Intrinsic value of ArcelorMittal ADR - MT

Previous Close

$25.97

  Intrinsic Value

$2.04

stock screener

  Rating & Target

str. sell

-92%

  Value-price divergence*

+8%

Previous close

$25.97

 
Intrinsic value

$2.04

 
Up/down potential

-92%

 
Rating

str. sell

 
Value-price divergence*

+8%

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

We calculate the intrinsic value of MT 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 79.1

 

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, %
  -10.68
  20.10
  18.59
  17.23
  16.01
  14.91
  13.92
  13.02
  12.22
  11.50
  10.85
  10.27
  9.74
  9.26
  8.84
  8.45
  8.11
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.20
  6.08
  5.98
  5.88
  5.79
  5.71
Revenue, $m
  56,791
  68,206
  80,885
  94,823
  110,002
  126,400
  143,990
  162,745
  182,636
  203,639
  225,734
  248,906
  273,146
  298,452
  324,830
  352,292
  380,859
  410,559
  441,426
  473,502
  506,835
  541,481
  577,502
  614,965
  653,943
  694,517
  736,771
  780,798
  826,694
  874,561
  924,510
Variable operating expenses, $m
 
  72,534
  85,920
  100,635
  116,660
  133,973
  152,544
  172,344
  193,344
  215,519
  238,846
  262,785
  288,376
  315,093
  342,942
  371,936
  402,096
  433,451
  466,039
  499,904
  535,096
  571,674
  609,703
  649,254
  690,406
  733,242
  777,853
  824,334
  872,789
  923,326
  976,059
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
  52,630
  72,534
  85,920
  100,635
  116,660
  133,973
  152,544
  172,344
  193,344
  215,519
  238,846
  262,785
  288,376
  315,093
  342,942
  371,936
  402,096
  433,451
  466,039
  499,904
  535,096
  571,674
  609,703
  649,254
  690,406
  733,242
  777,853
  824,334
  872,789
  923,326
  976,059
Operating income, $m
  4,161
  -4,328
  -5,035
  -5,812
  -6,658
  -7,573
  -8,554
  -9,599
  -10,708
  -11,880
  -13,112
  -13,879
  -15,230
  -16,641
  -18,112
  -19,643
  -21,236
  -22,892
  -24,614
  -26,402
  -28,261
  -30,193
  -32,201
  -34,290
  -36,463
  -38,726
  -41,082
  -43,537
  -46,096
  -48,765
  -51,550
EBITDA, $m
  6,882
  -943
  -1,118
  -1,311
  -1,521
  -1,748
  -1,991
  -2,250
  -2,525
  -2,815
  -3,121
  -3,441
  -3,776
  -4,126
  -4,491
  -4,871
  -5,266
  -5,676
  -6,103
  -6,547
  -7,007
  -7,486
  -7,984
  -8,502
  -9,041
  -9,602
  -10,186
  -10,795
  -11,430
  -12,091
  -12,782
Interest expense (income), $m
  1,354
  955
  1,659
  2,439
  3,296
  4,230
  5,239
  6,321
  7,475
  8,699
  9,991
  11,351
  12,776
  14,268
  15,825
  17,448
  19,137
  20,895
  22,722
  24,622
  26,595
  28,646
  30,778
  32,994
  35,299
  37,697
  40,193
  42,793
  45,502
  48,326
  51,271
Earnings before tax, $m
  2,720
  -5,283
  -6,693
  -8,251
  -9,955
  -11,803
  -13,793
  -15,921
  -18,184
  -20,579
  -23,103
  -25,230
  -28,007
  -30,909
  -33,937
  -37,091
  -40,374
  -43,787
  -47,336
  -51,024
  -54,856
  -58,839
  -62,979
  -67,284
  -71,762
  -76,423
  -81,275
  -86,330
  -91,598
  -97,091
  -102,821
Tax expense, $m
  986
  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
Net income, $m
  1,779
  -5,283
  -6,693
  -8,251
  -9,955
  -11,803
  -13,793
  -15,921
  -18,184
  -20,579
  -23,103
  -25,230
  -28,007
  -30,909
  -33,937
  -37,091
  -40,374
  -43,787
  -47,336
  -51,024
  -54,856
  -58,839
  -62,979
  -67,284
  -71,762
  -76,423
  -81,275
  -86,330
  -91,598
  -97,091
  -102,821

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,501
  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
  75,142
  87,220
  103,434
  121,257
  140,668
  161,637
  184,131
  208,114
  233,550
  260,408
  288,663
  318,294
  349,291
  381,652
  415,383
  450,501
  487,032
  525,011
  564,483
  605,501
  648,127
  692,432
  738,494
  786,400
  836,244
  888,129
  942,163
  998,463
  1,057,153
  1,118,365
  1,182,237
Adjusted assets (=assets-cash), $m
  72,641
  87,220
  103,434
  121,257
  140,668
  161,637
  184,131
  208,114
  233,550
  260,408
  288,663
  318,294
  349,291
  381,652
  415,383
  450,501
  487,032
  525,011
  564,483
  605,501
  648,127
  692,432
  738,494
  786,400
  836,244
  888,129
  942,163
  998,463
  1,057,153
  1,118,365
  1,182,237
Revenue / Adjusted assets
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
  0.782
Average production assets, $m
  35,732
  42,902
  50,877
  59,644
  69,191
  79,506
  90,570
  102,367
  114,878
  128,089
  141,987
  156,562
  171,809
  187,726
  204,318
  221,592
  239,560
  258,242
  277,657
  297,833
  318,799
  340,592
  363,249
  386,813
  411,330
  436,851
  463,429
  491,122
  519,990
  550,099
  581,517
Working capital, $m
  4,132
  4,229
  5,015
  5,879
  6,820
  7,837
  8,927
  10,090
  11,323
  12,626
  13,996
  15,432
  16,935
  18,504
  20,139
  21,842
  23,613
  25,455
  27,368
  29,357
  31,424
  33,572
  35,805
  38,128
  40,544
  43,060
  45,680
  48,409
  51,255
  54,223
  57,320
Total debt, $m
  13,674
  20,476
  30,107
  40,694
  52,224
  64,679
  78,041
  92,287
  107,396
  123,350
  140,133
  157,734
  176,146
  195,368
  215,405
  236,265
  257,964
  280,524
  303,970
  328,335
  353,654
  379,971
  407,332
  435,788
  465,396
  496,215
  528,312
  561,754
  596,616
  632,976
  670,916
Total liabilities, $m
  45,007
  51,809
  61,440
  72,027
  83,557
  96,012
  109,374
  123,620
  138,729
  154,683
  171,466
  189,067
  207,479
  226,701
  246,738
  267,598
  289,297
  311,857
  335,303
  359,668
  384,987
  411,304
  438,665
  467,121
  496,729
  527,548
  559,645
  593,087
  627,949
  664,309
  702,249
Total equity, $m
  30,135
  35,411
  41,994
  49,230
  57,111
  65,625
  74,757
  84,494
  94,821
  105,726
  117,197
  129,227
  141,812
  154,951
  168,646
  182,904
  197,735
  213,155
  229,180
  245,833
  263,139
  281,127
  299,828
  319,278
  339,515
  360,580
  382,518
  405,376
  429,204
  454,056
  479,988
Total liabilities and equity, $m
  75,142
  87,220
  103,434
  121,257
  140,668
  161,637
  184,131
  208,114
  233,550
  260,409
  288,663
  318,294
  349,291
  381,652
  415,384
  450,502
  487,032
  525,012
  564,483
  605,501
  648,126
  692,431
  738,493
  786,399
  836,244
  888,128
  942,163
  998,463
  1,057,153
  1,118,365
  1,182,237
Debt-to-equity ratio
  0.454
  0.580
  0.720
  0.830
  0.910
  0.990
  1.040
  1.090
  1.130
  1.170
  1.200
  1.220
  1.240
  1.260
  1.280
  1.290
  1.300
  1.320
  1.330
  1.340
  1.340
  1.350
  1.360
  1.360
  1.370
  1.380
  1.380
  1.390
  1.390
  1.390
  1.400
Adjusted equity ratio
  0.380
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,779
  -5,283
  -6,693
  -8,251
  -9,955
  -11,803
  -13,793
  -15,921
  -18,184
  -20,579
  -23,103
  -25,230
  -28,007
  -30,909
  -33,937
  -37,091
  -40,374
  -43,787
  -47,336
  -51,024
  -54,856
  -58,839
  -62,979
  -67,284
  -71,762
  -76,423
  -81,275
  -86,330
  -91,598
  -97,091
  -102,821
Depreciation, amort., depletion, $m
  2,721
  3,385
  3,917
  4,501
  5,138
  5,825
  6,563
  7,349
  8,183
  9,064
  9,991
  10,437
  11,454
  12,515
  13,621
  14,773
  15,971
  17,216
  18,510
  19,856
  21,253
  22,706
  24,217
  25,788
  27,422
  29,123
  30,895
  32,741
  34,666
  36,673
  38,768
Funds from operations, $m
  1,614
  -1,898
  -2,777
  -3,750
  -4,817
  -5,978
  -7,230
  -8,571
  -10,000
  -11,515
  -13,112
  -14,792
  -16,553
  -18,394
  -20,316
  -22,318
  -24,403
  -26,571
  -28,825
  -31,168
  -33,602
  -36,132
  -38,762
  -41,496
  -44,340
  -47,299
  -50,380
  -53,588
  -56,932
  -60,417
  -64,053
Change in working capital, $m
  -1,081
  708
  786
  864
  941
  1,017
  1,091
  1,163
  1,233
  1,302
  1,370
  1,437
  1,503
  1,569
  1,635
  1,703
  1,771
  1,841
  1,914
  1,989
  2,067
  2,148
  2,233
  2,323
  2,417
  2,516
  2,620
  2,730
  2,846
  2,968
  3,097
Cash from operations, $m
  2,695
  -2,606
  -3,563
  -4,614
  -5,758
  -6,994
  -8,320
  -9,734
  -11,234
  -12,817
  -14,482
  -16,229
  -18,056
  -19,963
  -21,951
  -24,021
  -26,174
  -28,413
  -30,739
  -33,157
  -35,669
  -38,280
  -40,995
  -43,819
  -46,757
  -49,815
  -53,000
  -56,318
  -59,777
  -63,385
  -67,150
Maintenance CAPEX, $m
  0
  -2,382
  -2,860
  -3,392
  -3,976
  -4,613
  -5,300
  -6,038
  -6,824
  -7,659
  -8,539
  -9,466
  -10,437
  -11,454
  -12,515
  -13,621
  -14,773
  -15,971
  -17,216
  -18,510
  -19,856
  -21,253
  -22,706
  -24,217
  -25,788
  -27,422
  -29,123
  -30,895
  -32,741
  -34,666
  -36,673
New CAPEX, $m
  -2,444
  -7,170
  -7,975
  -8,767
  -9,548
  -10,314
  -11,064
  -11,797
  -12,512
  -13,211
  -13,898
  -14,575
  -15,247
  -15,918
  -16,592
  -17,274
  -17,969
  -18,681
  -19,415
  -20,176
  -20,967
  -21,793
  -22,657
  -23,564
  -24,517
  -25,521
  -26,578
  -27,693
  -28,868
  -30,109
  -31,417
Cash from investing activities, $m
  -1,143
  -9,552
  -10,835
  -12,159
  -13,524
  -14,927
  -16,364
  -17,835
  -19,336
  -20,870
  -22,437
  -24,041
  -25,684
  -27,372
  -29,107
  -30,895
  -32,742
  -34,652
  -36,631
  -38,686
  -40,823
  -43,046
  -45,363
  -47,781
  -50,305
  -52,943
  -55,701
  -58,588
  -61,609
  -64,775
  -68,090
Free cash flow, $m
  1,552
  -12,158
  -14,398
  -16,772
  -19,282
  -21,922
  -24,685
  -27,569
  -30,570
  -33,686
  -36,919
  -40,270
  -43,740
  -47,335
  -51,058
  -54,916
  -58,916
  -63,065
  -67,371
  -71,843
  -76,491
  -81,326
  -86,358
  -91,599
  -97,062
  -102,758
  -108,701
  -114,906
  -121,387
  -128,160
  -135,241
Issuance/(repayment) of debt, $m
  -6,007
  8,687
  9,631
  10,587
  11,530
  12,456
  13,361
  14,246
  15,109
  15,954
  16,783
  17,601
  18,412
  19,222
  20,036
  20,860
  21,699
  22,560
  23,446
  24,365
  25,320
  26,317
  27,361
  28,456
  29,608
  30,819
  32,096
  33,442
  34,862
  36,360
  37,940
Issuance/(repurchase) of shares, $m
  3,115
  11,175
  13,276
  15,487
  17,835
  20,316
  22,925
  25,658
  28,511
  31,483
  34,574
  37,260
  40,592
  44,048
  47,632
  51,349
  55,205
  59,207
  63,361
  67,677
  72,162
  76,826
  81,680
  86,734
  91,999
  97,488
  103,213
  109,188
  115,426
  121,943
  128,753
Cash from financing (excl. dividends), $m  
  -2,865
  19,862
  22,907
  26,074
  29,365
  32,772
  36,286
  39,904
  43,620
  47,437
  51,357
  54,861
  59,004
  63,270
  67,668
  72,209
  76,904
  81,767
  86,807
  92,042
  97,482
  103,143
  109,041
  115,190
  121,607
  128,307
  135,309
  142,630
  150,288
  158,303
  166,693
Total cash flow (excl. dividends), $m
  -1,440
  7,704
  8,509
  9,301
  10,083
  10,851
  11,602
  12,335
  13,050
  13,751
  14,438
  14,591
  15,264
  15,935
  16,610
  17,293
  17,989
  18,702
  19,437
  20,198
  20,990
  21,817
  22,682
  23,590
  24,545
  25,550
  26,608
  27,724
  28,901
  30,143
  31,453
Retained Cash Flow (-), $m
  -4,863
  -11,175
  -13,276
  -15,487
  -17,835
  -20,316
  -22,925
  -25,658
  -28,511
  -31,483
  -34,574
  -37,260
  -40,592
  -44,048
  -47,632
  -51,349
  -55,205
  -59,207
  -63,361
  -67,677
  -72,162
  -76,826
  -81,680
  -86,734
  -91,999
  -97,488
  -103,213
  -109,188
  -115,426
  -121,943
  -128,753
Prev. year cash balance distribution, $m
 
  616
  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
 
  -2,855
  -4,767
  -6,185
  -7,752
  -9,466
  -11,324
  -13,323
  -15,460
  -17,732
  -20,136
  -22,668
  -25,328
  -28,112
  -31,022
  -34,056
  -37,216
  -40,505
  -43,924
  -47,478
  -51,172
  -55,009
  -58,998
  -63,143
  -67,454
  -71,938
  -76,605
  -81,464
  -86,525
  -91,800
  -97,300
Discount rate, %
 
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
 
  -2,709
  -4,269
  -5,200
  -6,083
  -6,888
  -7,591
  -8,170
  -8,605
  -8,887
  -9,007
  -8,968
  -8,774
  -8,440
  -7,982
  -7,421
  -6,783
  -6,093
  -5,377
  -4,659
  -3,963
  -3,306
  -2,703
  -2,164
  -1,696
  -1,300
  -973
  -710
  -506
  -350
  -236
Current shareholders' claim on cash, %
  100
  87.4
  76.5
  67.1
  58.9
  51.9
  45.8
  40.5
  35.9
  31.9
  28.3
  25.3
  22.6
  20.2
  18.1
  16.2
  14.5
  13.0
  11.7
  10.5
  9.5
  8.5
  7.7
  6.9
  6.2
  5.6
  5.1
  4.6
  4.1
  3.7
  3.4

ArcelorMittal, together with its subsidiaries, operates as an integrated steel and mining company worldwide. The company operates through five segments: NAFTA; Brazil; Europe; Africa and Commonwealth of Independent States; and Mining. It produces finished and semi-finished steel products. The company’s products include flat products, such as slabs, plates, hot-and cold-rolled coils and sheets, hot-dipped and electro-galvanized coils and sheets, and tinplate and color coated coils and sheets; and seamless and welded pipes and tubes. It also offers long products, including blooms and billets, bars, wire-rods, structural sections, rails, sheet piles, and wire-products. The company provides its steel products to the automotive, appliance, engineering, construction, energy, and machinery industries. It sells its products in local markets and through a centralized marketing organization in approximately 160 countries. In addition, the company produces mining products, including iron ore lumps, fines, concentrates, pellets, and sinter feeds, as well as coking, pulverized coal injection, and thermal coal. It has iron ore mining activities in Brazil, Bosnia, Canada, Kazakhstan, Liberia, Mexico, Ukraine, and the United States; and coal mining activities in Kazakhstan and the United States. ArcelorMittal was founded in 1976 and is headquartered in Luxembourg, Luxembourg.

FINANCIAL RATIOS  of  ArcelorMittal ADR (MT)

Valuation Ratios
P/E Ratio 0
Price to Sales 0
Price to Book 0
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate -10.7%
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 -6.7%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 39.1%
Total Debt to Equity 45.4%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. -0.4%
Return On Total Capital 4%
Ret/ On T. Cap. - 3 Yr. Avg. -3.9%
Return On Equity 6.4%
Return On Equity - 3 Yr. Avg. -6.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 11.2%
Gross Margin - 3 Yr. Avg. 5.4%
EBITDA Margin 12%
EBITDA Margin - 3 Yr. Avg. 4.9%
Operating Margin 7.3%
Oper. Margin - 3 Yr. Avg. 1.5%
Pre-Tax Margin 4.8%
Pre-Tax Margin - 3 Yr. Avg. -2.4%
Net Profit Margin 3.1%
Net Profit Margin - 3 Yr. Avg. -3.4%
Effective Tax Rate 36.3%
Eff/ Tax Rate - 3 Yr. Avg. -21.2%
Payout Ratio 3.4%

MT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MT stock intrinsic value calculation we used $56791 million for the last fiscal year's total revenue generated by ArcelorMittal ADR. The default revenue input number comes from 2016 income statement of ArcelorMittal 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 MT stock valuation model: a) initial revenue growth rate of 20.1% 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 5.4%, whose default value for MT is calculated based on our internal credit rating of ArcelorMittal 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 ArcelorMittal 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 MT stock the variable cost ratio is equal to 106.5%.

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 MT 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 8.1% for ArcelorMittal ADR.

Corporate tax rate of 27% is the nominal tax rate for ArcelorMittal 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 MT 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 MT are equal to 62.9%.

Life of production assets of 15 years is the average useful life of capital assets used in ArcelorMittal 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 MT is equal to 6.2%. 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 - $30135 million for ArcelorMittal 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 3046.59 million for ArcelorMittal 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 ArcelorMittal ADR at the current share price and the inputted number of shares is $79.1 billion.

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COMPANY NEWS

▶ Steel Mills Make Merry as Margins Rise on Higher Spreads   [Aug-17-17 09:06AM  Market Realist]
▶ [$$] Europe's steel industry seeks strength through M&A   [Aug-14-17 12:04AM  Financial Times]
▶ Its Raining Cash for U.S. Steel amid Strong Markets   [Aug-09-17 10:36AM  Market Realist]
▶ How U.S. Steels 2Q17 Shipments Compare with AK Steel   [Aug-07-17 02:36PM  Market Realist]
▶ It may be time to get bullish on these steel stocks   [12:23PM  American City Business Journals]
▶ Analysts Rate Steel Stocks after Their 2Q17 Earnings   [Aug-03-17 07:43AM  Market Realist]
▶ 4 Top Steel Stocks for a U.S. Infrastructure Expansion   [Jul-29-17 08:46AM  Motley Fool]
▶ ArcelorMittal posts 2Q profit   [Jul-28-17 12:04AM  Associated Press]
▶ How Much Money Did ArcelorMittal Make in 2Q17?   [Jul-27-17 12:05PM  Market Realist]
▶ What Drove ArcelorMittals 2Q17 Revenues?   [10:39AM  Market Realist]
▶ Behind U.S. Steels 2Q17 Earnings: What You Need to Know   [Jul-26-17 04:06PM  Market Realist]
▶ Can ArcelorMittal Post Free Cash Flows in 2Q17?   [Jul-25-17 10:40AM  Market Realist]
▶ Can ArcelorMittal Beat 2Q17 Revenue Estimates?   [Jul-24-17 05:36PM  Market Realist]
▶ What Markets Would Like to Hear from U.S. Steels Management   [Jul-21-17 10:39AM  Market Realist]
▶ Trader tracker: Link adds to eBay & ArcelorMittal   [Jul-17-17 02:56PM  CNBC Videos]
▶ 3 Top Commodities Stocks for July   [Jul-16-17 07:09AM  Motley Fool]
▶ How AK Steels Latest Acquisition Could Improve Its Fortune   [Jul-14-17 10:36AM  Market Realist]
▶ How Analysts Are Rating Steel Dynamics   [09:08AM  Market Realist]
▶ What US Steel Investors Could Expect for 2Q17 Earnings   [Jul-12-17 04:54PM  Market Realist]
▶ What to Expect from the Global Steel Industry   [Jul-10-17 03:35PM  Market Realist]
▶ Steel: Possible US Solution to a Global Issue   [12:05PM  Market Realist]
▶ Best Low P/E Stocks to Buy in July   [Jul-09-17 08:16AM  Motley Fool]
▶ Guess Whos Been Reading the Industry Cycle Wrong?   [Jul-07-17 09:07AM  Market Realist]
▶ What a Delayed Import Probe Could Mean for US Steel   [Jul-06-17 10:37AM  Market Realist]
▶ Could US Steel Fall Prey to Geopolitics?   [09:09AM  Market Realist]
▶ Will Steel Be on the Agenda in the Upcoming G20 Meeting?   [Jul-05-17 05:28PM  Market Realist]
▶ Could President Trump Be US Steels Santa This Year?   [Jul-04-17 07:39AM  Market Realist]
▶ Why Section 232 Is the Buzzword in the US Steel Industry   [Jul-03-17 03:35PM  Market Realist]
▶ ArcelorMittal holds Investor Event   [01:18PM  GlobeNewswire]
▶ Options say this steel stock is set to shine   [Jun-28-17 01:43PM  CNBC Videos]
▶ Steel stocks surge as speculation mounts on Wall Street   [11:10AM  American City Business Journals]
▶ Uncovering Value in the Metals and Mining Sector   [Jun-26-17 01:03PM  GuruFocus.com]
▶ Bulls bet on steel stocks   [Jun-23-17 01:45PM  CNBC Videos]
▶ ETFs with exposure to ArcelorMittal SA : June 22, 2017   [Jun-22-17 04:02PM  Capital Cube]
▶ Steel Dynamics 2Q17 Guidance: Why the Significant Fall?   [Jun-19-17 06:05PM  Market Realist]
▶ [$$] French Stocks, Bonds Firmer After Vote   [05:35AM  The Wall Street Journal]
▶ What Could Lift U.S. Steel Corporation Stock from Its Slump?   [Jun-15-17 01:35PM  Market Realist]
▶ Why ArcelorMittal Is Looking Weak after a Solid 1Q17   [Jun-07-17 03:35PM  Market Realist]
Stock chart of MT Financial statements of MT
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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