Intrinsic value of Fortis Inc. - FTS

Previous Close

$43.50

  Intrinsic Value

$154.68

stock screener

  Rating & Target

str. buy

+256%

Previous close

$43.50

 
Intrinsic value

$154.68

 
Up/down potential

+256%

 
Rating

str. buy

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

We calculate the intrinsic value of FTS 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  1.20
  24.40
  22.46
  20.71
  19.14
  17.73
  16.46
  15.31
  14.28
  13.35
  12.52
  11.76
  11.09
  10.48
  9.93
  9.44
  8.99
  8.59
  8.24
  7.91
  7.62
  7.36
  7.12
  6.91
  6.72
  6.55
  6.39
  6.25
  6.13
  6.02
  5.91
Revenue, $m
  6,838
  8,506
  10,417
  12,575
  14,982
  17,638
  20,540
  23,685
  27,067
  30,681
  34,521
  38,582
  42,860
  47,351
  52,054
  56,967
  62,091
  67,427
  72,980
  78,754
  84,756
  90,993
  97,474
  104,210
  111,212
  118,493
  126,068
  133,952
  142,161
  150,712
  159,625
Variable operating expenses, $m
 
  4,632
  5,395
  6,256
  7,217
  8,277
  9,436
  10,691
  12,041
  13,484
  15,017
  15,401
  17,109
  18,902
  20,779
  22,740
  24,786
  26,916
  29,133
  31,438
  33,833
  36,323
  38,910
  41,599
  44,394
  47,301
  50,325
  53,472
  56,749
  60,162
  63,720
Fixed operating expenses, $m
 
  1,499
  1,536
  1,574
  1,614
  1,654
  1,695
  1,738
  1,781
  1,826
  1,871
  1,918
  1,966
  2,015
  2,066
  2,117
  2,170
  2,225
  2,280
  2,337
  2,396
  2,456
  2,517
  2,580
  2,644
  2,710
  2,778
  2,848
  2,919
  2,992
  3,067
Total operating expenses, $m
  5,394
  6,131
  6,931
  7,830
  8,831
  9,931
  11,131
  12,429
  13,822
  15,310
  16,888
  17,319
  19,075
  20,917
  22,845
  24,857
  26,956
  29,141
  31,413
  33,775
  36,229
  38,779
  41,427
  44,179
  47,038
  50,011
  53,103
  56,320
  59,668
  63,154
  66,787
Operating income, $m
  1,444
  2,376
  3,486
  4,744
  6,151
  7,707
  9,409
  11,256
  13,245
  15,371
  17,633
  21,262
  23,785
  26,434
  29,209
  32,109
  35,135
  38,287
  41,567
  44,979
  48,527
  52,214
  56,047
  60,031
  64,173
  68,482
  72,965
  77,632
  82,493
  87,558
  92,838
EBITDA, $m
  2,427
  3,717
  4,851
  6,135
  7,572
  9,160
  10,898
  12,783
  14,813
  16,984
  19,293
  21,736
  24,311
  27,016
  29,848
  32,809
  35,897
  39,115
  42,464
  45,947
  49,568
  53,332
  57,244
  61,311
  65,539
  69,937
  74,514
  79,278
  84,239
  89,409
  94,799
Interest expense (income), $m
  644
  832
  1,127
  1,467
  1,852
  2,281
  2,755
  3,272
  3,833
  4,436
  5,081
  5,765
  6,490
  7,253
  8,053
  8,892
  9,768
  10,682
  11,633
  12,623
  13,653
  14,723
  15,835
  16,991
  18,192
  19,441
  20,739
  22,090
  23,496
  24,960
  26,485
Earnings before tax, $m
  858
  1,544
  2,360
  3,277
  4,299
  5,425
  6,654
  7,984
  9,411
  10,935
  12,552
  15,497
  17,295
  19,181
  21,156
  23,217
  25,366
  27,605
  29,934
  32,356
  34,874
  37,491
  40,211
  43,039
  45,981
  49,041
  52,226
  55,542
  58,997
  62,598
  66,353
Tax expense, $m
  145
  417
  637
  885
  1,161
  1,465
  1,797
  2,156
  2,541
  2,952
  3,389
  4,184
  4,670
  5,179
  5,712
  6,269
  6,849
  7,453
  8,082
  8,736
  9,416
  10,122
  10,857
  11,621
  12,415
  13,241
  14,101
  14,996
  15,929
  16,902
  17,915
Net income, $m
  660
  1,127
  1,723
  2,392
  3,138
  3,960
  4,858
  5,828
  6,870
  7,982
  9,163
  11,313
  12,625
  14,002
  15,444
  16,948
  18,518
  20,152
  21,852
  23,620
  25,458
  27,368
  29,354
  31,419
  33,566
  35,800
  38,125
  40,546
  43,068
  45,697
  48,438

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  269
  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
  47,904
  59,073
  72,340
  87,325
  104,041
  122,486
  142,642
  164,480
  187,966
  213,062
  239,729
  267,931
  297,639
  328,829
  361,486
  395,603
  431,185
  468,245
  506,806
  546,904
  588,582
  631,893
  676,901
  723,678
  772,305
  822,871
  875,475
  930,223
  987,228
  1,046,612
  1,108,506
Adjusted assets (=assets-cash), $m
  47,635
  59,073
  72,340
  87,325
  104,041
  122,486
  142,642
  164,480
  187,966
  213,062
  239,729
  267,931
  297,639
  328,829
  361,486
  395,603
  431,185
  468,245
  506,806
  546,904
  588,582
  631,893
  676,901
  723,678
  772,305
  822,871
  875,475
  930,223
  987,228
  1,046,612
  1,108,506
Revenue / Adjusted assets
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
Average production assets, $m
  776
  961
  1,177
  1,421
  1,693
  1,993
  2,321
  2,676
  3,059
  3,467
  3,901
  4,360
  4,843
  5,351
  5,882
  6,437
  7,016
  7,619
  8,247
  8,899
  9,577
  10,282
  11,015
  11,776
  12,567
  13,390
  14,246
  15,137
  16,064
  17,030
  18,038
Working capital, $m
  -1,778
  -706
  -865
  -1,044
  -1,244
  -1,464
  -1,705
  -1,966
  -2,247
  -2,547
  -2,865
  -3,202
  -3,557
  -3,930
  -4,320
  -4,728
  -5,154
  -5,596
  -6,057
  -6,537
  -7,035
  -7,552
  -8,090
  -8,649
  -9,231
  -9,835
  -10,464
  -11,118
  -11,799
  -12,509
  -13,249
Total debt, $m
  22,759
  30,448
  39,656
  50,056
  61,657
  74,457
  88,445
  103,601
  119,901
  137,317
  155,824
  175,396
  196,014
  217,659
  240,323
  264,001
  288,694
  314,414
  341,176
  369,003
  397,928
  427,986
  459,221
  491,685
  525,432
  560,525
  597,032
  635,026
  674,588
  715,801
  758,755
Total liabilities, $m
  33,307
  40,996
  50,204
  60,604
  72,205
  85,005
  98,993
  114,149
  130,449
  147,865
  166,372
  185,944
  206,562
  228,207
  250,871
  274,549
  299,242
  324,962
  351,724
  379,551
  408,476
  438,534
  469,769
  502,233
  535,980
  571,073
  607,580
  645,574
  685,136
  726,349
  769,303
Total equity, $m
  14,597
  18,076
  22,136
  26,721
  31,837
  37,481
  43,648
  50,331
  57,518
  65,197
  73,357
  81,987
  91,078
  100,622
  110,615
  121,055
  131,943
  143,283
  155,083
  167,353
  180,106
  193,359
  207,132
  221,445
  236,325
  251,799
  267,895
  284,648
  302,092
  320,263
  339,203
Total liabilities and equity, $m
  47,904
  59,072
  72,340
  87,325
  104,042
  122,486
  142,641
  164,480
  187,967
  213,062
  239,729
  267,931
  297,640
  328,829
  361,486
  395,604
  431,185
  468,245
  506,807
  546,904
  588,582
  631,893
  676,901
  723,678
  772,305
  822,872
  875,475
  930,222
  987,228
  1,046,612
  1,108,506
Debt-to-equity ratio
  1.559
  1.680
  1.790
  1.870
  1.940
  1.990
  2.030
  2.060
  2.080
  2.110
  2.120
  2.140
  2.150
  2.160
  2.170
  2.180
  2.190
  2.190
  2.200
  2.200
  2.210
  2.210
  2.220
  2.220
  2.220
  2.230
  2.230
  2.230
  2.230
  2.240
  2.240
Adjusted equity ratio
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  660
  1,127
  1,723
  2,392
  3,138
  3,960
  4,858
  5,828
  6,870
  7,982
  9,163
  11,313
  12,625
  14,002
  15,444
  16,948
  18,518
  20,152
  21,852
  23,620
  25,458
  27,368
  29,354
  31,419
  33,566
  35,800
  38,125
  40,546
  43,068
  45,697
  48,438
Depreciation, amort., depletion, $m
  983
  1,341
  1,364
  1,391
  1,420
  1,453
  1,489
  1,527
  1,569
  1,613
  1,660
  474
  526
  582
  639
  700
  763
  828
  896
  967
  1,041
  1,118
  1,197
  1,280
  1,366
  1,455
  1,548
  1,645
  1,746
  1,851
  1,961
Funds from operations, $m
  1,906
  2,468
  3,087
  3,783
  4,559
  5,414
  6,346
  7,355
  8,439
  9,596
  10,823
  11,787
  13,152
  14,584
  16,083
  17,648
  19,280
  20,980
  22,748
  24,587
  26,499
  28,486
  30,551
  32,699
  34,932
  37,255
  39,673
  42,191
  44,814
  47,548
  50,399
Change in working capital, $m
  22
  -138
  -159
  -179
  -200
  -220
  -241
  -261
  -281
  -300
  -319
  -337
  -355
  -373
  -390
  -408
  -425
  -443
  -461
  -479
  -498
  -518
  -538
  -559
  -581
  -604
  -629
  -654
  -681
  -710
  -740
Cash from operations, $m
  1,884
  2,606
  3,245
  3,962
  4,759
  5,634
  6,587
  7,616
  8,720
  9,896
  11,142
  12,124
  13,507
  14,957
  16,473
  18,056
  19,705
  21,423
  23,209
  25,066
  26,997
  29,003
  31,089
  33,258
  35,513
  37,860
  40,302
  42,845
  45,495
  48,258
  51,138
Maintenance CAPEX, $m
  0
  -84
  -104
  -128
  -154
  -184
  -217
  -252
  -291
  -332
  -377
  -424
  -474
  -526
  -582
  -639
  -700
  -763
  -828
  -896
  -967
  -1,041
  -1,118
  -1,197
  -1,280
  -1,366
  -1,455
  -1,548
  -1,645
  -1,746
  -1,851
New CAPEX, $m
  -2,061
  -185
  -216
  -244
  -272
  -300
  -328
  -355
  -382
  -408
  -434
  -459
  -483
  -508
  -531
  -555
  -579
  -603
  -627
  -652
  -678
  -705
  -732
  -761
  -791
  -823
  -856
  -891
  -928
  -966
  -1,007
Cash from investing activities, $m
  -6,891
  -269
  -320
  -372
  -426
  -484
  -545
  -607
  -673
  -740
  -811
  -883
  -957
  -1,034
  -1,113
  -1,194
  -1,279
  -1,366
  -1,455
  -1,548
  -1,645
  -1,746
  -1,850
  -1,958
  -2,071
  -2,189
  -2,311
  -2,439
  -2,573
  -2,712
  -2,858
Free cash flow, $m
  -5,007
  2,337
  2,925
  3,590
  4,332
  5,150
  6,043
  7,009
  8,047
  9,155
  10,331
  11,241
  12,550
  13,923
  15,360
  16,861
  18,427
  20,057
  21,753
  23,517
  25,351
  27,258
  29,239
  31,299
  33,442
  35,671
  37,991
  40,406
  42,923
  45,545
  48,280
Issuance/(repayment) of debt, $m
  4,285
  7,958
  9,208
  10,399
  11,601
  12,801
  13,988
  15,156
  16,299
  17,416
  18,507
  19,573
  20,617
  21,646
  22,664
  23,677
  24,694
  25,719
  26,762
  27,828
  28,924
  30,058
  31,236
  32,463
  33,747
  35,093
  36,507
  37,995
  39,561
  41,213
  42,955
Issuance/(repurchase) of shares, $m
  -155
  2,352
  2,337
  2,193
  1,977
  1,684
  1,310
  855
  316
  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  
  5,438
  10,310
  11,545
  12,592
  13,578
  14,485
  15,298
  16,011
  16,615
  17,416
  18,507
  19,573
  20,617
  21,646
  22,664
  23,677
  24,694
  25,719
  26,762
  27,828
  28,924
  30,058
  31,236
  32,463
  33,747
  35,093
  36,507
  37,995
  39,561
  41,213
  42,955
Total cash flow (excl. dividends), $m
  415
  12,648
  14,470
  16,183
  17,910
  19,634
  21,341
  23,019
  24,663
  26,571
  28,838
  30,813
  33,167
  35,569
  38,024
  40,539
  43,120
  45,776
  48,515
  51,345
  54,276
  57,316
  60,475
  63,763
  67,189
  70,764
  74,498
  78,401
  82,484
  86,758
  91,235
Retained Cash Flow (-), $m
  -4,717
  -3,479
  -4,060
  -4,585
  -5,115
  -5,644
  -6,168
  -6,683
  -7,187
  -7,679
  -8,160
  -8,630
  -9,091
  -9,544
  -9,993
  -10,440
  -10,888
  -11,340
  -11,800
  -12,270
  -12,753
  -13,253
  -13,772
  -14,314
  -14,880
  -15,473
  -16,097
  -16,753
  -17,444
  -18,172
  -18,940
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
 
  9,168
  10,410
  11,597
  12,795
  13,990
  15,173
  16,337
  17,476
  18,892
  20,678
  22,183
  24,076
  26,025
  28,031
  30,099
  32,232
  34,436
  36,715
  39,075
  41,522
  44,062
  46,702
  49,449
  52,309
  55,291
  58,401
  61,648
  65,040
  68,586
  72,295
Discount rate, %
 
  10.00
  10.50
  11.03
  11.58
  12.16
  12.76
  13.40
  14.07
  14.77
  15.51
  16.29
  17.10
  17.96
  18.86
  19.80
  20.79
  21.83
  22.92
  24.07
  25.27
  26.53
  27.86
  29.25
  30.72
  32.25
  33.86
  35.56
  37.33
  39.20
  41.16
PV of cash for distribution, $m
 
  8,335
  8,526
  8,474
  8,256
  7,884
  7,380
  6,774
  6,096
  5,466
  4,889
  4,218
  3,620
  3,040
  2,496
  2,003
  1,570
  1,200
  895
  649
  459
  315
  210
  135
  84
  51
  30
  17
  9
  5
  2
Current shareholders' claim on cash, %
  100
  88.6
  80.3
  74.4
  70.2
  67.4
  65.6
  64.5
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2
  64.2

Fortis Inc. is a Canada-based electric and gas utility holding company. The Company's segments include Regulated Utilities and Non-Regulated Utilities. The Regulated Utilities segment includes Regulated Electric & Gas Utilities-the United States, which consists of ITC Holdings Corp. (ITC Holdings), UNS Energy Corporation and Central Hudson Gas & Electric Corporation (Central Hudson); Gas & Electric Utilities-Canadian, which consists of FortisAlberta Inc. (FortisAlberta), FortisBC Energy Inc. (FortisBC Energy), FortisBC Inc. (FortisBC Electric) and Newfoundland Power Inc. (Newfoundland Power); Electric Utilities-Caribbean, which includes its ownership interest in Caribbean Utilities Company, Ltd., Fortis Turks and Caicos, and its investment in Belize Electricity Limited. The Non-Regulated Utilities segment consists of Non-Regulated-Energy Infrastructure, which comprises long-term generation assets in British Columbia and Belize, and the Aitken Creek natural gas storage facility.

FINANCIAL RATIOS  of  Fortis Inc. (FTS)

Valuation Ratios
P/E Ratio 26.5
Price to Sales 2.6
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 9.3
Price to Free Cash Flow -98.7
Growth Rates
Sales Growth Rate 1.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -9.4%
Cap. Spend. - 3 Yr. Gr. Rate 11.9%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 145.8%
Total Debt to Equity 155.9%
Interest Coverage 2
Management Effectiveness
Return On Assets 3.1%
Ret/ On Assets - 3 Yr. Avg. 3.8%
Return On Total Capital 2.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2.8%
Return On Equity 5.4%
Return On Equity - 3 Yr. Avg. 6.4%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 36.3%
EBITDA Margin - 3 Yr. Avg. 34.8%
Operating Margin 21.1%
Oper. Margin - 3 Yr. Avg. 20%
Pre-Tax Margin 12.5%
Pre-Tax Margin - 3 Yr. Avg. 12.2%
Net Profit Margin 9.7%
Net Profit Margin - 3 Yr. Avg. 9.5%
Effective Tax Rate 16.9%
Eff/ Tax Rate - 3 Yr. Avg. 17.5%
Payout Ratio 58.8%

FTS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FTS stock intrinsic value calculation we used $6838 million for the last fiscal year's total revenue generated by Fortis Inc.. The default revenue input number comes from 2016 income statement of Fortis Inc.. 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 FTS stock valuation model: a) initial revenue growth rate of 24.4% 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 10%, whose default value for FTS is calculated based on our internal credit rating of Fortis Inc., 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 Fortis Inc..
    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 FTS stock the variable cost ratio is equal to 58%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1462 million in the base year in the intrinsic value calculation for FTS 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 Fortis Inc..

Corporate tax rate of 27% is the nominal tax rate for Fortis Inc.. 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 FTS 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 FTS are equal to 11.3%.

Life of production assets of 9.2 years is the average useful life of capital assets used in Fortis Inc. 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 FTS is equal to -8.3%. 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 - $14597 million for Fortis Inc. - 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 419.649 million for Fortis Inc. 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 Fortis Inc. at the current share price and the inputted number of shares is $18.3 billion.

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Financial statements of FTS
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