Intrinsic value of BHP Billiton ADR - BHP

Previous Close

$41.38

  Intrinsic Value

$5.26

stock screener

  Rating & Target

str. sell

-87%

Previous close

$41.38

 
Intrinsic value

$5.26

 
Up/down potential

-87%

 
Rating

str. sell

We calculate the intrinsic value of BHP 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 106.2

 

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
 
  56,939
  69,399
  83,427
  99,032
  116,207
  134,933
  155,184
  176,925
  200,123
  224,742
  250,425
  277,799
  306,518
  336,569
  367,950
  400,665
  434,731
  470,170
  507,016
  545,312
  585,108
  626,463
  669,446
  714,132
  760,605
  808,955
  859,282
  911,689
  966,292
  1,023,208
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
  56,939
  69,399
  83,427
  99,032
  116,207
  134,933
  155,184
  176,925
  200,123
  224,742
  250,425
  277,799
  306,518
  336,569
  367,950
  400,665
  434,731
  470,170
  507,016
  545,312
  585,108
  626,463
  669,446
  714,132
  760,605
  808,955
  859,282
  911,689
  966,292
  1,023,208
Operating income, $m
  11,753
  -9,504
  -11,524
  -13,798
  -16,327
  -19,111
  -22,147
  -25,429
  -28,954
  -32,714
  -36,705
  -40,594
  -45,032
  -49,687
  -54,558
  -59,645
  -64,948
  -70,470
  -76,215
  -82,188
  -88,396
  -94,847
  -101,550
  -108,518
  -115,762
  -123,295
  -131,133
  -139,290
  -147,786
  -156,637
  -165,863
EBITDA, $m
  19,472
  5
  6
  8
  9
  11
  12
  14
  16
  18
  21
  23
  26
  28
  31
  34
  37
  40
  43
  47
  50
  54
  58
  62
  66
  70
  75
  79
  84
  89
  94
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
  -10,527
  -13,038
  -15,871
  -19,030
  -22,514
  -26,320
  -30,443
  -34,875
  -39,611
  -44,642
  -49,636
  -55,240
  -61,123
  -67,283
  -73,718
  -80,429
  -87,418
  -94,691
  -102,254
  -110,114
  -118,283
  -126,772
  -135,595
  -144,766
  -154,304
  -164,226
  -174,553
  -185,306
  -196,508
  -208,183
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
  -10,527
  -13,038
  -15,871
  -19,030
  -22,514
  -26,320
  -30,443
  -34,875
  -39,611
  -44,642
  -49,636
  -55,240
  -61,123
  -67,283
  -73,718
  -80,429
  -87,418
  -94,691
  -102,254
  -110,114
  -118,283
  -126,772
  -135,595
  -144,766
  -154,304
  -164,226
  -174,553
  -185,306
  -196,508
  -208,183

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  14,184
  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
  102,822
  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
  83,009
  102,839
  125,474
  150,957
  179,304
  210,503
  244,521
  281,307
  320,802
  362,942
  407,665
  454,913
  504,640
  556,809
  611,399
  668,405
  727,835
  789,717
  854,094
  921,028
  990,594
  1,062,886
  1,138,011
  1,216,092
  1,297,267
  1,381,688
  1,469,520
  1,560,941
  1,656,143
  1,755,331
  1,858,724
Working capital, $m
  9,690
  -4,032
  -4,919
  -5,919
  -7,030
  -8,253
  -9,587
  -11,029
  -12,578
  -14,230
  -15,983
  -17,836
  -19,785
  -21,831
  -23,971
  -26,206
  -28,536
  -30,962
  -33,486
  -36,110
  -38,838
  -41,672
  -44,618
  -47,679
  -50,861
  -54,171
  -57,615
  -61,199
  -64,932
  -68,821
  -72,874
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
  -10,527
  -13,038
  -15,871
  -19,030
  -22,514
  -26,320
  -30,443
  -34,875
  -39,611
  -44,642
  -49,636
  -55,240
  -61,123
  -67,283
  -73,718
  -80,429
  -87,418
  -94,691
  -102,254
  -110,114
  -118,283
  -126,772
  -135,595
  -144,766
  -154,304
  -164,226
  -174,553
  -185,306
  -196,508
  -208,183
Depreciation, amort., depletion, $m
  7,719
  9,509
  11,530
  13,805
  16,336
  19,122
  22,159
  25,444
  28,970
  32,732
  36,726
  40,617
  45,057
  49,715
  54,589
  59,679
  64,985
  70,510
  76,258
  82,235
  88,446
  94,901
  101,608
  108,580
  115,827
  123,365
  131,207
  139,370
  147,870
  156,726
  165,958
Funds from operations, $m
  13,879
  -1,018
  -1,508
  -2,066
  -2,694
  -3,392
  -4,161
  -4,999
  -5,906
  -6,879
  -7,917
  -9,019
  -10,183
  -11,408
  -12,694
  -14,039
  -15,444
  -16,908
  -18,433
  -20,019
  -21,668
  -23,382
  -25,164
  -27,015
  -28,939
  -30,939
  -33,019
  -35,183
  -37,436
  -39,782
  -42,226
Change in working capital, $m
  -2,925
  -778
  -887
  -999
  -1,111
  -1,223
  -1,334
  -1,442
  -1,548
  -1,652
  -1,753
  -1,852
  -1,950
  -2,045
  -2,140
  -2,235
  -2,330
  -2,426
  -2,524
  -2,624
  -2,727
  -2,834
  -2,945
  -3,061
  -3,183
  -3,310
  -3,444
  -3,584
  -3,733
  -3,889
  -4,054
Cash from operations, $m
  16,804
  -240
  -621
  -1,067
  -1,583
  -2,169
  -2,827
  -3,557
  -4,357
  -5,226
  -6,164
  -7,166
  -8,233
  -9,363
  -10,554
  -11,804
  -13,113
  -14,482
  -15,909
  -17,395
  -18,941
  -20,548
  -22,218
  -23,954
  -25,756
  -27,629
  -29,576
  -31,599
  -33,703
  -35,893
  -38,172
Maintenance CAPEX, $m
  0
  -7,411
  -9,182
  -11,203
  -13,478
  -16,009
  -18,795
  -21,832
  -25,117
  -28,643
  -32,406
  -36,399
  -40,617
  -45,057
  -49,715
  -54,589
  -59,679
  -64,985
  -70,510
  -76,258
  -82,235
  -88,446
  -94,901
  -101,608
  -108,580
  -115,827
  -123,365
  -131,207
  -139,370
  -147,870
  -156,726
New CAPEX, $m
  -5,220
  -19,831
  -22,635
  -25,483
  -28,347
  -31,199
  -34,018
  -36,786
  -39,495
  -42,140
  -44,723
  -47,248
  -49,727
  -52,169
  -54,590
  -57,005
  -59,430
  -61,882
  -64,378
  -66,934
  -69,566
  -72,292
  -75,125
  -78,081
  -81,175
  -84,421
  -87,832
  -91,421
  -95,202
  -99,188
  -103,393
Cash from investing activities, $m
  -4,161
  -27,242
  -31,817
  -36,686
  -41,825
  -47,208
  -52,813
  -58,618
  -64,612
  -70,783
  -77,129
  -83,647
  -90,344
  -97,226
  -104,305
  -111,594
  -119,109
  -126,867
  -134,888
  -143,192
  -151,801
  -160,738
  -170,026
  -179,689
  -189,755
  -200,248
  -211,197
  -222,628
  -234,572
  -247,058
  -260,119
Free cash flow, $m
  12,643
  -27,482
  -32,438
  -37,753
  -43,408
  -49,378
  -55,640
  -62,175
  -68,969
  -76,010
  -83,292
  -90,814
  -98,577
  -106,589
  -114,859
  -123,398
  -132,223
  -141,349
  -150,797
  -160,587
  -170,742
  -181,286
  -192,244
  -203,643
  -215,511
  -227,877
  -240,772
  -254,227
  -268,275
  -282,951
  -298,291
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
  21,170
  25,135
  29,489
  34,179
  39,187
  44,500
  50,102
  55,982
  62,131
  68,543
  74,886
  81,815
  89,003
  96,457
  104,182
  112,189
  120,489
  129,095
  138,024
  147,291
  156,916
  166,919
  177,322
  188,147
  199,419
  211,164
  223,409
  236,183
  249,515
  263,438
Cash from financing (excl. dividends), $m  
  -6,212
  35,218
  41,104
  47,467
  54,178
  61,199
  68,500
  76,056
  83,847
  91,862
  100,096
  108,221
  116,898
  125,810
  134,972
  144,400
  154,118
  164,148
  174,515
  185,247
  196,371
  207,919
  219,921
  232,410
  245,418
  258,980
  273,131
  287,908
  303,350
  319,495
  336,384
Total cash flow (excl. dividends), $m
  6,753
  7,736
  8,666
  9,715
  10,771
  11,821
  12,860
  13,880
  14,878
  15,852
  16,804
  17,407
  18,320
  19,220
  20,112
  21,002
  21,895
  22,799
  23,718
  24,660
  25,630
  26,634
  27,678
  28,767
  29,907
  31,103
  32,359
  33,682
  35,075
  36,543
  38,092
Retained Cash Flow (-), $m
  -2,968
  -21,170
  -25,135
  -29,489
  -34,179
  -39,187
  -44,500
  -50,102
  -55,982
  -62,131
  -68,543
  -74,886
  -81,815
  -89,003
  -96,457
  -104,182
  -112,189
  -120,489
  -129,095
  -138,024
  -147,291
  -156,916
  -166,919
  -177,322
  -188,147
  -199,419
  -211,164
  -223,409
  -236,183
  -249,515
  -263,438
Prev. year cash balance distribution, $m
 
  12,943
  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
 
  -491
  -16,469
  -19,774
  -23,408
  -27,366
  -31,640
  -36,222
  -41,104
  -46,279
  -51,739
  -57,479
  -63,494
  -69,783
  -76,344
  -83,180
  -90,293
  -97,690
  -105,377
  -113,364
  -121,661
  -130,282
  -139,242
  -148,555
  -158,240
  -168,317
  -178,805
  -189,728
  -201,108
  -212,972
  -225,345
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
 
  -471
  -15,076
  -17,209
  -19,274
  -21,212
  -22,962
  -24,471
  -25,691
  -26,585
  -27,125
  -27,296
  -27,095
  -26,533
  -25,630
  -24,420
  -22,945
  -21,256
  -19,406
  -17,455
  -15,459
  -13,476
  -11,553
  -9,736
  -8,059
  -6,548
  -5,217
  -4,072
  -3,111
  -2,325
  -1,697
Current shareholders' claim on cash, %
  100
  79.5
  63.8
  51.6
  42.0
  34.4
  28.4
  23.5
  19.6
  16.4
  13.8
  11.6
  9.8
  8.3
  7.1
  6.1
  5.2
  4.4
  3.8
  3.3
  2.8
  2.4
  2.1
  1.8
  1.6
  1.4
  1.2
  1.0
  0.9
  0.8
  0.7

BHP Billiton Limited 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. The Company extracts and processes minerals, oil and gas from its production operations located primarily in Australia and the Americas. The Company manages product distribution through its global logistics chain, including freight and pipeline transportation. Its businesses include Minerals Australia, Minerals Americas, Petroleum and Marketing.

FINANCIAL RATIOS  of  BHP Billiton ADR (BHP)

Valuation Ratios
P/E Ratio 22.6
Price to Sales 3.5
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 7.9
Price to Free Cash Flow 11.5
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 78.8%
Gross Margin - 3 Yr. Avg. 75.3%
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%

BHP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BHP 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 BHP 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 BHP 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 BHP 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 BHP 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 BHP 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 BHP are equal to 216.8%.

Life of production assets of 11.2 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 BHP is equal to -8.5%. 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 2567.48 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 $106.2 billion.

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COMPANY NEWS

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▶ BHP exec: Impact of diversity 'is incalculable'   [Nov-03-17 12:50PM  American City Business Journals]
▶ BHP Billiton Sees RS Rating Rise To 72   [03:00AM  Investor's Business Daily]
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▶ [$$] Activist Investor Elliott Zeros In on BHP CEO   [12:39AM  The Wall Street Journal]
▶ [$$] Activist Investor Elliott Zeros In on BHP CEO   [08:31AM  The Wall Street Journal]
▶ [$$] Reckitt slides as sales headache intensifies   [Oct-18-17 01:31PM  Financial Times]
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▶ When Should You Sell BHP Billiton plc (LSE:BLT)?   [Oct-06-17 06:11AM  Simply Wall St.]
▶ Worlds Biggest Miner Prepares For The EV Boom   [Sep-30-17 01:00PM  Oilprice.com]
▶ Do Analysts See More Downside for Iron Ore Prices?   [Sep-29-17 04:06PM  Market Realist]
▶ Rio Tinto: No Longer a Canaccord Top Pick   [Sep-26-17 11:36AM  Barrons.com]
▶ When Should You Buy BHP Billiton plc (LSE:BLT)?   [Sep-20-17 09:25AM  Simply Wall St.]
▶ [$$] BHP Billiton Top Executives Get No Pay Rise Despite Profit   [Sep-19-17 09:18PM  The Wall Street Journal]
Financial statements of BHP
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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