Intrinsic value of Barrick Gold - ABX

Previous Close

$13.65

  Intrinsic Value

$1.41

stock screener

  Rating & Target

str. sell

-90%

Previous close

$13.65

 
Intrinsic value

$1.41

 
Up/down potential

-90%

 
Rating

str. sell

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

We calculate the intrinsic value of ABX 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 15.9

 

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, %
  -5.22
  7.40
  7.16
  6.94
  6.75
  6.57
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
  5.14
  5.13
  5.11
Revenue, $m
  8,558
  9,191
  9,849
  10,533
  11,244
  11,984
  12,753
  13,553
  14,386
  15,254
  16,159
  17,102
  18,086
  19,112
  20,185
  21,305
  22,475
  23,699
  24,979
  26,318
  27,719
  29,186
  30,722
  32,330
  34,016
  35,781
  37,632
  39,572
  41,606
  43,739
  45,975
Variable operating expenses, $m
 
  11,571
  12,390
  13,240
  14,125
  15,044
  16,001
  16,997
  18,033
  19,113
  20,238
  21,274
  22,498
  23,775
  25,109
  26,503
  27,959
  29,481
  31,073
  32,739
  34,482
  36,306
  38,217
  40,218
  42,315
  44,511
  46,814
  49,227
  51,757
  54,410
  57,192
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
  6,134
  11,571
  12,390
  13,240
  14,125
  15,044
  16,001
  16,997
  18,033
  19,113
  20,238
  21,274
  22,498
  23,775
  25,109
  26,503
  27,959
  29,481
  31,073
  32,739
  34,482
  36,306
  38,217
  40,218
  42,315
  44,511
  46,814
  49,227
  51,757
  54,410
  57,192
Operating income, $m
  2,424
  -2,380
  -2,540
  -2,707
  -2,880
  -3,061
  -3,248
  -3,444
  -3,647
  -3,859
  -4,079
  -4,172
  -4,413
  -4,663
  -4,925
  -5,198
  -5,483
  -5,782
  -6,094
  -6,421
  -6,763
  -7,121
  -7,495
  -7,888
  -8,299
  -8,730
  -9,181
  -9,655
  -10,151
  -10,671
  -11,217
EBITDA, $m
  3,998
  -696
  -746
  -798
  -852
  -908
  -966
  -1,027
  -1,090
  -1,156
  -1,224
  -1,296
  -1,370
  -1,448
  -1,529
  -1,614
  -1,703
  -1,795
  -1,892
  -1,994
  -2,100
  -2,211
  -2,328
  -2,449
  -2,577
  -2,711
  -2,851
  -2,998
  -3,152
  -3,314
  -3,483
Interest expense (income), $m
  513
  444
  516
  592
  670
  751
  836
  924
  1,016
  1,111
  1,210
  1,314
  1,422
  1,534
  1,652
  1,775
  1,903
  2,037
  2,177
  2,323
  2,477
  2,637
  2,805
  2,981
  3,165
  3,358
  3,560
  3,772
  3,994
  4,226
  4,471
Earnings before tax, $m
  1,778
  -2,824
  -3,056
  -3,299
  -3,550
  -3,812
  -4,084
  -4,368
  -4,663
  -4,970
  -5,290
  -5,486
  -5,834
  -6,197
  -6,577
  -6,973
  -7,386
  -7,819
  -8,271
  -8,744
  -9,239
  -9,758
  -10,300
  -10,869
  -11,464
  -12,088
  -12,741
  -13,426
  -14,145
  -14,898
  -15,687
Tax expense, $m
  917
  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
  655
  -2,824
  -3,056
  -3,299
  -3,550
  -3,812
  -4,084
  -4,368
  -4,663
  -4,970
  -5,290
  -5,486
  -5,834
  -6,197
  -6,577
  -6,973
  -7,386
  -7,819
  -8,271
  -8,744
  -9,239
  -9,758
  -10,300
  -10,869
  -11,464
  -12,088
  -12,741
  -13,426
  -14,145
  -14,898
  -15,687

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,389
  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
  25,264
  24,576
  26,335
  28,164
  30,065
  32,042
  34,098
  36,238
  38,465
  40,786
  43,205
  45,726
  48,357
  51,103
  53,970
  56,964
  60,094
  63,366
  66,788
  70,368
  74,115
  78,037
  82,143
  86,445
  90,951
  95,672
  100,621
  105,808
  111,246
  116,948
  122,928
Adjusted assets (=assets-cash), $m
  22,875
  24,576
  26,335
  28,164
  30,065
  32,042
  34,098
  36,238
  38,465
  40,786
  43,205
  45,726
  48,357
  51,103
  53,970
  56,964
  60,094
  63,366
  66,788
  70,368
  74,115
  78,037
  82,143
  86,445
  90,951
  95,672
  100,621
  105,808
  111,246
  116,948
  122,928
Revenue / Adjusted assets
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
  0.374
Average production assets, $m
  14,540
  15,616
  16,734
  17,896
  19,104
  20,360
  21,667
  23,026
  24,442
  25,917
  27,453
  29,056
  30,727
  32,472
  34,294
  36,197
  38,185
  40,264
  42,439
  44,714
  47,094
  49,586
  52,196
  54,929
  57,792
  60,793
  63,937
  67,233
  70,689
  74,312
  78,111
Working capital, $m
  3,055
  873
  936
  1,001
  1,068
  1,138
  1,211
  1,288
  1,367
  1,449
  1,535
  1,625
  1,718
  1,816
  1,918
  2,024
  2,135
  2,251
  2,373
  2,500
  2,633
  2,773
  2,919
  3,071
  3,231
  3,399
  3,575
  3,759
  3,953
  4,155
  4,368
Total debt, $m
  7,931
  9,058
  10,380
  11,753
  13,181
  14,665
  16,209
  17,816
  19,490
  21,232
  23,049
  24,943
  26,918
  28,980
  31,133
  33,382
  35,733
  38,190
  40,760
  43,448
  46,262
  49,207
  52,292
  55,522
  58,906
  62,452
  66,168
  70,064
  74,148
  78,430
  82,921
Total liabilities, $m
  17,329
  18,456
  19,778
  21,151
  22,579
  24,063
  25,607
  27,214
  28,888
  30,630
  32,447
  34,341
  36,316
  38,378
  40,531
  42,780
  45,131
  47,588
  50,158
  52,846
  55,660
  58,605
  61,690
  64,920
  68,304
  71,850
  75,566
  79,462
  83,546
  87,828
  92,319
Total equity, $m
  7,935
  6,119
  6,557
  7,013
  7,486
  7,978
  8,490
  9,023
  9,578
  10,156
  10,758
  11,386
  12,041
  12,725
  13,438
  14,184
  14,963
  15,778
  16,630
  17,522
  18,455
  19,431
  20,454
  21,525
  22,647
  23,822
  25,055
  26,346
  27,700
  29,120
  30,609
Total liabilities and equity, $m
  25,264
  24,575
  26,335
  28,164
  30,065
  32,041
  34,097
  36,237
  38,466
  40,786
  43,205
  45,727
  48,357
  51,103
  53,969
  56,964
  60,094
  63,366
  66,788
  70,368
  74,115
  78,036
  82,144
  86,445
  90,951
  95,672
  100,621
  105,808
  111,246
  116,948
  122,928
Debt-to-equity ratio
  0.999
  1.480
  1.580
  1.680
  1.760
  1.840
  1.910
  1.970
  2.030
  2.090
  2.140
  2.190
  2.240
  2.280
  2.320
  2.350
  2.390
  2.420
  2.450
  2.480
  2.510
  2.530
  2.560
  2.580
  2.600
  2.620
  2.640
  2.660
  2.680
  2.690
  2.710
Adjusted equity ratio
  0.242
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  655
  -2,824
  -3,056
  -3,299
  -3,550
  -3,812
  -4,084
  -4,368
  -4,663
  -4,970
  -5,290
  -5,486
  -5,834
  -6,197
  -6,577
  -6,973
  -7,386
  -7,819
  -8,271
  -8,744
  -9,239
  -9,758
  -10,300
  -10,869
  -11,464
  -12,088
  -12,741
  -13,426
  -14,145
  -14,898
  -15,687
Depreciation, amort., depletion, $m
  1,574
  1,683
  1,794
  1,909
  2,029
  2,153
  2,282
  2,417
  2,557
  2,703
  2,855
  2,877
  3,042
  3,215
  3,395
  3,584
  3,781
  3,987
  4,202
  4,427
  4,663
  4,910
  5,168
  5,439
  5,722
  6,019
  6,330
  6,657
  6,999
  7,358
  7,734
Funds from operations, $m
  901
  -1,140
  -1,263
  -1,390
  -1,522
  -1,659
  -1,802
  -1,951
  -2,105
  -2,267
  -2,434
  -2,609
  -2,792
  -2,982
  -3,181
  -3,389
  -3,606
  -3,832
  -4,069
  -4,317
  -4,577
  -4,848
  -5,132
  -5,430
  -5,742
  -6,069
  -6,411
  -6,770
  -7,146
  -7,540
  -7,954
Change in working capital, $m
  -1,739
  60
  63
  65
  68
  70
  73
  76
  79
  82
  86
  90
  93
  98
  102
  106
  111
  116
  122
  127
  133
  139
  146
  153
  160
  168
  176
  184
  193
  203
  212
Cash from operations, $m
  2,640
  -1,200
  -1,325
  -1,455
  -1,589
  -1,729
  -1,875
  -2,027
  -2,185
  -2,349
  -2,520
  -2,699
  -2,885
  -3,080
  -3,283
  -3,495
  -3,717
  -3,948
  -4,191
  -4,444
  -4,710
  -4,987
  -5,278
  -5,583
  -5,902
  -6,236
  -6,587
  -6,954
  -7,339
  -7,743
  -8,166
Maintenance CAPEX, $m
  0
  -1,440
  -1,546
  -1,657
  -1,772
  -1,891
  -2,016
  -2,145
  -2,280
  -2,420
  -2,566
  -2,718
  -2,877
  -3,042
  -3,215
  -3,395
  -3,584
  -3,781
  -3,987
  -4,202
  -4,427
  -4,663
  -4,910
  -5,168
  -5,439
  -5,722
  -6,019
  -6,330
  -6,657
  -6,999
  -7,358
New CAPEX, $m
  -1,126
  -1,076
  -1,118
  -1,162
  -1,208
  -1,256
  -1,307
  -1,360
  -1,416
  -1,475
  -1,537
  -1,602
  -1,672
  -1,745
  -1,822
  -1,903
  -1,989
  -2,079
  -2,174
  -2,275
  -2,381
  -2,492
  -2,610
  -2,733
  -2,863
  -3,000
  -3,144
  -3,296
  -3,455
  -3,623
  -3,800
Cash from investing activities, $m
  -412
  -2,516
  -2,664
  -2,819
  -2,980
  -3,147
  -3,323
  -3,505
  -3,696
  -3,895
  -4,103
  -4,320
  -4,549
  -4,787
  -5,037
  -5,298
  -5,573
  -5,860
  -6,161
  -6,477
  -6,808
  -7,155
  -7,520
  -7,901
  -8,302
  -8,722
  -9,163
  -9,626
  -10,112
  -10,622
  -11,158
Free cash flow, $m
  2,228
  -3,716
  -3,989
  -4,274
  -4,569
  -4,877
  -5,198
  -5,532
  -5,880
  -6,244
  -6,623
  -7,020
  -7,434
  -7,867
  -8,320
  -8,793
  -9,289
  -9,808
  -10,352
  -10,921
  -11,517
  -12,142
  -12,797
  -13,484
  -14,204
  -14,959
  -15,750
  -16,580
  -17,451
  -18,365
  -19,323
Issuance/(repayment) of debt, $m
  -2,057
  1,270
  1,321
  1,373
  1,428
  1,484
  1,544
  1,607
  1,673
  1,743
  1,816
  1,894
  1,976
  2,062
  2,153
  2,249
  2,350
  2,457
  2,570
  2,689
  2,814
  2,945
  3,084
  3,230
  3,384
  3,546
  3,716
  3,895
  4,084
  4,282
  4,491
Issuance/(repurchase) of shares, $m
  0
  3,254
  3,495
  3,754
  4,024
  4,304
  4,596
  4,900
  5,217
  5,548
  5,892
  6,114
  6,489
  6,881
  7,290
  7,718
  8,166
  8,634
  9,123
  9,636
  10,172
  10,734
  11,323
  11,940
  12,586
  13,263
  13,973
  14,718
  15,499
  16,318
  17,176
Cash from financing (excl. dividends), $m  
  -2,211
  4,524
  4,816
  5,127
  5,452
  5,788
  6,140
  6,507
  6,890
  7,291
  7,708
  8,008
  8,465
  8,943
  9,443
  9,967
  10,516
  11,091
  11,693
  12,325
  12,986
  13,679
  14,407
  15,170
  15,970
  16,809
  17,689
  18,613
  19,583
  20,600
  21,667
Total cash flow (excl. dividends), $m
  20
  808
  827
  854
  882
  912
  943
  976
  1,010
  1,047
  1,085
  988
  1,031
  1,076
  1,124
  1,174
  1,227
  1,282
  1,341
  1,403
  1,468
  1,537
  1,610
  1,686
  1,766
  1,851
  1,940
  2,033
  2,131
  2,235
  2,344
Retained Cash Flow (-), $m
  -757
  -3,254
  -3,495
  -3,754
  -4,024
  -4,304
  -4,596
  -4,900
  -5,217
  -5,548
  -5,892
  -6,114
  -6,489
  -6,881
  -7,290
  -7,718
  -8,166
  -8,634
  -9,123
  -9,636
  -10,172
  -10,734
  -11,323
  -11,940
  -12,586
  -13,263
  -13,973
  -14,718
  -15,499
  -16,318
  -17,176
Prev. year cash balance distribution, $m
 
  2,246
  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
 
  -200
  -2,668
  -2,900
  -3,142
  -3,392
  -3,653
  -3,925
  -4,207
  -4,501
  -4,807
  -5,126
  -5,458
  -5,805
  -6,167
  -6,544
  -6,939
  -7,351
  -7,782
  -8,232
  -8,704
  -9,197
  -9,713
  -10,254
  -10,820
  -11,413
  -12,034
  -12,685
  -13,367
  -14,083
  -14,833
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
 
  -191
  -2,442
  -2,524
  -2,587
  -2,630
  -2,651
  -2,651
  -2,629
  -2,585
  -2,520
  -2,434
  -2,329
  -2,207
  -2,070
  -1,921
  -1,763
  -1,599
  -1,433
  -1,268
  -1,106
  -951
  -806
  -672
  -551
  -444
  -351
  -272
  -207
  -154
  -112
Current shareholders' claim on cash, %
  100
  77.8
  60.6
  47.1
  36.6
  28.5
  22.1
  17.2
  13.3
  10.3
  8.0
  6.2
  4.9
  3.8
  2.9
  2.3
  1.8
  1.4
  1.1
  0.8
  0.6
  0.5
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0

Barrick Gold Corporation (Barrick) is a gold mining company. The Company is principally engaged in the production and sale of gold and copper, as well as related activities, such as exploration and mine development. The Company's segments include Goldstrike, Cortez, Pueblo Viejo, Lagunas Norte, Veladero, Turquoise Ridge, Acacia Mining plc (Acacia), Pascua-Lama and Other Mines. Goldstrike, Cortez, Pueblo Viejo, Lagunas Norte, Veladero and Turquoise Ridge are its individual gold mines. The Company, through its subsidiary, Acacia, owns gold mines and exploration properties in Africa. It also holds interest in gold mines, including Porgera and Kalgoorlie, and copper mines, such as Zaldivar and Lumwana. The Pascua-Lama project is located on the border between Chile and Argentina. The Company has nine producing gold mines, which are located in Canada, the United States, Peru, Argentina, Australia and the Dominican Republic.

FINANCIAL RATIOS  of  Barrick Gold (ABX)

Valuation Ratios
P/E Ratio 24.3
Price to Sales 1.9
Price to Book 2
Price to Tangible Book
Price to Cash Flow 6
Price to Free Cash Flow 10.5
Growth Rates
Sales Growth Rate -5.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -34.3%
Cap. Spend. - 3 Yr. Gr. Rate -27.2%
Financial Strength
Quick Ratio 17
Current Ratio 0
LT Debt to Equity 98.1%
Total Debt to Equity 99.9%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. -3.2%
Return On Total Capital 4%
Ret/ On T. Cap. - 3 Yr. Avg. -7.2%
Return On Equity 8.7%
Return On Equity - 3 Yr. Avg. -16.1%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 40.7%
Gross Margin - 3 Yr. Avg. 34.8%
EBITDA Margin 45.2%
EBITDA Margin - 3 Yr. Avg. 11.5%
Operating Margin 28.3%
Oper. Margin - 3 Yr. Avg. -5.3%
Pre-Tax Margin 20.8%
Pre-Tax Margin - 3 Yr. Avg. -13.3%
Net Profit Margin 7.7%
Net Profit Margin - 3 Yr. Avg. -17.4%
Effective Tax Rate 51.6%
Eff/ Tax Rate - 3 Yr. Avg. 13.7%
Payout Ratio 13.1%

ABX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ABX stock intrinsic value calculation we used $8558 million for the last fiscal year's total revenue generated by Barrick Gold. The default revenue input number comes from 2016 income statement of Barrick Gold. 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 ABX stock valuation model: a) initial revenue growth rate of 7.4% 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 ABX is calculated based on our internal credit rating of Barrick Gold, 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 Barrick Gold.
    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 ABX stock the variable cost ratio is equal to 126%.

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 ABX 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 5.7% for Barrick Gold.

Corporate tax rate of 27% is the nominal tax rate for Barrick Gold. 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 ABX 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 ABX are equal to 169.9%.

Life of production assets of 10.1 years is the average useful life of capital assets used in Barrick Gold 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 ABX is equal to 9.5%. 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 - $7935 million for Barrick Gold - 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 1165.31 million for Barrick Gold 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 Barrick Gold at the current share price and the inputted number of shares is $15.9 billion.

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Financial statements of ABX
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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