Intrinsic value of Vale ADR - VALE

Previous Close

$13.36

  Intrinsic Value

$1.77

stock screener

  Rating & Target

str. sell

-87%

Previous close

$13.36

 
Intrinsic value

$1.77

 
Up/down potential

-87%

 
Rating

str. sell

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  31.00
  28.40
  26.06
  23.95
  22.06
  20.35
  18.82
  17.44
  16.19
  15.07
  14.07
  13.16
  12.34
  11.61
  10.95
  10.35
  9.82
  9.34
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.87
  6.68
  6.51
  6.36
  6.22
Revenue, $m
  29,920
  39,195
  50,327
  63,442
  78,639
  95,985
  115,521
  137,259
  161,191
  187,291
  215,521
  245,836
  278,186
  312,523
  348,803
  386,990
  427,055
  468,983
  512,768
  558,417
  605,950
  655,402
  706,817
  760,256
  815,788
  873,496
  933,475
  995,830
  1,060,677
  1,128,143
  1,198,366
Variable operating expenses, $m
 
  53,481
  68,580
  86,369
  106,982
  130,511
  157,009
  186,494
  218,955
  254,357
  292,648
  333,449
  377,328
  423,902
  473,112
  524,908
  579,253
  636,123
  695,512
  757,430
  821,904
  888,979
  958,719
  1,031,202
  1,106,525
  1,184,799
  1,266,154
  1,350,732
  1,438,690
  1,530,201
  1,625,450
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
  23,369
  53,481
  68,580
  86,369
  106,982
  130,511
  157,009
  186,494
  218,955
  254,357
  292,648
  333,449
  377,328
  423,902
  473,112
  524,908
  579,253
  636,123
  695,512
  757,430
  821,904
  888,979
  958,719
  1,031,202
  1,106,525
  1,184,799
  1,266,154
  1,350,732
  1,438,690
  1,530,201
  1,625,450
Operating income, $m
  6,551
  -14,286
  -18,253
  -22,927
  -28,343
  -34,525
  -41,488
  -49,235
  -57,764
  -67,066
  -77,127
  -87,613
  -99,142
  -111,379
  -124,309
  -137,919
  -152,198
  -167,140
  -182,744
  -199,013
  -215,954
  -233,578
  -251,902
  -270,946
  -290,737
  -311,304
  -332,679
  -354,902
  -378,013
  -402,057
  -427,084
EBITDA, $m
  10,379
  -9,211
  -11,827
  -14,909
  -18,480
  -22,556
  -27,147
  -32,256
  -37,880
  -44,013
  -50,647
  -57,771
  -65,373
  -73,443
  -81,969
  -90,942
  -100,358
  -110,211
  -120,500
  -131,228
  -142,398
  -154,019
  -166,102
  -178,660
  -191,710
  -205,271
  -219,366
  -234,019
  -249,259
  -265,113
  -281,615
Interest expense (income), $m
  1,948
  1,682
  2,784
  4,104
  5,659
  7,461
  9,518
  11,835
  14,413
  17,250
  20,345
  23,693
  27,287
  31,123
  35,195
  39,497
  44,025
  48,776
  53,748
  58,940
  64,353
  69,989
  75,853
  81,950
  88,287
  94,871
  101,714
  108,827
  116,221
  123,910
  131,910
Earnings before tax, $m
  8,544
  -15,968
  -21,038
  -27,032
  -34,003
  -41,987
  -51,006
  -61,070
  -72,177
  -84,316
  -97,472
  -111,306
  -126,430
  -142,503
  -159,504
  -177,416
  -196,223
  -215,916
  -236,492
  -257,953
  -280,306
  -303,567
  -327,755
  -352,896
  -379,024
  -406,175
  -434,394
  -463,729
  -494,233
  -525,967
  -558,994
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
  -15,968
  -21,038
  -27,032
  -34,003
  -41,987
  -51,006
  -61,070
  -72,177
  -84,316
  -97,472
  -111,306
  -126,430
  -142,503
  -159,504
  -177,416
  -196,223
  -215,916
  -236,492
  -257,953
  -280,306
  -303,567
  -327,755
  -352,896
  -379,024
  -406,175
  -434,394
  -463,729
  -494,233
  -525,967
  -558,994

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
  128,089
  164,466
  207,326
  256,989
  313,677
  377,519
  448,558
  526,768
  612,063
  704,319
  803,386
  909,104
  1,021,316
  1,139,879
  1,264,672
  1,395,606
  1,532,625
  1,675,711
  1,824,891
  1,980,230
  2,141,836
  2,309,861
  2,484,496
  2,665,972
  2,854,561
  3,050,571
  3,254,345
  3,466,265
  3,686,743
  3,916,230
Adjusted assets (=assets-cash), $m
  97,636
  128,089
  164,466
  207,326
  256,989
  313,677
  377,519
  448,558
  526,768
  612,063
  704,319
  803,386
  909,104
  1,021,316
  1,139,879
  1,264,672
  1,395,606
  1,532,625
  1,675,711
  1,824,891
  1,980,230
  2,141,836
  2,309,861
  2,484,496
  2,665,972
  2,854,561
  3,050,571
  3,254,345
  3,466,265
  3,686,743
  3,916,230
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
  85,642
  109,964
  138,620
  171,825
  209,728
  252,413
  299,911
  352,202
  409,231
  470,914
  537,152
  607,836
  682,862
  762,134
  845,573
  933,116
  1,024,728
  1,120,397
  1,220,140
  1,324,001
  1,432,053
  1,544,396
  1,661,159
  1,782,496
  1,908,588
  2,039,642
  2,175,888
  2,317,579
  2,464,994
  2,618,430
Working capital, $m
  11,679
  11,798
  15,148
  19,096
  23,670
  28,892
  34,772
  41,315
  48,518
  56,375
  64,872
  73,997
  83,734
  94,069
  104,990
  116,484
  128,544
  141,164
  154,343
  168,083
  182,391
  197,276
  212,752
  228,837
  245,552
  262,922
  280,976
  299,745
  319,264
  339,571
  360,708
Total debt, $m
  30,215
  47,192
  69,564
  95,922
  126,465
  161,328
  200,591
  244,280
  292,379
  344,836
  401,573
  462,499
  527,516
  596,526
  669,442
  746,191
  826,715
  910,981
  998,980
  1,090,725
  1,186,258
  1,285,646
  1,388,981
  1,496,382
  1,607,990
  1,723,972
  1,844,518
  1,969,839
  2,100,170
  2,235,764
  2,376,898
Total liabilities, $m
  61,798
  78,775
  101,147
  127,505
  158,048
  192,911
  232,174
  275,863
  323,962
  376,419
  433,156
  494,082
  559,099
  628,109
  701,025
  777,774
  858,298
  942,564
  1,030,563
  1,122,308
  1,217,841
  1,317,229
  1,420,564
  1,527,965
  1,639,573
  1,755,555
  1,876,101
  2,001,422
  2,131,753
  2,267,347
  2,408,481
Total equity, $m
  40,230
  49,314
  63,319
  79,821
  98,941
  120,766
  145,345
  172,695
  202,806
  235,644
  271,163
  309,303
  350,005
  393,207
  438,853
  486,899
  537,308
  590,060
  645,149
  702,583
  762,388
  824,607
  889,296
  956,531
  1,026,399
  1,099,006
  1,174,470
  1,252,923
  1,334,512
  1,419,396
  1,507,748
Total liabilities and equity, $m
  102,028
  128,089
  164,466
  207,326
  256,989
  313,677
  377,519
  448,558
  526,768
  612,063
  704,319
  803,385
  909,104
  1,021,316
  1,139,878
  1,264,673
  1,395,606
  1,532,624
  1,675,712
  1,824,891
  1,980,229
  2,141,836
  2,309,860
  2,484,496
  2,665,972
  2,854,561
  3,050,571
  3,254,345
  3,466,265
  3,686,743
  3,916,229
Debt-to-equity ratio
  0.751
  0.960
  1.100
  1.200
  1.280
  1.340
  1.380
  1.410
  1.440
  1.460
  1.480
  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
  1.580
  1.580
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
  -15,968
  -21,038
  -27,032
  -34,003
  -41,987
  -51,006
  -61,070
  -72,177
  -84,316
  -97,472
  -111,306
  -126,430
  -142,503
  -159,504
  -177,416
  -196,223
  -215,916
  -236,492
  -257,953
  -280,306
  -303,567
  -327,755
  -352,896
  -379,024
  -406,175
  -434,394
  -463,729
  -494,233
  -525,967
  -558,994
Depreciation, amort., depletion, $m
  3,828
  5,075
  6,427
  8,019
  9,863
  11,969
  14,340
  16,979
  19,884
  23,053
  26,479
  29,842
  33,769
  37,937
  42,341
  46,976
  51,840
  56,929
  62,244
  67,786
  73,556
  79,559
  85,800
  92,287
  99,028
  106,033
  113,313
  120,883
  128,754
  136,944
  145,468
Funds from operations, $m
  954
  -10,893
  -14,611
  -19,013
  -24,139
  -30,018
  -36,666
  -44,091
  -52,292
  -61,264
  -70,993
  -81,464
  -92,661
  -104,566
  -117,164
  -130,439
  -144,383
  -158,987
  -174,248
  -190,167
  -206,751
  -224,008
  -241,955
  -260,610
  -279,996
  -300,142
  -321,080
  -342,846
  -365,479
  -389,023
  -413,526
Change in working capital, $m
  -5,886
  2,792
  3,351
  3,948
  4,574
  5,221
  5,880
  6,543
  7,204
  7,856
  8,497
  9,125
  9,737
  10,335
  10,920
  11,494
  12,060
  12,620
  13,179
  13,740
  14,308
  14,885
  15,476
  16,085
  16,715
  17,370
  18,054
  18,769
  19,519
  20,307
  21,137
Cash from operations, $m
  6,840
  -13,684
  -17,962
  -22,961
  -28,714
  -35,239
  -42,546
  -50,634
  -59,496
  -69,120
  -79,490
  -90,589
  -102,398
  -114,902
  -128,084
  -141,934
  -156,443
  -171,607
  -187,427
  -203,908
  -221,058
  -238,893
  -257,431
  -276,695
  -296,711
  -317,513
  -339,134
  -361,615
  -384,998
  -409,331
  -434,663
Maintenance CAPEX, $m
  0
  -3,631
  -4,758
  -6,109
  -7,701
  -9,546
  -11,652
  -14,023
  -16,662
  -19,567
  -22,735
  -26,162
  -29,842
  -33,769
  -37,937
  -42,341
  -46,976
  -51,840
  -56,929
  -62,244
  -67,786
  -73,556
  -79,559
  -85,800
  -92,287
  -99,028
  -106,033
  -113,313
  -120,883
  -128,754
  -136,944
New CAPEX, $m
  -5,483
  -20,277
  -24,322
  -28,657
  -33,205
  -37,902
  -42,685
  -47,498
  -52,292
  -57,029
  -61,683
  -66,237
  -70,684
  -75,026
  -79,272
  -83,438
  -87,544
  -91,612
  -95,669
  -99,743
  -103,861
  -108,052
  -112,343
  -116,763
  -121,337
  -126,092
  -131,054
  -136,246
  -141,691
  -147,414
  -153,437
Cash from investing activities, $m
  -5,261
  -23,908
  -29,080
  -34,766
  -40,906
  -47,448
  -54,337
  -61,521
  -68,954
  -76,596
  -84,418
  -92,399
  -100,526
  -108,795
  -117,209
  -125,779
  -134,520
  -143,452
  -152,598
  -161,987
  -171,647
  -181,608
  -191,902
  -202,563
  -213,624
  -225,120
  -237,087
  -249,559
  -262,574
  -276,168
  -290,381
Free cash flow, $m
  1,579
  -37,592
  -47,042
  -57,726
  -69,620
  -82,687
  -96,883
  -112,154
  -128,449
  -145,716
  -163,908
  -182,988
  -202,924
  -223,696
  -245,293
  -267,713
  -290,963
  -315,059
  -340,026
  -365,895
  -392,705
  -420,501
  -449,332
  -479,257
  -510,335
  -542,633
  -576,221
  -611,174
  -647,572
  -685,499
  -725,043
Issuance/(repayment) of debt, $m
  -304
  18,687
  22,372
  26,359
  30,543
  34,863
  39,263
  43,689
  48,099
  52,456
  56,737
  60,926
  65,017
  69,010
  72,916
  76,748
  80,524
  84,266
  87,998
  91,745
  95,533
  99,388
  103,335
  107,400
  111,608
  115,982
  120,546
  125,321
  130,330
  135,594
  141,134
Issuance/(repurchase) of shares, $m
  0
  27,734
  35,043
  43,533
  53,123
  63,812
  75,585
  88,420
  102,287
  117,155
  132,991
  149,447
  167,131
  185,705
  205,151
  225,461
  246,632
  268,668
  291,581
  315,387
  340,112
  365,785
  392,444
  420,131
  448,892
  478,782
  509,857
  542,182
  575,822
  610,852
  647,346
Cash from financing (excl. dividends), $m  
  -345
  46,421
  57,415
  69,892
  83,666
  98,675
  114,848
  132,109
  150,386
  169,611
  189,728
  210,373
  232,148
  254,715
  278,067
  302,209
  327,156
  352,934
  379,579
  407,132
  435,645
  465,173
  495,779
  527,531
  560,500
  594,764
  630,403
  667,503
  706,152
  746,446
  788,480
Total cash flow (excl. dividends), $m
  537
  8,829
  10,373
  12,165
  14,046
  15,988
  17,965
  19,955
  21,937
  23,896
  25,820
  27,385
  29,224
  31,019
  32,774
  34,497
  36,194
  37,876
  39,553
  41,238
  42,940
  44,673
  46,447
  48,274
  50,165
  52,131
  54,183
  56,329
  58,581
  60,947
  63,437
Retained Cash Flow (-), $m
  1,239
  -27,734
  -35,043
  -43,533
  -53,123
  -63,812
  -75,585
  -88,420
  -102,287
  -117,155
  -132,991
  -149,447
  -167,131
  -185,705
  -205,151
  -225,461
  -246,632
  -268,668
  -291,581
  -315,387
  -340,112
  -365,785
  -392,444
  -420,131
  -448,892
  -478,782
  -509,857
  -542,182
  -575,822
  -610,852
  -647,346
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
 
  -16,224
  -24,670
  -31,368
  -39,077
  -47,824
  -57,620
  -68,465
  -80,350
  -93,259
  -107,171
  -122,062
  -137,908
  -154,686
  -172,377
  -190,965
  -210,438
  -230,793
  -252,027
  -274,150
  -297,172
  -321,113
  -345,997
  -371,856
  -398,727
  -426,650
  -455,675
  -485,853
  -517,242
  -549,905
  -583,909
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
 
  -15,422
  -22,181
  -26,537
  -30,930
  -35,201
  -39,186
  -42,725
  -45,671
  -47,905
  -49,334
  -49,907
  -49,608
  -48,462
  -46,532
  -43,911
  -40,723
  -37,104
  -33,206
  -29,176
  -25,158
  -21,276
  -17,637
  -14,321
  -11,382
  -8,846
  -6,717
  -4,979
  -3,599
  -2,534
  -1,735
Current shareholders' claim on cash, %
  100
  70.2
  49.9
  35.8
  25.9
  18.9
  13.9
  10.3
  7.7
  5.8
  4.4
  3.3
  2.5
  1.9
  1.5
  1.2
  0.9
  0.7
  0.5
  0.4
  0.3
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0

Vale S.A. is a global producer of iron ore and iron ore pellets, key raw materials for steelmaking, and producer of nickel. The Company also produces copper, metallurgical and thermal coal, potash, phosphates and other fertilizer nutrients, manganese ore, ferroalloys, platinum group metals, gold, silver and cobalt. The Company's segments include Ferrous minerals, which comprises the production and extraction of ferrous minerals, as iron ore fines, iron ore pellets and its logistic services, manganese and ferroalloys and others ferrous products and services; Coal, which comprises the extraction of metallurgical and thermal coal and its logistic services; Base metals, which includes the production and extraction of non-ferrous minerals, and are presented as nickel and its byproducts, and copper (copper concentrated), and Others, which comprises sales and expenses of other products, services and investments in joint ventures and associate in other business.

FINANCIAL RATIOS  of  Vale ADR (VALE)

Valuation Ratios
P/E Ratio 16.4
Price to Sales 2.3
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 10.1
Price to Free Cash Flow 50.7
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 -16.7%
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. -1.8%
Return On Total Capital 5.7%
Ret/ On T. Cap. - 3 Yr. Avg. -3.6%
Return On Equity 10.3%
Return On Equity - 3 Yr. Avg. -5.8%
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 21.9%
Oper. Margin - 3 Yr. Avg. 3.5%
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 31% 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 136.7%.

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 5247.75 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 $70.1 billion.

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COMPANY NEWS

▶ What Technical Indicators Say about Cliffs and Peers   [Jan-19-18 09:00AM  Market Realist]
▶ Look Out for These Valuation Catalysts for Iron Ore in 2018   [Jan-18-18 10:30AM  Market Realist]
▶ These Factors Are Affecting Vale SAs Earnings Estimates   [Jan-17-18 10:30AM  Market Realist]
▶ Why Did JPMorgan Recently Downgrade Rio Tinto?   [Jan-16-18 02:10PM  Market Realist]
▶ Should Chinese Steel Industry Concern Teck Resources?   [Jan-11-18 10:33AM  Market Realist]
▶ Why Chinas Higher Iron Ore Demand Could Increase Discounts   [Jan-09-18 10:33AM  Market Realist]
▶ 3 Dividend Stocks With Better Yields Than Chevron   [Jan-08-18 02:54PM  Motley Fool]
▶ Iron Ore: Could Chinas Auto Sales Hit a Rough Patch in 2018?   [Jan-05-18 07:30AM  Market Realist]
▶ Where Iron Ore Stands as Chinas Property Market Slows Down   [Jan-04-18 10:30AM  Market Realist]
▶ What Are Analysts Predicting for Iron Ore Prices in 2018?   [Jan-02-18 10:32AM  Market Realist]
▶ Estimating The Intrinsic Value Of Vale SA (NYSE:VALE)   [Dec-30-17 09:25AM  Simply Wall St.]
▶ ETFs with exposure to Vale SA : December 18, 2017   [Dec-18-17 04:41PM  Capital Cube]
▶ Vale Clears Key Benchmark, Hitting 80-Plus RS Rating   [03:00AM  Investor's Business Daily]
▶ How Vale Could Benefit from a Move to Quality in Iron Ore   [Dec-11-17 12:25PM  Market Realist]
▶ Book Review: "The Big Score"   [11:50AM  GuruFocus.com]
▶ IBD Rating Upgrades: Vale Shows Improved Price Strength   [03:00AM  Investor's Business Daily]
▶ [$$] Mine the Gap: More Women Embrace Mining Careers   [Dec-08-17 11:49PM  The Wall Street Journal]
▶ [$$] Mine the Gap: More Women Embrace Mining Careers   [10:00AM  The Wall Street Journal]
▶ Vale's Schvartsman on Iron Ore, China, Dividends   [Dec-06-17 11:14PM  Bloomberg Video]
▶ Vale Earns IBD Rating Upgrade   [Dec-05-17 03:00AM  Investor's Business Daily]
▶ Why Analysts Downgraded Cleveland-Cliffss Earnings Estimates   [Dec-01-17 09:02AM  Market Realist]
▶ Why Vale Saw 3 Ratings Upgrades in November   [Nov-30-17 10:33AM  Market Realist]
▶ Chinas Ever-Rising Iron Ore Port Inventory   [10:33AM  Market Realist]
▶ Outlook: Iron Ore Exports Remain Strong   [09:03AM  Market Realist]
▶ What the Iron Ore Futures Curve Tells You   [07:33AM  Market Realist]
▶ Goldman Sees Iron Ore Sinking Back to $50   [Nov-28-17 04:30PM  Bloomberg]
▶ Cleveland-Cliffs: Tracking Chinas Steel Demand   [Nov-27-17 09:00AM  Market Realist]
▶ What You Must Know About Vale SAs (VALE) ROE   [Nov-23-17 01:51PM  Simply Wall St.]
▶ These Catalysts Could Drive Vales Valuation in 2018   [Nov-09-17 07:30AM  Market Realist]
▶ The Word on Wall Street for Vale   [10:31AM  Market Realist]
▶ Spare a Nickel for Vale?   [12:54AM  Bloomberg]
▶ ETFs with exposure to Vale SA : November 3, 2017   [Nov-03-17 12:39PM  Capital Cube]
▶ Chinas Property Market: Gauging the Impact on Iron Ore   [Oct-31-17 10:30AM  Market Realist]
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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