Intrinsic value of Southern - SO

Previous Close

$46.72

  Intrinsic Value

$15.77

stock screener

  Rating & Target

str. sell

-66%

Previous close

$46.72

 
Intrinsic value

$15.77

 
Up/down potential

-66%

 
Rating

str. sell

We calculate the intrinsic value of SO 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 46.7

 

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, %
  15.80
  14.72
  13.75
  12.87
  12.09
  11.38
  10.74
  10.17
  9.65
  9.18
  8.77
  8.39
  8.05
  7.75
  7.47
  7.22
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
Revenue, $m
  26,670
  30,596
  34,802
  39,282
  44,030
  49,039
  54,306
  59,826
  65,599
  71,624
  77,902
  84,437
  91,235
  98,301
  105,645
  113,276
  121,207
  129,450
  138,021
  146,936
  156,212
  165,869
  175,926
  186,406
  197,332
  208,729
  220,622
  233,039
  246,008
  259,560
Variable operating expenses, $m
  19,276
  22,009
  24,936
  28,054
  31,359
  34,845
  38,511
  42,353
  46,371
  50,564
  54,219
  58,768
  63,499
  68,417
  73,528
  78,839
  84,359
  90,097
  96,062
  102,266
  108,723
  115,443
  122,443
  129,738
  137,342
  145,274
  153,552
  162,194
  171,220
  180,652
Fixed operating expenses, $m
  394
  403
  412
  421
  430
  440
  450
  459
  470
  480
  490
  501
  512
  523
  535
  547
  559
  571
  584
  596
  610
  623
  637
  651
  665
  680
  695
  710
  726
  742
Total operating expenses, $m
  19,670
  22,412
  25,348
  28,475
  31,789
  35,285
  38,961
  42,812
  46,841
  51,044
  54,709
  59,269
  64,011
  68,940
  74,063
  79,386
  84,918
  90,668
  96,646
  102,862
  109,333
  116,066
  123,080
  130,389
  138,007
  145,954
  154,247
  162,904
  171,946
  181,394
Operating income, $m
  6,999
  8,184
  9,454
  10,807
  12,241
  13,754
  15,346
  17,014
  18,759
  20,580
  23,192
  25,168
  27,224
  29,361
  31,582
  33,890
  36,289
  38,783
  41,376
  44,073
  46,880
  49,802
  52,846
  56,018
  59,325
  62,775
  66,376
  70,135
  74,062
  78,166
EBITDA, $m
  17,712
  20,368
  23,215
  26,248
  29,462
  32,853
  36,419
  40,157
  44,066
  48,146
  52,398
  56,824
  61,428
  66,214
  71,188
  76,357
  81,729
  87,313
  93,120
  99,159
  105,444
  111,986
  118,801
  125,902
  133,305
  141,028
  149,087
  157,501
  166,291
  175,475
Interest expense (income), $m
  1,100
  2,743
  3,484
  4,273
  5,118
  6,018
  6,971
  7,978
  9,035
  10,144
  11,304
  12,514
  13,775
  15,088
  16,453
  17,873
  19,348
  20,881
  22,474
  24,130
  25,851
  27,642
  29,505
  31,445
  33,465
  35,570
  37,765
  40,054
  42,443
  44,937
  47,543
Earnings before tax, $m
  4,256
  4,700
  5,181
  5,689
  6,223
  6,783
  7,368
  7,979
  8,615
  9,276
  10,678
  11,393
  12,136
  12,907
  13,709
  14,542
  15,408
  16,309
  17,246
  18,222
  19,238
  20,297
  21,401
  22,553
  23,755
  25,010
  26,321
  27,692
  29,125
  30,624
Tax expense, $m
  1,149
  1,269
  1,399
  1,536
  1,680
  1,831
  1,989
  2,154
  2,326
  2,505
  2,883
  3,076
  3,277
  3,485
  3,701
  3,926
  4,160
  4,403
  4,656
  4,920
  5,194
  5,480
  5,778
  6,089
  6,414
  6,753
  7,107
  7,477
  7,864
  8,268
Net income, $m
  3,107
  3,431
  3,782
  4,153
  4,543
  4,952
  5,379
  5,824
  6,289
  6,772
  7,795
  8,317
  8,859
  9,422
  10,007
  10,616
  11,248
  11,905
  12,590
  13,302
  14,044
  14,817
  15,623
  16,463
  17,341
  18,257
  19,215
  20,215
  21,261
  22,355

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
  128,840
  147,805
  168,126
  189,769
  212,704
  236,904
  262,346
  289,016
  316,903
  346,008
  376,338
  407,909
  440,747
  474,884
  510,361
  547,227
  585,540
  625,363
  666,769
  709,835
  754,647
  801,297
  849,884
  900,514
  953,297
  1,008,353
  1,065,807
  1,125,791
  1,188,443
  1,253,911
Adjusted assets (=assets-cash), $m
  128,840
  147,805
  168,126
  189,769
  212,704
  236,904
  262,346
  289,016
  316,903
  346,008
  376,338
  407,909
  440,747
  474,884
  510,361
  547,227
  585,540
  625,363
  666,769
  709,835
  754,647
  801,297
  849,884
  900,514
  953,297
  1,008,353
  1,065,807
  1,125,791
  1,188,443
  1,253,911
Revenue / Adjusted assets
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
Average production assets, $m
  99,985
  114,703
  130,473
  147,269
  165,067
  183,848
  203,592
  224,288
  245,930
  268,517
  292,054
  316,555
  342,038
  368,530
  396,062
  424,672
  454,404
  485,309
  517,441
  550,862
  585,639
  621,841
  659,547
  698,837
  739,799
  782,525
  827,112
  873,662
  922,283
  973,089
Working capital, $m
  -533
  -612
  -696
  -786
  -881
  -981
  -1,086
  -1,197
  -1,312
  -1,432
  -1,558
  -1,689
  -1,825
  -1,966
  -2,113
  -2,266
  -2,424
  -2,589
  -2,760
  -2,939
  -3,124
  -3,317
  -3,519
  -3,728
  -3,947
  -4,175
  -4,412
  -4,661
  -4,920
  -5,191
Total debt, $m
  64,523
  79,126
  94,773
  111,438
  129,098
  147,732
  167,323
  187,858
  209,331
  231,742
  255,096
  279,406
  304,691
  330,976
  358,294
  386,681
  416,182
  446,846
  478,728
  511,889
  546,394
  582,315
  619,727
  658,711
  699,355
  741,748
  785,987
  832,175
  880,417
  930,828
Total liabilities, $m
  99,207
  113,810
  129,457
  146,122
  163,782
  182,416
  202,007
  222,542
  244,015
  266,426
  289,780
  314,090
  339,375
  365,660
  392,978
  421,365
  450,866
  481,530
  513,412
  546,573
  581,078
  616,999
  654,411
  693,395
  734,039
  776,432
  820,671
  866,859
  915,101
  965,512
Total equity, $m
  29,633
  33,995
  38,669
  43,647
  48,922
  54,488
  60,340
  66,474
  72,888
  79,582
  86,558
  93,819
  101,372
  109,223
  117,383
  125,862
  134,674
  143,834
  153,357
  163,262
  173,569
  184,298
  195,473
  207,118
  219,258
  231,921
  245,136
  258,932
  273,342
  288,400
Total liabilities and equity, $m
  128,840
  147,805
  168,126
  189,769
  212,704
  236,904
  262,347
  289,016
  316,903
  346,008
  376,338
  407,909
  440,747
  474,883
  510,361
  547,227
  585,540
  625,364
  666,769
  709,835
  754,647
  801,297
  849,884
  900,513
  953,297
  1,008,353
  1,065,807
  1,125,791
  1,188,443
  1,253,912
Debt-to-equity ratio
  2.180
  2.330
  2.450
  2.550
  2.640
  2.710
  2.770
  2.830
  2.870
  2.910
  2.950
  2.980
  3.010
  3.030
  3.050
  3.070
  3.090
  3.110
  3.120
  3.140
  3.150
  3.160
  3.170
  3.180
  3.190
  3.200
  3.210
  3.210
  3.220
  3.230
Adjusted equity ratio
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,107
  3,431
  3,782
  4,153
  4,543
  4,952
  5,379
  5,824
  6,289
  6,772
  7,795
  8,317
  8,859
  9,422
  10,007
  10,616
  11,248
  11,905
  12,590
  13,302
  14,044
  14,817
  15,623
  16,463
  17,341
  18,257
  19,215
  20,215
  21,261
  22,355
Depreciation, amort., depletion, $m
  10,713
  12,184
  13,761
  15,441
  17,221
  19,099
  21,073
  23,143
  25,307
  27,566
  29,205
  31,656
  34,204
  36,853
  39,606
  42,467
  45,440
  48,531
  51,744
  55,086
  58,564
  62,184
  65,955
  69,884
  73,980
  78,253
  82,711
  87,366
  92,228
  97,309
Funds from operations, $m
  13,820
  15,615
  17,544
  19,594
  21,764
  24,050
  26,452
  28,967
  31,596
  34,337
  37,000
  39,972
  43,063
  46,275
  49,614
  53,083
  56,688
  60,436
  64,334
  68,388
  72,607
  77,001
  81,577
  86,347
  91,321
  96,510
  101,926
  107,581
  113,489
  119,664
Change in working capital, $m
  -73
  -79
  -84
  -90
  -95
  -100
  -105
  -110
  -115
  -120
  -126
  -131
  -136
  -141
  -147
  -153
  -159
  -165
  -171
  -178
  -186
  -193
  -201
  -210
  -219
  -228
  -238
  -248
  -259
  -271
Cash from operations, $m
  13,893
  15,694
  17,628
  19,684
  21,859
  24,151
  26,557
  29,078
  31,711
  34,458
  37,126
  40,103
  43,199
  46,417
  49,761
  53,235
  56,847
  60,601
  64,505
  68,566
  72,793
  77,194
  81,778
  86,557
  91,539
  96,738
  102,164
  107,830
  113,749
  119,935
Maintenance CAPEX, $m
  -8,634
  -9,999
  -11,470
  -13,047
  -14,727
  -16,507
  -18,385
  -20,359
  -22,429
  -24,593
  -26,852
  -29,205
  -31,656
  -34,204
  -36,853
  -39,606
  -42,467
  -45,440
  -48,531
  -51,744
  -55,086
  -58,564
  -62,184
  -65,955
  -69,884
  -73,980
  -78,253
  -82,711
  -87,366
  -92,228
New CAPEX, $m
  -13,645
  -14,718
  -15,769
  -16,796
  -17,799
  -18,780
  -19,744
  -20,696
  -21,642
  -22,587
  -23,537
  -24,501
  -25,483
  -26,492
  -27,532
  -28,610
  -29,732
  -30,905
  -32,132
  -33,421
  -34,776
  -36,203
  -37,706
  -39,291
  -40,962
  -42,726
  -44,587
  -46,550
  -48,621
  -50,806
Cash from investing activities, $m
  -22,279
  -24,717
  -27,239
  -29,843
  -32,526
  -35,287
  -38,129
  -41,055
  -44,071
  -47,180
  -50,389
  -53,706
  -57,139
  -60,696
  -64,385
  -68,216
  -72,199
  -76,345
  -80,663
  -85,165
  -89,862
  -94,767
  -99,890
  -105,246
  -110,846
  -116,706
  -122,840
  -129,261
  -135,987
  -143,034
Free cash flow, $m
  -8,387
  -9,023
  -9,612
  -10,160
  -10,667
  -11,136
  -11,572
  -11,978
  -12,359
  -12,722
  -13,263
  -13,603
  -13,940
  -14,279
  -14,624
  -14,981
  -15,353
  -15,744
  -16,158
  -16,599
  -17,069
  -17,573
  -18,111
  -18,688
  -19,306
  -19,968
  -20,676
  -21,432
  -22,239
  -23,099
Issuance/(repayment) of debt, $m
  13,730
  14,603
  15,647
  16,665
  17,660
  18,634
  19,591
  20,535
  21,473
  22,411
  23,354
  24,310
  25,285
  26,285
  27,317
  28,387
  29,501
  30,664
  31,882
  33,161
  34,505
  35,921
  37,412
  38,985
  40,643
  42,393
  44,240
  46,188
  48,243
  50,410
Issuance/(repurchase) of shares, $m
  998
  931
  891
  825
  732
  614
  473
  310
  125
  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  
  14,728
  15,534
  16,538
  17,490
  18,392
  19,248
  20,064
  20,845
  21,598
  22,411
  23,354
  24,310
  25,285
  26,285
  27,317
  28,387
  29,501
  30,664
  31,882
  33,161
  34,505
  35,921
  37,412
  38,985
  40,643
  42,393
  44,240
  46,188
  48,243
  50,410
Total cash flow (excl. dividends), $m
  6,341
  6,512
  6,926
  7,330
  7,725
  8,112
  8,492
  8,867
  9,239
  9,689
  10,091
  10,707
  11,345
  12,007
  12,693
  13,406
  14,148
  14,920
  15,724
  16,562
  17,436
  18,348
  19,301
  20,296
  21,337
  22,425
  23,564
  24,756
  26,004
  27,311
Retained Cash Flow (-), $m
  -4,105
  -4,362
  -4,674
  -4,978
  -5,275
  -5,566
  -5,852
  -6,134
  -6,414
  -6,694
  -6,976
  -7,261
  -7,553
  -7,851
  -8,160
  -8,479
  -8,812
  -9,159
  -9,523
  -9,905
  -10,307
  -10,730
  -11,175
  -11,645
  -12,140
  -12,663
  -13,214
  -13,796
  -14,410
  -15,058
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
  115
  133
  153
  174
  196
  220
  245
  272
  299
  328
  358
  390
  422
  456
  492
  528
  566
  606
  647
  690
  735
  781
  829
  880
  932
  987
  1,044
  1,103
  1,165
  1,230
Cash available for distribution, $m
  2,236
  2,150
  2,252
  2,353
  2,450
  2,546
  2,640
  2,733
  2,825
  2,995
  3,115
  3,445
  3,792
  4,155
  4,533
  4,927
  5,336
  5,761
  6,201
  6,657
  7,129
  7,619
  8,126
  8,651
  9,197
  9,762
  10,350
  10,960
  11,594
  12,254
Discount rate, %
  9.60
  10.08
  10.58
  11.11
  11.67
  12.25
  12.86
  13.51
  14.18
  14.89
  15.64
  16.42
  17.24
  18.10
  19.01
  19.96
  20.96
  22.00
  23.10
  24.26
  25.47
  26.75
  28.08
  29.49
  30.96
  32.51
  34.13
  35.84
  37.63
  39.51
PV of cash for distribution, $m
  2,040
  1,774
  1,666
  1,543
  1,411
  1,273
  1,132
  992
  856
  747
  630
  556
  480
  405
  333
  268
  210
  161
  119
  86
  61
  41
  27
  18
  11
  6
  4
  2
  1
  1
Current shareholders' claim on cash, %
  97.9
  96.3
  94.9
  93.8
  93.0
  92.3
  91.9
  91.6
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5
  91.5

The Southern Company (Southern Company) is a holding company. The Company owns all of the stock of the traditional electric operating companies and the parent entities of Southern Power Company (Southern Power) and Southern Company Gas, and owns other direct and indirect subsidiaries. The Company's segments include Gas distribution operations, Gas marketing services, Wholesale gas services, Gas midstream operations and All other. The Gas distribution operations segment includes natural gas local distribution utilities that construct, manage, and maintain intrastate natural gas pipelines and gas distribution facilities in seven states. The Gas marketing services segment provides natural gas commodity and related services to customers markets that provide for customer choice. The Wholesale gas services segment engages in natural gas storage and gas pipeline arbitrage. The Gas midstream operations consist primarily of gas pipeline investments, with storage and fuels.

FINANCIAL RATIOS  of  Southern (SO)

Valuation Ratios
P/E Ratio 18.6
Price to Sales 2.3
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 9.5
Price to Free Cash Flow -19.1
Growth Rates
Sales Growth Rate 13.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -1.1%
Cap. Spend. - 3 Yr. Gr. Rate 6%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 167.3%
Total Debt to Equity 186.2%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. 3.7%
Return On Total Capital 4.1%
Ret/ On T. Cap. - 3 Yr. Avg. 4.5%
Return On Equity 10.7%
Return On Equity - 3 Yr. Avg. 10.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 37.7%
EBITDA Margin - 3 Yr. Avg. 36.5%
Operating Margin 23.3%
Oper. Margin - 3 Yr. Avg. 22.5%
Pre-Tax Margin 17.5%
Pre-Tax Margin - 3 Yr. Avg. 18.2%
Net Profit Margin 12.5%
Net Profit Margin - 3 Yr. Avg. 12.5%
Effective Tax Rate 27.3%
Eff/ Tax Rate - 3 Yr. Avg. 30.9%
Payout Ratio 84.4%

SO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SO stock intrinsic value calculation we used $23031 million for the last fiscal year's total revenue generated by Southern. The default revenue input number comes from 2017 income statement of Southern. 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 SO stock valuation model: a) initial revenue growth rate of 15.8% 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 9.6%, whose default value for SO is calculated based on our internal credit rating of Southern, 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 Southern.
    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 SO stock the variable cost ratio is equal to 72.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $386 million in the base year in the intrinsic value calculation for SO 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 Southern.

Corporate tax rate of 27% is the nominal tax rate for Southern. 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 SO stock is equal to 0.5%.

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 SO are equal to 374.9%.

Life of production assets of 10 years is the average useful life of capital assets used in Southern 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 SO is equal to -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 - $25528 million for Southern - 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 1000 million for Southern 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 Southern at the current share price and the inputted number of shares is $46.7 billion.

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