Intrinsic value of China Eastern Airlines ADR - CEA

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$27.42

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$27.42

 
Intrinsic value

$15.48

 
Up/down potential

-44%

 
Rating

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 CEA 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 12.1

 

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, %
  5.25
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
Revenue, $m
  14,309
  15,067
  15,861
  16,693
  17,564
  18,477
  19,434
  20,436
  21,487
  22,589
  23,745
  24,957
  26,229
  27,562
  28,961
  30,429
  31,970
  33,586
  35,282
  37,062
  38,930
  40,891
  42,949
  45,109
  47,376
  49,757
  52,255
  54,878
  57,631
  60,522
  63,557
Variable operating expenses, $m
 
  13,048
  13,736
  14,456
  15,211
  16,001
  16,829
  17,698
  18,608
  19,562
  20,563
  21,613
  22,714
  23,869
  25,081
  26,352
  27,686
  29,085
  30,554
  32,096
  33,713
  35,411
  37,194
  39,064
  41,028
  43,089
  45,253
  47,524
  49,909
  52,412
  55,040
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
  12,502
  13,048
  13,736
  14,456
  15,211
  16,001
  16,829
  17,698
  18,608
  19,562
  20,563
  21,613
  22,714
  23,869
  25,081
  26,352
  27,686
  29,085
  30,554
  32,096
  33,713
  35,411
  37,194
  39,064
  41,028
  43,089
  45,253
  47,524
  49,909
  52,412
  55,040
Operating income, $m
  1,806
  2,019
  2,125
  2,237
  2,354
  2,476
  2,604
  2,738
  2,879
  3,027
  3,182
  3,344
  3,515
  3,693
  3,881
  4,078
  4,284
  4,501
  4,728
  4,966
  5,217
  5,479
  5,755
  6,045
  6,348
  6,667
  7,002
  7,354
  7,723
  8,110
  8,517
EBITDA, $m
  3,368
  3,540
  3,727
  3,922
  4,127
  4,341
  4,566
  4,802
  5,049
  5,308
  5,579
  5,864
  6,163
  6,476
  6,805
  7,150
  7,512
  7,891
  8,290
  8,708
  9,147
  9,608
  10,091
  10,599
  11,132
  11,691
  12,278
  12,894
  13,541
  14,220
  14,933
Interest expense (income), $m
  443
  588
  630
  675
  723
  772
  824
  879
  936
  996
  1,059
  1,124
  1,193
  1,266
  1,342
  1,422
  1,505
  1,593
  1,685
  1,782
  1,883
  1,989
  2,101
  2,218
  2,341
  2,471
  2,606
  2,748
  2,898
  3,055
  3,219
Earnings before tax, $m
  940
  1,431
  1,495
  1,562
  1,631
  1,704
  1,780
  1,860
  1,943
  2,031
  2,123
  2,220
  2,321
  2,428
  2,539
  2,656
  2,779
  2,908
  3,043
  3,185
  3,334
  3,490
  3,654
  3,826
  4,007
  4,197
  4,396
  4,605
  4,825
  5,055
  5,297
Tax expense, $m
  223
  386
  404
  422
  440
  460
  481
  502
  525
  548
  573
  599
  627
  655
  686
  717
  750
  785
  822
  860
  900
  942
  987
  1,033
  1,082
  1,133
  1,187
  1,243
  1,303
  1,365
  1,430
Net income, $m
  651
  1,045
  1,092
  1,140
  1,191
  1,244
  1,299
  1,358
  1,419
  1,483
  1,550
  1,621
  1,695
  1,772
  1,853
  1,939
  2,029
  2,123
  2,221
  2,325
  2,434
  2,548
  2,667
  2,793
  2,925
  3,064
  3,209
  3,362
  3,522
  3,690
  3,867

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  245
  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
  30,717
  32,058
  33,748
  35,517
  37,371
  39,313
  41,348
  43,481
  45,718
  48,063
  50,522
  53,101
  55,806
  58,643
  61,620
  64,743
  68,021
  71,459
  75,068
  78,855
  82,830
  87,002
  91,380
  95,976
  100,801
  105,865
  111,181
  116,762
  122,620
  128,770
  135,227
Adjusted assets (=assets-cash), $m
  30,472
  32,058
  33,748
  35,517
  37,371
  39,313
  41,348
  43,481
  45,718
  48,063
  50,522
  53,101
  55,806
  58,643
  61,620
  64,743
  68,021
  71,459
  75,068
  78,855
  82,830
  87,002
  91,380
  95,976
  100,801
  105,865
  111,181
  116,762
  122,620
  128,770
  135,227
Revenue / Adjusted assets
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
  0.470
Average production assets, $m
  10,543
  11,105
  11,690
  12,303
  12,945
  13,618
  14,323
  15,061
  15,836
  16,648
  17,500
  18,394
  19,331
  20,313
  21,345
  22,426
  23,562
  24,753
  26,003
  27,315
  28,692
  30,137
  31,653
  33,245
  34,916
  36,671
  38,512
  40,445
  42,474
  44,605
  46,841
Working capital, $m
  -7,551
  -2,833
  -2,982
  -3,138
  -3,302
  -3,474
  -3,654
  -3,842
  -4,040
  -4,247
  -4,464
  -4,692
  -4,931
  -5,182
  -5,445
  -5,721
  -6,010
  -6,314
  -6,633
  -6,968
  -7,319
  -7,687
  -8,074
  -8,480
  -8,907
  -9,354
  -9,824
  -10,317
  -10,835
  -11,378
  -11,949
Total debt, $m
  17,038
  18,000
  19,292
  20,646
  22,064
  23,549
  25,106
  26,738
  28,449
  30,243
  32,124
  34,097
  36,166
  38,337
  40,614
  43,004
  45,511
  48,141
  50,902
  53,799
  56,840
  60,031
  63,381
  66,897
  70,588
  74,462
  78,528
  82,798
  87,279
  91,984
  96,924
Total liabilities, $m
  23,563
  24,525
  25,817
  27,171
  28,589
  30,074
  31,631
  33,263
  34,974
  36,768
  38,649
  40,622
  42,691
  44,862
  47,139
  49,529
  52,036
  54,666
  57,427
  60,324
  63,365
  66,556
  69,906
  73,422
  77,113
  80,987
  85,053
  89,323
  93,804
  98,509
  103,449
Total equity, $m
  7,154
  7,534
  7,931
  8,347
  8,782
  9,238
  9,717
  10,218
  10,744
  11,295
  11,873
  12,479
  13,114
  13,781
  14,481
  15,215
  15,985
  16,793
  17,641
  18,531
  19,465
  20,445
  21,474
  22,554
  23,688
  24,878
  26,128
  27,439
  28,816
  30,261
  31,778
Total liabilities and equity, $m
  30,717
  32,059
  33,748
  35,518
  37,371
  39,312
  41,348
  43,481
  45,718
  48,063
  50,522
  53,101
  55,805
  58,643
  61,620
  64,744
  68,021
  71,459
  75,068
  78,855
  82,830
  87,001
  91,380
  95,976
  100,801
  105,865
  111,181
  116,762
  122,620
  128,770
  135,227
Debt-to-equity ratio
  2.382
  2.390
  2.430
  2.470
  2.510
  2.550
  2.580
  2.620
  2.650
  2.680
  2.710
  2.730
  2.760
  2.780
  2.800
  2.830
  2.850
  2.870
  2.890
  2.900
  2.920
  2.940
  2.950
  2.970
  2.980
  2.990
  3.010
  3.020
  3.030
  3.040
  3.050
Adjusted equity ratio
  0.227
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  651
  1,045
  1,092
  1,140
  1,191
  1,244
  1,299
  1,358
  1,419
  1,483
  1,550
  1,621
  1,695
  1,772
  1,853
  1,939
  2,029
  2,123
  2,221
  2,325
  2,434
  2,548
  2,667
  2,793
  2,925
  3,064
  3,209
  3,362
  3,522
  3,690
  3,867
Depreciation, amort., depletion, $m
  1,562
  1,521
  1,601
  1,685
  1,773
  1,865
  1,962
  2,063
  2,169
  2,281
  2,397
  2,520
  2,648
  2,783
  2,924
  3,072
  3,228
  3,391
  3,562
  3,742
  3,930
  4,128
  4,336
  4,554
  4,783
  5,023
  5,276
  5,540
  5,818
  6,110
  6,417
Funds from operations, $m
  3,621
  2,566
  2,693
  2,825
  2,964
  3,109
  3,261
  3,421
  3,588
  3,763
  3,947
  4,140
  4,343
  4,555
  4,777
  5,011
  5,256
  5,513
  5,783
  6,067
  6,364
  6,676
  7,004
  7,347
  7,708
  8,087
  8,485
  8,902
  9,340
  9,801
  10,284
Change in working capital, $m
  102
  -143
  -149
  -156
  -164
  -172
  -180
  -189
  -198
  -207
  -217
  -228
  -239
  -251
  -263
  -276
  -290
  -304
  -319
  -335
  -351
  -369
  -387
  -406
  -426
  -447
  -470
  -493
  -518
  -543
  -571
Cash from operations, $m
  3,519
  -6,152
  2,842
  2,982
  3,128
  3,281
  3,441
  3,609
  3,786
  3,971
  4,165
  4,368
  4,582
  4,805
  5,040
  5,287
  5,546
  5,817
  6,102
  6,401
  6,715
  7,045
  7,390
  7,753
  8,134
  8,535
  8,954
  9,395
  9,858
  10,344
  10,854
Maintenance CAPEX, $m
  0
  -1,444
  -1,521
  -1,601
  -1,685
  -1,773
  -1,865
  -1,962
  -2,063
  -2,169
  -2,281
  -2,397
  -2,520
  -2,648
  -2,783
  -2,924
  -3,072
  -3,228
  -3,391
  -3,562
  -3,742
  -3,930
  -4,128
  -4,336
  -4,554
  -4,783
  -5,023
  -5,276
  -5,540
  -5,818
  -6,110
New CAPEX, $m
  -1,261
  -562
  -585
  -613
  -642
  -673
  -705
  -739
  -775
  -812
  -852
  -893
  -937
  -983
  -1,031
  -1,082
  -1,135
  -1,191
  -1,250
  -1,312
  -1,377
  -1,445
  -1,517
  -1,592
  -1,671
  -1,754
  -1,841
  -1,933
  -2,029
  -2,130
  -2,237
Cash from investing activities, $m
  -4,022
  -2,006
  -2,106
  -2,214
  -2,327
  -2,446
  -2,570
  -2,701
  -2,838
  -2,981
  -3,133
  -3,290
  -3,457
  -3,631
  -3,814
  -4,006
  -4,207
  -4,419
  -4,641
  -4,874
  -5,119
  -5,375
  -5,645
  -5,928
  -6,225
  -6,537
  -6,864
  -7,209
  -7,569
  -7,948
  -8,347
Free cash flow, $m
  -503
  -8,158
  736
  767
  800
  835
  871
  908
  948
  989
  1,032
  1,077
  1,125
  1,175
  1,227
  1,281
  1,338
  1,398
  1,461
  1,527
  1,597
  1,669
  1,745
  1,825
  1,909
  1,997
  2,090
  2,187
  2,288
  2,395
  2,507
Issuance/(repayment) of debt, $m
  1,639
  1,207
  1,292
  1,354
  1,418
  1,486
  1,557
  1,632
  1,711
  1,794
  1,881
  1,973
  2,069
  2,171
  2,277
  2,389
  2,507
  2,631
  2,761
  2,897
  3,041
  3,191
  3,350
  3,516
  3,691
  3,874
  4,067
  4,269
  4,482
  4,705
  4,939
Issuance/(repurchase) of shares, $m
  413
  7,331
  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  
  1,603
  8,538
  1,292
  1,354
  1,418
  1,486
  1,557
  1,632
  1,711
  1,794
  1,881
  1,973
  2,069
  2,171
  2,277
  2,389
  2,507
  2,631
  2,761
  2,897
  3,041
  3,191
  3,350
  3,516
  3,691
  3,874
  4,067
  4,269
  4,482
  4,705
  4,939
Total cash flow (excl. dividends), $m
  1,118
  -6,952
  2,028
  2,121
  2,218
  2,320
  2,428
  2,540
  2,659
  2,783
  2,913
  3,050
  3,194
  3,345
  3,504
  3,671
  3,845
  4,029
  4,222
  4,425
  4,637
  4,861
  5,095
  5,341
  5,600
  5,871
  6,156
  6,456
  6,770
  7,100
  7,447
Retained Cash Flow (-), $m
  -1,742
  -380
  -397
  -416
  -436
  -456
  -478
  -501
  -526
  -551
  -578
  -606
  -636
  -667
  -700
  -734
  -770
  -808
  -848
  -890
  -934
  -980
  -1,029
  -1,080
  -1,134
  -1,190
  -1,249
  -1,311
  -1,377
  -1,445
  -1,517
Prev. year cash balance distribution, $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 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
 
  0
  1,631
  1,705
  1,783
  1,864
  1,949
  2,039
  2,133
  2,232
  2,336
  2,444
  2,559
  2,678
  2,804
  2,937
  3,075
  3,221
  3,374
  3,535
  3,703
  3,880
  4,066
  4,261
  4,466
  4,681
  4,907
  5,144
  5,393
  5,655
  5,929
Discount rate, %
 
  9.70
  10.19
  10.69
  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
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.38
  29.79
  31.28
  32.85
  34.49
  36.21
  38.03
  39.93
PV of cash for distribution, $m
 
  0
  1,344
  1,257
  1,165
  1,068
  968
  867
  766
  669
  575
  487
  406
  332
  267
  211
  163
  123
  91
  66
  46
  32
  21
  14
  9
  5
  3
  2
  1
  0
  0
Current shareholders' claim on cash, %
  100
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2
  62.2

China Eastern Airlines Corporation Limited, together with its subsidiaries, operates in the civil aviation industry. It offers passenger, cargo, mail delivery, ground, cargo handling, and other extended transportation services. The company also provides flight training, cargo carriage, cargo logistics, and airlines consultation and maintenance services. In addition, it is involved in the provision of import and export, investment, leasing, and consultation services; hotel services; tour, travel and air ticketing agency, and transportation operations; and the provision research and development of technology and products in the field of aviation. Further, the company engages in the operation of e-commerce platform and non-aviation points for travelers, points mall and online floating market, digital marketing, and integrated non-aviation products for exploring transformation resources. As of December 31, 2015, the company operated a fleet of 551 aircraft, including 526 passenger aircraft, 9 freighters, and 16 business aircraft. It has operations in the People’s Republic of China and internationally. The company was founded in 1988 and is headquartered in Shanghai, the People’s Republic of China. China Eastern Airlines Corporation Limited is a subsidiary of China Eastern Air Holding Company.

FINANCIAL RATIOS  of  China Eastern Airlines ADR (CEA)

Valuation Ratios
P/E Ratio 609.4
Price to Sales 27.7
Price to Book 55.5
Price to Tangible Book
Price to Cash Flow 112.7
Price to Free Cash Flow 175.7
Growth Rates
Sales Growth Rate 5.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 49.6%
Cap. Spend. - 3 Yr. Gr. Rate 7.2%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 166.8%
Total Debt to Equity 238.2%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.3%
Ret/ On Assets - 3 Yr. Avg. 3.3%
Return On Total Capital 2.8%
Ret/ On T. Cap. - 3 Yr. Avg. 3%
Return On Equity 10.4%
Return On Equity - 3 Yr. Avg. 11.9%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 36.4%
Gross Margin - 3 Yr. Avg. 34.4%
EBITDA Margin 20.6%
EBITDA Margin - 3 Yr. Avg. 18%
Operating Margin 12.6%
Oper. Margin - 3 Yr. Avg. 10.9%
Pre-Tax Margin 6.6%
Pre-Tax Margin - 3 Yr. Avg. 5.7%
Net Profit Margin 4.5%
Net Profit Margin - 3 Yr. Avg. 4.4%
Effective Tax Rate 23.7%
Eff/ Tax Rate - 3 Yr. Avg. 16.2%
Payout Ratio 0%

CEA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CEA stock intrinsic value calculation we used $14309 million for the last fiscal year's total revenue generated by China Eastern Airlines ADR. The default revenue input number comes from 2016 income statement of China Eastern Airlines 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 CEA stock valuation model: a) initial revenue growth rate of 5.3% 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 9.7%, whose default value for CEA is calculated based on our internal credit rating of China Eastern Airlines 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 China Eastern Airlines 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 CEA stock the variable cost ratio is equal to 86.6%.

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 CEA 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 China Eastern Airlines ADR.

Corporate tax rate of 27% is the nominal tax rate for China Eastern Airlines 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 CEA 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 CEA are equal to 73.7%.

Life of production assets of 7.3 years is the average useful life of capital assets used in China Eastern Airlines 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 CEA is equal to -18.8%. 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 - $7154 million for China Eastern Airlines 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 440.559 million for China Eastern Airlines 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 China Eastern Airlines ADR at the current share price and the inputted number of shares is $12.1 billion.


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Stock chart of CEA Financial statements of CEA Annual reports of CEA
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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