Intrinsic value of Canadian Utilities Limited Class A Non-V - CU

Previous Close

$39.65

  Intrinsic Value

$71.50

stock screener

  Rating & Target

str. buy

+80%

Previous close

$39.65

 
Intrinsic value

$71.50

 
Up/down potential

+80%

 
Rating

str. buy

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

We calculate the intrinsic value of CU 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 10.7

 

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, %
  4.14
  24.10
  22.19
  20.47
  18.92
  17.53
  16.28
  15.15
  14.14
  13.22
  12.40
  11.66
  10.99
  10.39
  9.85
  9.37
  8.93
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
Revenue, $m
  0
  4,218
  5,154
  6,209
  7,384
  8,679
  10,092
  11,621
  13,263
  15,017
  16,879
  18,847
  20,919
  23,093
  25,369
  27,746
  30,225
  32,806
  35,491
  38,283
  41,185
  44,200
  47,334
  50,591
  53,977
  57,498
  61,162
  64,975
  68,945
  73,081
  77,393
Variable operating expenses, $m
 
  3,113
  3,804
  4,582
  5,450
  6,405
  7,448
  8,576
  9,788
  11,082
  12,457
  13,909
  15,438
  17,043
  18,723
  20,477
  22,306
  24,211
  26,192
  28,253
  30,394
  32,620
  34,933
  37,336
  39,835
  42,434
  45,137
  47,951
  50,881
  53,934
  57,116
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
  2,152
  3,113
  3,804
  4,582
  5,450
  6,405
  7,448
  8,576
  9,788
  11,082
  12,457
  13,909
  15,438
  17,043
  18,723
  20,477
  22,306
  24,211
  26,192
  28,253
  30,394
  32,620
  34,933
  37,336
  39,835
  42,434
  45,137
  47,951
  50,881
  53,934
  57,116
Operating income, $m
  1,247
  1,105
  1,350
  1,627
  1,935
  2,274
  2,644
  3,045
  3,475
  3,934
  4,422
  4,938
  5,481
  6,050
  6,647
  7,270
  7,919
  8,595
  9,299
  10,030
  10,790
  11,580
  12,402
  13,255
  14,142
  15,065
  16,024
  17,023
  18,064
  19,147
  20,277
EBITDA, $m
  1,820
  1,679
  2,051
  2,471
  2,939
  3,454
  4,016
  4,625
  5,279
  5,977
  6,718
  7,501
  8,326
  9,191
  10,097
  11,043
  12,029
  13,057
  14,125
  15,237
  16,392
  17,592
  18,839
  20,135
  21,483
  22,884
  24,342
  25,860
  27,440
  29,086
  30,802
Interest expense (income), $m
  394
  391
  533
  694
  875
  1,076
  1,299
  1,541
  1,804
  2,085
  2,387
  2,706
  3,044
  3,400
  3,773
  4,164
  4,572
  4,997
  5,440
  5,901
  6,380
  6,878
  7,396
  7,934
  8,493
  9,074
  9,679
  10,307
  10,962
  11,643
  12,353
Earnings before tax, $m
  865
  714
  818
  933
  1,060
  1,198
  1,345
  1,504
  1,671
  1,849
  2,036
  2,232
  2,437
  2,651
  2,874
  3,106
  3,347
  3,598
  3,859
  4,129
  4,410
  4,702
  5,006
  5,321
  5,649
  5,990
  6,346
  6,716
  7,102
  7,504
  7,924
Tax expense, $m
  236
  193
  221
  252
  286
  323
  363
  406
  451
  499
  550
  603
  658
  716
  776
  839
  904
  971
  1,042
  1,115
  1,191
  1,270
  1,352
  1,437
  1,525
  1,617
  1,713
  1,813
  1,917
  2,026
  2,139
Net income, $m
  629
  521
  597
  681
  774
  874
  982
  1,098
  1,220
  1,350
  1,486
  1,629
  1,779
  1,935
  2,098
  2,267
  2,444
  2,627
  2,817
  3,014
  3,219
  3,433
  3,654
  3,884
  4,124
  4,373
  4,632
  4,903
  5,184
  5,478
  5,784

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  345
  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
  18,781
  22,925
  28,012
  33,746
  40,132
  47,168
  54,846
  63,156
  72,083
  81,614
  91,734
  102,429
  113,690
  125,508
  137,876
  150,795
  164,265
  178,291
  192,885
  208,059
  223,830
  240,219
  257,251
  274,952
  293,354
  312,491
  332,400
  353,123
  374,701
  397,181
  420,613
Adjusted assets (=assets-cash), $m
  18,436
  22,925
  28,012
  33,746
  40,132
  47,168
  54,846
  63,156
  72,083
  81,614
  91,734
  102,429
  113,690
  125,508
  137,876
  150,795
  164,265
  178,291
  192,885
  208,059
  223,830
  240,219
  257,251
  274,952
  293,354
  312,491
  332,400
  353,123
  374,701
  397,181
  420,613
Revenue / Adjusted assets
  0.000
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
Average production assets, $m
  2,312
  2,868
  3,505
  4,222
  5,021
  5,902
  6,862
  7,902
  9,019
  10,211
  11,478
  12,816
  14,225
  15,704
  17,251
  18,867
  20,553
  22,308
  24,134
  26,032
  28,006
  30,056
  32,187
  34,402
  36,704
  39,099
  41,590
  44,183
  46,883
  49,695
  52,627
Working capital, $m
  93
  -30
  -36
  -43
  -52
  -61
  -71
  -81
  -93
  -105
  -118
  -132
  -146
  -162
  -178
  -194
  -212
  -230
  -248
  -268
  -288
  -309
  -331
  -354
  -378
  -402
  -428
  -455
  -483
  -512
  -542
Total debt, $m
  8,378
  11,102
  14,449
  18,222
  22,424
  27,053
  32,106
  37,573
  43,448
  49,719
  56,378
  63,416
  70,825
  78,601
  86,740
  95,240
  104,103
  113,333
  122,936
  132,920
  143,297
  154,081
  165,288
  176,935
  189,044
  201,636
  214,736
  228,372
  242,570
  257,362
  272,781
Total liabilities, $m
  12,361
  15,085
  18,432
  22,205
  26,407
  31,036
  36,089
  41,556
  47,431
  53,702
  60,361
  67,399
  74,808
  82,584
  90,723
  99,223
  108,086
  117,316
  126,919
  136,903
  147,280
  158,064
  169,271
  180,918
  193,027
  205,619
  218,719
  232,355
  246,553
  261,345
  276,764
Total equity, $m
  6,420
  7,840
  9,580
  11,541
  13,725
  16,131
  18,757
  21,599
  24,652
  27,912
  31,373
  35,031
  38,882
  42,924
  47,154
  51,572
  56,178
  60,976
  65,967
  71,156
  76,550
  82,155
  87,980
  94,034
  100,327
  106,872
  113,681
  120,768
  128,148
  135,836
  143,850
Total liabilities and equity, $m
  18,781
  22,925
  28,012
  33,746
  40,132
  47,167
  54,846
  63,155
  72,083
  81,614
  91,734
  102,430
  113,690
  125,508
  137,877
  150,795
  164,264
  178,292
  192,886
  208,059
  223,830
  240,219
  257,251
  274,952
  293,354
  312,491
  332,400
  353,123
  374,701
  397,181
  420,614
Debt-to-equity ratio
  1.305
  1.420
  1.510
  1.580
  1.630
  1.680
  1.710
  1.740
  1.760
  1.780
  1.800
  1.810
  1.820
  1.830
  1.840
  1.850
  1.850
  1.860
  1.860
  1.870
  1.870
  1.880
  1.880
  1.880
  1.880
  1.890
  1.890
  1.890
  1.890
  1.890
  1.900
Adjusted equity ratio
  0.333
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  629
  521
  597
  681
  774
  874
  982
  1,098
  1,220
  1,350
  1,486
  1,629
  1,779
  1,935
  2,098
  2,267
  2,444
  2,627
  2,817
  3,014
  3,219
  3,433
  3,654
  3,884
  4,124
  4,373
  4,632
  4,903
  5,184
  5,478
  5,784
Depreciation, amort., depletion, $m
  573
  574
  701
  844
  1,004
  1,180
  1,372
  1,580
  1,804
  2,042
  2,296
  2,563
  2,845
  3,141
  3,450
  3,773
  4,111
  4,462
  4,827
  5,206
  5,601
  6,011
  6,437
  6,880
  7,341
  7,820
  8,318
  8,837
  9,377
  9,939
  10,525
Funds from operations, $m
  1,466
  1,095
  1,298
  1,526
  1,778
  2,055
  2,355
  2,678
  3,024
  3,392
  3,782
  4,192
  4,624
  5,076
  5,548
  6,041
  6,554
  7,088
  7,644
  8,221
  8,821
  9,444
  10,092
  10,765
  11,465
  12,193
  12,950
  13,739
  14,561
  15,417
  16,310
Change in working capital, $m
  -156
  -6
  -7
  -7
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
Cash from operations, $m
  1,622
  1,101
  1,304
  1,533
  1,786
  2,064
  2,365
  2,689
  3,035
  3,404
  3,795
  4,206
  4,638
  5,091
  5,564
  6,058
  6,571
  7,106
  7,662
  8,240
  8,841
  9,465
  10,113
  10,788
  11,488
  12,217
  12,976
  13,766
  14,589
  15,446
  16,340
Maintenance CAPEX, $m
  0
  -462
  -574
  -701
  -844
  -1,004
  -1,180
  -1,372
  -1,580
  -1,804
  -2,042
  -2,296
  -2,563
  -2,845
  -3,141
  -3,450
  -3,773
  -4,111
  -4,462
  -4,827
  -5,206
  -5,601
  -6,011
  -6,437
  -6,880
  -7,341
  -7,820
  -8,318
  -8,837
  -9,377
  -9,939
New CAPEX, $m
  -1,293
  -556
  -636
  -717
  -799
  -880
  -961
  -1,040
  -1,117
  -1,192
  -1,266
  -1,338
  -1,409
  -1,479
  -1,548
  -1,616
  -1,685
  -1,755
  -1,826
  -1,899
  -1,973
  -2,051
  -2,131
  -2,215
  -2,302
  -2,394
  -2,491
  -2,593
  -2,700
  -2,813
  -2,932
Cash from investing activities, $m
  -1,456
  -1,018
  -1,210
  -1,418
  -1,643
  -1,884
  -2,141
  -2,412
  -2,697
  -2,996
  -3,308
  -3,634
  -3,972
  -4,324
  -4,689
  -5,066
  -5,458
  -5,866
  -6,288
  -6,726
  -7,179
  -7,652
  -8,142
  -8,652
  -9,182
  -9,735
  -10,311
  -10,911
  -11,537
  -12,190
  -12,871
Free cash flow, $m
  166
  82
  94
  115
  143
  179
  224
  277
  338
  408
  486
  572
  666
  767
  876
  991
  1,113
  1,241
  1,375
  1,515
  1,661
  1,813
  1,971
  2,135
  2,306
  2,482
  2,665
  2,855
  3,052
  3,257
  3,469
Issuance/(repayment) of debt, $m
  410
  2,953
  3,347
  3,773
  4,202
  4,630
  5,052
  5,468
  5,874
  6,271
  6,659
  7,038
  7,410
  7,776
  8,139
  8,500
  8,863
  9,230
  9,603
  9,984
  10,377
  10,784
  11,207
  11,647
  12,109
  12,592
  13,100
  13,635
  14,198
  14,792
  15,418
Issuance/(repurchase) of shares, $m
  4
  1,015
  1,143
  1,280
  1,410
  1,532
  1,644
  1,744
  1,833
  1,910
  1,975
  2,029
  2,072
  2,106
  2,132
  2,151
  2,163
  2,171
  2,174
  2,175
  2,174
  2,172
  2,171
  2,169
  2,170
  2,172
  2,177
  2,184
  2,195
  2,210
  2,230
Cash from financing (excl. dividends), $m  
  23
  3,968
  4,490
  5,053
  5,612
  6,162
  6,696
  7,212
  7,707
  8,181
  8,634
  9,067
  9,482
  9,882
  10,271
  10,651
  11,026
  11,401
  11,777
  12,159
  12,551
  12,956
  13,378
  13,816
  14,279
  14,764
  15,277
  15,819
  16,393
  17,002
  17,648
Total cash flow (excl. dividends), $m
  185
  4,049
  4,584
  5,168
  5,755
  6,341
  6,919
  7,488
  8,045
  8,589
  9,120
  9,639
  10,148
  10,650
  11,147
  11,642
  12,139
  12,641
  13,152
  13,675
  14,213
  14,770
  15,348
  15,952
  16,584
  17,246
  17,942
  18,675
  19,446
  20,259
  21,117
Retained Cash Flow (-), $m
  -227
  -1,536
  -1,740
  -1,961
  -2,184
  -2,406
  -2,626
  -2,842
  -3,053
  -3,260
  -3,461
  -3,658
  -3,851
  -4,042
  -4,230
  -4,418
  -4,607
  -4,797
  -4,991
  -5,189
  -5,394
  -5,605
  -5,825
  -6,054
  -6,293
  -6,545
  -6,809
  -7,087
  -7,380
  -7,688
  -8,014
Prev. year cash balance distribution, $m
 
  116
  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
 
  2,629
  2,845
  3,207
  3,571
  3,934
  4,294
  4,647
  4,992
  5,330
  5,659
  5,981
  6,297
  6,608
  6,917
  7,224
  7,532
  7,844
  8,161
  8,485
  8,819
  9,165
  9,524
  9,898
  10,290
  10,701
  11,133
  11,588
  12,066
  12,571
  13,103
Discount rate, %
 
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
 
  2,430
  2,411
  2,473
  2,485
  2,447
  2,363
  2,240
  2,084
  1,904
  1,709
  1,506
  1,304
  1,108
  924
  756
  607
  477
  368
  277
  204
  147
  103
  70
  47
  30
  19
  12
  7
  4
  2
Current shareholders' claim on cash, %
  100
  91.2
  83.9
  77.7
  72.4
  67.8
  63.9
  60.6
  57.6
  55.1
  52.8
  50.9
  49.1
  47.6
  46.2
  45.0
  43.9
  42.9
  42.0
  41.2
  40.4
  39.8
  39.2
  38.6
  38.1
  37.6
  37.1
  36.7
  36.3
  35.9
  35.6

Canadian Utilities Limited is a global enterprise company. Its segments include Electricity, Pipeline & Liquids, and Corporate & Other. Its Electricity segment's activities are conducted through two regulated businesses; ATCO Electric Distribution and ATCO Electric Transmission, and three non-regulated businesses, ATCO Power, ATCO Power Australia and Alberta PowerLine (APL). The Pipelines & Liquids segment's activities are conducted through three regulated businesses, ATCO Gas, ATCO Pipelines and ATCO Gas Australia, and one non-regulated business, ATCO Energy Solutions. It delivers natural gas distribution and transmission services, energy storage, and industrial water solutions to existing and new customers. The Corporate & Other segment includes retail energy business, which through ATCOenergy, sells electricity and natural gas to large commercial retail customers. It also includes the commercial real estate in Alberta, and the strategic investment and expansion into Mexico.

FINANCIAL RATIOS  of  Canadian Utilities Limited Class A Non-V (CU)

Valuation Ratios
P/E Ratio 16.9
Price to Sales 3.1
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 6.6
Price to Free Cash Flow 32.4
Growth Rates
Sales Growth Rate 4.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -22.6%
Cap. Spend. - 3 Yr. Gr. Rate -11.1%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 126.9%
Total Debt to Equity 130.5%
Interest Coverage 3
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 4.9%
Return On Total Capital 4.3%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity 10%
Return On Equity - 3 Yr. Avg. 9.7%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 53.9%
EBITDA Margin - 3 Yr. Avg. 50.6%
Operating Margin 36.7%
Oper. Margin - 3 Yr. Avg. 32.3%
Pre-Tax Margin 25.4%
Pre-Tax Margin - 3 Yr. Avg. 22.9%
Net Profit Margin 18.5%
Net Profit Margin - 3 Yr. Avg. 16.5%
Effective Tax Rate 27.3%
Eff/ Tax Rate - 3 Yr. Avg. 28.6%
Payout Ratio 57.9%

CU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CU stock intrinsic value calculation we used $3399 million for the last fiscal year's total revenue generated by Canadian Utilities Limited Class A Non-V. The default revenue input number comes from 2016 income statement of Canadian Utilities Limited Class A Non-V. 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 CU stock valuation model: a) initial revenue growth rate of 24.1% 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 8.2%, whose default value for CU is calculated based on our internal credit rating of Canadian Utilities Limited Class A Non-V, 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 Utilities Limited Class A Non-V.
    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 CU stock the variable cost ratio is equal to 73.8%.

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 CU 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 4.8% for Canadian Utilities Limited Class A Non-V.

Corporate tax rate of 27% is the nominal tax rate for Canadian Utilities Limited Class A Non-V. 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 CU 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 CU are equal to 68%.

Life of production assets of 4 years is the average useful life of capital assets used in Canadian Utilities Limited Class A Non-V 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 CU is equal to -0.7%. 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 - $6420 million for Canadian Utilities Limited Class A Non-V - 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 270.429 million for Canadian Utilities Limited Class A Non-V 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 Utilities Limited Class A Non-V at the current share price and the inputted number of shares is $10.7 billion.

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Financial statements of CU
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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