Intrinsic value of POSCO ADR - PKX

Previous Close

$90.59

  Intrinsic Value

$25.41

stock screener

  Rating & Target

str. sell

-72%

Previous close

$90.59

 
Intrinsic value

$25.41

 
Up/down potential

-72%

 
Rating

str. sell

We calculate the intrinsic value of PKX 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  -8.78
  18.00
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
Revenue, $m
  45,807
  54,052
  63,079
  72,875
  83,425
  94,712
  106,718
  119,427
  132,824
  146,898
  161,642
  177,051
  193,126
  209,873
  227,302
  245,427
  264,267
  283,847
  304,193
  325,338
  347,318
  370,174
  393,948
  418,689
  444,447
  471,278
  499,240
  528,396
  558,810
  590,552
  623,696
Variable operating expenses, $m
 
  52,247
  60,953
  70,400
  80,575
  91,460
  103,039
  115,295
  128,215
  141,789
  156,007
  170,749
  186,252
  202,404
  219,212
  236,692
  254,862
  273,744
  293,366
  313,759
  334,957
  356,999
  379,927
  403,787
  428,629
  454,505
  481,472
  509,589
  538,921
  569,534
  601,498
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
  43,876
  52,247
  60,953
  70,400
  80,575
  91,460
  103,039
  115,295
  128,215
  141,789
  156,007
  170,749
  186,252
  202,404
  219,212
  236,692
  254,862
  273,744
  293,366
  313,759
  334,957
  356,999
  379,927
  403,787
  428,629
  454,505
  481,472
  509,589
  538,921
  569,534
  601,498
Operating income, $m
  1,931
  1,805
  2,126
  2,475
  2,851
  3,252
  3,680
  4,132
  4,609
  5,110
  5,634
  6,301
  6,874
  7,470
  8,090
  8,735
  9,406
  10,102
  10,827
  11,579
  12,362
  13,175
  14,021
  14,902
  15,818
  16,773
  17,769
  18,806
  19,889
  21,019
  22,198
EBITDA, $m
  4,704
  5,087
  5,937
  6,859
  7,852
  8,914
  10,044
  11,240
  12,501
  13,826
  15,213
  16,664
  18,177
  19,753
  21,393
  23,099
  24,872
  26,715
  28,630
  30,620
  32,689
  34,840
  37,078
  39,406
  41,831
  44,356
  46,988
  49,732
  52,594
  55,582
  58,701
Interest expense (income), $m
  597
  458
  619
  796
  988
  1,194
  1,416
  1,651
  1,900
  2,162
  2,438
  2,727
  3,029
  3,344
  3,672
  4,013
  4,368
  4,738
  5,121
  5,520
  5,934
  6,365
  6,813
  7,278
  7,763
  8,268
  8,793
  9,341
  9,912
  10,508
  11,130
Earnings before tax, $m
  1,236
  1,347
  1,507
  1,679
  1,863
  2,058
  2,264
  2,481
  2,709
  2,947
  3,196
  3,575
  3,845
  4,126
  4,418
  4,722
  5,037
  5,365
  5,705
  6,059
  6,427
  6,810
  7,209
  7,623
  8,055
  8,506
  8,975
  9,465
  9,976
  10,510
  11,068
Tax expense, $m
  332
  364
  407
  453
  503
  556
  611
  670
  731
  796
  863
  965
  1,038
  1,114
  1,193
  1,275
  1,360
  1,449
  1,540
  1,636
  1,735
  1,839
  1,946
  2,058
  2,175
  2,297
  2,423
  2,556
  2,694
  2,838
  2,988
Net income, $m
  1,176
  984
  1,100
  1,226
  1,360
  1,502
  1,653
  1,811
  1,977
  2,152
  2,333
  2,609
  2,807
  3,012
  3,225
  3,447
  3,677
  3,916
  4,165
  4,423
  4,692
  4,971
  5,262
  5,565
  5,880
  6,209
  6,552
  6,909
  7,283
  7,672
  8,080

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,615
  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
  68,829
  73,441
  85,705
  99,015
  113,350
  128,685
  144,998
  162,265
  180,468
  199,590
  219,622
  240,558
  262,400
  285,154
  308,834
  333,461
  359,059
  385,661
  413,306
  442,036
  471,900
  502,953
  535,255
  568,870
  603,868
  640,323
  678,316
  717,929
  759,252
  802,381
  847,413
Adjusted assets (=assets-cash), $m
  62,214
  73,441
  85,705
  99,015
  113,350
  128,685
  144,998
  162,265
  180,468
  199,590
  219,622
  240,558
  262,400
  285,154
  308,834
  333,461
  359,059
  385,661
  413,306
  442,036
  471,900
  502,953
  535,255
  568,870
  603,868
  640,323
  678,316
  717,929
  759,252
  802,381
  847,413
Revenue / Adjusted assets
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
  0.736
Average production assets, $m
  34,582
  40,809
  47,625
  55,021
  62,986
  71,508
  80,572
  90,167
  100,282
  110,908
  122,039
  133,673
  145,810
  158,454
  171,613
  185,297
  199,522
  214,304
  229,666
  245,630
  262,225
  279,481
  297,431
  316,110
  335,557
  355,815
  376,926
  398,939
  421,901
  445,867
  470,890
Working capital, $m
  8,965
  13,189
  15,391
  17,782
  20,356
  23,110
  26,039
  29,140
  32,409
  35,843
  39,441
  43,200
  47,123
  51,209
  55,462
  59,884
  64,481
  69,259
  74,223
  79,383
  84,746
  90,322
  96,123
  102,160
  108,445
  114,992
  121,815
  128,929
  136,350
  144,095
  152,182
Total debt, $m
  19,691
  17,685
  22,738
  28,221
  34,127
  40,445
  47,166
  54,280
  61,780
  69,658
  77,911
  86,537
  95,536
  104,910
  114,667
  124,813
  135,359
  146,319
  157,709
  169,546
  181,850
  194,644
  207,952
  221,802
  236,221
  251,240
  266,893
  283,214
  300,239
  318,008
  336,561
Total liabilities, $m
  32,264
  30,258
  35,311
  40,794
  46,700
  53,018
  59,739
  66,853
  74,353
  82,231
  90,484
  99,110
  108,109
  117,483
  127,240
  137,386
  147,932
  158,892
  170,282
  182,119
  194,423
  207,217
  220,525
  234,375
  248,794
  263,813
  279,466
  295,787
  312,812
  330,581
  349,134
Total equity, $m
  36,565
  43,183
  50,395
  58,221
  66,650
  75,667
  85,259
  95,412
  106,115
  117,359
  129,138
  141,448
  154,291
  167,670
  181,594
  196,075
  211,127
  226,769
  243,024
  259,917
  277,477
  295,737
  314,730
  334,496
  355,074
  376,510
  398,850
  422,142
  446,440
  471,800
  498,279
Total liabilities and equity, $m
  68,829
  73,441
  85,706
  99,015
  113,350
  128,685
  144,998
  162,265
  180,468
  199,590
  219,622
  240,558
  262,400
  285,153
  308,834
  333,461
  359,059
  385,661
  413,306
  442,036
  471,900
  502,954
  535,255
  568,871
  603,868
  640,323
  678,316
  717,929
  759,252
  802,381
  847,413
Debt-to-equity ratio
  0.539
  0.410
  0.450
  0.480
  0.510
  0.530
  0.550
  0.570
  0.580
  0.590
  0.600
  0.610
  0.620
  0.630
  0.630
  0.640
  0.640
  0.650
  0.650
  0.650
  0.660
  0.660
  0.660
  0.660
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.680
Adjusted equity ratio
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,176
  984
  1,100
  1,226
  1,360
  1,502
  1,653
  1,811
  1,977
  2,152
  2,333
  2,609
  2,807
  3,012
  3,225
  3,447
  3,677
  3,916
  4,165
  4,423
  4,692
  4,971
  5,262
  5,565
  5,880
  6,209
  6,552
  6,909
  7,283
  7,672
  8,080
Depreciation, amort., depletion, $m
  2,773
  3,282
  3,811
  4,384
  5,001
  5,662
  6,365
  7,108
  7,893
  8,716
  9,579
  10,362
  11,303
  12,283
  13,303
  14,364
  15,467
  16,613
  17,804
  19,041
  20,328
  21,665
  23,057
  24,505
  26,012
  27,583
  29,219
  30,925
  32,706
  34,563
  36,503
Funds from operations, $m
  3,396
  4,266
  4,911
  5,610
  6,361
  7,164
  8,017
  8,920
  9,870
  10,868
  11,912
  12,972
  14,110
  15,295
  16,529
  17,811
  19,144
  20,529
  21,969
  23,464
  25,020
  26,637
  28,319
  30,070
  31,893
  33,792
  35,771
  37,835
  39,988
  42,236
  44,583
Change in working capital, $m
  -1,162
  2,012
  2,203
  2,390
  2,574
  2,754
  2,929
  3,101
  3,269
  3,434
  3,597
  3,760
  3,922
  4,086
  4,253
  4,423
  4,597
  4,777
  4,964
  5,159
  5,363
  5,577
  5,801
  6,037
  6,285
  6,547
  6,823
  7,114
  7,421
  7,745
  8,087
Cash from operations, $m
  4,558
  2,254
  2,708
  3,219
  3,787
  4,410
  5,088
  5,819
  6,601
  7,434
  8,315
  9,212
  10,187
  11,209
  12,276
  13,388
  14,547
  15,752
  17,004
  18,305
  19,656
  21,060
  22,518
  24,033
  25,608
  27,245
  28,948
  30,721
  32,567
  34,491
  36,496
Maintenance CAPEX, $m
  0
  -2,681
  -3,164
  -3,692
  -4,265
  -4,883
  -5,543
  -6,246
  -6,990
  -7,774
  -8,598
  -9,460
  -10,362
  -11,303
  -12,283
  -13,303
  -14,364
  -15,467
  -16,613
  -17,804
  -19,041
  -20,328
  -21,665
  -23,057
  -24,505
  -26,012
  -27,583
  -29,219
  -30,925
  -32,706
  -34,563
New CAPEX, $m
  -2,125
  -6,227
  -6,815
  -7,396
  -7,965
  -8,522
  -9,065
  -9,595
  -10,115
  -10,626
  -11,131
  -11,634
  -12,137
  -12,644
  -13,159
  -13,684
  -14,225
  -14,782
  -15,361
  -15,965
  -16,595
  -17,256
  -17,950
  -18,679
  -19,448
  -20,257
  -21,111
  -22,012
  -22,963
  -23,965
  -25,023
Cash from investing activities, $m
  -3,240
  -8,908
  -9,979
  -11,088
  -12,230
  -13,405
  -14,608
  -15,841
  -17,105
  -18,400
  -19,729
  -21,094
  -22,499
  -23,947
  -25,442
  -26,987
  -28,589
  -30,249
  -31,974
  -33,769
  -35,636
  -37,584
  -39,615
  -41,736
  -43,953
  -46,269
  -48,694
  -51,231
  -53,888
  -56,671
  -59,586
Free cash flow, $m
  1,318
  -6,654
  -7,270
  -7,869
  -8,444
  -8,994
  -9,520
  -10,022
  -10,503
  -10,966
  -11,414
  -11,882
  -12,312
  -12,738
  -13,166
  -13,599
  -14,042
  -14,497
  -14,970
  -15,463
  -15,980
  -16,523
  -17,097
  -17,703
  -18,345
  -19,025
  -19,746
  -20,510
  -21,321
  -22,180
  -23,091
Issuance/(repayment) of debt, $m
  -2,737
  4,609
  5,053
  5,484
  5,906
  6,318
  6,721
  7,114
  7,499
  7,878
  8,253
  8,626
  8,999
  9,375
  9,756
  10,146
  10,547
  10,960
  11,389
  11,837
  12,304
  12,794
  13,308
  13,849
  14,419
  15,020
  15,653
  16,321
  17,025
  17,769
  18,553
Issuance/(repurchase) of shares, $m
  0
  5,634
  6,111
  6,600
  7,069
  7,515
  7,939
  8,342
  8,726
  9,092
  9,445
  9,701
  10,036
  10,368
  10,699
  11,033
  11,375
  11,726
  12,090
  12,470
  12,868
  13,288
  13,731
  14,201
  14,698
  15,227
  15,787
  16,383
  17,016
  17,687
  18,399
Cash from financing (excl. dividends), $m  
  -2,797
  10,243
  11,164
  12,084
  12,975
  13,833
  14,660
  15,456
  16,225
  16,970
  17,698
  18,327
  19,035
  19,743
  20,455
  21,179
  21,922
  22,686
  23,479
  24,307
  25,172
  26,082
  27,039
  28,050
  29,117
  30,247
  31,440
  32,704
  34,041
  35,456
  36,952
Total cash flow (excl. dividends), $m
  -1,479
  3,589
  3,894
  4,216
  4,531
  4,839
  5,140
  5,434
  5,722
  6,005
  6,285
  6,444
  6,723
  7,004
  7,289
  7,580
  7,879
  8,189
  8,509
  8,843
  9,193
  9,559
  9,943
  10,347
  10,773
  11,221
  11,694
  12,193
  12,720
  13,275
  13,861
Retained Cash Flow (-), $m
  -982
  -6,618
  -7,212
  -7,826
  -8,429
  -9,017
  -9,592
  -10,153
  -10,703
  -11,244
  -11,779
  -12,310
  -12,843
  -13,379
  -13,924
  -14,480
  -15,052
  -15,642
  -16,255
  -16,893
  -17,560
  -18,259
  -18,994
  -19,766
  -20,579
  -21,436
  -22,339
  -23,293
  -24,298
  -25,359
  -26,479
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
 
  -3,029
  -3,318
  -3,611
  -3,898
  -4,178
  -4,452
  -4,719
  -4,981
  -5,239
  -5,494
  -5,866
  -6,120
  -6,375
  -6,635
  -6,900
  -7,172
  -7,454
  -7,746
  -8,050
  -8,368
  -8,701
  -9,051
  -9,419
  -9,806
  -10,214
  -10,645
  -11,099
  -11,578
  -12,084
  -12,617
Discount rate, %
 
  4.90
  5.15
  5.40
  5.67
  5.96
  6.25
  6.57
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
PV of cash for distribution, $m
 
  -2,888
  -3,001
  -3,083
  -3,126
  -3,129
  -3,094
  -3,024
  -2,922
  -2,793
  -2,641
  -2,521
  -2,330
  -2,130
  -1,925
  -1,720
  -1,519
  -1,325
  -1,140
  -968
  -810
  -668
  -542
  -432
  -339
  -261
  -197
  -145
  -105
  -74
  -51
Current shareholders' claim on cash, %
  100
  84.8
  72.9
  63.3
  55.5
  49.0
  43.7
  39.3
  35.5
  32.3
  29.5
  27.2
  25.1
  23.3
  21.7
  20.3
  19.0
  17.8
  16.8
  15.8
  15.0
  14.2
  13.5
  12.8
  12.2
  11.6
  11.1
  10.6
  10.1
  9.6
  9.2

POSCO is a Korea-based company principally engaged in the manufacture and distribution of steel products. The Company operates in four segments: steel, trading, construction, and others. The steel segment includes production of steel products and sale of such products. The trading segment consists of global trading activities of POSCO Daewoo Corporation, exporting and importing a range of steel products that are both obtained from and supplied to it, as well as between other suppliers and purchasers in Korea and overseas. The construction segment includes planning, designing and construction of industrial plants, civil engineering projects, and commercial and residential buildings, both in Korea and overseas. The others segment includes power generation, liquefied natural gas (LNG) logistics, and network and system integration.

FINANCIAL RATIOS  of  POSCO ADR (PKX)

Valuation Ratios
P/E Ratio 6.2
Price to Sales 0.2
Price to Book 0.2
Price to Tangible Book
Price to Cash Flow 1.6
Price to Free Cash Flow 3
Growth Rates
Sales Growth Rate -8.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.6%
Cap. Spend. - 3 Yr. Gr. Rate -19.2%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 29.7%
Total Debt to Equity 53.9%
Interest Coverage 3
Management Effectiveness
Return On Assets 2.3%
Ret/ On Assets - 3 Yr. Avg. 1.1%
Return On Total Capital 2.1%
Ret/ On T. Cap. - 3 Yr. Avg. 1.1%
Return On Equity 3.3%
Return On Equity - 3 Yr. Avg. 1.7%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 12.6%
Gross Margin - 3 Yr. Avg. 11.7%
EBITDA Margin 10.1%
EBITDA Margin - 3 Yr. Avg. 8.6%
Operating Margin 4.2%
Oper. Margin - 3 Yr. Avg. 3.9%
Pre-Tax Margin 2.7%
Pre-Tax Margin - 3 Yr. Avg. 1.7%
Net Profit Margin 2.6%
Net Profit Margin - 3 Yr. Avg. 1.3%
Effective Tax Rate 26.9%
Eff/ Tax Rate - 3 Yr. Avg. 79.8%
Payout Ratio 52%

PKX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PKX stock intrinsic value calculation we used $45807 million for the last fiscal year's total revenue generated by POSCO ADR. The default revenue input number comes from 2016 income statement of POSCO 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 PKX stock valuation model: a) initial revenue growth rate of 18% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.9%, whose default value for PKX is calculated based on our internal credit rating of POSCO 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 POSCO 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 PKX stock the variable cost ratio is equal to 96.7%.

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 PKX 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 3.5% for POSCO ADR.

Corporate tax rate of 27% is the nominal tax rate for POSCO 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 PKX 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 PKX are equal to 75.5%.

Life of production assets of 12.9 years is the average useful life of capital assets used in POSCO 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 PKX is equal to 24.4%. 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 - $36565 million for POSCO 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 348.01 million for POSCO 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 POSCO ADR at the current share price and the inputted number of shares is $31.5 billion.

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COMPANY NEWS

▶ New Strong Buy Stocks for December 7th   [Dec-07-17 08:59AM  Zacks]
▶ Stocks Flashing Renewed Technical Strength: POSCO   [Dec-05-17 03:00AM  Investor's Business Daily]
▶ New Strong Buy Stocks for November 13th   [Nov-13-17 10:04AM  Zacks]
▶ POSCO Hits 80-Plus Relative Strength Rating Benchmark   [Oct-30-17 03:00AM  Investor's Business Daily]
▶ New Strong Buy Stocks for October 27th   [Oct-27-17 10:58AM  Zacks]
▶ Stocks With Rising Relative Price Strength: POSCO   [03:00AM  Investor's Business Daily]
▶ POSCO Shows Market Leadership With Jump To 83 RS Rating   [Sep-29-17 03:00AM  Investor's Business Daily]
▶ Top Ranked Value Stocks to Buy for July 19th   [Jul-19-17 12:26PM  Zacks]
▶ Top Ranked Momentum Stocks to Buy for July 18th   [Jul-18-17 06:01AM  Zacks]
▶ Top Ranked Value Stocks to Buy for July 17th   [Jul-17-17 09:50AM  Zacks]
▶ Top Ranked Momentum Stocks to Buy for July 13th   [Jul-13-17 06:56AM  Zacks]
▶ Top Ranked Value Stocks to Buy for July 12th   [Jul-12-17 11:39AM  Zacks]
▶ Top Ranked Momentum Stocks to Buy for July 10th   [Jul-10-17 10:35AM  Zacks]
▶ New Strong Buy Stocks for July 6th   [Jul-06-17 10:31AM  Zacks]
▶ [$$] 3 Cheap Korean Stocks With Improving Earnings   [Jun-26-17 08:39PM  Barrons.com]
▶ ETFs with exposure to POSCO : June 22, 2017   [Jun-22-17 04:14PM  Capital Cube]
▶ [$$] South Korean consortium named preferred bidder for Arrium   [Jun-15-17 10:29AM  Financial Times]
▶ Why Investors Shouldnt Fret over MTs Negative Free Cash Flow   [May-15-17 07:36AM  Market Realist]
▶ What to Make of ArcelorMittals 1Q17 Performance   [May-12-17 11:05AM  Market Realist]
▶ Top Ranked Value Stocks to Buy for May 5th   [May-05-17 10:19AM  Zacks]
▶ [$$] South Korean Stocks a Better Bet Than Japan   [May-04-17 09:00PM  Barrons.com]
Financial statements of PKX
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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