Intrinsic value of Cliffs Natural Resources - CLF

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$7.11

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$7.11

 
Intrinsic value

$30.64

 
Up/down potential

+331%

 
Rating

str. buy

 
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 CLF 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 2.1

 

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, %
  4.77
  58.40
  53.06
  48.25
  43.93
  40.04
  36.53
  33.38
  30.54
  27.99
  25.69
  23.62
  21.76
  20.08
  18.57
  17.22
  15.99
  14.90
  13.91
  13.02
  12.21
  11.49
  10.84
  10.26
  9.73
  9.26
  8.83
  8.45
  8.11
  7.79
  7.52
Revenue, $m
  2,109
  3,341
  5,113
  7,581
  10,911
  15,279
  20,860
  27,823
  36,321
  46,486
  58,427
  72,227
  87,942
  105,603
  125,217
  146,774
  170,250
  195,609
  222,810
  251,809
  282,564
  315,037
  349,196
  385,019
  422,492
  461,613
  502,390
  544,843
  589,003
  634,914
  682,629
Variable operating expenses, $m
 
  2,439
  3,733
  5,534
  7,965
  11,153
  15,228
  20,311
  26,514
  33,935
  42,652
  52,726
  64,198
  77,090
  91,408
  107,145
  124,283
  142,795
  162,651
  183,821
  206,272
  229,977
  254,913
  281,064
  308,419
  336,977
  366,744
  397,735
  429,972
  463,487
  498,319
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
  1,702
  2,439
  3,733
  5,534
  7,965
  11,153
  15,228
  20,311
  26,514
  33,935
  42,652
  52,726
  64,198
  77,090
  91,408
  107,145
  124,283
  142,795
  162,651
  183,821
  206,272
  229,977
  254,913
  281,064
  308,419
  336,977
  366,744
  397,735
  429,972
  463,487
  498,319
Operating income, $m
  407
  902
  1,381
  2,047
  2,946
  4,125
  5,632
  7,512
  9,807
  12,551
  15,775
  19,501
  23,744
  28,513
  33,809
  39,629
  45,968
  52,815
  60,159
  67,988
  76,292
  85,060
  94,283
  103,955
  114,073
  124,635
  135,645
  147,108
  159,031
  171,427
  184,310
EBITDA, $m
  522
  1,079
  1,651
  2,448
  3,523
  4,934
  6,736
  8,985
  11,729
  15,012
  18,868
  23,324
  28,399
  34,102
  40,436
  47,398
  54,979
  63,168
  71,952
  81,317
  91,248
  101,735
  112,766
  124,334
  136,435
  149,068
  162,236
  175,946
  190,206
  205,032
  220,441
Interest expense (income), $m
  184
  165
  78
  168
  294
  463
  685
  969
  1,324
  1,756
  2,274
  2,881
  3,584
  4,383
  5,282
  6,280
  7,378
  8,572
  9,863
  11,247
  12,723
  14,288
  15,941
  17,679
  19,503
  21,410
  23,401
  25,476
  27,636
  29,884
  32,220
Earnings before tax, $m
  207
  737
  1,303
  1,879
  2,652
  3,662
  4,947
  6,543
  8,483
  10,795
  13,502
  16,620
  20,161
  24,129
  28,526
  33,349
  38,590
  44,242
  50,296
  56,741
  63,569
  70,772
  78,342
  86,276
  94,570
  103,226
  112,245
  121,632
  131,394
  141,543
  152,090
Tax expense, $m
  -12
  199
  352
  507
  716
  989
  1,336
  1,767
  2,290
  2,915
  3,645
  4,487
  5,443
  6,515
  7,702
  9,004
  10,419
  11,945
  13,580
  15,320
  17,164
  19,108
  21,152
  23,294
  25,534
  27,871
  30,306
  32,841
  35,477
  38,217
  41,064
Net income, $m
  174
  538
  951
  1,371
  1,936
  2,673
  3,611
  4,776
  6,192
  7,880
  9,856
  12,133
  14,717
  17,614
  20,824
  24,345
  28,171
  32,297
  36,716
  41,421
  46,405
  51,663
  57,190
  62,981
  69,036
  75,355
  81,939
  88,791
  95,918
  103,326
  111,025

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  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
  1,924
  2,486
  3,804
  5,640
  8,118
  11,368
  15,521
  20,702
  27,024
  34,588
  43,473
  53,741
  65,433
  78,573
  93,167
  109,207
  126,674
  145,543
  165,781
  187,358
  210,241
  234,402
  259,818
  286,472
  314,354
  343,462
  373,802
  405,389
  438,246
  472,406
  507,909
Adjusted assets (=assets-cash), $m
  1,569
  2,486
  3,804
  5,640
  8,118
  11,368
  15,521
  20,702
  27,024
  34,588
  43,473
  53,741
  65,433
  78,573
  93,167
  109,207
  126,674
  145,543
  165,781
  187,358
  210,241
  234,402
  259,818
  286,472
  314,354
  343,462
  373,802
  405,389
  438,246
  472,406
  507,909
Revenue / Adjusted assets
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
  1.344
Average production assets, $m
  1,105
  1,751
  2,679
  3,972
  5,717
  8,006
  10,931
  14,579
  19,032
  24,359
  30,616
  37,847
  46,082
  55,336
  65,614
  76,910
  89,211
  102,499
  116,753
  131,948
  148,063
  165,079
  182,979
  201,750
  221,386
  241,885
  263,252
  285,498
  308,638
  332,695
  357,698
Working capital, $m
  434
  124
  189
  280
  404
  565
  772
  1,029
  1,344
  1,720
  2,162
  2,672
  3,254
  3,907
  4,633
  5,431
  6,299
  7,238
  8,244
  9,317
  10,455
  11,656
  12,920
  14,246
  15,632
  17,080
  18,588
  20,159
  21,793
  23,492
  25,257
Total debt, $m
  2,175
  1,024
  2,211
  3,863
  6,093
  9,018
  12,756
  17,419
  23,109
  29,916
  37,912
  47,154
  57,677
  69,503
  82,638
  97,073
  112,794
  129,775
  147,990
  167,409
  188,004
  209,749
  232,624
  256,612
  281,706
  307,903
  335,209
  363,637
  393,209
  423,953
  455,905
Total liabilities, $m
  3,388
  2,237
  3,424
  5,076
  7,306
  10,231
  13,969
  18,632
  24,322
  31,129
  39,125
  48,367
  58,890
  70,716
  83,851
  98,286
  114,007
  130,988
  149,203
  168,622
  189,217
  210,962
  233,837
  257,825
  282,919
  309,116
  336,422
  364,850
  394,422
  425,166
  457,118
Total equity, $m
  -1,464
  249
  380
  564
  812
  1,137
  1,552
  2,070
  2,702
  3,459
  4,347
  5,374
  6,543
  7,857
  9,317
  10,921
  12,667
  14,554
  16,578
  18,736
  21,024
  23,440
  25,982
  28,647
  31,435
  34,346
  37,380
  40,539
  43,825
  47,241
  50,791
Total liabilities and equity, $m
  1,924
  2,486
  3,804
  5,640
  8,118
  11,368
  15,521
  20,702
  27,024
  34,588
  43,472
  53,741
  65,433
  78,573
  93,168
  109,207
  126,674
  145,542
  165,781
  187,358
  210,241
  234,402
  259,819
  286,472
  314,354
  343,462
  373,802
  405,389
  438,247
  472,407
  507,909
Debt-to-equity ratio
  -1.486
  4.120
  5.810
  6.850
  7.510
  7.930
  8.220
  8.410
  8.550
  8.650
  8.720
  8.770
  8.810
  8.850
  8.870
  8.890
  8.900
  8.920
  8.930
  8.940
  8.940
  8.950
  8.950
  8.960
  8.960
  8.960
  8.970
  8.970
  8.970
  8.970
  8.980
Adjusted equity ratio
  -1.159
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  174
  538
  951
  1,371
  1,936
  2,673
  3,611
  4,776
  6,192
  7,880
  9,856
  12,133
  14,717
  17,614
  20,824
  24,345
  28,171
  32,297
  36,716
  41,421
  46,405
  51,663
  57,190
  62,981
  69,036
  75,355
  81,939
  88,791
  95,918
  103,326
  111,025
Depreciation, amort., depletion, $m
  115
  177
  271
  401
  577
  809
  1,104
  1,473
  1,922
  2,460
  3,093
  3,823
  4,655
  5,589
  6,628
  7,769
  9,011
  10,353
  11,793
  13,328
  14,956
  16,675
  18,483
  20,379
  22,362
  24,433
  26,591
  28,838
  31,176
  33,606
  36,131
Funds from operations, $m
  410
  715
  1,222
  1,773
  2,514
  3,482
  4,715
  6,249
  8,115
  10,341
  12,949
  15,956
  19,372
  23,204
  27,452
  32,113
  37,182
  42,650
  48,509
  54,749
  61,361
  68,338
  75,672
  83,360
  91,399
  99,788
  108,530
  117,629
  127,093
  136,932
  147,156
Change in working capital, $m
  107
  46
  66
  91
  123
  162
  207
  258
  314
  376
  442
  511
  581
  653
  726
  798
  869
  938
  1,006
  1,073
  1,138
  1,201
  1,264
  1,325
  1,387
  1,447
  1,509
  1,571
  1,634
  1,699
  1,765
Cash from operations, $m
  303
  656
  1,156
  1,681
  2,390
  3,320
  4,509
  5,991
  7,800
  9,965
  12,507
  15,445
  18,791
  22,550
  26,726
  31,316
  36,313
  41,712
  47,503
  53,676
  60,223
  67,136
  74,408
  82,035
  90,012
  98,340
  107,021
  116,059
  125,460
  135,233
  145,391
Maintenance CAPEX, $m
  0
  -112
  -177
  -271
  -401
  -577
  -809
  -1,104
  -1,473
  -1,922
  -2,460
  -3,093
  -3,823
  -4,655
  -5,589
  -6,628
  -7,769
  -9,011
  -10,353
  -11,793
  -13,328
  -14,956
  -16,675
  -18,483
  -20,379
  -22,362
  -24,433
  -26,591
  -28,838
  -31,176
  -33,606
New CAPEX, $m
  -69
  -646
  -929
  -1,293
  -1,745
  -2,289
  -2,925
  -3,649
  -4,453
  -5,327
  -6,257
  -7,231
  -8,235
  -9,254
  -10,278
  -11,296
  -12,301
  -13,288
  -14,253
  -15,195
  -16,116
  -17,016
  -17,899
  -18,771
  -19,636
  -20,499
  -21,367
  -22,245
  -23,140
  -24,057
  -25,003
Cash from investing activities, $m
  -58
  -758
  -1,106
  -1,564
  -2,146
  -2,866
  -3,734
  -4,753
  -5,926
  -7,249
  -8,717
  -10,324
  -12,058
  -13,909
  -15,867
  -17,924
  -20,070
  -22,299
  -24,606
  -26,988
  -29,444
  -31,972
  -34,574
  -37,254
  -40,015
  -42,861
  -45,800
  -48,836
  -51,978
  -55,233
  -58,609
Free cash flow, $m
  245
  -101
  50
  118
  244
  454
  775
  1,239
  1,875
  2,716
  3,789
  5,121
  6,733
  8,642
  10,859
  13,392
  16,243
  19,413
  22,896
  26,688
  30,780
  35,165
  39,834
  44,781
  49,997
  55,479
  61,221
  67,222
  73,481
  80,000
  86,783
Issuance/(repayment) of debt, $m
  -401
  -1,151
  1,187
  1,652
  2,230
  2,925
  3,738
  4,663
  5,690
  6,807
  7,996
  9,241
  10,523
  11,826
  13,134
  14,436
  15,721
  16,981
  18,215
  19,419
  20,595
  21,745
  22,875
  23,989
  25,094
  26,197
  27,306
  28,428
  29,572
  30,744
  31,952
Issuance/(repurchase) of shares, $m
  287
  2,965
  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  
  -206
  1,814
  1,187
  1,652
  2,230
  2,925
  3,738
  4,663
  5,690
  6,807
  7,996
  9,241
  10,523
  11,826
  13,134
  14,436
  15,721
  16,981
  18,215
  19,419
  20,595
  21,745
  22,875
  23,989
  25,094
  26,197
  27,306
  28,428
  29,572
  30,744
  31,952
Total cash flow (excl. dividends), $m
  38
  -1,252
  1,237
  1,770
  2,474
  3,379
  4,513
  5,901
  7,565
  9,523
  11,786
  14,362
  17,256
  20,468
  23,993
  27,828
  31,964
  36,394
  41,111
  46,106
  51,375
  56,910
  62,709
  68,769
  75,091
  81,676
  88,527
  95,650
  103,053
  110,744
  118,735
Retained Cash Flow (-), $m
  -517
  -2,068
  -132
  -184
  -248
  -325
  -415
  -518
  -632
  -756
  -888
  -1,027
  -1,169
  -1,314
  -1,459
  -1,604
  -1,747
  -1,887
  -2,024
  -2,158
  -2,288
  -2,416
  -2,542
  -2,665
  -2,788
  -2,911
  -3,034
  -3,159
  -3,286
  -3,416
  -3,550
Prev. year cash balance distribution, $m
 
  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
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
  1,106
  1,587
  2,226
  3,054
  4,098
  5,383
  6,933
  8,766
  10,897
  13,336
  16,087
  19,154
  22,534
  26,224
  30,217
  34,507
  39,087
  43,949
  49,086
  54,494
  60,167
  66,104
  72,303
  78,765
  85,493
  92,492
  99,767
  107,328
  115,185
Discount rate, %
 
  14.50
  15.23
  15.99
  16.79
  17.62
  18.51
  19.43
  20.40
  21.42
  22.49
  23.62
  24.80
  26.04
  27.34
  28.71
  30.14
  31.65
  33.23
  34.90
  36.64
  38.47
  40.40
  42.42
  44.54
  46.76
  49.10
  51.56
  54.14
  56.84
  59.68
PV of cash for distribution, $m
 
  0
  833
  1,017
  1,197
  1,356
  1,479
  1,553
  1,570
  1,528
  1,433
  1,294
  1,127
  945
  764
  595
  446
  322
  223
  149
  95
  59
  34
  19
  10
  5
  3
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Cliffs Natural Resources Inc., a mining and natural resources company, produces and supplies iron ore. The company operates four iron ore mines in Michigan and Minnesota; and Koolyanobbing iron ore mining complex located in Western Australia. It sells its products to integrated steel companies and steel producers in the United States and the Asia Pacific. The company was formerly known as Cleveland-Cliffs Inc. Cliffs Natural Resources Inc. was founded in 1847 and is headquartered in Cleveland, Ohio.

FINANCIAL RATIOS  of  Cliffs Natural Resources (CLF)

Valuation Ratios
P/E Ratio 9.5
Price to Sales 0.8
Price to Book -1.1
Price to Tangible Book
Price to Cash Flow 5.5
Price to Free Cash Flow 7.1
Growth Rates
Sales Growth Rate 4.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -14.8%
Cap. Spend. - 3 Yr. Gr. Rate -39.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity -148.6%
Total Debt to Equity -148.6%
Interest Coverage 2
Management Effectiveness
Return On Assets 18.2%
Ret/ On Assets - 3 Yr. Avg. -34.3%
Return On Total Capital 24.4%
Ret/ On T. Cap. - 3 Yr. Avg. -61.3%
Return On Equity -10.1%
Return On Equity - 3 Yr. Avg. -92.5%
Asset Turnover 1
Profitability Ratios
Gross Margin 18.4%
Gross Margin - 3 Yr. Avg. 18.8%
EBITDA Margin 24%
EBITDA Margin - 3 Yr. Avg. 25%
Operating Margin 19.3%
Oper. Margin - 3 Yr. Avg. 16.9%
Pre-Tax Margin 9.8%
Pre-Tax Margin - 3 Yr. Avg. 8.3%
Net Profit Margin 8.3%
Net Profit Margin - 3 Yr. Avg. -81%
Effective Tax Rate -5.8%
Eff/ Tax Rate - 3 Yr. Avg. 159.4%
Payout Ratio 0%

CLF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CLF stock intrinsic value calculation we used $2109 million for the last fiscal year's total revenue generated by Cliffs Natural Resources. The default revenue input number comes from 2016 income statement of Cliffs Natural Resources. 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 CLF stock valuation model: a) initial revenue growth rate of 58.4% 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 14.5%, whose default value for CLF is calculated based on our internal credit rating of Cliffs Natural Resources, 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 Cliffs Natural Resources.
    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 CLF stock the variable cost ratio is equal to 73%.

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 CLF 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 7.6% for Cliffs Natural Resources.

Corporate tax rate of 27% is the nominal tax rate for Cliffs Natural Resources. 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 CLF 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 CLF are equal to 52.4%.

Life of production assets of 9.9 years is the average useful life of capital assets used in Cliffs Natural Resources 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 CLF is equal to 3.7%. 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 - $-1464 million for Cliffs Natural Resources - 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 294.762 million for Cliffs Natural Resources 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 Cliffs Natural Resources at the current share price and the inputted number of shares is $2.1 billion.


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Stock chart of CLF Financial statements of CLF
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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