Intrinsic value of Fortis Inc. - FTS

Previous Close

$47.34

  Intrinsic Value

$242.94

stock screener

  Rating & Target

str. buy

+413%

Previous close

$47.34

 
Intrinsic value

$242.94

 
Up/down potential

+413%

 
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

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 19.9

 

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
  35.70
  32.63
  29.87
  27.38
  25.14
  23.13
  21.32
  19.68
  18.22
  16.89
  15.70
  14.63
  13.67
  12.80
  12.02
  11.32
  10.69
  10.12
  9.61
  9.15
  8.73
  8.36
  8.02
  7.72
  7.45
  7.20
  6.98
  6.79
  6.61
  6.45
Revenue, $m
  6,838
  9,279
  12,307
  15,983
  20,359
  25,477
  31,370
  38,056
  45,547
  53,844
  62,940
  72,825
  83,482
  94,894
  107,044
  119,914
  133,490
  147,758
  162,711
  178,344
  194,657
  211,656
  229,348
  247,749
  266,878
  286,757
  307,415
  328,883
  351,199
  374,401
  398,535
Variable operating expenses, $m
 
  4,941
  6,149
  7,616
  9,363
  11,407
  13,759
  16,428
  19,418
  22,730
  26,361
  29,071
  33,325
  37,881
  42,731
  47,868
  53,287
  58,983
  64,952
  71,193
  77,705
  84,490
  91,553
  98,898
  106,534
  114,470
  122,716
  131,286
  140,194
  149,456
  159,090
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
  6,440
  7,685
  9,190
  10,977
  13,061
  15,454
  18,166
  21,199
  24,556
  28,232
  30,989
  35,291
  39,896
  44,797
  49,985
  55,457
  61,208
  67,232
  73,530
  80,101
  86,946
  94,070
  101,478
  109,178
  117,180
  125,494
  134,134
  143,113
  152,448
  162,157
Operating income, $m
  1,444
  2,840
  4,622
  6,792
  9,382
  12,417
  15,916
  19,891
  24,348
  29,288
  34,707
  41,836
  48,191
  54,998
  62,248
  69,929
  78,032
  86,550
  95,479
  104,814
  114,557
  124,710
  135,278
  146,271
  157,699
  169,577
  181,921
  194,750
  208,086
  221,953
  236,379
EBITDA, $m
  2,427
  4,190
  6,009
  8,224
  10,868
  13,966
  17,537
  21,594
  26,144
  31,186
  36,717
  42,730
  49,216
  56,164
  63,563
  71,401
  79,672
  88,365
  97,477
  107,005
  116,948
  127,310
  138,095
  149,314
  160,977
  173,099
  185,697
  198,789
  212,400
  226,552
  241,274
Interest expense (income), $m
  644
  832
  1,264
  1,804
  2,460
  3,240
  4,153
  5,204
  6,396
  7,732
  9,211
  10,833
  12,596
  14,496
  16,531
  18,698
  20,993
  23,413
  25,958
  28,624
  31,412
  34,321
  37,352
  40,507
  43,788
  47,199
  50,744
  54,428
  58,256
  62,235
  66,373
Earnings before tax, $m
  858
  2,008
  3,357
  4,987
  6,922
  9,177
  11,763
  14,687
  17,952
  21,556
  25,496
  31,003
  35,595
  40,502
  45,717
  51,231
  57,039
  63,137
  69,521
  76,190
  83,145
  90,389
  97,926
  105,764
  113,911
  122,378
  131,177
  140,322
  149,830
  159,718
  170,006
Tax expense, $m
  145
  542
  906
  1,347
  1,869
  2,478
  3,176
  3,965
  4,847
  5,820
  6,884
  8,371
  9,611
  10,936
  12,343
  13,832
  15,401
  17,047
  18,771
  20,571
  22,449
  24,405
  26,440
  28,556
  30,756
  33,042
  35,418
  37,887
  40,454
  43,124
  45,902
Net income, $m
  660
  1,466
  2,451
  3,641
  5,053
  6,699
  8,587
  10,721
  13,105
  15,736
  18,612
  22,632
  25,984
  29,567
  33,373
  37,399
  41,639
  46,090
  50,750
  55,619
  60,696
  65,984
  71,486
  77,208
  83,155
  89,336
  95,759
  102,435
  109,376
  116,594
  124,104

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
  64,439
  85,465
  110,991
  141,380
  176,927
  217,846
  264,281
  316,301
  373,916
  437,085
  505,727
  579,735
  658,988
  743,362
  832,737
  927,011
  1,026,097
  1,129,936
  1,238,500
  1,351,787
  1,469,830
  1,592,696
  1,720,482
  1,853,319
  1,991,369
  2,134,826
  2,283,913
  2,438,881
  2,600,010
  2,767,607
Adjusted assets (=assets-cash), $m
  47,635
  64,439
  85,465
  110,991
  141,380
  176,927
  217,846
  264,281
  316,301
  373,916
  437,085
  505,727
  579,735
  658,988
  743,362
  832,737
  927,011
  1,026,097
  1,129,936
  1,238,500
  1,351,787
  1,469,830
  1,592,696
  1,720,482
  1,853,319
  1,991,369
  2,134,826
  2,283,913
  2,438,881
  2,600,010
  2,767,607
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
  1,049
  1,391
  1,806
  2,301
  2,879
  3,545
  4,300
  5,147
  6,084
  7,112
  8,229
  9,433
  10,723
  12,096
  13,550
  15,084
  16,697
  18,386
  20,153
  21,996
  23,917
  25,916
  27,996
  30,157
  32,404
  34,738
  37,164
  39,685
  42,307
  45,034
Working capital, $m
  -1,778
  -770
  -1,021
  -1,327
  -1,690
  -2,115
  -2,604
  -3,159
  -3,780
  -4,469
  -5,224
  -6,044
  -6,929
  -7,876
  -8,885
  -9,953
  -11,080
  -12,264
  -13,505
  -14,803
  -16,157
  -17,567
  -19,036
  -20,563
  -22,151
  -23,801
  -25,515
  -27,297
  -29,150
  -31,075
  -33,078
Total debt, $m
  22,759
  34,172
  48,765
  66,480
  87,570
  112,239
  140,637
  172,863
  208,965
  248,950
  292,789
  340,426
  391,788
  446,790
  505,345
  567,372
  632,797
  701,563
  773,628
  848,971
  927,592
  1,009,514
  1,094,783
  1,183,466
  1,275,655
  1,371,462
  1,471,021
  1,574,488
  1,682,035
  1,793,859
  1,910,171
Total liabilities, $m
  33,307
  44,720
  59,313
  77,028
  98,118
  122,787
  151,185
  183,411
  219,513
  259,498
  303,337
  350,974
  402,336
  457,338
  515,893
  577,920
  643,345
  712,111
  784,176
  859,519
  938,140
  1,020,062
  1,105,331
  1,194,014
  1,286,203
  1,382,010
  1,481,569
  1,585,036
  1,692,583
  1,804,407
  1,920,719
Total equity, $m
  14,597
  19,718
  26,152
  33,963
  43,262
  54,140
  66,661
  80,870
  96,788
  114,418
  133,748
  154,752
  177,399
  201,650
  227,469
  254,818
  283,665
  313,986
  345,761
  378,981
  413,647
  449,768
  487,365
  526,467
  567,115
  609,359
  653,257
  698,877
  746,298
  795,603
  846,888
Total liabilities and equity, $m
  47,904
  64,438
  85,465
  110,991
  141,380
  176,927
  217,846
  264,281
  316,301
  373,916
  437,085
  505,726
  579,735
  658,988
  743,362
  832,738
  927,010
  1,026,097
  1,129,937
  1,238,500
  1,351,787
  1,469,830
  1,592,696
  1,720,481
  1,853,318
  1,991,369
  2,134,826
  2,283,913
  2,438,881
  2,600,010
  2,767,607
Debt-to-equity ratio
  1.559
  1.730
  1.860
  1.960
  2.020
  2.070
  2.110
  2.140
  2.160
  2.180
  2.190
  2.200
  2.210
  2.220
  2.220
  2.230
  2.230
  2.230
  2.240
  2.240
  2.240
  2.240
  2.250
  2.250
  2.250
  2.250
  2.250
  2.250
  2.250
  2.250
  2.260
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
  1,466
  2,451
  3,641
  5,053
  6,699
  8,587
  10,721
  13,105
  15,736
  18,612
  22,632
  25,984
  29,567
  33,373
  37,399
  41,639
  46,090
  50,750
  55,619
  60,696
  65,984
  71,486
  77,208
  83,155
  89,336
  95,759
  102,435
  109,376
  116,594
  124,104
Depreciation, amort., depletion, $m
  983
  1,350
  1,388
  1,433
  1,486
  1,549
  1,622
  1,704
  1,796
  1,898
  2,009
  894
  1,025
  1,166
  1,315
  1,473
  1,640
  1,815
  1,999
  2,191
  2,391
  2,600
  2,817
  3,043
  3,278
  3,522
  3,776
  4,040
  4,314
  4,599
  4,895
Funds from operations, $m
  1,906
  2,816
  3,838
  5,074
  6,539
  8,248
  10,208
  12,425
  14,901
  17,634
  20,622
  23,526
  27,010
  30,732
  34,688
  38,871
  43,278
  47,905
  52,749
  57,809
  63,087
  68,584
  74,303
  80,251
  86,433
  92,858
  99,535
  106,475
  113,690
  121,193
  128,999
Change in working capital, $m
  22
  -203
  -251
  -305
  -363
  -425
  -489
  -555
  -622
  -689
  -755
  -820
  -885
  -947
  -1,008
  -1,068
  -1,127
  -1,184
  -1,241
  -1,298
  -1,354
  -1,411
  -1,468
  -1,527
  -1,588
  -1,650
  -1,715
  -1,782
  -1,852
  -1,926
  -2,003
Cash from operations, $m
  1,884
  3,019
  4,090
  5,379
  6,903
  8,673
  10,698
  12,980
  15,522
  18,322
  21,377
  24,347
  27,894
  31,679
  35,696
  39,940
  44,405
  49,089
  53,990
  59,107
  64,441
  69,994
  75,772
  81,778
  88,021
  94,508
  101,249
  108,257
  115,542
  123,119
  131,002
Maintenance CAPEX, $m
  0
  -84
  -114
  -151
  -196
  -250
  -313
  -385
  -467
  -559
  -661
  -773
  -894
  -1,025
  -1,166
  -1,315
  -1,473
  -1,640
  -1,815
  -1,999
  -2,191
  -2,391
  -2,600
  -2,817
  -3,043
  -3,278
  -3,522
  -3,776
  -4,040
  -4,314
  -4,599
New CAPEX, $m
  -2,061
  -273
  -342
  -415
  -494
  -578
  -666
  -756
  -846
  -938
  -1,028
  -1,117
  -1,204
  -1,290
  -1,373
  -1,454
  -1,534
  -1,612
  -1,690
  -1,767
  -1,843
  -1,921
  -1,999
  -2,079
  -2,162
  -2,246
  -2,334
  -2,426
  -2,522
  -2,622
  -2,727
Cash from investing activities, $m
  -6,891
  -357
  -456
  -566
  -690
  -828
  -979
  -1,141
  -1,313
  -1,497
  -1,689
  -1,890
  -2,098
  -2,315
  -2,539
  -2,769
  -3,007
  -3,252
  -3,505
  -3,766
  -4,034
  -4,312
  -4,599
  -4,896
  -5,205
  -5,524
  -5,856
  -6,202
  -6,562
  -6,936
  -7,326
Free cash flow, $m
  -5,007
  2,662
  3,634
  4,812
  6,212
  7,845
  9,719
  11,839
  14,209
  16,825
  19,688
  22,457
  25,796
  29,364
  33,158
  37,170
  41,398
  45,837
  50,485
  55,342
  60,407
  65,683
  71,173
  76,882
  82,816
  88,984
  95,393
  102,055
  108,980
  116,183
  123,677
Issuance/(repayment) of debt, $m
  4,285
  11,682
  14,592
  17,715
  21,090
  24,669
  28,398
  32,226
  36,102
  39,985
  43,839
  47,637
  51,362
  55,002
  58,555
  62,027
  65,425
  68,766
  72,065
  75,343
  78,621
  81,922
  85,269
  88,683
  92,189
  95,807
  99,559
  103,466
  107,548
  111,824
  116,312
Issuance/(repurchase) of shares, $m
  -155
  3,655
  3,983
  4,170
  4,246
  4,178
  3,935
  3,487
  2,813
  1,894
  717
  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
  15,337
  18,575
  21,885
  25,336
  28,847
  32,333
  35,713
  38,915
  41,879
  44,556
  47,637
  51,362
  55,002
  58,555
  62,027
  65,425
  68,766
  72,065
  75,343
  78,621
  81,922
  85,269
  88,683
  92,189
  95,807
  99,559
  103,466
  107,548
  111,824
  116,312
Total cash flow (excl. dividends), $m
  415
  18,000
  22,209
  26,697
  31,548
  36,692
  42,052
  47,552
  53,124
  58,705
  64,244
  70,094
  77,157
  84,366
  91,713
  99,197
  106,824
  114,603
  122,550
  130,685
  139,028
  147,605
  156,441
  165,565
  175,005
  184,791
  194,952
  205,521
  216,528
  228,007
  239,989
Retained Cash Flow (-), $m
  -4,717
  -5,121
  -6,434
  -7,811
  -9,299
  -10,877
  -12,521
  -14,209
  -15,918
  -17,630
  -19,330
  -21,004
  -22,646
  -24,251
  -25,818
  -27,349
  -28,848
  -30,320
  -31,775
  -33,220
  -34,666
  -36,121
  -37,597
  -39,102
  -40,648
  -42,243
  -43,898
  -45,621
  -47,420
  -49,305
  -51,285
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
 
  12,879
  15,775
  18,886
  22,249
  25,815
  29,530
  33,343
  37,206
  41,074
  44,914
  49,090
  54,511
  60,115
  65,895
  71,848
  77,976
  84,282
  90,775
  97,464
  104,362
  111,484
  118,845
  126,463
  134,357
  142,547
  151,054
  159,900
  169,108
  178,701
  188,704
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
 
  11,708
  12,919
  13,800
  14,356
  14,547
  14,364
  13,826
  12,978
  11,884
  10,619
  9,334
  8,197
  7,023
  5,869
  4,782
  3,798
  2,938
  2,212
  1,620
  1,152
  796
  533
  346
  217
  132
  77
  43
  23
  12
  6
Current shareholders' claim on cash, %
  100
  84.5
  73.5
  65.8
  60.3
  56.3
  53.4
  51.4
  50.2
  49.4
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2
  49.2

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 28.8
Price to Sales 2.8
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 10.1
Price to Free Cash Flow -107.4
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 35.7% 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 419.368 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 $19.9 billion.

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Financial statements of FTS
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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