Intrinsic value of BHP Billiton ADR - BHP

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$36.16

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$36.16

 
Intrinsic value

$7.58

 
Up/down potential

-79%

 
Rating

str. sell

 
Value-price divergence* premium content

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

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 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 89.6

 

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, %
  -30.75
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  30,912
  31,530
  32,255
  33,084
  34,015
  35,046
  36,178
  37,410
  38,744
  40,180
  41,722
  43,372
  45,132
  47,007
  48,999
  51,112
  53,352
  55,723
  58,230
  60,880
  63,677
  66,629
  69,741
  73,022
  76,479
  80,120
  83,954
  87,989
  92,235
  96,702
  101,400
Variable operating expenses, $m
 
  25,407
  25,984
  26,643
  27,383
  28,204
  29,104
  30,084
  31,144
  32,287
  33,514
  34,499
  35,899
  37,390
  38,974
  40,655
  42,437
  44,323
  46,317
  48,424
  50,649
  52,997
  55,473
  58,083
  60,833
  63,729
  66,778
  69,987
  73,365
  76,918
  80,655
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
  37,147
  25,407
  25,984
  26,643
  27,383
  28,204
  29,104
  30,084
  31,144
  32,287
  33,514
  34,499
  35,899
  37,390
  38,974
  40,655
  42,437
  44,323
  46,317
  48,424
  50,649
  52,997
  55,473
  58,083
  60,833
  63,729
  66,778
  69,987
  73,365
  76,918
  80,655
Operating income, $m
  -6,235
  6,123
  6,272
  6,441
  6,632
  6,843
  7,074
  7,326
  7,599
  7,893
  8,209
  8,873
  9,234
  9,617
  10,025
  10,457
  10,915
  11,400
  11,913
  12,455
  13,028
  13,631
  14,268
  14,940
  15,647
  16,392
  17,176
  18,001
  18,870
  19,784
  20,745
EBITDA, $m
  2,426
  14,946
  15,290
  15,683
  16,124
  16,613
  17,149
  17,734
  18,366
  19,047
  19,778
  20,560
  21,394
  22,283
  23,227
  24,229
  25,291
  26,415
  27,603
  28,859
  30,185
  31,584
  33,060
  34,615
  36,254
  37,980
  39,797
  41,710
  43,722
  45,840
  48,067
Interest expense (income), $m
  830
  1,112
  1,153
  1,202
  1,258
  1,322
  1,392
  1,468
  1,552
  1,643
  1,740
  1,845
  1,957
  2,077
  2,204
  2,339
  2,483
  2,635
  2,796
  2,966
  3,146
  3,336
  3,536
  3,748
  3,971
  4,205
  4,453
  4,713
  4,987
  5,275
  5,579
Earnings before tax, $m
  -7,259
  5,012
  5,119
  5,239
  5,373
  5,521
  5,683
  5,858
  6,047
  6,250
  6,468
  7,028
  7,277
  7,540
  7,821
  8,118
  8,433
  8,765
  9,117
  9,489
  9,882
  10,295
  10,732
  11,192
  11,676
  12,186
  12,723
  13,288
  13,883
  14,509
  15,166
Tax expense, $m
  -1,052
  1,353
  1,382
  1,415
  1,451
  1,491
  1,534
  1,582
  1,633
  1,688
  1,746
  1,898
  1,965
  2,036
  2,112
  2,192
  2,277
  2,367
  2,462
  2,562
  2,668
  2,780
  2,898
  3,022
  3,153
  3,290
  3,435
  3,588
  3,748
  3,917
  4,095
Net income, $m
  -6,385
  3,658
  3,737
  3,825
  3,923
  4,030
  4,148
  4,276
  4,414
  4,563
  4,722
  5,131
  5,312
  5,505
  5,709
  5,926
  6,156
  6,399
  6,656
  6,927
  7,214
  7,516
  7,834
  8,170
  8,524
  8,896
  9,288
  9,701
  10,135
  10,591
  11,072

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  10,355
  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
  118,953
  110,632
  113,177
  116,086
  119,351
  122,969
  126,940
  131,263
  135,942
  140,984
  146,395
  152,183
  158,359
  164,936
  171,925
  179,341
  187,200
  195,520
  204,317
  213,613
  223,428
  233,785
  244,707
  256,219
  268,349
  281,124
  294,575
  308,732
  323,630
  339,304
  355,790
Adjusted assets (=assets-cash), $m
  108,598
  110,632
  113,177
  116,086
  119,351
  122,969
  126,940
  131,263
  135,942
  140,984
  146,395
  152,183
  158,359
  164,936
  171,925
  179,341
  187,200
  195,520
  204,317
  213,613
  223,428
  233,785
  244,707
  256,219
  268,349
  281,124
  294,575
  308,732
  323,630
  339,304
  355,790
Revenue / Adjusted assets
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
Average production assets, $m
  89,956
  91,753
  93,863
  96,276
  98,984
  101,985
  105,277
  108,863
  112,744
  116,925
  121,412
  126,213
  131,335
  136,789
  142,586
  148,736
  155,255
  162,154
  169,451
  177,160
  185,300
  193,889
  202,947
  212,495
  222,555
  233,150
  244,305
  256,047
  268,403
  281,402
  295,074
Working capital, $m
  5,374
  -347
  -355
  -364
  -374
  -386
  -398
  -412
  -426
  -442
  -459
  -477
  -496
  -517
  -539
  -562
  -587
  -613
  -641
  -670
  -700
  -733
  -767
  -803
  -841
  -881
  -923
  -968
  -1,015
  -1,064
  -1,115
Total debt, $m
  36,421
  32,938
  34,345
  35,953
  37,759
  39,760
  41,956
  44,346
  46,934
  49,722
  52,714
  55,915
  59,331
  62,967
  66,832
  70,934
  75,280
  79,880
  84,746
  89,886
  95,314
  101,041
  107,081
  113,447
  120,155
  127,220
  134,658
  142,487
  150,726
  159,393
  168,510
Total liabilities, $m
  64,663
  61,180
  62,587
  64,195
  66,001
  68,002
  70,198
  72,588
  75,176
  77,964
  80,956
  84,157
  87,573
  91,209
  95,074
  99,176
  103,522
  108,122
  112,988
  118,128
  123,556
  129,283
  135,323
  141,689
  148,397
  155,462
  162,900
  170,729
  178,968
  187,635
  196,752
Total equity, $m
  54,290
  49,453
  50,590
  51,890
  53,350
  54,967
  56,742
  58,674
  60,766
  63,020
  65,438
  68,026
  70,787
  73,726
  76,850
  80,165
  83,679
  87,397
  91,330
  95,485
  99,872
  104,502
  109,384
  114,530
  119,952
  125,662
  131,675
  138,003
  144,663
  151,669
  159,038
Total liabilities and equity, $m
  118,953
  110,633
  113,177
  116,085
  119,351
  122,969
  126,940
  131,262
  135,942
  140,984
  146,394
  152,183
  158,360
  164,935
  171,924
  179,341
  187,201
  195,519
  204,318
  213,613
  223,428
  233,785
  244,707
  256,219
  268,349
  281,124
  294,575
  308,732
  323,631
  339,304
  355,790
Debt-to-equity ratio
  0.671
  0.670
  0.680
  0.690
  0.710
  0.720
  0.740
  0.760
  0.770
  0.790
  0.810
  0.820
  0.840
  0.850
  0.870
  0.880
  0.900
  0.910
  0.930
  0.940
  0.950
  0.970
  0.980
  0.990
  1.000
  1.010
  1.020
  1.030
  1.040
  1.050
  1.060
Adjusted equity ratio
  0.405
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -6,385
  3,658
  3,737
  3,825
  3,923
  4,030
  4,148
  4,276
  4,414
  4,563
  4,722
  5,131
  5,312
  5,505
  5,709
  5,926
  6,156
  6,399
  6,656
  6,927
  7,214
  7,516
  7,834
  8,170
  8,524
  8,896
  9,288
  9,701
  10,135
  10,591
  11,072
Depreciation, amort., depletion, $m
  8,661
  8,823
  9,018
  9,242
  9,492
  9,770
  10,075
  10,407
  10,767
  11,154
  11,569
  11,686
  12,161
  12,666
  13,202
  13,772
  14,375
  15,014
  15,690
  16,404
  17,157
  17,953
  18,791
  19,675
  20,607
  21,588
  22,621
  23,708
  24,852
  26,056
  27,322
Funds from operations, $m
  8,786
  12,481
  12,755
  13,066
  13,415
  13,801
  14,224
  14,683
  15,181
  15,717
  16,291
  16,817
  17,473
  18,170
  18,911
  19,698
  20,531
  21,413
  22,346
  23,331
  24,371
  25,468
  26,626
  27,845
  29,131
  30,484
  31,909
  33,409
  34,987
  36,647
  38,393
Change in working capital, $m
  -1,839
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
Cash from operations, $m
  10,625
  7,354
  12,763
  13,076
  13,425
  13,812
  14,236
  14,697
  15,196
  15,732
  16,308
  16,835
  17,492
  18,191
  18,933
  19,721
  20,556
  21,439
  22,373
  23,360
  24,402
  25,501
  26,660
  27,882
  29,169
  30,524
  31,951
  33,453
  35,033
  36,696
  38,445
Maintenance CAPEX, $m
  0
  -8,329
  -8,496
  -8,691
  -8,914
  -9,165
  -9,443
  -9,748
  -10,080
  -10,439
  -10,826
  -11,242
  -11,686
  -12,161
  -12,666
  -13,202
  -13,772
  -14,375
  -15,014
  -15,690
  -16,404
  -17,157
  -17,953
  -18,791
  -19,675
  -20,607
  -21,588
  -22,621
  -23,708
  -24,852
  -26,056
New CAPEX, $m
  -7,711
  -1,797
  -2,110
  -2,412
  -2,708
  -3,001
  -3,293
  -3,585
  -3,881
  -4,181
  -4,487
  -4,801
  -5,122
  -5,454
  -5,796
  -6,151
  -6,518
  -6,900
  -7,296
  -7,710
  -8,140
  -8,589
  -9,058
  -9,548
  -10,060
  -10,595
  -11,155
  -11,742
  -12,356
  -12,999
  -13,672
Cash from investing activities, $m
  -7,245
  -10,126
  -10,606
  -11,103
  -11,622
  -12,166
  -12,736
  -13,333
  -13,961
  -14,620
  -15,313
  -16,043
  -16,808
  -17,615
  -18,462
  -19,353
  -20,290
  -21,275
  -22,310
  -23,400
  -24,544
  -25,746
  -27,011
  -28,339
  -29,735
  -31,202
  -32,743
  -34,363
  -36,064
  -37,851
  -39,728
Free cash flow, $m
  3,380
  -2,773
  2,157
  1,972
  1,803
  1,646
  1,500
  1,364
  1,235
  1,112
  994
  793
  683
  576
  471
  368
  266
  164
  62
  -39
  -142
  -246
  -351
  -458
  -567
  -678
  -792
  -910
  -1,030
  -1,155
  -1,283
Issuance/(repayment) of debt, $m
  4,607
  1,170
  1,407
  1,608
  1,806
  2,001
  2,195
  2,391
  2,588
  2,788
  2,992
  3,201
  3,416
  3,637
  3,865
  4,101
  4,346
  4,601
  4,865
  5,141
  5,428
  5,727
  6,040
  6,366
  6,708
  7,065
  7,438
  7,829
  8,239
  8,667
  9,117
Issuance/(repurchase) of shares, $m
  -106
  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 from financing (excl. dividends), $m  
  4,414
  1,170
  1,407
  1,608
  1,806
  2,001
  2,195
  2,391
  2,588
  2,788
  2,992
  3,201
  3,416
  3,637
  3,865
  4,101
  4,346
  4,601
  4,865
  5,141
  5,428
  5,727
  6,040
  6,366
  6,708
  7,065
  7,438
  7,829
  8,239
  8,667
  9,117
Total cash flow (excl. dividends), $m
  7,793
  -1,603
  3,564
  3,581
  3,608
  3,647
  3,696
  3,754
  3,822
  3,900
  3,986
  3,994
  4,099
  4,213
  4,336
  4,469
  4,612
  4,765
  4,928
  5,101
  5,286
  5,481
  5,689
  5,909
  6,141
  6,387
  6,646
  6,920
  7,208
  7,513
  7,833
Retained Cash Flow (-), $m
  10,478
  -865
  -1,137
  -1,300
  -1,460
  -1,617
  -1,775
  -1,932
  -2,092
  -2,254
  -2,419
  -2,587
  -2,761
  -2,940
  -3,124
  -3,315
  -3,513
  -3,719
  -3,933
  -4,155
  -4,387
  -4,629
  -4,882
  -5,146
  -5,422
  -5,711
  -6,012
  -6,329
  -6,659
  -7,006
  -7,369
Prev. year cash balance distribution, $m
 
  5,702
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  3,234
  2,427
  2,281
  2,149
  2,030
  1,921
  1,822
  1,731
  1,646
  1,568
  1,406
  1,338
  1,273
  1,212
  1,154
  1,099
  1,046
  995
  946
  898
  852
  807
  763
  719
  676
  633
  591
  549
  507
  464
Discount rate, %
 
  4.90
  5.15
  5.40
  5.67
  5.96
  6.25
  6.57
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
PV of cash for distribution, $m
 
  3,083
  2,195
  1,948
  1,723
  1,520
  1,335
  1,167
  1,015
  878
  754
  604
  509
  425
  352
  288
  233
  186
  146
  114
  87
  65
  48
  35
  25
  17
  12
  8
  5
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

BHP Billiton Limited discovers, acquires, develops, and markets natural resources worldwide. It operates through four segments: Petroleum, Copper, Iron Ore, and Coal. The company explores for, develops, produces, and markets oil and gas in the Gulf of Mexico, Western Australia, and Trinidad and Tobago. It also explores for copper, silver, lead, zinc, molybdenum, uranium, gold, iron ore, and metallurgical and thermal coal. The company was formerly known as BHP Limited and changed its name to BHP Billiton Limited in July 2001. BHP Billiton Limited was founded in 1851 and is headquartered in Melbourne, Australia. BHP Billiton Limited is a subsidiary of BHP Billiton Group.

FINANCIAL RATIOS  of  BHP Billiton ADR (BHP)

Valuation Ratios
P/E Ratio -18.2
Price to Sales 3.8
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 10.9
Price to Free Cash Flow 39.8
Growth Rates
Sales Growth Rate -30.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -40%
Cap. Spend. - 3 Yr. Gr. Rate -19.5%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 58.5%
Total Debt to Equity 67.1%
Interest Coverage -8
Management Effectiveness
Return On Assets -4.7%
Ret/ On Assets - 3 Yr. Avg. 2.3%
Return On Total Capital -6.8%
Ret/ On T. Cap. - 3 Yr. Avg. 2.6%
Return On Equity -10.7%
Return On Equity - 3 Yr. Avg. 3.5%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 83.6%
Gross Margin - 3 Yr. Avg. 85.9%
EBITDA Margin 7.2%
EBITDA Margin - 3 Yr. Avg. 33.6%
Operating Margin -20.2%
Oper. Margin - 3 Yr. Avg. 13.1%
Pre-Tax Margin -23.5%
Pre-Tax Margin - 3 Yr. Avg. 11%
Net Profit Margin -20.7%
Net Profit Margin - 3 Yr. Avg. 2.7%
Effective Tax Rate 14.5%
Eff/ Tax Rate - 3 Yr. Avg. 30.4%
Payout Ratio -64.7%

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 $30912 million for the last fiscal year's total revenue generated by BHP Billiton ADR. The default revenue input number comes from 2016 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 2% 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 4.9%, 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 80.6%.

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 291%.

Life of production assets of 10.8 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 -1.1%. 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 - $54290 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 2478.8 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 $89.6 billion.


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COMPANY NEWS

▶ Iron Ore Forecast at $41 in 2018   [Apr-24-17 07:13PM  Bloomberg Video]
▶ Activist Elliott Calls for BHP Spinoff   [Apr-20-17 06:29PM  Bloomberg Video]
▶ [$$] Rio Tinto Scales Back Copper Production Target   [Apr-19-17 09:51PM  The Wall Street Journal]
▶ Can Freeport Deliver Free Cash Flow in 1Q17?   [09:08AM  Market Realist]
▶ [$$] The week's news in brief: April 17   [Apr-16-17 12:00AM  Financial Times]
▶ [$$] Week in Review, April 15   [Apr-14-17 11:31AM  Financial Times]
▶ BHP rebuffs Elliott Management again   [12:00AM  CNBC Videos]
▶ Miners Drop: Is It A China Metals Correction?   [Apr-12-17 05:51PM  Barrons.com]
▶ Why This Trump Stock Had Its Worst Day In Nearly A Year   [04:16PM  Investor's Business Daily]
▶ [$$] Activist Investor Urges BHP to Exploit a Tax Quirk   [01:07PM  The Wall Street Journal]
▶ PRESS DIGEST- Financial Times - April 12   [Apr-11-17 08:01PM  Reuters]
▶ Elliott Pushes for New BHP Billiton Strategy   [07:12PM  Bloomberg Video]
▶ Great Recovery By BHP Billiton   [12:49PM  GuruFocus.com]
▶ Gold, Franking Nonsense and Err   [12:28AM  Bloomberg]
▶ [$$] BHP Billiton: frankly speaking   [02:10PM  Financial Times]
▶ [$$] BHP Needs to Prove Oil and Iron Are Better Together   [01:13PM  The Wall Street Journal]
▶ BHP Urged by Elliott to Restructure   [04:03AM  Bloomberg]
▶ [$$] Copper Rally Comes a Cropper   [Apr-08-17 12:51AM  Barrons.com]
▶ Iron Ore Price Slumps, Taking Miners Lower   [Apr-07-17 10:39AM  Barrons.com]
▶ Behind BHP Billitons Roller Coaster Ride in 1Q17   [Apr-06-17 04:35PM  Market Realist]
▶ Mining Giant BHP Wants to Banish the Boys' Club   [Apr-05-17 11:27PM  Bloomberg]
▶ Inside Freeports Indonesia Problem   [03:05PM  Market Realist]
Stock chart of BHP 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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