Intrinsic value of Canadian Pacific Railway Limited - CP

Previous Close

$227.24

  Intrinsic Value

$74.30

stock screener

  Rating & Target

str. sell

-67%

Previous close

$227.24

 
Intrinsic value

$74.30

 
Up/down potential

-67%

 
Rating

str. sell

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

We calculate the intrinsic value of CP 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 33.3

 

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, %
  -7.15
  2.60
  2.84
  3.06
  3.25
  3.43
  3.58
  3.72
  3.85
  3.97
  4.07
  4.16
  4.25
  4.32
  4.39
  4.45
  4.51
  4.56
  4.60
  4.64
  4.68
  4.71
  4.74
  4.76
  4.79
  4.81
  4.83
  4.84
  4.86
  4.87
  4.89
Revenue, $m
  6,232
  6,394
  6,576
  6,777
  6,997
  7,237
  7,496
  7,775
  8,074
  8,395
  8,736
  9,100
  9,487
  9,897
  10,331
  10,791
  11,277
  11,791
  12,333
  12,905
  13,509
  14,145
  14,815
  15,521
  16,264
  17,046
  17,869
  18,734
  19,645
  20,603
  21,609
Variable operating expenses, $m
 
  3,830
  3,938
  4,057
  4,189
  4,332
  4,486
  4,652
  4,831
  5,022
  5,225
  5,423
  5,653
  5,898
  6,157
  6,431
  6,720
  7,027
  7,350
  7,691
  8,050
  8,429
  8,829
  9,249
  9,692
  10,158
  10,649
  11,165
  11,707
  12,278
  12,878
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
  3,679
  3,830
  3,938
  4,057
  4,189
  4,332
  4,486
  4,652
  4,831
  5,022
  5,225
  5,423
  5,653
  5,898
  6,157
  6,431
  6,720
  7,027
  7,350
  7,691
  8,050
  8,429
  8,829
  9,249
  9,692
  10,158
  10,649
  11,165
  11,707
  12,278
  12,878
Operating income, $m
  2,553
  2,565
  2,638
  2,719
  2,808
  2,905
  3,010
  3,122
  3,244
  3,373
  3,511
  3,677
  3,833
  3,999
  4,174
  4,360
  4,557
  4,764
  4,983
  5,215
  5,458
  5,715
  5,986
  6,271
  6,572
  6,888
  7,220
  7,570
  7,938
  8,325
  8,732
EBITDA, $m
  3,193
  3,232
  3,324
  3,425
  3,537
  3,658
  3,789
  3,930
  4,081
  4,243
  4,416
  4,600
  4,795
  5,003
  5,222
  5,455
  5,700
  5,960
  6,234
  6,523
  6,829
  7,150
  7,489
  7,845
  8,221
  8,616
  9,032
  9,470
  9,930
  10,414
  10,923
Interest expense (income), $m
  488
  476
  498
  521
  547
  575
  606
  639
  675
  714
  755
  799
  846
  896
  948
  1,004
  1,063
  1,126
  1,192
  1,262
  1,335
  1,413
  1,495
  1,581
  1,672
  1,768
  1,868
  1,974
  2,085
  2,203
  2,326
Earnings before tax, $m
  2,152
  2,088
  2,140
  2,198
  2,261
  2,330
  2,404
  2,483
  2,568
  2,659
  2,756
  2,878
  2,987
  3,103
  3,226
  3,356
  3,493
  3,638
  3,791
  3,953
  4,123
  4,302
  4,491
  4,690
  4,900
  5,120
  5,352
  5,596
  5,852
  6,122
  6,406
Tax expense, $m
  553
  564
  578
  593
  611
  629
  649
  670
  693
  718
  744
  777
  807
  838
  871
  906
  943
  982
  1,024
  1,067
  1,113
  1,162
  1,213
  1,266
  1,323
  1,382
  1,445
  1,511
  1,580
  1,653
  1,730
Net income, $m
  1,599
  1,524
  1,562
  1,605
  1,651
  1,701
  1,755
  1,813
  1,875
  1,941
  2,012
  2,101
  2,181
  2,265
  2,355
  2,450
  2,550
  2,656
  2,768
  2,886
  3,010
  3,141
  3,279
  3,424
  3,577
  3,738
  3,907
  4,085
  4,272
  4,469
  4,676

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  164
  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
  19,221
  19,554
  20,109
  20,723
  21,397
  22,130
  22,923
  23,777
  24,693
  25,672
  26,717
  27,829
  29,011
  30,265
  31,594
  33,000
  34,487
  36,058
  37,716
  39,466
  41,312
  43,257
  45,306
  47,464
  49,736
  52,128
  54,645
  57,292
  60,077
  63,005
  66,084
Adjusted assets (=assets-cash), $m
  19,057
  19,554
  20,109
  20,723
  21,397
  22,130
  22,923
  23,777
  24,693
  25,672
  26,717
  27,829
  29,011
  30,265
  31,594
  33,000
  34,487
  36,058
  37,716
  39,466
  41,312
  43,257
  45,306
  47,464
  49,736
  52,128
  54,645
  57,292
  60,077
  63,005
  66,084
Revenue / Adjusted assets
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
Average production assets, $m
  16,493
  16,925
  17,406
  17,938
  18,521
  19,155
  19,841
  20,580
  21,373
  22,221
  23,125
  24,088
  25,111
  26,196
  27,346
  28,564
  29,851
  31,210
  32,646
  34,161
  35,758
  37,442
  39,215
  41,083
  43,050
  45,120
  47,299
  49,590
  52,001
  54,535
  57,200
Working capital, $m
  -338
  -492
  -506
  -522
  -539
  -557
  -577
  -599
  -622
  -646
  -673
  -701
  -730
  -762
  -795
  -831
  -868
  -908
  -950
  -994
  -1,040
  -1,089
  -1,141
  -1,195
  -1,252
  -1,313
  -1,376
  -1,443
  -1,513
  -1,586
  -1,664
Total debt, $m
  8,684
  9,048
  9,472
  9,942
  10,458
  11,018
  11,625
  12,278
  12,979
  13,728
  14,527
  15,378
  16,282
  17,242
  18,258
  19,334
  20,471
  21,673
  22,942
  24,281
  25,692
  27,180
  28,748
  30,399
  32,137
  33,967
  35,892
  37,917
  40,048
  42,288
  44,643
Total liabilities, $m
  14,595
  14,959
  15,383
  15,853
  16,369
  16,929
  17,536
  18,189
  18,890
  19,639
  20,438
  21,289
  22,193
  23,153
  24,169
  25,245
  26,382
  27,584
  28,853
  30,192
  31,603
  33,091
  34,659
  36,310
  38,048
  39,878
  41,803
  43,828
  45,959
  48,199
  50,554
Total equity, $m
  4,626
  4,595
  4,726
  4,870
  5,028
  5,201
  5,387
  5,588
  5,803
  6,033
  6,278
  6,540
  6,818
  7,112
  7,425
  7,755
  8,104
  8,474
  8,863
  9,275
  9,708
  10,165
  10,647
  11,154
  11,688
  12,250
  12,841
  13,464
  14,118
  14,806
  15,530
Total liabilities and equity, $m
  19,221
  19,554
  20,109
  20,723
  21,397
  22,130
  22,923
  23,777
  24,693
  25,672
  26,716
  27,829
  29,011
  30,265
  31,594
  33,000
  34,486
  36,058
  37,716
  39,467
  41,311
  43,256
  45,306
  47,464
  49,736
  52,128
  54,644
  57,292
  60,077
  63,005
  66,084
Debt-to-equity ratio
  1.877
  1.970
  2.000
  2.040
  2.080
  2.120
  2.160
  2.200
  2.240
  2.280
  2.310
  2.350
  2.390
  2.420
  2.460
  2.490
  2.530
  2.560
  2.590
  2.620
  2.650
  2.670
  2.700
  2.730
  2.750
  2.770
  2.800
  2.820
  2.840
  2.860
  2.870
Adjusted equity ratio
  0.234
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,599
  1,524
  1,562
  1,605
  1,651
  1,701
  1,755
  1,813
  1,875
  1,941
  2,012
  2,101
  2,181
  2,265
  2,355
  2,450
  2,550
  2,656
  2,768
  2,886
  3,010
  3,141
  3,279
  3,424
  3,577
  3,738
  3,907
  4,085
  4,272
  4,469
  4,676
Depreciation, amort., depletion, $m
  640
  668
  686
  706
  729
  753
  779
  808
  838
  870
  905
  923
  962
  1,004
  1,048
  1,094
  1,144
  1,196
  1,251
  1,309
  1,370
  1,435
  1,503
  1,574
  1,649
  1,729
  1,812
  1,900
  1,992
  2,089
  2,192
Funds from operations, $m
  2,034
  2,192
  2,248
  2,311
  2,379
  2,454
  2,534
  2,620
  2,713
  2,812
  2,917
  3,024
  3,143
  3,269
  3,403
  3,544
  3,694
  3,852
  4,019
  4,194
  4,380
  4,575
  4,781
  4,998
  5,226
  5,466
  5,719
  5,985
  6,265
  6,559
  6,868
Change in working capital, $m
  -55
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -25
  -26
  -28
  -30
  -32
  -33
  -35
  -37
  -40
  -42
  -44
  -46
  -49
  -52
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
Cash from operations, $m
  2,089
  2,204
  2,262
  2,326
  2,396
  2,472
  2,554
  2,642
  2,736
  2,836
  2,943
  3,052
  3,173
  3,301
  3,436
  3,580
  3,731
  3,891
  4,060
  4,238
  4,426
  4,624
  4,833
  5,052
  5,283
  5,527
  5,783
  6,052
  6,335
  6,632
  6,945
Maintenance CAPEX, $m
  0
  -632
  -648
  -667
  -687
  -710
  -734
  -760
  -789
  -819
  -851
  -886
  -923
  -962
  -1,004
  -1,048
  -1,094
  -1,144
  -1,196
  -1,251
  -1,309
  -1,370
  -1,435
  -1,503
  -1,574
  -1,649
  -1,729
  -1,812
  -1,900
  -1,992
  -2,089
New CAPEX, $m
  -1,182
  -432
  -481
  -532
  -583
  -634
  -686
  -739
  -793
  -848
  -904
  -963
  -1,023
  -1,085
  -1,150
  -1,217
  -1,287
  -1,360
  -1,436
  -1,515
  -1,597
  -1,684
  -1,774
  -1,868
  -1,967
  -2,070
  -2,178
  -2,292
  -2,410
  -2,535
  -2,665
Cash from investing activities, $m
  -1,069
  -1,064
  -1,129
  -1,199
  -1,270
  -1,344
  -1,420
  -1,499
  -1,582
  -1,667
  -1,755
  -1,849
  -1,946
  -2,047
  -2,154
  -2,265
  -2,381
  -2,504
  -2,632
  -2,766
  -2,906
  -3,054
  -3,209
  -3,371
  -3,541
  -3,719
  -3,907
  -4,104
  -4,310
  -4,527
  -4,754
Free cash flow, $m
  1,020
  1,141
  1,133
  1,128
  1,126
  1,128
  1,134
  1,143
  1,155
  1,170
  1,187
  1,203
  1,227
  1,253
  1,283
  1,315
  1,350
  1,388
  1,429
  1,473
  1,520
  1,571
  1,624
  1,682
  1,743
  1,807
  1,875
  1,948
  2,024
  2,105
  2,191
Issuance/(repayment) of debt, $m
  -46
  389
  425
  470
  515
  561
  607
  653
  701
  749
  799
  851
  904
  959
  1,016
  1,076
  1,137
  1,202
  1,269
  1,339
  1,412
  1,488
  1,568
  1,651
  1,738
  1,830
  1,925
  2,025
  2,130
  2,240
  2,355
Issuance/(repurchase) of shares, $m
  -1,189
  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 from financing (excl. dividends), $m  
  -1,238
  389
  425
  470
  515
  561
  607
  653
  701
  749
  799
  851
  904
  959
  1,016
  1,076
  1,137
  1,202
  1,269
  1,339
  1,412
  1,488
  1,568
  1,651
  1,738
  1,830
  1,925
  2,025
  2,130
  2,240
  2,355
Total cash flow (excl. dividends), $m
  -231
  1,529
  1,558
  1,598
  1,641
  1,689
  1,740
  1,796
  1,855
  1,919
  1,987
  2,054
  2,131
  2,213
  2,299
  2,391
  2,487
  2,590
  2,698
  2,812
  2,932
  3,059
  3,192
  3,333
  3,481
  3,637
  3,801
  3,973
  4,155
  4,346
  4,546
Retained Cash Flow (-), $m
  170
  -108
  -131
  -144
  -158
  -172
  -186
  -201
  -215
  -230
  -246
  -261
  -278
  -295
  -312
  -330
  -349
  -369
  -390
  -411
  -434
  -457
  -482
  -507
  -534
  -562
  -591
  -622
  -654
  -688
  -724
Prev. year cash balance distribution, $m
 
  139
  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
 
  1,560
  1,428
  1,453
  1,483
  1,517
  1,554
  1,595
  1,640
  1,689
  1,741
  1,793
  1,853
  1,918
  1,987
  2,060
  2,138
  2,220
  2,308
  2,400
  2,498
  2,602
  2,711
  2,826
  2,947
  3,075
  3,209
  3,351
  3,500
  3,657
  3,823
Discount rate, %
 
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
  21.18
  22.24
  23.35
  24.52
  25.74
  27.03
  28.38
  29.80
  31.29
  32.85
  34.50
  36.22
PV of cash for distribution, $m
 
  1,434
  1,196
  1,101
  1,006
  912
  821
  731
  645
  562
  484
  411
  345
  285
  232
  185
  145
  112
  85
  62
  45
  32
  22
  15
  9
  6
  4
  2
  1
  1
  0
Current shareholders' claim on cash, %
  100
  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
  100.0

Canadian Pacific Railway Limited, together with its subsidiaries, owns and operates a transcontinental freight railway in Canada and the United States. The Company operates through rail transportation segment. The Company's transports bulk commodities, merchandise freight, and intermodal traffic over a network of approximately 12,400 miles. Its railway feeds directly into the United States heartland from the east and west coasts. Its Bulk commodities include grain, coal, potash, fertilizers and sulfur. Its Merchandise freight consists of finished vehicles and machinery, as well as forest and industrial and consumer products. Its Intermodal traffic consists of retail goods in overseas containers that can be transported by train, ship and truck and in domestic containers and trailers that can be moved by train and truck. Its subsidiaries include Canadian Pacific Railway Company, Soo Line Railroad Company, Delaware and Hudson Railway Company, Inc. and Mount Stephen Properties Inc.

FINANCIAL RATIOS  of  Canadian Pacific Railway Limited (CP)

Valuation Ratios
P/E Ratio 20.8
Price to Sales 5.3
Price to Book 7.2
Price to Tangible Book
Price to Cash Flow 15.9
Price to Free Cash Flow 36.7
Growth Rates
Sales Growth Rate -7.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -22.3%
Cap. Spend. - 3 Yr. Gr. Rate -0.9%
Financial Strength
Quick Ratio 7
Current Ratio 0.1
LT Debt to Equity 187.2%
Total Debt to Equity 187.7%
Interest Coverage 5
Management Effectiveness
Return On Assets 10.1%
Ret/ On Assets - 3 Yr. Avg. 9.6%
Return On Total Capital 11.8%
Ret/ On T. Cap. - 3 Yr. Avg. 11.7%
Return On Equity 33.9%
Return On Equity - 3 Yr. Avg. 27.7%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 88%
Gross Margin - 3 Yr. Avg. 85.3%
EBITDA Margin 52.6%
EBITDA Margin - 3 Yr. Avg. 46.5%
Operating Margin 41%
Oper. Margin - 3 Yr. Avg. 38.8%
Pre-Tax Margin 34.5%
Pre-Tax Margin - 3 Yr. Avg. 31.5%
Net Profit Margin 25.7%
Net Profit Margin - 3 Yr. Avg. 22.7%
Effective Tax Rate 25.7%
Eff/ Tax Rate - 3 Yr. Avg. 28.1%
Payout Ratio 15.9%

CP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CP stock intrinsic value calculation we used $6232 million for the last fiscal year's total revenue generated by Canadian Pacific Railway Limited. The default revenue input number comes from 2016 income statement of Canadian Pacific Railway 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 CP stock valuation model: a) initial revenue growth rate of 2.6% 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 8.8%, whose default value for CP is calculated based on our internal credit rating of Canadian Pacific Railway 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 Pacific Railway 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 CP stock the variable cost ratio is equal to 59.9%.

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 CP 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 5.5% for Canadian Pacific Railway Limited.

Corporate tax rate of 27% is the nominal tax rate for Canadian Pacific Railway 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 CP 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 CP are equal to 264.7%.

Life of production assets of 26.1 years is the average useful life of capital assets used in Canadian Pacific Railway 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 CP is equal to -7.7%. 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 - $4626 million for Canadian Pacific Railway 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 146.56 million for Canadian Pacific Railway 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 Pacific Railway Limited at the current share price and the inputted number of shares is $33.3 billion.

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Financial statements of CP
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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