Intrinsic value of Alcoa - AA

Previous Close

$41.40

  Intrinsic Value

$7.45

stock screener

  Rating & Target

str. sell

-82%

Previous close

$41.40

 
Intrinsic value

$7.45

 
Up/down potential

-82%

 
Rating

str. sell

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

We calculate the intrinsic value of AA 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 7.6

 

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, %
  -16.80
  27.30
  25.07
  23.06
  21.26
  19.63
  18.17
  16.85
  15.67
  14.60
  13.64
  12.78
  12.00
  11.30
  10.67
  10.10
  9.59
  9.13
  8.72
  8.35
  8.01
  7.71
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
Revenue, $m
  9,318
  11,862
  14,836
  18,257
  22,138
  26,484
  31,295
  36,569
  42,298
  48,473
  55,085
  62,122
  69,576
  77,436
  85,697
  94,354
  103,404
  112,847
  122,686
  132,927
  143,578
  154,649
  166,155
  178,112
  190,538
  203,454
  216,884
  230,853
  245,389
  260,522
  276,285
Variable operating expenses, $m
 
  11,881
  14,856
  18,279
  22,161
  26,508
  31,321
  36,597
  42,328
  48,505
  55,119
  62,143
  69,599
  77,462
  85,726
  94,386
  103,439
  112,885
  122,728
  132,972
  143,626
  154,701
  166,211
  178,172
  190,602
  203,522
  216,957
  230,930
  245,471
  260,610
  276,378
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
  9,326
  11,881
  14,856
  18,279
  22,161
  26,508
  31,321
  36,597
  42,328
  48,505
  55,119
  62,143
  69,599
  77,462
  85,726
  94,386
  103,439
  112,885
  122,728
  132,972
  143,626
  154,701
  166,211
  178,172
  190,602
  203,522
  216,957
  230,930
  245,471
  260,610
  276,378
Operating income, $m
  -8
  -19
  -20
  -22
  -23
  -24
  -26
  -28
  -30
  -32
  -34
  -21
  -23
  -26
  -29
  -32
  -35
  -38
  -41
  -45
  -48
  -52
  -56
  -60
  -64
  -68
  -73
  -78
  -83
  -88
  -93
EBITDA, $m
  710
  896
  1,121
  1,379
  1,673
  2,001
  2,365
  2,763
  3,196
  3,663
  4,162
  4,694
  5,257
  5,851
  6,475
  7,129
  7,813
  8,527
  9,270
  10,044
  10,849
  11,685
  12,555
  13,458
  14,397
  15,373
  16,388
  17,443
  18,541
  19,685
  20,876
Interest expense (income), $m
  226
  386
  1,210
  2,169
  3,272
  4,523
  5,924
  7,475
  9,174
  11,021
  13,012
  15,143
  17,411
  19,813
  22,347
  25,010
  27,800
  30,718
  33,761
  36,933
  40,234
  43,667
  47,236
  50,944
  54,798
  58,804
  62,967
  67,296
  71,798
  76,484
  81,362
Earnings before tax, $m
  -162
  -405
  -1,231
  -2,191
  -3,295
  -4,547
  -5,950
  -7,502
  -9,204
  -11,053
  -13,046
  -15,164
  -17,434
  -19,840
  -22,376
  -25,042
  -27,835
  -30,756
  -33,803
  -36,978
  -40,282
  -43,719
  -47,291
  -51,004
  -54,862
  -58,872
  -63,040
  -67,373
  -71,881
  -76,572
  -81,455
Tax expense, $m
  184
  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
  -400
  -405
  -1,231
  -2,191
  -3,295
  -4,547
  -5,950
  -7,502
  -9,204
  -11,053
  -13,046
  -15,164
  -17,434
  -19,840
  -22,376
  -25,042
  -27,835
  -30,756
  -33,803
  -36,978
  -40,282
  -43,719
  -47,291
  -51,004
  -54,862
  -58,872
  -63,040
  -67,373
  -71,881
  -76,572
  -81,455

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  853
  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
  16,741
  20,242
  25,317
  31,155
  37,778
  45,194
  53,405
  62,405
  72,181
  82,719
  94,001
  106,010
  118,730
  132,144
  146,241
  161,014
  176,457
  192,572
  209,362
  226,838
  245,013
  263,907
  283,541
  303,945
  325,150
  347,191
  370,109
  393,947
  418,752
  444,577
  471,476
Adjusted assets (=assets-cash), $m
  15,888
  20,242
  25,317
  31,155
  37,778
  45,194
  53,405
  62,405
  72,181
  82,719
  94,001
  106,010
  118,730
  132,144
  146,241
  161,014
  176,457
  192,572
  209,362
  226,838
  245,013
  263,907
  283,541
  303,945
  325,150
  347,191
  370,109
  393,947
  418,752
  444,577
  471,476
Revenue / Adjusted assets
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
  0.586
Average production assets, $m
  9,478
  12,063
  15,088
  18,567
  22,514
  26,934
  31,827
  37,191
  43,017
  49,297
  56,021
  63,178
  70,758
  78,753
  87,154
  95,958
  105,162
  114,766
  124,772
  135,187
  146,019
  157,278
  168,980
  181,140
  193,777
  206,913
  220,571
  234,777
  249,561
  264,951
  280,982
Working capital, $m
  360
  -605
  -757
  -931
  -1,129
  -1,351
  -1,596
  -1,865
  -2,157
  -2,472
  -2,809
  -3,168
  -3,548
  -3,949
  -4,371
  -4,812
  -5,274
  -5,755
  -6,257
  -6,779
  -7,322
  -7,887
  -8,474
  -9,084
  -9,717
  -10,376
  -11,061
  -11,773
  -12,515
  -13,287
  -14,091
Total debt, $m
  1,445
  4,467
  8,004
  12,073
  16,689
  21,858
  27,581
  33,854
  40,668
  48,013
  55,877
  64,247
  73,112
  82,462
  92,288
  102,585
  113,349
  124,581
  136,284
  148,464
  161,132
  174,301
  187,986
  202,208
  216,987
  232,350
  248,324
  264,939
  282,228
  300,228
  318,977
Total liabilities, $m
  11,087
  14,109
  17,646
  21,715
  26,331
  31,500
  37,223
  43,496
  50,310
  57,655
  65,519
  73,889
  82,754
  92,104
  101,930
  112,227
  122,991
  134,223
  145,926
  158,106
  170,774
  183,943
  197,628
  211,850
  226,629
  241,992
  257,966
  274,581
  291,870
  309,870
  328,619
Total equity, $m
  5,654
  6,133
  7,671
  9,440
  11,447
  13,694
  16,182
  18,909
  21,871
  25,064
  28,482
  32,121
  35,975
  40,040
  44,311
  48,787
  53,467
  58,349
  63,437
  68,732
  74,239
  79,964
  85,913
  92,095
  98,520
  105,199
  112,143
  119,366
  126,882
  134,707
  142,857
Total liabilities and equity, $m
  16,741
  20,242
  25,317
  31,155
  37,778
  45,194
  53,405
  62,405
  72,181
  82,719
  94,001
  106,010
  118,729
  132,144
  146,241
  161,014
  176,458
  192,572
  209,363
  226,838
  245,013
  263,907
  283,541
  303,945
  325,149
  347,191
  370,109
  393,947
  418,752
  444,577
  471,476
Debt-to-equity ratio
  0.256
  0.730
  1.040
  1.280
  1.460
  1.600
  1.700
  1.790
  1.860
  1.920
  1.960
  2.000
  2.030
  2.060
  2.080
  2.100
  2.120
  2.140
  2.150
  2.160
  2.170
  2.180
  2.190
  2.200
  2.200
  2.210
  2.210
  2.220
  2.220
  2.230
  2.230
Adjusted equity ratio
  0.302
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -400
  -405
  -1,231
  -2,191
  -3,295
  -4,547
  -5,950
  -7,502
  -9,204
  -11,053
  -13,046
  -15,164
  -17,434
  -19,840
  -22,376
  -25,042
  -27,835
  -30,756
  -33,803
  -36,978
  -40,282
  -43,719
  -47,291
  -51,004
  -54,862
  -58,872
  -63,040
  -67,373
  -71,881
  -76,572
  -81,455
Depreciation, amort., depletion, $m
  718
  916
  1,141
  1,401
  1,696
  2,026
  2,391
  2,791
  3,226
  3,694
  4,196
  4,715
  5,280
  5,877
  6,504
  7,161
  7,848
  8,565
  9,311
  10,089
  10,897
  11,737
  12,610
  13,518
  14,461
  15,441
  16,460
  17,521
  18,624
  19,772
  20,969
Funds from operations, $m
  -1,228
  510
  -90
  -790
  -1,599
  -2,522
  -3,559
  -4,711
  -5,978
  -7,358
  -8,849
  -10,449
  -12,154
  -13,962
  -15,872
  -17,881
  -19,987
  -22,191
  -24,491
  -26,889
  -29,385
  -31,982
  -34,681
  -37,486
  -40,401
  -43,431
  -46,579
  -49,853
  -53,257
  -56,799
  -60,486
Change in working capital, $m
  -917
  -130
  -152
  -174
  -198
  -222
  -245
  -269
  -292
  -315
  -337
  -359
  -380
  -401
  -421
  -441
  -462
  -482
  -502
  -522
  -543
  -565
  -587
  -610
  -634
  -659
  -685
  -712
  -741
  -772
  -804
Cash from operations, $m
  -311
  640
  62
  -615
  -1,401
  -2,300
  -3,314
  -4,442
  -5,686
  -7,044
  -8,512
  -10,090
  -11,774
  -13,562
  -15,451
  -17,439
  -19,526
  -21,709
  -23,990
  -26,367
  -28,842
  -31,417
  -34,094
  -36,877
  -39,768
  -42,772
  -45,894
  -49,140
  -52,516
  -56,027
  -59,682
Maintenance CAPEX, $m
  0
  -707
  -900
  -1,126
  -1,386
  -1,680
  -2,010
  -2,375
  -2,775
  -3,210
  -3,679
  -4,181
  -4,715
  -5,280
  -5,877
  -6,504
  -7,161
  -7,848
  -8,565
  -9,311
  -10,089
  -10,897
  -11,737
  -12,610
  -13,518
  -14,461
  -15,441
  -16,460
  -17,521
  -18,624
  -19,772
New CAPEX, $m
  -404
  -2,585
  -3,024
  -3,480
  -3,947
  -4,420
  -4,893
  -5,363
  -5,826
  -6,280
  -6,724
  -7,157
  -7,580
  -7,994
  -8,402
  -8,804
  -9,204
  -9,604
  -10,006
  -10,415
  -10,832
  -11,260
  -11,702
  -12,160
  -12,637
  -13,136
  -13,658
  -14,207
  -14,783
  -15,391
  -16,030
Cash from investing activities, $m
  1,077
  -3,292
  -3,924
  -4,606
  -5,333
  -6,100
  -6,903
  -7,738
  -8,601
  -9,490
  -10,403
  -11,338
  -12,295
  -13,274
  -14,279
  -15,308
  -16,365
  -17,452
  -18,571
  -19,726
  -20,921
  -22,157
  -23,439
  -24,770
  -26,155
  -27,597
  -29,099
  -30,667
  -32,304
  -34,015
  -35,802
Free cash flow, $m
  766
  -2,653
  -3,862
  -5,221
  -6,734
  -8,400
  -10,217
  -12,181
  -14,288
  -16,534
  -18,915
  -21,428
  -24,069
  -26,836
  -29,729
  -32,747
  -35,891
  -39,161
  -42,561
  -46,093
  -49,762
  -53,574
  -57,533
  -61,647
  -65,923
  -70,369
  -74,994
  -79,807
  -84,820
  -90,042
  -95,485
Issuance/(repayment) of debt, $m
  -38
  3,043
  3,537
  4,070
  4,616
  5,169
  5,723
  6,273
  6,814
  7,345
  7,864
  8,370
  8,865
  9,350
  9,826
  10,297
  10,764
  11,232
  11,703
  12,181
  12,668
  13,169
  13,685
  14,221
  14,780
  15,363
  15,974
  16,615
  17,290
  18,000
  18,748
Issuance/(repurchase) of shares, $m
  10
  1,717
  2,769
  3,960
  5,301
  6,794
  8,438
  10,229
  12,166
  14,246
  16,464
  18,802
  21,288
  23,904
  26,648
  29,518
  32,515
  35,638
  38,890
  42,273
  45,789
  49,444
  53,241
  57,187
  61,287
  65,551
  69,984
  74,596
  79,397
  84,396
  89,605
Cash from financing (excl. dividends), $m  
  -483
  4,760
  6,306
  8,030
  9,917
  11,963
  14,161
  16,502
  18,980
  21,591
  24,328
  27,172
  30,153
  33,254
  36,474
  39,815
  43,279
  46,870
  50,593
  54,454
  58,457
  62,613
  66,926
  71,408
  76,067
  80,914
  85,958
  91,211
  96,687
  102,396
  108,353
Total cash flow (excl. dividends), $m
  296
  2,107
  2,443
  2,809
  3,184
  3,563
  3,944
  4,321
  4,692
  5,057
  5,413
  5,745
  6,085
  6,417
  6,744
  7,067
  7,388
  7,709
  8,032
  8,360
  8,695
  9,039
  9,393
  9,761
  10,144
  10,544
  10,964
  11,404
  11,867
  12,355
  12,868
Retained Cash Flow (-), $m
  3,788
  -1,717
  -2,769
  -3,960
  -5,301
  -6,794
  -8,438
  -10,229
  -12,166
  -14,246
  -16,464
  -18,802
  -21,288
  -23,904
  -26,648
  -29,518
  -32,515
  -35,638
  -38,890
  -42,273
  -45,789
  -49,444
  -53,241
  -57,187
  -61,287
  -65,551
  -69,984
  -74,596
  -79,397
  -84,396
  -89,605
Prev. year cash balance distribution, $m
 
  832
  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
 
  1,222
  -325
  -1,151
  -2,118
  -3,231
  -4,494
  -5,908
  -7,474
  -9,189
  -11,051
  -13,057
  -15,204
  -17,487
  -19,903
  -22,451
  -25,127
  -27,929
  -30,858
  -33,912
  -37,094
  -40,405
  -43,848
  -47,425
  -51,143
  -55,006
  -59,020
  -63,192
  -67,530
  -72,042
  -76,737
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
 
  1,172
  -298
  -1,002
  -1,744
  -2,504
  -3,261
  -3,992
  -4,671
  -5,279
  -5,794
  -6,201
  -6,488
  -6,649
  -6,682
  -6,591
  -6,385
  -6,077
  -5,683
  -5,222
  -4,714
  -4,179
  -3,638
  -3,108
  -2,605
  -2,140
  -1,722
  -1,356
  -1,045
  -786
  -578
Current shareholders' claim on cash, %
  100
  79.1
  59.3
  42.9
  30.3
  21.1
  14.5
  9.8
  6.7
  4.5
  3.0
  2.0
  1.4
  0.9
  0.6
  0.4
  0.3
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Alcoa Corporation, formerly Alcoa Upstream Corporation, is engaged in the production of bauxite, alumina and aluminum of various cast and rolled products. The Company is engaged in the production and management of aluminum and alumina combined through its participation in various aspects of the industry, such as technology, mining, refining, smelting, and recycling. The Company's segments include Bauxite, Alumina, Aluminum, Cast Products, Energy and Rolled Products. The Company's Bauxite segment represents its global portfolio of bauxite mining assets. The Company's Alumina segment represents its refining system across the world, and processes bauxite into alumina and sells it directly to internal and external smelter customers across the world. The Company's Aluminum segment represents its smelter system across the world. Its Energy segment represents its portfolio of energy assets, with power production capacity of approximately 1,685 megawatts.

FINANCIAL RATIOS  of  Alcoa (AA)

Valuation Ratios
P/E Ratio -18.9
Price to Sales 0.8
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow -24.4
Price to Free Cash Flow -10.6
Growth Rates
Sales Growth Rate -16.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 3.3%
Cap. Spend. - 3 Yr. Gr. Rate -6.6%
Financial Strength
Quick Ratio 41
Current Ratio 0
LT Debt to Equity 25.2%
Total Debt to Equity 25.6%
Interest Coverage 0
Management Effectiveness
Return On Assets 0.5%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital -4.8%
Ret/ On T. Cap. - 3 Yr. Avg. -5.9%
Return On Equity -5.3%
Return On Equity - 3 Yr. Avg. -6.2%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 15.2%
Gross Margin - 3 Yr. Avg. 18.1%
EBITDA Margin 8.4%
EBITDA Margin - 3 Yr. Avg. 8%
Operating Margin -0.1%
Oper. Margin - 3 Yr. Avg. 0.7%
Pre-Tax Margin -1.7%
Pre-Tax Margin - 3 Yr. Avg. -1.7%
Net Profit Margin -4.3%
Net Profit Margin - 3 Yr. Avg. -4.6%
Effective Tax Rate -113.6%
Eff/ Tax Rate - 3 Yr. Avg. -227.9%
Payout Ratio 0%

AA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AA stock intrinsic value calculation we used $9318 million for the last fiscal year's total revenue generated by Alcoa. The default revenue input number comes from 2016 income statement of Alcoa. 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 AA stock valuation model: a) initial revenue growth rate of 27.3% 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 4.3%, whose default value for AA is calculated based on our internal credit rating of Alcoa, 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 Alcoa.
    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 AA stock the variable cost ratio is equal to 100.2%.

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 AA 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 27.1% for Alcoa.

Corporate tax rate of 27% is the nominal tax rate for Alcoa. 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 AA 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 AA are equal to 101.7%.

Life of production assets of 13.4 years is the average useful life of capital assets used in Alcoa 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 AA is equal to -5.1%. 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 - $5654 million for Alcoa - 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 184.436 million for Alcoa 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 Alcoa at the current share price and the inputted number of shares is $7.6 billion.

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COMPANY NEWS

▶ Alcoa Shows Rising Relative Strength; Still Shy Of Key Benchmark   [Dec-11-17 03:00AM  Investor's Business Daily]
▶ ETFs with exposure to Alcoa Corp. : December 4, 2017   [Dec-04-17 10:49AM  Capital Cube]
▶ Alcoa Clears Key Benchmark, Hitting 80-Plus RS Rating   [Nov-29-17 03:00AM  Investor's Business Daily]
▶ 3 Charts to Know: U.S. Cracks Down on China Aluminum   [Nov-28-17 08:38PM  Bloomberg Video]
▶ ETFs with exposure to Alcoa Corp. : November 24, 2017   [Nov-24-17 10:19AM  Capital Cube]
▶ Metal Prices Fell on Demand Concerns Last Week   [Nov-20-17 02:30PM  Market Realist]
▶ ETFs with exposure to Alcoa Corp. : November 13, 2017   [Nov-13-17 11:29AM  Capital Cube]
▶ Alcoa Earns Perfect Score on 2018 Corporate Equality Index   [Nov-09-17 11:32AM  Business Wire]
▶ Norsk Hydro: Analysts Ratings amid Higher Aluminum Prices   [Nov-08-17 01:05PM  Market Realist]
▶ ETFs with exposure to Alcoa Corp. : November 2, 2017   [Nov-02-17 11:37AM  Capital Cube]
▶ 3 Stocks That Put Wal-Mart's Returns to Shame   [Oct-26-17 04:02PM  Motley Fool]
▶ GE: Heres how the Dow would perform without it   [01:17PM  Yahoo Finance Video]
▶ 5 Stock Picks As The Electric Car Boom Accelerates   [Oct-23-17 07:30PM  Oilprice.com]
▶ Arconic Tumbles After Earnings Miss; Ex-GE Exec Named CEO   [04:01PM  Investor's Business Daily]
▶ Developers Sell Century Citys Glamorous Past   [12:37AM  The Wall Street Journal]
▶ United Airlines, AmEx, United Rentals Beat Views; Alcoa Misses   [Oct-18-17 06:27PM  Investor's Business Daily]
▶ Amazon HQ2 bid emerges from farmland of Central Texas   [Oct-17-17 02:00PM  American City Business Journals]
▶ Central Texas coal plant to shut down as part of power generator's pullback from fuel   [Oct-16-17 11:12PM  American City Business Journals]
▶ Real Action Could Be in Alcoas 4Q17 Earnings   [02:05PM  Market Realist]
▶ A Deep Dive into Chinas Slowdown   [12:21PM  Market Realist]
▶ Alcoa terminates power contract at Texas smelter   [Oct-13-17 03:45PM  American City Business Journals]
▶ [$$] Alcoa Gets Its Can Kicked   [Oct-05-17 01:01PM  Barrons.com]
▶ What the Recent Trend in Physical Premiums Means for Alcoa   [Sep-27-17 09:09AM  Market Realist]
▶ More Bullish On Base Metals, Met Coal Prices   [Sep-26-17 10:50AM  Barrons.com]
▶ Alcoas Outperforming Freeport-McMoRan This Year   [Sep-25-17 03:36PM  Market Realist]
▶ Can Alcoa Continue Its Good Run in 4Q17?   [12:12PM  Market Realist]
▶ Better Buy: Alcoa Inc. vs. Wheaton Precious Metals   [Sep-21-17 10:31AM  Motley Fool]
▶ Bull of the Day: Alcoa (AA)   [07:09AM  Zacks]
▶ [$$] Alcoa May Have a Strong Q3   [05:36AM  Barrons.com]
▶ More Analysts Could Upgrade Alcoa   [Sep-18-17 09:10AM  Market Realist]
▶ How Alcoa Inc. Makes Most of Its Money   [Sep-16-17 11:34AM  Motley Fool]
Financial statements of AA
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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