Intrinsic value of Vale ADR - VALE

Previous Close

$9.99

  Intrinsic Value

$1.81

stock screener

  Rating & Target

str. sell

-82%

  Value-price divergence*

-143%

Previous close

$9.99

 
Intrinsic value

$1.81

 
Up/down potential

-82%

 
Rating

str. sell

 
Value-price divergence*

-143%

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

We calculate the intrinsic value of VALE 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 51.2

 

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, %
  21.23
  30.00
  27.50
  25.25
  23.23
  21.40
  19.76
  18.29
  16.96
  15.76
  14.69
  13.72
  12.85
  12.06
  11.35
  10.72
  10.15
  9.63
  9.17
  8.75
  8.38
  8.04
  7.74
  7.46
  7.22
  6.99
  6.79
  6.62
  6.45
  6.31
  6.18
Revenue, $m
  29,920
  38,896
  49,592
  62,114
  76,541
  92,922
  111,286
  131,635
  153,957
  178,224
  204,397
  232,434
  262,290
  293,925
  327,299
  362,383
  399,155
  437,603
  477,728
  519,541
  563,064
  608,331
  655,388
  704,292
  755,112
  807,926
  862,823
  919,901
  979,269
  1,041,045
  1,105,355
Variable operating expenses, $m
 
  52,337
  66,642
  83,389
  102,682
  124,591
  149,150
  176,365
  206,218
  238,672
  273,675
  310,854
  350,784
  393,091
  437,726
  484,646
  533,825
  585,246
  638,908
  694,828
  753,035
  813,574
  876,508
  941,913
  1,009,878
  1,080,511
  1,153,929
  1,230,264
  1,309,663
  1,392,281
  1,478,289
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
  21,993
  52,337
  66,642
  83,389
  102,682
  124,591
  149,150
  176,365
  206,218
  238,672
  273,675
  310,854
  350,784
  393,091
  437,726
  484,646
  533,825
  585,246
  638,908
  694,828
  753,035
  813,574
  876,508
  941,913
  1,009,878
  1,080,511
  1,153,929
  1,230,264
  1,309,663
  1,392,281
  1,478,289
Operating income, $m
  7,927
  -13,441
  -17,049
  -21,274
  -26,141
  -31,668
  -37,864
  -44,730
  -52,261
  -60,448
  -69,279
  -78,420
  -88,494
  -99,167
  -110,427
  -122,264
  -134,670
  -147,642
  -161,180
  -175,287
  -189,971
  -205,244
  -221,120
  -237,620
  -254,766
  -272,585
  -291,106
  -310,364
  -330,394
  -351,236
  -372,934
EBITDA, $m
  11,755
  -8,402
  -10,712
  -13,417
  -16,533
  -20,071
  -24,038
  -28,433
  -33,255
  -38,496
  -44,150
  -50,206
  -56,655
  -63,488
  -70,696
  -78,274
  -86,217
  -94,522
  -103,189
  -112,221
  -121,621
  -131,399
  -141,563
  -152,127
  -163,104
  -174,512
  -186,369
  -198,698
  -211,522
  -224,865
  -238,756
Interest expense (income), $m
  1,948
  1,682
  2,749
  4,017
  5,502
  7,213
  9,155
  11,333
  13,746
  16,393
  19,270
  22,374
  25,698
  29,239
  32,990
  36,947
  41,107
  45,468
  50,027
  54,785
  59,743
  64,904
  70,271
  75,851
  81,650
  87,677
  93,939
  100,449
  107,217
  114,257
  121,582
Earnings before tax, $m
  8,544
  -15,122
  -19,798
  -25,291
  -31,643
  -38,881
  -47,019
  -56,062
  -66,007
  -76,841
  -88,549
  -100,794
  -114,192
  -128,405
  -143,417
  -159,211
  -175,777
  -193,110
  -211,207
  -230,072
  -249,714
  -270,147
  -291,392
  -313,472
  -336,417
  -360,261
  -385,046
  -410,813
  -437,611
  -465,493
  -494,516
Tax expense, $m
  3,025
  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
  4,209
  -15,122
  -19,798
  -25,291
  -31,643
  -38,881
  -47,019
  -56,062
  -66,007
  -76,841
  -88,549
  -100,794
  -114,192
  -128,405
  -143,417
  -159,211
  -175,777
  -193,110
  -211,207
  -230,072
  -249,714
  -270,147
  -291,392
  -313,472
  -336,417
  -360,261
  -385,046
  -410,813
  -437,611
  -465,493
  -494,516

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,392
  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
  102,028
  127,111
  162,067
  202,989
  250,133
  303,667
  363,679
  430,181
  503,129
  582,430
  667,963
  759,587
  857,158
  960,538
  1,069,604
  1,184,257
  1,304,427
  1,430,076
  1,561,204
  1,697,846
  1,840,077
  1,988,009
  2,141,790
  2,301,609
  2,467,687
  2,640,281
  2,819,682
  3,006,211
  3,200,224
  3,402,106
  3,612,273
Adjusted assets (=assets-cash), $m
  97,636
  127,111
  162,067
  202,989
  250,133
  303,667
  363,679
  430,181
  503,129
  582,430
  667,963
  759,587
  857,158
  960,538
  1,069,604
  1,184,257
  1,304,427
  1,430,076
  1,561,204
  1,697,846
  1,840,077
  1,988,009
  2,141,790
  2,301,609
  2,467,687
  2,640,281
  2,819,682
  3,006,211
  3,200,224
  3,402,106
  3,612,273
Revenue / Adjusted assets
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
Average production assets, $m
  65,365
  84,988
  108,359
  135,720
  167,241
  203,035
  243,159
  287,623
  336,397
  389,419
  446,607
  507,868
  573,105
  642,225
  715,148
  791,806
  872,153
  956,163
  1,043,837
  1,135,197
  1,230,294
  1,329,202
  1,432,022
  1,538,879
  1,649,920
  1,765,318
  1,885,267
  2,009,983
  2,139,702
  2,274,682
  2,415,202
Working capital, $m
  11,679
  11,708
  14,927
  18,696
  23,039
  27,970
  33,497
  39,622
  46,341
  53,645
  61,523
  69,963
  78,949
  88,471
  98,517
  109,077
  120,146
  131,719
  143,796
  156,382
  169,482
  183,108
  197,272
  211,992
  227,289
  243,186
  259,710
  276,890
  294,760
  313,354
  332,712
Total debt, $m
  30,215
  46,590
  68,088
  93,255
  122,249
  155,172
  192,079
  232,978
  277,841
  326,612
  379,214
  435,563
  495,569
  559,148
  626,223
  696,735
  770,639
  847,914
  928,557
  1,012,592
  1,100,064
  1,191,042
  1,285,618
  1,383,907
  1,486,045
  1,592,190
  1,702,521
  1,817,237
  1,936,555
  2,060,712
  2,189,965
Total liabilities, $m
  61,798
  78,173
  99,671
  124,838
  153,832
  186,755
  223,662
  264,561
  309,424
  358,195
  410,797
  467,146
  527,152
  590,731
  657,806
  728,318
  802,222
  879,497
  960,140
  1,044,175
  1,131,647
  1,222,625
  1,317,201
  1,415,490
  1,517,628
  1,623,773
  1,734,104
  1,848,820
  1,968,138
  2,092,295
  2,221,548
Total equity, $m
  40,230
  48,938
  62,396
  78,151
  96,301
  116,912
  140,016
  165,620
  193,705
  224,236
  257,166
  292,441
  330,006
  369,807
  411,797
  455,939
  502,204
  550,579
  601,064
  653,671
  708,430
  765,383
  824,589
  886,120
  950,060
  1,016,508
  1,085,577
  1,157,391
  1,232,086
  1,309,811
  1,390,725
Total liabilities and equity, $m
  102,028
  127,111
  162,067
  202,989
  250,133
  303,667
  363,678
  430,181
  503,129
  582,431
  667,963
  759,587
  857,158
  960,538
  1,069,603
  1,184,257
  1,304,426
  1,430,076
  1,561,204
  1,697,846
  1,840,077
  1,988,008
  2,141,790
  2,301,610
  2,467,688
  2,640,281
  2,819,681
  3,006,211
  3,200,224
  3,402,106
  3,612,273
Debt-to-equity ratio
  0.751
  0.950
  1.090
  1.190
  1.270
  1.330
  1.370
  1.410
  1.430
  1.460
  1.470
  1.490
  1.500
  1.510
  1.520
  1.530
  1.530
  1.540
  1.540
  1.550
  1.550
  1.560
  1.560
  1.560
  1.560
  1.570
  1.570
  1.570
  1.570
  1.570
  1.570
Adjusted equity ratio
  0.367
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4,209
  -15,122
  -19,798
  -25,291
  -31,643
  -38,881
  -47,019
  -56,062
  -66,007
  -76,841
  -88,549
  -100,794
  -114,192
  -128,405
  -143,417
  -159,211
  -175,777
  -193,110
  -211,207
  -230,072
  -249,714
  -270,147
  -291,392
  -313,472
  -336,417
  -360,261
  -385,046
  -410,813
  -437,611
  -465,493
  -494,516
Depreciation, amort., depletion, $m
  3,828
  5,039
  6,337
  7,858
  9,609
  11,597
  13,826
  16,297
  19,006
  21,952
  25,129
  28,215
  31,839
  35,679
  39,730
  43,989
  48,453
  53,120
  57,991
  63,066
  68,350
  73,845
  79,557
  85,493
  91,662
  98,073
  104,737
  111,666
  118,872
  126,371
  134,178
Funds from operations, $m
  954
  -10,083
  -13,461
  -17,434
  -22,035
  -27,284
  -33,193
  -39,766
  -47,000
  -54,889
  -63,420
  -72,579
  -82,353
  -92,726
  -103,686
  -115,222
  -127,325
  -139,990
  -153,216
  -167,005
  -181,364
  -196,303
  -211,835
  -227,978
  -244,754
  -262,188
  -280,308
  -299,147
  -318,738
  -339,122
  -360,338
Change in working capital, $m
  -5,886
  2,702
  3,220
  3,769
  4,342
  4,931
  5,527
  6,125
  6,719
  7,304
  7,878
  8,439
  8,987
  9,522
  10,046
  10,560
  11,068
  11,573
  12,078
  12,586
  13,100
  13,625
  14,164
  14,720
  15,297
  15,897
  16,524
  17,180
  17,870
  18,595
  19,358
Cash from operations, $m
  6,840
  -12,785
  -16,680
  -21,203
  -26,377
  -32,215
  -38,720
  -45,891
  -53,719
  -62,193
  -71,298
  -81,018
  -91,340
  -102,248
  -113,732
  -125,782
  -138,393
  -151,563
  -165,294
  -179,591
  -194,465
  -209,928
  -225,999
  -242,699
  -260,051
  -278,085
  -296,832
  -316,327
  -336,608
  -357,716
  -379,696
Maintenance CAPEX, $m
  0
  -3,631
  -4,722
  -6,020
  -7,540
  -9,291
  -11,280
  -13,509
  -15,979
  -18,689
  -21,634
  -24,811
  -28,215
  -31,839
  -35,679
  -39,730
  -43,989
  -48,453
  -53,120
  -57,991
  -63,066
  -68,350
  -73,845
  -79,557
  -85,493
  -91,662
  -98,073
  -104,737
  -111,666
  -118,872
  -126,371
New CAPEX, $m
  -5,483
  -19,623
  -23,372
  -27,361
  -31,521
  -35,794
  -40,124
  -44,464
  -48,774
  -53,022
  -57,188
  -61,261
  -65,237
  -69,121
  -72,923
  -76,658
  -80,347
  -84,011
  -87,673
  -91,360
  -95,097
  -98,908
  -102,820
  -106,856
  -111,041
  -115,398
  -119,949
  -124,716
  -129,719
  -134,980
  -140,519
Cash from investing activities, $m
  -5,261
  -23,254
  -28,094
  -33,381
  -39,061
  -45,085
  -51,404
  -57,973
  -64,753
  -71,711
  -78,822
  -86,072
  -93,452
  -100,960
  -108,602
  -116,388
  -124,336
  -132,464
  -140,793
  -149,351
  -158,163
  -167,258
  -176,665
  -186,413
  -196,534
  -207,060
  -218,022
  -229,453
  -241,385
  -253,852
  -266,890
Free cash flow, $m
  1,579
  -36,039
  -44,774
  -54,584
  -65,438
  -77,300
  -90,124
  -103,864
  -118,472
  -133,903
  -150,120
  -167,091
  -184,792
  -203,208
  -222,333
  -242,170
  -262,729
  -284,026
  -306,087
  -328,942
  -352,628
  -377,186
  -402,664
  -429,112
  -456,586
  -485,146
  -514,854
  -545,780
  -577,993
  -611,569
  -646,586
Issuance/(repayment) of debt, $m
  -304
  18,085
  21,498
  25,167
  28,994
  32,924
  36,907
  40,899
  44,863
  48,770
  52,603
  56,349
  60,006
  63,578
  67,076
  70,512
  73,904
  77,274
  80,644
  84,035
  87,472
  90,978
  94,576
  98,289
  102,138
  106,145
  110,331
  114,716
  119,318
  124,157
  129,252
Issuance/(repurchase) of shares, $m
  0
  26,512
  33,256
  41,046
  49,794
  59,492
  70,124
  81,666
  94,091
  107,372
  121,479
  136,069
  151,757
  168,206
  185,407
  203,352
  222,043
  241,485
  261,691
  282,679
  304,473
  327,101
  350,598
  375,002
  400,357
  426,710
  454,115
  482,626
  512,306
  543,218
  575,430
Cash from financing (excl. dividends), $m  
  -345
  44,597
  54,754
  66,213
  78,788
  92,416
  107,031
  122,565
  138,954
  156,142
  174,082
  192,418
  211,763
  231,784
  252,483
  273,864
  295,947
  318,759
  342,335
  366,714
  391,945
  418,079
  445,174
  473,291
  502,495
  532,855
  564,446
  597,342
  631,624
  667,375
  704,682
Total cash flow (excl. dividends), $m
  537
  8,558
  9,980
  11,629
  13,349
  15,116
  16,906
  18,701
  20,482
  22,239
  23,961
  25,328
  26,971
  28,577
  30,149
  31,693
  33,218
  34,733
  36,248
  37,772
  39,317
  40,893
  42,510
  44,179
  45,909
  47,710
  49,591
  51,562
  53,631
  55,806
  58,096
Retained Cash Flow (-), $m
  1,239
  -26,512
  -33,256
  -41,046
  -49,794
  -59,492
  -70,124
  -81,666
  -94,091
  -107,372
  -121,479
  -136,069
  -151,757
  -168,206
  -185,407
  -203,352
  -222,043
  -241,485
  -261,691
  -282,679
  -304,473
  -327,101
  -350,598
  -375,002
  -400,357
  -426,710
  -454,115
  -482,626
  -512,306
  -543,218
  -575,430
Prev. year cash balance distribution, $m
 
  2,682
  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
 
  -15,272
  -23,276
  -29,417
  -36,444
  -44,376
  -53,217
  -62,965
  -73,609
  -85,133
  -97,518
  -110,742
  -124,785
  -139,629
  -155,258
  -171,659
  -188,824
  -206,752
  -225,444
  -244,907
  -265,156
  -286,209
  -308,088
  -330,823
  -354,448
  -379,000
  -404,523
  -431,064
  -458,675
  -487,412
  -517,334
Discount rate, %
 
  5.20
  5.46
  5.73
  6.02
  6.32
  6.64
  6.97
  7.32
  7.68
  8.07
  8.47
  8.89
  9.34
  9.81
  10.30
  10.81
  11.35
  11.92
  12.51
  13.14
  13.80
  14.49
  15.21
  15.97
  16.77
  17.61
  18.49
  19.41
  20.38
  21.40
PV of cash for distribution, $m
 
  -14,517
  -20,928
  -24,887
  -28,846
  -32,663
  -36,192
  -39,292
  -41,839
  -43,730
  -44,891
  -45,279
  -44,888
  -43,745
  -41,911
  -39,472
  -36,540
  -33,239
  -29,703
  -26,064
  -22,447
  -18,964
  -15,705
  -12,741
  -10,118
  -7,858
  -5,963
  -4,418
  -3,191
  -2,246
  -1,537
Current shareholders' claim on cash, %
  100
  64.3
  41.9
  27.6
  18.4
  12.4
  8.4
  5.8
  4.0
  2.8
  2.0
  1.4
  1.0
  0.7
  0.5
  0.4
  0.3
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Vale S.A., together with its subsidiaries, engages in the research, production, and sale of iron ore and pellets, nickel, fertilizer, copper, coal, manganese, ferroalloys, cobalt, platinum group metals, and precious metals in Brazil and internationally. Its Bulk Material segment produces and extracts iron ore and pellet. This segment is also involved in the production and extraction of manganese, ferroalloys, and others ferrous products and services; and extraction of coal, as well as in the provision of railroad, port, and terminal logistics services. The company’s Base Metals segment produces and extracts non-ferrous minerals, including nickel and copper. Its Fertilizers segment provides a group of nutrients, such as potash, phosphates, and nitrogen. The company also invests in energy generation through operating hydroelectric plants and centers, as well as produces steel. The company was formerly known as Companhia Vale do Rio Doce and changed its name to Vale S.A. in May 2009. Vale S.A. was founded in 1942 and is headquartered in Rio de Janeiro, Brazil.

FINANCIAL RATIOS  of  Vale ADR (VALE)

Valuation Ratios
P/E Ratio 12.2
Price to Sales 1.7
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 7.5
Price to Free Cash Flow 37.9
Growth Rates
Sales Growth Rate 21.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -35.6%
Cap. Spend. - 3 Yr. Gr. Rate -15.9%
Financial Strength
Quick Ratio 3
Current Ratio 0.8
LT Debt to Equity 70.9%
Total Debt to Equity 75.1%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.2%
Ret/ On Assets - 3 Yr. Avg. -1.9%
Return On Total Capital 5.7%
Ret/ On T. Cap. - 3 Yr. Avg. -3.7%
Return On Equity 10.3%
Return On Equity - 3 Yr. Avg. -6.1%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 35.8%
Gross Margin - 3 Yr. Avg. 29.7%
EBITDA Margin 47.9%
EBITDA Margin - 3 Yr. Avg. 3.5%
Operating Margin 26.5%
Oper. Margin - 3 Yr. Avg. 5.6%
Pre-Tax Margin 28.6%
Pre-Tax Margin - 3 Yr. Avg. -15.7%
Net Profit Margin 14.1%
Net Profit Margin - 3 Yr. Avg. -13.8%
Effective Tax Rate 35.4%
Eff/ Tax Rate - 3 Yr. Avg. 41.9%
Payout Ratio 13.7%

VALE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VALE stock intrinsic value calculation we used $29920 million for the last fiscal year's total revenue generated by Vale ADR. The default revenue input number comes from 2016 income statement of Vale 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 VALE stock valuation model: a) initial revenue growth rate of 30% 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 5.2%, whose default value for VALE is calculated based on our internal credit rating of Vale 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 Vale 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 VALE stock the variable cost ratio is equal to 134.8%.

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 VALE 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 5.9% for Vale ADR.

Corporate tax rate of 27% is the nominal tax rate for Vale 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 VALE 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 VALE are equal to 218.5%.

Life of production assets of 18 years is the average useful life of capital assets used in Vale 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 VALE is equal to 30.1%. 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 - $40230 million for Vale 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 5126.29 million for Vale 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 Vale ADR at the current share price and the inputted number of shares is $51.2 billion.

RELATED COMPANIES Price Int.Val. Rating
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MT ArcelorMittal 25.97 2.04  str.sell
SID Companhia Side 2.48 3.18  buy
RIO Rio Tinto ADR 45.20 6.23  str.sell

COMPANY NEWS

▶ Brazil Stocks OK: Deficit Up, Cuts For Gov't Employees   [Aug-16-17 04:25PM  Barrons.com]
▶ What Analysts Recommend for Vale   [09:06AM  Market Realist]
▶ Can Rio Tinto Survive the Iron Ore Market?   [05:06PM  Market Realist]
▶ Whats Vales Base Metals Outlook?   [10:37AM  Market Realist]
▶ 2 Top Nickel Stocks to Buy in 2017   [10:36AM  Motley Fool]
▶ These Factors Could Affect Vale Stock in 2H17   [05:10PM  Market Realist]
▶ 5 Best Platinum Stocks to Buy Right Now   [02:19PM  Motley Fool]
▶ Coppers Long-Term Outlook, Demand, and Supply   [08:06AM  Market Realist]
▶ A Look at Chinas Steel Demand Indicators   [Aug-07-17 10:36AM  Market Realist]
▶ Vale CFO Sees More Normalized China Iron Ore Demand   [Aug-03-17 10:47AM  Bloomberg Video]
▶ Rio Tinto: Buyback Be Damned?   [Aug-02-17 03:06PM  Barrons.com]
▶ A Look at CLFs Cost Progression in 2Q17 and 2017 Outlook   [Aug-01-17 09:07AM  Market Realist]
▶ Vale Shares RiseAgain   [Jul-31-17 10:29AM  Barrons.com]
▶ Corporate Discipline at Commodity Firms Fuel Debt Upgrades   [05:10AM  The Wall Street Journal]
▶ Vale Reverses Course, Climbs On Q2 Earnings   [Jul-28-17 10:51AM  Barrons.com]
▶ Vale Shares Sink: Why Did Earnings Slump?   [09:13AM  Barrons.com]
▶ Can Chinas Selective Credit Growth Help Iron Ore Miners?   [Jul-26-17 07:35AM  Market Realist]
▶ Chinas Real Estate Indicators and Iron Ore   [10:36AM  Market Realist]
▶ The 4 Best Iron Ore Stocks for 2017's Second Half   [Jul-22-17 07:07AM  Motley Fool]
▶ 4 Top Miners Perched In Bases Ahead Of Quarterly Reports   [03:34PM  Investor's Business Daily]
▶ Behind Iron Ores Roller Coaster Ride in 2017   [01:16PM  Market Realist]
▶ Inside Rio Tinto Stock in 2H17: Key Drivers   [06:06PM  Market Realist]
▶ These Stocks Have Changed Direction   [02:00PM  TheStreet.com]
▶ Rio Tinto: Goldman Sachs Weighs Bull, Bear Arguments   [Jul-13-17 11:23PM  Barrons.com]
▶ How Weakening Chinese Demand Indicators Could Impact CLF   [Jul-11-17 09:06AM  Market Realist]
▶ Emerging Markets Roundup: 6 Hot Stocks   [Jul-10-17 05:57PM  Barrons.com]
▶ Vale Stock Could Rally Back Into Double Digits   [Jul-05-17 11:11AM  Investopedia]
▶ How Will Chinas Credit Growth Tightening Affect Iron Ore?   [Jul-04-17 09:06AM  Market Realist]
▶ ETFs with exposure to Vale SA : July 3, 2017   [Jul-03-17 03:58PM  Capital Cube]
▶ Iron Ore Inventory Hitting Higher HighsWorrisome for Miners   [Jun-30-17 10:38AM  Market Realist]
▶ The Major Developments for Iron Ore Stocks   [07:37AM  Market Realist]
▶ Vale to extend $76 mln credit facility to Samarco   [Jun-29-17 05:57PM  Reuters]
Stock chart of VALE Financial statements of VALE
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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