Intrinsic value of China Mobile ADR - CHL

Previous Close

$50.17

  Intrinsic Value

$77.95

stock screener

  Rating & Target

str. buy

+55%

  Value-price divergence*

-71%

Previous close

$50.17

 
Intrinsic value

$77.95

 
Up/down potential

+55%

 
Rating

str. buy

 
Value-price divergence*

-71%

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

We calculate the intrinsic value of CHL 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 206.1

 

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, %
  6.00
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
Revenue, $m
  102,489
  108,638
  115,048
  121,732
  128,706
  135,986
  143,588
  151,531
  159,832
  168,512
  177,590
  187,089
  197,031
  207,439
  218,338
  229,754
  241,715
  254,249
  267,385
  281,156
  295,593
  310,732
  326,609
  343,261
  360,728
  379,052
  398,277
  418,448
  439,614
  461,825
  485,133
Variable operating expenses, $m
 
  67,542
  71,497
  75,621
  79,925
  84,416
  89,107
  94,008
  99,130
  104,485
  110,086
  115,436
  121,570
  127,992
  134,717
  141,761
  149,141
  156,874
  164,980
  173,476
  182,384
  191,725
  201,521
  211,796
  222,573
  233,879
  245,741
  258,187
  271,247
  284,951
  299,333
Fixed operating expenses, $m
 
  22,802
  23,372
  23,957
  24,555
  25,169
  25,799
  26,444
  27,105
  27,782
  28,477
  29,189
  29,918
  30,666
  31,433
  32,219
  33,024
  33,850
  34,696
  35,564
  36,453
  37,364
  38,298
  39,256
  40,237
  41,243
  42,274
  43,331
  44,414
  45,524
  46,662
Total operating expenses, $m
  85,405
  90,344
  94,869
  99,578
  104,480
  109,585
  114,906
  120,452
  126,235
  132,267
  138,563
  144,625
  151,488
  158,658
  166,150
  173,980
  182,165
  190,724
  199,676
  209,040
  218,837
  229,089
  239,819
  251,052
  262,810
  275,122
  288,015
  301,518
  315,661
  330,475
  345,995
Operating income, $m
  17,084
  18,294
  20,179
  22,154
  24,226
  26,401
  28,683
  31,080
  33,598
  36,245
  39,027
  42,464
  45,542
  48,780
  52,188
  55,774
  59,550
  63,524
  67,709
  72,116
  76,756
  81,643
  86,789
  92,210
  97,918
  103,930
  110,262
  116,930
  123,953
  131,349
  139,138
EBITDA, $m
  37,134
  38,893
  41,963
  45,175
  48,536
  52,056
  55,745
  59,610
  63,663
  67,915
  72,376
  77,058
  81,974
  87,137
  92,560
  98,257
  104,244
  110,536
  117,150
  124,103
  131,413
  139,099
  147,181
  155,680
  164,619
  174,019
  183,905
  194,304
  205,240
  216,743
  228,842
Interest expense (income), $m
  34
  0
  220
  449
  687
  936
  1,195
  1,466
  1,749
  2,045
  2,354
  2,678
  3,016
  3,371
  3,742
  4,130
  4,537
  4,963
  5,410
  5,878
  6,369
  6,883
  7,423
  7,989
  8,582
  9,204
  9,858
  10,543
  11,262
  12,016
  12,807
Earnings before tax, $m
  20,900
  18,294
  19,958
  21,705
  23,539
  25,465
  27,488
  29,614
  31,849
  34,200
  36,673
  39,787
  42,526
  45,410
  48,446
  51,644
  55,013
  58,561
  62,300
  66,238
  70,388
  74,760
  79,367
  84,221
  89,336
  94,725
  100,404
  106,388
  112,692
  119,333
  126,331
Tax expense, $m
  5,154
  4,939
  5,389
  5,860
  6,356
  6,876
  7,422
  7,996
  8,599
  9,234
  9,902
  10,742
  11,482
  12,261
  13,081
  13,944
  14,854
  15,812
  16,821
  17,884
  19,005
  20,185
  21,429
  22,740
  24,121
  25,576
  27,109
  28,725
  30,427
  32,220
  34,109
Net income, $m
  15,732
  13,354
  14,569
  15,845
  17,184
  18,589
  20,066
  21,618
  23,250
  24,966
  26,771
  29,044
  31,044
  33,149
  35,366
  37,700
  40,159
  42,750
  45,479
  48,354
  51,383
  54,575
  57,938
  61,481
  65,215
  69,150
  73,295
  77,663
  82,265
  87,113
  92,222

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  66,203
  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
  220,045
  163,121
  172,745
  182,781
  193,253
  204,183
  215,598
  227,524
  239,988
  253,021
  266,652
  280,914
  295,842
  311,469
  327,834
  344,976
  362,935
  381,755
  401,479
  422,156
  443,834
  466,565
  490,404
  515,407
  541,634
  569,148
  598,014
  628,301
  660,081
  693,430
  728,429
Adjusted assets (=assets-cash), $m
  153,842
  163,121
  172,745
  182,781
  193,253
  204,183
  215,598
  227,524
  239,988
  253,021
  266,652
  280,914
  295,842
  311,469
  327,834
  344,976
  362,935
  381,755
  401,479
  422,156
  443,834
  466,565
  490,404
  515,407
  541,634
  569,148
  598,014
  628,301
  660,081
  693,430
  728,429
Revenue / Adjusted assets
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
  0.666
Average production assets, $m
  100,426
  106,466
  112,747
  119,298
  126,132
  133,266
  140,717
  148,500
  156,636
  165,142
  174,038
  183,347
  193,090
  203,290
  213,971
  225,159
  236,881
  249,164
  262,037
  275,532
  289,681
  304,518
  320,077
  336,396
  353,514
  371,471
  390,311
  410,079
  430,822
  452,588
  475,431
Working capital, $m
  7,270
  -61,707
  -65,347
  -69,144
  -73,105
  -77,240
  -81,558
  -86,070
  -90,785
  -95,715
  -100,871
  -106,267
  -111,913
  -117,825
  -124,016
  -130,500
  -137,294
  -144,413
  -151,875
  -159,696
  -167,897
  -176,496
  -185,514
  -194,972
  -204,894
  -215,302
  -226,221
  -237,679
  -249,701
  -262,316
  -275,556
Total debt, $m
  723
  4,691
  9,551
  14,620
  19,908
  25,428
  31,192
  37,215
  43,509
  50,090
  56,974
  64,177
  71,715
  79,607
  87,871
  96,528
  105,597
  115,101
  125,062
  135,504
  146,451
  157,930
  169,969
  182,595
  195,840
  209,735
  224,312
  239,607
  255,656
  272,497
  290,171
Total liabilities, $m
  78,408
  82,376
  87,236
  92,305
  97,593
  103,113
  108,877
  114,900
  121,194
  127,775
  134,659
  141,862
  149,400
  157,292
  165,556
  174,213
  183,282
  192,786
  202,747
  213,189
  224,136
  235,615
  247,654
  260,280
  273,525
  287,420
  301,997
  317,292
  333,341
  350,182
  367,856
Total equity, $m
  141,637
  80,745
  85,509
  90,477
  95,660
  101,071
  106,721
  112,624
  118,794
  125,245
  131,993
  139,053
  146,442
  154,177
  162,278
  170,763
  179,653
  188,969
  198,732
  208,967
  219,698
  230,950
  242,750
  255,126
  268,109
  281,728
  296,017
  311,009
  326,740
  343,248
  360,572
Total liabilities and equity, $m
  220,045
  163,121
  172,745
  182,782
  193,253
  204,184
  215,598
  227,524
  239,988
  253,020
  266,652
  280,915
  295,842
  311,469
  327,834
  344,976
  362,935
  381,755
  401,479
  422,156
  443,834
  466,565
  490,404
  515,406
  541,634
  569,148
  598,014
  628,301
  660,081
  693,430
  728,428
Debt-to-equity ratio
  0.005
  0.060
  0.110
  0.160
  0.210
  0.250
  0.290
  0.330
  0.370
  0.400
  0.430
  0.460
  0.490
  0.520
  0.540
  0.570
  0.590
  0.610
  0.630
  0.650
  0.670
  0.680
  0.700
  0.720
  0.730
  0.740
  0.760
  0.770
  0.780
  0.790
  0.800
Adjusted equity ratio
  0.490
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495
  0.495

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15,732
  13,354
  14,569
  15,845
  17,184
  18,589
  20,066
  21,618
  23,250
  24,966
  26,771
  29,044
  31,044
  33,149
  35,366
  37,700
  40,159
  42,750
  45,479
  48,354
  51,383
  54,575
  57,938
  61,481
  65,215
  69,150
  73,295
  77,663
  82,265
  87,113
  92,222
Depreciation, amort., depletion, $m
  20,050
  20,599
  21,784
  23,020
  24,310
  25,656
  27,062
  28,530
  30,065
  31,670
  33,349
  34,594
  36,432
  38,357
  40,372
  42,483
  44,694
  47,012
  49,441
  51,987
  54,657
  57,456
  60,392
  63,471
  66,701
  70,089
  73,644
  77,373
  81,287
  85,394
  89,704
Funds from operations, $m
  34,308
  33,954
  36,354
  38,865
  41,493
  44,245
  47,128
  50,148
  53,315
  56,636
  60,120
  63,638
  67,476
  71,506
  75,738
  80,183
  84,854
  89,762
  94,920
  100,341
  106,040
  112,031
  118,330
  124,952
  131,916
  139,239
  146,939
  155,036
  163,552
  172,507
  181,925
Change in working capital, $m
  -2,395
  -3,493
  -3,641
  -3,797
  -3,961
  -4,135
  -4,318
  -4,511
  -4,715
  -4,930
  -5,157
  -5,395
  -5,647
  -5,912
  -6,191
  -6,485
  -6,794
  -7,119
  -7,461
  -7,822
  -8,201
  -8,599
  -9,018
  -9,458
  -9,921
  -10,408
  -10,920
  -11,457
  -12,022
  -12,616
  -13,239
Cash from operations, $m
  36,703
  37,446
  39,994
  42,662
  45,455
  48,380
  51,446
  54,660
  58,030
  61,566
  65,276
  69,033
  73,123
  77,417
  81,929
  86,668
  91,648
  96,881
  102,381
  108,163
  114,240
  120,630
  127,347
  134,411
  141,837
  149,647
  157,858
  166,494
  175,574
  185,123
  195,165
Maintenance CAPEX, $m
  0
  -18,948
  -20,088
  -21,273
  -22,509
  -23,799
  -25,145
  -26,550
  -28,019
  -29,554
  -31,159
  -32,837
  -34,594
  -36,432
  -38,357
  -40,372
  -42,483
  -44,694
  -47,012
  -49,441
  -51,987
  -54,657
  -57,456
  -60,392
  -63,471
  -66,701
  -70,089
  -73,644
  -77,373
  -81,287
  -85,394
New CAPEX, $m
  -27,598
  -6,040
  -6,281
  -6,551
  -6,835
  -7,134
  -7,450
  -7,784
  -8,135
  -8,506
  -8,897
  -9,309
  -9,743
  -10,200
  -10,681
  -11,188
  -11,722
  -12,283
  -12,874
  -13,495
  -14,149
  -14,836
  -15,559
  -16,319
  -17,118
  -17,958
  -18,840
  -19,768
  -20,742
  -21,767
  -22,843
Cash from investing activities, $m
  -28,142
  -24,988
  -26,369
  -27,824
  -29,344
  -30,933
  -32,595
  -34,334
  -36,154
  -38,060
  -40,056
  -42,146
  -44,337
  -46,632
  -49,038
  -51,560
  -54,205
  -56,977
  -59,886
  -62,936
  -66,136
  -69,493
  -73,015
  -76,711
  -80,589
  -84,659
  -88,929
  -93,412
  -98,115
  -103,054
  -108,237
Free cash flow, $m
  8,561
  12,459
  13,625
  14,838
  16,111
  17,447
  18,851
  20,326
  21,876
  23,506
  25,221
  26,887
  28,786
  30,785
  32,891
  35,108
  37,443
  39,903
  42,495
  45,226
  48,104
  51,137
  54,332
  57,700
  61,249
  64,988
  68,929
  73,082
  77,458
  82,070
  86,928
Issuance/(repayment) of debt, $m
  -249
  4,691
  4,860
  5,068
  5,288
  5,520
  5,764
  6,022
  6,295
  6,581
  6,884
  7,202
  7,538
  7,892
  8,264
  8,657
  9,069
  9,504
  9,961
  10,442
  10,947
  11,479
  12,039
  12,627
  13,245
  13,894
  14,577
  15,295
  16,049
  16,841
  17,674
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  -285
  4,691
  4,860
  5,068
  5,288
  5,520
  5,764
  6,022
  6,295
  6,581
  6,884
  7,202
  7,538
  7,892
  8,264
  8,657
  9,069
  9,504
  9,961
  10,442
  10,947
  11,479
  12,039
  12,627
  13,245
  13,894
  14,577
  15,295
  16,049
  16,841
  17,674
Total cash flow (excl. dividends), $m
  8,327
  17,150
  18,485
  19,907
  21,399
  22,967
  24,615
  26,348
  28,170
  30,087
  32,105
  34,090
  36,324
  38,677
  41,155
  43,764
  46,513
  49,407
  52,456
  55,668
  59,052
  62,616
  66,371
  70,326
  74,493
  78,883
  83,507
  88,377
  93,507
  98,911
  104,602
Retained Cash Flow (-), $m
  -8,924
  -4,588
  -4,764
  -4,968
  -5,183
  -5,411
  -5,650
  -5,903
  -6,170
  -6,451
  -6,747
  -7,060
  -7,389
  -7,736
  -8,101
  -8,485
  -8,890
  -9,316
  -9,764
  -10,235
  -10,731
  -11,252
  -11,800
  -12,377
  -12,982
  -13,619
  -14,289
  -14,992
  -15,731
  -16,508
  -17,324
Prev. year cash balance distribution, $m
 
  65,480
  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
 
  78,042
  13,721
  14,939
  16,216
  17,557
  18,965
  20,445
  22,001
  23,636
  25,357
  27,030
  28,935
  30,942
  33,054
  35,279
  37,623
  40,092
  42,693
  45,433
  48,321
  51,364
  54,571
  57,950
  61,511
  65,263
  69,218
  73,385
  77,776
  82,403
  87,278
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
 
  74,824
  12,561
  13,001
  13,352
  13,609
  13,764
  13,812
  13,751
  13,578
  13,294
  12,836
  12,348
  11,765
  11,097
  10,357
  9,561
  8,723
  7,862
  6,995
  6,140
  5,313
  4,528
  3,798
  3,133
  2,539
  2,019
  1,575
  1,203
  900
  657
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

China Mobile Limited is an investment holding company principally engaged in telecommunication and related businesses. Its main businesses include Mobile businesses, Wireline Broadband businesses and Internet of Things (IoT) businesses. Mobile businesses include two categories of services. Voice services include local calls, domestic and international long distance calls, roaming services and voice value-added services. Data services include short message services and multimedia message services, wireless data traffic services and application and information services, such as Mobile Music, Mobile Reading and Mobile Video, among others. Wireline Broadband businesses include the provision of wireline broadband and related services. The Company also provides customer services, including phone bill enquiry, among others. The Company mainly operates businesses in Mainland China.

FINANCIAL RATIOS  of  China Mobile ADR (CHL)

Valuation Ratios
P/E Ratio 65.3
Price to Sales 10
Price to Book 7.3
Price to Tangible Book
Price to Cash Flow 28
Price to Free Cash Flow 112.8
Growth Rates
Sales Growth Rate 6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 9.7%
Cap. Spend. - 3 Yr. Gr. Rate 6.3%
Financial Strength
Quick Ratio 92
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0.5%
Interest Coverage 616
Management Effectiveness
Return On Assets 7.4%
Ret/ On Assets - 3 Yr. Avg. 8%
Return On Total Capital 11.4%
Ret/ On T. Cap. - 3 Yr. Avg. 12.1%
Return On Equity 11.5%
Return On Equity - 3 Yr. Avg. 12.2%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 79.1%
Gross Margin - 3 Yr. Avg. 80.6%
EBITDA Margin 40%
EBITDA Margin - 3 Yr. Avg. 41%
Operating Margin 16.7%
Oper. Margin - 3 Yr. Avg. 16.7%
Pre-Tax Margin 20.4%
Pre-Tax Margin - 3 Yr. Avg. 21.3%
Net Profit Margin 15.3%
Net Profit Margin - 3 Yr. Avg. 16.1%
Effective Tax Rate 24.7%
Eff/ Tax Rate - 3 Yr. Avg. 24.1%
Payout Ratio 43.2%

CHL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CHL stock intrinsic value calculation we used $102489 million for the last fiscal year's total revenue generated by China Mobile ADR. The default revenue input number comes from 2016 income statement of China Mobile 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 CHL stock valuation model: a) initial revenue growth rate of 6% 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 CHL is calculated based on our internal credit rating of China Mobile 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 Mobile 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 CHL stock the variable cost ratio is equal to 62.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $22246 million in the base year in the intrinsic value calculation for CHL 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 4.7% for China Mobile ADR.

Corporate tax rate of 27% is the nominal tax rate for China Mobile 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 CHL 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 CHL are equal to 98%.

Life of production assets of 5.3 years is the average useful life of capital assets used in China Mobile 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 CHL is equal to -56.8%. 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 - $141637 million for China Mobile 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 4108.99 million for China Mobile 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 Mobile ADR at the current share price and the inputted number of shares is $206.1 billion.

RELATED COMPANIES Price Int.Val. Rating
CHU China Unicom ( 14.45 5.09  str.sell
CHA China Telecom 51.73 19.99  str.sell
VOD Vodafone Group 28.93 17.21  sell
ERIC Ericsson ADR 5.90 6.31  hold

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Financial statements of CHL
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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