Intrinsic value of Imperial Oil Limited - IMO

Previous Close

$39.45

  Intrinsic Value

$85.32

stock screener

  Rating & Target

str. buy

+116%

Previous close

$39.45

 
Intrinsic value

$85.32

 
Up/down potential

+116%

 
Rating

str. buy

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

We calculate the intrinsic value of IMO 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, %
  -5.08
  12.30
  11.57
  10.91
  10.32
  9.79
  9.31
  8.88
  8.49
  8.14
  7.83
  7.55
  7.29
  7.06
  6.86
  6.67
  6.50
  6.35
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
Revenue, $m
  25,446
  28,576
  31,882
  35,361
  39,011
  42,830
  46,818
  50,975
  55,304
  59,807
  64,489
  69,355
  74,411
  79,666
  85,127
  90,805
  96,710
  102,854
  109,249
  115,909
  122,847
  130,080
  137,623
  145,493
  153,709
  162,290
  171,255
  180,625
  190,423
  200,672
  211,395
Variable operating expenses, $m
 
  5,313
  5,925
  6,570
  7,246
  7,954
  8,693
  9,463
  10,265
  11,099
  11,966
  12,849
  13,786
  14,760
  15,771
  16,823
  17,917
  19,056
  20,240
  21,474
  22,760
  24,100
  25,497
  26,955
  28,478
  30,067
  31,728
  33,464
  35,279
  37,178
  39,165
Fixed operating expenses, $m
 
  20,951
  21,475
  22,012
  22,562
  23,126
  23,704
  24,297
  24,904
  25,527
  26,165
  26,819
  27,490
  28,177
  28,881
  29,603
  30,343
  31,102
  31,879
  32,676
  33,493
  34,331
  35,189
  36,069
  36,970
  37,895
  38,842
  39,813
  40,808
  41,829
  42,874
Total operating expenses, $m
  24,845
  26,264
  27,400
  28,582
  29,808
  31,080
  32,397
  33,760
  35,169
  36,626
  38,131
  39,668
  41,276
  42,937
  44,652
  46,426
  48,260
  50,158
  52,119
  54,150
  56,253
  58,431
  60,686
  63,024
  65,448
  67,962
  70,570
  73,277
  76,087
  79,007
  82,039
Operating income, $m
  601
  2,312
  4,482
  6,780
  9,203
  11,751
  14,421
  17,216
  20,135
  23,181
  26,357
  29,686
  33,136
  36,729
  40,475
  44,379
  48,450
  52,697
  57,129
  61,758
  66,594
  71,649
  76,937
  82,469
  88,261
  94,328
  100,684
  107,348
  114,335
  121,665
  129,356
EBITDA, $m
  2,229
  4,148
  6,529
  9,048
  11,703
  14,494
  17,418
  20,477
  23,671
  27,004
  30,478
  34,098
  37,869
  41,797
  45,890
  50,155
  54,601
  59,239
  64,078
  69,131
  74,408
  79,923
  85,690
  91,724
  98,038
  104,651
  111,578
  118,837
  126,448
  134,429
  142,803
Interest expense (income), $m
  73
  176
  246
  321
  399
  482
  568
  658
  752
  850
  951
  1,057
  1,167
  1,281
  1,400
  1,523
  1,651
  1,784
  1,923
  2,068
  2,218
  2,375
  2,538
  2,708
  2,886
  3,071
  3,265
  3,467
  3,679
  3,900
  4,132
Earnings before tax, $m
  2,444
  2,136
  4,236
  6,459
  8,804
  11,269
  13,853
  16,558
  19,383
  22,332
  25,406
  28,629
  31,969
  35,448
  39,075
  42,856
  46,799
  50,912
  55,206
  59,690
  64,376
  69,275
  74,399
  79,761
  85,375
  91,256
  97,419
  103,880
  110,656
  117,765
  125,224
Tax expense, $m
  279
  577
  1,144
  1,744
  2,377
  3,043
  3,740
  4,471
  5,233
  6,030
  6,860
  7,730
  8,632
  9,571
  10,550
  11,571
  12,636
  13,746
  14,906
  16,116
  17,382
  18,704
  20,088
  21,535
  23,051
  24,639
  26,303
  28,048
  29,877
  31,796
  33,811
Net income, $m
  2,165
  1,559
  3,092
  4,715
  6,427
  8,226
  10,113
  12,087
  14,150
  16,302
  18,546
  20,899
  23,337
  25,877
  28,525
  31,285
  34,163
  37,166
  40,300
  43,574
  46,995
  50,571
  54,311
  58,226
  62,324
  66,617
  71,116
  75,833
  80,779
  85,968
  91,414

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  391
  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
  41,654
  46,314
  51,673
  57,312
  63,227
  69,417
  75,880
  82,618
  89,633
  96,932
  104,520
  112,406
  120,602
  129,118
  137,970
  147,172
  156,743
  166,700
  177,065
  187,858
  199,104
  210,826
  223,051
  235,807
  249,123
  263,030
  277,560
  292,747
  308,627
  325,238
  342,618
Adjusted assets (=assets-cash), $m
  41,263
  46,314
  51,673
  57,312
  63,227
  69,417
  75,880
  82,618
  89,633
  96,932
  104,520
  112,406
  120,602
  129,118
  137,970
  147,172
  156,743
  166,700
  177,065
  187,858
  199,104
  210,826
  223,051
  235,807
  249,123
  263,030
  277,560
  292,747
  308,627
  325,238
  342,618
Revenue / Adjusted assets
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
Average production assets, $m
  37,235
  41,806
  46,643
  51,734
  57,073
  62,661
  68,495
  74,577
  80,910
  87,498
  94,347
  101,466
  108,863
  116,551
  124,541
  132,848
  141,487
  150,476
  159,831
  169,574
  179,725
  190,307
  201,342
  212,856
  224,876
  237,430
  250,545
  264,254
  278,589
  293,583
  309,271
Working capital, $m
  -52
  -257
  -287
  -318
  -351
  -385
  -421
  -459
  -498
  -538
  -580
  -624
  -670
  -717
  -766
  -817
  -870
  -926
  -983
  -1,043
  -1,106
  -1,171
  -1,239
  -1,309
  -1,383
  -1,461
  -1,541
  -1,626
  -1,714
  -1,806
  -1,903
Total debt, $m
  5,234
  7,034
  9,167
  11,411
  13,765
  16,229
  18,801
  21,483
  24,275
  27,180
  30,200
  33,339
  36,600
  39,990
  43,513
  47,176
  50,985
  54,948
  59,073
  63,369
  67,844
  72,510
  77,375
  82,452
  87,752
  93,287
  99,070
  105,114
  111,435
  118,046
  124,963
Total liabilities, $m
  16,633
  18,433
  20,566
  22,810
  25,164
  27,628
  30,200
  32,882
  35,674
  38,579
  41,599
  44,738
  47,999
  51,389
  54,912
  58,575
  62,384
  66,347
  70,472
  74,768
  79,243
  83,909
  88,774
  93,851
  99,151
  104,686
  110,469
  116,513
  122,834
  129,445
  136,362
Total equity, $m
  25,021
  27,881
  31,107
  34,502
  38,063
  41,789
  45,680
  49,736
  53,959
  58,353
  62,921
  67,669
  72,602
  77,729
  83,058
  88,598
  94,359
  100,354
  106,593
  113,091
  119,860
  126,917
  134,277
  141,956
  149,972
  158,344
  167,091
  176,234
  185,794
  195,793
  206,256
Total liabilities and equity, $m
  41,654
  46,314
  51,673
  57,312
  63,227
  69,417
  75,880
  82,618
  89,633
  96,932
  104,520
  112,407
  120,601
  129,118
  137,970
  147,173
  156,743
  166,701
  177,065
  187,859
  199,103
  210,826
  223,051
  235,807
  249,123
  263,030
  277,560
  292,747
  308,628
  325,238
  342,618
Debt-to-equity ratio
  0.209
  0.250
  0.290
  0.330
  0.360
  0.390
  0.410
  0.430
  0.450
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.530
  0.540
  0.550
  0.550
  0.560
  0.570
  0.570
  0.580
  0.580
  0.590
  0.590
  0.590
  0.600
  0.600
  0.600
  0.610
Adjusted equity ratio
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,165
  1,559
  3,092
  4,715
  6,427
  8,226
  10,113
  12,087
  14,150
  16,302
  18,546
  20,899
  23,337
  25,877
  28,525
  31,285
  34,163
  37,166
  40,300
  43,574
  46,995
  50,571
  54,311
  58,226
  62,324
  66,617
  71,116
  75,833
  80,779
  85,968
  91,414
Depreciation, amort., depletion, $m
  1,628
  1,836
  2,047
  2,268
  2,500
  2,743
  2,997
  3,261
  3,536
  3,823
  4,121
  4,412
  4,733
  5,067
  5,415
  5,776
  6,152
  6,542
  6,949
  7,373
  7,814
  8,274
  8,754
  9,255
  9,777
  10,323
  10,893
  11,489
  12,113
  12,764
  13,447
Funds from operations, $m
  2,367
  3,395
  5,139
  6,983
  8,927
  10,969
  13,110
  15,348
  17,686
  20,125
  22,667
  25,311
  28,070
  30,945
  33,940
  37,061
  40,315
  43,708
  47,250
  50,947
  54,809
  58,845
  63,065
  67,480
  72,101
  76,940
  82,009
  87,322
  92,892
  98,733
  104,860
Change in working capital, $m
  352
  -28
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -62
  -65
  -68
  -71
  -74
  -77
  -81
  -84
  -88
  -92
  -97
Cash from operations, $m
  2,015
  3,424
  5,168
  7,014
  8,960
  11,004
  13,145
  15,386
  17,725
  20,165
  22,709
  25,355
  28,116
  30,992
  33,989
  37,112
  40,368
  43,764
  47,307
  51,007
  54,871
  58,910
  63,133
  67,551
  72,175
  77,017
  82,090
  87,406
  92,980
  98,825
  104,957
Maintenance CAPEX, $m
  0
  -1,619
  -1,818
  -2,028
  -2,249
  -2,481
  -2,724
  -2,978
  -3,242
  -3,518
  -3,804
  -4,102
  -4,412
  -4,733
  -5,067
  -5,415
  -5,776
  -6,152
  -6,542
  -6,949
  -7,373
  -7,814
  -8,274
  -8,754
  -9,255
  -9,777
  -10,323
  -10,893
  -11,489
  -12,113
  -12,764
New CAPEX, $m
  -1,073
  -4,572
  -4,837
  -5,090
  -5,340
  -5,587
  -5,834
  -6,082
  -6,333
  -6,588
  -6,849
  -7,119
  -7,398
  -7,688
  -7,990
  -8,307
  -8,639
  -8,988
  -9,356
  -9,743
  -10,151
  -10,581
  -11,035
  -11,515
  -12,020
  -12,553
  -13,116
  -13,709
  -14,334
  -14,994
  -15,689
Cash from investing activities, $m
  1,947
  -6,191
  -6,655
  -7,118
  -7,589
  -8,068
  -8,558
  -9,060
  -9,575
  -10,106
  -10,653
  -11,221
  -11,810
  -12,421
  -13,057
  -13,722
  -14,415
  -15,140
  -15,898
  -16,692
  -17,524
  -18,395
  -19,309
  -20,269
  -21,275
  -22,330
  -23,439
  -24,602
  -25,823
  -27,107
  -28,453
Free cash flow, $m
  3,962
  -2,767
  -1,486
  -104
  1,371
  2,935
  4,587
  6,326
  8,150
  10,060
  12,056
  14,134
  16,307
  18,571
  20,931
  23,390
  25,953
  28,624
  31,409
  34,315
  37,347
  40,514
  43,823
  47,282
  50,901
  54,687
  58,651
  62,804
  67,156
  71,719
  76,504
Issuance/(repayment) of debt, $m
  -3,282
  2,002
  2,133
  2,244
  2,354
  2,463
  2,572
  2,682
  2,792
  2,905
  3,020
  3,139
  3,262
  3,390
  3,523
  3,663
  3,809
  3,963
  4,125
  4,296
  4,476
  4,665
  4,866
  5,077
  5,300
  5,535
  5,783
  6,044
  6,320
  6,611
  6,917
Issuance/(repurchase) of shares, $m
  0
  1,490
  134
  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  
  -3,282
  3,492
  2,267
  2,244
  2,354
  2,463
  2,572
  2,682
  2,792
  2,905
  3,020
  3,139
  3,262
  3,390
  3,523
  3,663
  3,809
  3,963
  4,125
  4,296
  4,476
  4,665
  4,866
  5,077
  5,300
  5,535
  5,783
  6,044
  6,320
  6,611
  6,917
Total cash flow (excl. dividends), $m
  680
  725
  780
  2,140
  3,725
  5,398
  7,159
  9,007
  10,942
  12,964
  15,076
  17,273
  19,568
  21,961
  24,454
  27,053
  29,762
  32,587
  35,534
  38,610
  41,823
  45,180
  48,689
  52,359
  56,200
  60,222
  64,434
  68,849
  73,476
  78,330
  83,421
Retained Cash Flow (-), $m
  -1,596
  -3,049
  -3,226
  -3,395
  -3,561
  -3,726
  -3,891
  -4,056
  -4,223
  -4,394
  -4,568
  -4,748
  -4,934
  -5,127
  -5,329
  -5,540
  -5,762
  -5,994
  -6,239
  -6,498
  -6,770
  -7,057
  -7,360
  -7,679
  -8,016
  -8,372
  -8,747
  -9,143
  -9,560
  -9,999
  -10,463
Prev. year cash balance distribution, $m
 
  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
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
 
  -2,135
  -2,446
  -1,254
  164
  1,672
  3,269
  4,951
  6,719
  8,571
  10,508
  12,525
  14,635
  16,834
  19,125
  21,513
  24,000
  26,592
  29,295
  32,113
  35,053
  38,123
  41,329
  44,680
  48,184
  51,850
  55,687
  59,706
  63,916
  68,330
  72,958
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  -2,034
  -2,208
  -1,068
  131
  1,245
  2,255
  3,144
  3,900
  4,513
  4,978
  5,293
  5,467
  5,504
  5,417
  5,221
  4,932
  4,571
  4,156
  3,708
  3,245
  2,786
  2,346
  1,935
  1,562
  1,235
  954
  720
  530
  380
  266
Current shareholders' claim on cash, %
  100
  95.7
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3

Imperial Oil Limited is an integrated oil company. The Company is engaged in all the phases of the petroleum industry in Canada, including exploration for, and production and sale of, crude oil and natural gas. Its operations are conducted in three segments: Upstream, Downstream and Chemical. The Upstream operations include the exploration for, and production of, crude oil, natural gas, synthetic oil and bitumen. It holds an interest in the Kearl oil sands project. The Downstream operations consist of the transportation and refining of crude oil, blending of refined products and the distribution and marketing of those products. The Chemical operations consist of the manufacturing and marketing of various petrochemicals. The Company is involved in the exploration for and development of crude oil and natural gas in Canada. The Company transports its crude oil production and third-party crude oil required to supply refineries by contracted pipelines, common carrier pipelines and rail.

FINANCIAL RATIOS  of  Imperial Oil Limited (IMO)

Valuation Ratios
P/E Ratio 15.4
Price to Sales 1.3
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 16.6
Price to Free Cash Flow 35.5
Growth Rates
Sales Growth Rate -5.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -64.2%
Cap. Spend. - 3 Yr. Gr. Rate -29.8%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 20.1%
Total Debt to Equity 20.9%
Interest Coverage 34
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 6%
Return On Total Capital 7%
Ret/ On T. Cap. - 3 Yr. Avg. 8.1%
Return On Equity 8.9%
Return On Equity - 3 Yr. Avg. 10.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 13.6%
Gross Margin - 3 Yr. Avg. 16.7%
EBITDA Margin 16.3%
EBITDA Margin - 3 Yr. Avg. 15.3%
Operating Margin 2.4%
Oper. Margin - 3 Yr. Avg. 7.7%
Pre-Tax Margin 9.6%
Pre-Tax Margin - 3 Yr. Avg. 10.1%
Net Profit Margin 8.5%
Net Profit Margin - 3 Yr. Avg. 7.6%
Effective Tax Rate 11.4%
Eff/ Tax Rate - 3 Yr. Avg. 25.9%
Payout Ratio 22.7%

IMO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IMO stock intrinsic value calculation we used $25446 million for the last fiscal year's total revenue generated by Imperial Oil Limited. The default revenue input number comes from 2016 income statement of Imperial Oil 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 IMO stock valuation model: a) initial revenue growth rate of 12.3% 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 5%, whose default value for IMO is calculated based on our internal credit rating of Imperial Oil 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 Imperial Oil 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 IMO stock the variable cost ratio is equal to 18.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $20440 million in the base year in the intrinsic value calculation for IMO 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 3.5% for Imperial Oil Limited.

Corporate tax rate of 27% is the nominal tax rate for Imperial Oil 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 IMO 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 IMO are equal to 146.3%.

Life of production assets of 23 years is the average useful life of capital assets used in Imperial Oil 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 IMO is equal to -0.9%. 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 - $25021 million for Imperial Oil 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 844.426 million for Imperial Oil 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 Imperial Oil Limited at the current share price and the inputted number of shares is $33.3 billion.

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Financial statements of IMO
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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