Intrinsic value of British American Tobacco ADR - BTI

Previous Close

$35.18

  Intrinsic Value

$1,265

stock screener

  Rating & Target

str. buy

+999%

Previous close

$35.18

 
Intrinsic value

$1,265

 
Up/down potential

+999%

 
Rating

str. buy

We calculate the intrinsic value of BTI 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 8.1

 

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, %
  50.60
  46.04
  41.94
  38.24
  34.92
  31.93
  29.23
  26.81
  24.63
  22.67
  20.90
  19.31
  17.88
  16.59
  15.43
  14.39
  13.45
  12.60
  11.84
  11.16
  10.54
  9.99
  9.49
  9.04
  8.64
  8.27
  7.95
  7.65
  7.39
  7.15
Revenue, $m
  41,297
  60,310
  85,602
  118,338
  159,659
  210,633
  272,208
  345,188
  430,206
  527,718
  638,010
  761,208
  897,302
  1,046,173
  1,207,617
  1,381,376
  1,567,168
  1,764,706
  1,973,724
  2,193,989
  2,425,321
  2,667,599
  2,920,769
  3,184,850
  3,459,936
  3,746,198
  4,043,881
  4,353,303
  4,674,859
  5,009,009
Variable operating expenses, $m
  19,780
  21,559
  23,925
  26,987
  30,853
  35,621
  41,382
  48,209
  56,162
  65,285
  59,686
  71,211
  83,942
  97,869
  112,972
  129,227
  146,608
  165,088
  184,641
  205,247
  226,888
  249,553
  273,237
  297,941
  323,676
  350,455
  378,303
  407,250
  437,331
  468,591
Fixed operating expenses, $m
  202
  207
  211
  216
  221
  226
  231
  236
  241
  246
  252
  257
  263
  269
  274
  280
  287
  293
  299
  306
  313
  320
  327
  334
  341
  349
  356
  364
  372
  380
Total operating expenses, $m
  19,982
  21,766
  24,136
  27,203
  31,074
  35,847
  41,613
  48,445
  56,403
  65,531
  59,938
  71,468
  84,205
  98,138
  113,246
  129,507
  146,895
  165,381
  184,940
  205,553
  227,201
  249,873
  273,564
  298,275
  324,017
  350,804
  378,659
  407,614
  437,703
  468,971
Operating income, $m
  21,314
  38,544
  61,465
  91,135
  128,586
  174,786
  230,596
  296,744
  373,803
  462,187
  578,073
  689,740
  813,097
  948,036
  1,094,370
  1,251,869
  1,420,274
  1,599,326
  1,788,783
  1,988,436
  2,198,121
  2,417,726
  2,647,205
  2,886,575
  3,135,920
  3,395,394
  3,665,221
  3,945,690
  4,237,155
  4,540,038
EBITDA, $m
  39,695
  58,060
  82,490
  114,112
  154,029
  203,270
  262,755
  333,257
  415,388
  509,591
  616,140
  735,159
  866,637
  1,010,457
  1,166,425
  1,334,291
  1,513,781
  1,704,620
  1,906,549
  2,119,344
  2,342,831
  2,576,893
  2,821,478
  3,076,604
  3,342,363
  3,618,918
  3,906,506
  4,205,437
  4,516,089
  4,838,909
Interest expense (income), $m
  779
  3,609
  6,565
  10,622
  16,019
  23,004
  31,821
  42,697
  55,836
  71,408
  89,549
  110,355
  133,889
  160,176
  189,216
  220,981
  255,429
  292,505
  332,148
  374,298
  418,897
  465,896
  515,256
  566,952
  620,973
  677,321
  736,018
  797,099
  860,617
  926,640
  995,252
Earnings before tax, $m
  17,706
  31,979
  50,843
  75,116
  105,582
  142,965
  187,899
  240,908
  302,394
  372,638
  467,717
  555,851
  652,921
  758,820
  873,389
  996,440
  1,127,769
  1,267,178
  1,414,486
  1,569,539
  1,732,225
  1,902,470
  2,080,253
  2,265,602
  2,458,599
  2,659,377
  2,868,122
  3,085,073
  3,310,516
  3,544,786
Tax expense, $m
  4,781
  8,634
  13,728
  20,281
  28,507
  38,600
  50,733
  65,045
  81,646
  100,612
  126,284
  150,080
  176,289
  204,881
  235,815
  269,039
  304,498
  342,138
  381,911
  423,776
  467,701
  513,667
  561,668
  611,713
  663,822
  718,032
  774,393
  832,970
  893,839
  957,092
Net income, $m
  12,925
  23,345
  37,116
  54,834
  77,075
  104,364
  137,166
  175,863
  220,748
  272,026
  341,433
  405,771
  476,632
  553,939
  637,574
  727,401
  823,271
  925,040
  1,032,574
  1,145,764
  1,264,524
  1,388,803
  1,518,585
  1,653,890
  1,794,777
  1,941,345
  2,093,729
  2,252,103
  2,416,676
  2,587,694

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
  286,784
  418,820
  594,456
  821,791
  1,108,745
  1,462,727
  1,890,336
  2,397,142
  2,987,541
  3,664,708
  4,430,622
  5,286,165
  6,231,267
  7,265,091
  8,386,227
  9,592,890
  10,883,112
  12,254,906
  13,706,416
  15,236,036
  16,842,507
  18,524,991
  20,283,115
  22,117,013
  24,027,337
  26,015,266
  28,082,505
  30,231,274
  32,464,296
  34,784,785
Adjusted assets (=assets-cash), $m
  286,784
  418,820
  594,456
  821,791
  1,108,745
  1,462,727
  1,890,336
  2,397,142
  2,987,541
  3,664,708
  4,430,622
  5,286,165
  6,231,267
  7,265,091
  8,386,227
  9,592,890
  10,883,112
  12,254,906
  13,706,416
  15,236,036
  16,842,507
  18,524,991
  20,283,115
  22,117,013
  24,027,337
  26,015,266
  28,082,505
  30,231,274
  32,464,296
  34,784,785
Revenue / Adjusted assets
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
Average production assets, $m
  73,922
  107,955
  153,227
  211,825
  285,790
  377,032
  487,253
  617,887
  770,069
  944,615
  1,142,037
  1,362,562
  1,606,171
  1,872,650
  2,161,634
  2,472,663
  2,805,231
  3,158,825
  3,532,966
  3,927,241
  4,341,325
  4,775,002
  5,228,176
  5,700,881
  6,193,286
  6,705,695
  7,238,546
  7,792,413
  8,367,997
  8,966,126
Working capital, $m
  991
  1,447
  2,054
  2,840
  3,832
  5,055
  6,533
  8,285
  10,325
  12,665
  15,312
  18,269
  21,535
  25,108
  28,983
  33,153
  37,612
  42,353
  47,369
  52,656
  58,208
  64,022
  70,098
  76,436
  83,038
  89,909
  97,053
  104,479
  112,197
  120,216
Total debt, $m
  121,580
  196,709
  296,646
  425,999
  589,276
  790,692
  1,034,001
  1,322,374
  1,658,311
  2,043,619
  2,479,424
  2,966,228
  3,503,991
  4,092,237
  4,730,163
  5,416,754
  6,150,891
  6,931,441
  7,757,351
  8,627,704
  9,541,787
  10,499,120
  11,499,493
  12,542,980
  13,629,955
  14,761,086
  15,937,345
  17,159,995
  18,430,585
  19,750,943
Total liabilities, $m
  163,180
  238,309
  338,246
  467,599
  630,876
  832,292
  1,075,601
  1,363,974
  1,699,911
  2,085,219
  2,521,024
  3,007,828
  3,545,591
  4,133,837
  4,771,763
  5,458,354
  6,192,491
  6,973,041
  7,798,951
  8,669,304
  9,583,387
  10,540,720
  11,541,093
  12,584,580
  13,671,555
  14,802,686
  15,978,945
  17,201,595
  18,472,185
  19,792,543
Total equity, $m
  123,604
  180,511
  256,211
  354,192
  477,869
  630,435
  814,735
  1,033,168
  1,287,630
  1,579,489
  1,909,598
  2,278,337
  2,685,676
  3,131,254
  3,614,464
  4,134,536
  4,690,621
  5,281,864
  5,907,465
  6,566,731
  7,259,121
  7,984,271
  8,742,023
  9,532,433
  10,355,782
  11,212,580
  12,103,560
  13,029,679
  13,992,112
  14,992,243
Total liabilities and equity, $m
  286,784
  418,820
  594,457
  821,791
  1,108,745
  1,462,727
  1,890,336
  2,397,142
  2,987,541
  3,664,708
  4,430,622
  5,286,165
  6,231,267
  7,265,091
  8,386,227
  9,592,890
  10,883,112
  12,254,905
  13,706,416
  15,236,035
  16,842,508
  18,524,991
  20,283,116
  22,117,013
  24,027,337
  26,015,266
  28,082,505
  30,231,274
  32,464,297
  34,784,786
Debt-to-equity ratio
  0.980
  1.090
  1.160
  1.200
  1.230
  1.250
  1.270
  1.280
  1.290
  1.290
  1.300
  1.300
  1.300
  1.310
  1.310
  1.310
  1.310
  1.310
  1.310
  1.310
  1.310
  1.310
  1.320
  1.320
  1.320
  1.320
  1.320
  1.320
  1.320
  1.320
Adjusted equity ratio
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  12,925
  23,345
  37,116
  54,834
  77,075
  104,364
  137,166
  175,863
  220,748
  272,026
  341,433
  405,771
  476,632
  553,939
  637,574
  727,401
  823,271
  925,040
  1,032,574
  1,145,764
  1,264,524
  1,388,803
  1,518,585
  1,653,890
  1,794,777
  1,941,345
  2,093,729
  2,252,103
  2,416,676
  2,587,694
Depreciation, amort., depletion, $m
  18,381
  19,515
  21,024
  22,978
  25,443
  28,485
  32,159
  36,513
  41,586
  47,404
  38,068
  45,419
  53,539
  62,422
  72,054
  82,422
  93,508
  105,294
  117,766
  130,908
  144,711
  159,167
  174,273
  190,029
  206,443
  223,523
  241,285
  259,747
  278,933
  298,871
Funds from operations, $m
  31,306
  42,860
  58,140
  77,812
  102,518
  132,849
  169,325
  212,376
  262,334
  319,430
  379,501
  451,190
  530,171
  616,360
  709,629
  809,823
  916,779
  1,030,334
  1,150,340
  1,276,672
  1,409,235
  1,547,970
  1,692,857
  1,843,919
  2,001,220
  2,164,868
  2,335,014
  2,511,850
  2,695,610
  2,886,565
Change in working capital, $m
  333
  456
  607
  786
  992
  1,223
  1,478
  1,752
  2,040
  2,340
  2,647
  2,957
  3,266
  3,573
  3,875
  4,170
  4,459
  4,741
  5,016
  5,286
  5,552
  5,815
  6,076
  6,338
  6,602
  6,870
  7,144
  7,426
  7,717
  8,020
Cash from operations, $m
  30,973
  42,404
  57,533
  77,026
  101,526
  131,625
  167,847
  210,624
  260,293
  317,090
  376,854
  448,233
  526,905
  612,787
  705,754
  805,653
  912,320
  1,025,593
  1,145,324
  1,271,385
  1,403,683
  1,542,155
  1,686,781
  1,837,581
  1,994,618
  2,157,998
  2,327,870
  2,504,424
  2,687,892
  2,878,545
Maintenance CAPEX, $m
  -1,636
  -2,464
  -3,599
  -5,108
  -7,061
  -9,526
  -12,568
  -16,242
  -20,596
  -25,669
  -31,487
  -38,068
  -45,419
  -53,539
  -62,422
  -72,054
  -82,422
  -93,508
  -105,294
  -117,766
  -130,908
  -144,711
  -159,167
  -174,273
  -190,029
  -206,443
  -223,523
  -241,285
  -259,747
  -278,933
New CAPEX, $m
  -24,831
  -34,033
  -45,272
  -58,598
  -73,965
  -91,242
  -110,221
  -130,634
  -152,181
  -174,547
  -197,422
  -220,525
  -243,610
  -266,478
  -288,984
  -311,030
  -332,568
  -353,594
  -374,141
  -394,275
  -414,084
  -433,677
  -453,174
  -472,706
  -492,405
  -512,409
  -532,852
  -553,867
  -575,584
  -598,129
Cash from investing activities, $m
  -26,467
  -36,497
  -48,871
  -63,706
  -81,026
  -100,768
  -122,789
  -146,876
  -172,777
  -200,216
  -228,909
  -258,593
  -289,029
  -320,017
  -351,406
  -383,084
  -414,990
  -447,102
  -479,435
  -512,041
  -544,992
  -578,388
  -612,341
  -646,979
  -682,434
  -718,852
  -756,375
  -795,152
  -835,331
  -877,062
Free cash flow, $m
  4,506
  5,906
  8,662
  13,321
  20,500
  30,857
  45,058
  63,748
  87,516
  116,874
  147,945
  189,641
  237,877
  292,770
  354,349
  422,569
  497,330
  578,492
  665,888
  759,345
  858,691
  963,767
  1,074,440
  1,190,603
  1,312,184
  1,439,146
  1,571,495
  1,709,273
  1,852,561
  2,001,483
Issuance/(repayment) of debt, $m
  54,756
  75,128
  99,937
  129,353
  163,277
  201,416
  243,310
  288,372
  335,937
  385,308
  435,805
  486,804
  537,763
  588,246
  637,926
  686,592
  734,136
  780,551
  825,909
  870,354
  914,082
  957,333
  1,000,373
  1,043,488
  1,086,974
  1,131,132
  1,176,259
  1,222,649
  1,270,590
  1,320,358
Issuance/(repurchase) of shares, $m
  28,511
  33,563
  38,584
  43,147
  46,603
  48,202
  47,134
  42,571
  33,714
  19,833
  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  
  83,267
  108,691
  138,521
  172,500
  209,880
  249,618
  290,444
  330,943
  369,651
  405,141
  435,805
  486,804
  537,763
  588,246
  637,926
  686,592
  734,136
  780,551
  825,909
  870,354
  914,082
  957,333
  1,000,373
  1,043,488
  1,086,974
  1,131,132
  1,176,259
  1,222,649
  1,270,590
  1,320,358
Total cash flow (excl. dividends), $m
  87,773
  114,597
  147,183
  185,821
  230,380
  280,474
  335,502
  394,691
  457,167
  522,015
  583,750
  676,444
  775,640
  881,016
  992,275
  1,109,160
  1,231,466
  1,359,043
  1,491,797
  1,629,699
  1,772,773
  1,921,100
  2,074,813
  2,234,091
  2,399,158
  2,570,278
  2,747,754
  2,931,922
  3,123,151
  3,321,841
Retained Cash Flow (-), $m
  -41,437
  -56,907
  -75,699
  -97,981
  -123,677
  -152,566
  -184,300
  -218,433
  -254,462
  -291,859
  -330,109
  -368,739
  -407,339
  -445,578
  -483,209
  -520,072
  -556,086
  -591,243
  -625,601
  -659,266
  -692,389
  -725,150
  -757,752
  -790,410
  -823,350
  -856,798
  -890,980
  -926,119
  -962,433
  -1,000,131
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
  46,337
  57,690
  71,484
  87,840
  106,702
  127,908
  151,202
  176,258
  202,705
  230,156
  253,641
  307,706
  368,301
  435,438
  509,065
  589,088
  675,381
  767,799
  866,197
  970,433
  1,080,384
  1,195,950
  1,317,061
  1,443,681
  1,575,808
  1,713,481
  1,856,774
  2,005,803
  2,160,719
  2,321,710
Discount rate, %
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.20
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.37
  29.79
  31.28
PV of cash for distribution, $m
  43,064
  49,478
  56,153
  62,692
  68,597
  73,395
  76,685
  78,191
  77,788
  75,507
  70,252
  71,000
  69,803
  66,778
  62,175
  56,345
  49,695
  42,652
  35,611
  28,913
  22,816
  17,489
  13,012
  9,390
  6,566
  4,445
  2,910
  1,840
  1,123
  660
Current shareholders' claim on cash, %
  66.9
  48.2
  36.9
  29.7
  25.0
  21.9
  19.8
  18.4
  17.6
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2
  17.2

British American Tobacco p.l.c. is a tobacco and next generation products company. The Company's tobacco product range includes cigarettes, fine cut (roll-your-own and make-your-own tobacco) and Swedish-style snus. Its segments include Asia-Pacific, Americas, Western Europe, and Eastern Europe, Middle East and Africa (EEMEA). The Asia-Pacific segment includes its operations in various countries, including Australia, Pakistan, Malaysia, Vietnam, Japan, South Korea, Indonesia, New Zealand and Bangladesh. The Americas segment includes its operations in various countries, including Brazil, Mexico, Canada, Colombia, Argentina, Chile and Venezuela. The Western Europe segment includes its operations in various countries, including Germany, Denmark, Switzerland, Belgium, France, the United Kingdom, Romania, Spain, Italy, Poland and Croatia/Balkans. The EEMEA segment includes its operations in various countries, including Russia, Ukraine, South Africa, Turkey, Egypt, Nigeria and Algeria.

FINANCIAL RATIOS  of  British American Tobacco ADR (BTI)

Valuation Ratios
P/E Ratio 11.6
Price to Sales 3.7
Price to Book 6.6
Price to Tangible Book
Price to Cash Flow 11.7
Price to Free Cash Flow 13.7
Growth Rates
Sales Growth Rate 12.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 12%
Cap. Spend. - 3 Yr. Gr. Rate -1.4%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 201.5%
Total Debt to Equity 238.3%
Interest Coverage 11
Management Effectiveness
Return On Assets 14.4%
Ret/ On Assets - 3 Yr. Avg. 14.7%
Return On Total Capital 18.8%
Ret/ On T. Cap. - 3 Yr. Avg. 19.2%
Return On Equity 71.1%
Return On Equity - 3 Yr. Avg. 68.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 74.7%
Gross Margin - 3 Yr. Avg. 76.6%
EBITDA Margin 50.8%
EBITDA Margin - 3 Yr. Avg. 48.6%
Operating Margin 31.4%
Oper. Margin - 3 Yr. Avg. 32.9%
Pre-Tax Margin 42.3%
Pre-Tax Margin - 3 Yr. Avg. 40.6%
Net Profit Margin 31.5%
Net Profit Margin - 3 Yr. Avg. 28.8%
Effective Tax Rate 22.5%
Eff/ Tax Rate - 3 Yr. Avg. 25.1%
Payout Ratio 62.6%

BTI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BTI stock intrinsic value calculation we used $27421.6216216 million for the last fiscal year's total revenue generated by British American Tobacco ADR. The default revenue input number comes from 0001 income statement of British American Tobacco 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 BTI stock valuation model: a) initial revenue growth rate of 50.6% 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 7.6%, whose default value for BTI is calculated based on our internal credit rating of British American Tobacco 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 British American Tobacco 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 BTI stock the variable cost ratio is equal to 67.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $198 million in the base year in the intrinsic value calculation for BTI 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 British American Tobacco ADR.

Corporate tax rate of 27% is the nominal tax rate for British American Tobacco 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 BTI 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 BTI are equal to 179%.

Life of production assets of 76 years is the average useful life of capital assets used in British American Tobacco 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 BTI is equal to 2.4%. 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 - $82167.5675676 million for British American Tobacco 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 229.634 million for British American Tobacco 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 British American Tobacco ADR at the current share price and the inputted number of shares is $8.1 billion.

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