Intrinsic value of American Electric Power Company, Inc. - AEP

Previous Close

$90.23

  Intrinsic Value

$18.36

stock screener

  Rating & Target

str. sell

-80%

Previous close

$90.23

 
Intrinsic value

$18.36

 
Up/down potential

-80%

 
Rating

str. sell

We calculate the intrinsic value of AEP 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 0001), $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 44.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  16,520
  16,900
  17,334
  17,822
  18,362
  18,955
  19,600
  20,299
  21,052
  21,860
  22,724
  23,647
  24,629
  25,672
  26,780
  27,953
  29,195
  30,509
  31,897
  33,363
  34,909
  36,540
  38,259
  40,071
  41,978
  43,987
  46,101
  48,325
  50,666
  53,127
Variable operating expenses, $m
  12,737
  13,030
  13,364
  13,740
  14,156
  14,613
  15,111
  15,649
  16,230
  16,852
  17,513
  18,224
  18,981
  19,785
  20,638
  21,543
  22,500
  23,513
  24,582
  25,712
  26,904
  28,161
  29,485
  30,881
  32,351
  33,899
  35,529
  37,243
  39,047
  40,944
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
  12,737
  13,030
  13,364
  13,740
  14,156
  14,613
  15,111
  15,649
  16,230
  16,852
  17,513
  18,224
  18,981
  19,785
  20,638
  21,543
  22,500
  23,513
  24,582
  25,712
  26,904
  28,161
  29,485
  30,881
  32,351
  33,899
  35,529
  37,243
  39,047
  40,944
Operating income, $m
  3,783
  3,870
  3,970
  4,082
  4,206
  4,342
  4,490
  4,650
  4,823
  5,008
  5,211
  5,423
  5,648
  5,887
  6,141
  6,410
  6,695
  6,997
  7,315
  7,651
  8,006
  8,380
  8,774
  9,189
  9,627
  10,087
  10,572
  11,082
  11,619
  12,184
EBITDA, $m
  6,116
  6,256
  6,417
  6,598
  6,798
  7,017
  7,256
  7,515
  7,793
  8,092
  8,412
  8,754
  9,117
  9,504
  9,914
  10,348
  10,808
  11,294
  11,808
  12,351
  12,923
  13,527
  14,163
  14,834
  15,540
  16,284
  17,066
  17,890
  18,756
  19,667
Interest expense (income), $m
  849
  1,364
  1,421
  1,484
  1,556
  1,637
  1,727
  1,825
  1,932
  2,048
  2,174
  2,308
  2,451
  2,605
  2,768
  2,941
  3,125
  3,320
  3,526
  3,745
  3,975
  4,219
  4,476
  4,747
  5,032
  5,333
  5,650
  5,984
  6,335
  6,705
  7,093
Earnings before tax, $m
  2,419
  2,450
  2,486
  2,526
  2,569
  2,615
  2,664
  2,717
  2,774
  2,834
  2,904
  2,971
  3,043
  3,120
  3,200
  3,285
  3,375
  3,470
  3,570
  3,676
  3,787
  3,904
  4,027
  4,157
  4,294
  4,437
  4,588
  4,747
  4,914
  5,090
Tax expense, $m
  653
  661
  671
  682
  694
  706
  719
  734
  749
  765
  784
  802
  822
  842
  864
  887
  911
  937
  964
  992
  1,022
  1,054
  1,087
  1,122
  1,159
  1,198
  1,239
  1,282
  1,327
  1,374
Net income, $m
  1,766
  1,788
  1,815
  1,844
  1,875
  1,909
  1,945
  1,984
  2,025
  2,069
  2,120
  2,169
  2,222
  2,277
  2,336
  2,398
  2,464
  2,533
  2,606
  2,683
  2,764
  2,850
  2,940
  3,035
  3,134
  3,239
  3,349
  3,466
  3,588
  3,716

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  70,298
  71,914
  73,763
  75,838
  78,137
  80,659
  83,406
  86,380
  89,583
  93,021
  96,699
  100,624
  104,803
  109,244
  113,956
  118,950
  124,236
  129,826
  135,733
  141,970
  148,550
  155,490
  162,805
  170,513
  178,630
  187,177
  196,173
  205,640
  215,599
  226,074
Adjusted assets (=assets-cash), $m
  70,298
  71,914
  73,763
  75,838
  78,137
  80,659
  83,406
  86,380
  89,583
  93,021
  96,699
  100,624
  104,803
  109,244
  113,956
  118,950
  124,236
  129,826
  135,733
  141,970
  148,550
  155,490
  162,805
  170,513
  178,630
  187,177
  196,173
  205,640
  215,599
  226,074
Revenue / Adjusted assets
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
Average production assets, $m
  53,756
  54,992
  56,406
  57,992
  59,750
  61,679
  63,780
  66,054
  68,503
  71,132
  73,945
  76,946
  80,141
  83,537
  87,141
  90,960
  95,002
  99,277
  103,794
  108,563
  113,595
  118,902
  124,496
  130,389
  136,597
  143,133
  150,012
  157,251
  164,866
  172,877
Working capital, $m
  -1,404
  -1,436
  -1,473
  -1,515
  -1,561
  -1,611
  -1,666
  -1,725
  -1,789
  -1,858
  -1,932
  -2,010
  -2,093
  -2,182
  -2,276
  -2,376
  -2,482
  -2,593
  -2,711
  -2,836
  -2,967
  -3,106
  -3,252
  -3,406
  -3,568
  -3,739
  -3,919
  -4,108
  -4,307
  -4,516
Total debt, $m
  26,307
  27,476
  28,813
  30,313
  31,975
  33,799
  35,785
  37,935
  40,251
  42,737
  45,396
  48,233
  51,255
  54,465
  57,872
  61,483
  65,305
  69,347
  73,617
  78,126
  82,884
  87,902
  93,191
  98,763
  104,632
  110,811
  117,316
  124,160
  131,360
  138,934
Total liabilities, $m
  50,825
  51,994
  53,330
  54,831
  56,493
  58,317
  60,303
  62,453
  64,769
  67,254
  69,914
  72,751
  75,772
  78,983
  82,390
  86,001
  89,823
  93,864
  98,135
  102,644
  107,402
  112,419
  117,708
  123,281
  129,150
  135,329
  141,833
  148,678
  155,878
  163,452
Total equity, $m
  19,472
  19,920
  20,432
  21,007
  21,644
  22,343
  23,104
  23,927
  24,815
  25,767
  26,786
  27,873
  29,030
  30,260
  31,566
  32,949
  34,413
  35,962
  37,598
  39,326
  41,148
  43,071
  45,097
  47,232
  49,481
  51,848
  54,340
  56,962
  59,721
  62,623
Total liabilities and equity, $m
  70,297
  71,914
  73,762
  75,838
  78,137
  80,660
  83,407
  86,380
  89,584
  93,021
  96,700
  100,624
  104,802
  109,243
  113,956
  118,950
  124,236
  129,826
  135,733
  141,970
  148,550
  155,490
  162,805
  170,513
  178,631
  187,177
  196,173
  205,640
  215,599
  226,075
Debt-to-equity ratio
  1.350
  1.380
  1.410
  1.440
  1.480
  1.510
  1.550
  1.590
  1.620
  1.660
  1.690
  1.730
  1.770
  1.800
  1.830
  1.870
  1.900
  1.930
  1.960
  1.990
  2.010
  2.040
  2.070
  2.090
  2.110
  2.140
  2.160
  2.180
  2.200
  2.220
Adjusted equity ratio
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,766
  1,788
  1,815
  1,844
  1,875
  1,909
  1,945
  1,984
  2,025
  2,069
  2,120
  2,169
  2,222
  2,277
  2,336
  2,398
  2,464
  2,533
  2,606
  2,683
  2,764
  2,850
  2,940
  3,035
  3,134
  3,239
  3,349
  3,466
  3,588
  3,716
Depreciation, amort., depletion, $m
  2,332
  2,386
  2,447
  2,516
  2,592
  2,675
  2,766
  2,865
  2,971
  3,085
  3,201
  3,331
  3,469
  3,616
  3,772
  3,938
  4,113
  4,298
  4,493
  4,700
  4,918
  5,147
  5,389
  5,645
  5,913
  6,196
  6,494
  6,807
  7,137
  7,484
Funds from operations, $m
  4,098
  4,174
  4,262
  4,360
  4,467
  4,584
  4,711
  4,849
  4,996
  5,154
  5,321
  5,500
  5,691
  5,894
  6,108
  6,336
  6,577
  6,831
  7,099
  7,383
  7,682
  7,997
  8,329
  8,679
  9,048
  9,435
  9,843
  10,273
  10,725
  11,200
Change in working capital, $m
  -28
  -32
  -37
  -41
  -46
  -50
  -55
  -59
  -64
  -69
  -73
  -78
  -83
  -89
  -94
  -100
  -106
  -112
  -118
  -125
  -131
  -139
  -146
  -154
  -162
  -171
  -180
  -189
  -199
  -209
Cash from operations, $m
  4,126
  4,206
  4,299
  4,401
  4,513
  4,635
  4,766
  4,908
  5,060
  5,222
  5,394
  5,579
  5,774
  5,982
  6,203
  6,436
  6,682
  6,943
  7,217
  7,508
  7,813
  8,136
  8,475
  8,833
  9,210
  9,606
  10,023
  10,462
  10,924
  11,409
Maintenance CAPEX, $m
  -2,282
  -2,327
  -2,381
  -2,442
  -2,510
  -2,587
  -2,670
  -2,761
  -2,859
  -2,966
  -3,079
  -3,201
  -3,331
  -3,469
  -3,616
  -3,772
  -3,938
  -4,113
  -4,298
  -4,493
  -4,700
  -4,918
  -5,147
  -5,389
  -5,645
  -5,913
  -6,196
  -6,494
  -6,807
  -7,137
New CAPEX, $m
  -1,049
  -1,236
  -1,413
  -1,587
  -1,758
  -1,929
  -2,101
  -2,274
  -2,450
  -2,629
  -2,813
  -3,001
  -3,195
  -3,396
  -3,604
  -3,819
  -4,042
  -4,275
  -4,517
  -4,769
  -5,032
  -5,307
  -5,594
  -5,894
  -6,207
  -6,536
  -6,879
  -7,239
  -7,616
  -8,010
Cash from investing activities, $m
  -3,331
  -3,563
  -3,794
  -4,029
  -4,268
  -4,516
  -4,771
  -5,035
  -5,309
  -5,595
  -5,892
  -6,202
  -6,526
  -6,865
  -7,220
  -7,591
  -7,980
  -8,388
  -8,815
  -9,262
  -9,732
  -10,225
  -10,741
  -11,283
  -11,852
  -12,449
  -13,075
  -13,733
  -14,423
  -15,147
Free cash flow, $m
  795
  643
  505
  373
  244
  119
  -4
  -127
  -249
  -372
  -498
  -624
  -752
  -883
  -1,017
  -1,155
  -1,298
  -1,445
  -1,597
  -1,755
  -1,918
  -2,089
  -2,266
  -2,450
  -2,642
  -2,843
  -3,052
  -3,271
  -3,500
  -3,739
Issuance/(repayment) of debt, $m
  1,051
  1,169
  1,336
  1,500
  1,662
  1,824
  1,986
  2,150
  2,316
  2,486
  2,659
  2,837
  3,021
  3,211
  3,407
  3,611
  3,822
  4,042
  4,271
  4,509
  4,758
  5,018
  5,289
  5,572
  5,869
  6,179
  6,504
  6,844
  7,200
  7,574
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  1,051
  1,169
  1,336
  1,500
  1,662
  1,824
  1,986
  2,150
  2,316
  2,486
  2,659
  2,837
  3,021
  3,211
  3,407
  3,611
  3,822
  4,042
  4,271
  4,509
  4,758
  5,018
  5,289
  5,572
  5,869
  6,179
  6,504
  6,844
  7,200
  7,574
Total cash flow (excl. dividends), $m
  1,846
  1,812
  1,841
  1,873
  1,907
  1,943
  1,982
  2,023
  2,067
  2,113
  2,161
  2,214
  2,269
  2,328
  2,390
  2,455
  2,524
  2,597
  2,674
  2,754
  2,839
  2,929
  3,023
  3,122
  3,227
  3,336
  3,452
  3,573
  3,701
  3,835
Retained Cash Flow (-), $m
  -444
  -448
  -512
  -575
  -637
  -699
  -761
  -824
  -887
  -952
  -1,019
  -1,087
  -1,157
  -1,230
  -1,305
  -1,383
  -1,464
  -1,548
  -1,636
  -1,728
  -1,823
  -1,922
  -2,026
  -2,135
  -2,249
  -2,367
  -2,492
  -2,622
  -2,759
  -2,902
Prev. year cash balance distribution, $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 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
  1,402
  1,364
  1,329
  1,298
  1,270
  1,244
  1,221
  1,199
  1,179
  1,161
  1,143
  1,127
  1,112
  1,098
  1,084
  1,072
  1,060
  1,048
  1,037
  1,027
  1,016
  1,007
  997
  987
  978
  969
  960
  951
  942
  933
Discount rate, %
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.85
  11.40
  11.97
  12.57
  13.19
  13.85
  14.55
  15.27
  16.04
  16.84
  17.68
  18.57
  19.49
  20.47
  21.49
  22.57
  23.69
  24.88
  26.12
  27.43
  28.80
  30.24
  31.75
  33.34
PV of cash for distribution, $m
  1,297
  1,159
  1,028
  907
  794
  689
  593
  506
  426
  355
  292
  237
  190
  150
  116
  89
  67
  49
  35
  25
  17
  11
  7
  5
  3
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

American Electric Power Company, Inc. (AEP) is a public utility holding company that owns, directly or indirectly, all of the outstanding common stock of its public utility subsidiaries and varying percentages of other subsidiaries. The service areas of the Company's public utility subsidiaries cover the states of Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia. The Company's segments include Vertically Integrated Utilities, Transmission and Distribution Utilities, AEP Transmission Holdco, and Generation & Marketing. AEP's vertically integrated utility operations are engaged in the generation, transmission and distribution of electricity for sale to retail and wholesale customers. Transmission and Distribution Utilities segment consists of the transmission and distribution of electricity for sale to retail and wholesale customers. AEP Transmission Holdco develops, constructs and operates transmission facilities.

FINANCIAL RATIOS  of  American Electric Power Company, Inc. (AEP)

Valuation Ratios
P/E Ratio 72.6
Price to Sales 2.7
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 9.8
Price to Free Cash Flow -113.5
Growth Rates
Sales Growth Rate -0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 6.7%
Cap. Spend. - 3 Yr. Gr. Rate 5.4%
Financial Strength
Quick Ratio 0
Current Ratio 0.2
LT Debt to Equity 99.9%
Total Debt to Equity 126.3%
Interest Coverage 2
Management Effectiveness
Return On Assets 2.5%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 1.6%
Ret/ On T. Cap. - 3 Yr. Avg. 3.9%
Return On Equity 3.5%
Return On Equity - 3 Yr. Avg. 8.4%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 20.1%
EBITDA Margin - 3 Yr. Avg. 28.3%
Operating Margin 7.4%
Oper. Margin - 3 Yr. Avg. 15.6%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. 11.2%
Net Profit Margin 3.7%
Net Profit Margin - 3 Yr. Avg. 8.7%
Effective Tax Rate -15.3%
Eff/ Tax Rate - 3 Yr. Avg. 19.1%
Payout Ratio 183.5%

AEP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AEP stock intrinsic value calculation we used $16196 million for the last fiscal year's total revenue generated by American Electric Power Company, Inc.. The default revenue input number comes from 0001 income statement of American Electric Power Company, Inc.. 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 AEP stock valuation model: a) initial revenue growth rate of 2% 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 8.1%, whose default value for AEP is calculated based on our internal credit rating of American Electric Power Company, Inc., 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 American Electric Power Company, Inc..
    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 AEP stock the variable cost ratio is equal to 77.1%.

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 AEP 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 5.4% for American Electric Power Company, Inc..

Corporate tax rate of 27% is the nominal tax rate for American Electric Power Company, Inc.. 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 AEP 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 AEP are equal to 325.4%.

Life of production assets of 23.1 years is the average useful life of capital assets used in American Electric Power Company, Inc. 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 AEP is equal to -8.5%. 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 - $19028.4 million for American Electric Power Company, Inc. - 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 493.259 million for American Electric Power Company, Inc. 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 American Electric Power Company, Inc. at the current share price and the inputted number of shares is $44.5 billion.

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