Intrinsic value of Steel Dynamics - STLD

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$33.86

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$33.86

 
Intrinsic value

$2.60

 
Up/down potential

-92%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of STLD 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 8.3

 

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, %
  2.41
  20.10
  18.59
  17.23
  16.01
  14.91
  13.92
  13.02
  12.22
  11.50
  10.85
  10.27
  9.74
  9.26
  8.84
  8.45
  8.11
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.20
  6.08
  5.98
  5.88
  5.79
  5.71
Revenue, $m
  7,777
  9,340
  11,077
  12,985
  15,064
  17,309
  19,718
  22,286
  25,010
  27,887
  30,912
  34,085
  37,405
  40,870
  44,482
  48,243
  52,155
  56,222
  60,449
  64,842
  69,406
  74,151
  79,084
  84,214
  89,551
  95,108
  100,894
  106,923
  113,208
  119,763
  126,603
Variable operating expenses, $m
 
  9,426
  11,171
  13,089
  15,178
  17,434
  19,855
  22,436
  25,173
  28,064
  31,104
  34,254
  37,590
  41,072
  44,702
  48,482
  52,413
  56,500
  60,748
  65,162
  69,750
  74,518
  79,475
  84,630
  89,994
  95,578
  101,393
  107,452
  113,768
  120,355
  127,229
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
  7,049
  9,426
  11,171
  13,089
  15,178
  17,434
  19,855
  22,436
  25,173
  28,064
  31,104
  34,254
  37,590
  41,072
  44,702
  48,482
  52,413
  56,500
  60,748
  65,162
  69,750
  74,518
  79,475
  84,630
  89,994
  95,578
  101,393
  107,452
  113,768
  120,355
  127,229
Operating income, $m
  728
  -86
  -94
  -104
  -114
  -125
  -137
  -150
  -163
  -177
  -192
  -169
  -185
  -202
  -220
  -239
  -258
  -278
  -299
  -321
  -343
  -367
  -391
  -417
  -443
  -470
  -499
  -529
  -560
  -592
  -626
EBITDA, $m
  1,024
  269
  319
  374
  434
  499
  568
  642
  720
  803
  890
  982
  1,077
  1,177
  1,281
  1,390
  1,502
  1,619
  1,741
  1,868
  1,999
  2,136
  2,278
  2,426
  2,579
  2,739
  2,906
  3,080
  3,261
  3,450
  3,647
Interest expense (income), $m
  151
  144
  187
  234
  286
  343
  405
  471
  541
  616
  695
  778
  865
  956
  1,051
  1,150
  1,253
  1,360
  1,472
  1,588
  1,708
  1,833
  1,963
  2,098
  2,239
  2,385
  2,538
  2,696
  2,862
  3,034
  3,213
Earnings before tax, $m
  564
  -229
  -281
  -338
  -400
  -468
  -542
  -621
  -704
  -793
  -887
  -946
  -1,050
  -1,158
  -1,271
  -1,388
  -1,511
  -1,638
  -1,771
  -1,908
  -2,051
  -2,200
  -2,354
  -2,515
  -2,682
  -2,856
  -3,037
  -3,225
  -3,422
  -3,626
  -3,840
Tax expense, $m
  204
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  382
  -229
  -281
  -338
  -400
  -468
  -542
  -621
  -704
  -793
  -887
  -946
  -1,050
  -1,158
  -1,271
  -1,388
  -1,511
  -1,638
  -1,771
  -1,908
  -2,051
  -2,200
  -2,354
  -2,515
  -2,682
  -2,856
  -3,037
  -3,225
  -3,422
  -3,626
  -3,840

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  843
  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
  6,424
  6,705
  7,952
  9,322
  10,814
  12,426
  14,155
  15,999
  17,954
  20,019
  22,191
  24,469
  26,852
  29,340
  31,933
  34,633
  37,441
  40,361
  43,395
  46,548
  49,825
  53,231
  56,772
  60,455
  64,287
  68,275
  72,429
  76,757
  81,269
  85,975
  90,885
Adjusted assets (=assets-cash), $m
  5,581
  6,705
  7,952
  9,322
  10,814
  12,426
  14,155
  15,999
  17,954
  20,019
  22,191
  24,469
  26,852
  29,340
  31,933
  34,633
  37,441
  40,361
  43,395
  46,548
  49,825
  53,231
  56,772
  60,455
  64,287
  68,275
  72,429
  76,757
  81,269
  85,975
  90,885
Revenue / Adjusted assets
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
  1.393
Average production assets, $m
  3,151
  3,783
  4,486
  5,259
  6,101
  7,010
  7,986
  9,026
  10,129
  11,294
  12,519
  13,805
  15,149
  16,552
  18,015
  19,538
  21,123
  22,770
  24,482
  26,261
  28,110
  30,031
  32,029
  34,107
  36,268
  38,519
  40,862
  43,304
  45,849
  48,504
  51,274
Working capital, $m
  2,217
  1,653
  1,961
  2,298
  2,666
  3,064
  3,490
  3,945
  4,427
  4,936
  5,471
  6,033
  6,621
  7,234
  7,873
  8,539
  9,231
  9,951
  10,700
  11,477
  12,285
  13,125
  13,998
  14,906
  15,851
  16,834
  17,858
  18,925
  20,038
  21,198
  22,409
Total debt, $m
  2,357
  3,057
  3,838
  4,695
  5,629
  6,639
  7,721
  8,875
  10,099
  11,392
  12,752
  14,178
  15,669
  17,227
  18,850
  20,540
  22,298
  24,126
  26,025
  27,999
  30,051
  32,183
  34,399
  36,705
  39,103
  41,600
  44,201
  46,910
  49,735
  52,680
  55,754
Total liabilities, $m
  3,497
  4,197
  4,978
  5,835
  6,769
  7,779
  8,861
  10,015
  11,239
  12,532
  13,892
  15,318
  16,809
  18,367
  19,990
  21,680
  23,438
  25,266
  27,165
  29,139
  31,191
  33,323
  35,539
  37,845
  40,243
  42,740
  45,341
  48,050
  50,875
  53,820
  56,894
Total equity, $m
  2,927
  2,508
  2,974
  3,486
  4,044
  4,647
  5,294
  5,984
  6,715
  7,487
  8,299
  9,151
  10,043
  10,973
  11,943
  12,953
  14,003
  15,095
  16,230
  17,409
  18,635
  19,908
  21,233
  22,610
  24,043
  25,535
  27,089
  28,707
  30,395
  32,155
  33,991
Total liabilities and equity, $m
  6,424
  6,705
  7,952
  9,321
  10,813
  12,426
  14,155
  15,999
  17,954
  20,019
  22,191
  24,469
  26,852
  29,340
  31,933
  34,633
  37,441
  40,361
  43,395
  46,548
  49,826
  53,231
  56,772
  60,455
  64,286
  68,275
  72,430
  76,757
  81,270
  85,975
  90,885
Debt-to-equity ratio
  0.805
  1.220
  1.290
  1.350
  1.390
  1.430
  1.460
  1.480
  1.500
  1.520
  1.540
  1.550
  1.560
  1.570
  1.580
  1.590
  1.590
  1.600
  1.600
  1.610
  1.610
  1.620
  1.620
  1.620
  1.630
  1.630
  1.630
  1.630
  1.640
  1.640
  1.640
Adjusted equity ratio
  0.373
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  382
  -229
  -281
  -338
  -400
  -468
  -542
  -621
  -704
  -793
  -887
  -946
  -1,050
  -1,158
  -1,271
  -1,388
  -1,511
  -1,638
  -1,771
  -1,908
  -2,051
  -2,200
  -2,354
  -2,515
  -2,682
  -2,856
  -3,037
  -3,225
  -3,422
  -3,626
  -3,840
Depreciation, amort., depletion, $m
  296
  355
  413
  478
  548
  623
  705
  791
  883
  980
  1,083
  1,150
  1,262
  1,379
  1,501
  1,628
  1,760
  1,898
  2,040
  2,188
  2,342
  2,503
  2,669
  2,842
  3,022
  3,210
  3,405
  3,609
  3,821
  4,042
  4,273
Funds from operations, $m
  811
  125
  133
  140
  147
  155
  163
  171
  179
  187
  195
  204
  213
  221
  230
  240
  249
  259
  269
  280
  291
  303
  315
  327
  340
  354
  368
  383
  399
  416
  433
Change in working capital, $m
  -42
  277
  307
  338
  368
  397
  426
  455
  482
  509
  536
  562
  588
  613
  639
  666
  692
  720
  748
  777
  808
  840
  873
  908
  945
  983
  1,024
  1,067
  1,112
  1,160
  1,211
Cash from operations, $m
  853
  -231
  -175
  -198
  -220
  -242
  -263
  -284
  -303
  -322
  -340
  -358
  -375
  -392
  -409
  -426
  -443
  -461
  -479
  -497
  -517
  -537
  -558
  -581
  -604
  -629
  -656
  -684
  -713
  -744
  -778
Maintenance CAPEX, $m
  0
  -263
  -315
  -374
  -438
  -508
  -584
  -665
  -752
  -844
  -941
  -1,043
  -1,150
  -1,262
  -1,379
  -1,501
  -1,628
  -1,760
  -1,898
  -2,040
  -2,188
  -2,342
  -2,503
  -2,669
  -2,842
  -3,022
  -3,210
  -3,405
  -3,609
  -3,821
  -4,042
New CAPEX, $m
  -198
  -632
  -703
  -773
  -842
  -909
  -976
  -1,040
  -1,103
  -1,165
  -1,225
  -1,285
  -1,344
  -1,404
  -1,463
  -1,523
  -1,584
  -1,647
  -1,712
  -1,779
  -1,849
  -1,922
  -1,998
  -2,078
  -2,162
  -2,250
  -2,343
  -2,442
  -2,545
  -2,655
  -2,770
Cash from investing activities, $m
  -313
  -895
  -1,018
  -1,147
  -1,280
  -1,417
  -1,560
  -1,705
  -1,855
  -2,009
  -2,166
  -2,328
  -2,494
  -2,666
  -2,842
  -3,024
  -3,212
  -3,407
  -3,610
  -3,819
  -4,037
  -4,264
  -4,501
  -4,747
  -5,004
  -5,272
  -5,553
  -5,847
  -6,154
  -6,476
  -6,812
Free cash flow, $m
  540
  -1,126
  -1,193
  -1,345
  -1,501
  -1,660
  -1,823
  -1,989
  -2,158
  -2,331
  -2,507
  -2,686
  -2,870
  -3,058
  -3,251
  -3,450
  -3,656
  -3,868
  -4,088
  -4,316
  -4,554
  -4,801
  -5,059
  -5,328
  -5,608
  -5,902
  -6,209
  -6,531
  -6,867
  -7,220
  -7,590
Issuance/(repayment) of debt, $m
  -255
  704
  780
  858
  934
  1,009
  1,083
  1,154
  1,224
  1,293
  1,360
  1,426
  1,492
  1,557
  1,623
  1,690
  1,758
  1,828
  1,900
  1,974
  2,051
  2,132
  2,217
  2,305
  2,399
  2,497
  2,600
  2,709
  2,824
  2,946
  3,074
Issuance/(repurchase) of shares, $m
  -15
  2
  879
  999
  1,125
  1,254
  1,387
  1,525
  1,666
  1,811
  1,959
  2,112
  2,269
  2,431
  2,598
  2,770
  2,948
  3,132
  3,323
  3,522
  3,728
  3,943
  4,166
  4,399
  4,643
  4,897
  5,162
  5,440
  5,730
  6,034
  6,352
Cash from financing (excl. dividends), $m  
  -289
  706
  1,659
  1,857
  2,059
  2,263
  2,470
  2,679
  2,890
  3,104
  3,319
  3,538
  3,761
  3,988
  4,221
  4,460
  4,706
  4,960
  5,223
  5,496
  5,779
  6,075
  6,383
  6,704
  7,042
  7,394
  7,762
  8,149
  8,554
  8,980
  9,426
Total cash flow (excl. dividends), $m
  250
  -421
  -413
  -487
  -566
  -651
  -741
  -835
  -934
  -1,038
  -1,147
  -1,260
  -1,378
  -1,501
  -1,628
  -1,760
  -1,898
  -2,040
  -2,189
  -2,343
  -2,503
  -2,669
  -2,842
  -3,022
  -3,210
  -3,405
  -3,609
  -3,821
  -4,043
  -4,274
  -4,516
Retained Cash Flow (-), $m
  -247
  -420
  -466
  -512
  -558
  -603
  -647
  -690
  -731
  -772
  -812
  -852
  -891
  -930
  -970
  -1,010
  -1,050
  -1,092
  -1,135
  -1,179
  -1,226
  -1,274
  -1,324
  -1,377
  -1,433
  -1,492
  -1,554
  -1,619
  -1,687
  -1,760
  -1,836
Prev. year cash balance distribution, $m
 
  839
  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
 
  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
Discount rate, %
 
  4.50
  4.73
  4.96
  5.21
  5.47
  5.74
  6.03
  6.33
  6.65
  6.98
  7.33
  7.70
  8.08
  8.49
  8.91
  9.36
  9.82
  10.31
  10.83
  11.37
  11.94
  12.54
  13.16
  13.82
  14.51
  15.24
  16.00
  16.80
  17.64
  18.52
PV of cash for 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
Current shareholders' claim on cash, %
  100
  100.0
  88.9
  79.5
  71.3
  64.3
  58.1
  52.7
  48.0
  43.8
  40.1
  36.8
  33.8
  31.1
  28.7
  26.5
  24.6
  22.8
  21.1
  19.6
  18.2
  16.9
  15.8
  14.7
  13.7
  12.8
  11.9
  11.1
  10.4
  9.7
  9.1

Steel Dynamics, Inc., together with its subsidiaries, manufactures and sells steel products; processes and sells recycled ferrous and nonferrous metals; and fabricates and sells steel joist and deck products in the United States and internationally. The company operates through Steel Operations, Metals Recycling Operations, and Steel Fabrication Operations segments. The Steel Operations segment provides a range of sheet steel products, such as hot roll, cold roll, and coated steel products; structural steel beams and pilings to construction market; various rail products for the railroad industry; rounds, round-cornered squares, and round engineered bars; angles, merchant rounds, flats and channels, and reinforcing bar; and beams, channels, and specialty steel sections. This segment offers its products for automotive, construction, manufacturing, transportation, heavy and agriculture equipment, and pipe and tube markets. The Metals Recycling Operations segment is involved in the purchase, process, and resale of ferrous and nonferrous scrap metals into reusable forms and grades. Its ferrous products include heavy melting steel, busheling, bundled scrap, shredded scrap, steel turnings, and cast iron products; and nonferrous products comprise aluminum, brass, copper, stainless steel, and other nonferrous metals. This segment also provides transportation logistics, management, marketing, brokerage, and consulting services related to the scrap industry. The Steel Fabrication Operations segment produces steel building components comprising steel joists, girders, trusses, and steel decks primarily for the non-residential construction industry. The company also produces pig and hot briquetted iron; and iron nugget products that are used in electric arc furnace steel mills. Steel Dynamics, Inc. was founded in 1993 and is headquartered in Fort Wayne, Indiana.

FINANCIAL RATIOS  of  Steel Dynamics (STLD)

Valuation Ratios
P/E Ratio 21.6
Price to Sales 1.1
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 9.7
Price to Free Cash Flow 12.6
Growth Rates
Sales Growth Rate 2.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 72.2%
Cap. Spend. - 3 Yr. Gr. Rate 1.1%
Financial Strength
Quick Ratio 211
Current Ratio 0.1
LT Debt to Equity 80.4%
Total Debt to Equity 80.5%
Interest Coverage 5
Management Effectiveness
Return On Assets 7.6%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 7.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2.6%
Return On Equity 13.6%
Return On Equity - 3 Yr. Avg. 4.9%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 17.2%
Gross Margin - 3 Yr. Avg. 12.6%
EBITDA Margin 13%
EBITDA Margin - 3 Yr. Avg. 7.3%
Operating Margin 9.4%
Oper. Margin - 3 Yr. Avg. 4%
Pre-Tax Margin 7.3%
Pre-Tax Margin - 3 Yr. Avg. 2%
Net Profit Margin 4.9%
Net Profit Margin - 3 Yr. Avg. 1.7%
Effective Tax Rate 36.2%
Eff/ Tax Rate - 3 Yr. Avg. 40.2%
Payout Ratio 35.6%

STLD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the STLD stock intrinsic value calculation we used $7777 million for the last fiscal year's total revenue generated by Steel Dynamics. The default revenue input number comes from 2016 income statement of Steel Dynamics. 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 STLD stock valuation model: a) initial revenue growth rate of 20.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.5%, whose default value for STLD is calculated based on our internal credit rating of Steel Dynamics, 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 Steel Dynamics.
    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 STLD stock the variable cost ratio is equal to 101%.

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 STLD 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 6.1% for Steel Dynamics.

Corporate tax rate of 27% is the nominal tax rate for Steel Dynamics. 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 STLD 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 STLD are equal to 40.5%.

Life of production assets of 12 years is the average useful life of capital assets used in Steel Dynamics 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 STLD is equal to 17.7%. 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 - $2927 million for Steel Dynamics - 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 243.959 million for Steel Dynamics 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 Steel Dynamics at the current share price and the inputted number of shares is $8.3 billion.


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Stock chart of STLD Financial statements of STLD Annual reports of STLD
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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