
  -17,707
  -18,070
  -18,137
  -17,911
  -17,406
  -16,647
  -15,667
  -14,509
  -13,218
  -11,842
  -10,429
  -9,025
  -7,669
  -6,396
  -5,231
  -4,193
  -3,291
  -2,527
  -1,896
  -1,390
Current shareholders' claim on cash, %
  100
  80.1
  64.7
  52.6
  43.0
  35.4
  29.3
  24.4
  20.4
  17.1
  14.4
  12.2
  10.4
  8.8
  7.5
  6.4
  5.5
  4.7
  4.1
  3.5
  3.0
  2.6
  2.3
  2.0
  1.7
  1.5
  1.3
  1.1
  1.0
  0.8
  0.7

BHP Billiton Plc is a global resources company. The Company is a producer of various commodities, including iron ore, metallurgical coal, copper and uranium. Its segments include Petroleum, Copper, Iron Ore and Coal. The Petroleum segment is engaged in the exploration, development and production of oil and gas. The Copper segment is engaged in mining of copper, silver, lead, zinc, molybdenum, uranium and gold. The Iron Ore segment is engaged in mining of iron ore. The Coal segment is engaged in mining of metallurgical coal and thermal (energy) coal. Its businesses include Minerals Australia, Minerals Americas, Petroleum and Marketing. It extracts and processes minerals, oil and gas from its production operations located primarily in Australia and the Americas. It manages product distribution through its global logistics chain, including freight and pipeline transportation. It sells its products through direct supply agreements with its customers and on global commodity exchanges.

FINANCIAL RATIOS  of  BHP Billiton ADR (BBL)

Valuation Ratios
P/E Ratio 13.5
Price to Sales 2.1
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 4.7
Price to Free Cash Flow 6.9
Growth Rates
Sales Growth Rate 23.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -32.3%
Cap. Spend. - 3 Yr. Gr. Rate -20.5%
Financial Strength
Quick Ratio 11
Current Ratio 0
LT Debt to Equity 51.1%
Total Debt to Equity 53.2%
Interest Coverage 10
Management Effectiveness
Return On Assets 5.6%
Ret/ On Assets - 3 Yr. Avg. 0.9%
Return On Total Capital 6.6%
Ret/ On T. Cap. - 3 Yr. Avg. 0.5%
Return On Equity 10.6%
Return On Equity - 3 Yr. Avg. 0.8%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 56.7%
EBITDA Margin 50.1%
EBITDA Margin - 3 Yr. Avg. 32.4%
Operating Margin 30.7%
Oper. Margin - 3 Yr. Avg. 10%
Pre-Tax Margin 27%
Pre-Tax Margin - 3 Yr. Avg. 7.2%
Net Profit Margin 15.4%
Net Profit Margin - 3 Yr. Avg. -0.3%
Effective Tax Rate 39.7%
Eff/ Tax Rate - 3 Yr. Avg. 33.2%
Payout Ratio 49.6%

BBL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BBL stock intrinsic value calculation we used $38285 million for the last fiscal year's total revenue generated by BHP Billiton ADR. The default revenue input number comes from 2017 income statement of BHP Billiton 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 BBL stock valuation model: a) initial revenue growth rate of 23.9% 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 BBL is calculated based on our internal credit rating of BHP Billiton 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 BHP Billiton 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 BBL stock the variable cost ratio is equal to 120.2%.

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 BBL 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 BHP Billiton ADR.

Corporate tax rate of 27% is the nominal tax rate for BHP Billiton 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 BBL 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 BBL are equal to 116%.

Life of production assets of 6 years is the average useful life of capital assets used in BHP Billiton 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 BBL is equal to -8.6%. 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 - $57258 million for BHP Billiton 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 2928.21 million for BHP Billiton 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 BHP Billiton ADR at the current share price and the inputted number of shares is $110.6 billion.

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COMPANY NEWS

▶ 8 Countries With the Largest Uranium Reserves   [Oct-18-17 06:00AM  Motley Fool]
▶ [$$] BHP Sells Some Shale Acreage in Mixed Output Quarter   [10:09PM  The Wall Street Journal]
▶ BHP Iron Ore Output Misses Estimates   [05:32PM  Bloomberg]
▶ [$$] Elliott Advisors set to make an entrance at BHP meeting   [Oct-15-17 10:14AM  Financial Times]
▶ Mitsui to build BHP desalination plant in Chile   [Oct-12-17 10:56AM  Reuters]
▶ When Should You Sell BHP Billiton plc (LSE:BLT)?   [Oct-06-17 06:11AM  Simply Wall St.]
▶ Rio Tinto: No Longer a Canaccord Top Pick   [Sep-26-17 11:36AM  Barrons.com]
▶ When Should You Buy BHP Billiton plc (LSE:BLT)?   [Sep-20-17 09:25AM  Simply Wall St.]
▶ [$$] BHP Billiton Top Executives Get No Pay Rise Despite Profit   [Sep-19-17 09:18PM  The Wall Street Journal]
▶ Why Rio Tinto Isnt RBCs Top Pick Anymore   [Sep-18-17 07:38AM  Market Realist]
▶ Why Analysts Are Bullish on BHP Billitons Fiscal 2018   [Sep-15-17 10:40AM  Market Realist]
▶ Where Will Freeport-McMoRan, Inc. Be in 5 Years?   [Sep-07-17 02:23PM  Motley Fool]
▶ FTSE 100 logs modest gain as retailers, miners advance   [Sep-05-17 06:37AM  MarketWatch]
▶ 3 High-Yield Commodity Stocks   [Sep-02-17 09:05AM  Motley Fool]
▶ BHP Stock Higher, But Growth Stymied, Downgrade Says   [Aug-31-17 04:12PM  Barrons.com]
▶ BHP Billiton Cut to Underperform   [05:46AM  Barrons.com]
▶ Iron Ore's Kings Are Spending Again   [Aug-29-17 03:00PM  Bloomberg]
▶ Freeport Bends To Indonesia Will To Keep Mining Copper, Gold   [09:56AM  Investor's Business Daily]
▶ BHP Billitons Fiscal 2017 Earnings: What Do Analysts Think?   [Aug-28-17 10:36AM  Market Realist]
▶ Powers Shocks Loom Over Australian Consumers   [Aug-24-17 03:00PM  Bloomberg]
▶ [$$] BHP to Replace Two Directors in Board Shuffle   [Aug-23-17 05:51AM  The Wall Street Journal]
▶ [$$] Miners Are Flush With Cash Again   [12:59AM  The Wall Street Journal]
▶ Stocks Bounce After Extended Selloff, Led by Tech Sector   [12:57AM  The Wall Street Journal]
▶ [$$] The quiet M&A boom in oil and gas   [12:06AM  Financial Times]
▶ BHP Billiton Shakes Up Board Amid Investor Criticism   [Aug-22-17 10:27PM  Barrons.com]
▶ BHP Assets May Be Sold Piece by Piece   [07:14PM  Bloomberg Video]
▶ BHP Billiton plans to exit U.S. shale business (Video)   [05:10PM  American City Business Journals]
▶ Stocks Bounce After Extended Selloff, Led by Tech Sector   [04:09PM  The Wall Street Journal]
▶ [$$] Miners Are Flush With Cash Again   [12:35PM  The Wall Street Journal]
▶ [$$] BHP Billiton/Elliott: short-term victory   [08:00AM  Financial Times]
▶ BHP in Talks to Sell U.S. Shale Assets   [06:29AM  Bloomberg Video]
Financial statements of BBL
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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