Intrinsic value of Canadian Natural Resources Limited - CNQ

Previous Close

$38.73

  Intrinsic Value

$6.02

stock screener

  Rating & Target

str. sell

-84%

  Value-price divergence*

-120%

Previous close

$38.73

 
Intrinsic value

$6.02

 
Up/down potential

-84%

 
Rating

str. sell

 
Value-price divergence*

-120%

*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 42.2

 

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
  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
  10,523
  16,837
  26,013
  38,902
  56,445
  79,636
  109,481
  146,956
  192,962
  248,295
  313,617
  389,441
  476,129
  573,896
  682,823
  802,879
  933,941
  1,075,821
  1,228,291
  1,391,104
  1,564,014
  1,746,796
  1,939,258
  2,141,256
  2,352,697
  2,573,548
  2,803,841
  3,043,670
  3,293,197
  3,552,649
  3,822,315
Variable operating expenses, $m
 
  13,217
  20,420
  30,538
  44,309
  62,514
  85,943
  115,360
  151,475
  194,912
  246,189
  305,711
  373,762
  450,508
  536,016
  630,260
  733,143
  844,520
  964,209
  1,092,017
  1,227,751
  1,371,235
  1,522,318
  1,680,886
  1,846,867
  2,020,235
  2,201,015
  2,389,281
  2,585,160
  2,788,829
  3,000,517
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
  16,713
  24,004
  34,211
  48,074
  66,373
  89,899
  119,415
  155,631
  199,172
  250,555
  310,187
  378,349
  455,210
  540,836
  635,200
  738,207
  849,710
  969,529
  1,097,470
  1,233,340
  1,376,964
  1,528,190
  1,686,905
  1,853,037
  2,026,559
  2,207,497
  2,395,925
  2,591,970
  2,795,809
  3,007,672
Operating income, $m
  -1,063
  124
  2,009
  4,691
  8,371
  13,263
  19,583
  27,541
  37,331
  49,124
  63,061
  79,254
  97,780
  118,686
  141,987
  167,679
  195,734
  226,111
  258,763
  293,634
  330,674
  369,832
  411,068
  454,351
  499,660
  546,989
  596,344
  647,745
  701,227
  756,839
  814,643
EBITDA, $m
  3,795
  7,925
  14,062
  22,715
  34,524
  50,161
  70,309
  95,630
  126,737
  164,167
  208,371
  259,696
  318,387
  384,591
  458,362
  539,679
  628,459
  724,575
  827,871
  938,179
  1,055,333
  1,179,181
  1,309,591
  1,446,466
  1,589,743
  1,739,400
  1,895,457
  2,057,979
  2,227,075
  2,402,900
  2,585,649
Interest expense (income), $m
  617
  587
  1,289
  2,306
  3,734
  5,678
  8,247
  11,554
  15,706
  20,803
  26,934
  34,171
  42,573
  52,177
  63,009
  75,078
  88,380
  102,901
  118,621
  135,514
  153,553
  172,711
  192,963
  214,287
  236,668
  260,095
  284,564
  310,080
  336,652
  364,299
  393,045
Earnings before tax, $m
  -1,063
  -464
  720
  2,385
  4,637
  7,585
  11,336
  15,987
  21,625
  28,320
  36,127
  45,083
  55,208
  66,508
  78,978
  92,601
  107,354
  123,210
  140,142
  158,120
  177,120
  197,121
  218,105
  240,064
  262,992
  286,894
  311,779
  337,665
  364,575
  392,540
  421,597
Tax expense, $m
  -859
  0
  194
  644
  1,252
  2,048
  3,061
  4,316
  5,839
  7,647
  9,754
  12,172
  14,906
  17,957
  21,324
  25,002
  28,985
  33,267
  37,838
  42,692
  47,822
  53,223
  58,888
  64,817
  71,008
  77,461
  84,180
  91,170
  98,435
  105,986
  113,831
Net income, $m
  -204
  -464
  526
  1,741
  3,385
  5,537
  8,275
  11,671
  15,786
  20,674
  26,373
  32,911
  40,302
  48,551
  57,654
  67,598
  78,368
  89,943
  102,303
  115,428
  129,298
  143,898
  159,217
  175,247
  191,985
  209,433
  227,599
  246,496
  266,140
  286,554
  307,766

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
  92,510
  142,928
  213,748
  310,138
  437,560
  601,545
  807,449
  1,060,231
  1,364,260
  1,723,171
  2,139,788
  2,616,096
  3,153,275
  3,751,775
  4,411,421
  5,131,541
  5,911,105
  6,748,854
  7,643,428
  8,593,482
  9,597,778
  10,655,265
  11,765,143
  12,926,906
  14,140,375
  15,405,718
  16,723,460
  18,094,489
  19,520,047
  21,001,730
Adjusted assets (=assets-cash), $m
  57,718
  92,510
  142,928
  213,748
  310,138
  437,560
  601,545
  807,449
  1,060,231
  1,364,260
  1,723,171
  2,139,788
  2,616,096
  3,153,275
  3,751,775
  4,411,421
  5,131,541
  5,911,105
  6,748,854
  7,643,428
  8,593,482
  9,597,778
  10,655,265
  11,765,143
  12,926,906
  14,140,375
  15,405,718
  16,723,460
  18,094,489
  19,520,047
  21,001,730
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
  81,911
  126,553
  189,259
  274,606
  387,429
  532,626
  714,939
  938,761
  1,207,957
  1,525,748
  1,894,632
  2,316,370
  2,792,004
  3,321,934
  3,906,004
  4,543,621
  5,233,870
  5,975,638
  6,767,721
  7,608,927
  8,498,161
  9,434,492
  10,417,211
  11,445,871
  12,520,312
  13,640,685
  14,807,453
  16,021,403
  17,283,636
  18,595,562
Working capital, $m
  -756
  202
  312
  467
  677
  956
  1,314
  1,763
  2,316
  2,980
  3,763
  4,673
  5,714
  6,887
  8,194
  9,635
  11,207
  12,910
  14,739
  16,693
  18,768
  20,962
  23,271
  25,695
  28,232
  30,883
  33,646
  36,524
  39,518
  42,632
  45,868
Total debt, $m
  16,805
  34,842
  62,320
  100,917
  153,449
  222,894
  312,266
  424,484
  562,250
  727,946
  923,552
  1,150,608
  1,410,196
  1,702,959
  2,029,141
  2,388,648
  2,781,114
  3,205,976
  3,662,549
  4,150,092
  4,667,872
  5,215,213
  5,791,544
  6,396,427
  7,029,588
  7,690,928
  8,380,540
  9,098,710
  9,845,920
  10,622,850
  11,430,367
Total liabilities, $m
  32,381
  50,418
  77,896
  116,493
  169,025
  238,470
  327,842
  440,060
  577,826
  743,522
  939,128
  1,166,184
  1,425,772
  1,718,535
  2,044,717
  2,404,224
  2,796,690
  3,221,552
  3,678,125
  4,165,668
  4,683,448
  5,230,789
  5,807,120
  6,412,003
  7,045,164
  7,706,504
  8,396,116
  9,114,286
  9,861,496
  10,638,426
  11,445,943
Total equity, $m
  26,267
  42,092
  65,032
  97,256
  141,113
  199,090
  273,703
  367,389
  482,405
  620,738
  784,043
  973,603
  1,190,324
  1,434,740
  1,707,058
  2,007,196
  2,334,851
  2,689,553
  3,070,728
  3,477,760
  3,910,034
  4,366,989
  4,848,146
  5,353,140
  5,881,742
  6,433,871
  7,009,602
  7,609,174
  8,232,992
  8,881,622
  9,555,787
Total liabilities and equity, $m
  58,648
  92,510
  142,928
  213,749
  310,138
  437,560
  601,545
  807,449
  1,060,231
  1,364,260
  1,723,171
  2,139,787
  2,616,096
  3,153,275
  3,751,775
  4,411,420
  5,131,541
  5,911,105
  6,748,853
  7,643,428
  8,593,482
  9,597,778
  10,655,266
  11,765,143
  12,926,906
  14,140,375
  15,405,718
  16,723,460
  18,094,488
  19,520,048
  21,001,730
Debt-to-equity ratio
  0.640
  0.830
  0.960
  1.040
  1.090
  1.120
  1.140
  1.160
  1.170
  1.170
  1.180
  1.180
  1.180
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.200
  1.200
  1.200
  1.200
  1.200
  1.200
  1.200
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
  -464
  526
  1,741
  3,385
  5,537
  8,275
  11,671
  15,786
  20,674
  26,373
  32,911
  40,302
  48,551
  57,654
  67,598
  78,368
  89,943
  102,303
  115,428
  129,298
  143,898
  159,217
  175,247
  191,985
  209,433
  227,599
  246,496
  266,140
  286,554
  307,766
Depreciation, amort., depletion, $m
  4,858
  7,801
  12,053
  18,025
  26,153
  36,898
  50,726
  68,089
  89,406
  115,043
  145,309
  180,441
  220,607
  265,905
  316,375
  372,000
  432,726
  498,464
  569,108
  644,545
  724,660
  809,349
  898,523
  992,115
  1,090,083
  1,192,411
  1,299,113
  1,410,234
  1,525,848
  1,646,061
  1,771,006
Funds from operations, $m
  2,910
  7,337
  12,578
  19,766
  29,538
  42,435
  59,001
  79,760
  105,192
  135,717
  171,682
  213,352
  260,908
  314,456
  374,028
  439,599
  511,094
  588,407
  671,412
  759,972
  853,957
  953,247
  1,057,740
  1,167,362
  1,282,067
  1,401,844
  1,526,712
  1,656,729
  1,791,988
  1,932,615
  2,078,772
Change in working capital, $m
  -542
  76
  110
  155
  211
  278
  358
  450
  552
  664
  784
  910
  1,040
  1,173
  1,307
  1,441
  1,573
  1,703
  1,830
  1,954
  2,075
  2,193
  2,310
  2,424
  2,537
  2,650
  2,764
  2,878
  2,994
  3,113
  3,236
Cash from operations, $m
  3,452
  7,262
  12,468
  19,611
  29,327
  42,157
  58,643
  79,310
  104,640
  135,053
  170,898
  212,442
  259,868
  313,283
  372,721
  438,158
  509,521
  586,705
  669,582
  758,019
  851,883
  951,053
  1,055,430
  1,164,938
  1,279,530
  1,399,193
  1,523,948
  1,653,851
  1,788,993
  1,929,501
  2,075,536
Maintenance CAPEX, $m
  0
  -4,875
  -7,801
  -12,053
  -18,025
  -26,153
  -36,898
  -50,726
  -68,089
  -89,406
  -115,043
  -145,309
  -180,441
  -220,607
  -265,905
  -316,375
  -372,000
  -432,726
  -498,464
  -569,108
  -644,545
  -724,660
  -809,349
  -898,523
  -992,115
  -1,090,083
  -1,192,411
  -1,299,113
  -1,410,234
  -1,525,848
  -1,646,061
New CAPEX, $m
  -3,803
  -30,719
  -44,642
  -62,707
  -85,346
  -112,823
  -145,197
  -182,314
  -223,821
  -269,196
  -317,791
  -368,885
  -421,737
  -475,635
  -529,930
  -584,070
  -637,617
  -690,249
  -741,768
  -792,083
  -841,206
  -889,234
  -936,331
  -982,719
  -1,028,660
  -1,074,442
  -1,120,372
  -1,166,769
  -1,213,950
  -1,262,232
  -1,311,927
Cash from investing activities, $m
  -3,811
  -35,594
  -52,443
  -74,760
  -103,371
  -138,976
  -182,095
  -233,040
  -291,910
  -358,602
  -432,834
  -514,194
  -602,178
  -696,242
  -795,835
  -900,445
  -1,009,617
  -1,122,975
  -1,240,232
  -1,361,191
  -1,485,751
  -1,613,894
  -1,745,680
  -1,881,242
  -2,020,775
  -2,164,525
  -2,312,783
  -2,465,882
  -2,624,184
  -2,788,080
  -2,957,988
Free cash flow, $m
  -359
  -28,332
  -39,975
  -55,148
  -74,044
  -96,819
  -123,451
  -153,730
  -187,271
  -223,549
  -261,936
  -301,752
  -342,310
  -382,958
  -423,114
  -462,287
  -500,096
  -536,270
  -570,649
  -603,173
  -633,869
  -662,840
  -690,249
  -716,304
  -741,245
  -765,331
  -788,835
  -812,031
  -835,190
  -858,579
  -882,451
Issuance/(repayment) of debt, $m
  506
  18,967
  27,478
  38,597
  52,532
  69,445
  89,371
  112,218
  137,766
  165,696
  195,607
  227,056
  259,588
  292,763
  326,182
  359,507
  392,466
  424,862
  456,573
  487,543
  517,779
  547,341
  576,331
  604,884
  633,161
  661,340
  689,612
  718,170
  747,211
  776,929
  807,517
Issuance/(repurchase) of shares, $m
  559
  16,289
  22,415
  30,482
  40,473
  52,440
  66,338
  82,016
  99,230
  117,659
  136,932
  156,650
  176,418
  195,866
  214,664
  232,540
  249,287
  264,758
  278,872
  291,604
  302,977
  313,056
  321,940
  329,748
  336,618
  342,695
  348,132
  353,077
  357,678
  362,075
  366,400
Cash from financing (excl. dividends), $m  
  1,065
  35,256
  49,893
  69,079
  93,005
  121,885
  155,709
  194,234
  236,996
  283,355
  332,539
  383,706
  436,006
  488,629
  540,846
  592,047
  641,753
  689,620
  735,445
  779,147
  820,756
  860,397
  898,271
  934,632
  969,779
  1,004,035
  1,037,744
  1,071,247
  1,104,889
  1,139,004
  1,173,917
Total cash flow (excl. dividends), $m
  706
  6,923
  9,918
  13,931
  18,961
  25,066
  32,258
  40,504
  49,726
  59,806
  70,602
  81,954
  93,696
  105,670
  117,732
  129,761
  141,657
  153,350
  164,796
  175,974
  186,888
  197,558
  208,021
  218,327
  228,533
  238,705
  248,909
  259,217
  269,699
  280,425
  291,466
Retained Cash Flow (-), $m
  1,114
  -16,289
  -22,940
  -32,223
  -43,857
  -57,977
  -74,613
  -93,686
  -115,016
  -138,333
  -163,305
  -189,561
  -216,720
  -244,417
  -272,317
  -300,139
  -327,655
  -354,702
  -381,176
  -407,031
  -432,275
  -456,955
  -481,157
  -504,994
  -528,602
  -552,128
  -575,731
  -599,573
  -623,818
  -648,629
  -674,166
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
 
  -9,366
  -13,022
  -18,292
  -24,896
  -32,911
  -42,355
  -53,182
  -65,291
  -78,527
  -92,702
  -107,607
  -123,024
  -138,747
  -154,585
  -170,378
  -185,998
  -201,351
  -216,380
  -231,057
  -245,387
  -259,397
  -273,136
  -286,667
  -300,069
  -313,424
  -326,822
  -340,356
  -354,119
  -368,204
  -382,700
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
 
  -8,786
  -11,389
  -14,817
  -18,545
  -22,376
  -26,071
  -29,385
  -32,085
  -33,989
  -34,974
  -34,997
  -34,088
  -32,346
  -29,922
  -26,999
  -23,772
  -20,430
  -17,140
  -14,038
  -11,222
  -8,755
  -6,663
  -4,944
  -3,575
  -2,517
  -1,724
  -1,148
  -742
  -466
  -283
Current shareholders' claim on cash, %
  100
  72.2
  54.2
  42.0
  33.3
  27.1
  22.4
  18.9
  16.2
  14.1
  12.4
  11.0
  9.9
  9.0
  8.2
  7.6
  7.0
  6.6
  6.2
  5.8
  5.5
  5.3
  5.0
  4.8
  4.6
  4.5
  4.3
  4.2
  4.1
  4.0
  3.9

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 -210.9
Price to Sales 4.1
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 12.5
Price to Free Cash Flow -122.6
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 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 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 1090.28 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 $42.2 billion.

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Stock chart of CNQ Financial statements of CNQ
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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