Intrinsic value of Canadian National Railway Company - CNR

Previous Close

$102.75

  Intrinsic Value

$37.20

stock screener

  Rating & Target

str. sell

-64%

Previous close

$102.75

 
Intrinsic value

$37.20

 
Up/down potential

-64%

 
Rating

str. sell

We calculate the intrinsic value of CNR 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 76.9

 

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, %
  -4.55
  6.90
  6.71
  6.54
  6.39
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
Revenue, $m
  12,037
  12,868
  13,731
  14,629
  15,563
  16,535
  17,547
  18,602
  19,701
  20,847
  22,043
  23,291
  24,595
  25,956
  27,379
  28,867
  30,424
  32,052
  33,756
  35,540
  37,409
  39,365
  41,416
  43,564
  45,815
  48,176
  50,650
  53,245
  55,966
  58,820
  61,813
Variable operating expenses, $m
 
  7,489
  7,991
  8,514
  9,058
  9,623
  10,213
  10,826
  11,466
  12,133
  12,829
  13,555
  14,314
  15,107
  15,935
  16,801
  17,707
  18,654
  19,646
  20,684
  21,772
  22,911
  24,104
  25,354
  26,665
  28,038
  29,478
  30,988
  32,572
  34,233
  35,975
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
  6,725
  7,489
  7,991
  8,514
  9,058
  9,623
  10,213
  10,826
  11,466
  12,133
  12,829
  13,555
  14,314
  15,107
  15,935
  16,801
  17,707
  18,654
  19,646
  20,684
  21,772
  22,911
  24,104
  25,354
  26,665
  28,038
  29,478
  30,988
  32,572
  34,233
  35,975
Operating income, $m
  5,312
  5,379
  5,740
  6,115
  6,505
  6,912
  7,335
  7,776
  8,235
  8,714
  9,214
  9,736
  10,281
  10,850
  11,445
  12,067
  12,717
  13,398
  14,110
  14,856
  15,637
  16,455
  17,312
  18,210
  19,151
  20,137
  21,172
  22,256
  23,394
  24,587
  25,838
EBITDA, $m
  6,537
  6,691
  7,139
  7,606
  8,092
  8,597
  9,124
  9,672
  10,244
  10,840
  11,461
  12,110
  12,788
  13,496
  14,236
  15,010
  15,819
  16,666
  17,552
  18,479
  19,451
  20,468
  21,534
  22,651
  23,822
  25,049
  26,336
  27,685
  29,100
  30,584
  32,140
Interest expense (income), $m
  470
  473
  542
  612
  684
  760
  838
  920
  1,005
  1,094
  1,186
  1,283
  1,384
  1,489
  1,599
  1,714
  1,834
  1,959
  2,091
  2,228
  2,372
  2,523
  2,681
  2,846
  3,020
  3,202
  3,392
  3,592
  3,801
  4,021
  4,251
Earnings before tax, $m
  4,927
  4,905
  5,197
  5,503
  5,821
  6,152
  6,496
  6,856
  7,230
  7,620
  8,028
  8,453
  8,897
  9,361
  9,846
  10,353
  10,883
  11,438
  12,019
  12,628
  13,265
  13,932
  14,631
  15,363
  16,131
  16,936
  17,780
  18,665
  19,592
  20,566
  21,587
Tax expense, $m
  1,287
  1,324
  1,403
  1,486
  1,572
  1,661
  1,754
  1,851
  1,952
  2,057
  2,167
  2,282
  2,402
  2,527
  2,658
  2,795
  2,939
  3,088
  3,245
  3,409
  3,581
  3,762
  3,950
  4,148
  4,355
  4,573
  4,801
  5,039
  5,290
  5,553
  5,828
Net income, $m
  3,640
  3,581
  3,794
  4,017
  4,249
  4,491
  4,742
  5,005
  5,278
  5,563
  5,860
  6,171
  6,495
  6,833
  7,188
  7,558
  7,945
  8,350
  8,774
  9,218
  9,683
  10,170
  10,680
  11,215
  11,776
  12,363
  12,979
  13,625
  14,303
  15,013
  15,758

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  176
  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
  37,057
  39,471
  42,120
  44,874
  47,739
  50,721
  53,826
  57,061
  60,433
  63,948
  67,617
  71,445
  75,444
  79,621
  83,986
  88,551
  93,324
  98,319
  103,547
  109,019
  114,750
  120,753
  127,041
  133,631
  140,538
  147,778
  155,368
  163,327
  171,674
  180,429
  189,611
Adjusted assets (=assets-cash), $m
  36,881
  39,471
  42,120
  44,874
  47,739
  50,721
  53,826
  57,061
  60,433
  63,948
  67,617
  71,445
  75,444
  79,621
  83,986
  88,551
  93,324
  98,319
  103,547
  109,019
  114,750
  120,753
  127,041
  133,631
  140,538
  147,778
  155,368
  163,327
  171,674
  180,429
  189,611
Revenue / Adjusted assets
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
Average production assets, $m
  33,259
  35,553
  37,939
  40,419
  43,000
  45,686
  48,483
  51,397
  54,434
  57,601
  60,905
  64,354
  67,955
  71,717
  75,650
  79,761
  84,061
  88,560
  93,269
  98,198
  103,360
  108,767
  114,431
  120,367
  126,588
  133,109
  139,946
  147,115
  154,633
  162,519
  170,790
Working capital, $m
  -901
  437
  467
  497
  529
  562
  597
  632
  670
  709
  749
  792
  836
  883
  931
  981
  1,034
  1,090
  1,148
  1,208
  1,272
  1,338
  1,408
  1,481
  1,558
  1,638
  1,722
  1,810
  1,903
  2,000
  2,102
Total debt, $m
  10,937
  12,325
  13,908
  15,555
  17,269
  19,052
  20,909
  22,843
  24,860
  26,962
  29,156
  31,445
  33,836
  36,334
  38,945
  41,674
  44,529
  47,516
  50,642
  53,915
  57,342
  60,931
  64,692
  68,632
  72,763
  77,092
  81,631
  86,391
  91,382
  96,617
  102,109
Total liabilities, $m
  22,216
  23,604
  25,187
  26,834
  28,548
  30,331
  32,188
  34,122
  36,139
  38,241
  40,435
  42,724
  45,115
  47,613
  50,224
  52,953
  55,808
  58,795
  61,921
  65,194
  68,621
  72,210
  75,971
  79,911
  84,042
  88,371
  92,910
  97,670
  102,661
  107,896
  113,388
Total equity, $m
  14,841
  15,867
  16,932
  18,039
  19,191
  20,390
  21,638
  22,938
  24,294
  25,707
  27,182
  28,721
  30,328
  32,007
  33,762
  35,597
  37,516
  39,524
  41,626
  43,826
  46,130
  48,543
  51,071
  53,720
  56,496
  59,407
  62,458
  65,658
  69,013
  72,532
  76,224
Total liabilities and equity, $m
  37,057
  39,471
  42,119
  44,873
  47,739
  50,721
  53,826
  57,060
  60,433
  63,948
  67,617
  71,445
  75,443
  79,620
  83,986
  88,550
  93,324
  98,319
  103,547
  109,020
  114,751
  120,753
  127,042
  133,631
  140,538
  147,778
  155,368
  163,328
  171,674
  180,428
  189,612
Debt-to-equity ratio
  0.737
  0.780
  0.820
  0.860
  0.900
  0.930
  0.970
  1.000
  1.020
  1.050
  1.070
  1.090
  1.120
  1.140
  1.150
  1.170
  1.190
  1.200
  1.220
  1.230
  1.240
  1.260
  1.270
  1.280
  1.290
  1.300
  1.310
  1.320
  1.320
  1.330
  1.340
Adjusted equity ratio
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,640
  3,581
  3,794
  4,017
  4,249
  4,491
  4,742
  5,005
  5,278
  5,563
  5,860
  6,171
  6,495
  6,833
  7,188
  7,558
  7,945
  8,350
  8,774
  9,218
  9,683
  10,170
  10,680
  11,215
  11,776
  12,363
  12,979
  13,625
  14,303
  15,013
  15,758
Depreciation, amort., depletion, $m
  1,225
  1,312
  1,400
  1,491
  1,587
  1,686
  1,789
  1,897
  2,009
  2,125
  2,247
  2,375
  2,508
  2,646
  2,791
  2,943
  3,102
  3,268
  3,442
  3,624
  3,814
  4,014
  4,223
  4,442
  4,671
  4,912
  5,164
  5,429
  5,706
  5,997
  6,302
Funds from operations, $m
  4,911
  4,893
  5,194
  5,509
  5,836
  6,177
  6,531
  6,901
  7,286
  7,688
  8,108
  8,545
  9,002
  9,480
  9,979
  10,501
  11,047
  11,618
  12,216
  12,842
  13,497
  14,184
  14,903
  15,657
  16,447
  17,275
  18,143
  19,054
  20,009
  21,010
  22,061
Change in working capital, $m
  -291
  28
  29
  31
  32
  33
  34
  36
  37
  39
  41
  42
  44
  46
  48
  51
  53
  55
  58
  61
  64
  67
  70
  73
  77
  80
  84
  88
  93
  97
  102
Cash from operations, $m
  5,202
  4,864
  5,165
  5,478
  5,804
  6,144
  6,497
  6,865
  7,249
  7,649
  8,067
  8,503
  8,958
  9,434
  9,931
  10,450
  10,994
  11,563
  12,158
  12,781
  13,434
  14,117
  14,833
  15,584
  16,370
  17,195
  18,059
  18,965
  19,916
  20,913
  21,959
Maintenance CAPEX, $m
  0
  -1,227
  -1,312
  -1,400
  -1,491
  -1,587
  -1,686
  -1,789
  -1,897
  -2,009
  -2,125
  -2,247
  -2,375
  -2,508
  -2,646
  -2,791
  -2,943
  -3,102
  -3,268
  -3,442
  -3,624
  -3,814
  -4,014
  -4,223
  -4,442
  -4,671
  -4,912
  -5,164
  -5,429
  -5,706
  -5,997
New CAPEX, $m
  -2,695
  -2,295
  -2,386
  -2,481
  -2,581
  -2,686
  -2,797
  -2,914
  -3,037
  -3,167
  -3,304
  -3,449
  -3,601
  -3,762
  -3,932
  -4,111
  -4,300
  -4,499
  -4,709
  -4,929
  -5,162
  -5,407
  -5,664
  -5,936
  -6,221
  -6,521
  -6,837
  -7,169
  -7,518
  -7,885
  -8,271
Cash from investing activities, $m
  -2,655
  -3,522
  -3,698
  -3,881
  -4,072
  -4,273
  -4,483
  -4,703
  -4,934
  -5,176
  -5,429
  -5,696
  -5,976
  -6,270
  -6,578
  -6,902
  -7,243
  -7,601
  -7,977
  -8,371
  -8,786
  -9,221
  -9,678
  -10,159
  -10,663
  -11,192
  -11,749
  -12,333
  -12,947
  -13,591
  -14,268
Free cash flow, $m
  2,547
  1,343
  1,467
  1,597
  1,732
  1,871
  2,014
  2,163
  2,316
  2,474
  2,637
  2,807
  2,982
  3,164
  3,352
  3,548
  3,751
  3,962
  4,181
  4,410
  4,648
  4,896
  5,155
  5,425
  5,708
  6,002
  6,310
  6,632
  6,969
  7,322
  7,690
Issuance/(repayment) of debt, $m
  691
  1,564
  1,584
  1,647
  1,713
  1,783
  1,857
  1,934
  2,016
  2,103
  2,194
  2,290
  2,391
  2,498
  2,611
  2,729
  2,855
  2,987
  3,126
  3,273
  3,427
  3,590
  3,761
  3,941
  4,130
  4,329
  4,539
  4,760
  4,991
  5,235
  5,491
Issuance/(repurchase) of shares, $m
  -2,006
  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 from financing (excl. dividends), $m  
  -1,380
  1,564
  1,584
  1,647
  1,713
  1,783
  1,857
  1,934
  2,016
  2,103
  2,194
  2,290
  2,391
  2,498
  2,611
  2,729
  2,855
  2,987
  3,126
  3,273
  3,427
  3,590
  3,761
  3,941
  4,130
  4,329
  4,539
  4,760
  4,991
  5,235
  5,491
Total cash flow (excl. dividends), $m
  1,182
  2,906
  3,051
  3,244
  3,445
  3,654
  3,871
  4,097
  4,332
  4,576
  4,831
  5,096
  5,373
  5,661
  5,963
  6,277
  6,605
  6,949
  7,307
  7,683
  8,075
  8,486
  8,916
  9,366
  9,838
  10,332
  10,849
  11,392
  11,961
  12,557
  13,182
Retained Cash Flow (-), $m
  109
  -1,026
  -1,065
  -1,107
  -1,152
  -1,199
  -1,248
  -1,300
  -1,355
  -1,413
  -1,475
  -1,539
  -1,607
  -1,679
  -1,755
  -1,835
  -1,919
  -2,008
  -2,101
  -2,200
  -2,304
  -2,413
  -2,528
  -2,649
  -2,776
  -2,910
  -3,051
  -3,200
  -3,355
  -3,519
  -3,692
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
 
  1,880
  1,986
  2,137
  2,293
  2,455
  2,623
  2,797
  2,976
  3,163
  3,356
  3,557
  3,766
  3,982
  4,208
  4,442
  4,686
  4,941
  5,206
  5,483
  5,771
  6,073
  6,388
  6,717
  7,061
  7,421
  7,798
  8,192
  8,605
  9,037
  9,490
Discount rate, %
 
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
 
  1,784
  1,779
  1,797
  1,800
  1,787
  1,758
  1,715
  1,657
  1,585
  1,501
  1,407
  1,305
  1,196
  1,083
  968
  854
  743
  637
  538
  447
  365
  293
  230
  178
  134
  99
  71
  50
  34
  23
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Canadian National Railway Company is engaged in the rail and related transportation business. The Company's network of approximately 20,000 route miles of track spans Canada and mid-America, connecting approximately three coasts, including the Atlantic, the Pacific and the Gulf of Mexico and serving the cities and ports of Vancouver, Prince Rupert (British Columbia), Montreal, Halifax, New Orleans, and Mobile (Alabama), and the metropolitan areas of Toronto, Edmonton, Winnipeg, Calgary, Chicago, Memphis, Detroit, Duluth (Minnesota)/Superior (Wisconsin), and Jackson (Mississippi), with connections to all points in North America. Its network and connections to all Class I railroads provide its customers access to the three North American Free Trade Agreement nations. It carries over 300 million tons of cargo, serving exporters, importers, retailers, farmers and manufacturers. Its freight includes seven commodity representing a portfolio of goods.

FINANCIAL RATIOS  of  Canadian National Railway Company (CNR)

Valuation Ratios
P/E Ratio 21.5
Price to Sales 6.5
Price to Book 5.3
Price to Tangible Book
Price to Cash Flow 15.1
Price to Free Cash Flow 31.2
Growth Rates
Sales Growth Rate -4.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -0.4%
Cap. Spend. - 3 Yr. Gr. Rate 6.4%
Financial Strength
Quick Ratio 0
Current Ratio 0.2
LT Debt to Equity 63.7%
Total Debt to Equity 73.7%
Interest Coverage 11
Management Effectiveness
Return On Assets 10.9%
Ret/ On Assets - 3 Yr. Avg. 11.1%
Return On Total Capital 14.2%
Ret/ On T. Cap. - 3 Yr. Avg. 14.7%
Return On Equity 24.4%
Return On Equity - 3 Yr. Avg. 24.4%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 67.9%
Gross Margin - 3 Yr. Avg. 65.9%
EBITDA Margin 55%
EBITDA Margin - 3 Yr. Avg. 51.4%
Operating Margin 44.1%
Oper. Margin - 3 Yr. Avg. 41.3%
Pre-Tax Margin 40.9%
Pre-Tax Margin - 3 Yr. Avg. 38.5%
Net Profit Margin 30.2%
Net Profit Margin - 3 Yr. Avg. 28.1%
Effective Tax Rate 26.1%
Eff/ Tax Rate - 3 Yr. Avg. 27%
Payout Ratio 31.8%

CNR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CNR stock intrinsic value calculation we used $12037 million for the last fiscal year's total revenue generated by Canadian National Railway Company. The default revenue input number comes from 2016 income statement of Canadian National Railway Company. 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 CNR stock valuation model: a) initial revenue growth rate of 6.9% 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 5.4%, whose default value for CNR is calculated based on our internal credit rating of Canadian National Railway Company, 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 National Railway Company.
    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 CNR stock the variable cost ratio is equal to 58.2%.

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 CNR 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 4.4% for Canadian National Railway Company.

Corporate tax rate of 27% is the nominal tax rate for Canadian National Railway Company. 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 CNR 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 CNR are equal to 276.3%.

Life of production assets of 27.1 years is the average useful life of capital assets used in Canadian National Railway Company 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 CNR is equal to 3.4%. 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 - $14841 million for Canadian National Railway Company - 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 748.829 million for Canadian National Railway Company 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 National Railway Company at the current share price and the inputted number of shares is $76.9 billion.

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Financial statements of CNR
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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