Intrinsic value of Alcoa - AA

Previous Close

$47.93

  Intrinsic Value

$7.48

stock screener

  Rating & Target

str. sell

-84%

  Value-price divergence*

0%

Previous close

$47.93

 
Intrinsic value

$7.48

 
Up/down potential

-84%

 
Rating

str. sell

 
Value-price divergence*

0%

*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 8.8

 

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
  23.10
  21.29
  19.66
  18.19
  16.88
  15.69
  14.62
  13.66
  12.79
  12.01
  11.31
  10.68
  10.11
  9.60
  9.14
  8.73
  8.35
  8.02
  7.72
  7.45
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
Revenue, $m
  9,318
  11,470
  13,913
  16,648
  19,677
  22,997
  26,605
  30,495
  34,659
  39,093
  43,789
  48,742
  53,947
  59,403
  65,106
  71,057
  77,258
  83,712
  90,424
  97,402
  104,654
  112,189
  120,021
  128,161
  136,625
  145,429
  154,590
  164,127
  174,061
  184,413
  195,206
Variable operating expenses, $m
 
  11,490
  13,933
  16,669
  19,699
  23,021
  26,630
  30,521
  34,687
  39,122
  43,819
  48,758
  53,966
  59,423
  65,128
  71,081
  77,284
  83,740
  90,455
  97,435
  104,689
  112,227
  120,061
  128,204
  136,671
  145,478
  154,642
  164,183
  174,120
  184,475
  195,272
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
  11,490
  13,933
  16,669
  19,699
  23,021
  26,630
  30,521
  34,687
  39,122
  43,819
  48,758
  53,966
  59,423
  65,128
  71,081
  77,284
  83,740
  90,455
  97,435
  104,689
  112,227
  120,061
  128,204
  136,671
  145,478
  154,642
  164,183
  174,120
  184,475
  195,272
Operating income, $m
  -8
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -16
  -18
  -20
  -22
  -24
  -26
  -28
  -30
  -33
  -35
  -38
  -40
  -43
  -46
  -49
  -52
  -55
  -59
  -62
  -66
EBITDA, $m
  710
  867
  1,051
  1,258
  1,487
  1,738
  2,010
  2,304
  2,619
  2,954
  3,309
  3,683
  4,076
  4,488
  4,919
  5,369
  5,838
  6,325
  6,832
  7,360
  7,908
  8,477
  9,069
  9,684
  10,323
  10,988
  11,681
  12,401
  13,152
  13,934
  14,750
Interest expense (income), $m
  226
  386
  1,084
  1,871
  2,753
  3,730
  4,800
  5,963
  7,216
  8,559
  9,988
  11,502
  13,098
  14,776
  16,534
  18,373
  20,291
  22,290
  24,370
  26,534
  28,783
  31,120
  33,549
  36,074
  38,698
  41,426
  44,264
  47,216
  50,291
  53,493
  56,829
Earnings before tax, $m
  -162
  -405
  -1,105
  -1,893
  -2,775
  -3,753
  -4,824
  -5,989
  -7,244
  -8,588
  -10,018
  -11,518
  -13,116
  -14,796
  -16,556
  -18,397
  -20,317
  -22,318
  -24,401
  -26,567
  -28,818
  -31,158
  -33,590
  -36,117
  -38,744
  -41,475
  -44,316
  -47,272
  -50,349
  -53,555
  -56,895
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
  -1,105
  -1,893
  -2,775
  -3,753
  -4,824
  -5,989
  -7,244
  -8,588
  -10,018
  -11,518
  -13,116
  -14,796
  -16,556
  -18,397
  -20,317
  -22,318
  -24,401
  -26,567
  -28,818
  -31,158
  -33,590
  -36,117
  -38,744
  -41,475
  -44,316
  -47,272
  -50,349
  -53,555
  -56,895

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
  19,574
  23,741
  28,409
  33,578
  39,245
  45,402
  52,039
  59,146
  66,711
  74,725
  83,177
  92,061
  101,370
  111,102
  121,257
  131,839
  142,853
  154,308
  166,215
  178,590
  191,449
  204,814
  218,705
  233,149
  248,172
  263,806
  280,081
  297,033
  314,698
  333,116
Adjusted assets (=assets-cash), $m
  15,888
  19,574
  23,741
  28,409
  33,578
  39,245
  45,402
  52,039
  59,146
  66,711
  74,725
  83,177
  92,061
  101,370
  111,102
  121,257
  131,839
  142,853
  154,308
  166,215
  178,590
  191,449
  204,814
  218,705
  233,149
  248,172
  263,806
  280,081
  297,033
  314,698
  333,116
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
  11,665
  14,149
  16,931
  20,011
  23,388
  27,058
  31,013
  35,249
  39,757
  44,533
  49,570
  54,865
  60,412
  66,213
  72,265
  78,571
  85,135
  91,962
  99,058
  106,433
  114,097
  122,061
  130,340
  138,948
  147,901
  157,218
  166,918
  177,020
  187,548
  198,524
Working capital, $m
  360
  -585
  -710
  -849
  -1,004
  -1,173
  -1,357
  -1,555
  -1,768
  -1,994
  -2,233
  -2,486
  -2,751
  -3,030
  -3,320
  -3,624
  -3,940
  -4,269
  -4,612
  -4,968
  -5,337
  -5,722
  -6,121
  -6,536
  -6,968
  -7,417
  -7,884
  -8,370
  -8,877
  -9,405
  -9,956
Total debt, $m
  1,445
  4,001
  6,906
  10,159
  13,762
  17,712
  22,003
  26,629
  31,583
  36,856
  42,441
  48,333
  54,524
  61,013
  67,796
  74,874
  82,250
  89,927
  97,910
  106,210
  114,835
  123,798
  133,113
  142,795
  152,863
  163,334
  174,230
  185,574
  197,390
  209,703
  222,540
Total liabilities, $m
  11,087
  13,643
  16,548
  19,801
  23,404
  27,354
  31,645
  36,271
  41,225
  46,498
  52,083
  57,975
  64,166
  70,655
  77,438
  84,516
  91,892
  99,569
  107,552
  115,852
  124,477
  133,440
  142,755
  152,437
  162,505
  172,976
  183,872
  195,216
  207,032
  219,345
  232,182
Total equity, $m
  5,654
  5,931
  7,194
  8,608
  10,174
  11,891
  13,757
  15,768
  17,921
  20,214
  22,642
  25,203
  27,894
  30,715
  33,664
  36,741
  39,947
  43,284
  46,755
  50,363
  54,113
  58,009
  62,059
  66,268
  70,644
  75,196
  79,933
  84,865
  90,001
  95,354
  100,934
Total liabilities and equity, $m
  16,741
  19,574
  23,742
  28,409
  33,578
  39,245
  45,402
  52,039
  59,146
  66,712
  74,725
  83,178
  92,060
  101,370
  111,102
  121,257
  131,839
  142,853
  154,307
  166,215
  178,590
  191,449
  204,814
  218,705
  233,149
  248,172
  263,805
  280,081
  297,033
  314,699
  333,116
Debt-to-equity ratio
  0.256
  0.670
  0.960
  1.180
  1.350
  1.490
  1.600
  1.690
  1.760
  1.820
  1.870
  1.920
  1.950
  1.990
  2.010
  2.040
  2.060
  2.080
  2.090
  2.110
  2.120
  2.130
  2.140
  2.150
  2.160
  2.170
  2.180
  2.190
  2.190
  2.200
  2.200
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
  -1,105
  -1,893
  -2,775
  -3,753
  -4,824
  -5,989
  -7,244
  -8,588
  -10,018
  -11,518
  -13,116
  -14,796
  -16,556
  -18,397
  -20,317
  -22,318
  -24,401
  -26,567
  -28,818
  -31,158
  -33,590
  -36,117
  -38,744
  -41,475
  -44,316
  -47,272
  -50,349
  -53,555
  -56,895
Depreciation, amort., depletion, $m
  718
  886
  1,071
  1,279
  1,509
  1,761
  2,035
  2,330
  2,646
  2,982
  3,339
  3,699
  4,094
  4,508
  4,941
  5,393
  5,864
  6,353
  6,863
  7,392
  7,943
  8,515
  9,109
  9,727
  10,369
  11,037
  11,733
  12,457
  13,210
  13,996
  14,815
Funds from operations, $m
  -1,228
  481
  -33
  -614
  -1,266
  -1,992
  -2,790
  -3,659
  -4,598
  -5,605
  -6,679
  -7,819
  -9,022
  -10,288
  -11,615
  -13,004
  -14,453
  -15,965
  -17,538
  -19,174
  -20,875
  -22,643
  -24,481
  -26,390
  -28,374
  -30,437
  -32,583
  -34,815
  -37,139
  -39,559
  -42,080
Change in working capital, $m
  -917
  -110
  -125
  -140
  -154
  -169
  -184
  -198
  -212
  -226
  -239
  -253
  -265
  -278
  -291
  -304
  -316
  -329
  -342
  -356
  -370
  -384
  -399
  -415
  -432
  -449
  -467
  -486
  -507
  -528
  -550
Cash from operations, $m
  -311
  591
  91
  -474
  -1,112
  -1,823
  -2,606
  -3,460
  -4,385
  -5,379
  -6,440
  -7,566
  -8,756
  -10,009
  -11,324
  -12,700
  -14,137
  -15,635
  -17,195
  -18,818
  -20,506
  -22,259
  -24,081
  -25,975
  -27,943
  -29,988
  -32,116
  -34,329
  -36,632
  -39,031
  -41,529
Maintenance CAPEX, $m
  0
  -707
  -871
  -1,056
  -1,263
  -1,493
  -1,745
  -2,019
  -2,314
  -2,630
  -2,967
  -3,323
  -3,699
  -4,094
  -4,508
  -4,941
  -5,393
  -5,864
  -6,353
  -6,863
  -7,392
  -7,943
  -8,515
  -9,109
  -9,727
  -10,369
  -11,037
  -11,733
  -12,457
  -13,210
  -13,996
New CAPEX, $m
  -404
  -2,187
  -2,484
  -2,782
  -3,081
  -3,377
  -3,669
  -3,956
  -4,236
  -4,509
  -4,776
  -5,037
  -5,294
  -5,548
  -5,800
  -6,052
  -6,306
  -6,564
  -6,827
  -7,096
  -7,375
  -7,664
  -7,964
  -8,279
  -8,608
  -8,953
  -9,317
  -9,699
  -10,103
  -10,528
  -10,976
Cash from investing activities, $m
  1,077
  -2,894
  -3,355
  -3,838
  -4,344
  -4,870
  -5,414
  -5,975
  -6,550
  -7,139
  -7,743
  -8,360
  -8,993
  -9,642
  -10,308
  -10,993
  -11,699
  -12,428
  -13,180
  -13,959
  -14,767
  -15,607
  -16,479
  -17,388
  -18,335
  -19,322
  -20,354
  -21,432
  -22,560
  -23,738
  -24,972
Free cash flow, $m
  766
  -2,304
  -3,263
  -4,312
  -5,456
  -6,693
  -8,020
  -9,435
  -10,935
  -12,518
  -14,183
  -15,927
  -17,750
  -19,652
  -21,633
  -23,694
  -25,836
  -28,063
  -30,375
  -32,777
  -35,273
  -37,866
  -40,560
  -43,363
  -46,277
  -49,311
  -52,470
  -55,761
  -59,191
  -62,769
  -66,502
Issuance/(repayment) of debt, $m
  -38
  2,577
  2,905
  3,253
  3,603
  3,950
  4,291
  4,626
  4,954
  5,273
  5,585
  5,891
  6,192
  6,488
  6,783
  7,078
  7,375
  7,677
  7,984
  8,300
  8,625
  8,963
  9,315
  9,682
  10,067
  10,471
  10,896
  11,344
  11,815
  12,313
  12,837
Issuance/(repurchase) of shares, $m
  10
  1,514
  2,367
  3,307
  4,342
  5,470
  6,690
  8,000
  9,397
  10,880
  12,446
  14,079
  15,808
  17,617
  19,505
  21,474
  23,523
  25,655
  27,871
  30,174
  32,568
  35,055
  37,639
  40,326
  43,120
  46,027
  49,052
  52,203
  55,486
  58,907
  62,476
Cash from financing (excl. dividends), $m  
  -483
  4,091
  5,272
  6,560
  7,945
  9,420
  10,981
  12,626
  14,351
  16,153
  18,031
  19,970
  22,000
  24,105
  26,288
  28,552
  30,898
  33,332
  35,855
  38,474
  41,193
  44,018
  46,954
  50,008
  53,187
  56,498
  59,948
  63,547
  67,301
  71,220
  75,313
Total cash flow (excl. dividends), $m
  296
  1,787
  2,009
  2,249
  2,488
  2,726
  2,961
  3,191
  3,415
  3,635
  3,849
  4,044
  4,250
  4,453
  4,656
  4,858
  5,062
  5,269
  5,480
  5,697
  5,920
  6,152
  6,393
  6,646
  6,910
  7,187
  7,479
  7,786
  8,110
  8,451
  8,811
Retained Cash Flow (-), $m
  3,788
  -1,514
  -2,367
  -3,307
  -4,342
  -5,470
  -6,690
  -8,000
  -9,397
  -10,880
  -12,446
  -14,079
  -15,808
  -17,617
  -19,505
  -21,474
  -23,523
  -25,655
  -27,871
  -30,174
  -32,568
  -35,055
  -37,639
  -40,326
  -43,120
  -46,027
  -49,052
  -52,203
  -55,486
  -58,907
  -62,476
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
 
  1,105
  -358
  -1,058
  -1,853
  -2,743
  -3,729
  -4,809
  -5,982
  -7,245
  -8,597
  -10,036
  -11,558
  -13,163
  -14,849
  -16,615
  -18,461
  -20,386
  -22,391
  -24,478
  -26,648
  -28,903
  -31,246
  -33,680
  -36,210
  -38,840
  -41,573
  -44,417
  -47,376
  -50,456
  -53,665
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
 
  1,059
  -328
  -921
  -1,526
  -2,126
  -2,706
  -3,249
  -3,739
  -4,162
  -4,507
  -4,766
  -4,932
  -5,005
  -4,985
  -4,878
  -4,691
  -4,436
  -4,124
  -3,769
  -3,386
  -2,989
  -2,593
  -2,207
  -1,844
  -1,511
  -1,213
  -953
  -733
  -551
  -404
Current shareholders' claim on cash, %
  100
  83.2
  66.2
  51.1
  38.6
  28.7
  21.1
  15.4
  11.1
  8.0
  5.7
  4.1
  2.9
  2.1
  1.5
  1.0
  0.7
  0.5
  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

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 -21.9
Price to Sales 0.9
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow -28.2
Price to Free Cash Flow -12.3
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 23.1% 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 183.693 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 $8.8 billion.

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F Ford Motor 12.10 10.65  hold

COMPANY NEWS

▶ 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]
▶ Aluminum Producers Valuation: What It Tells Investors   [Sep-15-17 02:36PM  Market Realist]
▶ Feeling a Little Delphic on the Direction of Alcoa   [Sep-14-17 12:53PM  TheStreet.com]
▶ Alcoa: Higher Aluminum Prices Can Only Mean One Thing   [Sep-12-17 11:08AM  Barrons.com]
▶ Chinas Aluminum Exports Data Could Help Alcoa   [Sep-11-17 09:08AM  Market Realist]
▶ Here's Why Alcoa Gained 20.6% in August   [Sep-08-17 02:21PM  Motley Fool]
▶ Analyzing Alcoas Valuation Conundrum   [Sep-07-17 09:08AM  Market Realist]
▶ Why Aluminum Bears Have Gone into Hibernation   [02:07PM  Market Realist]
▶ 7 things to know about Alcoa's HQ move back to Pittsburgh   [Aug-31-17 08:20AM  American City Business Journals]
▶ 7 things to know about Alcoa's HQ move back to Pittsburgh   [Aug-30-17 12:50PM  American City Business Journals]
▶ Aluminum Rally Will Be Foiled   [07:00AM  Morningstar]
▶ Trade of the Day: Alcoa Corp (AA) Stock Aims Higher   [Aug-28-17 07:23AM  InvestorPlace]
▶ "Fast Money" final trades: WMT, AA and more   [Aug-24-17 05:59PM  CNBC Videos]
▶ How Alumina Prices Affect Century Aluminum   [10:35AM  Market Realist]
▶ Key Indicators Alcoa Investors Should Watch in 3Q17   [Aug-23-17 07:38AM  Market Realist]
▶ 12 factors driving the market-wide rally   [06:40PM  CNBC Videos]
▶ Bulls bet on Newell Brands & Alcoa   [01:38PM  CNBC Videos]
▶ Goldman Sachs Adds Alumina to Conviction List   [Aug-14-17 11:31PM  Barrons.com]
▶ Can Alcoa Stock Keep Riding High?   [07:36AM  Market Realist]
▶ Rio Tintos Aluminum Business Depends on This   [Aug-11-17 07:37AM  Market Realist]
▶ 5 Top Picks To Play The Electric Car Boom   [Aug-10-17 07:30PM  Oilprice.com]
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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