Intrinsic value of Canadian National Railway Company - CNR

Previous Close

$100.47

  Intrinsic Value

$28.35

stock screener

  Rating & Target

str. sell

-72%

  Value-price divergence*

0%

Previous close

$100.47

 
Intrinsic value

$28.35

 
Up/down potential

-72%

 
Rating

str. sell

 
Value-price divergence*

0%

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

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 75.6

 

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
  17.10
  15.89
  14.80
  13.82
  12.94
  12.14
  11.43
  10.79
  10.21
  9.69
  9.22
  8.80
  8.42
  8.08
  7.77
  7.49
  7.24
  7.02
  6.82
  6.63
  6.47
  6.32
  6.19
  6.07
  5.97
  5.87
  5.78
  5.70
  5.63
  5.57
Revenue, $m
  12,037
  14,095
  16,335
  18,753
  21,345
  24,106
  27,034
  30,124
  33,374
  36,781
  40,344
  44,063
  47,940
  51,975
  56,172
  60,536
  65,071
  69,783
  74,681
  79,771
  85,063
  90,568
  96,295
  102,258
  108,467
  114,937
  121,683
  128,718
  136,060
  143,724
  151,730
Variable operating expenses, $m
 
  8,203
  9,507
  10,914
  12,423
  14,030
  15,734
  17,532
  19,424
  21,406
  23,480
  25,645
  27,901
  30,249
  32,692
  35,232
  37,871
  40,614
  43,464
  46,427
  49,507
  52,711
  56,044
  59,514
  63,128
  66,894
  70,819
  74,914
  79,187
  83,647
  88,307
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
  8,203
  9,507
  10,914
  12,423
  14,030
  15,734
  17,532
  19,424
  21,406
  23,480
  25,645
  27,901
  30,249
  32,692
  35,232
  37,871
  40,614
  43,464
  46,427
  49,507
  52,711
  56,044
  59,514
  63,128
  66,894
  70,819
  74,914
  79,187
  83,647
  88,307
Operating income, $m
  5,312
  5,892
  6,828
  7,839
  8,922
  10,076
  11,300
  12,592
  13,950
  15,374
  16,864
  18,419
  20,039
  21,726
  23,480
  25,304
  27,200
  29,169
  31,216
  33,344
  35,556
  37,857
  40,251
  42,744
  45,339
  48,044
  50,863
  53,804
  56,873
  60,077
  63,423
EBITDA, $m
  6,537
  7,329
  8,494
  9,751
  11,098
  12,534
  14,057
  15,663
  17,353
  19,124
  20,977
  22,911
  24,927
  27,025
  29,207
  31,476
  33,834
  36,284
  38,831
  41,477
  44,229
  47,091
  50,069
  53,169
  56,398
  59,762
  63,270
  66,928
  70,745
  74,730
  78,893
Interest expense (income), $m
  470
  473
  641
  822
  1,017
  1,226
  1,449
  1,686
  1,935
  2,197
  2,472
  2,760
  3,060
  3,373
  3,699
  4,037
  4,390
  4,756
  5,136
  5,531
  5,942
  6,369
  6,814
  7,276
  7,757
  8,258
  8,781
  9,325
  9,893
  10,485
  11,104
Earnings before tax, $m
  4,927
  5,418
  6,187
  7,017
  7,905
  8,850
  9,851
  10,906
  12,015
  13,177
  14,391
  15,659
  16,979
  18,353
  19,781
  21,266
  22,810
  24,414
  26,080
  27,813
  29,614
  31,488
  33,438
  35,468
  37,582
  39,786
  42,083
  44,479
  46,980
  49,591
  52,319
Tax expense, $m
  1,287
  1,463
  1,670
  1,894
  2,134
  2,389
  2,660
  2,945
  3,244
  3,558
  3,886
  4,228
  4,584
  4,955
  5,341
  5,742
  6,159
  6,592
  7,042
  7,509
  7,996
  8,502
  9,028
  9,576
  10,147
  10,742
  11,362
  12,009
  12,685
  13,390
  14,126
Net income, $m
  3,640
  3,955
  4,516
  5,122
  5,770
  6,460
  7,191
  7,962
  8,771
  9,619
  10,506
  11,431
  12,394
  13,397
  14,440
  15,525
  16,651
  17,822
  19,039
  20,303
  21,618
  22,986
  24,410
  25,891
  27,435
  29,043
  30,720
  32,470
  34,296
  36,202
  38,193

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
  43,237
  50,108
  57,524
  65,474
  73,946
  82,927
  92,406
  102,374
  112,825
  123,755
  135,164
  147,054
  159,432
  172,308
  185,693
  199,603
  214,059
  229,082
  244,696
  260,931
  277,816
  295,385
  313,674
  332,721
  352,568
  373,259
  394,841
  417,361
  440,872
  465,428
Adjusted assets (=assets-cash), $m
  36,881
  43,237
  50,108
  57,524
  65,474
  73,946
  82,927
  92,406
  102,374
  112,825
  123,755
  135,164
  147,054
  159,432
  172,308
  185,693
  199,603
  214,059
  229,082
  244,696
  260,931
  277,816
  295,385
  313,674
  332,721
  352,568
  373,259
  394,841
  417,361
  440,872
  465,428
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
  38,945
  45,134
  51,814
  58,975
  66,606
  74,695
  83,233
  92,212
  101,625
  111,471
  121,747
  132,457
  143,607
  155,204
  167,260
  179,790
  192,811
  206,342
  220,407
  235,030
  250,239
  266,064
  282,538
  299,695
  317,572
  336,209
  355,648
  375,933
  397,110
  419,229
Working capital, $m
  -901
  479
  555
  638
  726
  820
  919
  1,024
  1,135
  1,251
  1,372
  1,498
  1,630
  1,767
  1,910
  2,058
  2,212
  2,373
  2,539
  2,712
  2,892
  3,079
  3,274
  3,477
  3,688
  3,908
  4,137
  4,376
  4,626
  4,887
  5,159
Total debt, $m
  10,937
  14,577
  18,685
  23,120
  27,875
  32,941
  38,311
  43,979
  49,940
  56,190
  62,726
  69,549
  76,659
  84,062
  91,761
  99,765
  108,084
  116,728
  125,712
  135,049
  144,757
  154,855
  165,361
  176,298
  187,688
  199,557
  211,930
  224,836
  238,303
  252,362
  267,047
Total liabilities, $m
  22,216
  25,856
  29,964
  34,399
  39,154
  44,220
  49,590
  55,258
  61,219
  67,469
  74,005
  80,828
  87,938
  95,341
  103,040
  111,044
  119,363
  128,007
  136,991
  146,328
  156,036
  166,134
  176,640
  187,577
  198,967
  210,836
  223,209
  236,115
  249,582
  263,641
  278,326
Total equity, $m
  14,841
  17,381
  20,143
  23,125
  26,321
  29,726
  33,337
  37,147
  41,154
  45,356
  49,749
  54,336
  59,116
  64,092
  69,268
  74,648
  80,241
  86,052
  92,091
  98,368
  104,894
  111,682
  118,745
  126,097
  133,754
  141,733
  150,050
  158,726
  167,779
  177,230
  187,102
Total liabilities and equity, $m
  37,057
  43,237
  50,107
  57,524
  65,475
  73,946
  82,927
  92,405
  102,373
  112,825
  123,754
  135,164
  147,054
  159,433
  172,308
  185,692
  199,604
  214,059
  229,082
  244,696
  260,930
  277,816
  295,385
  313,674
  332,721
  352,569
  373,259
  394,841
  417,361
  440,871
  465,428
Debt-to-equity ratio
  0.737
  0.840
  0.930
  1.000
  1.060
  1.110
  1.150
  1.180
  1.210
  1.240
  1.260
  1.280
  1.300
  1.310
  1.320
  1.340
  1.350
  1.360
  1.370
  1.370
  1.380
  1.390
  1.390
  1.400
  1.400
  1.410
  1.410
  1.420
  1.420
  1.420
  1.430
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
  3,955
  4,516
  5,122
  5,770
  6,460
  7,191
  7,962
  8,771
  9,619
  10,506
  11,431
  12,394
  13,397
  14,440
  15,525
  16,651
  17,822
  19,039
  20,303
  21,618
  22,986
  24,410
  25,891
  27,435
  29,043
  30,720
  32,470
  34,296
  36,202
  38,193
Depreciation, amort., depletion, $m
  1,225
  1,437
  1,665
  1,912
  2,176
  2,458
  2,756
  3,071
  3,403
  3,750
  4,113
  4,493
  4,888
  5,299
  5,727
  6,172
  6,634
  7,115
  7,614
  8,133
  8,673
  9,234
  9,818
  10,426
  11,059
  11,719
  12,406
  13,124
  13,872
  14,654
  15,470
Funds from operations, $m
  4,911
  5,393
  6,182
  7,034
  7,947
  8,918
  9,947
  11,033
  12,174
  13,369
  14,619
  15,923
  17,282
  18,696
  20,167
  21,697
  23,286
  24,937
  26,653
  28,437
  30,291
  32,220
  34,227
  36,317
  38,494
  40,762
  43,127
  45,593
  48,168
  50,855
  53,663
Change in working capital, $m
  -291
  70
  76
  82
  88
  94
  100
  105
  110
  116
  121
  126
  132
  137
  143
  148
  154
  160
  167
  173
  180
  187
  195
  203
  211
  220
  229
  239
  250
  261
  272
Cash from operations, $m
  5,202
  5,323
  6,106
  6,952
  7,859
  8,824
  9,848
  10,928
  12,063
  13,253
  14,498
  15,797
  17,150
  18,559
  20,025
  21,548
  23,131
  24,777
  26,486
  28,263
  30,111
  32,033
  34,033
  36,115
  38,283
  40,542
  42,897
  45,354
  47,918
  50,595
  53,390
Maintenance CAPEX, $m
  0
  -1,227
  -1,437
  -1,665
  -1,912
  -2,176
  -2,458
  -2,756
  -3,071
  -3,403
  -3,750
  -4,113
  -4,493
  -4,888
  -5,299
  -5,727
  -6,172
  -6,634
  -7,115
  -7,614
  -8,133
  -8,673
  -9,234
  -9,818
  -10,426
  -11,059
  -11,719
  -12,406
  -13,124
  -13,872
  -14,654
New CAPEX, $m
  -2,695
  -5,687
  -6,188
  -6,680
  -7,161
  -7,631
  -8,089
  -8,538
  -8,979
  -9,414
  -9,845
  -10,276
  -10,710
  -11,149
  -11,597
  -12,056
  -12,530
  -13,021
  -13,531
  -14,065
  -14,623
  -15,209
  -15,825
  -16,474
  -17,157
  -17,877
  -18,637
  -19,439
  -20,285
  -21,177
  -22,119
Cash from investing activities, $m
  -2,655
  -6,914
  -7,625
  -8,345
  -9,073
  -9,807
  -10,547
  -11,294
  -12,050
  -12,817
  -13,595
  -14,389
  -15,203
  -16,037
  -16,896
  -17,783
  -18,702
  -19,655
  -20,646
  -21,679
  -22,756
  -23,882
  -25,059
  -26,292
  -27,583
  -28,936
  -30,356
  -31,845
  -33,409
  -35,049
  -36,773
Free cash flow, $m
  2,547
  -1,592
  -1,520
  -1,394
  -1,215
  -983
  -699
  -366
  13
  437
  903
  1,407
  1,948
  2,522
  3,128
  3,765
  4,429
  5,122
  5,840
  6,585
  7,355
  8,151
  8,974
  9,823
  10,700
  11,606
  12,542
  13,509
  14,510
  15,545
  16,618
Issuance/(repayment) of debt, $m
  691
  3,816
  4,108
  4,435
  4,754
  5,066
  5,370
  5,668
  5,961
  6,250
  6,536
  6,823
  7,111
  7,402
  7,699
  8,004
  8,319
  8,644
  8,983
  9,337
  9,708
  10,097
  10,506
  10,937
  11,390
  11,869
  12,373
  12,905
  13,467
  14,060
  14,685
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
  3,816
  4,108
  4,435
  4,754
  5,066
  5,370
  5,668
  5,961
  6,250
  6,536
  6,823
  7,111
  7,402
  7,699
  8,004
  8,319
  8,644
  8,983
  9,337
  9,708
  10,097
  10,506
  10,937
  11,390
  11,869
  12,373
  12,905
  13,467
  14,060
  14,685
Total cash flow (excl. dividends), $m
  1,182
  2,224
  2,589
  3,041
  3,540
  4,083
  4,671
  5,302
  5,974
  6,687
  7,439
  8,230
  9,058
  9,924
  10,828
  11,769
  12,748
  13,766
  14,824
  15,922
  17,063
  18,249
  19,480
  20,760
  22,091
  23,475
  24,915
  26,415
  27,977
  29,605
  31,303
Retained Cash Flow (-), $m
  109
  -2,540
  -2,762
  -2,981
  -3,196
  -3,406
  -3,610
  -3,811
  -4,007
  -4,201
  -4,394
  -4,586
  -4,780
  -4,976
  -5,176
  -5,381
  -5,592
  -5,811
  -6,039
  -6,277
  -6,526
  -6,788
  -7,063
  -7,352
  -7,657
  -7,979
  -8,318
  -8,676
  -9,053
  -9,451
  -9,872
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
 
  -316
  -173
  60
  344
  678
  1,061
  1,491
  1,967
  2,486
  3,045
  3,643
  4,278
  4,948
  5,652
  6,388
  7,156
  7,955
  8,785
  9,645
  10,537
  11,461
  12,417
  13,408
  14,433
  15,496
  16,597
  17,739
  18,924
  20,153
  21,431
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
 
  -300
  -155
  50
  270
  493
  711
  915
  1,095
  1,246
  1,362
  1,441
  1,482
  1,486
  1,454
  1,392
  1,304
  1,197
  1,075
  947
  816
  689
  569
  460
  363
  280
  211
  155
  111
  77
  52
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
Price to Sales 6.4
Price to Book 5.2
Price to Tangible Book
Price to Cash Flow 14.7
Price to Free Cash Flow 30.5
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 78%
Gross Margin - 3 Yr. Avg. 75.3%
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 17.1% 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 752.416 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 $75.6 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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