Intrinsic value of Huaneng Power International ADR - HNP

Previous Close

$25.17

  Intrinsic Value

$25.17

stock screener

  Rating & Target

hold

0%

  Value-price divergence*

-96%

Previous close

$25.17

 
Intrinsic value

$25.17

 
Up/down potential

0%

 
Rating

hold

 
Value-price divergence*

-96%

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

We calculate the intrinsic value of HNP 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 14.0

 

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, %
  -11.83
  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
  16,148
  16,621
  17,003
  17,440
  17,931
  18,474
  19,071
  19,720
  20,423
  21,181
  21,994
  22,863
  23,791
  24,779
  25,829
  26,943
  28,124
  29,374
  30,696
  32,092
  33,567
  35,123
  36,764
  38,493
  40,315
  42,235
  44,256
  46,383
  48,621
  50,975
  53,452
Variable operating expenses, $m
 
  4,767
  4,872
  4,993
  5,128
  5,279
  5,443
  5,623
  5,817
  6,026
  6,251
  6,315
  6,572
  6,845
  7,135
  7,442
  7,769
  8,114
  8,479
  8,865
  9,272
  9,702
  10,155
  10,633
  11,136
  11,666
  12,224
  12,812
  13,430
  14,081
  14,765
Fixed operating expenses, $m
 
  9,410
  9,645
  9,886
  10,133
  10,386
  10,646
  10,912
  11,185
  11,465
  11,751
  12,045
  12,346
  12,655
  12,971
  13,295
  13,628
  13,968
  14,318
  14,676
  15,042
  15,419
  15,804
  16,199
  16,604
  17,019
  17,445
  17,881
  18,328
  18,786
  19,256
Total operating expenses, $m
  13,637
  14,177
  14,517
  14,879
  15,261
  15,665
  16,089
  16,535
  17,002
  17,491
  18,002
  18,360
  18,918
  19,500
  20,106
  20,737
  21,397
  22,082
  22,797
  23,541
  24,314
  25,121
  25,959
  26,832
  27,740
  28,685
  29,669
  30,693
  31,758
  32,867
  34,021
Operating income, $m
  2,659
  2,445
  2,486
  2,561
  2,669
  2,809
  2,981
  3,185
  3,421
  3,690
  3,992
  4,503
  4,873
  5,280
  5,723
  6,206
  6,728
  7,292
  7,899
  8,552
  9,252
  10,002
  10,805
  11,661
  12,575
  13,549
  14,586
  15,690
  16,863
  18,109
  19,432
EBITDA, $m
  4,820
  4,193
  4,270
  4,387
  4,541
  4,733
  4,961
  5,226
  5,529
  5,869
  6,248
  6,666
  7,124
  7,624
  8,167
  8,754
  9,388
  10,070
  10,803
  11,588
  12,428
  13,325
  14,282
  15,303
  16,389
  17,545
  18,773
  20,078
  21,462
  22,931
  24,488
Interest expense (income), $m
  1,063
  1,019
  1,046
  1,077
  1,113
  1,154
  1,198
  1,247
  1,301
  1,359
  1,421
  1,488
  1,560
  1,636
  1,718
  1,804
  1,896
  1,993
  2,096
  2,205
  2,320
  2,442
  2,570
  2,705
  2,848
  2,998
  3,156
  3,323
  3,498
  3,682
  3,876
Earnings before tax, $m
  1,998
  1,426
  1,441
  1,484
  1,556
  1,656
  1,783
  1,938
  2,120
  2,331
  2,570
  3,015
  3,313
  3,643
  4,006
  4,401
  4,832
  5,298
  5,803
  6,347
  6,932
  7,561
  8,234
  8,956
  9,727
  10,551
  11,430
  12,367
  13,365
  14,426
  15,555
Tax expense, $m
  501
  385
  389
  401
  420
  447
  481
  523
  573
  629
  694
  814
  895
  984
  1,082
  1,188
  1,305
  1,431
  1,567
  1,714
  1,872
  2,041
  2,223
  2,418
  2,626
  2,849
  3,086
  3,339
  3,609
  3,895
  4,200
Net income, $m
  1,233
  1,041
  1,052
  1,083
  1,136
  1,209
  1,302
  1,415
  1,548
  1,702
  1,876
  2,201
  2,419
  2,660
  2,924
  3,213
  3,527
  3,868
  4,236
  4,633
  5,060
  5,519
  6,011
  6,538
  7,101
  7,702
  8,344
  9,028
  9,756
  10,531
  11,355

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,130
  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
  45,549
  45,289
  46,330
  47,521
  48,858
  50,339
  51,964
  53,734
  55,649
  57,713
  59,928
  62,298
  64,826
  67,518
  70,379
  73,415
  76,632
  80,038
  83,639
  87,445
  91,463
  95,702
  100,173
  104,886
  109,851
  115,081
  120,587
  126,383
  132,482
  138,898
  145,646
Adjusted assets (=assets-cash), $m
  44,419
  45,289
  46,330
  47,521
  48,858
  50,339
  51,964
  53,734
  55,649
  57,713
  59,928
  62,298
  64,826
  67,518
  70,379
  73,415
  76,632
  80,038
  83,639
  87,445
  91,463
  95,702
  100,173
  104,886
  109,851
  115,081
  120,587
  126,383
  132,482
  138,898
  145,646
Revenue / Adjusted assets
  0.364
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
Average production assets, $m
  7,703
  7,862
  8,043
  8,249
  8,481
  8,738
  9,020
  9,328
  9,660
  10,019
  10,403
  10,814
  11,253
  11,721
  12,217
  12,744
  13,303
  13,894
  14,519
  15,180
  15,877
  16,613
  17,389
  18,207
  19,069
  19,977
  20,933
  21,939
  22,998
  24,111
  25,283
Working capital, $m
  -13,488
  -465
  -476
  -488
  -502
  -517
  -534
  -552
  -572
  -593
  -616
  -640
  -666
  -694
  -723
  -754
  -787
  -822
  -859
  -899
  -940
  -983
  -1,029
  -1,078
  -1,129
  -1,183
  -1,239
  -1,299
  -1,361
  -1,427
  -1,497
Total debt, $m
  25,394
  24,895
  25,645
  26,502
  27,465
  28,531
  29,701
  30,975
  32,355
  33,841
  35,435
  37,141
  38,962
  40,900
  42,960
  45,146
  47,462
  49,914
  52,507
  55,247
  58,140
  61,193
  64,412
  67,805
  71,380
  75,145
  79,110
  83,283
  87,674
  92,293
  97,152
Total liabilities, $m
  33,106
  32,608
  33,358
  34,215
  35,178
  36,244
  37,414
  38,688
  40,068
  41,554
  43,148
  44,854
  46,675
  48,613
  50,673
  52,859
  55,175
  57,627
  60,220
  62,960
  65,853
  68,906
  72,125
  75,518
  79,093
  82,858
  86,823
  90,996
  95,387
  100,006
  104,865
Total equity, $m
  12,442
  12,681
  12,972
  13,306
  13,680
  14,095
  14,550
  15,045
  15,582
  16,160
  16,780
  17,443
  18,151
  18,905
  19,706
  20,556
  21,457
  22,411
  23,419
  24,485
  25,610
  26,797
  28,049
  29,368
  30,758
  32,223
  33,764
  35,387
  37,095
  38,891
  40,781
Total liabilities and equity, $m
  45,548
  45,289
  46,330
  47,521
  48,858
  50,339
  51,964
  53,733
  55,650
  57,714
  59,928
  62,297
  64,826
  67,518
  70,379
  73,415
  76,632
  80,038
  83,639
  87,445
  91,463
  95,703
  100,174
  104,886
  109,851
  115,081
  120,587
  126,383
  132,482
  138,897
  145,646
Debt-to-equity ratio
  2.041
  1.960
  1.980
  1.990
  2.010
  2.020
  2.040
  2.060
  2.080
  2.090
  2.110
  2.130
  2.150
  2.160
  2.180
  2.200
  2.210
  2.230
  2.240
  2.260
  2.270
  2.280
  2.300
  2.310
  2.320
  2.330
  2.340
  2.350
  2.360
  2.370
  2.380
Adjusted equity ratio
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,233
  1,041
  1,052
  1,083
  1,136
  1,209
  1,302
  1,415
  1,548
  1,702
  1,876
  2,201
  2,419
  2,660
  2,924
  3,213
  3,527
  3,868
  4,236
  4,633
  5,060
  5,519
  6,011
  6,538
  7,101
  7,702
  8,344
  9,028
  9,756
  10,531
  11,355
Depreciation, amort., depletion, $m
  2,161
  1,748
  1,784
  1,825
  1,872
  1,923
  1,980
  2,041
  2,108
  2,179
  2,256
  2,163
  2,251
  2,344
  2,443
  2,549
  2,661
  2,779
  2,904
  3,036
  3,175
  3,323
  3,478
  3,641
  3,814
  3,995
  4,187
  4,388
  4,600
  4,822
  5,057
Funds from operations, $m
  4,014
  2,789
  2,836
  2,909
  3,008
  3,132
  3,281
  3,456
  3,656
  3,881
  4,133
  4,364
  4,669
  5,004
  5,368
  5,762
  6,188
  6,647
  7,140
  7,669
  8,236
  8,842
  9,489
  10,179
  10,915
  11,698
  12,531
  13,416
  14,356
  15,354
  16,412
Change in working capital, $m
  -545
  -9
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -69
Cash from operations, $m
  4,559
  2,798
  2,846
  2,921
  3,022
  3,147
  3,298
  3,474
  3,675
  3,902
  4,155
  4,388
  4,695
  5,031
  5,397
  5,793
  6,221
  6,682
  7,177
  7,708
  8,277
  8,885
  9,535
  10,228
  10,966
  11,752
  12,587
  13,475
  14,419
  15,420
  16,481
Maintenance CAPEX, $m
  0
  -1,541
  -1,572
  -1,609
  -1,650
  -1,696
  -1,748
  -1,804
  -1,866
  -1,932
  -2,004
  -2,081
  -2,163
  -2,251
  -2,344
  -2,443
  -2,549
  -2,661
  -2,779
  -2,904
  -3,036
  -3,175
  -3,323
  -3,478
  -3,641
  -3,814
  -3,995
  -4,187
  -4,388
  -4,600
  -4,822
New CAPEX, $m
  -2,927
  -159
  -181
  -207
  -232
  -257
  -282
  -307
  -333
  -358
  -384
  -411
  -439
  -467
  -497
  -527
  -558
  -591
  -625
  -661
  -697
  -736
  -776
  -818
  -862
  -908
  -956
  -1,006
  -1,059
  -1,114
  -1,171
Cash from investing activities, $m
  -2,553
  -1,700
  -1,753
  -1,816
  -1,882
  -1,953
  -2,030
  -2,111
  -2,199
  -2,290
  -2,388
  -2,492
  -2,602
  -2,718
  -2,841
  -2,970
  -3,107
  -3,252
  -3,404
  -3,565
  -3,733
  -3,911
  -4,099
  -4,296
  -4,503
  -4,722
  -4,951
  -5,193
  -5,447
  -5,714
  -5,993
Free cash flow, $m
  2,006
  1,098
  1,093
  1,106
  1,140
  1,194
  1,268
  1,363
  1,477
  1,612
  1,767
  1,896
  2,094
  2,314
  2,556
  2,823
  3,113
  3,430
  3,773
  4,144
  4,544
  4,974
  5,436
  5,932
  6,463
  7,030
  7,636
  8,283
  8,972
  9,706
  10,488
Issuance/(repayment) of debt, $m
  542
  631
  750
  857
  962
  1,066
  1,170
  1,274
  1,379
  1,486
  1,595
  1,706
  1,820
  1,938
  2,060
  2,186
  2,316
  2,452
  2,593
  2,740
  2,893
  3,052
  3,219
  3,393
  3,575
  3,765
  3,964
  4,173
  4,391
  4,620
  4,859
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  
  -925
  631
  750
  857
  962
  1,066
  1,170
  1,274
  1,379
  1,486
  1,595
  1,706
  1,820
  1,938
  2,060
  2,186
  2,316
  2,452
  2,593
  2,740
  2,893
  3,052
  3,219
  3,393
  3,575
  3,765
  3,964
  4,173
  4,391
  4,620
  4,859
Total cash flow (excl. dividends), $m
  1,091
  1,729
  1,843
  1,963
  2,102
  2,260
  2,438
  2,637
  2,856
  3,098
  3,362
  3,602
  3,914
  4,252
  4,616
  5,008
  5,430
  5,882
  6,366
  6,884
  7,437
  8,026
  8,655
  9,325
  10,038
  10,795
  11,601
  12,456
  13,363
  14,326
  15,347
Retained Cash Flow (-), $m
  -269
  -239
  -292
  -333
  -374
  -415
  -455
  -496
  -536
  -578
  -620
  -663
  -708
  -754
  -801
  -850
  -901
  -954
  -1,008
  -1,066
  -1,125
  -1,187
  -1,252
  -1,320
  -1,390
  -1,464
  -1,542
  -1,623
  -1,708
  -1,797
  -1,890
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
 
  1,490
  1,552
  1,630
  1,728
  1,846
  1,983
  2,141
  2,320
  2,520
  2,742
  2,939
  3,206
  3,498
  3,815
  4,158
  4,529
  4,928
  5,358
  5,818
  6,312
  6,839
  7,403
  8,005
  8,647
  9,331
  10,059
  10,833
  11,655
  12,529
  13,457
Discount rate, %
 
  9.20
  9.66
  10.14
  10.65
  11.18
  11.74
  12.33
  12.95
  13.59
  14.27
  14.99
  15.74
  16.52
  17.35
  18.22
  19.13
  20.08
  21.09
  22.14
  23.25
  24.41
  25.63
  26.91
  28.26
  29.67
  31.15
  32.71
  34.35
  36.07
  37.87
PV of cash for distribution, $m
 
  1,365
  1,290
  1,220
  1,153
  1,086
  1,019
  949
  876
  800
  722
  632
  555
  479
  406
  338
  275
  220
  171
  130
  97
  70
  49
  33
  22
  14
  9
  5
  3
  2
  1
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

HUANENG POWER INTERNATIONAL,INC. is a China-based company principally engaged in the development, construction, operation and management of power plants. The Company mainly operates through the generation and sale of electric power. The Company also provides supply of heat. The Company operates its business both in domestic market and to overseas market.

FINANCIAL RATIOS  of  Huaneng Power International ADR (HNP)

Valuation Ratios
P/E Ratio 310.3
Price to Sales 23.5
Price to Book 30.8
Price to Tangible Book
Price to Cash Flow 83.9
Price to Free Cash Flow 234.4
Growth Rates
Sales Growth Rate -11.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -16.8%
Cap. Spend. - 3 Yr. Gr. Rate 2.7%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 90.3%
Total Debt to Equity 204.1%
Interest Coverage 3
Management Effectiveness
Return On Assets 4.5%
Ret/ On Assets - 3 Yr. Avg. 5.1%
Return On Total Capital 3.3%
Ret/ On T. Cap. - 3 Yr. Avg. 4.6%
Return On Equity 10%
Return On Equity - 3 Yr. Avg. 14.6%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 32%
EBITDA Margin - 3 Yr. Avg. 31%
Operating Margin 16.3%
Oper. Margin - 3 Yr. Avg. 19.8%
Pre-Tax Margin 12.3%
Pre-Tax Margin - 3 Yr. Avg. 15.2%
Net Profit Margin 7.6%
Net Profit Margin - 3 Yr. Avg. 9%
Effective Tax Rate 25.1%
Eff/ Tax Rate - 3 Yr. Avg. 26.2%
Payout Ratio 84.6%

HNP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HNP stock intrinsic value calculation we used $16295 million for the last fiscal year's total revenue generated by Huaneng Power International ADR. The default revenue input number comes from 2016 income statement of Huaneng Power International 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 HNP 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 9.2%, whose default value for HNP is calculated based on our internal credit rating of Huaneng Power International 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 Huaneng Power International 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 HNP stock the variable cost ratio is equal to 28.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $9180 million in the base year in the intrinsic value calculation for HNP 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 4.2% for Huaneng Power International ADR.

Corporate tax rate of 27% is the nominal tax rate for Huaneng Power International 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 HNP 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 HNP are equal to 47.3%.

Life of production assets of 4.4 years is the average useful life of capital assets used in Huaneng Power International 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 HNP is equal to -2.8%. 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 - $12442 million for Huaneng Power International 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 555.814 million for Huaneng Power International 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 Huaneng Power International ADR at the current share price and the inputted number of shares is $14.0 billion.

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Financial statements of HNP
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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