Intrinsic value of Rio Tinto ADR - RIO

Previous Close

$49.12

  Intrinsic Value

$6.29

stock screener

  Rating & Target

str. sell

-87%

Previous close

$49.12

 
Intrinsic value

$6.29

 
Up/down potential

-87%

 
Rating

str. sell

We calculate the intrinsic value of RIO 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 89.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -3.01
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  33,781
  34,457
  35,249
  36,155
  37,172
  38,299
  39,536
  40,882
  42,339
  43,910
  45,595
  47,398
  49,321
  51,369
  53,546
  55,856
  58,304
  60,895
  63,635
  66,530
  69,587
  72,813
  76,214
  79,800
  83,578
  87,556
  91,746
  96,155
  100,795
  105,677
  110,811
Variable operating expenses, $m
 
  30,871
  31,579
  32,388
  33,297
  34,303
  35,408
  36,610
  37,912
  39,315
  40,820
  42,335
  44,053
  45,882
  47,827
  49,890
  52,076
  54,390
  56,838
  59,424
  62,154
  65,035
  68,073
  71,276
  74,650
  78,204
  81,946
  85,884
  90,029
  94,389
  98,975
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
  27,310
  30,871
  31,579
  32,388
  33,297
  34,303
  35,408
  36,610
  37,912
  39,315
  40,820
  42,335
  44,053
  45,882
  47,827
  49,890
  52,076
  54,390
  56,838
  59,424
  62,154
  65,035
  68,073
  71,276
  74,650
  78,204
  81,946
  85,884
  90,029
  94,389
  98,975
Operating income, $m
  6,471
  3,585
  3,670
  3,767
  3,875
  3,996
  4,128
  4,272
  4,427
  4,595
  4,775
  5,063
  5,268
  5,487
  5,720
  5,966
  6,228
  6,504
  6,797
  7,106
  7,433
  7,777
  8,141
  8,524
  8,927
  9,352
  9,800
  10,271
  10,766
  11,288
  11,836
EBITDA, $m
  11,265
  8,497
  8,692
  8,916
  9,166
  9,444
  9,749
  10,081
  10,441
  10,828
  11,243
  11,688
  12,162
  12,667
  13,204
  13,774
  14,377
  15,016
  15,692
  16,406
  17,160
  17,955
  18,794
  19,678
  20,609
  21,591
  22,624
  23,711
  24,855
  26,059
  27,325
Interest expense (income), $m
  1,294
  1,068
  1,135
  1,208
  1,291
  1,384
  1,487
  1,600
  1,724
  1,857
  2,001
  2,156
  2,321
  2,497
  2,685
  2,884
  3,096
  3,320
  3,558
  3,809
  4,074
  4,354
  4,650
  4,961
  5,290
  5,636
  6,001
  6,385
  6,789
  7,214
  7,661
Earnings before tax, $m
  6,343
  2,517
  2,535
  2,559
  2,585
  2,612
  2,641
  2,671
  2,704
  2,738
  2,774
  2,907
  2,947
  2,990
  3,035
  3,082
  3,132
  3,184
  3,240
  3,298
  3,359
  3,423
  3,491
  3,562
  3,637
  3,716
  3,799
  3,886
  3,978
  4,074
  4,175
Tax expense, $m
  1,567
  680
  684
  691
  698
  705
  713
  721
  730
  739
  749
  785
  796
  807
  819
  832
  846
  860
  875
  890
  907
  924
  943
  962
  982
  1,003
  1,026
  1,049
  1,074
  1,100
  1,127
Net income, $m
  4,617
  1,838
  1,851
  1,868
  1,887
  1,907
  1,928
  1,950
  1,974
  1,999
  2,025
  2,122
  2,152
  2,183
  2,215
  2,250
  2,286
  2,325
  2,365
  2,407
  2,452
  2,499
  2,549
  2,601
  2,655
  2,713
  2,773
  2,837
  2,904
  2,974
  3,048

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8,536
  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
  89,263
  82,432
  84,328
  86,495
  88,928
  91,624
  94,583
  97,804
  101,291
  105,047
  109,078
  113,391
  117,993
  122,893
  128,101
  133,627
  139,483
  145,681
  152,237
  159,163
  166,476
  174,193
  182,331
  190,908
  199,946
  209,465
  219,487
  230,036
  241,137
  252,815
  265,098
Adjusted assets (=assets-cash), $m
  80,727
  82,432
  84,328
  86,495
  88,928
  91,624
  94,583
  97,804
  101,291
  105,047
  109,078
  113,391
  117,993
  122,893
  128,101
  133,627
  139,483
  145,681
  152,237
  159,163
  166,476
  174,193
  182,331
  190,908
  199,946
  209,465
  219,487
  230,036
  241,137
  252,815
  265,098
Revenue / Adjusted assets
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
Average production assets, $m
  63,264
  64,537
  66,022
  67,718
  69,623
  71,734
  74,050
  76,572
  79,302
  82,243
  85,399
  88,776
  92,379
  96,215
  100,292
  104,618
  109,203
  114,056
  119,188
  124,611
  130,336
  136,378
  142,749
  149,465
  156,541
  163,993
  171,840
  180,099
  188,789
  197,932
  207,549
Working capital, $m
  5,693
  -1,964
  -2,009
  -2,061
  -2,119
  -2,183
  -2,254
  -2,330
  -2,413
  -2,503
  -2,599
  -2,702
  -2,811
  -2,928
  -3,052
  -3,184
  -3,323
  -3,471
  -3,627
  -3,792
  -3,966
  -4,150
  -4,344
  -4,549
  -4,764
  -4,991
  -5,230
  -5,481
  -5,745
  -6,024
  -6,316
Total debt, $m
  17,869
  18,015
  19,167
  20,485
  21,964
  23,604
  25,402
  27,361
  29,481
  31,765
  34,216
  36,838
  39,636
  42,615
  45,781
  49,141
  52,701
  56,470
  60,456
  64,667
  69,113
  73,805
  78,753
  83,968
  89,463
  95,251
  101,344
  107,758
  114,507
  121,607
  129,076
Total liabilities, $m
  49,973
  50,119
  51,271
  52,589
  54,068
  55,708
  57,506
  59,465
  61,585
  63,869
  66,320
  68,942
  71,740
  74,719
  77,885
  81,245
  84,805
  88,574
  92,560
  96,771
  101,217
  105,909
  110,857
  116,072
  121,567
  127,355
  133,448
  139,862
  146,611
  153,711
  161,180
Total equity, $m
  39,290
  32,313
  33,057
  33,906
  34,860
  35,917
  37,076
  38,339
  39,706
  41,178
  42,759
  44,449
  46,253
  48,174
  50,216
  52,382
  54,677
  57,107
  59,677
  62,392
  65,259
  68,284
  71,474
  74,836
  78,379
  82,110
  86,039
  90,174
  94,526
  99,103
  103,919
Total liabilities and equity, $m
  89,263
  82,432
  84,328
  86,495
  88,928
  91,625
  94,582
  97,804
  101,291
  105,047
  109,079
  113,391
  117,993
  122,893
  128,101
  133,627
  139,482
  145,681
  152,237
  159,163
  166,476
  174,193
  182,331
  190,908
  199,946
  209,465
  219,487
  230,036
  241,137
  252,814
  265,099
Debt-to-equity ratio
  0.455
  0.560
  0.580
  0.600
  0.630
  0.660
  0.690
  0.710
  0.740
  0.770
  0.800
  0.830
  0.860
  0.880
  0.910
  0.940
  0.960
  0.990
  1.010
  1.040
  1.060
  1.080
  1.100
  1.120
  1.140
  1.160
  1.180
  1.190
  1.210
  1.230
  1.240
Adjusted equity ratio
  0.382
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392
  0.392

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4,617
  1,838
  1,851
  1,868
  1,887
  1,907
  1,928
  1,950
  1,974
  1,999
  2,025
  2,122
  2,152
  2,183
  2,215
  2,250
  2,286
  2,325
  2,365
  2,407
  2,452
  2,499
  2,549
  2,601
  2,655
  2,713
  2,773
  2,837
  2,904
  2,974
  3,048
Depreciation, amort., depletion, $m
  4,794
  4,911
  5,022
  5,149
  5,291
  5,448
  5,621
  5,809
  6,013
  6,233
  6,468
  6,625
  6,894
  7,180
  7,484
  7,807
  8,149
  8,512
  8,895
  9,299
  9,727
  10,177
  10,653
  11,154
  11,682
  12,238
  12,824
  13,440
  14,089
  14,771
  15,489
Funds from operations, $m
  5,187
  6,749
  6,873
  7,017
  7,178
  7,355
  7,549
  7,760
  7,987
  8,231
  8,493
  8,747
  9,046
  9,363
  9,700
  10,057
  10,436
  10,836
  11,260
  11,707
  12,179
  12,676
  13,201
  13,755
  14,337
  14,951
  15,597
  16,277
  16,992
  17,745
  18,537
Change in working capital, $m
  -3,278
  -39
  -45
  -52
  -58
  -64
  -70
  -77
  -83
  -90
  -96
  -103
  -110
  -117
  -124
  -132
  -140
  -148
  -156
  -165
  -174
  -184
  -194
  -204
  -215
  -227
  -239
  -251
  -264
  -278
  -293
Cash from operations, $m
  8,465
  6,787
  6,918
  7,069
  7,236
  7,419
  7,620
  7,836
  8,070
  8,321
  8,589
  8,850
  9,155
  9,480
  9,824
  10,189
  10,575
  10,984
  11,416
  11,872
  12,353
  12,860
  13,395
  13,959
  14,553
  15,178
  15,836
  16,528
  17,257
  18,023
  18,829
Maintenance CAPEX, $m
  0
  -4,721
  -4,816
  -4,927
  -5,054
  -5,196
  -5,353
  -5,526
  -5,714
  -5,918
  -6,138
  -6,373
  -6,625
  -6,894
  -7,180
  -7,484
  -7,807
  -8,149
  -8,512
  -8,895
  -9,299
  -9,727
  -10,177
  -10,653
  -11,154
  -11,682
  -12,238
  -12,824
  -13,440
  -14,089
  -14,771
New CAPEX, $m
  -3,012
  -1,274
  -1,484
  -1,697
  -1,905
  -2,111
  -2,316
  -2,522
  -2,730
  -2,941
  -3,156
  -3,377
  -3,603
  -3,836
  -4,077
  -4,326
  -4,585
  -4,853
  -5,132
  -5,423
  -5,726
  -6,041
  -6,371
  -6,716
  -7,076
  -7,452
  -7,846
  -8,259
  -8,691
  -9,143
  -9,617
Cash from investing activities, $m
  -2,104
  -5,995
  -6,300
  -6,624
  -6,959
  -7,307
  -7,669
  -8,048
  -8,444
  -8,859
  -9,294
  -9,750
  -10,228
  -10,730
  -11,257
  -11,810
  -12,392
  -13,002
  -13,644
  -14,318
  -15,025
  -15,768
  -16,548
  -17,369
  -18,230
  -19,134
  -20,084
  -21,083
  -22,131
  -23,232
  -24,388
Free cash flow, $m
  6,361
  793
  617
  445
  277
  113
  -50
  -212
  -374
  -538
  -705
  -900
  -1,073
  -1,251
  -1,433
  -1,622
  -1,817
  -2,019
  -2,228
  -2,446
  -2,672
  -2,908
  -3,153
  -3,410
  -3,677
  -3,957
  -4,249
  -4,554
  -4,874
  -5,209
  -5,559
Issuance/(repayment) of debt, $m
  -4,948
  1,062
  1,153
  1,318
  1,479
  1,639
  1,799
  1,958
  2,120
  2,284
  2,451
  2,622
  2,798
  2,979
  3,166
  3,360
  3,560
  3,769
  3,986
  4,211
  4,446
  4,692
  4,948
  5,215
  5,495
  5,787
  6,093
  6,414
  6,749
  7,100
  7,468
Issuance/(repurchase) of shares, $m
  101
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  9
  105
  205
  308
  415
  526
  642
  762
  888
  1,019
  1,155
  1,298
  1,448
  1,604
  1,767
Cash from financing (excl. dividends), $m  
  -4,766
  1,062
  1,153
  1,318
  1,479
  1,639
  1,799
  1,958
  2,120
  2,284
  2,451
  2,622
  2,798
  2,979
  3,166
  3,360
  3,569
  3,874
  4,191
  4,519
  4,861
  5,218
  5,590
  5,977
  6,383
  6,806
  7,248
  7,712
  8,197
  8,704
  9,235
Total cash flow (excl. dividends), $m
  1,560
  1,854
  1,770
  1,763
  1,757
  1,752
  1,749
  1,747
  1,746
  1,746
  1,747
  1,723
  1,725
  1,729
  1,733
  1,738
  1,753
  1,856
  1,962
  2,073
  2,189
  2,310
  2,436
  2,568
  2,705
  2,849
  3,000
  3,158
  3,323
  3,496
  3,677
Retained Cash Flow (-), $m
  -1,941
  -643
  -743
  -850
  -954
  -1,057
  -1,160
  -1,263
  -1,367
  -1,473
  -1,580
  -1,691
  -1,804
  -1,921
  -2,041
  -2,166
  -2,296
  -2,430
  -2,570
  -2,715
  -2,867
  -3,025
  -3,190
  -3,363
  -3,543
  -3,731
  -3,929
  -4,135
  -4,351
  -4,578
  -4,815
Prev. year cash balance distribution, $m
 
  7,620
  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
 
  8,831
  1,027
  913
  803
  695
  589
  484
  379
  273
  166
  32
  -79
  -192
  -308
  -428
  -543
  -574
  -607
  -642
  -678
  -715
  -754
  -795
  -837
  -882
  -929
  -977
  -1,029
  -1,082
  -1,138
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  8,467
  940
  795
  661
  539
  428
  327
  237
  157
  87
  15
  -34
  -73
  -104
  -126
  -138
  -125
  -112
  -99
  -86
  -74
  -63
  -52
  -43
  -34
  -27
  -21
  -16
  -12
  -9
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
  99.9
  99.7
  99.5
  99.2
  98.9
  98.5
  98.0
  97.5
  96.9
  96.3
  95.7
  95.0
  94.3
  93.6

Rio Tinto plc is a mining and metals company. The Company's business is finding, mining and processing mineral resources. The Company's segments include Iron Ore, Aluminium, Copper & Diamonds, Energy & Minerals and Other Operations. The Company operates an iron ore business, supplying the global seaborne iron ore trade. Its Iron Ore product operations are located in the Pilbara region of Western Australia. The Aluminium business includes bauxite mines, alumina refineries and aluminum smelters. Its bauxite mines are located in Australia, Brazil and Guinea. The Copper & Diamonds segment has managed operations in Australia, Canada, Mongolia and the United States, and non-managed operations in Chile and Indonesia. The Energy & Minerals segment consists of mining, refining and marketing operations in over 10 countries, across six sectors: borates, coal, iron ore concentrate and pellets, salt, titanium dioxide and uranium.

FINANCIAL RATIOS  of  Rio Tinto ADR (RIO)

Valuation Ratios
P/E Ratio 19.1
Price to Sales 2.6
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 10.4
Price to Free Cash Flow 16.2
Growth Rates
Sales Growth Rate -3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -35.7%
Cap. Spend. - 3 Yr. Gr. Rate -25.4%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 43.1%
Total Debt to Equity 45.5%
Interest Coverage 6
Management Effectiveness
Return On Assets 6.2%
Ret/ On Assets - 3 Yr. Avg. 4.6%
Return On Total Capital 7.8%
Ret/ On T. Cap. - 3 Yr. Avg. 5.2%
Return On Equity 12%
Return On Equity - 3 Yr. Avg. 8%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 73.8%
Gross Margin - 3 Yr. Avg. 72.8%
EBITDA Margin 36.8%
EBITDA Margin - 3 Yr. Avg. 27.6%
Operating Margin 19.2%
Oper. Margin - 3 Yr. Avg. 18.2%
Pre-Tax Margin 18.8%
Pre-Tax Margin - 3 Yr. Avg. 12.2%
Net Profit Margin 13.7%
Net Profit Margin - 3 Yr. Avg. 8.3%
Effective Tax Rate 24.7%
Eff/ Tax Rate - 3 Yr. Avg. -26.7%
Payout Ratio 59%

RIO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RIO stock intrinsic value calculation we used $33781 million for the last fiscal year's total revenue generated by Rio Tinto ADR. The default revenue input number comes from 2016 income statement of Rio Tinto 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 RIO stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for RIO is calculated based on our internal credit rating of Rio Tinto 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 Rio Tinto 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 RIO stock the variable cost ratio is equal to 89.6%.

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 RIO 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 6.3% for Rio Tinto ADR.

Corporate tax rate of 27% is the nominal tax rate for Rio Tinto 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 RIO 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 RIO are equal to 187.3%.

Life of production assets of 13.4 years is the average useful life of capital assets used in Rio Tinto 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 RIO is equal to -5.7%. 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 - $39290 million for Rio Tinto 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 1811.66 million for Rio Tinto 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 Rio Tinto ADR at the current share price and the inputted number of shares is $89.0 billion.

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COMPANY NEWS

▶ The Five Mining Companies To Watch In 2018   [Dec-11-17 07:30PM  Oilprice.com]
▶ Top 5 Copper Stocks for 2017   [Dec-10-17 04:25PM  Investopedia]
▶ Rio Tinto Sees China Beer Cans Boosting Aluminum Demand   [Dec-04-17 07:48PM  Bloomberg Video]
▶ Copper Bulls Took a Back Seat in November   [12:47PM  Market Realist]
▶ [$$] Rio Tinto Names Simon Thompson to Succeed Chairman   [06:57PM  The Wall Street Journal]
▶ Whats Driving Estimates for Rio Tinto in 2017 and Beyond?   [Nov-30-17 09:03AM  Market Realist]
▶ Freeport and Indonesia: The Tussle Continues   [09:02AM  Market Realist]
▶ Will Chinas Steel Production Take a Breather?   [09:01AM  Market Realist]
▶ How Chinas Iron Ore Imports Could Shape Up   [07:32AM  Market Realist]
▶ The Top Stock to Consider in Uranium Now   [08:40AM  Motley Fool]
▶ PRESS DIGEST- British Business - Nov 27   [Nov-26-17 09:07PM  Reuters]
▶ [$$] Rio Tinto, Sinosteel Extend Iron-Ore Mining Venture   [12:04AM  The Wall Street Journal]
▶ Who Wouldn't Dig an 11% Yield? Miners Just Might Pay It   [Nov-22-17 04:54PM  Barrons.com]
▶ Indonesia Issues Kept Freeport in the Limelight Last Week   [Nov-20-17 05:35PM  Market Realist]
▶ Rio Tinto's M&A Madness   [02:07AM  Bloomberg]
Financial statements of RIO
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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