Intrinsic value of Canadian Natural Resources Limited - CNQ

Previous Close

$41.70

  Intrinsic Value

$5.40

stock screener

  Rating & Target

str. sell

-87%

Previous close

$41.70

 
Intrinsic value

$5.40

 
Up/down potential

-87%

 
Rating

str. sell

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

We calculate the intrinsic value of CNQ 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 50.7

 

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, %
  -14.88
  45.40
  41.36
  37.72
  34.45
  31.51
  28.86
  26.47
  24.32
  22.39
  20.65
  19.09
  17.68
  16.41
  15.27
  14.24
  13.32
  12.49
  11.74
  11.06
  10.46
  9.91
  9.42
  8.98
  8.58
  8.22
  7.90
  7.61
  7.35
  7.11
  6.90
Revenue, $m
  10,523
  15,300
  21,629
  29,788
  40,050
  52,669
  67,867
  85,831
  106,708
  130,601
  157,572
  187,648
  220,820
  257,057
  296,307
  338,508
  383,590
  431,486
  482,132
  535,475
  591,472
  650,097
  711,339
  775,206
  841,724
  910,935
  982,902
  1,057,704
  1,135,437
  1,216,215
  1,300,169
Variable operating expenses, $m
 
  10,833
  15,313
  21,090
  28,356
  37,289
  48,050
  60,769
  75,549
  92,466
  111,561
  132,855
  156,341
  181,996
  209,786
  239,664
  271,582
  305,492
  341,350
  379,116
  418,762
  460,268
  503,628
  548,846
  595,941
  644,942
  695,895
  748,854
  803,889
  861,081
  920,520
Fixed operating expenses, $m
 
  4,570
  4,685
  4,802
  4,922
  5,045
  5,171
  5,300
  5,433
  5,569
  5,708
  5,851
  5,997
  6,147
  6,300
  6,458
  6,619
  6,785
  6,955
  7,128
  7,307
  7,489
  7,676
  7,868
  8,065
  8,267
  8,473
  8,685
  8,902
  9,125
  9,353
Total operating expenses, $m
  11,802
  15,403
  19,998
  25,892
  33,278
  42,334
  53,221
  66,069
  80,982
  98,035
  117,269
  138,706
  162,338
  188,143
  216,086
  246,122
  278,201
  312,277
  348,305
  386,244
  426,069
  467,757
  511,304
  556,714
  604,006
  653,209
  704,368
  757,539
  812,791
  870,206
  929,873
Operating income, $m
  -1,279
  -103
  1,631
  3,896
  6,773
  10,334
  14,646
  19,762
  25,726
  32,567
  40,303
  48,943
  58,483
  68,914
  80,221
  92,386
  105,389
  119,209
  133,828
  149,230
  165,403
  182,339
  200,035
  218,492
  237,718
  257,726
  278,534
  300,164
  322,645
  346,010
  370,296
EBITDA, $m
  3,579
  6,986
  11,652
  17,698
  25,329
  34,738
  46,091
  59,531
  75,167
  93,079
  113,312
  135,886
  160,796
  188,017
  217,510
  249,228
  283,119
  319,131
  357,216
  397,333
  439,452
  483,550
  529,622
  577,671
  627,717
  679,793
  733,945
  790,233
  848,731
  909,523
  972,708
Interest expense (income), $m
  617
  587
  1,119
  1,820
  2,724
  3,861
  5,259
  6,943
  8,934
  11,247
  13,894
  16,882
  20,214
  23,890
  27,905
  32,254
  36,929
  41,924
  47,231
  52,842
  58,753
  64,957
  71,452
  78,238
  85,314
  92,684
  100,352
  108,326
  116,614
  125,226
  134,176
Earnings before tax, $m
  -1,063
  -690
  512
  2,076
  4,049
  6,473
  9,387
  12,819
  16,792
  21,320
  26,409
  32,060
  38,268
  45,024
  52,317
  60,133
  68,460
  77,285
  86,597
  96,388
  106,651
  117,382
  128,582
  140,254
  152,404
  165,042
  178,182
  191,838
  206,031
  220,784
  236,120
Tax expense, $m
  -859
  0
  138
  561
  1,093
  1,748
  2,534
  3,461
  4,534
  5,756
  7,131
  8,656
  10,332
  12,156
  14,125
  16,236
  18,484
  20,867
  23,381
  26,025
  28,796
  31,693
  34,717
  37,869
  41,149
  44,561
  48,109
  51,796
  55,628
  59,612
  63,752
Net income, $m
  -204
  -690
  374
  1,516
  2,956
  4,725
  6,852
  9,358
  12,258
  15,564
  19,279
  23,404
  27,936
  32,868
  38,191
  43,897
  49,976
  56,418
  63,216
  70,363
  77,855
  85,689
  93,865
  102,386
  111,255
  120,481
  130,073
  140,042
  150,403
  161,172
  172,368

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  930
  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
  58,648
  84,068
  118,839
  163,670
  220,057
  289,389
  372,894
  471,600
  586,308
  717,588
  865,783
  1,031,031
  1,213,297
  1,412,400
  1,628,062
  1,859,934
  2,107,640
  2,370,804
  2,649,079
  2,942,169
  3,249,844
  3,571,959
  3,908,456
  4,259,376
  4,624,857
  5,005,139
  5,400,560
  5,811,558
  6,238,664
  6,682,503
  7,143,788
Adjusted assets (=assets-cash), $m
  57,718
  84,068
  118,839
  163,670
  220,057
  289,389
  372,894
  471,600
  586,308
  717,588
  865,783
  1,031,031
  1,213,297
  1,412,400
  1,628,062
  1,859,934
  2,107,640
  2,370,804
  2,649,079
  2,942,169
  3,249,844
  3,571,959
  3,908,456
  4,259,376
  4,624,857
  5,005,139
  5,400,560
  5,811,558
  6,238,664
  6,682,503
  7,143,788
Revenue / Adjusted assets
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
Average production assets, $m
  51,193
  74,437
  105,224
  144,918
  194,845
  256,234
  330,172
  417,569
  519,135
  635,374
  766,590
  912,906
  1,074,289
  1,250,582
  1,441,535
  1,646,841
  1,866,168
  2,099,181
  2,345,574
  2,605,084
  2,877,509
  3,162,719
  3,460,664
  3,771,379
  4,094,987
  4,431,700
  4,781,818
  5,145,728
  5,523,900
  5,916,888
  6,325,325
Working capital, $m
  -756
  184
  260
  357
  481
  632
  814
  1,030
  1,280
  1,567
  1,891
  2,252
  2,650
  3,085
  3,556
  4,062
  4,603
  5,178
  5,786
  6,426
  7,098
  7,801
  8,536
  9,302
  10,101
  10,931
  11,795
  12,692
  13,625
  14,595
  15,602
Total debt, $m
  16,805
  30,241
  49,191
  73,624
  104,355
  142,141
  187,651
  241,446
  303,962
  375,509
  456,276
  546,336
  645,671
  754,182
  871,718
  998,088
  1,133,088
  1,276,512
  1,428,172
  1,587,906
  1,755,589
  1,931,142
  2,114,533
  2,305,784
  2,504,971
  2,712,225
  2,927,729
  3,151,723
  3,384,496
  3,626,388
  3,877,789
Total liabilities, $m
  32,381
  45,817
  64,767
  89,200
  119,931
  157,717
  203,227
  257,022
  319,538
  391,085
  471,852
  561,912
  661,247
  769,758
  887,294
  1,013,664
  1,148,664
  1,292,088
  1,443,748
  1,603,482
  1,771,165
  1,946,718
  2,130,109
  2,321,360
  2,520,547
  2,727,801
  2,943,305
  3,167,299
  3,400,072
  3,641,964
  3,893,365
Total equity, $m
  26,267
  38,251
  54,072
  74,470
  100,126
  131,672
  169,667
  214,578
  266,770
  326,503
  393,931
  469,119
  552,050
  642,642
  740,768
  846,270
  958,976
  1,078,716
  1,205,331
  1,338,687
  1,478,679
  1,625,241
  1,778,348
  1,938,016
  2,104,310
  2,277,338
  2,457,255
  2,644,259
  2,838,592
  3,040,539
  3,250,424
Total liabilities and equity, $m
  58,648
  84,068
  118,839
  163,670
  220,057
  289,389
  372,894
  471,600
  586,308
  717,588
  865,783
  1,031,031
  1,213,297
  1,412,400
  1,628,062
  1,859,934
  2,107,640
  2,370,804
  2,649,079
  2,942,169
  3,249,844
  3,571,959
  3,908,457
  4,259,376
  4,624,857
  5,005,139
  5,400,560
  5,811,558
  6,238,664
  6,682,503
  7,143,789
Debt-to-equity ratio
  0.640
  0.790
  0.910
  0.990
  1.040
  1.080
  1.110
  1.130
  1.140
  1.150
  1.160
  1.160
  1.170
  1.170
  1.180
  1.180
  1.180
  1.180
  1.180
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
Adjusted equity ratio
  0.439
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -204
  -690
  374
  1,516
  2,956
  4,725
  6,852
  9,358
  12,258
  15,564
  19,279
  23,404
  27,936
  32,868
  38,191
  43,897
  49,976
  56,418
  63,216
  70,363
  77,855
  85,689
  93,865
  102,386
  111,255
  120,481
  130,073
  140,042
  150,403
  161,172
  172,368
Depreciation, amort., depletion, $m
  4,858
  7,089
  10,021
  13,802
  18,557
  24,403
  31,445
  39,768
  49,441
  60,512
  73,009
  86,943
  102,313
  119,103
  137,289
  156,842
  177,730
  199,922
  223,388
  248,103
  274,049
  301,211
  329,587
  359,179
  389,999
  422,067
  455,411
  490,069
  526,086
  563,513
  602,412
Funds from operations, $m
  2,910
  6,399
  10,395
  15,317
  21,512
  29,129
  38,297
  49,127
  61,700
  76,076
  92,287
  110,347
  130,249
  151,971
  175,480
  200,739
  227,706
  256,340
  286,604
  318,466
  351,903
  386,900
  423,452
  461,565
  501,254
  542,548
  585,484
  630,111
  676,489
  724,685
  774,780
Change in working capital, $m
  -542
  57
  76
  98
  123
  151
  182
  216
  251
  287
  324
  361
  398
  435
  471
  506
  541
  575
  608
  640
  672
  703
  735
  766
  798
  831
  864
  898
  933
  969
  1,007
Cash from operations, $m
  3,452
  6,342
  10,319
  15,219
  21,389
  28,977
  38,115
  48,911
  61,449
  75,789
  91,964
  109,987
  129,851
  151,536
  175,009
  200,233
  227,165
  255,765
  285,996
  317,826
  351,231
  386,197
  422,717
  460,798
  500,456
  541,717
  584,620
  629,214
  675,556
  723,716
  773,772
Maintenance CAPEX, $m
  0
  -4,875
  -7,089
  -10,021
  -13,802
  -18,557
  -24,403
  -31,445
  -39,768
  -49,441
  -60,512
  -73,009
  -86,943
  -102,313
  -119,103
  -137,289
  -156,842
  -177,730
  -199,922
  -223,388
  -248,103
  -274,049
  -301,211
  -329,587
  -359,179
  -389,999
  -422,067
  -455,411
  -490,069
  -526,086
  -563,513
New CAPEX, $m
  -3,803
  -23,244
  -30,787
  -39,695
  -49,927
  -61,389
  -73,938
  -87,397
  -101,566
  -116,239
  -131,216
  -146,316
  -161,383
  -176,292
  -190,953
  -205,307
  -219,326
  -233,013
  -246,393
  -259,510
  -272,425
  -285,210
  -297,945
  -310,715
  -323,608
  -336,713
  -350,118
  -363,910
  -378,172
  -392,988
  -408,436
Cash from investing activities, $m
  -3,811
  -28,119
  -37,876
  -49,716
  -63,729
  -79,946
  -98,341
  -118,842
  -141,334
  -165,680
  -191,728
  -219,325
  -248,326
  -278,605
  -310,056
  -342,596
  -376,168
  -410,743
  -446,315
  -482,898
  -520,528
  -559,259
  -599,156
  -640,302
  -682,787
  -726,712
  -772,185
  -819,321
  -868,241
  -919,074
  -971,949
Free cash flow, $m
  -359
  -21,778
  -27,557
  -34,496
  -42,339
  -50,968
  -60,226
  -69,931
  -79,885
  -89,891
  -99,764
  -109,338
  -118,476
  -127,070
  -135,047
  -142,363
  -149,003
  -154,978
  -160,319
  -165,072
  -169,297
  -173,062
  -176,439
  -179,504
  -182,331
  -184,995
  -187,564
  -190,107
  -192,686
  -195,358
  -198,177
Issuance/(repayment) of debt, $m
  506
  14,366
  18,950
  24,433
  30,731
  37,786
  45,510
  53,795
  62,516
  71,547
  80,766
  90,060
  99,335
  108,512
  117,535
  126,370
  135,000
  143,424
  151,660
  159,734
  167,683
  175,553
  183,391
  191,251
  199,187
  207,254
  215,505
  223,994
  232,773
  241,892
  251,401
Issuance/(repurchase) of shares, $m
  559
  12,674
  15,447
  18,882
  22,700
  26,821
  31,143
  35,553
  39,934
  44,168
  48,150
  51,784
  54,995
  57,725
  59,935
  61,605
  62,731
  63,322
  63,399
  62,993
  62,137
  60,873
  59,241
  57,283
  55,039
  52,547
  49,844
  46,962
  43,930
  40,775
  37,517
Cash from financing (excl. dividends), $m  
  1,065
  27,040
  34,397
  43,315
  53,431
  64,607
  76,653
  89,348
  102,450
  115,715
  128,916
  141,844
  154,330
  166,237
  177,470
  187,975
  197,731
  206,746
  215,059
  222,727
  229,820
  236,426
  242,632
  248,534
  254,226
  259,801
  265,349
  270,956
  276,703
  282,667
  288,918
Total cash flow (excl. dividends), $m
  706
  5,263
  6,840
  8,819
  11,092
  13,638
  16,427
  19,417
  22,565
  25,824
  29,152
  32,506
  35,854
  39,166
  42,423
  45,612
  48,727
  51,768
  54,740
  57,654
  60,524
  63,364
  66,193
  69,030
  71,895
  74,806
  77,784
  80,848
  84,017
  87,309
  90,741
Retained Cash Flow (-), $m
  1,114
  -12,674
  -15,821
  -20,398
  -25,656
  -31,546
  -37,995
  -44,911
  -52,192
  -59,732
  -67,429
  -75,188
  -82,931
  -90,592
  -98,126
  -105,502
  -112,706
  -119,740
  -126,615
  -133,356
  -139,992
  -146,562
  -153,106
  -159,668
  -166,294
  -173,028
  -179,917
  -187,004
  -194,333
  -201,947
  -209,885
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
 
  -7,412
  -8,981
  -11,579
  -14,564
  -17,908
  -21,568
  -25,494
  -29,628
  -33,908
  -38,277
  -42,682
  -47,077
  -51,426
  -55,703
  -59,890
  -63,979
  -67,972
  -71,875
  -75,701
  -79,469
  -83,198
  -86,913
  -90,638
  -94,399
  -98,222
  -102,132
  -106,155
  -110,316
  -114,638
  -119,144
Discount rate, %
 
  6.60
  6.93
  7.28
  7.64
  8.02
  8.42
  8.84
  9.29
  9.75
  10.24
  10.75
  11.29
  11.85
  12.45
  13.07
  13.72
  14.41
  15.13
  15.88
  16.68
  17.51
  18.39
  19.31
  20.27
  21.29
  22.35
  23.47
  24.64
  25.87
  27.17
PV of cash for distribution, $m
 
  -6,953
  -7,854
  -9,379
  -10,849
  -12,175
  -13,276
  -14,086
  -14,560
  -14,676
  -14,441
  -13,881
  -13,044
  -11,989
  -10,782
  -9,490
  -8,177
  -6,897
  -5,693
  -4,599
  -3,634
  -2,808
  -2,120
  -1,563
  -1,125
  -789
  -539
  -358
  -231
  -145
  -88
Current shareholders' claim on cash, %
  100
  80.0
  66.1
  56.0
  48.4
  42.5
  37.8
  34.1
  31.1
  28.7
  26.6
  24.9
  23.5
  22.3
  21.3
  20.4
  19.6
  19.0
  18.4
  17.9
  17.5
  17.1
  16.8
  16.5
  16.3
  16.1
  15.9
  15.8
  15.6
  15.5
  15.4

Canadian Natural Resources Limited is an independent crude oil and natural gas exploration, development and production company. The Company's segments include Exploration and Production, Oil Sands Mining and Upgrading, and Midstream. The Exploration and Production segment includes exploration, development, production and marketing of crude oil, natural gas liquids (NGLs) and natural gas. The Company's exploration and production operations are focused in North America in Western Canada, the United Kingdom portion of the North Sea, and Cote d'Ivoire, Gabon and South Africa in Offshore Africa. The Horizon Oil Sands Mining and Upgrading segment (Horizon) produces synthetic crude oil (SCO) through bitumen mining and upgrading operations. Midstream activities include the Company's pipeline operations, an electricity co-generation system and an investment in the North West Redwater Partnership (Redwater Partnership).

FINANCIAL RATIOS  of  Canadian Natural Resources Limited (CNQ)

Valuation Ratios
P/E Ratio -227.1
Price to Sales 4.4
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 13.4
Price to Free Cash Flow -132
Growth Rates
Sales Growth Rate -14.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -28.7%
Cap. Spend. - 3 Yr. Gr. Rate -12.2%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 57.1%
Total Debt to Equity 64%
Interest Coverage -1
Management Effectiveness
Return On Assets -0.1%
Ret/ On Assets - 3 Yr. Avg. 2.5%
Return On Total Capital -0.5%
Ret/ On T. Cap. - 3 Yr. Avg. 2.7%
Return On Equity -0.8%
Return On Equity - 3 Yr. Avg. 3.8%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 42%
Gross Margin - 3 Yr. Avg. 46.5%
EBITDA Margin 41.9%
EBITDA Margin - 3 Yr. Avg. 47.1%
Operating Margin -12.2%
Oper. Margin - 3 Yr. Avg. 3.1%
Pre-Tax Margin -10.1%
Pre-Tax Margin - 3 Yr. Avg. 4%
Net Profit Margin -1.9%
Net Profit Margin - 3 Yr. Avg. 4.6%
Effective Tax Rate 80.8%
Eff/ Tax Rate - 3 Yr. Avg. 36.4%
Payout Ratio -371.6%

CNQ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CNQ stock intrinsic value calculation we used $10523 million for the last fiscal year's total revenue generated by Canadian Natural Resources Limited. The default revenue input number comes from 2016 income statement of Canadian Natural Resources Limited. 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 CNQ stock valuation model: a) initial revenue growth rate of 45.4% 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 6.6%, whose default value for CNQ is calculated based on our internal credit rating of Canadian Natural Resources Limited, 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 Canadian Natural Resources Limited.
    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 CNQ stock the variable cost ratio is equal to 70.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $4459 million in the base year in the intrinsic value calculation for CNQ 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 3.7% for Canadian Natural Resources Limited.

Corporate tax rate of 27% is the nominal tax rate for Canadian Natural Resources Limited. 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 CNQ 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 CNQ are equal to 486.5%.

Life of production assets of 10.5 years is the average useful life of capital assets used in Canadian Natural Resources Limited 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 CNQ is equal to 1.2%. 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 - $26267 million for Canadian Natural Resources Limited - 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 1215.06 million for Canadian Natural Resources Limited 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 Canadian Natural Resources Limited at the current share price and the inputted number of shares is $50.7 billion.

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Financial statements of CNQ
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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