Intrinsic value of ARC Resources Ltd. - ARX

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$17.75

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$17.75

 
Intrinsic value

$2.37

 
Up/down potential

-87%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of ARX 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 6.1

 

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, %
  -10.55
  32.90
  30.11
  27.60
  25.34
  23.31
  21.47
  19.83
  18.34
  17.01
  15.81
  14.73
  13.76
  12.88
  12.09
  11.38
  10.74
  10.17
  9.65
  9.19
  8.77
  8.39
  8.05
  7.75
  7.47
  7.23
  7.00
  6.80
  6.62
  6.46
  6.31
Revenue, $m
  975
  1,296
  1,686
  2,151
  2,696
  3,325
  4,039
  4,839
  5,727
  6,701
  7,761
  8,904
  10,129
  11,433
  12,816
  14,274
  15,808
  17,416
  19,097
  20,852
  22,680
  24,583
  26,563
  28,621
  30,760
  32,982
  35,292
  37,693
  40,189
  42,785
  45,487
Variable operating expenses, $m
 
  1,866
  2,420
  3,081
  3,855
  4,748
  5,762
  6,900
  8,161
  9,545
  11,050
  12,649
  14,388
  16,242
  18,206
  20,278
  22,456
  24,740
  27,128
  29,621
  32,218
  34,922
  37,734
  40,658
  43,696
  46,853
  50,134
  53,545
  57,091
  60,779
  64,617
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
  863
  1,866
  2,420
  3,081
  3,855
  4,748
  5,762
  6,900
  8,161
  9,545
  11,050
  12,649
  14,388
  16,242
  18,206
  20,278
  22,456
  24,740
  27,128
  29,621
  32,218
  34,922
  37,734
  40,658
  43,696
  46,853
  50,134
  53,545
  57,091
  60,779
  64,617
Operating income, $m
  112
  -570
  -734
  -930
  -1,159
  -1,423
  -1,723
  -2,060
  -2,433
  -2,843
  -3,289
  -3,745
  -4,260
  -4,808
  -5,390
  -6,003
  -6,648
  -7,324
  -8,031
  -8,769
  -9,538
  -10,339
  -11,171
  -12,037
  -12,936
  -13,871
  -14,843
  -15,852
  -16,902
  -17,994
  -19,130
EBITDA, $m
  546
  1
  1
  2
  2
  3
  3
  4
  5
  6
  7
  7
  9
  10
  11
  12
  13
  15
  16
  18
  19
  21
  22
  24
  26
  28
  30
  32
  34
  36
  38
Interest expense (income), $m
  51
  47
  86
  133
  189
  255
  331
  417
  514
  621
  739
  867
  1,006
  1,154
  1,311
  1,479
  1,655
  1,840
  2,035
  2,238
  2,450
  2,671
  2,902
  3,141
  3,390
  3,648
  3,917
  4,196
  4,487
  4,789
  5,102
Earnings before tax, $m
  243
  -617
  -819
  -1,062
  -1,348
  -1,678
  -2,054
  -2,477
  -2,948
  -3,465
  -4,028
  -4,612
  -5,265
  -5,962
  -6,701
  -7,482
  -8,303
  -9,165
  -10,066
  -11,008
  -11,989
  -13,010
  -14,073
  -15,178
  -16,326
  -17,519
  -18,760
  -20,049
  -21,389
  -22,782
  -24,232
Tax expense, $m
  42
  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
Net income, $m
  201
  -617
  -819
  -1,062
  -1,348
  -1,678
  -2,054
  -2,477
  -2,948
  -3,465
  -4,028
  -4,612
  -5,265
  -5,962
  -6,701
  -7,482
  -8,303
  -9,165
  -10,066
  -11,008
  -11,989
  -13,010
  -14,073
  -15,178
  -16,326
  -17,519
  -18,760
  -20,049
  -21,389
  -22,782
  -24,232

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  672
  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
  5,991
  7,081
  9,213
  11,755
  14,734
  18,168
  22,069
  26,445
  31,296
  36,620
  42,409
  48,655
  55,348
  62,477
  70,031
  78,002
  86,383
  95,168
  104,355
  113,943
  123,934
  134,335
  145,152
  156,398
  168,085
  180,230
  192,852
  205,971
  219,611
  233,798
  248,561
Adjusted assets (=assets-cash), $m
  5,319
  7,081
  9,213
  11,755
  14,734
  18,168
  22,069
  26,445
  31,296
  36,620
  42,409
  48,655
  55,348
  62,477
  70,031
  78,002
  86,383
  95,168
  104,355
  113,943
  123,934
  134,335
  145,152
  156,398
  168,085
  180,230
  192,852
  205,971
  219,611
  233,798
  248,561
Revenue / Adjusted assets
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
  0.183
Average production assets, $m
  4,684
  6,225
  8,099
  10,335
  12,953
  15,972
  19,402
  23,249
  27,514
  32,194
  37,283
  42,774
  48,658
  54,925
  61,567
  68,574
  75,942
  83,666
  91,742
  100,171
  108,955
  118,098
  127,608
  137,495
  147,769
  158,446
  169,542
  181,076
  193,067
  205,539
  218,518
Working capital, $m
  703
  110
  143
  183
  229
  283
  343
  411
  487
  570
  660
  757
  861
  972
  1,089
  1,213
  1,344
  1,480
  1,623
  1,772
  1,928
  2,090
  2,258
  2,433
  2,615
  2,803
  3,000
  3,204
  3,416
  3,637
  3,866
Total debt, $m
  1,026
  1,784
  2,767
  3,939
  5,312
  6,895
  8,694
  10,711
  12,948
  15,402
  18,071
  20,950
  24,035
  27,322
  30,804
  34,479
  38,343
  42,393
  46,628
  51,048
  55,654
  60,448
  65,435
  70,620
  76,007
  81,606
  87,425
  93,473
  99,761
  106,301
  113,106
Total liabilities, $m
  2,506
  3,264
  4,247
  5,419
  6,792
  8,375
  10,174
  12,191
  14,428
  16,882
  19,551
  22,430
  25,515
  28,802
  32,284
  35,959
  39,823
  43,873
  48,108
  52,528
  57,134
  61,928
  66,915
  72,100
  77,487
  83,086
  88,905
  94,953
  101,241
  107,781
  114,586
Total equity, $m
  3,485
  3,817
  4,966
  6,336
  7,942
  9,792
  11,895
  14,254
  16,869
  19,738
  22,859
  26,225
  29,832
  33,675
  37,747
  42,043
  46,561
  51,296
  56,247
  61,415
  66,801
  72,406
  78,237
  84,299
  90,598
  97,144
  103,947
  111,018
  118,370
  126,017
  133,974
Total liabilities and equity, $m
  5,991
  7,081
  9,213
  11,755
  14,734
  18,167
  22,069
  26,445
  31,297
  36,620
  42,410
  48,655
  55,347
  62,477
  70,031
  78,002
  86,384
  95,169
  104,355
  113,943
  123,935
  134,334
  145,152
  156,399
  168,085
  180,230
  192,852
  205,971
  219,611
  233,798
  248,560
Debt-to-equity ratio
  0.294
  0.470
  0.560
  0.620
  0.670
  0.700
  0.730
  0.750
  0.770
  0.780
  0.790
  0.800
  0.810
  0.810
  0.820
  0.820
  0.820
  0.830
  0.830
  0.830
  0.830
  0.830
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
Adjusted equity ratio
  0.529
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  201
  -617
  -819
  -1,062
  -1,348
  -1,678
  -2,054
  -2,477
  -2,948
  -3,465
  -4,028
  -4,612
  -5,265
  -5,962
  -6,701
  -7,482
  -8,303
  -9,165
  -10,066
  -11,008
  -11,989
  -13,010
  -14,073
  -15,178
  -16,326
  -17,519
  -18,760
  -20,049
  -21,389
  -22,782
  -24,232
Depreciation, amort., depletion, $m
  434
  571
  735
  931
  1,161
  1,426
  1,727
  2,064
  2,438
  2,849
  3,295
  3,752
  4,268
  4,818
  5,401
  6,015
  6,662
  7,339
  8,048
  8,787
  9,557
  10,359
  11,194
  12,061
  12,962
  13,899
  14,872
  15,884
  16,936
  18,030
  19,168
Funds from operations, $m
  628
  -46
  -84
  -131
  -187
  -252
  -328
  -413
  -509
  -616
  -733
  -860
  -997
  -1,144
  -1,301
  -1,467
  -1,642
  -1,826
  -2,019
  -2,221
  -2,431
  -2,651
  -2,879
  -3,117
  -3,364
  -3,621
  -3,887
  -4,165
  -4,453
  -4,753
  -5,064
Change in working capital, $m
  -3
  27
  33
  40
  46
  53
  61
  68
  75
  83
  90
  97
  104
  111
  118
  124
  130
  137
  143
  149
  155
  162
  168
  175
  182
  189
  196
  204
  212
  221
  230
Cash from operations, $m
  631
  -325
  -117
  -171
  -233
  -306
  -388
  -481
  -585
  -699
  -823
  -957
  -1,101
  -1,255
  -1,418
  -1,591
  -1,772
  -1,962
  -2,162
  -2,370
  -2,587
  -2,813
  -3,047
  -3,292
  -3,546
  -3,810
  -4,084
  -4,369
  -4,665
  -4,973
  -5,294
Maintenance CAPEX, $m
  0
  -411
  -546
  -710
  -907
  -1,136
  -1,401
  -1,702
  -2,039
  -2,413
  -2,824
  -3,270
  -3,752
  -4,268
  -4,818
  -5,401
  -6,015
  -6,662
  -7,339
  -8,048
  -8,787
  -9,557
  -10,359
  -11,194
  -12,061
  -12,962
  -13,899
  -14,872
  -15,884
  -16,936
  -18,030
New CAPEX, $m
  -591
  -1,541
  -1,874
  -2,235
  -2,619
  -3,019
  -3,430
  -3,847
  -4,265
  -4,680
  -5,090
  -5,491
  -5,884
  -6,267
  -6,641
  -7,008
  -7,368
  -7,723
  -8,076
  -8,429
  -8,784
  -9,143
  -9,510
  -9,886
  -10,275
  -10,677
  -11,096
  -11,533
  -11,992
  -12,472
  -12,978
Cash from investing activities, $m
  -393
  -1,952
  -2,420
  -2,945
  -3,526
  -4,155
  -4,831
  -5,549
  -6,304
  -7,093
  -7,914
  -8,761
  -9,636
  -10,535
  -11,459
  -12,409
  -13,383
  -14,385
  -15,415
  -16,477
  -17,571
  -18,700
  -19,869
  -21,080
  -22,336
  -23,639
  -24,995
  -26,405
  -27,876
  -29,408
  -31,008
Free cash flow, $m
  238
  -2,277
  -2,538
  -3,116
  -3,758
  -4,461
  -5,219
  -6,030
  -6,889
  -7,792
  -8,736
  -9,719
  -10,737
  -11,790
  -12,878
  -13,999
  -15,155
  -16,347
  -17,577
  -18,846
  -20,157
  -21,513
  -22,917
  -24,372
  -25,881
  -27,449
  -29,078
  -30,774
  -32,540
  -34,381
  -36,302
Issuance/(repayment) of debt, $m
  -55
  810
  983
  1,172
  1,373
  1,583
  1,799
  2,017
  2,236
  2,454
  2,669
  2,879
  3,085
  3,286
  3,483
  3,675
  3,864
  4,050
  4,235
  4,420
  4,606
  4,795
  4,987
  5,184
  5,388
  5,599
  5,818
  6,048
  6,288
  6,540
  6,805
Issuance/(repurchase) of shares, $m
  1
  1,798
  2,704
  3,315
  3,991
  4,728
  5,524
  6,371
  7,267
  8,207
  9,188
  10,206
  11,259
  12,346
  13,467
  14,621
  15,809
  17,033
  18,294
  19,594
  20,937
  22,325
  23,761
  25,249
  26,793
  28,396
  30,063
  31,798
  33,604
  35,488
  37,453
Cash from financing (excl. dividends), $m  
  -55
  2,608
  3,687
  4,487
  5,364
  6,311
  7,323
  8,388
  9,503
  10,661
  11,857
  13,085
  14,344
  15,632
  16,950
  18,296
  19,673
  21,083
  22,529
  24,014
  25,543
  27,120
  28,748
  30,433
  32,181
  33,995
  35,881
  37,846
  39,892
  42,028
  44,258
Total cash flow (excl. dividends), $m
  183
  -1,466
  -1,555
  -1,944
  -2,385
  -2,878
  -3,421
  -4,013
  -4,653
  -5,338
  -6,067
  -6,839
  -7,652
  -8,504
  -9,395
  -10,324
  -11,292
  -12,297
  -13,342
  -14,426
  -15,551
  -16,719
  -17,930
  -19,188
  -20,493
  -21,850
  -23,260
  -24,726
  -26,252
  -27,841
  -29,496
Retained Cash Flow (-), $m
  -96
  -952
  -1,149
  -1,370
  -1,606
  -1,851
  -2,103
  -2,359
  -2,615
  -2,869
  -3,120
  -3,367
  -3,607
  -3,842
  -4,072
  -4,297
  -4,517
  -4,735
  -4,952
  -5,168
  -5,385
  -5,606
  -5,831
  -6,061
  -6,299
  -6,546
  -6,803
  -7,071
  -7,352
  -7,647
  -7,957
Prev. year cash balance distribution, $m
 
  620
  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
 
  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
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
 
  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
Current shareholders' claim on cash, %
  100
  73.5
  52.2
  37.7
  27.7
  20.6
  15.6
  11.9
  9.2
  7.2
  5.7
  4.5
  3.6
  2.9
  2.4
  1.9
  1.6
  1.3
  1.1
  0.9
  0.8
  0.6
  0.5
  0.5
  0.4
  0.3
  0.3
  0.2
  0.2
  0.2
  0.1

ARC Resources Ltd., together with its subsidiaries, acquires, explores, develops, and produces crude oil, natural gas, and natural gas liquids in Western Canada. It has operations in Northeast British Columbia, Northern and South Central Alberta, Southeast Saskatchewan, Pembina, and Manitoba. The company was founded in 1996 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  ARC Resources Ltd. (ARX)

Valuation Ratios
P/E Ratio 31.2
Price to Sales 6.4
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 9.9
Price to Free Cash Flow 156.8
Growth Rates
Sales Growth Rate -10.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 11.9%
Cap. Spend. - 3 Yr. Gr. Rate -8%
Financial Strength
Quick Ratio 13
Current Ratio 0.7
LT Debt to Equity 27.9%
Total Debt to Equity 29.4%
Interest Coverage 6
Management Effectiveness
Return On Assets 4.1%
Ret/ On Assets - 3 Yr. Avg. 2.1%
Return On Total Capital 4.5%
Ret/ On T. Cap. - 3 Yr. Avg. 1.8%
Return On Equity 5.8%
Return On Equity - 3 Yr. Avg. 2.3%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 70.4%
Gross Margin - 3 Yr. Avg. 74.3%
EBITDA Margin 74.7%
EBITDA Margin - 3 Yr. Avg. 74.4%
Operating Margin 11.5%
Oper. Margin - 3 Yr. Avg. -2.3%
Pre-Tax Margin 24.9%
Pre-Tax Margin - 3 Yr. Avg. 6.7%
Net Profit Margin 20.6%
Net Profit Margin - 3 Yr. Avg. 3.4%
Effective Tax Rate 17.3%
Eff/ Tax Rate - 3 Yr. Avg. 15.7%
Payout Ratio 63.7%

ARX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARX stock intrinsic value calculation we used $975 million for the last fiscal year's total revenue generated by ARC Resources Ltd.. The default revenue input number comes from 2016 income statement of ARC Resources 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 ARX stock valuation model: a) initial revenue growth rate of 32.9% 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 ARX is calculated based on our internal credit rating of ARC Resources 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 ARC Resources 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 ARX stock the variable cost ratio is equal to 144.6%.

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 ARX 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 ARC Resources Ltd..

Corporate tax rate of 27% is the nominal tax rate for ARC Resources 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 ARX 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 ARX are equal to 480.4%.

Life of production assets of 11.4 years is the average useful life of capital assets used in ARC Resources 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 ARX is equal to 8.5%. 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 - $3485 million for ARC Resources 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 341.243 million for ARC Resources 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 ARC Resources Ltd. at the current share price and the inputted number of shares is $6.1 billion.


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Stock chart of ARX Financial statements of ARX
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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