Intrinsic value of Korea Electric Power ADR - KEP

Previous Close

$17.41

  Intrinsic Value

$32.15

stock screener

  Rating & Target

str. buy

+85%

  Value-price divergence*

-75%

Previous close

$17.41

 
Intrinsic value

$32.15

 
Up/down potential

+85%

 
Rating

str. buy

 
Value-price divergence*

-75%

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

We calculate the intrinsic value of KEP 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 22.6

 

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, %
  2.09
  2.10
  2.39
  2.65
  2.89
  3.10
  3.29
  3.46
  3.61
  3.75
  3.88
  3.99
  4.09
  4.18
  4.26
  4.34
  4.40
  4.46
  4.52
  4.56
  4.61
  4.65
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
Revenue, $m
  0
  53,030
  54,297
  55,737
  57,345
  59,121
  61,065
  63,177
  65,460
  67,915
  70,548
  73,362
  76,363
  79,555
  82,947
  86,544
  90,354
  94,386
  98,649
  103,152
  107,906
  112,920
  118,208
  123,781
  129,652
  135,835
  142,344
  149,194
  156,402
  163,985
  171,960
Variable operating expenses, $m
 
  31,765
  32,524
  33,386
  34,350
  35,414
  36,578
  37,843
  39,210
  40,681
  42,258
  43,944
  45,741
  47,653
  49,685
  51,839
  54,122
  56,537
  59,090
  61,788
  64,635
  67,639
  70,806
  74,144
  77,661
  81,364
  85,263
  89,367
  93,684
  98,226
  103,003
Fixed operating expenses, $m
 
  11,079
  11,356
  11,640
  11,931
  12,229
  12,535
  12,849
  13,170
  13,499
  13,836
  14,182
  14,537
  14,900
  15,273
  15,655
  16,046
  16,447
  16,858
  17,280
  17,712
  18,155
  18,608
  19,074
  19,551
  20,039
  20,540
  21,054
  21,580
  22,120
  22,673
Total operating expenses, $m
  41,669
  42,844
  43,880
  45,026
  46,281
  47,643
  49,113
  50,692
  52,380
  54,180
  56,094
  58,126
  60,278
  62,553
  64,958
  67,494
  70,168
  72,984
  75,948
  79,068
  82,347
  85,794
  89,414
  93,218
  97,212
  101,403
  105,803
  110,421
  115,264
  120,346
  125,676
Operating income, $m
  10,271
  10,186
  10,417
  10,710
  11,064
  11,478
  11,952
  12,486
  13,080
  13,735
  14,453
  15,236
  16,085
  17,002
  17,989
  19,050
  20,186
  21,402
  22,700
  24,085
  25,559
  27,127
  28,793
  30,563
  32,440
  34,431
  36,540
  38,774
  41,138
  43,639
  46,284
EBITDA, $m
  18,004
  18,059
  18,478
  18,985
  19,578
  20,255
  21,018
  21,865
  22,798
  23,818
  24,927
  26,127
  27,421
  28,812
  30,303
  31,898
  33,600
  35,414
  37,345
  39,398
  41,578
  43,891
  46,342
  48,939
  51,688
  54,596
  57,672
  60,922
  64,357
  67,984
  71,813
Interest expense (income), $m
  1,762
  1,505
  1,567
  1,643
  1,729
  1,825
  1,932
  2,048
  2,175
  2,312
  2,459
  2,617
  2,786
  2,966
  3,157
  3,361
  3,576
  3,805
  4,047
  4,302
  4,572
  4,857
  5,158
  5,475
  5,809
  6,161
  6,532
  6,922
  7,333
  7,765
  8,220
Earnings before tax, $m
  9,072
  8,680
  8,850
  9,068
  9,335
  9,653
  10,020
  10,437
  10,904
  11,423
  11,994
  12,619
  13,299
  14,036
  14,832
  15,689
  16,610
  17,597
  18,654
  19,782
  20,986
  22,270
  23,635
  25,088
  26,631
  28,270
  30,008
  31,851
  33,805
  35,873
  38,064
Tax expense, $m
  2,904
  2,344
  2,390
  2,448
  2,521
  2,606
  2,705
  2,818
  2,944
  3,084
  3,238
  3,407
  3,591
  3,790
  4,005
  4,236
  4,485
  4,751
  5,036
  5,341
  5,666
  6,013
  6,382
  6,774
  7,190
  7,633
  8,102
  8,600
  9,127
  9,686
  10,277
Net income, $m
  6,082
  6,337
  6,461
  6,619
  6,815
  7,047
  7,315
  7,619
  7,960
  8,339
  8,756
  9,212
  9,708
  10,246
  10,827
  11,453
  12,125
  12,846
  13,617
  14,441
  15,320
  16,257
  17,254
  18,314
  19,441
  20,637
  21,906
  23,251
  24,677
  26,188
  27,787

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,939
  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
  153,459
  151,513
  155,135
  159,247
  163,843
  168,918
  174,471
  180,506
  187,027
  194,044
  201,566
  209,606
  218,179
  227,301
  236,990
  247,268
  258,154
  269,675
  281,854
  294,720
  308,302
  322,630
  337,738
  353,660
  370,434
  388,099
  406,696
  426,269
  446,863
  468,528
  491,314
Adjusted assets (=assets-cash), $m
  148,520
  151,513
  155,135
  159,247
  163,843
  168,918
  174,471
  180,506
  187,027
  194,044
  201,566
  209,606
  218,179
  227,301
  236,990
  247,268
  258,154
  269,675
  281,854
  294,720
  308,302
  322,630
  337,738
  353,660
  370,434
  388,099
  406,696
  426,269
  446,863
  468,528
  491,314
Revenue / Adjusted assets
  0.000
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
Average production assets, $m
  124,936
  127,536
  130,585
  134,046
  137,915
  142,186
  146,861
  151,941
  157,430
  163,336
  169,668
  176,436
  183,652
  191,330
  199,487
  208,137
  217,302
  226,999
  237,251
  248,081
  259,513
  271,574
  284,291
  297,693
  311,813
  326,682
  342,336
  358,812
  376,147
  394,383
  413,564
Working capital, $m
  -4,341
  -1,485
  -1,520
  -1,561
  -1,606
  -1,655
  -1,710
  -1,769
  -1,833
  -1,902
  -1,975
  -2,054
  -2,138
  -2,228
  -2,323
  -2,423
  -2,530
  -2,643
  -2,762
  -2,888
  -3,021
  -3,162
  -3,310
  -3,466
  -3,630
  -3,803
  -3,986
  -4,177
  -4,379
  -4,592
  -4,815
Total debt, $m
  46,753
  43,518
  45,630
  48,027
  50,706
  53,665
  56,903
  60,421
  64,223
  68,314
  72,699
  77,386
  82,384
  87,702
  93,351
  99,343
  105,690
  112,407
  119,507
  127,008
  134,926
  143,279
  152,087
  161,370
  171,149
  181,448
  192,290
  203,701
  215,707
  228,338
  241,622
Total liabilities, $m
  91,567
  88,332
  90,444
  92,841
  95,520
  98,479
  101,717
  105,235
  109,037
  113,128
  117,513
  122,200
  127,198
  132,516
  138,165
  144,157
  150,504
  157,221
  164,321
  171,822
  179,740
  188,093
  196,901
  206,184
  215,963
  226,262
  237,104
  248,515
  260,521
  273,152
  286,436
Total equity, $m
  61,892
  63,181
  64,691
  66,406
  68,323
  70,439
  72,754
  75,271
  77,990
  80,916
  84,053
  87,406
  90,981
  94,784
  98,825
  103,111
  107,650
  112,454
  117,533
  122,898
  128,562
  134,537
  140,837
  147,476
  154,471
  161,837
  169,592
  177,754
  186,342
  195,376
  204,878
Total liabilities and equity, $m
  153,459
  151,513
  155,135
  159,247
  163,843
  168,918
  174,471
  180,506
  187,027
  194,044
  201,566
  209,606
  218,179
  227,300
  236,990
  247,268
  258,154
  269,675
  281,854
  294,720
  308,302
  322,630
  337,738
  353,660
  370,434
  388,099
  406,696
  426,269
  446,863
  468,528
  491,314
Debt-to-equity ratio
  0.755
  0.690
  0.710
  0.720
  0.740
  0.760
  0.780
  0.800
  0.820
  0.840
  0.860
  0.890
  0.910
  0.930
  0.940
  0.960
  0.980
  1.000
  1.020
  1.030
  1.050
  1.060
  1.080
  1.090
  1.110
  1.120
  1.130
  1.150
  1.160
  1.170
  1.180
Adjusted equity ratio
  0.388
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417
  0.417

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6,082
  6,337
  6,461
  6,619
  6,815
  7,047
  7,315
  7,619
  7,960
  8,339
  8,756
  9,212
  9,708
  10,246
  10,827
  11,453
  12,125
  12,846
  13,617
  14,441
  15,320
  16,257
  17,254
  18,314
  19,441
  20,637
  21,906
  23,251
  24,677
  26,188
  27,787
Depreciation, amort., depletion, $m
  7,733
  7,873
  8,061
  8,275
  8,513
  8,777
  9,066
  9,379
  9,718
  10,083
  10,474
  10,891
  11,337
  11,811
  12,314
  12,848
  13,414
  14,012
  14,645
  15,314
  16,019
  16,764
  17,549
  18,376
  19,248
  20,166
  21,132
  22,149
  23,219
  24,345
  25,529
Funds from operations, $m
  7,926
  14,210
  14,522
  14,894
  15,328
  15,824
  16,380
  16,998
  17,678
  18,422
  19,229
  20,103
  21,045
  22,057
  23,141
  24,301
  25,539
  26,858
  28,262
  29,755
  31,339
  33,021
  34,803
  36,690
  38,688
  40,802
  43,038
  45,400
  47,896
  50,532
  53,315
Change in working capital, $m
  -6,357
  -31
  -35
  -40
  -45
  -50
  -54
  -59
  -64
  -69
  -74
  -79
  -84
  -89
  -95
  -101
  -107
  -113
  -119
  -126
  -133
  -140
  -148
  -156
  -164
  -173
  -182
  -192
  -202
  -212
  -223
Cash from operations, $m
  14,283
  14,240
  14,557
  14,934
  15,373
  15,873
  16,435
  17,057
  17,742
  18,490
  19,303
  20,182
  21,129
  22,146
  23,236
  24,402
  25,646
  26,971
  28,382
  29,881
  31,473
  33,161
  34,951
  36,846
  38,853
  40,975
  43,220
  45,592
  48,098
  50,745
  53,539
Maintenance CAPEX, $m
  0
  -7,712
  -7,873
  -8,061
  -8,274
  -8,513
  -8,777
  -9,065
  -9,379
  -9,718
  -10,082
  -10,473
  -10,891
  -11,337
  -11,811
  -12,314
  -12,848
  -13,414
  -14,012
  -14,645
  -15,314
  -16,019
  -16,764
  -17,549
  -18,376
  -19,248
  -20,166
  -21,132
  -22,149
  -23,219
  -24,345
New CAPEX, $m
  -10,487
  -2,601
  -3,048
  -3,462
  -3,868
  -4,272
  -4,674
  -5,080
  -5,490
  -5,906
  -6,332
  -6,768
  -7,216
  -7,678
  -8,156
  -8,651
  -9,164
  -9,697
  -10,252
  -10,830
  -11,432
  -12,061
  -12,717
  -13,403
  -14,120
  -14,869
  -15,654
  -16,475
  -17,335
  -18,236
  -19,180
Cash from investing activities, $m
  -8,324
  -10,313
  -10,921
  -11,523
  -12,142
  -12,785
  -13,451
  -14,145
  -14,869
  -15,624
  -16,414
  -17,241
  -18,107
  -19,015
  -19,967
  -20,965
  -22,012
  -23,111
  -24,264
  -25,475
  -26,746
  -28,080
  -29,481
  -30,952
  -32,496
  -34,117
  -35,820
  -37,607
  -39,484
  -41,455
  -43,525
Free cash flow, $m
  5,959
  3,927
  3,636
  3,412
  3,230
  3,089
  2,983
  2,912
  2,874
  2,866
  2,889
  2,941
  3,021
  3,131
  3,269
  3,437
  3,634
  3,860
  4,117
  4,406
  4,727
  5,081
  5,470
  5,895
  6,357
  6,858
  7,400
  7,985
  8,614
  9,289
  10,013
Issuance/(repayment) of debt, $m
  -4,846
  1,704
  2,111
  2,398
  2,679
  2,959
  3,238
  3,518
  3,802
  4,091
  4,385
  4,687
  4,998
  5,318
  5,649
  5,992
  6,347
  6,716
  7,101
  7,501
  7,918
  8,353
  8,808
  9,283
  9,779
  10,299
  10,842
  11,411
  12,007
  12,631
  13,284
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  
  -4,775
  1,704
  2,111
  2,398
  2,679
  2,959
  3,238
  3,518
  3,802
  4,091
  4,385
  4,687
  4,998
  5,318
  5,649
  5,992
  6,347
  6,716
  7,101
  7,501
  7,918
  8,353
  8,808
  9,283
  9,779
  10,299
  10,842
  11,411
  12,007
  12,631
  13,284
Total cash flow (excl. dividends), $m
  1,185
  5,631
  5,748
  5,809
  5,910
  6,047
  6,221
  6,430
  6,676
  6,957
  7,274
  7,628
  8,019
  8,449
  8,918
  9,428
  9,981
  10,577
  11,218
  11,907
  12,645
  13,434
  14,278
  15,178
  16,136
  17,157
  18,242
  19,396
  20,620
  21,920
  23,298
Retained Cash Flow (-), $m
  -4,392
  -1,289
  -1,510
  -1,715
  -1,916
  -2,116
  -2,316
  -2,516
  -2,719
  -2,926
  -3,137
  -3,353
  -3,575
  -3,804
  -4,041
  -4,286
  -4,540
  -4,804
  -5,079
  -5,365
  -5,663
  -5,975
  -6,300
  -6,640
  -6,995
  -7,366
  -7,755
  -8,162
  -8,588
  -9,034
  -9,502
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
 
  4,342
  4,238
  4,094
  3,993
  3,931
  3,905
  3,914
  3,956
  4,031
  4,137
  4,275
  4,445
  4,645
  4,878
  5,143
  5,441
  5,773
  6,139
  6,542
  6,981
  7,459
  7,978
  8,538
  9,142
  9,791
  10,487
  11,234
  12,032
  12,886
  13,796
Discount rate, %
 
  5.30
  5.57
  5.84
  6.14
  6.44
  6.76
  7.10
  7.46
  7.83
  8.22
  8.63
  9.06
  9.52
  9.99
  10.49
  11.02
  11.57
  12.15
  12.76
  13.39
  14.06
  14.77
  15.50
  16.28
  17.09
  17.95
  18.85
  19.79
  20.78
  21.82
PV of cash for distribution, $m
 
  4,124
  3,803
  3,453
  3,147
  2,877
  2,637
  2,421
  2,225
  2,045
  1,877
  1,719
  1,569
  1,425
  1,286
  1,151
  1,022
  898
  780
  668
  565
  471
  386
  310
  245
  189
  143
  106
  77
  54
  37
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

Korea Electric Power Corporation (KEPCO) is an integrated electric utility company engaged in the transmission and distribution of electricity in the Republic of Korea. Its segments include transmission and distribution, nuclear power generation and thermal power generation and all others . The transmission and distribution segment, which is operated by KEPCO, comprise operations related to the transmission, distribution and sale to end-users of electricity. The nuclear power generation segment, which is engaged in the nuclear, hydro, pumping-up power generation. The thermal power generation segment, which is engaged in bituminous coal, anthracite, liquefied natural gas (LNG) power generation. And the Other Segment comprises operations related to the plant design, power generation equipment assembly, nuclear raw materials supplement, electricity IT service, renewable source power generation and financial investment on overseas businesses.

FINANCIAL RATIOS  of  Korea Electric Power ADR (KEP)

Valuation Ratios
P/E Ratio 1.8
Price to Sales 0.2
Price to Book 0.2
Price to Tangible Book
Price to Cash Flow 0.8
Price to Free Cash Flow 2.9
Growth Rates
Sales Growth Rate 2.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -14%
Cap. Spend. - 3 Yr. Gr. Rate -3.2%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 62.9%
Total Debt to Equity 75.5%
Interest Coverage 6
Management Effectiveness
Return On Assets 4.8%
Ret/ On Assets - 3 Yr. Avg. 5.4%
Return On Total Capital 5.6%
Ret/ On T. Cap. - 3 Yr. Avg. 6.3%
Return On Equity 10.2%
Return On Equity - 3 Yr. Avg. 12.5%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 35.7%
EBITDA Margin - 3 Yr. Avg. 36.9%
Operating Margin 19.8%
Oper. Margin - 3 Yr. Avg. 16.6%
Pre-Tax Margin 17.5%
Pre-Tax Margin - 3 Yr. Avg. 18.8%
Net Profit Margin 11.7%
Net Profit Margin - 3 Yr. Avg. 13%
Effective Tax Rate 32%
Eff/ Tax Rate - 3 Yr. Avg. 31.3%
Payout Ratio 29.9%

KEP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KEP stock intrinsic value calculation we used $51939 million for the last fiscal year's total revenue generated by Korea Electric Power ADR. The default revenue input number comes from 2016 income statement of Korea Electric Power 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 KEP stock valuation model: a) initial revenue growth rate of 2.1% 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 5.3%, whose default value for KEP is calculated based on our internal credit rating of Korea Electric Power 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 Korea Electric Power 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 KEP stock the variable cost ratio is equal to 59.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $10809 million in the base year in the intrinsic value calculation for KEP 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 3.6% for Korea Electric Power ADR.

Corporate tax rate of 27% is the nominal tax rate for Korea Electric Power 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 KEP 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 KEP are equal to 240.5%.

Life of production assets of 16.2 years is the average useful life of capital assets used in Korea Electric Power 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 KEP 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 - $61892 million for Korea Electric Power 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 1299.39 million for Korea Electric Power 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 Korea Electric Power ADR at the current share price and the inputted number of shares is $22.6 billion.

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Financial statements of KEP
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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