Intrinsic value of Air Canada Voting and Variable Voting Sh - AC

Previous Close

$26.20

  Intrinsic Value

$32.96

stock screener

  Rating & Target

buy

+26%

Previous close

$26.20

 
Intrinsic value

$32.96

 
Up/down potential

+26%

 
Rating

buy

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AC 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 2016), $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 7.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.83
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
Revenue, $m
  14,677
  15,528
  16,416
  17,344
  18,312
  19,324
  20,381
  21,487
  22,643
  23,854
  25,120
  26,446
  27,835
  29,290
  30,814
  32,411
  34,085
  35,839
  37,679
  39,608
  41,632
  43,754
  45,980
  48,315
  50,765
  53,336
  56,033
  58,864
  61,834
  64,952
  68,224
Variable operating expenses, $m
 
  13,849
  14,640
  15,465
  16,327
  17,227
  18,168
  19,152
  20,181
  21,258
  22,385
  23,534
  24,770
  26,064
  27,421
  28,842
  30,331
  31,893
  33,530
  35,247
  37,047
  38,936
  40,917
  42,995
  45,175
  47,462
  49,863
  52,382
  55,025
  57,799
  60,711
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
  13,421
  13,849
  14,640
  15,465
  16,327
  17,227
  18,168
  19,152
  20,181
  21,258
  22,385
  23,534
  24,770
  26,064
  27,421
  28,842
  30,331
  31,893
  33,530
  35,247
  37,047
  38,936
  40,917
  42,995
  45,175
  47,462
  49,863
  52,382
  55,025
  57,799
  60,711
Operating income, $m
  1,256
  1,679
  1,777
  1,879
  1,985
  2,097
  2,213
  2,335
  2,462
  2,596
  2,735
  2,912
  3,065
  3,225
  3,393
  3,569
  3,753
  3,947
  4,149
  4,362
  4,584
  4,818
  5,063
  5,320
  5,590
  5,873
  6,170
  6,482
  6,809
  7,152
  7,513
EBITDA, $m
  2,095
  2,562
  2,709
  2,862
  3,022
  3,189
  3,363
  3,546
  3,736
  3,936
  4,145
  4,364
  4,593
  4,833
  5,085
  5,348
  5,624
  5,914
  6,217
  6,536
  6,870
  7,220
  7,587
  7,972
  8,377
  8,801
  9,246
  9,713
  10,203
  10,718
  11,257
Interest expense (income), $m
  331
  301
  218
  252
  287
  324
  363
  403
  445
  489
  534
  583
  633
  686
  741
  799
  859
  923
  990
  1,059
  1,133
  1,209
  1,290
  1,375
  1,463
  1,556
  1,654
  1,756
  1,864
  1,976
  2,095
Earnings before tax, $m
  877
  1,377
  1,558
  1,627
  1,698
  1,773
  1,851
  1,932
  2,018
  2,107
  2,201
  2,330
  2,432
  2,540
  2,652
  2,770
  2,894
  3,024
  3,160
  3,302
  3,452
  3,609
  3,773
  3,946
  4,127
  4,317
  4,517
  4,726
  4,945
  5,176
  5,418
Tax expense, $m
  1
  372
  421
  439
  458
  479
  500
  522
  545
  569
  594
  629
  657
  686
  716
  748
  781
  816
  853
  892
  932
  974
  1,019
  1,065
  1,114
  1,166
  1,219
  1,276
  1,335
  1,398
  1,463
Net income, $m
  876
  1,005
  1,138
  1,187
  1,240
  1,294
  1,351
  1,411
  1,473
  1,538
  1,606
  1,701
  1,776
  1,854
  1,936
  2,022
  2,113
  2,207
  2,307
  2,411
  2,520
  2,634
  2,754
  2,880
  3,013
  3,151
  3,297
  3,450
  3,610
  3,778
  3,955

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,979
  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
  15,114
  12,844
  13,579
  14,345
  15,146
  15,983
  16,858
  17,772
  18,729
  19,730
  20,778
  21,875
  23,023
  24,226
  25,487
  26,808
  28,192
  29,644
  31,166
  32,761
  34,435
  36,190
  38,031
  39,963
  41,989
  44,116
  46,347
  48,688
  51,145
  53,724
  56,430
Adjusted assets (=assets-cash), $m
  12,135
  12,844
  13,579
  14,345
  15,146
  15,983
  16,858
  17,772
  18,729
  19,730
  20,778
  21,875
  23,023
  24,226
  25,487
  26,808
  28,192
  29,644
  31,166
  32,761
  34,435
  36,190
  38,031
  39,963
  41,989
  44,116
  46,347
  48,688
  51,145
  53,724
  56,430
Revenue / Adjusted assets
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
  1.209
Average production assets, $m
  7,256
  7,671
  8,110
  8,568
  9,046
  9,546
  10,068
  10,615
  11,186
  11,784
  12,409
  13,064
  13,751
  14,469
  15,222
  16,011
  16,838
  17,705
  18,614
  19,567
  20,566
  21,614
  22,714
  23,868
  25,078
  26,348
  27,680
  29,079
  30,546
  32,086
  33,703
Working capital, $m
  -77
  -2,485
  -2,627
  -2,775
  -2,930
  -3,092
  -3,261
  -3,438
  -3,623
  -3,817
  -4,019
  -4,231
  -4,454
  -4,686
  -4,930
  -5,186
  -5,454
  -5,734
  -6,029
  -6,337
  -6,661
  -7,001
  -7,357
  -7,730
  -8,122
  -8,534
  -8,965
  -9,418
  -9,893
  -10,392
  -10,916
Total debt, $m
  6,618
  4,283
  4,944
  5,634
  6,355
  7,108
  7,895
  8,718
  9,579
  10,480
  11,423
  12,410
  13,444
  14,527
  15,661
  16,850
  18,096
  19,403
  20,772
  22,208
  23,714
  25,294
  26,951
  28,690
  30,513
  32,427
  34,435
  36,542
  38,753
  41,074
  43,510
Total liabilities, $m
  13,895
  11,560
  12,221
  12,911
  13,632
  14,385
  15,172
  15,995
  16,856
  17,757
  18,700
  19,687
  20,721
  21,804
  22,938
  24,127
  25,373
  26,680
  28,049
  29,485
  30,991
  32,571
  34,228
  35,967
  37,790
  39,704
  41,712
  43,819
  46,030
  48,351
  50,787
Total equity, $m
  1,219
  1,284
  1,358
  1,435
  1,515
  1,598
  1,686
  1,777
  1,873
  1,973
  2,078
  2,187
  2,302
  2,423
  2,549
  2,681
  2,819
  2,964
  3,117
  3,276
  3,443
  3,619
  3,803
  3,996
  4,199
  4,412
  4,635
  4,869
  5,114
  5,372
  5,643
Total liabilities and equity, $m
  15,114
  12,844
  13,579
  14,346
  15,147
  15,983
  16,858
  17,772
  18,729
  19,730
  20,778
  21,874
  23,023
  24,227
  25,487
  26,808
  28,192
  29,644
  31,166
  32,761
  34,434
  36,190
  38,031
  39,963
  41,989
  44,116
  46,347
  48,688
  51,144
  53,723
  56,430
Debt-to-equity ratio
  5.429
  3.330
  3.640
  3.930
  4.200
  4.450
  4.680
  4.910
  5.110
  5.310
  5.500
  5.670
  5.840
  6.000
  6.140
  6.290
  6.420
  6.550
  6.670
  6.780
  6.890
  6.990
  7.090
  7.180
  7.270
  7.350
  7.430
  7.510
  7.580
  7.650
  7.710
Adjusted equity ratio
  -0.145
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  876
  1,005
  1,138
  1,187
  1,240
  1,294
  1,351
  1,411
  1,473
  1,538
  1,606
  1,701
  1,776
  1,854
  1,936
  2,022
  2,113
  2,207
  2,307
  2,411
  2,520
  2,634
  2,754
  2,880
  3,013
  3,151
  3,297
  3,450
  3,610
  3,778
  3,955
Depreciation, amort., depletion, $m
  839
  883
  932
  983
  1,036
  1,092
  1,150
  1,210
  1,274
  1,340
  1,410
  1,452
  1,528
  1,608
  1,691
  1,779
  1,871
  1,967
  2,068
  2,174
  2,285
  2,402
  2,524
  2,652
  2,786
  2,928
  3,076
  3,231
  3,394
  3,565
  3,745
Funds from operations, $m
  2,634
  1,889
  2,070
  2,171
  2,276
  2,386
  2,501
  2,621
  2,747
  2,879
  3,016
  3,152
  3,303
  3,462
  3,628
  3,801
  3,984
  4,174
  4,375
  4,585
  4,805
  5,036
  5,278
  5,532
  5,799
  6,079
  6,373
  6,681
  7,004
  7,344
  7,700
Change in working capital, $m
  213
  -136
  -142
  -148
  -155
  -162
  -169
  -177
  -185
  -194
  -203
  -212
  -222
  -233
  -244
  -256
  -268
  -281
  -294
  -309
  -324
  -340
  -356
  -374
  -392
  -411
  -432
  -453
  -475
  -499
  -524
Cash from operations, $m
  2,421
  2,025
  2,212
  2,319
  2,431
  2,548
  2,670
  2,798
  2,932
  3,072
  3,219
  3,364
  3,526
  3,694
  3,871
  4,057
  4,251
  4,455
  4,669
  4,893
  5,129
  5,375
  5,634
  5,906
  6,191
  6,490
  6,804
  7,134
  7,480
  7,842
  8,223
Maintenance CAPEX, $m
  0
  -806
  -852
  -901
  -952
  -1,005
  -1,061
  -1,119
  -1,179
  -1,243
  -1,309
  -1,379
  -1,452
  -1,528
  -1,608
  -1,691
  -1,779
  -1,871
  -1,967
  -2,068
  -2,174
  -2,285
  -2,402
  -2,524
  -2,652
  -2,786
  -2,928
  -3,076
  -3,231
  -3,394
  -3,565
New CAPEX, $m
  -2,921
  -415
  -439
  -458
  -478
  -500
  -522
  -546
  -571
  -598
  -626
  -655
  -686
  -719
  -753
  -789
  -827
  -867
  -909
  -953
  -999
  -1,048
  -1,100
  -1,154
  -1,210
  -1,270
  -1,333
  -1,398
  -1,467
  -1,540
  -1,616
Cash from investing activities, $m
  -2,326
  -1,221
  -1,291
  -1,359
  -1,430
  -1,505
  -1,583
  -1,665
  -1,750
  -1,841
  -1,935
  -2,034
  -2,138
  -2,247
  -2,361
  -2,480
  -2,606
  -2,738
  -2,876
  -3,021
  -3,173
  -3,333
  -3,502
  -3,678
  -3,862
  -4,056
  -4,261
  -4,474
  -4,698
  -4,934
  -5,181
Free cash flow, $m
  95
  804
  921
  960
  1,000
  1,043
  1,087
  1,133
  1,181
  1,232
  1,284
  1,331
  1,388
  1,448
  1,511
  1,577
  1,645
  1,718
  1,793
  1,872
  1,955
  2,042
  2,133
  2,229
  2,329
  2,434
  2,544
  2,660
  2,781
  2,908
  3,042
Issuance/(repayment) of debt, $m
  263
  -1,628
  661
  690
  721
  753
  787
  823
  861
  901
  943
  987
  1,034
  1,083
  1,135
  1,189
  1,246
  1,306
  1,370
  1,436
  1,506
  1,580
  1,657
  1,738
  1,824
  1,914
  2,008
  2,107
  2,211
  2,321
  2,436
Issuance/(repurchase) of shares, $m
  -92
  1,332
  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  
  137
  -296
  661
  690
  721
  753
  787
  823
  861
  901
  943
  987
  1,034
  1,083
  1,135
  1,189
  1,246
  1,306
  1,370
  1,436
  1,506
  1,580
  1,657
  1,738
  1,824
  1,914
  2,008
  2,107
  2,211
  2,321
  2,436
Total cash flow (excl. dividends), $m
  215
  507
  1,582
  1,650
  1,721
  1,796
  1,874
  1,956
  2,042
  2,132
  2,227
  2,318
  2,422
  2,531
  2,645
  2,765
  2,892
  3,024
  3,163
  3,308
  3,461
  3,622
  3,790
  3,967
  4,153
  4,348
  4,552
  4,767
  4,992
  5,229
  5,478
Retained Cash Flow (-), $m
  -1,206
  -2,337
  -73
  -77
  -80
  -84
  -87
  -91
  -96
  -100
  -105
  -110
  -115
  -120
  -126
  -132
  -138
  -145
  -152
  -160
  -167
  -176
  -184
  -193
  -203
  -213
  -223
  -234
  -246
  -258
  -271
Prev. year cash balance distribution, $m
 
  2,272
  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
 
  442
  1,508
  1,573
  1,641
  1,712
  1,787
  1,865
  1,947
  2,032
  2,122
  2,208
  2,307
  2,411
  2,519
  2,633
  2,753
  2,879
  3,010
  3,149
  3,294
  3,446
  3,606
  3,774
  3,950
  4,135
  4,329
  4,533
  4,747
  4,971
  5,207
Discount rate, %
 
  5.20
  5.46
  5.73
  6.02
  6.32
  6.64
  6.97
  7.32
  7.68
  8.07
  8.47
  8.89
  9.34
  9.81
  10.30
  10.81
  11.35
  11.92
  12.51
  13.14
  13.80
  14.49
  15.21
  15.97
  16.77
  17.61
  18.49
  19.41
  20.38
  21.40
PV of cash for distribution, $m
 
  420
  1,356
  1,331
  1,299
  1,260
  1,215
  1,164
  1,106
  1,044
  977
  903
  830
  755
  680
  606
  533
  463
  397
  335
  279
  228
  184
  145
  113
  86
  64
  46
  33
  23
  15
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Air Canada is a domestic, United States transborder and international airline company. The Company is a provider of scheduled passenger services in the Canadian market, the Canada-United States transborder market and in the international market to and from Canada. Its mainline operates a fleet of approximately 170 aircraft, including Airbus narrow-body aircraft, over 70 Boeing and Airbus wide-body aircraft, and approximately Embraer 190 regional jets. Air Canada rouge operates a fleet of approximately 50 aircraft comprising over 20 Airbus A319 aircraft, five Airbus A321 aircraft and approximately 20 Boeing 767-300 aircraft. Through the 28-member airline network, it offers flights to approximately 1,300 destinations in over 190 countries. Air Canada Altitude recognizes and rewards Aeroplan loyalty program members with a range of travel privileges and benefits corresponding to their travel activity, such as priority check-in, complimentary checked baggage and upgrades to business class.

FINANCIAL RATIOS  of  Air Canada Voting and Variable Voting Sh (AC)

Valuation Ratios
P/E Ratio 8.2
Price to Sales 0.5
Price to Book 5.9
Price to Tangible Book
Price to Cash Flow 3
Price to Free Cash Flow -14.3
Growth Rates
Sales Growth Rate 5.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 60.9%
Cap. Spend. - 3 Yr. Gr. Rate 24.9%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 484.9%
Total Debt to Equity 542.9%
Interest Coverage 4
Management Effectiveness
Return On Assets 8.5%
Ret/ On Assets - 3 Yr. Avg. 6%
Return On Total Capital 12.3%
Ret/ On T. Cap. - 3 Yr. Avg. 7%
Return On Equity 142.2%
Return On Equity - 3 Yr. Avg. 27.9%
Asset Turnover 1
Profitability Ratios
Gross Margin 47.5%
Gross Margin - 3 Yr. Avg. 48.9%
EBITDA Margin 13.9%
EBITDA Margin - 3 Yr. Avg. 10.2%
Operating Margin 8.6%
Oper. Margin - 3 Yr. Avg. 8.5%
Pre-Tax Margin 6%
Pre-Tax Margin - 3 Yr. Avg. 3%
Net Profit Margin 6%
Net Profit Margin - 3 Yr. Avg. 3%
Effective Tax Rate 0.1%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

AC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AC stock intrinsic value calculation we used $14677 million for the last fiscal year's total revenue generated by Air Canada Voting and Variable Voting Sh. The default revenue input number comes from 2016 income statement of Air Canada Voting and Variable Voting Sh. 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 AC stock valuation model: a) initial revenue growth rate of 5.8% 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 5.2%, whose default value for AC is calculated based on our internal credit rating of Air Canada Voting and Variable Voting Sh, 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 Air Canada Voting and Variable Voting Sh.
    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 AC stock the variable cost ratio is equal to 89.2%.

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 AC 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 5.1% for Air Canada Voting and Variable Voting Sh.

Corporate tax rate of 27% is the nominal tax rate for Air Canada Voting and Variable Voting Sh. 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 AC 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 AC are equal to 49.4%.

Life of production assets of 9 years is the average useful life of capital assets used in Air Canada Voting and Variable Voting Sh 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 AC is equal to -16%. 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 - $1219 million for Air Canada Voting and Variable Voting Sh - 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 271.79 million for Air Canada Voting and Variable Voting Sh 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 Air Canada Voting and Variable Voting Sh at the current share price and the inputted number of shares is $7.1 billion.

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Financial statements of AC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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