Intrinsic value of PrairieSky Royalty Ltd. - PSK

Previous Close

$31.78

  Intrinsic Value

$2.01

stock screener

  Rating & Target

str. sell

-94%

Previous close

$31.78

 
Intrinsic value

$2.01

 
Up/down potential

-94%

 
Rating

str. sell

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

We calculate the intrinsic value of PSK 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 7.5

 

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, %
  4.19
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  224
  358
  554
  828
  1,202
  1,695
  2,330
  3,128
  4,108
  5,285
  6,676
  8,290
  10,135
  12,216
  14,535
  17,091
  19,881
  22,901
  26,146
  29,612
  33,293
  37,184
  41,280
  45,580
  50,081
  54,782
  59,685
  64,790
  70,101
  75,624
  81,364
Variable operating expenses, $m
 
  186
  253
  347
  476
  645
  863
  1,137
  1,473
  1,878
  2,355
  2,846
  3,479
  4,194
  4,990
  5,867
  6,825
  7,862
  8,976
  10,166
  11,430
  12,765
  14,172
  15,648
  17,193
  18,807
  20,490
  22,243
  24,066
  25,962
  27,933
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
  207
  186
  253
  347
  476
  645
  863
  1,137
  1,473
  1,878
  2,355
  2,846
  3,479
  4,194
  4,990
  5,867
  6,825
  7,862
  8,976
  10,166
  11,430
  12,765
  14,172
  15,648
  17,193
  18,807
  20,490
  22,243
  24,066
  25,962
  27,933
Operating income, $m
  18
  172
  301
  481
  726
  1,050
  1,467
  1,991
  2,634
  3,408
  4,321
  5,444
  6,656
  8,022
  9,545
  11,223
  13,055
  15,039
  17,170
  19,446
  21,863
  24,418
  27,109
  29,932
  32,888
  35,975
  39,195
  42,547
  46,035
  49,662
  53,432
EBITDA, $m
  181
  388
  600
  897
  1,301
  1,836
  2,524
  3,388
  4,448
  5,724
  7,230
  8,977
  10,976
  13,229
  15,740
  18,508
  21,529
  24,800
  28,315
  32,068
  36,054
  40,267
  44,704
  49,360
  54,235
  59,326
  64,634
  70,163
  75,915
  81,896
  88,112
Interest expense (income), $m
  0
  0
  5
  12
  22
  36
  54
  77
  107
  143
  186
  237
  296
  364
  440
  525
  619
  722
  832
  952
  1,079
  1,214
  1,357
  1,507
  1,665
  1,830
  2,003
  2,183
  2,370
  2,565
  2,768
Earnings before tax, $m
  20
  172
  296
  469
  704
  1,014
  1,413
  1,914
  2,528
  3,265
  4,135
  5,207
  6,360
  7,659
  9,105
  10,698
  12,436
  14,317
  16,338
  18,495
  20,784
  23,204
  25,752
  28,425
  31,223
  34,145
  37,192
  40,365
  43,665
  47,097
  50,664
Tax expense, $m
  0
  47
  80
  127
  190
  274
  382
  517
  682
  882
  1,116
  1,406
  1,717
  2,068
  2,458
  2,888
  3,358
  3,866
  4,411
  4,994
  5,612
  6,265
  6,953
  7,675
  8,430
  9,219
  10,042
  10,898
  11,790
  12,716
  13,679
Net income, $m
  20
  126
  216
  342
  514
  740
  1,032
  1,397
  1,845
  2,384
  3,019
  3,801
  4,643
  5,591
  6,647
  7,810
  9,079
  10,452
  11,927
  13,501
  15,173
  16,939
  18,799
  20,751
  22,793
  24,926
  27,150
  29,466
  31,876
  34,381
  36,985

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  34
  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
  2,770
  4,371
  6,753
  10,099
  14,653
  20,673
  28,421
  38,149
  50,092
  64,456
  81,413
  101,097
  123,600
  148,980
  177,257
  208,422
  242,445
  279,277
  318,857
  361,122
  406,009
  453,458
  503,420
  555,857
  610,746
  668,078
  727,860
  790,118
  854,894
  922,246
  992,250
Adjusted assets (=assets-cash), $m
  2,736
  4,371
  6,753
  10,099
  14,653
  20,673
  28,421
  38,149
  50,092
  64,456
  81,413
  101,097
  123,600
  148,980
  177,257
  208,422
  242,445
  279,277
  318,857
  361,122
  406,009
  453,458
  503,420
  555,857
  610,746
  668,078
  727,860
  790,118
  854,894
  922,246
  992,250
Revenue / Adjusted assets
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
Average production assets, $m
  888
  1,421
  2,195
  3,283
  4,763
  6,720
  9,238
  12,400
  16,282
  20,951
  26,463
  32,861
  40,176
  48,426
  57,617
  67,747
  78,806
  90,778
  103,644
  117,382
  131,972
  147,395
  163,636
  180,680
  198,522
  217,157
  236,589
  256,826
  277,882
  299,774
  322,529
Working capital, $m
  44
  16
  25
  37
  54
  76
  105
  141
  185
  238
  300
  373
  456
  550
  654
  769
  895
  1,031
  1,177
  1,333
  1,498
  1,673
  1,858
  2,051
  2,254
  2,465
  2,686
  2,916
  3,155
  3,403
  3,661
Total debt, $m
  0
  141
  346
  633
  1,025
  1,543
  2,209
  3,046
  4,073
  5,308
  6,767
  8,459
  10,395
  12,577
  15,009
  17,689
  20,615
  23,783
  27,187
  30,822
  34,682
  38,762
  43,059
  47,569
  52,289
  57,220
  62,361
  67,715
  73,286
  79,078
  85,098
Total liabilities, $m
  235
  376
  581
  868
  1,260
  1,778
  2,444
  3,281
  4,308
  5,543
  7,002
  8,694
  10,630
  12,812
  15,244
  17,924
  20,850
  24,018
  27,422
  31,057
  34,917
  38,997
  43,294
  47,804
  52,524
  57,455
  62,596
  67,950
  73,521
  79,313
  85,333
Total equity, $m
  2,535
  3,995
  6,172
  9,230
  13,393
  18,895
  25,976
  34,868
  45,784
  58,913
  74,412
  92,402
  112,971
  136,168
  162,013
  190,498
  221,595
  255,259
  291,435
  330,066
  371,092
  414,460
  460,126
  508,053
  558,222
  610,623
  665,264
  722,168
  781,373
  842,933
  906,916
Total liabilities and equity, $m
  2,770
  4,371
  6,753
  10,098
  14,653
  20,673
  28,420
  38,149
  50,092
  64,456
  81,414
  101,096
  123,601
  148,980
  177,257
  208,422
  242,445
  279,277
  318,857
  361,123
  406,009
  453,457
  503,420
  555,857
  610,746
  668,078
  727,860
  790,118
  854,894
  922,246
  992,249
Debt-to-equity ratio
  0.000
  0.040
  0.060
  0.070
  0.080
  0.080
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
  0.090
Adjusted equity ratio
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914
  0.914

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  20
  126
  216
  342
  514
  740
  1,032
  1,397
  1,845
  2,384
  3,019
  3,801
  4,643
  5,591
  6,647
  7,810
  9,079
  10,452
  11,927
  13,501
  15,173
  16,939
  18,799
  20,751
  22,793
  24,926
  27,150
  29,466
  31,876
  34,381
  36,985
Depreciation, amort., depletion, $m
  163
  216
  299
  416
  575
  786
  1,056
  1,396
  1,814
  2,316
  2,909
  3,533
  4,320
  5,207
  6,195
  7,285
  8,474
  9,761
  11,144
  12,622
  14,191
  15,849
  17,595
  19,428
  21,346
  23,350
  25,440
  27,616
  29,880
  32,234
  34,681
Funds from operations, $m
  213
  342
  515
  758
  1,089
  1,526
  2,088
  2,794
  3,659
  4,700
  5,927
  7,335
  8,963
  10,798
  12,842
  15,094
  17,552
  20,213
  23,071
  26,123
  29,363
  32,788
  36,394
  40,178
  44,139
  48,276
  52,590
  57,082
  61,755
  66,615
  71,665
Change in working capital, $m
  8
  6
  9
  12
  17
  22
  29
  36
  44
  53
  63
  73
  83
  94
  104
  115
  126
  136
  146
  156
  166
  175
  184
  193
  203
  212
  221
  230
  239
  249
  258
Cash from operations, $m
  205
  336
  506
  746
  1,072
  1,504
  2,060
  2,758
  3,615
  4,647
  5,865
  7,262
  8,880
  10,704
  12,738
  14,979
  17,427
  20,077
  22,925
  25,967
  29,198
  32,613
  36,210
  39,985
  43,937
  48,065
  52,369
  56,852
  61,516
  66,366
  71,407
Maintenance CAPEX, $m
  0
  -95
  -153
  -236
  -353
  -512
  -723
  -993
  -1,333
  -1,751
  -2,253
  -2,846
  -3,533
  -4,320
  -5,207
  -6,195
  -7,285
  -8,474
  -9,761
  -11,144
  -12,622
  -14,191
  -15,849
  -17,595
  -19,428
  -21,346
  -23,350
  -25,440
  -27,616
  -29,880
  -32,234
New CAPEX, $m
  -138
  -533
  -774
  -1,088
  -1,480
  -1,957
  -2,518
  -3,162
  -3,882
  -4,669
  -5,512
  -6,398
  -7,315
  -8,250
  -9,191
  -10,130
  -11,059
  -11,972
  -12,866
  -13,738
  -14,590
  -15,423
  -16,240
  -17,045
  -17,841
  -18,636
  -19,432
  -20,237
  -21,055
  -21,893
  -22,755
Cash from investing activities, $m
  -154
  -628
  -927
  -1,324
  -1,833
  -2,469
  -3,241
  -4,155
  -5,215
  -6,420
  -7,765
  -9,244
  -10,848
  -12,570
  -14,398
  -16,325
  -18,344
  -20,446
  -22,627
  -24,882
  -27,212
  -29,614
  -32,089
  -34,640
  -37,269
  -39,982
  -42,782
  -45,677
  -48,671
  -51,773
  -54,989
Free cash flow, $m
  51
  -293
  -421
  -578
  -761
  -965
  -1,181
  -1,398
  -1,600
  -1,773
  -1,900
  -1,982
  -1,969
  -1,865
  -1,661
  -1,346
  -917
  -369
  298
  1,084
  1,986
  2,999
  4,121
  5,345
  6,667
  8,083
  9,587
  11,175
  12,845
  14,594
  16,419
Issuance/(repayment) of debt, $m
  0
  141
  205
  288
  392
  518
  666
  837
  1,027
  1,235
  1,458
  1,693
  1,935
  2,183
  2,432
  2,680
  2,926
  3,167
  3,404
  3,635
  3,860
  4,081
  4,297
  4,510
  4,720
  4,931
  5,141
  5,354
  5,571
  5,792
  6,020
Issuance/(repurchase) of shares, $m
  -26
  1,368
  1,961
  2,716
  3,649
  4,762
  6,050
  7,494
  9,071
  10,745
  12,480
  14,190
  15,926
  17,606
  19,198
  20,676
  22,018
  23,212
  24,250
  25,129
  25,853
  26,429
  26,866
  27,177
  27,375
  27,475
  27,491
  27,438
  27,329
  27,179
  26,999
Cash from financing (excl. dividends), $m  
  -26
  1,509
  2,166
  3,004
  4,041
  5,280
  6,716
  8,331
  10,098
  11,980
  13,938
  15,883
  17,861
  19,789
  21,630
  23,356
  24,944
  26,379
  27,654
  28,764
  29,713
  30,510
  31,163
  31,687
  32,095
  32,406
  32,632
  32,792
  32,900
  32,971
  33,019
Total cash flow (excl. dividends), $m
  25
  1,216
  1,745
  2,426
  3,279
  4,315
  5,535
  6,933
  8,497
  10,207
  12,038
  13,901
  15,892
  17,923
  19,969
  22,010
  24,027
  26,011
  27,952
  29,848
  31,699
  33,509
  35,284
  37,032
  38,763
  40,488
  42,219
  43,968
  45,746
  47,565
  49,438
Retained Cash Flow (-), $m
  175
  -1,494
  -2,177
  -3,058
  -4,162
  -5,502
  -7,081
  -8,892
  -10,916
  -13,129
  -15,499
  -17,991
  -20,568
  -23,197
  -25,845
  -28,485
  -31,097
  -33,664
  -36,176
  -38,630
  -41,026
  -43,368
  -45,665
  -47,928
  -50,168
  -52,401
  -54,641
  -56,904
  -59,205
  -61,560
  -63,983
Prev. year cash balance distribution, $m
 
  34
  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
 
  -243
  -432
  -632
  -883
  -1,188
  -1,547
  -1,958
  -2,418
  -2,922
  -3,460
  -4,090
  -4,676
  -5,274
  -5,876
  -6,476
  -7,070
  -7,653
  -8,224
  -8,782
  -9,327
  -9,859
  -10,381
  -10,896
  -11,405
  -11,913
  -12,422
  -12,936
  -13,460
  -13,995
  -14,546
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  -233
  -395
  -550
  -727
  -921
  -1,123
  -1,323
  -1,512
  -1,678
  -1,814
  -1,942
  -1,995
  -2,005
  -1,973
  -1,901
  -1,797
  -1,665
  -1,515
  -1,352
  -1,185
  -1,020
  -861
  -714
  -581
  -463
  -362
  -278
  -208
  -153
  -110
Current shareholders' claim on cash, %
  100
  84.4
  72.4
  63.0
  55.6
  49.7
  44.8
  40.8
  37.5
  34.8
  32.5
  30.5
  28.8
  27.4
  26.1
  25.1
  24.1
  23.3
  22.6
  21.9
  21.4
  20.9
  20.4
  20.0
  19.7
  19.3
  19.1
  18.8
  18.6
  18.3
  18.1

PrairieSky Royalty Ltd. is a Canada-based company, which holds a portfolio of fee simple mineral title, and oil and gas royalty interests in Canada. The Company's properties are located in British Columbia, Alberta, Saskatchewan and Manitoba. As of December 31, 2016, the Company's assets include the Fee Lands, encompassing approximately 7.8 million acres; the GORR Interests, encompassing approximately 6.3 million acres of the GORR Lands; the GRT Interests, encompassing approximately 0.2 million acres of the GRT Lands; approximately 0.2 million acres of Crown Interest Lands primarily in Alberta, and the Seismic License to certain seismic data of Encana Corporation, encompassing approximately 43,000 kilometers of two dimensional seismic and over 13,000 square kilometers of three dimensional seismic. The Fee Lands are predominantly located in the Western Canadian Sedimentary Basin in the provinces of Alberta and Saskatchewan.

FINANCIAL RATIOS  of  PrairieSky Royalty Ltd. (PSK)

Valuation Ratios
P/E Ratio 362.3
Price to Sales 32.3
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 35.3
Price to Free Cash Flow 108.1
Growth Rates
Sales Growth Rate 4.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -81.4%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 0.7%
Ret/ On Assets - 3 Yr. Avg. 9.4%
Return On Total Capital 0.8%
Ret/ On T. Cap. - 3 Yr. Avg. 10.8%
Return On Equity 0.8%
Return On Equity - 3 Yr. Avg. 10.8%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 81.7%
EBITDA Margin - 3 Yr. Avg. 84.6%
Operating Margin 7.6%
Oper. Margin - 3 Yr. Avg. 40.5%
Pre-Tax Margin 8.9%
Pre-Tax Margin - 3 Yr. Avg. 41.3%
Net Profit Margin 8.9%
Net Profit Margin - 3 Yr. Avg. 35.5%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 11.4%
Payout Ratio 910%

PSK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PSK stock intrinsic value calculation we used $224 million for the last fiscal year's total revenue generated by PrairieSky Royalty Ltd.. The default revenue input number comes from 2016 income statement of PrairieSky Royalty Ltd.. 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 PSK stock valuation model: a) initial revenue growth rate of 60% 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 4.3%, whose default value for PSK is calculated based on our internal credit rating of PrairieSky Royalty Ltd., 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 PrairieSky Royalty Ltd..
    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 PSK stock the variable cost ratio is equal to 62.5%.

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 PSK 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 PrairieSky Royalty Ltd..

Corporate tax rate of 27% is the nominal tax rate for PrairieSky Royalty Ltd.. 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 PSK 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 PSK are equal to 396.4%.

Life of production assets of 9.3 years is the average useful life of capital assets used in PrairieSky Royalty Ltd. 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 PSK is equal to 4.5%. 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 - $2535 million for PrairieSky Royalty Ltd. - 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 236.313 million for PrairieSky Royalty Ltd. 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 PrairieSky Royalty Ltd. at the current share price and the inputted number of shares is $7.5 billion.

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Financial statements of PSK
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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