Intrinsic value of Vale ADR - VALE

Previous Close

$10.28

  Intrinsic Value

$1.73

stock screener

  Rating & Target

str. sell

-83%

Previous close

$10.28

 
Intrinsic value

$1.73

 
Up/down potential

-83%

 
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

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 55.0

 

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
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
Revenue, $m
  29,920
  32,403
  34,986
  37,670
  40,460
  43,359
  46,372
  49,504
  52,760
  56,148
  59,673
  63,343
  67,167
  71,151
  75,305
  79,639
  84,162
  88,885
  93,818
  98,974
  104,364
  110,001
  115,898
  122,069
  128,530
  135,295
  142,380
  149,803
  157,580
  165,731
  174,276
Variable operating expenses, $m
 
  44,269
  47,772
  51,413
  55,197
  59,129
  63,216
  67,464
  71,881
  76,476
  81,257
  85,918
  91,104
  96,508
  102,143
  108,021
  114,157
  120,562
  127,254
  134,247
  141,558
  149,204
  157,203
  165,574
  174,337
  183,512
  193,123
  203,191
  213,740
  224,796
  236,385
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
  44,269
  47,772
  51,413
  55,197
  59,129
  63,216
  67,464
  71,881
  76,476
  81,257
  85,918
  91,104
  96,508
  102,143
  108,021
  114,157
  120,562
  127,254
  134,247
  141,558
  149,204
  157,203
  165,574
  174,337
  183,512
  193,123
  203,191
  213,740
  224,796
  236,385
Operating income, $m
  6,551
  -11,866
  -12,786
  -13,743
  -14,737
  -15,770
  -16,844
  -17,960
  -19,121
  -20,328
  -21,584
  -22,575
  -23,937
  -25,357
  -26,838
  -28,382
  -29,994
  -31,678
  -33,436
  -35,273
  -37,194
  -39,203
  -41,305
  -43,504
  -45,807
  -48,217
  -50,743
  -53,388
  -56,160
  -59,065
  -62,110
EBITDA, $m
  10,379
  -7,615
  -8,222
  -8,853
  -9,508
  -10,189
  -10,897
  -11,633
  -12,399
  -13,195
  -14,023
  -14,886
  -15,784
  -16,720
  -17,697
  -18,715
  -19,778
  -20,888
  -22,047
  -23,259
  -24,525
  -25,850
  -27,236
  -28,686
  -30,204
  -31,794
  -33,459
  -35,204
  -37,031
  -38,947
  -40,955
Interest expense (income), $m
  1,948
  1,682
  1,979
  2,285
  2,603
  2,934
  3,278
  3,635
  4,007
  4,393
  4,795
  5,213
  5,648
  6,101
  6,574
  7,066
  7,580
  8,116
  8,676
  9,261
  9,873
  10,512
  11,180
  11,880
  12,611
  13,377
  14,180
  15,020
  15,900
  16,822
  17,789
Earnings before tax, $m
  8,544
  -13,547
  -14,765
  -16,028
  -17,341
  -18,704
  -20,122
  -21,595
  -23,127
  -24,721
  -26,379
  -27,787
  -29,585
  -31,458
  -33,411
  -35,449
  -37,574
  -39,794
  -42,112
  -44,535
  -47,067
  -49,715
  -52,485
  -55,384
  -58,418
  -61,595
  -64,922
  -68,408
  -72,060
  -75,887
  -79,899
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
  -13,547
  -14,765
  -16,028
  -17,341
  -18,704
  -20,122
  -21,595
  -23,127
  -24,721
  -26,379
  -27,787
  -29,585
  -31,458
  -33,411
  -35,449
  -37,574
  -39,794
  -42,112
  -44,535
  -47,067
  -49,715
  -52,485
  -55,384
  -58,418
  -61,595
  -64,922
  -68,408
  -72,060
  -75,887
  -79,899

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
  105,893
  114,333
  123,106
  132,223
  141,697
  151,543
  161,777
  172,420
  183,490
  195,010
  207,005
  219,499
  232,519
  246,096
  260,258
  275,040
  290,473
  306,596
  323,444
  341,058
  359,479
  378,751
  398,920
  420,033
  442,140
  465,294
  489,551
  514,968
  541,606
  569,528
Adjusted assets (=assets-cash), $m
  97,636
  105,893
  114,333
  123,106
  132,223
  141,697
  151,543
  161,777
  172,420
  183,490
  195,010
  207,005
  219,499
  232,519
  246,096
  260,258
  275,040
  290,473
  306,596
  323,444
  341,058
  359,479
  378,751
  398,920
  420,033
  442,140
  465,294
  489,551
  514,968
  541,606
  569,528
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
  70,801
  76,444
  82,310
  88,405
  94,740
  101,323
  108,166
  115,282
  122,683
  130,386
  138,405
  146,759
  155,465
  164,542
  174,011
  183,894
  194,213
  204,993
  216,258
  228,035
  240,352
  253,237
  266,722
  280,838
  295,619
  311,100
  327,319
  344,313
  362,123
  380,792
Working capital, $m
  11,679
  9,753
  10,531
  11,339
  12,178
  13,051
  13,958
  14,901
  15,881
  16,901
  17,962
  19,066
  20,217
  21,416
  22,667
  23,971
  25,333
  26,754
  28,239
  29,791
  31,414
  33,110
  34,885
  36,743
  38,688
  40,724
  42,856
  45,091
  47,432
  49,885
  52,457
Total debt, $m
  30,215
  33,541
  38,732
  44,127
  49,734
  55,560
  61,616
  67,910
  74,455
  81,263
  88,348
  95,725
  103,409
  111,416
  119,766
  128,476
  137,566
  147,058
  156,973
  167,335
  178,168
  189,497
  201,349
  213,753
  226,737
  240,333
  254,573
  269,491
  285,122
  301,505
  318,677
Total liabilities, $m
  61,798
  65,124
  70,315
  75,710
  81,317
  87,143
  93,199
  99,493
  106,038
  112,846
  119,931
  127,308
  134,992
  142,999
  151,349
  160,059
  169,149
  178,641
  188,556
  198,918
  209,751
  221,080
  232,932
  245,336
  258,320
  271,916
  286,156
  301,074
  316,705
  333,088
  350,260
Total equity, $m
  40,230
  40,769
  44,018
  47,396
  50,906
  54,553
  58,344
  62,284
  66,382
  70,644
  75,079
  79,697
  84,507
  89,520
  94,747
  100,199
  105,890
  111,832
  118,039
  124,526
  131,307
  138,400
  145,819
  153,584
  161,713
  170,224
  179,138
  188,477
  198,263
  208,518
  219,268
Total liabilities and equity, $m
  102,028
  105,893
  114,333
  123,106
  132,223
  141,696
  151,543
  161,777
  172,420
  183,490
  195,010
  207,005
  219,499
  232,519
  246,096
  260,258
  275,039
  290,473
  306,595
  323,444
  341,058
  359,480
  378,751
  398,920
  420,033
  442,140
  465,294
  489,551
  514,968
  541,606
  569,528
Debt-to-equity ratio
  0.751
  0.820
  0.880
  0.930
  0.980
  1.020
  1.060
  1.090
  1.120
  1.150
  1.180
  1.200
  1.220
  1.240
  1.260
  1.280
  1.300
  1.310
  1.330
  1.340
  1.360
  1.370
  1.380
  1.390
  1.400
  1.410
  1.420
  1.430
  1.440
  1.450
  1.450
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
  -13,547
  -14,765
  -16,028
  -17,341
  -18,704
  -20,122
  -21,595
  -23,127
  -24,721
  -26,379
  -27,787
  -29,585
  -31,458
  -33,411
  -35,449
  -37,574
  -39,794
  -42,112
  -44,535
  -47,067
  -49,715
  -52,485
  -55,384
  -58,418
  -61,595
  -64,922
  -68,408
  -72,060
  -75,887
  -79,899
Depreciation, amort., depletion, $m
  3,828
  4,251
  4,564
  4,890
  5,229
  5,581
  5,947
  6,327
  6,722
  7,133
  7,561
  7,689
  8,153
  8,637
  9,141
  9,667
  10,216
  10,790
  11,388
  12,014
  12,669
  13,353
  14,069
  14,818
  15,602
  16,423
  17,283
  18,184
  19,128
  20,118
  21,155
Funds from operations, $m
  954
  -9,297
  -10,201
  -11,138
  -12,112
  -13,124
  -14,175
  -15,269
  -16,405
  -17,588
  -18,818
  -20,098
  -21,432
  -22,822
  -24,270
  -25,781
  -27,358
  -29,004
  -30,724
  -32,520
  -34,398
  -36,362
  -38,416
  -40,566
  -42,816
  -45,172
  -47,639
  -50,223
  -52,931
  -55,769
  -58,743
Change in working capital, $m
  -5,886
  747
  777
  808
  840
  873
  907
  943
  980
  1,020
  1,061
  1,105
  1,151
  1,199
  1,250
  1,304
  1,361
  1,422
  1,485
  1,552
  1,622
  1,697
  1,775
  1,858
  1,945
  2,036
  2,133
  2,234
  2,341
  2,453
  2,572
Cash from operations, $m
  6,840
  -10,044
  -10,978
  -11,946
  -12,951
  -13,996
  -15,082
  -16,211
  -17,386
  -18,607
  -19,879
  -21,203
  -22,583
  -24,021
  -25,521
  -27,086
  -28,720
  -30,426
  -32,209
  -34,072
  -36,021
  -38,059
  -40,191
  -42,423
  -44,760
  -47,208
  -49,772
  -52,458
  -55,272
  -58,223
  -61,315
Maintenance CAPEX, $m
  0
  -3,631
  -3,933
  -4,247
  -4,573
  -4,911
  -5,263
  -5,629
  -6,009
  -6,405
  -6,816
  -7,244
  -7,689
  -8,153
  -8,637
  -9,141
  -9,667
  -10,216
  -10,790
  -11,388
  -12,014
  -12,669
  -13,353
  -14,069
  -14,818
  -15,602
  -16,423
  -17,283
  -18,184
  -19,128
  -20,118
New CAPEX, $m
  -5,483
  -5,436
  -5,643
  -5,866
  -6,096
  -6,334
  -6,583
  -6,843
  -7,116
  -7,402
  -7,703
  -8,020
  -8,354
  -8,706
  -9,077
  -9,469
  -9,883
  -10,319
  -10,780
  -11,265
  -11,777
  -12,317
  -12,885
  -13,485
  -14,116
  -14,781
  -15,481
  -16,218
  -16,994
  -17,810
  -18,669
Cash from investing activities, $m
  -5,261
  -9,067
  -9,576
  -10,113
  -10,669
  -11,245
  -11,846
  -12,472
  -13,125
  -13,807
  -14,519
  -15,264
  -16,043
  -16,859
  -17,714
  -18,610
  -19,550
  -20,535
  -21,570
  -22,653
  -23,791
  -24,986
  -26,238
  -27,554
  -28,934
  -30,383
  -31,904
  -33,501
  -35,178
  -36,938
  -38,787
Free cash flow, $m
  1,579
  -19,112
  -20,554
  -22,058
  -23,620
  -25,242
  -26,929
  -28,684
  -30,510
  -32,413
  -34,397
  -36,466
  -38,625
  -40,880
  -43,235
  -45,696
  -48,270
  -50,961
  -53,778
  -56,726
  -59,812
  -63,044
  -66,430
  -69,977
  -73,695
  -77,591
  -81,676
  -85,959
  -90,451
  -95,161
  -100,102
Issuance/(repayment) of debt, $m
  -304
  5,036
  5,190
  5,395
  5,607
  5,826
  6,055
  6,294
  6,545
  6,808
  7,085
  7,377
  7,684
  8,008
  8,349
  8,710
  9,090
  9,492
  9,915
  10,362
  10,833
  11,329
  11,852
  12,404
  12,984
  13,596
  14,240
  14,918
  15,631
  16,382
  17,172
Issuance/(repurchase) of shares, $m
  0
  16,768
  18,014
  19,405
  20,851
  22,352
  23,913
  25,536
  27,225
  28,983
  30,814
  32,405
  34,395
  36,471
  38,638
  40,901
  43,265
  45,736
  48,319
  51,021
  53,848
  56,807
  59,905
  63,149
  66,546
  70,106
  73,837
  77,747
  81,845
  86,142
  90,649
Cash from financing (excl. dividends), $m  
  -345
  21,804
  23,204
  24,800
  26,458
  28,178
  29,968
  31,830
  33,770
  35,791
  37,899
  39,782
  42,079
  44,479
  46,987
  49,611
  52,355
  55,228
  58,234
  61,383
  64,681
  68,136
  71,757
  75,553
  79,530
  83,702
  88,077
  92,665
  97,476
  102,524
  107,821
Total cash flow (excl. dividends), $m
  537
  2,693
  2,650
  2,743
  2,838
  2,936
  3,039
  3,147
  3,259
  3,378
  3,502
  3,316
  3,454
  3,599
  3,753
  3,915
  4,086
  4,266
  4,457
  4,657
  4,869
  5,092
  5,327
  5,575
  5,836
  6,111
  6,401
  6,705
  7,026
  7,363
  7,718
Retained Cash Flow (-), $m
  1,239
  -16,768
  -18,014
  -19,405
  -20,851
  -22,352
  -23,913
  -25,536
  -27,225
  -28,983
  -30,814
  -32,405
  -34,395
  -36,471
  -38,638
  -40,901
  -43,265
  -45,736
  -48,319
  -51,021
  -53,848
  -56,807
  -59,905
  -63,149
  -66,546
  -70,106
  -73,837
  -77,747
  -81,845
  -86,142
  -90,649
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
 
  -11,393
  -15,364
  -16,663
  -18,013
  -19,416
  -20,873
  -22,389
  -23,965
  -25,605
  -27,312
  -29,090
  -30,942
  -32,872
  -34,885
  -36,986
  -39,179
  -41,470
  -43,863
  -46,364
  -48,979
  -51,715
  -54,577
  -57,573
  -60,710
  -63,995
  -67,436
  -71,041
  -74,819
  -78,779
  -82,930
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
 
  -10,830
  -13,814
  -14,097
  -14,257
  -14,291
  -14,196
  -13,972
  -13,622
  -13,153
  -12,573
  -11,894
  -11,130
  -10,299
  -9,417
  -8,505
  -7,582
  -6,667
  -5,779
  -4,934
  -4,146
  -3,427
  -2,782
  -2,217
  -1,733
  -1,327
  -994
  -728
  -521
  -363
  -246
Current shareholders' claim on cash, %
  100
  75.4
  57.0
  43.1
  32.6
  24.7
  18.7
  14.1
  10.7
  8.1
  6.2
  4.7
  3.6
  2.7
  2.1
  1.6
  1.2
  0.9
  0.7
  0.5
  0.4
  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 12.6
Price to Sales 1.8
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 7.7
Price to Free Cash Flow 39
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%
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 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 8.3% 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 5348.25 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 $55.0 billion.

RELATED COMPANIES Price Int.Val. Rating
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MT ArcelorMittal 29.84 6.09  str.sell
SID Companhia Side 3.13 1.44  str.sell
RIO Rio Tinto ADR 48.37 6.29  str.sell

COMPANY NEWS

▶ ETFs with exposure to Vale SA : October 16, 2017   [Oct-16-17 10:01AM  Capital Cube]
▶ 3 Stocks in Focus Amid Falling Iron Ore Prices   [Oct-12-17 08:17AM  Zacks]
▶ How Chinas Steel Demand Could Affect Iron Ore Demand   [Oct-11-17 10:37AM  Market Realist]
▶ Why Chinas Iron Ore Demand Could Wane in 4Q17   [09:07AM  Market Realist]
▶ Could Seaborne Iron Ore Prices Soften More?   [07:36AM  Market Realist]
▶ Petrobras, 9 More Picks to Play Brazil Recovery   [Oct-10-17 02:06PM  Barrons.com]
▶ Falling Iron Ore Prices Could Drive US Steel Prices Lower   [Oct-06-17 07:39AM  Market Realist]
▶ ETFs with exposure to Vale SA : October 3, 2017   [Oct-03-17 11:41AM  Capital Cube]
▶ How Did Chinas Auto Sales Trend in August?   [10:39AM  Market Realist]
▶ Can Chinas Iron Ore Imports Support Prices?   [09:13AM  Market Realist]
▶ Will Plentiful Iron Ore Exports Pressure Prices?   [Sep-29-17 05:36PM  Market Realist]
▶ Better Buy: Freeport-McMoRan Inc vs. Vale SA   [Sep-22-17 07:15AM  Motley Fool]
▶ Fire disrupts Vale Fertilizantes plant in Brazil   [Sep-21-17 07:13PM  Reuters]
▶ Whats the Word on the Wall Street Regarding Vale SA?   [Sep-18-17 10:38AM  Market Realist]
▶ Why Rio Tinto Isnt RBCs Top Pick Anymore   [07:38AM  Market Realist]
▶ Hit the 'Mother Lode' With Vale ADRs   [Sep-07-17 03:31PM  TheStreet.com]
▶ [$$] Attention, Yield Hunters: EM Payouts on the Rise   [Sep-01-17 09:32PM  Barrons.com]
▶ BHP Stock Higher, But Growth Stymied, Downgrade Says   [Aug-31-17 04:12PM  Barrons.com]
▶ Is Chinas Easing Credit Growth in July a Temporary Measure?   [Aug-30-17 10:35AM  Market Realist]
▶ Freeport Bends To Indonesia Will To Keep Mining Copper, Gold   [Aug-29-17 04:01PM  Investor's Business Daily]
▶ Iron Ore Is SurgingHows the Outlook?   [Aug-25-17 03:26PM  Market Realist]
▶ Does BHP Billiton Expect to Sustain Iron Ore Price Momentum?   [Aug-24-17 01:36PM  Market Realist]
▶ 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]
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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