Intrinsic value of TAL Education Group ADR - TAL

Previous Close

$29.45

  Intrinsic Value

$1,190

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+4717%

Previous close

$29.45

 
Intrinsic value

$1,190

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+4717%

Our model is not good at valuating stocks of financial companies, such as TAL.

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

We calculate the intrinsic value of TAL 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 2017), $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 2.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  68.23
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  1,043
  1,669
  2,578
  3,856
  5,595
  7,893
  10,851
  14,566
  19,126
  24,610
  31,085
  38,600
  47,192
  56,882
  67,679
  79,578
  92,569
  106,631
  121,744
  137,881
  155,019
  173,136
  192,212
  212,233
  233,190
  255,080
  277,906
  301,677
  326,409
  352,125
  378,853
Variable operating expenses, $m
 
  1,443
  2,214
  3,298
  4,773
  6,723
  9,233
  12,384
  16,253
  20,906
  26,399
  32,748
  40,038
  48,259
  57,419
  67,514
  78,535
  90,466
  103,287
  116,978
  131,518
  146,889
  163,073
  180,059
  197,839
  216,410
  235,776
  255,943
  276,926
  298,743
  321,420
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
  917
  1,443
  2,214
  3,298
  4,773
  6,723
  9,233
  12,384
  16,253
  20,906
  26,399
  32,748
  40,038
  48,259
  57,419
  67,514
  78,535
  90,466
  103,287
  116,978
  131,518
  146,889
  163,073
  180,059
  197,839
  216,410
  235,776
  255,943
  276,926
  298,743
  321,420
Operating income, $m
  127
  226
  364
  558
  821
  1,170
  1,618
  2,181
  2,873
  3,704
  4,686
  5,852
  7,154
  8,623
  10,260
  12,064
  14,033
  16,165
  18,456
  20,903
  23,501
  26,247
  29,139
  32,174
  35,351
  38,670
  42,130
  45,734
  49,483
  53,382
  57,434
EBITDA, $m
  146
  263
  406
  607
  881
  1,243
  1,709
  2,294
  3,013
  3,876
  4,896
  6,080
  7,433
  8,960
  10,660
  12,535
  14,581
  16,796
  19,176
  21,718
  24,417
  27,271
  30,276
  33,429
  36,730
  40,178
  43,773
  47,518
  51,413
  55,464
  59,674
Interest expense (income), $m
  6
  16
  40
  75
  125
  193
  284
  399
  545
  724
  938
  1,192
  1,487
  1,823
  2,203
  2,626
  3,092
  3,601
  4,152
  4,744
  5,376
  6,048
  6,758
  7,505
  8,289
  9,110
  9,968
  10,862
  11,794
  12,763
  13,770
Earnings before tax, $m
  155
  211
  325
  483
  696
  976
  1,335
  1,782
  2,328
  2,981
  3,747
  4,660
  5,668
  6,800
  8,057
  9,438
  10,941
  12,564
  14,304
  16,159
  18,124
  20,199
  22,382
  24,669
  27,062
  29,560
  32,162
  34,872
  37,690
  40,619
  43,664
Tax expense, $m
  37
  57
  88
  130
  188
  264
  360
  481
  629
  805
  1,012
  1,258
  1,530
  1,836
  2,175
  2,548
  2,954
  3,392
  3,862
  4,363
  4,894
  5,454
  6,043
  6,661
  7,307
  7,981
  8,684
  9,415
  10,176
  10,967
  11,789
Net income, $m
  115
  154
  237
  352
  508
  713
  974
  1,301
  1,699
  2,176
  2,735
  3,401
  4,137
  4,964
  5,882
  6,890
  7,987
  9,172
  10,442
  11,796
  13,231
  14,746
  16,339
  18,009
  19,755
  21,578
  23,478
  25,456
  27,513
  29,652
  31,874

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  700
  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
  1,827
  2,076
  3,207
  4,796
  6,958
  9,817
  13,497
  18,117
  23,788
  30,610
  38,662
  48,010
  58,697
  70,749
  84,178
  98,978
  115,135
  132,626
  151,422
  171,494
  192,810
  215,343
  239,070
  263,972
  290,038
  317,264
  345,654
  375,220
  405,982
  437,967
  471,211
Adjusted assets (=assets-cash), $m
  1,127
  2,076
  3,207
  4,796
  6,958
  9,817
  13,497
  18,117
  23,788
  30,610
  38,662
  48,010
  58,697
  70,749
  84,178
  98,978
  115,135
  132,626
  151,422
  171,494
  192,810
  215,343
  239,070
  263,972
  290,038
  317,264
  345,654
  375,220
  405,982
  437,967
  471,211
Revenue / Adjusted assets
  0.925
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
  0.804
Average production assets, $m
  84
  135
  209
  312
  453
  639
  879
  1,180
  1,549
  1,993
  2,518
  3,127
  3,823
  4,607
  5,482
  6,446
  7,498
  8,637
  9,861
  11,168
  12,557
  14,024
  15,569
  17,191
  18,888
  20,662
  22,510
  24,436
  26,439
  28,522
  30,687
Working capital, $m
  202
  -167
  -258
  -386
  -559
  -789
  -1,085
  -1,457
  -1,913
  -2,461
  -3,108
  -3,860
  -4,719
  -5,688
  -6,768
  -7,958
  -9,257
  -10,663
  -12,174
  -13,788
  -15,502
  -17,314
  -19,221
  -21,223
  -23,319
  -25,508
  -27,791
  -30,168
  -32,641
  -35,213
  -37,885
Total debt, $m
  450
  1,133
  2,151
  3,581
  5,528
  8,101
  11,412
  15,570
  20,674
  26,814
  34,061
  42,474
  52,092
  62,939
  75,025
  88,345
  102,887
  118,628
  135,545
  153,609
  172,794
  193,074
  214,428
  236,839
  260,299
  284,803
  310,354
  336,963
  364,648
  393,435
  423,355
Total liabilities, $m
  1,185
  1,868
  2,886
  4,316
  6,263
  8,836
  12,147
  16,305
  21,409
  27,549
  34,796
  43,209
  52,827
  63,674
  75,760
  89,080
  103,622
  119,363
  136,280
  154,344
  173,529
  193,809
  215,163
  237,574
  261,034
  285,538
  311,089
  337,698
  365,383
  394,170
  424,090
Total equity, $m
  642
  208
  321
  480
  696
  982
  1,350
  1,812
  2,379
  3,061
  3,866
  4,801
  5,870
  7,075
  8,418
  9,898
  11,514
  13,263
  15,142
  17,149
  19,281
  21,534
  23,907
  26,397
  29,004
  31,726
  34,565
  37,522
  40,598
  43,797
  47,121
Total liabilities and equity, $m
  1,827
  2,076
  3,207
  4,796
  6,959
  9,818
  13,497
  18,117
  23,788
  30,610
  38,662
  48,010
  58,697
  70,749
  84,178
  98,978
  115,136
  132,626
  151,422
  171,493
  192,810
  215,343
  239,070
  263,971
  290,038
  317,264
  345,654
  375,220
  405,981
  437,967
  471,211
Debt-to-equity ratio
  0.701
  5.460
  6.710
  7.470
  7.940
  8.250
  8.460
  8.590
  8.690
  8.760
  8.810
  8.850
  8.870
  8.900
  8.910
  8.930
  8.940
  8.940
  8.950
  8.960
  8.960
  8.970
  8.970
  8.970
  8.970
  8.980
  8.980
  8.980
  8.980
  8.980
  8.980
Adjusted equity ratio
  -0.051
  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
  0.100
  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

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  115
  154
  237
  352
  508
  713
  974
  1,301
  1,699
  2,176
  2,735
  3,401
  4,137
  4,964
  5,882
  6,890
  7,987
  9,172
  10,442
  11,796
  13,231
  14,746
  16,339
  18,009
  19,755
  21,578
  23,478
  25,456
  27,513
  29,652
  31,874
Depreciation, amort., depletion, $m
  19
  37
  42
  49
  60
  73
  91
  113
  140
  172
  210
  228
  279
  336
  400
  470
  547
  630
  720
  815
  917
  1,024
  1,136
  1,255
  1,379
  1,508
  1,643
  1,784
  1,930
  2,082
  2,240
Funds from operations, $m
  275
  190
  279
  402
  568
  786
  1,065
  1,414
  1,839
  2,348
  2,946
  3,630
  4,416
  5,300
  6,282
  7,360
  8,534
  9,802
  11,162
  12,611
  14,147
  15,769
  17,475
  19,263
  21,134
  23,087
  25,122
  27,240
  29,443
  31,734
  34,114
Change in working capital, $m
  87
  -63
  -91
  -128
  -174
  -230
  -296
  -371
  -456
  -548
  -647
  -752
  -859
  -969
  -1,080
  -1,190
  -1,299
  -1,406
  -1,511
  -1,614
  -1,714
  -1,812
  -1,908
  -2,002
  -2,096
  -2,189
  -2,283
  -2,377
  -2,473
  -2,572
  -2,673
Cash from operations, $m
  188
  253
  370
  530
  742
  1,016
  1,361
  1,785
  2,295
  2,896
  3,593
  4,381
  5,276
  6,269
  7,362
  8,550
  9,833
  11,209
  12,673
  14,225
  15,861
  17,581
  19,383
  21,266
  23,230
  25,276
  27,404
  29,617
  31,917
  34,306
  36,787
Maintenance CAPEX, $m
  0
  -6
  -10
  -15
  -23
  -33
  -47
  -64
  -86
  -113
  -146
  -184
  -228
  -279
  -336
  -400
  -470
  -547
  -630
  -720
  -815
  -917
  -1,024
  -1,136
  -1,255
  -1,379
  -1,508
  -1,643
  -1,784
  -1,930
  -2,082
New CAPEX, $m
  -35
  -51
  -74
  -103
  -141
  -186
  -240
  -301
  -369
  -444
  -524
  -609
  -696
  -785
  -875
  -964
  -1,052
  -1,139
  -1,224
  -1,307
  -1,388
  -1,467
  -1,545
  -1,622
  -1,698
  -1,773
  -1,849
  -1,925
  -2,003
  -2,083
  -2,165
Cash from investing activities, $m
  -215
  -57
  -84
  -118
  -164
  -219
  -287
  -365
  -455
  -557
  -670
  -793
  -924
  -1,064
  -1,211
  -1,364
  -1,522
  -1,686
  -1,854
  -2,027
  -2,203
  -2,384
  -2,569
  -2,758
  -2,953
  -3,152
  -3,357
  -3,568
  -3,787
  -4,013
  -4,247
Free cash flow, $m
  -27
  196
  286
  411
  578
  797
  1,075
  1,420
  1,840
  2,339
  2,923
  3,589
  4,351
  5,205
  6,151
  7,186
  8,311
  9,522
  10,819
  12,198
  13,658
  15,197
  16,814
  18,507
  20,277
  22,124
  24,047
  26,048
  28,130
  30,293
  32,540
Issuance/(repayment) of debt, $m
  0
  683
  1,018
  1,430
  1,946
  2,573
  3,311
  4,158
  5,104
  6,139
  7,248
  8,413
  9,618
  10,847
  12,086
  13,320
  14,541
  15,742
  16,917
  18,064
  19,185
  20,280
  21,354
  22,412
  23,460
  24,504
  25,551
  26,609
  27,685
  28,786
  29,920
Issuance/(repurchase) of shares, $m
  1
  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 from financing (excl. dividends), $m  
  1
  683
  1,018
  1,430
  1,946
  2,573
  3,311
  4,158
  5,104
  6,139
  7,248
  8,413
  9,618
  10,847
  12,086
  13,320
  14,541
  15,742
  16,917
  18,064
  19,185
  20,280
  21,354
  22,412
  23,460
  24,504
  25,551
  26,609
  27,685
  28,786
  29,920
Total cash flow (excl. dividends), $m
  -36
  879
  1,304
  1,841
  2,525
  3,370
  4,386
  5,578
  6,944
  8,478
  10,171
  12,001
  13,970
  16,053
  18,236
  20,507
  22,852
  25,264
  27,735
  30,262
  32,842
  35,477
  38,168
  40,919
  43,737
  46,627
  49,598
  52,658
  55,815
  59,079
  62,460
Retained Cash Flow (-), $m
  -205
  -95
  -113
  -159
  -216
  -286
  -368
  -462
  -567
  -682
  -805
  -935
  -1,069
  -1,205
  -1,343
  -1,480
  -1,616
  -1,749
  -1,880
  -2,007
  -2,132
  -2,253
  -2,373
  -2,490
  -2,607
  -2,723
  -2,839
  -2,957
  -3,076
  -3,198
  -3,324
Prev. year cash balance distribution, $m
 
  530
  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
 
  1,313
  1,191
  1,682
  2,308
  3,084
  4,018
  5,116
  6,377
  7,796
  9,366
  11,067
  12,901
  14,848
  16,893
  19,027
  21,236
  23,515
  25,856
  28,255
  30,711
  33,223
  35,795
  38,429
  41,130
  43,905
  46,759
  49,701
  52,739
  55,881
  59,136
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
 
  1,259
  1,091
  1,464
  1,901
  2,390
  2,916
  3,456
  3,986
  4,479
  4,910
  5,255
  5,505
  5,645
  5,671
  5,586
  5,397
  5,116
  4,762
  4,350
  3,902
  3,436
  2,970
  2,519
  2,095
  1,708
  1,364
  1,067
  816
  610
  445
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
  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

TAL Education Group, through its subsidiaries, provides K-12 after-school tutoring services in the People's Republic of China. The company offers tutoring services to K-12 students covering academic subjects, including mathematics, physics, chemistry, biology, history, geography, political science, English, and Chinese. It offers tutoring services primarily through small classes, including Xueersi Peiyou, Mobby, and Firstleap tutoring services; personalized premium services; and online course offerings. As of February 29, 2016, the company’s educational network included 363 learning centers and 292 service centers in Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Wuhan, Nanjing, Xi'an, Hangzhou, Chengdu, Zhengzhou, Suzhou, Chongqing, Taiyuan, Changsha, Shenyang, Shijiazhuang, Qingdao, Jinan, Luoyang, Nanchang, Ningbo, Hefei, Wuxi, and Fuzhou; and call centers in Beijing, Shanghai, Tianjin, Guangzhou, Shenzhen, Nanjing, Shenyang, and Chongqing. It also operates jzb.com, an online education platform that serves as a gateway to its online courses through xueersi.com and other Websites, which offer college entrance examinations, high school entrance examinations, graduate school entrance examinations, preschool education, and personalized premium services under the Zhikang brand; study abroad, mathematics, English, Chinese composition, and small-class training under the brand Xueersi Peiyou; and tutoring services for students aged two through twelve under the Mobby brand, as well as raising infants and toddlers, etc. In addition, the company provides educational content through mobile applications; education and management consulting, and investment management and consulting services; and development, sale, and consulting services for software and networks, as well as sells software. TAL Education Group was founded in 2003 and is headquartered in Beijing, the People’s Republic of China.

FINANCIAL RATIOS  of  TAL Education Group ADR (TAL)

Valuation Ratios
P/E Ratio 41.4
Price to Sales 4.6
Price to Book 7.4
Price to Tangible Book
Price to Cash Flow 25.3
Price to Free Cash Flow 31.1
Growth Rates
Sales Growth Rate 68.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 12.9%
Cap. Spend. - 3 Yr. Gr. Rate 38%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 70.1%
Total Debt to Equity 70.1%
Interest Coverage 27
Management Effectiveness
Return On Assets 8.3%
Ret/ On Assets - 3 Yr. Avg. 10.3%
Return On Total Capital 13.1%
Ret/ On T. Cap. - 3 Yr. Avg. 15.7%
Return On Equity 21.3%
Return On Equity - 3 Yr. Avg. 24.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 50%
Gross Margin - 3 Yr. Avg. 51.4%
EBITDA Margin 17.3%
EBITDA Margin - 3 Yr. Avg. 20.7%
Operating Margin 12.1%
Oper. Margin - 3 Yr. Avg. 13.4%
Pre-Tax Margin 14.9%
Pre-Tax Margin - 3 Yr. Avg. 18.2%
Net Profit Margin 11%
Net Profit Margin - 3 Yr. Avg. 14.4%
Effective Tax Rate 23.9%
Eff/ Tax Rate - 3 Yr. Avg. 20.1%
Payout Ratio 0%

TAL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TAL stock intrinsic value calculation we used $1043 million for the last fiscal year's total revenue generated by TAL Education Group ADR. The default revenue input number comes from 2017 income statement of TAL Education Group 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 TAL stock valuation model: a) initial revenue growth rate of 60% 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 TAL is calculated based on our internal credit rating of TAL Education Group 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 TAL Education Group 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 TAL stock the variable cost ratio is equal to 87.4%.

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 TAL 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 TAL Education Group ADR.

Corporate tax rate of 27% is the nominal tax rate for TAL Education Group 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 TAL 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 TAL are equal to 8.1%.

Life of production assets of 13.7 years is the average useful life of capital assets used in TAL Education Group 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 TAL is equal to -10%. 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 - $642 million for TAL Education Group 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 81.541 million for TAL Education Group 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 TAL Education Group ADR at the current share price and the inputted number of shares is $2.4 billion.

RELATED COMPANIES Price Int.Val. Rating
TAL TAL Education 29.45 1,189.67  str.buy
DL China Distance 7.34 19.10  str.buy
EDU New Oriental E 80.05 61.47  sell
ATAI ATA ADR 4.68 17.25  str.buy
HMHC Houghton Miffl 10.25 0.99  str.sell
CHGG Chegg 14.63 0.30  str.sell

COMPANY NEWS

▶ TAL Education: Credit Suisse Lifts Price Target by 20%   [Jul-28-17 01:56AM  Barrons.com]
▶ IBD 50's TAL Education Aces Earnings, But Stock Drops Out   [Jul-27-17 04:08PM  Investor's Business Daily]
▶ TAL Education posts 1Q profit   [03:52PM  Associated Press]
▶ New Oriental Education: Why It Has 23% Upside   [Jul-26-17 04:25AM  Barrons.com]
▶ Emerging Markets Roundup: 6 Hot Stocks   [Jul-10-17 05:57PM  Barrons.com]
▶ TAL Education Group Files Its Annual Report on Form 20-F   [Jun-29-17 04:00AM  PR Newswire]
▶ Best Chinese Stocks To Buy And Watch   [Jun-19-17 05:09PM  Investor's Business Daily]
▶ Stocks To Buy And Watch: Top IPOs, Big And Small Caps, Growth Stocks   [Jun-02-17 01:25PM  Investor's Business Daily]
▶ TAL Education, New Oriental Have More Than 20% Upside   [Jun-01-17 04:04AM  Barrons.com]
▶ What's The Secret Ingredient Behind These 5 Top Stocks' Big Price Runs?   [May-01-17 12:47PM  Investor's Business Daily]
▶ TAL Education Upgraded on Strong 4Q Earnings   [Apr-27-17 10:08PM  Barrons.com]
▶ TAL Education posts 4Q profit   [05:01AM  Associated Press]
▶ Top Chinese Play Beats Views, But Stock Hits Profit-Taking Zone   [Apr-24-17 04:03PM  Investor's Business Daily]
▶ China's Education Stocks Brush Off Cram School Crackdown   [Apr-20-17 10:42PM  Barrons.com]
▶ Stock Indexes Calm; China Stocks Rumble Higher   [Feb-10-17 12:13PM  Investor's Business Daily]
▶ Stock Indexes Nearly Flat, But Airlines Rise   [Feb-06-17 12:03PM  Investor's Business Daily]
▶ TAL Education Breaks Out From Late-Stage Base On Strong Q3   [Jan-19-17 04:09PM  Investor's Business Daily]
▶ TAL Education posts 3Q profit   [05:01AM  Associated Press]
▶ Should You Buy QAD Inc. (QADA)?   [Dec-12-16 12:27PM  at Insider Monkey]
▶ Tairen Capitals Biggest Moves On Consumer Stocks in Q3   [Dec-04-16 01:43PM  at Insider Monkey]
Stock chart of TAL Financial statements of TAL
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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