Intrinsic value of Alaska Air Group - ALK

Previous Close

$65.00

  Intrinsic Value

$542.76

stock screener

  Rating & Target

str. buy

+735%

Previous close

$65.00

 
Intrinsic value

$542.76

 
Up/down potential

+735%

 
Rating

str. buy

We calculate the intrinsic value of ALK 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 2017), $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 8.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  33.80
  30.92
  28.33
  26.00
  23.90
  22.01
  20.31
  18.77
  17.40
  16.16
  15.04
  14.04
  13.13
  12.32
  11.59
  10.93
  10.34
  9.80
  9.32
  8.89
  8.50
  8.15
  7.84
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
Revenue, $m
  10,614
  13,896
  17,833
  22,469
  27,838
  33,964
  40,860
  48,531
  56,975
  66,180
  76,135
  86,823
  98,226
  110,328
  123,114
  136,570
  150,686
  165,458
  180,883
  196,965
  213,710
  231,130
  249,241
  268,065
  287,627
  307,955
  329,083
  351,048
  373,892
  397,659
Variable operating expenses, $m
  8,124
  10,572
  13,508
  16,965
  20,970
  25,539
  30,682
  36,404
  42,701
  49,567
  56,784
  64,755
  73,260
  82,286
  91,822
  101,858
  112,387
  123,404
  134,908
  146,902
  159,391
  172,384
  185,892
  199,931
  214,521
  229,682
  245,440
  261,823
  278,860
  296,586
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
  8,124
  10,572
  13,508
  16,965
  20,970
  25,539
  30,682
  36,404
  42,701
  49,567
  56,784
  64,755
  73,260
  82,286
  91,822
  101,858
  112,387
  123,404
  134,908
  146,902
  159,391
  172,384
  185,892
  199,931
  214,521
  229,682
  245,440
  261,823
  278,860
  296,586
Operating income, $m
  2,490
  3,324
  4,325
  5,503
  6,868
  8,425
  10,178
  12,128
  14,274
  16,613
  19,351
  22,068
  24,966
  28,042
  31,292
  34,712
  38,300
  42,054
  45,975
  50,062
  54,318
  58,746
  63,349
  68,134
  73,106
  78,273
  83,643
  89,226
  95,032
  101,073
EBITDA, $m
  3,775
  4,942
  6,343
  7,991
  9,901
  12,080
  14,533
  17,261
  20,264
  23,538
  27,079
  30,880
  34,936
  39,240
  43,788
  48,574
  53,595
  58,848
  64,335
  70,054
  76,010
  82,206
  88,647
  95,343
  102,300
  109,530
  117,045
  124,857
  132,982
  141,435
Interest expense (income), $m
  24
  139
  267
  424
  612
  833
  1,090
  1,383
  1,712
  2,079
  2,482
  2,922
  3,398
  3,909
  4,454
  5,032
  5,643
  6,286
  6,961
  7,667
  8,404
  9,172
  9,973
  10,805
  11,671
  12,570
  13,505
  14,477
  15,486
  16,536
  17,628
Earnings before tax, $m
  2,352
  3,057
  3,901
  4,891
  6,034
  7,335
  8,795
  10,415
  12,195
  14,131
  16,429
  18,670
  21,057
  23,588
  26,260
  29,069
  32,014
  35,094
  38,308
  41,658
  45,146
  48,773
  52,544
  56,463
  60,536
  64,768
  69,166
  73,739
  78,496
  83,445
Tax expense, $m
  635
  826
  1,053
  1,321
  1,629
  1,980
  2,375
  2,812
  3,293
  3,815
  4,436
  5,041
  5,685
  6,369
  7,090
  7,849
  8,644
  9,475
  10,343
  11,248
  12,189
  13,169
  14,187
  15,245
  16,345
  17,487
  18,675
  19,910
  21,194
  22,530
Net income, $m
  1,717
  2,232
  2,848
  3,571
  4,405
  5,354
  6,420
  7,603
  8,902
  10,316
  11,993
  13,629
  15,372
  17,219
  19,169
  21,220
  23,370
  25,618
  27,965
  30,411
  32,957
  35,605
  38,357
  41,218
  44,191
  47,280
  50,491
  53,830
  57,302
  60,915

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
  14,363
  18,804
  24,131
  30,404
  37,669
  45,959
  55,291
  65,672
  77,097
  89,554
  103,025
  117,487
  132,918
  149,294
  166,595
  184,803
  203,906
  223,895
  244,768
  266,529
  289,188
  312,760
  337,268
  362,741
  389,211
  416,718
  445,309
  475,032
  505,943
  538,104
Adjusted assets (=assets-cash), $m
  14,363
  18,804
  24,131
  30,404
  37,669
  45,959
  55,291
  65,672
  77,097
  89,554
  103,025
  117,487
  132,918
  149,294
  166,595
  184,803
  203,906
  223,895
  244,768
  266,529
  289,188
  312,760
  337,268
  362,741
  389,211
  416,718
  445,309
  475,032
  505,943
  538,104
Revenue / Adjusted assets
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
Average production assets, $m
  10,774
  14,105
  18,100
  22,806
  28,255
  34,473
  41,473
  49,259
  57,829
  67,173
  77,277
  88,125
  99,700
  111,983
  124,960
  138,618
  152,947
  167,940
  183,597
  199,919
  216,915
  234,597
  252,980
  272,086
  291,941
  312,574
  334,019
  356,314
  379,500
  403,623
Working capital, $m
  -85
  -111
  -143
  -180
  -223
  -272
  -327
  -388
  -456
  -529
  -609
  -695
  -786
  -883
  -985
  -1,093
  -1,205
  -1,324
  -1,447
  -1,576
  -1,710
  -1,849
  -1,994
  -2,145
  -2,301
  -2,464
  -2,633
  -2,808
  -2,991
  -3,181
Total debt, $m
  4,943
  7,848
  11,332
  15,434
  20,186
  25,607
  31,710
  38,499
  45,971
  54,118
  62,928
  72,387
  82,478
  93,188
  104,503
  116,411
  128,904
  141,977
  155,628
  169,860
  184,679
  200,095
  216,124
  232,782
  250,094
  268,084
  286,782
  306,221
  326,437
  347,470
Total liabilities, $m
  9,393
  12,298
  15,782
  19,884
  24,636
  30,057
  36,160
  42,949
  50,421
  58,568
  67,378
  76,837
  86,928
  97,638
  108,953
  120,861
  133,354
  146,427
  160,078
  174,310
  189,129
  204,545
  220,574
  237,232
  254,544
  272,534
  291,232
  310,671
  330,887
  351,920
Total equity, $m
  4,970
  6,506
  8,349
  10,520
  13,034
  15,902
  19,131
  22,722
  26,676
  30,986
  35,647
  40,651
  45,990
  51,656
  57,642
  63,942
  70,551
  77,468
  84,690
  92,219
  100,059
  108,215
  116,695
  125,508
  134,667
  144,185
  154,077
  164,361
  175,056
  186,184
Total liabilities and equity, $m
  14,363
  18,804
  24,131
  30,404
  37,670
  45,959
  55,291
  65,671
  77,097
  89,554
  103,025
  117,488
  132,918
  149,294
  166,595
  184,803
  203,905
  223,895
  244,768
  266,529
  289,188
  312,760
  337,269
  362,740
  389,211
  416,719
  445,309
  475,032
  505,943
  538,104
Debt-to-equity ratio
  0.990
  1.210
  1.360
  1.470
  1.550
  1.610
  1.660
  1.690
  1.720
  1.750
  1.770
  1.780
  1.790
  1.800
  1.810
  1.820
  1.830
  1.830
  1.840
  1.840
  1.850
  1.850
  1.850
  1.850
  1.860
  1.860
  1.860
  1.860
  1.860
  1.870
Adjusted equity ratio
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346
  0.346

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,717
  2,232
  2,848
  3,571
  4,405
  5,354
  6,420
  7,603
  8,902
  10,316
  11,993
  13,629
  15,372
  17,219
  19,169
  21,220
  23,370
  25,618
  27,965
  30,411
  32,957
  35,605
  38,357
  41,218
  44,191
  47,280
  50,491
  53,830
  57,302
  60,915
Depreciation, amort., depletion, $m
  1,285
  1,618
  2,018
  2,488
  3,033
  3,655
  4,355
  5,134
  5,991
  6,925
  7,728
  8,813
  9,970
  11,198
  12,496
  13,862
  15,295
  16,794
  18,360
  19,992
  21,692
  23,460
  25,298
  27,209
  29,194
  31,257
  33,402
  35,631
  37,950
  40,362
Funds from operations, $m
  3,002
  3,850
  4,865
  6,059
  7,438
  9,009
  10,775
  12,737
  14,893
  17,241
  19,721
  22,441
  25,342
  28,418
  31,666
  35,082
  38,665
  42,412
  46,325
  50,403
  54,648
  59,064
  63,655
  68,427
  73,385
  78,538
  83,893
  89,461
  95,252
  101,277
Change in working capital, $m
  -21
  -26
  -31
  -37
  -43
  -49
  -55
  -61
  -68
  -74
  -80
  -86
  -91
  -97
  -102
  -108
  -113
  -118
  -123
  -129
  -134
  -139
  -145
  -151
  -156
  -163
  -169
  -176
  -183
  -190
Cash from operations, $m
  3,023
  3,876
  4,897
  6,096
  7,481
  9,058
  10,830
  12,798
  14,960
  17,314
  19,800
  22,527
  25,433
  28,515
  31,768
  35,190
  38,778
  42,530
  46,448
  50,531
  54,782
  59,204
  63,800
  68,577
  73,542
  78,700
  84,062
  89,637
  95,435
  101,467
Maintenance CAPEX, $m
  -805
  -1,077
  -1,410
  -1,810
  -2,281
  -2,826
  -3,447
  -4,147
  -4,926
  -5,783
  -6,717
  -7,728
  -8,813
  -9,970
  -11,198
  -12,496
  -13,862
  -15,295
  -16,794
  -18,360
  -19,992
  -21,692
  -23,460
  -25,298
  -27,209
  -29,194
  -31,257
  -33,402
  -35,631
  -37,950
New CAPEX, $m
  -2,722
  -3,331
  -3,996
  -4,705
  -5,450
  -6,218
  -7,000
  -7,787
  -8,570
  -9,344
  -10,104
  -10,848
  -11,574
  -12,284
  -12,977
  -13,658
  -14,329
  -14,993
  -15,657
  -16,323
  -16,996
  -17,681
  -18,383
  -19,106
  -19,855
  -20,633
  -21,445
  -22,295
  -23,186
  -24,123
Cash from investing activities, $m
  -3,527
  -4,408
  -5,406
  -6,515
  -7,731
  -9,044
  -10,447
  -11,934
  -13,496
  -15,127
  -16,821
  -18,576
  -20,387
  -22,254
  -24,175
  -26,154
  -28,191
  -30,288
  -32,451
  -34,683
  -36,988
  -39,373
  -41,843
  -44,404
  -47,064
  -49,827
  -52,702
  -55,697
  -58,817
  -62,073
Free cash flow, $m
  -504
  -532
  -509
  -419
  -249
  15
  383
  864
  1,464
  2,187
  2,979
  3,951
  5,046
  6,261
  7,592
  9,036
  10,587
  12,242
  13,997
  15,849
  17,794
  19,831
  21,957
  24,173
  26,478
  28,873
  31,360
  33,940
  36,617
  39,394
Issuance/(repayment) of debt, $m
  2,374
  2,904
  3,484
  4,102
  4,751
  5,421
  6,103
  6,789
  7,472
  8,147
  8,810
  9,458
  10,092
  10,710
  11,315
  11,908
  12,493
  13,073
  13,651
  14,232
  14,819
  15,416
  16,028
  16,659
  17,311
  17,990
  18,698
  19,439
  20,216
  21,033
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  
  2,374
  2,904
  3,484
  4,102
  4,751
  5,421
  6,103
  6,789
  7,472
  8,147
  8,810
  9,458
  10,092
  10,710
  11,315
  11,908
  12,493
  13,073
  13,651
  14,232
  14,819
  15,416
  16,028
  16,659
  17,311
  17,990
  18,698
  19,439
  20,216
  21,033
Total cash flow (excl. dividends), $m
  1,870
  2,372
  2,975
  3,683
  4,503
  5,436
  6,486
  7,653
  8,936
  10,334
  11,789
  13,409
  15,138
  16,971
  18,907
  20,944
  23,080
  25,315
  27,648
  30,081
  32,613
  35,247
  37,986
  40,832
  43,790
  46,863
  50,058
  53,379
  56,833
  60,427
Retained Cash Flow (-), $m
  -1,249
  -1,537
  -1,843
  -2,170
  -2,514
  -2,868
  -3,229
  -3,592
  -3,953
  -4,310
  -4,661
  -5,004
  -5,339
  -5,666
  -5,986
  -6,300
  -6,609
  -6,916
  -7,222
  -7,529
  -7,840
  -8,156
  -8,480
  -8,813
  -9,159
  -9,518
  -9,892
  -10,284
  -10,695
  -11,127
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
  56
  74
  97
  125
  157
  195
  238
  286
  340
  399
  463
  533
  608
  688
  772
  862
  956
  1,055
  1,158
  1,266
  1,379
  1,496
  1,618
  1,745
  1,876
  2,013
  2,156
  2,304
  2,457
  2,617
Cash available for distribution, $m
  622
  836
  1,132
  1,513
  1,989
  2,568
  3,257
  4,062
  4,983
  6,024
  7,128
  8,406
  9,799
  11,305
  12,921
  14,644
  16,471
  18,399
  20,426
  22,551
  24,773
  27,091
  29,506
  32,019
  34,631
  37,346
  40,166
  43,095
  46,138
  49,300
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
  596
  765
  985
  1,246
  1,542
  1,864
  2,201
  2,539
  2,863
  3,158
  3,385
  3,587
  3,726
  3,795
  3,793
  3,721
  3,584
  3,388
  3,145
  2,866
  2,562
  2,248
  1,934
  1,631
  1,347
  1,090
  862
  667
  504
  371
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

Alaska Air Group, Inc. is the holding company of Alaska Airlines (Alaska), Virgin America Inc., Horizon Air (Horizon) and other business units. The Company operates through three segments: Mainline, Regional and Horizon. Its Mainline segment includes Alaska's and Virgin America's scheduled air transportation for passengers and cargo throughout the United States, and in parts of Canada, Mexico, Costa Rica and Cuba. Its Regional segment includes Horizon's and other third-party carriers' scheduled air transportation for passengers across a shorter distance network within the United States under capacity purchased arrangements (CPAs). Its Horizon segment includes the capacity sold to Alaska under CPA. Alaska and Virgin America operate fleets of narrowbody passenger jets. As of December 31, 2016, it maintained two frequent flyer plans: the Alaska Airlines Mileage Plan and the Virgin America Elevate.

FINANCIAL RATIOS  of  Alaska Air Group (ALK)

Valuation Ratios
P/E Ratio 9.8
Price to Sales 1.4
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 5.8
Price to Free Cash Flow 11.3
Growth Rates
Sales Growth Rate 5.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -18.4%
Cap. Spend. - 3 Yr. Gr. Rate 3.6%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 90.2%
Total Debt to Equity 101.1%
Interest Coverage 57
Management Effectiveness
Return On Assets 10%
Ret/ On Assets - 3 Yr. Avg. 11.3%
Return On Total Capital 18.1%
Ret/ On T. Cap. - 3 Yr. Avg. 22.3%
Return On Equity 30.5%
Return On Equity - 3 Yr. Avg. 32.3%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 37%
Gross Margin - 3 Yr. Avg. 34.7%
EBITDA Margin 29.2%
EBITDA Margin - 3 Yr. Avg. 27.6%
Operating Margin 22.7%
Oper. Margin - 3 Yr. Avg. 21.3%
Pre-Tax Margin 22.7%
Pre-Tax Margin - 3 Yr. Avg. 21.4%
Net Profit Margin 13.7%
Net Profit Margin - 3 Yr. Avg. 13.4%
Effective Tax Rate 39.5%
Eff/ Tax Rate - 3 Yr. Avg. 37.6%
Payout Ratio 16.7%

ALK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ALK stock intrinsic value calculation we used $7933 million for the last fiscal year's total revenue generated by Alaska Air Group. The default revenue input number comes from 2017 income statement of Alaska Air Group. 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 ALK stock valuation model: a) initial revenue growth rate of 33.8% 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 ALK is calculated based on our internal credit rating of Alaska Air Group, 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 Alaska Air Group.
    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 ALK stock the variable cost ratio is equal to 77.2%.

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 ALK 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 Alaska Air Group.

Corporate tax rate of 27% is the nominal tax rate for Alaska Air Group. 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 ALK stock is equal to 0.7%.

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 ALK are equal to 101.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Alaska Air Group 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 ALK is equal to -0.8%. 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 - $3721 million for Alaska Air Group - 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 123 million for Alaska Air Group 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 Alaska Air Group at the current share price and the inputted number of shares is $8.0 billion.

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