Intrinsic value of Sociedad Quimica y Minera De Chile ADR - SQM

Previous Close

$42.91

  Intrinsic Value

$74.00

stock screener

  Rating & Target

str. buy

+72%

  Value-price divergence*

0%

Previous close

$42.91

 
Intrinsic value

$74.00

 
Up/down potential

+72%

 
Rating

str. buy

 
Value-price divergence*

0%

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

We calculate the intrinsic value of SQM 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 12.3

 

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, %
  12.21
  35.70
  32.63
  29.87
  27.38
  25.14
  23.13
  21.32
  19.68
  18.22
  16.89
  15.70
  14.63
  13.67
  12.80
  12.02
  11.32
  10.69
  10.12
  9.61
  9.15
  8.73
  8.36
  8.02
  7.72
  7.45
  7.20
  6.98
  6.79
  6.61
  6.45
Revenue, $m
  1,939
  2,631
  3,490
  4,532
  5,773
  7,224
  8,895
  10,791
  12,916
  15,268
  17,847
  20,650
  23,672
  26,908
  30,354
  34,003
  37,853
  41,899
  46,139
  50,572
  55,197
  60,018
  65,035
  70,252
  75,677
  81,314
  87,171
  93,259
  99,587
  106,166
  113,010
Variable operating expenses, $m
 
  1,546
  2,049
  2,660
  3,387
  4,238
  5,217
  6,328
  7,573
  8,952
  10,463
  12,102
  13,873
  15,769
  17,788
  19,927
  22,183
  24,554
  27,039
  29,637
  32,348
  35,173
  38,113
  41,171
  44,349
  47,653
  51,086
  54,654
  58,362
  62,218
  66,228
Fixed operating expenses, $m
 
  369
  378
  388
  397
  407
  417
  428
  439
  450
  461
  472
  484
  496
  509
  521
  534
  548
  561
  576
  590
  605
  620
  635
  651
  667
  684
  701
  719
  737
  755
Total operating expenses, $m
  1,491
  1,915
  2,427
  3,048
  3,784
  4,645
  5,634
  6,756
  8,012
  9,402
  10,924
  12,574
  14,357
  16,265
  18,297
  20,448
  22,717
  25,102
  27,600
  30,213
  32,938
  35,778
  38,733
  41,806
  45,000
  48,320
  51,770
  55,355
  59,081
  62,955
  66,983
Operating income, $m
  448
  716
  1,063
  1,485
  1,989
  2,580
  3,261
  4,035
  4,904
  5,867
  6,924
  8,076
  9,315
  10,643
  12,057
  13,555
  15,135
  16,797
  18,538
  20,359
  22,260
  24,240
  26,302
  28,446
  30,676
  32,993
  35,401
  37,904
  40,506
  43,212
  46,026
EBITDA, $m
  448
  957
  1,380
  1,896
  2,512
  3,234
  4,065
  5,010
  6,070
  7,245
  8,534
  9,935
  11,446
  13,065
  14,788
  16,615
  18,542
  20,567
  22,691
  24,911
  27,227
  29,642
  32,155
  34,769
  37,487
  40,311
  43,247
  46,298
  49,469
  52,767
  56,197
Interest expense (income), $m
  -55
  37
  60
  88
  122
  163
  210
  265
  327
  396
  473
  558
  649
  748
  854
  967
  1,086
  1,212
  1,345
  1,483
  1,628
  1,780
  1,937
  2,102
  2,272
  2,450
  2,634
  2,826
  3,025
  3,232
  3,447
Earnings before tax, $m
  415
  679
  1,003
  1,397
  1,867
  2,417
  3,051
  3,771
  4,577
  5,471
  6,450
  7,518
  8,666
  9,895
  11,202
  12,588
  14,049
  15,584
  17,194
  18,876
  20,631
  22,460
  24,364
  26,345
  28,404
  30,543
  32,767
  35,078
  37,481
  39,980
  42,579
Tax expense, $m
  133
  183
  271
  377
  504
  653
  824
  1,018
  1,236
  1,477
  1,742
  2,030
  2,340
  2,672
  3,025
  3,399
  3,793
  4,208
  4,642
  5,096
  5,570
  6,064
  6,578
  7,113
  7,669
  8,247
  8,847
  9,471
  10,120
  10,795
  11,496
Net income, $m
  278
  496
  732
  1,020
  1,363
  1,764
  2,227
  2,753
  3,341
  3,994
  4,709
  5,488
  6,326
  7,223
  8,178
  9,189
  10,256
  11,377
  12,551
  13,779
  15,061
  16,396
  17,786
  19,232
  20,735
  22,297
  23,920
  25,607
  27,361
  29,185
  31,083

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  803
  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
  4,219
  4,632
  6,144
  7,979
  10,164
  12,719
  15,661
  18,999
  22,739
  26,881
  31,422
  36,356
  41,677
  47,374
  53,440
  59,865
  66,642
  73,765
  81,230
  89,035
  97,179
  105,665
  114,497
  123,684
  133,233
  143,158
  153,471
  164,188
  175,329
  186,912
  198,961
Adjusted assets (=assets-cash), $m
  3,416
  4,632
  6,144
  7,979
  10,164
  12,719
  15,661
  18,999
  22,739
  26,881
  31,422
  36,356
  41,677
  47,374
  53,440
  59,865
  66,642
  73,765
  81,230
  89,035
  97,179
  105,665
  114,497
  123,684
  133,233
  143,158
  153,471
  164,188
  175,329
  186,912
  198,961
Revenue / Adjusted assets
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
Average production assets, $m
  1,745
  2,368
  3,141
  4,079
  5,196
  6,502
  8,006
  9,712
  11,624
  13,741
  16,063
  18,585
  21,305
  24,218
  27,318
  30,603
  34,067
  37,709
  41,525
  45,514
  49,678
  54,016
  58,531
  63,227
  68,109
  73,182
  78,454
  83,933
  89,628
  95,550
  101,709
Working capital, $m
  1,752
  1,316
  1,745
  2,266
  2,886
  3,612
  4,448
  5,396
  6,458
  7,634
  8,924
  10,325
  11,836
  13,454
  15,177
  17,002
  18,926
  20,949
  23,069
  25,286
  27,599
  30,009
  32,517
  35,126
  37,838
  40,657
  43,586
  46,629
  49,793
  53,083
  56,505
Total debt, $m
  1,220
  1,707
  2,509
  3,484
  4,644
  6,001
  7,563
  9,335
  11,321
  13,521
  15,932
  18,552
  21,377
  24,403
  27,623
  31,035
  34,634
  38,416
  42,380
  46,524
  50,849
  55,355
  60,045
  64,923
  69,994
  75,264
  80,740
  86,431
  92,347
  98,497
  104,895
Total liabilities, $m
  1,973
  2,460
  3,262
  4,237
  5,397
  6,754
  8,316
  10,088
  12,074
  14,274
  16,685
  19,305
  22,130
  25,156
  28,376
  31,788
  35,387
  39,169
  43,133
  47,277
  51,602
  56,108
  60,798
  65,676
  70,747
  76,017
  81,493
  87,184
  93,100
  99,250
  105,648
Total equity, $m
  2,246
  2,173
  2,882
  3,742
  4,767
  5,965
  7,345
  8,910
  10,664
  12,607
  14,737
  17,051
  19,546
  22,218
  25,063
  28,077
  31,255
  34,596
  38,097
  41,757
  45,577
  49,557
  53,699
  58,008
  62,486
  67,141
  71,978
  77,004
  82,229
  87,662
  93,313
Total liabilities and equity, $m
  4,219
  4,633
  6,144
  7,979
  10,164
  12,719
  15,661
  18,998
  22,738
  26,881
  31,422
  36,356
  41,676
  47,374
  53,439
  59,865
  66,642
  73,765
  81,230
  89,034
  97,179
  105,665
  114,497
  123,684
  133,233
  143,158
  153,471
  164,188
  175,329
  186,912
  198,961
Debt-to-equity ratio
  0.543
  0.790
  0.870
  0.930
  0.970
  1.010
  1.030
  1.050
  1.060
  1.070
  1.080
  1.090
  1.090
  1.100
  1.100
  1.110
  1.110
  1.110
  1.110
  1.110
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
Adjusted equity ratio
  0.452
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  278
  496
  732
  1,020
  1,363
  1,764
  2,227
  2,753
  3,341
  3,994
  4,709
  5,488
  6,326
  7,223
  8,178
  9,189
  10,256
  11,377
  12,551
  13,779
  15,061
  16,396
  17,786
  19,232
  20,735
  22,297
  23,920
  25,607
  27,361
  29,185
  31,083
Depreciation, amort., depletion, $m
  0
  241
  318
  412
  523
  654
  804
  975
  1,166
  1,378
  1,610
  1,859
  2,131
  2,422
  2,732
  3,060
  3,407
  3,771
  4,152
  4,551
  4,968
  5,402
  5,853
  6,323
  6,811
  7,318
  7,845
  8,393
  8,963
  9,555
  10,171
Funds from operations, $m
  340
  737
  1,050
  1,431
  1,886
  2,418
  3,032
  3,728
  4,508
  5,372
  6,319
  7,347
  8,457
  9,645
  10,910
  12,249
  13,662
  15,147
  16,704
  18,331
  20,029
  21,798
  23,639
  25,554
  27,546
  29,615
  31,765
  34,001
  36,324
  38,740
  41,253
Change in working capital, $m
  -300
  346
  429
  521
  620
  726
  835
  948
  1,062
  1,176
  1,290
  1,401
  1,511
  1,618
  1,723
  1,825
  1,925
  2,023
  2,120
  2,216
  2,313
  2,410
  2,508
  2,609
  2,712
  2,819
  2,929
  3,044
  3,164
  3,290
  3,422
Cash from operations, $m
  640
  390
  621
  910
  1,266
  1,693
  2,196
  2,780
  3,446
  4,195
  5,029
  5,946
  6,946
  8,027
  9,187
  10,425
  11,738
  13,124
  14,584
  16,114
  17,716
  19,388
  21,131
  22,946
  24,833
  26,796
  28,837
  30,957
  33,160
  35,450
  37,832
Maintenance CAPEX, $m
  0
  -175
  -237
  -314
  -408
  -520
  -650
  -801
  -971
  -1,162
  -1,374
  -1,606
  -1,859
  -2,131
  -2,422
  -2,732
  -3,060
  -3,407
  -3,771
  -4,152
  -4,551
  -4,968
  -5,402
  -5,853
  -6,323
  -6,811
  -7,318
  -7,845
  -8,393
  -8,963
  -9,555
New CAPEX, $m
  -133
  -623
  -773
  -938
  -1,117
  -1,306
  -1,504
  -1,706
  -1,912
  -2,117
  -2,321
  -2,523
  -2,720
  -2,913
  -3,101
  -3,285
  -3,465
  -3,641
  -3,816
  -3,990
  -4,163
  -4,338
  -4,515
  -4,696
  -4,882
  -5,073
  -5,272
  -5,479
  -5,695
  -5,921
  -6,159
Cash from investing activities, $m
  156
  -798
  -1,010
  -1,252
  -1,525
  -1,826
  -2,154
  -2,507
  -2,883
  -3,279
  -3,695
  -4,129
  -4,579
  -5,044
  -5,523
  -6,017
  -6,525
  -7,048
  -7,587
  -8,142
  -8,714
  -9,306
  -9,917
  -10,549
  -11,205
  -11,884
  -12,590
  -13,324
  -14,088
  -14,884
  -15,714
Free cash flow, $m
  796
  -407
  -389
  -342
  -259
  -133
  42
  273
  563
  916
  1,334
  1,817
  2,367
  2,984
  3,665
  4,408
  5,213
  6,076
  6,997
  7,972
  9,001
  10,082
  11,214
  12,396
  13,629
  14,912
  16,246
  17,632
  19,072
  20,566
  22,118
Issuance/(repayment) of debt, $m
  -417
  647
  803
  974
  1,160
  1,357
  1,562
  1,773
  1,986
  2,199
  2,411
  2,620
  2,825
  3,025
  3,221
  3,412
  3,599
  3,782
  3,964
  4,144
  4,325
  4,506
  4,690
  4,878
  5,071
  5,270
  5,476
  5,691
  5,916
  6,151
  6,398
Issuance/(repurchase) of shares, $m
  0
  74
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -417
  721
  803
  974
  1,160
  1,357
  1,562
  1,773
  1,986
  2,199
  2,411
  2,620
  2,825
  3,025
  3,221
  3,412
  3,599
  3,782
  3,964
  4,144
  4,325
  4,506
  4,690
  4,878
  5,071
  5,270
  5,476
  5,691
  5,916
  6,151
  6,398
Total cash flow (excl. dividends), $m
  386
  313
  414
  632
  901
  1,224
  1,604
  2,045
  2,548
  3,115
  3,745
  4,437
  5,192
  6,009
  6,885
  7,820
  8,812
  9,859
  10,961
  12,116
  13,325
  14,588
  15,904
  17,274
  18,700
  20,182
  21,722
  23,323
  24,987
  26,717
  28,515
Retained Cash Flow (-), $m
  94
  -570
  -709
  -861
  -1,025
  -1,198
  -1,380
  -1,566
  -1,754
  -1,943
  -2,130
  -2,314
  -2,495
  -2,672
  -2,845
  -3,013
  -3,179
  -3,341
  -3,501
  -3,660
  -3,820
  -3,980
  -4,143
  -4,308
  -4,479
  -4,655
  -4,837
  -5,027
  -5,225
  -5,433
  -5,651
Prev. year cash balance distribution, $m
 
  643
  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
 
  387
  -295
  -228
  -124
  25
  225
  480
  794
  1,172
  1,615
  2,123
  2,697
  3,337
  4,041
  4,807
  5,633
  6,518
  7,460
  8,456
  9,506
  10,608
  11,761
  12,966
  14,221
  15,527
  16,886
  18,297
  19,762
  21,284
  22,865
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
 
  371
  -270
  -199
  -102
  20
  163
  324
  497
  673
  847
  1,008
  1,151
  1,269
  1,356
  1,411
  1,431
  1,418
  1,374
  1,302
  1,208
  1,097
  976
  850
  724
  604
  493
  393
  306
  232
  172
Current shareholders' claim on cash, %
  100
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2
  99.2

Chemical and Mining Company of Chile Inc. produces and sells specialty plant nutrients, industrial chemicals, iodine and derivatives, lithium and derivatives, potassium, and other products and services. The company offers specialty plant nutrients, such as potassium nitrate, sodium nitrate, sodium potassium nitrate, specialty blends, and other specialty fertilizers for crops, including vegetables, fruits, and flowers under the Ultrasol, Qrop, Speedfol, and Allganic brands. It also provides iodine and its derivatives for use in medical, pharmaceutical, agricultural, and industrial applications comprising X-ray contrast media, polarizing films for LCD and LED, antiseptics, biocides and disinfectants in the synthesis of pharmaceuticals, electronics, pigments, and dye components under the QIodine brand. In addition, the company offers lithium carbonates for various applications, such as electrochemical materials for batteries, frits for ceramic and enamel industries, heat-resistant glass, air conditioning chemicals, casting powder for steel extrusion, primary aluminum smelting process, pharmaceuticals, and lithium derivatives; supplies lithium hydroxide for the lubricating greases industry, as well as for cathodes for batteries; and sells lithium chloride solutions. Its lithium products are marketed under the QLithiumCarbonate, QLithiumHydroxide, and QLubelith brands. Further, it provides potassium chloride, a commodity fertilizer; potassium sulfate, a specialty fertilizer; and industrial chemicals, including sodium nitrate, potassium nitrate, potassium chloride, and solar salts under the QSodiumNitrate, QPotassiumNitrate, QPotassiumChloride, QBoricAcid, and Ultrasol brands, as well as sells other fertilizers and blends. The company sells its products through sales offices and a network of distributors worldwide. Chemical and Mining Company of Chile Inc. was founded in 1968 and is headquartered in Santiago, Chile.

FINANCIAL RATIOS  of  Sociedad Quimica y Minera De Chile ADR (SQM)

Valuation Ratios
P/E Ratio 40.6
Price to Sales 5.8
Price to Book 5
Price to Tangible Book
Price to Cash Flow 17.6
Price to Free Cash Flow 22.3
Growth Rates
Sales Growth Rate 12.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 19.8%
Cap. Spend. - 3 Yr. Gr. Rate -19.2%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 47.2%
Total Debt to Equity 54.3%
Interest Coverage -7
Management Effectiveness
Return On Assets 5.4%
Ret/ On Assets - 3 Yr. Avg. 4.4%
Return On Total Capital 7.5%
Ret/ On T. Cap. - 3 Yr. Avg. 6.2%
Return On Equity 12.1%
Return On Equity - 3 Yr. Avg. 10.6%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 31.5%
Gross Margin - 3 Yr. Avg. 30.4%
EBITDA Margin 18.6%
EBITDA Margin - 3 Yr. Avg. 16.5%
Operating Margin 23.1%
Oper. Margin - 3 Yr. Avg. 22.1%
Pre-Tax Margin 21.4%
Pre-Tax Margin - 3 Yr. Avg. 19.6%
Net Profit Margin 14.3%
Net Profit Margin - 3 Yr. Avg. 12.8%
Effective Tax Rate 32%
Eff/ Tax Rate - 3 Yr. Avg. 33.2%
Payout Ratio 143.5%

SQM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SQM stock intrinsic value calculation we used $1939 million for the last fiscal year's total revenue generated by Sociedad Quimica y Minera De Chile ADR. The default revenue input number comes from 2016 income statement of Sociedad Quimica y Minera De Chile 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 SQM stock valuation model: a) initial revenue growth rate of 35.7% 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 SQM is calculated based on our internal credit rating of Sociedad Quimica y Minera De Chile 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 Sociedad Quimica y Minera De Chile 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 SQM stock the variable cost ratio is equal to 58.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $360 million in the base year in the intrinsic value calculation for SQM 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 Sociedad Quimica y Minera De Chile ADR.

Corporate tax rate of 27% is the nominal tax rate for Sociedad Quimica y Minera De Chile 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 SQM 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 SQM are equal to 90%.

Life of production assets of 10 years is the average useful life of capital assets used in Sociedad Quimica y Minera De Chile 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 SQM is equal to 50%. 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 - $2246 million for Sociedad Quimica y Minera De Chile 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 287.77 million for Sociedad Quimica y Minera De Chile 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 Sociedad Quimica y Minera De Chile ADR at the current share price and the inputted number of shares is $12.3 billion.

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Stock chart of SQM Financial statements of SQM
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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