Friday, January 6, 2012

Vale Cash Flow

I'll try to evaluate Vale cash flow. I'll not consider 2010 results, because they are clearly over the average. Also, I'll not consider previous results for 2007, because Vale bought Inco and that had a huge impact on financial statements since then.


Using an exchange rate for US$/R$ of 1.80 and a market value of BRL 215 billions for VALE5, cash from operations would be about 10% of market value, which may be attractive. 

Cash Flow Values US$ R$ % MV
CFO 2007-2009    11.754    21.158 9,8%
CFO + WK 2007-2009    12.338    22.208 10,3%
FCF 2007-2009     4.431     7.976 3,7%




In 2010 they said that nearly 30% of total investments was directed to maintenance of current operations. If that is the case, a more normal FCF would be 18 billions, 8,3% of market value (without growth).

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2 comments:

cessna said...

I tried to evaluate Vale's FCF but a gave up. I also disregarded 2010 and focused on the 2006-2009 period.
I think it's risky to simply convert the numbers from several years to USD at the rate.
I found a working capital need, at a 5% revenue growth, of about 1B a year. From your numbers I guess you found a negative WK need. Is that right?
The problem is to find out the base cash profit in a normal market (by normal market I mean a market without a booming price for commodities).

sid said...

Yes, WK was positive for the period. probably it's not representative.
I also think that the company is risky, it offers no margin of safety at the currents price and scenario.

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