Intrinsic value of Rio Tinto ADR - RIO

Previous Close

$45.97

  Intrinsic Value

$3,907

stock screener

  Rating & Target

str. buy

+999%

Previous close

$45.97

 
Intrinsic value

$3,907

 
Up/down potential

+999%

 
Rating

str. buy

We calculate the intrinsic value of RIO 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 5.4

 

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, %
  18.50
  17.15
  15.94
  14.84
  13.86
  12.97
  12.17
  11.46
  10.81
  10.23
  9.71
  9.24
  8.81
  8.43
  8.09
  7.78
  7.50
  7.25
  7.03
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.79
  5.71
  5.64
Revenue, $m
  47,436
  55,571
  64,426
  73,988
  84,240
  95,168
  106,754
  118,985
  131,849
  145,337
  159,445
  174,172
  189,522
  205,501
  222,123
  239,403
  257,362
  276,024
  295,418
  315,577
  336,535
  358,333
  381,013
  404,623
  429,211
  454,832
  481,540
  509,398
  538,467
  568,814
Variable operating expenses, $m
  7,655
  8,897
  10,248
  11,707
  13,272
  14,940
  16,708
  18,575
  20,538
  22,597
  24,334
  26,582
  28,924
  31,363
  33,900
  36,537
  39,278
  42,126
  45,086
  48,163
  51,361
  54,688
  58,149
  61,753
  65,505
  69,415
  73,492
  77,743
  82,180
  86,811
Fixed operating expenses, $m
  22,980
  23,485
  24,002
  24,530
  25,070
  25,621
  26,185
  26,761
  27,350
  27,951
  28,566
  29,195
  29,837
  30,493
  31,164
  31,850
  32,551
  33,267
  33,999
  34,746
  35,511
  36,292
  37,091
  37,907
  38,741
  39,593
  40,464
  41,354
  42,264
  43,194
Total operating expenses, $m
  30,635
  32,382
  34,250
  36,237
  38,342
  40,561
  42,893
  45,336
  47,888
  50,548
  52,900
  55,777
  58,761
  61,856
  65,064
  68,387
  71,829
  75,393
  79,085
  82,909
  86,872
  90,980
  95,240
  99,660
  104,246
  109,008
  113,956
  119,097
  124,444
  130,005
Operating income, $m
  16,801
  23,189
  30,176
  37,750
  45,899
  54,607
  63,861
  73,649
  83,961
  94,789
  106,545
  118,396
  130,760
  143,645
  157,059
  171,016
  185,533
  200,631
  216,334
  232,668
  249,663
  267,353
  285,773
  304,964
  324,965
  345,823
  367,585
  390,300
  414,023
  438,809
EBITDA, $m
  22,226
  29,473
  37,395
  45,980
  55,211
  65,073
  75,551
  86,630
  98,301
  110,553
  123,383
  136,790
  150,775
  165,347
  180,517
  196,299
  212,713
  229,782
  247,532
  265,995
  285,204
  305,196
  326,012
  347,695
  370,294
  393,857
  418,440
  444,097
  470,890
  498,880
Interest expense (income), $m
  1,294
  867
  1,369
  1,919
  2,518
  3,164
  3,858
  4,597
  5,380
  6,207
  7,077
  7,990
  8,944
  9,940
  10,978
  12,058
  13,182
  14,351
  15,566
  16,828
  18,139
  19,502
  20,920
  22,394
  23,928
  25,524
  27,187
  28,920
  30,726
  32,610
  34,576
Earnings before tax, $m
  15,934
  21,820
  28,257
  35,233
  42,734
  50,749
  59,264
  68,269
  77,754
  87,712
  98,555
  109,452
  120,821
  132,667
  145,000
  157,833
  171,182
  185,066
  199,506
  214,528
  230,161
  246,433
  263,380
  281,036
  299,441
  318,636
  338,665
  359,574
  381,413
  404,233
Tax expense, $m
  4,302
  5,891
  7,629
  9,513
  11,538
  13,702
  16,001
  18,433
  20,993
  23,682
  26,610
  29,552
  32,622
  35,820
  39,150
  42,615
  46,219
  49,968
  53,867
  57,923
  62,143
  66,537
  71,112
  75,880
  80,849
  86,032
  91,440
  97,085
  102,982
  109,143
Net income, $m
  11,632
  15,929
  20,628
  25,720
  31,196
  37,047
  43,263
  49,836
  56,760
  64,030
  71,945
  79,900
  88,199
  96,847
  105,850
  115,218
  124,963
  135,098
  145,640
  156,606
  168,017
  179,896
  192,267
  205,156
  218,592
  232,604
  247,226
  262,489
  278,432
  295,090

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
  111,876
  131,063
  151,948
  174,499
  198,680
  224,452
  251,778
  280,624
  310,964
  342,776
  376,050
  410,783
  446,985
  484,672
  523,874
  564,629
  606,985
  651,000
  696,742
  744,285
  793,715
  845,125
  898,617
  954,299
  1,012,291
  1,072,716
  1,135,709
  1,201,410
  1,269,968
  1,341,542
Adjusted assets (=assets-cash), $m
  111,876
  131,063
  151,948
  174,499
  198,680
  224,452
  251,778
  280,624
  310,964
  342,776
  376,050
  410,783
  446,985
  484,672
  523,874
  564,629
  606,985
  651,000
  696,742
  744,285
  793,715
  845,125
  898,617
  954,299
  1,012,291
  1,072,716
  1,135,709
  1,201,410
  1,269,968
  1,341,542
Revenue / Adjusted assets
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
Average production assets, $m
  74,142
  86,857
  100,698
  115,643
  131,668
  148,747
  166,856
  185,973
  206,079
  227,162
  249,213
  272,231
  296,222
  321,198
  347,178
  374,187
  402,257
  431,426
  461,739
  493,246
  526,004
  560,074
  595,524
  632,426
  670,857
  710,902
  752,648
  796,189
  841,623
  889,056
Working capital, $m
  -3,890
  -4,557
  -5,283
  -6,067
  -6,908
  -7,804
  -8,754
  -9,757
  -10,812
  -11,918
  -13,074
  -14,282
  -15,541
  -16,851
  -18,214
  -19,631
  -21,104
  -22,634
  -24,224
  -25,877
  -27,596
  -29,383
  -31,243
  -33,179
  -35,195
  -37,296
  -39,486
  -41,771
  -44,154
  -46,643
Total debt, $m
  25,347
  35,535
  46,625
  58,600
  71,440
  85,125
  99,635
  114,953
  131,063
  147,955
  165,623
  184,067
  203,290
  223,302
  244,118
  265,759
  288,250
  311,622
  335,911
  361,156
  387,404
  414,702
  443,106
  472,674
  503,467
  535,553
  569,002
  603,889
  640,294
  678,300
Total liabilities, $m
  59,406
  69,594
  80,684
  92,659
  105,499
  119,184
  133,694
  149,012
  165,122
  182,014
  199,682
  218,126
  237,349
  257,361
  278,177
  299,818
  322,309
  345,681
  369,970
  395,215
  421,463
  448,761
  477,165
  506,733
  537,526
  569,612
  603,061
  637,948
  674,353
  712,359
Total equity, $m
  52,470
  61,469
  71,264
  81,840
  93,181
  105,268
  118,084
  131,613
  145,842
  160,762
  176,367
  192,657
  209,636
  227,311
  245,697
  264,811
  284,676
  305,319
  326,772
  349,070
  372,252
  396,364
  421,451
  447,566
  474,764
  503,104
  532,647
  563,461
  595,615
  629,183
Total liabilities and equity, $m
  111,876
  131,063
  151,948
  174,499
  198,680
  224,452
  251,778
  280,625
  310,964
  342,776
  376,049
  410,783
  446,985
  484,672
  523,874
  564,629
  606,985
  651,000
  696,742
  744,285
  793,715
  845,125
  898,616
  954,299
  1,012,290
  1,072,716
  1,135,708
  1,201,409
  1,269,968
  1,341,542
Debt-to-equity ratio
  0.480
  0.580
  0.650
  0.720
  0.770
  0.810
  0.840
  0.870
  0.900
  0.920
  0.940
  0.960
  0.970
  0.980
  0.990
  1.000
  1.010
  1.020
  1.030
  1.030
  1.040
  1.050
  1.050
  1.060
  1.060
  1.060
  1.070
  1.070
  1.080
  1.080
Adjusted equity ratio
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469
  0.469

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  11,632
  15,929
  20,628
  25,720
  31,196
  37,047
  43,263
  49,836
  56,760
  64,030
  71,945
  79,900
  88,199
  96,847
  105,850
  115,218
  124,963
  135,098
  145,640
  156,606
  168,017
  179,896
  192,267
  205,156
  218,592
  232,604
  247,226
  262,489
  278,432
  295,090
Depreciation, amort., depletion, $m
  5,425
  6,284
  7,220
  8,229
  9,312
  10,466
  11,690
  12,981
  14,340
  15,764
  16,839
  18,394
  20,015
  21,703
  23,458
  25,283
  27,179
  29,150
  31,199
  33,327
  35,541
  37,843
  40,238
  42,731
  45,328
  48,034
  50,855
  53,797
  56,866
  60,071
Funds from operations, $m
  17,057
  22,213
  27,847
  33,949
  40,508
  47,513
  54,953
  62,818
  71,100
  79,794
  88,784
  98,294
  108,214
  118,549
  129,308
  140,501
  152,143
  164,248
  176,838
  189,933
  203,558
  217,739
  232,505
  247,888
  263,920
  280,638
  298,080
  316,286
  335,298
  355,162
Change in working capital, $m
  -607
  -667
  -726
  -784
  -841
  -896
  -950
  -1,003
  -1,055
  -1,106
  -1,157
  -1,208
  -1,259
  -1,310
  -1,363
  -1,417
  -1,473
  -1,530
  -1,590
  -1,653
  -1,719
  -1,787
  -1,860
  -1,936
  -2,016
  -2,101
  -2,190
  -2,284
  -2,384
  -2,488
Cash from operations, $m
  17,664
  22,880
  28,573
  34,733
  41,349
  48,409
  55,903
  63,821
  72,155
  80,900
  89,941
  99,502
  109,473
  119,860
  130,671
  141,918
  153,615
  165,779
  178,428
  191,586
  205,277
  219,526
  234,365
  249,824
  265,936
  282,739
  300,270
  318,570
  337,682
  357,650
Maintenance CAPEX, $m
  -4,228
  -5,010
  -5,869
  -6,804
  -7,814
  -8,896
  -10,050
  -11,274
  -12,566
  -13,924
  -15,349
  -16,839
  -18,394
  -20,015
  -21,703
  -23,458
  -25,283
  -27,179
  -29,150
  -31,199
  -33,327
  -35,541
  -37,843
  -40,238
  -42,731
  -45,328
  -48,034
  -50,855
  -53,797
  -56,866
New CAPEX, $m
  -11,571
  -12,715
  -13,841
  -14,945
  -16,025
  -17,079
  -18,109
  -19,117
  -20,106
  -21,082
  -22,051
  -23,018
  -23,991
  -24,976
  -25,980
  -27,009
  -28,070
  -29,169
  -30,313
  -31,507
  -32,758
  -34,070
  -35,450
  -36,902
  -38,432
  -40,045
  -41,746
  -43,541
  -45,435
  -47,433
Cash from investing activities, $m
  -15,799
  -17,725
  -19,710
  -21,749
  -23,839
  -25,975
  -28,159
  -30,391
  -32,672
  -35,006
  -37,400
  -39,857
  -42,385
  -44,991
  -47,683
  -50,467
  -53,353
  -56,348
  -59,463
  -62,706
  -66,085
  -69,611
  -73,293
  -77,140
  -81,163
  -85,373
  -89,780
  -94,396
  -99,232
  -104,299
Free cash flow, $m
  1,865
  5,155
  8,864
  12,984
  17,510
  22,433
  27,743
  33,430
  39,483
  45,893
  52,541
  59,644
  67,088
  74,869
  82,989
  91,452
  100,262
  109,430
  118,965
  128,880
  139,191
  149,915
  161,073
  172,684
  184,773
  197,366
  210,490
  224,175
  238,450
  253,351
Issuance/(repayment) of debt, $m
  9,295
  10,188
  11,090
  11,975
  12,840
  13,685
  14,510
  15,317
  16,110
  16,892
  17,668
  18,444
  19,223
  20,012
  20,816
  21,641
  22,491
  23,372
  24,289
  25,245
  26,247
  27,299
  28,404
  29,568
  30,793
  32,086
  33,449
  34,887
  36,405
  38,006
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  
  9,295
  10,188
  11,090
  11,975
  12,840
  13,685
  14,510
  15,317
  16,110
  16,892
  17,668
  18,444
  19,223
  20,012
  20,816
  21,641
  22,491
  23,372
  24,289
  25,245
  26,247
  27,299
  28,404
  29,568
  30,793
  32,086
  33,449
  34,887
  36,405
  38,006
Total cash flow (excl. dividends), $m
  11,161
  15,343
  19,954
  24,959
  30,350
  36,118
  42,253
  48,747
  55,593
  62,786
  70,209
  78,088
  86,311
  94,881
  103,805
  113,092
  122,754
  132,802
  143,253
  154,126
  165,439
  177,214
  189,477
  202,252
  215,567
  229,452
  243,939
  259,062
  274,855
  291,356
Retained Cash Flow (-), $m
  -8,168
  -8,999
  -9,795
  -10,577
  -11,341
  -12,087
  -12,816
  -13,529
  -14,229
  -14,920
  -15,605
  -16,290
  -16,979
  -17,675
  -18,386
  -19,114
  -19,865
  -20,643
  -21,453
  -22,298
  -23,183
  -24,111
  -25,088
  -26,115
  -27,198
  -28,339
  -29,543
  -30,814
  -32,154
  -33,568
Prev. year cash balance distribution, $m
  409
  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
  3,402
  6,345
  10,159
  14,382
  19,009
  24,031
  29,437
  35,218
  41,364
  47,866
  54,604
  61,798
  69,332
  77,205
  85,419
  93,978
  102,889
  112,159
  121,801
  131,828
  142,256
  153,103
  164,389
  176,136
  188,369
  201,113
  214,396
  228,248
  242,701
  257,788
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
  3,261
  5,808
  8,841
  11,842
  14,735
  17,440
  19,887
  22,012
  23,761
  25,094
  25,931
  26,371
  26,361
  25,919
  25,078
  23,882
  22,387
  20,655
  18,754
  16,751
  14,714
  12,704
  10,774
  8,971
  7,328
  5,867
  4,602
  3,531
  2,649
  1,941
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

Rio Tinto plc is a mining and metals company. The Company's business is finding, mining and processing mineral resources. The Company's segments include Iron Ore, Aluminium, Copper & Diamonds, Energy & Minerals and Other Operations. The Company operates an iron ore business, supplying the global seaborne iron ore trade. Its Iron Ore product operations are located in the Pilbara region of Western Australia. The Aluminium business includes bauxite mines, alumina refineries and aluminum smelters. Its bauxite mines are located in Australia, Brazil and Guinea. The Copper & Diamonds segment has managed operations in Australia, Canada, Mongolia and the United States, and non-managed operations in Chile and Indonesia. The Energy & Minerals segment consists of mining, refining and marketing operations in over 10 countries, across six sectors: borates, coal, iron ore concentrate and pellets, salt, titanium dioxide and uranium.

FINANCIAL RATIOS  of  Rio Tinto ADR (RIO)

Valuation Ratios
P/E Ratio 17.9
Price to Sales 2.4
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 9.8
Price to Free Cash Flow 15.2
Growth Rates
Sales Growth Rate -3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -35.7%
Cap. Spend. - 3 Yr. Gr. Rate -25.4%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 43.1%
Total Debt to Equity 45.5%
Interest Coverage 6
Management Effectiveness
Return On Assets 6.2%
Ret/ On Assets - 3 Yr. Avg. 4.6%
Return On Total Capital 7.8%
Ret/ On T. Cap. - 3 Yr. Avg. 5.2%
Return On Equity 12%
Return On Equity - 3 Yr. Avg. 8%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 73.8%
Gross Margin - 3 Yr. Avg. 72.8%
EBITDA Margin 36.8%
EBITDA Margin - 3 Yr. Avg. 27.6%
Operating Margin 19.2%
Oper. Margin - 3 Yr. Avg. 18.2%
Pre-Tax Margin 18.8%
Pre-Tax Margin - 3 Yr. Avg. 12.2%
Net Profit Margin 13.7%
Net Profit Margin - 3 Yr. Avg. 8.3%
Effective Tax Rate 24.7%
Eff/ Tax Rate - 3 Yr. Avg. -26.7%
Payout Ratio 59%

RIO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RIO stock intrinsic value calculation we used $40030 million for the last fiscal year's total revenue generated by Rio Tinto ADR. The default revenue input number comes from 0001 income statement of Rio Tinto 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 RIO stock valuation model: a) initial revenue growth rate of 18.5% 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 RIO is calculated based on our internal credit rating of Rio Tinto 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 Rio Tinto 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 RIO stock the variable cost ratio is equal to 16.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $22485 million in the base year in the intrinsic value calculation for RIO 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 Rio Tinto ADR.

Corporate tax rate of 27% is the nominal tax rate for Rio Tinto 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 RIO 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 RIO are equal to 156.3%.

Life of production assets of 14.8 years is the average useful life of capital assets used in Rio Tinto 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 RIO is equal to -8.2%. 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 - $44711 million for Rio Tinto 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 118.227 million for Rio Tinto 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 Rio Tinto ADR at the current share price and the inputted number of shares is $5.4 billion.

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AA Alcoa 28.82 845.27  str.buy

COMPANY NEWS

▶ [$$] Rio Tinto to Build New $2.6 Billion Iron-ore Mine   [01:11AM  The Wall Street Journal]
▶ Investors Are Undervaluing Rio Tinto plc (LON:RIO) By 28.72%   [Nov-27-18 12:52AM  Simply Wall St.]
▶ [$$] BHP flags potential new copper deposit in South Australia   [Nov-26-18 06:57AM  Financial Times]
▶ [$$] Rio Tinto: cast offs   [Nov-25-18 11:19PM  Financial Times]
▶ [$$] How robot trains are boosting Australias mining industry   [Nov-22-18 11:00PM  Financial Times]
▶ 3 Mining Companies With High Earnings Yields   [Nov-20-18 03:29PM  GuruFocus.com]
▶ JD.com falls short, new GE problems, Rio Tinto focuses on coffee   [Nov-19-18 10:18AM  Yahoo Finance Video]
▶ PRESS DIGEST- Financial Times - Nov 19   [Nov-18-18 08:19PM  Reuters]
▶ [$$] Asia stocks flat, pound falls on Brexit worries   [Nov-11-18 09:22PM  Financial Times]
▶ [$$] Gupta claims financing for Rio Tinto smelter deal   [Nov-09-18 07:13AM  Financial Times]
▶ Should You Buy Paypal Holdings Inc (PYPL)?   [Nov-06-18 07:07AM  Insider Monkey]
▶ [$$] BHP to return $10.4bn in cash via buyback and dividend   [Oct-31-18 06:24AM  Financial Times]
▶ Why I Like Rio Tinto plc (LON:RIO)   [09:44AM  Simply Wall St.]
▶ Yanzhou's Coal Bet in Australia Wins Over Goldman   [Oct-25-18 10:07PM  Bloomberg]
▶ [$$] Saviour of steel Sanjeev Gupta asks rivals for loans   [Oct-18-18 11:00PM  Financial Times]
▶ 5 Companies To Watch In The Next Commodity Boom   [Oct-17-18 07:30PM  Oilprice.com]
▶ Top 4 Coal-Mining Stocks as of October 2018   [Oct-13-18 01:10PM  Investopedia]
▶ Top 5 Copper Stocks for 2018   [Oct-10-18 07:07PM  Investopedia]
▶ [$$] Rio Tinto in talks to sell Namibian uranium business   [Sep-28-18 06:48AM  Financial Times]
▶ Rio Tinto Limited (ASX:RIO): Commentary On Fundamentals   [Sep-23-18 06:56PM  Simply Wall St.]
▶ Company News For Sep 21, 2018   [Sep-21-18 10:02AM  Zacks]
▶ [$$] Rio Tinto details $3.2bn share buyback   [Sep-20-18 08:29AM  Financial Times]
▶ [$$] Rio Tinto Plans Buybacks to Return Cash to Shareholders   [Sep-19-18 09:59PM  The Wall Street Journal]
▶ [$$] BHPs Andrew Mackenzie sees total pay climb to $4.65m   [Sep-18-18 08:29AM  Financial Times]
▶ [$$] Norway's Norsk Hydro Pulls $345M Acquisition of Rio Tinto Assets   [Sep-14-18 08:53AM  The Wall Street Journal]
▶ What Price Copper?   [12:40PM  TheStreet.com]
▶ Should You Buy Rio Tinto Limited (ASX:RIO) For Its Dividend?   [Aug-30-18 07:13PM  Simply Wall St.]
▶ Moving Average Crossover Alert: Rio Tinto (RIO)   [Aug-29-18 07:40AM  Zacks]
▶ [$$] Coal industry between a rock and a hard place   [Aug-27-18 09:00PM  Financial Times]
▶ Better Buy: Freeport-McMoRan Inc. vs. Hecla Mining   [Aug-21-18 09:42AM  Motley Fool]
▶ [$$] Can Mongolian copper power the green revolution?   [Aug-12-18 12:00AM  Financial Times]
▶ Miners Spend on Shareholders, Not Projects   [Aug-08-18 07:45AM  The Wall Street Journal]

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