Intrinsic value of Birchcliff Energy Ltd. - BIR

Previous Close

$4.08

  Intrinsic Value

$1.66

stock screener

  Rating & Target

str. sell

-59%

Previous close

$4.08

 
Intrinsic value

$1.66

 
Up/down potential

-59%

 
Rating

str. sell

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

We calculate the intrinsic value of BIR 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 1.1

 

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, %
  3.59
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  317
  507
  784
  1,172
  1,700
  2,399
  3,298
  4,427
  5,813
  7,480
  9,448
  11,732
  14,343
  17,288
  20,570
  24,186
  28,134
  32,409
  37,002
  41,906
  47,115
  52,621
  58,419
  64,504
  70,874
  77,527
  84,464
  91,689
  99,206
  107,022
  115,145
Variable operating expenses, $m
 
  456
  704
  1,054
  1,529
  2,157
  2,965
  3,980
  5,226
  6,724
  8,493
  10,547
  12,894
  15,542
  18,492
  21,743
  25,293
  29,135
  33,264
  37,674
  42,356
  47,307
  52,519
  57,989
  63,716
  69,697
  75,933
  82,428
  89,186
  96,213
  103,516
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
  294
  456
  704
  1,054
  1,529
  2,157
  2,965
  3,980
  5,226
  6,724
  8,493
  10,547
  12,894
  15,542
  18,492
  21,743
  25,293
  29,135
  33,264
  37,674
  42,356
  47,307
  52,519
  57,989
  63,716
  69,697
  75,933
  82,428
  89,186
  96,213
  103,516
Operating income, $m
  23
  51
  79
  118
  172
  242
  333
  447
  587
  755
  954
  1,185
  1,449
  1,746
  2,078
  2,443
  2,842
  3,273
  3,737
  4,233
  4,759
  5,315
  5,900
  6,515
  7,158
  7,830
  8,531
  9,261
  10,020
  10,809
  11,630
EBITDA, $m
  172
  289
  447
  669
  970
  1,369
  1,882
  2,526
  3,317
  4,268
  5,391
  6,694
  8,184
  9,865
  11,737
  13,801
  16,054
  18,493
  21,114
  23,912
  26,885
  30,027
  33,335
  36,807
  40,442
  44,238
  48,197
  52,319
  56,608
  61,068
  65,704
Interest expense (income), $m
  30
  29
  57
  99
  158
  237
  343
  478
  649
  858
  1,109
  1,406
  1,751
  2,145
  2,589
  3,084
  3,629
  4,225
  4,870
  5,563
  6,303
  7,088
  7,919
  8,794
  9,712
  10,672
  11,676
  12,723
  13,813
  14,947
  16,126
Earnings before tax, $m
  -30
  23
  22
  19
  14
  5
  -10
  -31
  -62
  -102
  -155
  -221
  -302
  -398
  -511
  -641
  -788
  -952
  -1,133
  -1,330
  -1,544
  -1,774
  -2,019
  -2,279
  -2,553
  -2,842
  -3,145
  -3,462
  -3,793
  -4,137
  -4,496
Tax expense, $m
  -6
  6
  6
  5
  4
  1
  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
Net income, $m
  -24
  16
  16
  14
  10
  4
  -10
  -31
  -62
  -102
  -155
  -221
  -302
  -398
  -511
  -641
  -788
  -952
  -1,133
  -1,330
  -1,544
  -1,774
  -2,019
  -2,279
  -2,553
  -2,842
  -3,145
  -3,462
  -3,793
  -4,137
  -4,496

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
  0
Total assets, $m
  2,710
  4,335
  6,698
  10,016
  14,533
  20,504
  28,189
  37,837
  49,683
  63,930
  80,748
  100,271
  122,591
  147,763
  175,809
  206,721
  240,466
  276,996
  316,253
  358,173
  402,693
  449,755
  499,309
  551,318
  605,759
  662,622
  721,917
  783,667
  847,913
  914,716
  984,148
Adjusted assets (=assets-cash), $m
  2,710
  4,335
  6,698
  10,016
  14,533
  20,504
  28,189
  37,837
  49,683
  63,930
  80,748
  100,271
  122,591
  147,763
  175,809
  206,721
  240,466
  276,996
  316,253
  358,173
  402,693
  449,755
  499,309
  551,318
  605,759
  662,622
  721,917
  783,667
  847,913
  914,716
  984,148
Revenue / Adjusted assets
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
Average production assets, $m
  2,323
  3,716
  5,741
  8,585
  12,457
  17,575
  24,162
  32,432
  42,585
  54,797
  69,213
  85,947
  105,078
  126,654
  150,694
  177,189
  206,113
  237,425
  271,074
  307,006
  345,165
  385,504
  427,979
  472,558
  519,221
  567,962
  618,785
  671,714
  726,782
  784,041
  843,554
Working capital, $m
  -37
  -59
  -92
  -137
  -199
  -281
  -386
  -518
  -680
  -875
  -1,105
  -1,373
  -1,678
  -2,023
  -2,407
  -2,830
  -3,292
  -3,792
  -4,329
  -4,903
  -5,512
  -6,157
  -6,835
  -7,547
  -8,292
  -9,071
  -9,882
  -10,728
  -11,607
  -12,522
  -13,472
Total debt, $m
  573
  1,147
  1,981
  3,153
  4,747
  6,855
  9,568
  12,974
  17,155
  22,184
  28,121
  35,013
  42,892
  51,778
  61,678
  72,589
  84,501
  97,397
  111,254
  126,052
  141,768
  158,380
  175,873
  194,232
  213,450
  233,523
  254,454
  276,251
  298,930
  322,512
  347,021
Total liabilities, $m
  956
  1,530
  2,364
  3,536
  5,130
  7,238
  9,951
  13,357
  17,538
  22,567
  28,504
  35,396
  43,275
  52,161
  62,061
  72,972
  84,884
  97,780
  111,637
  126,435
  142,151
  158,763
  176,256
  194,615
  213,833
  233,906
  254,837
  276,634
  299,313
  322,895
  347,404
Total equity, $m
  1,754
  2,805
  4,333
  6,481
  9,403
  13,266
  18,238
  24,481
  32,145
  41,362
  52,244
  64,875
  79,316
  95,603
  113,749
  133,748
  155,581
  179,217
  204,616
  231,738
  260,543
  290,991
  323,053
  356,703
  391,926
  428,717
  467,080
  507,032
  548,600
  591,821
  636,744
Total liabilities and equity, $m
  2,710
  4,335
  6,697
  10,017
  14,533
  20,504
  28,189
  37,838
  49,683
  63,929
  80,748
  100,271
  122,591
  147,764
  175,810
  206,720
  240,465
  276,997
  316,253
  358,173
  402,694
  449,754
  499,309
  551,318
  605,759
  662,623
  721,917
  783,666
  847,913
  914,716
  984,148
Debt-to-equity ratio
  0.327
  0.410
  0.460
  0.490
  0.500
  0.520
  0.520
  0.530
  0.530
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
Adjusted equity ratio
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -24
  16
  16
  14
  10
  4
  -10
  -31
  -62
  -102
  -155
  -221
  -302
  -398
  -511
  -641
  -788
  -952
  -1,133
  -1,330
  -1,544
  -1,774
  -2,019
  -2,279
  -2,553
  -2,842
  -3,145
  -3,462
  -3,793
  -4,137
  -4,496
Depreciation, amort., depletion, $m
  149
  238
  368
  550
  799
  1,127
  1,549
  2,079
  2,730
  3,513
  4,437
  5,509
  6,736
  8,119
  9,660
  11,358
  13,212
  15,220
  17,377
  19,680
  22,126
  24,712
  27,435
  30,292
  33,283
  36,408
  39,666
  43,059
  46,589
  50,259
  54,074
Funds from operations, $m
  98
  255
  384
  564
  809
  1,130
  1,539
  2,048
  2,668
  3,410
  4,282
  5,288
  6,434
  7,720
  9,149
  10,717
  12,425
  14,268
  16,244
  18,350
  20,582
  22,938
  25,416
  28,013
  30,730
  33,566
  36,520
  39,596
  42,796
  46,122
  49,578
Change in working capital, $m
  -43
  -22
  -32
  -45
  -62
  -82
  -105
  -132
  -162
  -195
  -230
  -267
  -306
  -345
  -384
  -423
  -462
  -500
  -537
  -574
  -609
  -644
  -678
  -712
  -745
  -778
  -812
  -845
  -879
  -914
  -950
Cash from operations, $m
  141
  277
  416
  610
  871
  1,212
  1,644
  2,180
  2,830
  3,605
  4,512
  5,555
  6,739
  8,065
  9,532
  11,140
  12,886
  14,768
  16,781
  18,923
  21,191
  23,582
  26,094
  28,725
  31,475
  34,344
  37,332
  40,442
  43,675
  47,036
  50,529
Maintenance CAPEX, $m
  0
  -149
  -238
  -368
  -550
  -799
  -1,127
  -1,549
  -2,079
  -2,730
  -3,513
  -4,437
  -5,509
  -6,736
  -8,119
  -9,660
  -11,358
  -13,212
  -15,220
  -17,377
  -19,680
  -22,126
  -24,712
  -27,435
  -30,292
  -33,283
  -36,408
  -39,666
  -43,059
  -46,589
  -50,259
New CAPEX, $m
  -783
  -1,393
  -2,025
  -2,845
  -3,872
  -5,118
  -6,587
  -8,270
  -10,153
  -12,212
  -14,416
  -16,734
  -19,131
  -21,576
  -24,039
  -26,495
  -28,924
  -31,312
  -33,649
  -35,931
  -38,160
  -40,338
  -42,475
  -44,579
  -46,663
  -48,740
  -50,824
  -52,928
  -55,069
  -57,259
  -59,513
Cash from investing activities, $m
  -754
  -1,542
  -2,263
  -3,213
  -4,422
  -5,917
  -7,714
  -9,819
  -12,232
  -14,942
  -17,929
  -21,171
  -24,640
  -28,312
  -32,158
  -36,155
  -40,282
  -44,524
  -48,869
  -53,308
  -57,840
  -62,464
  -67,187
  -72,014
  -76,955
  -82,023
  -87,232
  -92,594
  -98,128
  -103,848
  -109,772
Free cash flow, $m
  -613
  -1,265
  -1,847
  -2,603
  -3,551
  -4,705
  -6,069
  -7,639
  -9,402
  -11,336
  -13,417
  -15,615
  -17,901
  -20,247
  -22,626
  -25,015
  -27,396
  -29,756
  -32,087
  -34,384
  -36,648
  -38,882
  -41,093
  -43,288
  -45,480
  -47,680
  -49,899
  -52,152
  -54,452
  -56,811
  -59,244
Issuance/(repayment) of debt, $m
  -50
  574
  834
  1,171
  1,594
  2,108
  2,713
  3,406
  4,181
  5,029
  5,937
  6,892
  7,879
  8,886
  9,900
  10,912
  11,912
  12,895
  13,858
  14,798
  15,716
  16,613
  17,493
  18,359
  19,218
  20,073
  20,931
  21,798
  22,679
  23,581
  24,510
Issuance/(repurchase) of shares, $m
  698
  1,034
  1,513
  2,133
  2,912
  3,860
  4,981
  6,274
  7,726
  9,320
  11,037
  12,852
  14,743
  16,685
  18,657
  20,641
  22,621
  24,587
  26,532
  28,452
  30,348
  32,223
  34,080
  35,929
  37,776
  39,633
  41,509
  43,414
  45,360
  47,358
  49,418
Cash from financing (excl. dividends), $m  
  621
  1,608
  2,347
  3,304
  4,506
  5,968
  7,694
  9,680
  11,907
  14,349
  16,974
  19,744
  22,622
  25,571
  28,557
  31,553
  34,533
  37,482
  40,390
  43,250
  46,064
  48,836
  51,573
  54,288
  56,994
  59,706
  62,440
  65,212
  68,039
  70,939
  73,928
Total cash flow (excl. dividends), $m
  8
  343
  500
  702
  955
  1,263
  1,625
  2,041
  2,505
  3,013
  3,557
  4,129
  4,720
  5,324
  5,931
  6,537
  7,137
  7,726
  8,303
  8,866
  9,416
  9,953
  10,480
  11,000
  11,514
  12,026
  12,540
  13,060
  13,588
  14,128
  14,684
Retained Cash Flow (-), $m
  -656
  -1,051
  -1,529
  -2,147
  -2,922
  -3,863
  -4,981
  -6,274
  -7,726
  -9,320
  -11,037
  -12,852
  -14,743
  -16,685
  -18,657
  -20,641
  -22,621
  -24,587
  -26,532
  -28,452
  -30,348
  -32,223
  -34,080
  -35,929
  -37,776
  -39,633
  -41,509
  -43,414
  -45,360
  -47,358
  -49,418
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
 
  -707
  -1,029
  -1,445
  -1,967
  -2,600
  -3,356
  -4,233
  -5,220
  -6,307
  -7,480
  -8,723
  -10,022
  -11,361
  -12,726
  -14,103
  -15,484
  -16,861
  -18,229
  -19,587
  -20,933
  -22,269
  -23,600
  -24,929
  -26,263
  -27,607
  -28,968
  -30,355
  -31,773
  -33,230
  -34,734
Discount rate, %
 
  5.50
  5.78
  6.06
  6.37
  6.69
  7.02
  7.37
  7.74
  8.13
  8.53
  8.96
  9.41
  9.88
  10.37
  10.89
  11.43
  12.01
  12.61
  13.24
  13.90
  14.59
  15.32
  16.09
  16.89
  17.74
  18.62
  19.56
  20.53
  21.56
  22.64
PV of cash for distribution, $m
 
  -671
  -920
  -1,211
  -1,537
  -1,882
  -2,234
  -2,573
  -2,876
  -3,122
  -3,298
  -3,395
  -3,408
  -3,339
  -3,197
  -2,992
  -2,739
  -2,454
  -2,151
  -1,846
  -1,551
  -1,275
  -1,025
  -806
  -620
  -466
  -341
  -244
  -170
  -115
  -76
Current shareholders' claim on cash, %
  100
  54.3
  30.7
  18.0
  11.0
  6.9
  4.5
  3.0
  2.1
  1.5
  1.1
  0.8
  0.6
  0.5
  0.4
  0.3
  0.2
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0

Birchcliff Energy Ltd. is an intermediate oil and natural gas company. The Company is engaged in the exploration for and the development, production and acquisition of petroleum and natural gas reserves in Western Canada. Its operations are concentrated within core area, the Peace River Arch, which is centered over 90 kilometers northwest of Grande Prairie, Alberta, adjacent to the Alberta/British Columbia border. It is focused on over two established resource plays within the Peace River Arch: the Montney/Doig Natural Gas Resource Play and the Charlie Lake Light Oil Resource Play. The Montney/Doig Natural Gas Resource Play contains over five producing regions, including Pouce Coupe, Pouce Coupe South, Progress, Gordondale and Elmworth. The Charlie Lake reservoirs consist of varying quantities of laminated and dolomitic, silty to fine-grained sandstones. It has over 60 horizontal wells utilizing multi-stage fracture stimulation technology.

FINANCIAL RATIOS  of  Birchcliff Energy Ltd. (BIR)

Valuation Ratios
P/E Ratio -44.9
Price to Sales 3.4
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 7.6
Price to Free Cash Flow -1.7
Growth Rates
Sales Growth Rate 3.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 203.5%
Cap. Spend. - 3 Yr. Gr. Rate 23.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 32.7%
Total Debt to Equity 32.7%
Interest Coverage 0
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 1.8%
Return On Total Capital -1.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2%
Return On Equity -1.7%
Return On Equity - 3 Yr. Avg. 2.8%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 76%
Gross Margin - 3 Yr. Avg. 80%
EBITDA Margin 47%
EBITDA Margin - 3 Yr. Avg. 59.2%
Operating Margin 7.3%
Oper. Margin - 3 Yr. Avg. 19.3%
Pre-Tax Margin -9.5%
Pre-Tax Margin - 3 Yr. Avg. 10%
Net Profit Margin -7.6%
Net Profit Margin - 3 Yr. Avg. 4.9%
Effective Tax Rate 20%
Eff/ Tax Rate - 3 Yr. Avg. 85.3%
Payout Ratio -33.3%

BIR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BIR stock intrinsic value calculation we used $317 million for the last fiscal year's total revenue generated by Birchcliff Energy Ltd.. The default revenue input number comes from 2016 income statement of Birchcliff Energy Ltd.. 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 BIR stock valuation model: a) initial revenue growth rate of 60% 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 5.5%, whose default value for BIR is calculated based on our internal credit rating of Birchcliff Energy Ltd., 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 Birchcliff Energy Ltd..
    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 BIR stock the variable cost ratio is equal to 89.9%.

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 BIR 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% for Birchcliff Energy Ltd..

Corporate tax rate of 27% is the nominal tax rate for Birchcliff Energy Ltd.. 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 BIR 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 BIR are equal to 732.6%.

Life of production assets of 15.6 years is the average useful life of capital assets used in Birchcliff Energy Ltd. 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 BIR is equal to -11.7%. 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 - $1754 million for Birchcliff Energy Ltd. - 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 264.22 million for Birchcliff Energy Ltd. 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 Birchcliff Energy Ltd. at the current share price and the inputted number of shares is $1.1 billion.

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Financial statements of BIR
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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