Intrinsic value of BHP Billiton ADR - BHP

Previous Close

$49.22

  Intrinsic Value

$178.98

stock screener

  Rating & Target

str. buy

+264%

Previous close

$49.22

 
Intrinsic value

$178.98

 
Up/down potential

+264%

 
Rating

str. buy

We calculate the intrinsic value of BHP 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 3.7

 

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, %
  23.90
  22.01
  20.31
  18.78
  17.40
  16.16
  15.04
  14.04
  13.14
  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
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
Revenue, $m
  47,435
  57,876
  69,630
  82,705
  97,095
  112,786
  129,754
  147,971
  167,409
  188,037
  209,831
  232,767
  256,831
  282,011
  308,305
  335,717
  364,260
  393,955
  424,828
  456,916
  490,261
  524,913
  560,928
  598,371
  637,310
  677,823
  719,991
  763,904
  809,655
  857,345
Variable operating expenses, $m
  54,361
  66,238
  79,610
  94,485
  110,856
  128,707
  148,010
  168,734
  190,847
  214,315
  238,711
  264,805
  292,180
  320,826
  350,738
  381,924
  414,396
  448,177
  483,300
  519,804
  557,738
  597,159
  638,132
  680,728
  725,027
  771,115
  819,087
  869,044
  921,092
  975,346
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
  54,361
  66,238
  79,610
  94,485
  110,856
  128,707
  148,010
  168,734
  190,847
  214,315
  238,711
  264,805
  292,180
  320,826
  350,738
  381,924
  414,396
  448,177
  483,300
  519,804
  557,738
  597,159
  638,132
  680,728
  725,027
  771,115
  819,087
  869,044
  921,092
  975,346
Operating income, $m
  -6,926
  -8,363
  -9,980
  -11,780
  -13,761
  -15,920
  -18,256
  -20,763
  -23,438
  -26,277
  -28,880
  -32,037
  -35,349
  -38,815
  -42,434
  -46,207
  -50,135
  -54,222
  -58,472
  -62,888
  -67,477
  -72,247
  -77,204
  -82,357
  -87,717
  -93,293
  -99,096
  -105,140
  -111,437
  -118,001
EBITDA, $m
  2,793
  3,408
  4,100
  4,870
  5,717
  6,641
  7,640
  8,713
  9,857
  11,072
  12,355
  13,706
  15,123
  16,605
  18,154
  19,768
  21,448
  23,197
  25,015
  26,904
  28,868
  30,908
  33,029
  35,233
  37,526
  39,912
  42,395
  44,980
  47,674
  50,482
Interest expense (income), $m
  1,149
  1,727
  2,483
  3,341
  4,306
  5,380
  6,561
  7,850
  9,243
  10,739
  12,335
  14,029
  15,818
  17,701
  19,677
  21,745
  23,904
  26,155
  28,499
  30,937
  33,472
  36,107
  38,845
  41,690
  44,647
  47,722
  50,919
  54,246
  57,708
  61,314
  65,071
Earnings before tax, $m
  -8,652
  -10,846
  -13,321
  -16,086
  -19,140
  -22,481
  -26,105
  -30,006
  -34,177
  -38,612
  -42,909
  -47,855
  -53,051
  -58,492
  -64,179
  -70,111
  -76,290
  -82,721
  -89,408
  -96,360
  -103,584
  -111,091
  -118,894
  -127,004
  -135,438
  -144,212
  -153,342
  -162,849
  -172,751
  -183,072
Tax expense, $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
Net income, $m
  -8,652
  -10,846
  -13,321
  -16,086
  -19,140
  -22,481
  -26,105
  -30,006
  -34,177
  -38,612
  -42,909
  -47,855
  -53,051
  -58,492
  -64,179
  -70,111
  -76,290
  -82,721
  -89,408
  -96,360
  -103,584
  -111,091
  -118,894
  -127,004
  -135,438
  -144,212
  -153,342
  -162,849
  -172,751
  -183,072

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
  139,515
  170,222
  204,793
  243,249
  285,575
  331,725
  381,630
  435,210
  492,379
  553,051
  617,149
  684,610
  755,385
  829,444
  906,778
  987,403
  1,071,354
  1,158,691
  1,249,495
  1,343,871
  1,441,944
  1,543,861
  1,649,788
  1,759,913
  1,874,441
  1,993,596
  2,117,621
  2,246,775
  2,381,337
  2,521,603
Adjusted assets (=assets-cash), $m
  139,515
  170,222
  204,793
  243,249
  285,575
  331,725
  381,630
  435,210
  492,379
  553,051
  617,149
  684,610
  755,385
  829,444
  906,778
  987,403
  1,071,354
  1,158,691
  1,249,495
  1,343,871
  1,441,944
  1,543,861
  1,649,788
  1,759,913
  1,874,441
  1,993,596
  2,117,621
  2,246,775
  2,381,337
  2,521,603
Revenue / Adjusted assets
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
Average production assets, $m
  104,405
  127,384
  153,255
  182,033
  213,707
  248,243
  285,589
  325,685
  368,467
  413,870
  461,838
  512,321
  565,285
  620,706
  678,579
  738,913
  801,737
  867,095
  935,047
  1,005,672
  1,079,064
  1,155,333
  1,234,603
  1,317,014
  1,402,719
  1,491,888
  1,584,700
  1,681,352
  1,782,050
  1,887,016
Working capital, $m
  -3,605
  -4,399
  -5,292
  -6,286
  -7,379
  -8,572
  -9,861
  -11,246
  -12,723
  -14,291
  -15,947
  -17,690
  -19,519
  -21,433
  -23,431
  -25,515
  -27,684
  -29,941
  -32,287
  -34,726
  -37,260
  -39,893
  -42,631
  -45,476
  -48,436
  -51,515
  -54,719
  -58,057
  -61,534
  -65,158
Total debt, $m
  45,990
  61,866
  79,739
  99,621
  121,503
  145,363
  171,164
  198,865
  228,421
  259,788
  292,927
  327,804
  364,395
  402,683
  442,665
  484,348
  527,751
  572,904
  619,850
  668,642
  719,346
  772,037
  826,802
  883,736
  942,947
  1,004,550
  1,068,671
  1,135,444
  1,205,012
  1,277,530
Total liabilities, $m
  72,129
  88,005
  105,878
  125,760
  147,642
  171,502
  197,303
  225,004
  254,560
  285,927
  319,066
  353,943
  390,534
  428,822
  468,804
  510,487
  553,890
  599,043
  645,989
  694,781
  745,485
  798,176
  852,941
  909,875
  969,086
  1,030,689
  1,094,810
  1,161,583
  1,231,151
  1,303,669
Total equity, $m
  67,386
  82,217
  98,915
  117,489
  137,933
  160,223
  184,327
  210,207
  237,819
  267,124
  298,083
  330,667
  364,851
  400,621
  437,974
  476,916
  517,464
  559,648
  603,506
  649,090
  696,459
  745,685
  796,848
  850,038
  905,355
  962,907
  1,022,811
  1,085,192
  1,150,186
  1,217,934
Total liabilities and equity, $m
  139,515
  170,222
  204,793
  243,249
  285,575
  331,725
  381,630
  435,211
  492,379
  553,051
  617,149
  684,610
  755,385
  829,443
  906,778
  987,403
  1,071,354
  1,158,691
  1,249,495
  1,343,871
  1,441,944
  1,543,861
  1,649,789
  1,759,913
  1,874,441
  1,993,596
  2,117,621
  2,246,775
  2,381,337
  2,521,603
Debt-to-equity ratio
  0.680
  0.750
  0.810
  0.850
  0.880
  0.910
  0.930
  0.950
  0.960
  0.970
  0.980
  0.990
  1.000
  1.010
  1.010
  1.020
  1.020
  1.020
  1.030
  1.030
  1.030
  1.040
  1.040
  1.040
  1.040
  1.040
  1.040
  1.050
  1.050
  1.050
Adjusted equity ratio
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -8,652
  -10,846
  -13,321
  -16,086
  -19,140
  -22,481
  -26,105
  -30,006
  -34,177
  -38,612
  -42,909
  -47,855
  -53,051
  -58,492
  -64,179
  -70,111
  -76,290
  -82,721
  -89,408
  -96,360
  -103,584
  -111,091
  -118,894
  -127,004
  -135,438
  -144,212
  -153,342
  -162,849
  -172,751
  -183,072
Depreciation, amort., depletion, $m
  9,719
  11,770
  14,080
  16,650
  19,478
  22,561
  25,896
  29,476
  33,296
  37,349
  41,236
  45,743
  50,472
  55,420
  60,587
  65,974
  71,584
  77,419
  83,486
  89,792
  96,345
  103,155
  110,232
  117,590
  125,243
  133,204
  141,491
  150,121
  159,112
  168,484
Funds from operations, $m
  1,066
  924
  759
  564
  338
  80
  -209
  -530
  -881
  -1,263
  -1,673
  -2,112
  -2,579
  -3,072
  -3,591
  -4,136
  -4,706
  -5,302
  -5,922
  -6,568
  -7,239
  -7,937
  -8,661
  -9,414
  -10,196
  -11,007
  -11,851
  -12,728
  -13,640
  -14,588
Change in working capital, $m
  -695
  -793
  -893
  -994
  -1,094
  -1,193
  -1,290
  -1,385
  -1,477
  -1,568
  -1,656
  -1,743
  -1,829
  -1,914
  -1,998
  -2,083
  -2,169
  -2,257
  -2,346
  -2,439
  -2,534
  -2,634
  -2,737
  -2,846
  -2,959
  -3,079
  -3,205
  -3,337
  -3,477
  -3,624
Cash from operations, $m
  1,762
  1,718
  1,652
  1,558
  1,431
  1,272
  1,080
  855
  596
  305
  -17
  -369
  -750
  -1,158
  -1,593
  -2,053
  -2,537
  -3,045
  -3,576
  -4,129
  -4,705
  -5,303
  -5,924
  -6,568
  -7,236
  -7,928
  -8,646
  -9,391
  -10,163
  -10,964
Maintenance CAPEX, $m
  -7,523
  -9,322
  -11,374
  -13,683
  -16,253
  -19,081
  -22,165
  -25,499
  -29,079
  -32,899
  -36,953
  -41,236
  -45,743
  -50,472
  -55,420
  -60,587
  -65,974
  -71,584
  -77,419
  -83,486
  -89,792
  -96,345
  -103,155
  -110,232
  -117,590
  -125,243
  -133,204
  -141,491
  -150,121
  -159,112
New CAPEX, $m
  -20,147
  -22,979
  -25,870
  -28,778
  -31,674
  -34,536
  -37,346
  -40,096
  -42,781
  -45,403
  -47,968
  -50,484
  -52,963
  -55,421
  -57,873
  -60,335
  -62,824
  -65,358
  -67,952
  -70,625
  -73,392
  -76,268
  -79,270
  -82,411
  -85,706
  -89,168
  -92,812
  -96,651
  -100,698
  -104,967
Cash from investing activities, $m
  -27,670
  -32,301
  -37,244
  -42,461
  -47,927
  -53,617
  -59,511
  -65,595
  -71,860
  -78,302
  -84,921
  -91,720
  -98,706
  -105,893
  -113,293
  -120,922
  -128,798
  -136,942
  -145,371
  -154,111
  -163,184
  -172,613
  -182,425
  -192,643
  -203,296
  -214,411
  -226,016
  -238,142
  -250,819
  -264,079
Free cash flow, $m
  -25,908
  -30,583
  -35,592
  -40,904
  -46,496
  -52,344
  -58,431
  -64,741
  -71,265
  -77,997
  -84,937
  -92,088
  -99,456
  -107,051
  -114,886
  -122,975
  -131,335
  -139,986
  -148,947
  -158,240
  -167,889
  -177,917
  -188,349
  -199,212
  -210,532
  -222,340
  -234,663
  -247,533
  -260,982
  -275,042
Issuance/(repayment) of debt, $m
  14,016
  15,876
  17,873
  19,882
  21,883
  23,859
  25,801
  27,701
  29,556
  31,367
  33,139
  34,877
  36,590
  38,288
  39,982
  41,683
  43,403
  45,153
  46,946
  48,792
  50,704
  52,691
  54,765
  56,935
  59,211
  61,603
  64,121
  66,773
  69,569
  72,517
Issuance/(repurchase) of shares, $m
  21,639
  25,678
  30,019
  34,660
  39,584
  44,772
  50,210
  55,885
  61,789
  67,917
  73,868
  80,439
  87,235
  94,262
  101,531
  109,052
  116,838
  124,904
  133,267
  141,943
  150,953
  160,317
  170,057
  180,195
  190,755
  201,764
  213,246
  225,230
  237,745
  250,820
Cash from financing (excl. dividends), $m  
  35,655
  41,554
  47,892
  54,542
  61,467
  68,631
  76,011
  83,586
  91,345
  99,284
  107,007
  115,316
  123,825
  132,550
  141,513
  150,735
  160,241
  170,057
  180,213
  190,735
  201,657
  213,008
  224,822
  237,130
  249,966
  263,367
  277,367
  292,003
  307,314
  323,337
Total cash flow (excl. dividends), $m
  9,747
  10,970
  12,300
  13,638
  14,970
  16,287
  17,580
  18,845
  20,081
  21,287
  22,070
  23,228
  24,369
  25,500
  26,628
  27,760
  28,906
  30,071
  31,265
  32,495
  33,768
  35,092
  36,473
  37,918
  39,434
  41,027
  42,704
  44,470
  46,332
  48,296
Retained Cash Flow (-), $m
  -21,639
  -25,678
  -30,019
  -34,660
  -39,584
  -44,772
  -50,210
  -55,885
  -61,789
  -67,917
  -73,868
  -80,439
  -87,235
  -94,262
  -101,531
  -109,052
  -116,838
  -124,904
  -133,267
  -141,943
  -150,953
  -160,317
  -170,057
  -180,195
  -190,755
  -201,764
  -213,246
  -225,230
  -237,745
  -250,820
Prev. year cash balance distribution, $m
  2,859
  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
  -9,033
  -14,708
  -17,719
  -21,022
  -24,613
  -28,485
  -32,629
  -37,040
  -41,708
  -46,630
  -51,798
  -57,211
  -62,866
  -68,763
  -74,904
  -81,292
  -87,933
  -94,833
  -102,001
  -109,448
  -117,185
  -125,226
  -133,584
  -142,277
  -151,321
  -160,737
  -170,542
  -180,760
  -191,413
  -202,525
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
  -8,660
  -13,465
  -15,420
  -17,310
  -19,078
  -20,673
  -22,044
  -23,151
  -23,959
  -24,446
  -24,598
  -24,414
  -23,903
  -23,085
  -21,990
  -20,658
  -19,133
  -17,464
  -15,705
  -13,908
  -12,121
  -10,390
  -8,755
  -7,246
  -5,887
  -4,689
  -3,660
  -2,797
  -2,089
  -1,525
Current shareholders' claim on cash, %
  63.8
  41.3
  27.1
  18.1
  12.2
  8.3
  5.8
  4.0
  2.8
  2.0
  1.4
  1.0
  0.8
  0.6
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

BHP Billiton Limited is a global resources company. The Company is a producer of various commodities, including iron ore, metallurgical coal, copper and uranium. Its segments include Petroleum, Copper, Iron Ore and Coal. The Petroleum segment is engaged in the exploration, development and production of oil and gas. The Copper segment is engaged in mining of copper, silver, lead, zinc, molybdenum, uranium and gold. The Iron Ore segment is engaged in mining of iron ore. The Coal segment is engaged in mining of metallurgical coal and thermal (energy) coal. Its businesses include Minerals Australia, Minerals Americas, Petroleum and Marketing. The Company extracts and processes minerals, oil and gas from its production operations located primarily in Australia and the Americas. The Company manages product distribution through its global logistics chain, including freight and pipeline transportation. Its businesses include Minerals Australia, Minerals Americas, Petroleum and Marketing.

FINANCIAL RATIOS  of  BHP Billiton ADR (BHP)

Valuation Ratios
P/E Ratio 26.8
Price to Sales 4.1
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 9.4
Price to Free Cash Flow 13.6
Growth Rates
Sales Growth Rate 23.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -32.3%
Cap. Spend. - 3 Yr. Gr. Rate -20.5%
Financial Strength
Quick Ratio 11
Current Ratio 0
LT Debt to Equity 51.1%
Total Debt to Equity 53.2%
Interest Coverage 10
Management Effectiveness
Return On Assets 5.6%
Ret/ On Assets - 3 Yr. Avg. 0.9%
Return On Total Capital 6.6%
Ret/ On T. Cap. - 3 Yr. Avg. 0.5%
Return On Equity 10.6%
Return On Equity - 3 Yr. Avg. 0.8%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 78.8%
Gross Margin - 3 Yr. Avg. 75.3%
EBITDA Margin 50.1%
EBITDA Margin - 3 Yr. Avg. 32.4%
Operating Margin 30.7%
Oper. Margin - 3 Yr. Avg. 10%
Pre-Tax Margin 27%
Pre-Tax Margin - 3 Yr. Avg. 7.2%
Net Profit Margin 15.4%
Net Profit Margin - 3 Yr. Avg. -0.3%
Effective Tax Rate 39.7%
Eff/ Tax Rate - 3 Yr. Avg. 33.2%
Payout Ratio 49.6%

BHP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BHP stock intrinsic value calculation we used $38285 million for the last fiscal year's total revenue generated by BHP Billiton ADR. The default revenue input number comes from 0001 income statement of BHP Billiton ADR. 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 BHP stock valuation model: a) initial revenue growth rate of 23.9% 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 BHP is calculated based on our internal credit rating of BHP Billiton ADR, 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 BHP Billiton ADR.
    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 BHP stock the variable cost ratio is equal to 114.8%.

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 BHP 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 BHP Billiton ADR.

Corporate tax rate of 27% is the nominal tax rate for BHP Billiton ADR. 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 BHP 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 BHP are equal to 220.1%.

Life of production assets of 11.2 years is the average useful life of capital assets used in BHP Billiton ADR 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 BHP is equal to -7.6%. 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 - $57258 million for BHP Billiton ADR - 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 74.437 million for BHP Billiton ADR 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 BHP Billiton ADR at the current share price and the inputted number of shares is $3.7 billion.

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COMPANY NEWS

▶ McDonald's and BHP Billiton rise while Micron skids   [Sep-21-18 04:26PM  Associated Press]
▶ BP: The Dividend and US Shale   [Sep-19-18 04:06PM  GuruFocus.com]
▶ [$$] BHPs Andrew Mackenzie sees total pay climb to $4.65m   [Sep-18-18 08:29AM  Financial Times]
▶ [$$] BHP to Part Ways with Billiton Name   [Sep-17-18 11:14PM  The Wall Street Journal]
▶ Top 4 Natural Gas Stocks as of July 2018   [Sep-16-18 10:15PM  Investopedia]
▶ Top 5 Copper Stocks for 2018   [07:50PM  Investopedia]
▶ What Price Copper?   [Sep-06-18 12:40PM  TheStreet.com]
▶ [$$] BHP Billiton Seeks Copper Growth With SolGold Stake   [Sep-04-18 08:15PM  The Wall Street Journal]
▶ FTSE reverses on weak dollar and BHP Billiton   [Aug-21-18 12:07PM  Reuters]
▶ BHP CEO on Earnings, Forward Guidance, China, Commodity Prices   [Aug-20-18 11:51PM  Bloomberg Video]
▶ [$$] BHP Posts Higher Profit and Dividend   [09:31PM  The Wall Street Journal]
▶ Highlights From BHP Billiton's Earnings Report   [08:16PM  Bloomberg Video]
▶ [$$] BP bets big on shale for its US comeback   [Aug-15-18 11:01PM  Financial Times]
▶ Closing Bell: LIVE MARKETS BLOG   [04:02PM  TheStreet.com]
▶ [$$] Copper Slides on Weak Chinese Economic Data, Easing Supply Fears   [Aug-14-18 08:43PM  The Wall Street Journal]
▶ 3 Stocks to Inflation-Proof Your Portfolio   [Aug-11-18 02:00PM  TheStreet.com]
▶ Australia's Biggest Miners Expected to Boost Dividend Payouts   [Jul-29-18 08:35PM  Bloomberg Video]
▶ BP Shale Assets Purchase Will Transform Company   [Jul-27-18 04:47PM  TheStreet.com]
▶ BP PLC Makes a Massive Bet on Shale   [03:17PM  Motley Fool]

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