Intrinsic value of Canadian Natural Resources Limited - CNQ

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$45.33

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$45.33

 
Intrinsic value

$5.87

 
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 CNQ 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 50.7

 

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, %
  -14.88
  23.80
  21.92
  20.23
  18.71
  17.33
  16.10
  14.99
  13.99
  13.09
  12.28
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.48
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
Revenue, $m
  10,523
  13,027
  15,883
  19,096
  22,668
  26,597
  30,880
  35,509
  40,477
  45,777
  51,400
  57,339
  63,589
  70,145
  77,004
  84,166
  91,632
  99,406
  107,493
  115,901
  124,640
  133,720
  143,157
  152,965
  163,162
  173,767
  184,801
  196,286
  208,246
  220,707
  233,697
Variable operating expenses, $m
 
  10,227
  12,468
  14,990
  17,794
  20,879
  24,241
  27,875
  31,775
  35,935
  40,349
  45,011
  49,917
  55,064
  60,448
  66,071
  71,931
  78,034
  84,382
  90,982
  97,842
  104,971
  112,378
  120,078
  128,082
  136,407
  145,069
  154,084
  163,473
  173,255
  183,452
Fixed operating expenses, $m
 
  3,496
  3,584
  3,673
  3,765
  3,859
  3,956
  4,055
  4,156
  4,260
  4,366
  4,476
  4,587
  4,702
  4,820
  4,940
  5,064
  5,190
  5,320
  5,453
  5,589
  5,729
  5,872
  6,019
  6,170
  6,324
  6,482
  6,644
  6,810
  6,980
  7,155
Total operating expenses, $m
  11,586
  13,723
  16,052
  18,663
  21,559
  24,738
  28,197
  31,930
  35,931
  40,195
  44,715
  49,487
  54,504
  59,766
  65,268
  71,011
  76,995
  83,224
  89,702
  96,435
  103,431
  110,700
  118,250
  126,097
  134,252
  142,731
  151,551
  160,728
  170,283
  180,235
  190,607
Operating income, $m
  -1,063
  -695
  -169
  432
  1,108
  1,859
  2,683
  3,580
  4,547
  5,582
  6,685
  7,852
  9,084
  10,379
  11,736
  13,156
  14,637
  16,182
  17,791
  19,466
  21,208
  23,021
  24,907
  26,868
  28,910
  31,036
  33,250
  35,557
  37,963
  40,472
  43,090
EBITDA, $m
  3,795
  5,341
  7,190
  9,280
  11,611
  14,183
  16,991
  20,032
  23,301
  26,792
  30,500
  34,420
  38,547
  42,880
  47,415
  52,153
  57,094
  62,240
  67,596
  73,167
  78,958
  84,978
  91,236
  97,742
  104,509
  111,548
  118,875
  126,503
  134,450
  142,733
  151,370
Interest expense (income), $m
  617
  587
  867
  1,183
  1,539
  1,935
  2,371
  2,845
  3,358
  3,908
  4,496
  5,119
  5,777
  6,469
  7,196
  7,956
  8,749
  9,576
  10,438
  11,334
  12,265
  13,233
  14,239
  15,285
  16,372
  17,502
  18,677
  19,899
  21,172
  22,497
  23,877
Earnings before tax, $m
  -1,063
  -1,283
  -1,036
  -751
  -431
  -76
  313
  735
  1,189
  1,674
  2,189
  2,734
  3,308
  3,910
  4,541
  5,200
  5,888
  6,606
  7,353
  8,132
  8,943
  9,787
  10,667
  11,583
  12,539
  13,535
  14,574
  15,658
  16,791
  17,975
  19,213
Tax expense, $m
  -859
  0
  0
  0
  0
  0
  84
  198
  321
  452
  591
  738
  893
  1,056
  1,226
  1,404
  1,590
  1,784
  1,985
  2,196
  2,415
  2,643
  2,880
  3,128
  3,385
  3,654
  3,935
  4,228
  4,534
  4,853
  5,187
Net income, $m
  -204
  -1,283
  -1,036
  -751
  -431
  -76
  228
  536
  868
  1,222
  1,598
  1,996
  2,415
  2,854
  3,315
  3,796
  4,298
  4,822
  5,368
  5,936
  6,528
  7,145
  7,787
  8,456
  9,153
  9,880
  10,639
  11,431
  12,258
  13,122
  14,025

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  930
  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
  58,648
  71,580
  87,270
  104,923
  124,549
  146,139
  169,669
  195,104
  222,403
  251,522
  282,418
  315,051
  349,391
  385,412
  423,100
  462,452
  503,475
  546,188
  590,622
  636,819
  684,833
  734,728
  786,578
  840,469
  896,497
  954,766
  1,015,390
  1,078,493
  1,144,208
  1,212,676
  1,284,048
Adjusted assets (=assets-cash), $m
  57,718
  71,580
  87,270
  104,923
  124,549
  146,139
  169,669
  195,104
  222,403
  251,522
  282,418
  315,051
  349,391
  385,412
  423,100
  462,452
  503,475
  546,188
  590,622
  636,819
  684,833
  734,728
  786,578
  840,469
  896,497
  954,766
  1,015,390
  1,078,493
  1,144,208
  1,212,676
  1,284,048
Revenue / Adjusted assets
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
Average production assets, $m
  51,193
  63,379
  77,271
  92,902
  110,279
  129,396
  150,230
  172,751
  196,922
  222,705
  250,061
  278,956
  309,361
  341,255
  374,626
  409,469
  445,792
  483,611
  522,955
  563,859
  606,372
  650,550
  696,460
  744,177
  793,785
  845,378
  899,057
  954,930
  1,013,116
  1,073,740
  1,136,935
Working capital, $m
  -756
  156
  191
  229
  272
  319
  371
  426
  486
  549
  617
  688
  763
  842
  924
  1,010
  1,100
  1,193
  1,290
  1,391
  1,496
  1,605
  1,718
  1,836
  1,958
  2,085
  2,218
  2,355
  2,499
  2,648
  2,804
Total debt, $m
  16,805
  23,435
  31,986
  41,607
  52,303
  64,070
  76,894
  90,756
  105,634
  121,503
  138,342
  156,127
  174,842
  194,473
  215,014
  236,460
  258,818
  282,097
  306,313
  331,491
  357,658
  384,850
  413,109
  442,480
  473,015
  504,771
  537,811
  572,203
  608,017
  645,333
  684,230
Total liabilities, $m
  32,381
  39,011
  47,562
  57,183
  67,879
  79,646
  92,470
  106,332
  121,210
  137,079
  153,918
  171,703
  190,418
  210,049
  230,590
  252,036
  274,394
  297,673
  321,889
  347,067
  373,234
  400,426
  428,685
  458,056
  488,591
  520,347
  553,387
  587,779
  623,593
  660,909
  699,806
Total equity, $m
  26,267
  32,569
  39,708
  47,740
  56,670
  66,493
  77,199
  88,772
  101,193
  114,442
  128,500
  143,348
  158,973
  175,362
  192,511
  210,416
  229,081
  248,516
  268,733
  289,753
  311,599
  334,301
  357,893
  382,413
  407,906
  434,418
  462,002
  490,714
  520,615
  551,768
  584,242
Total liabilities and equity, $m
  58,648
  71,580
  87,270
  104,923
  124,549
  146,139
  169,669
  195,104
  222,403
  251,521
  282,418
  315,051
  349,391
  385,411
  423,101
  462,452
  503,475
  546,189
  590,622
  636,820
  684,833
  734,727
  786,578
  840,469
  896,497
  954,765
  1,015,389
  1,078,493
  1,144,208
  1,212,677
  1,284,048
Debt-to-equity ratio
  0.640
  0.720
  0.810
  0.870
  0.920
  0.960
  1.000
  1.020
  1.040
  1.060
  1.080
  1.090
  1.100
  1.110
  1.120
  1.120
  1.130
  1.140
  1.140
  1.140
  1.150
  1.150
  1.150
  1.160
  1.160
  1.160
  1.160
  1.170
  1.170
  1.170
  1.170
Adjusted equity ratio
  0.439
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -204
  -1,283
  -1,036
  -751
  -431
  -76
  228
  536
  868
  1,222
  1,598
  1,996
  2,415
  2,854
  3,315
  3,796
  4,298
  4,822
  5,368
  5,936
  6,528
  7,145
  7,787
  8,456
  9,153
  9,880
  10,639
  11,431
  12,258
  13,122
  14,025
Depreciation, amort., depletion, $m
  4,858
  6,036
  7,359
  8,848
  10,503
  12,323
  14,308
  16,452
  18,755
  21,210
  23,815
  26,567
  29,463
  32,500
  35,679
  38,997
  42,456
  46,058
  49,805
  53,701
  57,750
  61,957
  66,329
  70,874
  75,599
  80,512
  85,624
  90,946
  96,487
  102,261
  108,280
Funds from operations, $m
  2,910
  4,753
  6,323
  8,097
  10,072
  12,247
  14,536
  16,989
  19,622
  22,432
  25,413
  28,563
  31,877
  35,355
  38,993
  42,793
  46,755
  50,880
  55,173
  59,637
  64,278
  69,102
  74,116
  79,330
  84,752
  90,392
  96,263
  102,376
  108,745
  115,383
  122,305
Change in working capital, $m
  -542
  30
  34
  39
  43
  47
  51
  56
  60
  64
  67
  71
  75
  79
  82
  86
  90
  93
  97
  101
  105
  109
  113
  118
  122
  127
  132
  138
  144
  150
  156
Cash from operations, $m
  3,452
  4,441
  6,289
  8,058
  10,029
  12,200
  14,485
  16,933
  19,563
  22,368
  25,346
  28,492
  31,802
  35,276
  38,911
  42,707
  46,665
  50,787
  55,076
  59,536
  64,173
  68,993
  74,003
  79,212
  84,629
  90,265
  96,131
  102,239
  108,601
  115,233
  122,149
Maintenance CAPEX, $m
  0
  -4,875
  -6,036
  -7,359
  -8,848
  -10,503
  -12,323
  -14,308
  -16,452
  -18,755
  -21,210
  -23,815
  -26,567
  -29,463
  -32,500
  -35,679
  -38,997
  -42,456
  -46,058
  -49,805
  -53,701
  -57,750
  -61,957
  -66,329
  -70,874
  -75,599
  -80,512
  -85,624
  -90,946
  -96,487
  -102,261
New CAPEX, $m
  -3,803
  -12,186
  -13,893
  -15,630
  -17,377
  -19,117
  -20,834
  -22,521
  -24,171
  -25,783
  -27,356
  -28,895
  -30,405
  -31,894
  -33,370
  -34,843
  -36,323
  -37,820
  -39,343
  -40,904
  -42,513
  -44,178
  -45,910
  -47,717
  -49,609
  -51,593
  -53,679
  -55,874
  -58,186
  -60,624
  -63,195
Cash from investing activities, $m
  -3,811
  -17,061
  -19,929
  -22,989
  -26,225
  -29,620
  -33,157
  -36,829
  -40,623
  -44,538
  -48,566
  -52,710
  -56,972
  -61,357
  -65,870
  -70,522
  -75,320
  -80,276
  -85,401
  -90,709
  -96,214
  -101,928
  -107,867
  -114,046
  -120,483
  -127,192
  -134,191
  -141,498
  -149,132
  -157,111
  -165,456
Free cash flow, $m
  -359
  -12,621
  -13,640
  -14,932
  -16,196
  -17,419
  -18,673
  -19,895
  -21,061
  -22,169
  -23,220
  -24,219
  -25,170
  -26,081
  -26,960
  -27,815
  -28,655
  -29,489
  -30,325
  -31,173
  -32,040
  -32,935
  -33,864
  -34,834
  -35,853
  -36,926
  -38,060
  -39,259
  -40,530
  -41,878
  -43,307
Issuance/(repayment) of debt, $m
  506
  7,560
  8,551
  9,621
  10,696
  11,767
  12,824
  13,862
  14,878
  15,870
  16,838
  17,785
  18,715
  19,631
  20,540
  21,447
  22,358
  23,279
  24,217
  25,177
  26,167
  27,192
  28,258
  29,371
  30,535
  31,756
  33,040
  34,391
  35,815
  37,315
  38,898
Issuance/(repurchase) of shares, $m
  559
  11,363
  12,228
  13,343
  14,430
  15,476
  16,555
  17,606
  18,604
  19,548
  20,440
  21,282
  22,079
  22,839
  23,568
  24,273
  24,963
  25,645
  26,326
  27,015
  27,719
  28,444
  29,197
  29,984
  30,811
  31,682
  32,604
  33,580
  34,616
  35,716
  36,884
Cash from financing (excl. dividends), $m  
  1,065
  18,923
  20,779
  22,964
  25,126
  27,243
  29,379
  31,468
  33,482
  35,418
  37,278
  39,067
  40,794
  42,470
  44,108
  45,720
  47,321
  48,924
  50,543
  52,192
  53,886
  55,636
  57,455
  59,355
  61,346
  63,438
  65,644
  67,971
  70,431
  73,031
  75,782
Total cash flow (excl. dividends), $m
  706
  -5,061
  -5,088
  -5,311
  -5,500
  -5,652
  -5,849
  -6,033
  -6,183
  -6,299
  -6,382
  -6,433
  -6,455
  -6,450
  -6,420
  -6,368
  -6,297
  -6,210
  -6,109
  -5,996
  -5,873
  -5,742
  -5,605
  -5,464
  -5,318
  -5,170
  -5,020
  -4,868
  -4,716
  -4,563
  -4,409
Retained Cash Flow (-), $m
  1,114
  -6,302
  -7,139
  -8,032
  -8,930
  -9,824
  -10,706
  -11,573
  -12,421
  -13,249
  -14,058
  -14,848
  -15,624
  -16,390
  -17,148
  -17,905
  -18,665
  -19,435
  -20,218
  -21,020
  -21,846
  -22,702
  -23,592
  -24,521
  -25,493
  -26,512
  -27,584
  -28,712
  -29,900
  -31,153
  -32,474
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
 
  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, %
 
  6.60
  6.93
  7.28
  7.64
  8.02
  8.42
  8.84
  9.29
  9.75
  10.24
  10.75
  11.29
  11.85
  12.45
  13.07
  13.72
  14.41
  15.13
  15.88
  16.68
  17.51
  18.39
  19.31
  20.27
  21.29
  22.35
  23.47
  24.64
  25.87
  27.17
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
  81.7
  68.4
  58.2
  50.3
  44.1
  39.1
  34.9
  31.5
  28.6
  26.2
  24.1
  22.4
  20.8
  19.5
  18.3
  17.2
  16.3
  15.4
  14.6
  14.0
  13.3
  12.7
  12.2
  11.7
  11.3
  10.9
  10.5
  10.1
  9.7
  9.4

Canadian Natural Resources Limited acquires, explores for, develops, produces, markets, and sells crude oil, natural gas, and natural gas liquids (NGLs). The company offers light and medium crude oil, primary heavy crude oil, Pelican Lake heavy crude oil, bitumen, and synthetic crude oil (SCO). Its midstream assets include three crude oil pipeline systems; and a 50% working interest in an 84-megawatt cogeneration plant at Primrose. As of December 31, 2015, the company’s gross proved crude oil, bitumen, SCO, and NGLs reserves totaled 4,695 million barrels; gross proved plus probable crude oil, bitumen, SCO, and NGLs reserves totaled 7,623 million barrels; proved natural gas reserves totaled 6,106 billion cubic feet; and gross proved plus probable natural gas reserves totaled 8,508 billion cubic feet. It operates primarily in Western Canada; the United Kingdom sector of the North Sea; and Côte d’Ivoire, Gabon, and South Africa in Offshore Africa. The company was formerly known as AEX Minerals Corporation and changed its name to Canadian Natural Resources Limited in December 1975. Canadian Natural Resources Limited was founded in 1973 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Canadian Natural Resources Limited (CNQ)

Valuation Ratios
P/E Ratio -246.9
Price to Sales 4.8
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 14.6
Price to Free Cash Flow -143.5
Growth Rates
Sales Growth Rate -14.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -28.7%
Cap. Spend. - 3 Yr. Gr. Rate -12.2%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 57.1%
Total Debt to Equity 64%
Interest Coverage -1
Management Effectiveness
Return On Assets -0.1%
Ret/ On Assets - 3 Yr. Avg. 2.5%
Return On Total Capital -0.5%
Ret/ On T. Cap. - 3 Yr. Avg. 2.7%
Return On Equity -0.8%
Return On Equity - 3 Yr. Avg. 3.8%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 42%
Gross Margin - 3 Yr. Avg. 46.5%
EBITDA Margin 41.9%
EBITDA Margin - 3 Yr. Avg. 47.1%
Operating Margin -10.1%
Oper. Margin - 3 Yr. Avg. 4%
Pre-Tax Margin -10.1%
Pre-Tax Margin - 3 Yr. Avg. 4%
Net Profit Margin -1.9%
Net Profit Margin - 3 Yr. Avg. 4.6%
Effective Tax Rate 80.8%
Eff/ Tax Rate - 3 Yr. Avg. 36.4%
Payout Ratio -371.6%

CNQ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CNQ stock intrinsic value calculation we used $10523 million for the last fiscal year's total revenue generated by Canadian Natural Resources Limited. The default revenue input number comes from 2016 income statement of Canadian Natural Resources 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 CNQ stock valuation model: a) initial revenue growth rate of 23.8% 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 6.6%, whose default value for CNQ is calculated based on our internal credit rating of Canadian Natural Resources 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 Canadian Natural Resources 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 CNQ stock the variable cost ratio is equal to 78.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $3411 million in the base year in the intrinsic value calculation for CNQ 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 Canadian Natural Resources Limited.

Corporate tax rate of 27% is the nominal tax rate for Canadian Natural Resources 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 CNQ 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 CNQ are equal to 486.5%.

Life of production assets of 10.5 years is the average useful life of capital assets used in Canadian Natural Resources 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 CNQ is equal to 1.2%. 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 - $26267 million for Canadian Natural Resources 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 1117.94 million for Canadian Natural Resources 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 Canadian Natural Resources Limited at the current share price and the inputted number of shares is $50.7 billion.


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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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