Intrinsic value of POSCO ADR - PKX

Previous Close

$72.54

  Intrinsic Value

$25.06

stock screener

  Rating & Target

str. sell

-65%

  Value-price divergence*

+5000%

Previous close

$72.54

 
Intrinsic value

$25.06

 
Up/down potential

-65%

 
Rating

str. sell

 
Value-price divergence*

+5000%

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

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

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 25.6

 

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, %
  -8.78
  21.00
  19.40
  17.96
  16.66
  15.50
  14.45
  13.50
  12.65
  11.89
  11.20
  10.58
  10.02
  9.52
  9.07
  8.66
  8.29
  7.96
  7.67
  7.40
  7.16
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
Revenue, $m
  45,807
  55,426
  66,179
  78,065
  91,074
  105,188
  120,385
  136,641
  153,930
  172,228
  191,516
  211,776
  232,998
  255,177
  278,313
  302,416
  327,499
  353,584
  380,698
  408,876
  438,157
  468,588
  500,221
  533,113
  567,329
  602,936
  640,008
  678,625
  718,870
  760,833
  804,609
Variable operating expenses, $m
 
  53,572
  63,943
  75,405
  87,951
  101,563
  116,219
  131,897
  148,570
  166,217
  184,818
  204,238
  224,705
  246,095
  268,408
  291,653
  315,843
  341,000
  367,149
  394,323
  422,562
  451,910
  482,417
  514,139
  547,137
  581,477
  617,230
  654,472
  693,285
  733,754
  775,972
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
  53,572
  63,943
  75,405
  87,951
  101,563
  116,219
  131,897
  148,570
  166,217
  184,818
  204,238
  224,705
  246,095
  268,408
  291,653
  315,843
  341,000
  367,149
  394,323
  422,562
  451,910
  482,417
  514,139
  547,137
  581,477
  617,230
  654,472
  693,285
  733,754
  775,972
Operating income, $m
  1,931
  1,854
  2,237
  2,660
  3,123
  3,625
  4,166
  4,745
  5,360
  6,011
  6,698
  7,537
  8,293
  9,082
  9,906
  10,763
  11,656
  12,585
  13,550
  14,552
  15,595
  16,678
  17,804
  18,974
  20,192
  21,459
  22,779
  24,153
  25,586
  27,079
  28,637
EBITDA, $m
  4,704
  5,217
  6,229
  7,347
  8,572
  9,900
  11,330
  12,860
  14,488
  16,210
  18,025
  19,932
  21,929
  24,017
  26,194
  28,463
  30,824
  33,279
  35,831
  38,483
  41,239
  44,103
  47,080
  50,176
  53,396
  56,747
  60,237
  63,871
  67,659
  71,608
  75,729
Interest expense (income), $m
  597
  458
  646
  857
  1,089
  1,344
  1,621
  1,919
  2,237
  2,576
  2,934
  3,312
  3,709
  4,125
  4,559
  5,013
  5,485
  5,976
  6,488
  7,019
  7,571
  8,144
  8,741
  9,360
  10,005
  10,675
  11,373
  12,099
  12,856
  13,644
  14,466
Earnings before tax, $m
  1,236
  1,396
  1,591
  1,803
  2,033
  2,281
  2,545
  2,826
  3,123
  3,435
  3,763
  4,225
  4,584
  4,957
  5,346
  5,751
  6,171
  6,608
  7,062
  7,534
  8,024
  8,533
  9,063
  9,614
  10,187
  10,784
  11,406
  12,054
  12,730
  13,435
  14,171
Tax expense, $m
  332
  377
  430
  487
  549
  616
  687
  763
  843
  928
  1,016
  1,141
  1,238
  1,338
  1,443
  1,553
  1,666
  1,784
  1,907
  2,034
  2,166
  2,304
  2,447
  2,596
  2,751
  2,912
  3,080
  3,255
  3,437
  3,627
  3,826
Net income, $m
  1,176
  1,019
  1,161
  1,316
  1,484
  1,665
  1,858
  2,063
  2,280
  2,508
  2,747
  3,084
  3,346
  3,619
  3,903
  4,198
  4,505
  4,824
  5,155
  5,500
  5,857
  6,229
  6,616
  7,018
  7,437
  7,872
  8,326
  8,799
  9,293
  9,807
  10,345

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
  75,308
  89,917
  106,067
  123,741
  142,918
  163,567
  185,654
  209,144
  234,006
  260,212
  287,739
  316,573
  346,707
  378,143
  410,892
  444,972
  480,413
  517,253
  555,538
  595,322
  636,668
  679,648
  724,339
  770,827
  819,207
  869,577
  922,045
  976,726
  1,033,741
  1,093,218
Adjusted assets (=assets-cash), $m
  62,214
  75,308
  89,917
  106,067
  123,741
  142,918
  163,567
  185,654
  209,144
  234,006
  260,212
  287,739
  316,573
  346,707
  378,143
  410,892
  444,972
  480,413
  517,253
  555,538
  595,322
  636,668
  679,648
  724,339
  770,827
  819,207
  869,577
  922,045
  976,726
  1,033,741
  1,093,218
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
  41,847
  49,965
  58,939
  68,761
  79,417
  90,891
  103,164
  116,217
  130,032
  144,594
  159,891
  175,913
  192,658
  210,127
  228,324
  247,262
  266,956
  287,427
  308,701
  330,808
  353,784
  377,667
  402,501
  428,333
  455,217
  483,206
  512,362
  542,747
  574,429
  607,480
Working capital, $m
  8,965
  13,524
  16,148
  19,048
  22,222
  25,666
  29,374
  33,340
  37,559
  42,024
  46,730
  51,673
  56,851
  62,263
  67,908
  73,790
  79,910
  86,275
  92,890
  99,766
  106,910
  114,335
  122,054
  130,080
  138,428
  147,116
  156,162
  165,584
  175,404
  185,643
  196,325
Total debt, $m
  19,691
  18,454
  24,473
  31,126
  38,408
  46,309
  54,817
  63,916
  73,594
  83,837
  94,634
  105,975
  117,855
  130,270
  143,222
  156,714
  170,755
  185,357
  200,535
  216,308
  232,700
  249,734
  267,442
  285,855
  305,008
  324,940
  345,693
  367,309
  389,838
  413,328
  437,833
Total liabilities, $m
  32,264
  31,027
  37,046
  43,699
  50,981
  58,882
  67,390
  76,489
  86,167
  96,410
  107,207
  118,548
  130,428
  142,843
  155,795
  169,287
  183,328
  197,930
  213,108
  228,881
  245,273
  262,307
  280,015
  298,428
  317,581
  337,513
  358,266
  379,882
  402,411
  425,901
  450,406
Total equity, $m
  36,565
  44,281
  52,871
  62,367
  72,760
  84,036
  96,177
  109,164
  122,977
  137,595
  153,004
  169,191
  186,145
  203,864
  222,348
  241,604
  261,644
  282,483
  304,145
  326,656
  350,049
  374,361
  399,633
  425,911
  453,246
  481,693
  511,311
  542,162
  574,315
  607,840
  642,812
Total liabilities and equity, $m
  68,829
  75,308
  89,917
  106,066
  123,741
  142,918
  163,567
  185,653
  209,144
  234,005
  260,211
  287,739
  316,573
  346,707
  378,143
  410,891
  444,972
  480,413
  517,253
  555,537
  595,322
  636,668
  679,648
  724,339
  770,827
  819,206
  869,577
  922,044
  976,726
  1,033,741
  1,093,218
Debt-to-equity ratio
  0.539
  0.420
  0.460
  0.500
  0.530
  0.550
  0.570
  0.590
  0.600
  0.610
  0.620
  0.630
  0.630
  0.640
  0.640
  0.650
  0.650
  0.660
  0.660
  0.660
  0.660
  0.670
  0.670
  0.670
  0.670
  0.670
  0.680
  0.680
  0.680
  0.680
  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
  1,019
  1,161
  1,316
  1,484
  1,665
  1,858
  2,063
  2,280
  2,508
  2,747
  3,084
  3,346
  3,619
  3,903
  4,198
  4,505
  4,824
  5,155
  5,500
  5,857
  6,229
  6,616
  7,018
  7,437
  7,872
  8,326
  8,799
  9,293
  9,807
  10,345
Depreciation, amort., depletion, $m
  2,773
  3,363
  3,992
  4,688
  5,449
  6,275
  7,165
  8,116
  9,128
  10,199
  11,328
  12,395
  13,637
  14,935
  16,289
  17,700
  19,168
  20,694
  22,281
  23,930
  25,644
  27,425
  29,276
  31,202
  33,204
  35,288
  37,458
  39,718
  42,073
  44,529
  47,091
Funds from operations, $m
  3,396
  4,382
  5,153
  6,004
  6,933
  7,940
  9,022
  10,179
  11,407
  12,707
  14,075
  15,479
  16,983
  18,553
  20,192
  21,898
  23,673
  25,518
  27,436
  29,430
  31,501
  33,654
  35,892
  38,220
  40,641
  43,160
  45,784
  48,517
  51,366
  54,337
  57,436
Change in working capital, $m
  -1,162
  2,347
  2,624
  2,900
  3,174
  3,444
  3,708
  3,966
  4,218
  4,465
  4,706
  4,943
  5,178
  5,412
  5,645
  5,881
  6,120
  6,365
  6,616
  6,875
  7,145
  7,425
  7,718
  8,026
  8,349
  8,688
  9,046
  9,422
  9,820
  10,239
  10,681
Cash from operations, $m
  4,558
  2,035
  2,530
  3,104
  3,759
  4,496
  5,314
  6,212
  7,189
  8,242
  9,369
  10,536
  11,805
  13,142
  14,546
  16,016
  17,552
  19,153
  20,821
  22,555
  24,357
  26,229
  28,174
  30,194
  32,292
  34,472
  36,738
  39,095
  41,546
  44,098
  46,755
Maintenance CAPEX, $m
  0
  -2,681
  -3,244
  -3,873
  -4,569
  -5,330
  -6,156
  -7,046
  -7,997
  -9,009
  -10,080
  -11,209
  -12,395
  -13,637
  -14,935
  -16,289
  -17,700
  -19,168
  -20,694
  -22,281
  -23,930
  -25,644
  -27,425
  -29,276
  -31,202
  -33,204
  -35,288
  -37,458
  -39,718
  -42,073
  -44,529
New CAPEX, $m
  -2,125
  -7,265
  -8,118
  -8,974
  -9,822
  -10,656
  -11,474
  -12,273
  -13,053
  -13,815
  -14,562
  -15,296
  -16,023
  -16,745
  -17,468
  -18,198
  -18,938
  -19,694
  -20,471
  -21,274
  -22,107
  -22,975
  -23,883
  -24,834
  -25,833
  -26,883
  -27,990
  -29,156
  -30,385
  -31,682
  -33,050
Cash from investing activities, $m
  -3,240
  -9,946
  -11,362
  -12,847
  -14,391
  -15,986
  -17,630
  -19,319
  -21,050
  -22,824
  -24,642
  -26,505
  -28,418
  -30,382
  -32,403
  -34,487
  -36,638
  -38,862
  -41,165
  -43,555
  -46,037
  -48,619
  -51,308
  -54,110
  -57,035
  -60,087
  -63,278
  -66,614
  -70,103
  -73,755
  -77,579
Free cash flow, $m
  1,318
  -7,911
  -8,833
  -9,743
  -10,631
  -11,490
  -12,316
  -13,106
  -13,861
  -14,583
  -15,273
  -15,970
  -16,613
  -17,240
  -17,857
  -18,470
  -19,085
  -19,708
  -20,345
  -21,001
  -21,681
  -22,390
  -23,134
  -23,917
  -24,742
  -25,615
  -26,539
  -27,519
  -28,557
  -29,658
  -30,825
Issuance/(repayment) of debt, $m
  -2,737
  5,378
  6,019
  6,653
  7,282
  7,901
  8,507
  9,100
  9,678
  10,243
  10,797
  11,341
  11,880
  12,415
  12,952
  13,492
  14,041
  14,602
  15,178
  15,773
  16,391
  17,035
  17,708
  18,413
  19,153
  19,932
  20,752
  21,617
  22,529
  23,490
  24,505
Issuance/(repurchase) of shares, $m
  0
  6,697
  7,429
  8,179
  8,909
  9,611
  10,283
  10,924
  11,533
  12,111
  12,662
  13,102
  13,609
  14,100
  14,582
  15,058
  15,534
  16,016
  16,506
  17,012
  17,536
  18,082
  18,656
  19,260
  19,899
  20,575
  21,291
  22,052
  22,860
  23,717
  24,628
Cash from financing (excl. dividends), $m  
  -2,797
  12,075
  13,448
  14,832
  16,191
  17,512
  18,790
  20,024
  21,211
  22,354
  23,459
  24,443
  25,489
  26,515
  27,534
  28,550
  29,575
  30,618
  31,684
  32,785
  33,927
  35,117
  36,364
  37,673
  39,052
  40,507
  42,043
  43,669
  45,389
  47,207
  49,133
Total cash flow (excl. dividends), $m
  -1,479
  4,163
  4,616
  5,090
  5,559
  6,022
  6,475
  6,917
  7,349
  7,772
  8,185
  8,473
  8,876
  9,276
  9,676
  10,080
  10,490
  10,909
  11,340
  11,784
  12,246
  12,727
  13,230
  13,756
  14,310
  14,892
  15,504
  16,150
  16,831
  17,550
  18,308
Retained Cash Flow (-), $m
  -982
  -7,716
  -8,591
  -9,496
  -10,393
  -11,276
  -12,141
  -12,987
  -13,812
  -14,619
  -15,409
  -16,186
  -16,955
  -17,719
  -18,484
  -19,256
  -20,039
  -20,839
  -21,662
  -22,511
  -23,393
  -24,312
  -25,272
  -26,278
  -27,335
  -28,447
  -29,618
  -30,851
  -32,152
  -33,525
  -34,973
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
 
  -3,552
  -3,975
  -4,406
  -4,834
  -5,254
  -5,667
  -6,070
  -6,463
  -6,847
  -7,224
  -7,713
  -8,079
  -8,443
  -8,808
  -9,176
  -9,549
  -9,930
  -10,322
  -10,727
  -11,147
  -11,585
  -12,042
  -12,522
  -13,026
  -13,555
  -14,113
  -14,701
  -15,321
  -15,975
  -16,665
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
 
  -3,387
  -3,595
  -3,763
  -3,876
  -3,935
  -3,938
  -3,889
  -3,791
  -3,650
  -3,472
  -3,314
  -3,076
  -2,821
  -2,556
  -2,288
  -2,022
  -1,765
  -1,520
  -1,290
  -1,079
  -890
  -721
  -575
  -450
  -346
  -261
  -192
  -139
  -98
  -67
Current shareholders' claim on cash, %
  100
  79.3
  63.9
  52.4
  43.5
  36.6
  31.1
  26.8
  23.3
  20.4
  18.0
  16.1
  14.4
  13.0
  11.8
  10.8
  9.9
  9.1
  8.4
  7.7
  7.2
  6.7
  6.3
  5.9
  5.5
  5.2
  4.8
  4.6
  4.3
  4.1
  3.8

POSCO manufactures and sells steel rolled products and plates in South Korea and internationally. The company operates through four segments: Steel, Construction, Trading, and Others. It offers hot rolled steel, steel plates, wire rods, cold rolled steel, galvanized steel, electrical galvanized steel, electrical steel, automotive materials, stainless steel, titanium, magnesium, and aluminum-plated products. The company is also involved in the planning, designing, and construction of industrial plants, civil engineering projects, and commercial and residential buildings; steel sales and trading; computer hardware and software distribution; economic research and consulting business; business facility maintenance; architecture and consulting; investment in venture companies, energy industry, and bio tech industry; electronic commerce; transporting and warehousing business; generation of electricity; component manufacturing; LED lightening business; and train manufacturing and management. In addition, it engages in gas production and sales; house manufacturing and management; hotel business; coal sales; manufacturing automotive steel sheets, components, electric control equipment, and power generation equipment; IT service and DVR business; mine development; resource development; magnet material manufacturing and sales; textile manufacturing; paper manufacturing; merchandising trade; forest resources development; logistics; scrap sales; quicklime manufacturing and sales; real estate development, rental, and management business; and wastewater treatment facilities operation and maintenance. Further, the company offers education, financial, loading and unloading, and human resource services. POSCO was founded in 1968 and is based in Seoul, South Korea.

FINANCIAL RATIOS  of  POSCO ADR (PKX)

Valuation Ratios
P/E Ratio 4.9
Price to Sales 0.1
Price to Book 0.2
Price to Tangible Book
Price to Cash Flow 1.3
Price to Free Cash Flow 2.4
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 21% 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 352.885 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 $25.6 billion.

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Stock chart of PKX 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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