Intrinsic value of Canadian Utilities Limited Class A Non-V - CU

Previous Close

$41.50

  Intrinsic Value

$51.75

stock screener

  Rating & Target

buy

+25%

  Value-price divergence*

+68%

Previous close

$41.50

 
Intrinsic value

$51.75

 
Up/down potential

+25%

 
Rating

buy

 
Value-price divergence*

+68%

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

We calculate the intrinsic value of CU 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 11.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.14
  17.20
  15.98
  14.88
  13.89
  13.00
  12.20
  11.48
  10.84
  10.25
  9.73
  9.25
  8.83
  8.45
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.57
Revenue, $m
  0
  3,984
  4,620
  5,308
  6,045
  6,831
  7,665
  8,545
  9,471
  10,442
  11,458
  12,518
  13,623
  14,774
  15,971
  17,215
  18,508
  19,852
  21,249
  22,700
  24,209
  25,779
  27,412
  29,112
  30,882
  32,727
  34,650
  36,655
  38,748
  40,933
  43,215
Variable operating expenses, $m
 
  2,940
  3,410
  3,917
  4,461
  5,042
  5,657
  6,306
  6,990
  7,706
  8,456
  9,238
  10,054
  10,903
  11,786
  12,705
  13,659
  14,651
  15,681
  16,753
  17,866
  19,025
  20,230
  21,484
  22,791
  24,152
  25,571
  27,052
  28,596
  30,208
  31,892
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
  2,152
  2,940
  3,410
  3,917
  4,461
  5,042
  5,657
  6,306
  6,990
  7,706
  8,456
  9,238
  10,054
  10,903
  11,786
  12,705
  13,659
  14,651
  15,681
  16,753
  17,866
  19,025
  20,230
  21,484
  22,791
  24,152
  25,571
  27,052
  28,596
  30,208
  31,892
Operating income, $m
  1,247
  1,044
  1,210
  1,391
  1,584
  1,790
  2,008
  2,239
  2,481
  2,736
  3,002
  3,280
  3,569
  3,871
  4,184
  4,510
  4,849
  5,201
  5,567
  5,947
  6,343
  6,754
  7,182
  7,627
  8,091
  8,574
  9,078
  9,604
  10,152
  10,724
  11,322
EBITDA, $m
  1,820
  1,585
  1,839
  2,113
  2,406
  2,719
  3,051
  3,401
  3,770
  4,156
  4,560
  4,982
  5,422
  5,880
  6,356
  6,852
  7,366
  7,901
  8,457
  9,035
  9,635
  10,260
  10,910
  11,586
  12,291
  13,025
  13,791
  14,589
  15,422
  16,291
  17,199
Interest expense (income), $m
  394
  391
  493
  602
  720
  846
  981
  1,125
  1,276
  1,435
  1,601
  1,776
  1,958
  2,147
  2,345
  2,550
  2,764
  2,986
  3,216
  3,456
  3,705
  3,964
  4,234
  4,514
  4,806
  5,110
  5,426
  5,756
  6,101
  6,460
  6,835
Earnings before tax, $m
  865
  653
  718
  789
  864
  943
  1,027
  1,114
  1,206
  1,301
  1,401
  1,504
  1,612
  1,723
  1,840
  1,960
  2,085
  2,215
  2,351
  2,491
  2,637
  2,790
  2,948
  3,113
  3,285
  3,465
  3,652
  3,847
  4,051
  4,264
  4,487
Tax expense, $m
  236
  176
  194
  213
  233
  255
  277
  301
  326
  351
  378
  406
  435
  465
  497
  529
  563
  598
  635
  673
  712
  753
  796
  841
  887
  935
  986
  1,039
  1,094
  1,151
  1,212
Net income, $m
  629
  476
  524
  576
  631
  689
  750
  813
  880
  950
  1,023
  1,098
  1,177
  1,258
  1,343
  1,431
  1,522
  1,617
  1,716
  1,819
  1,925
  2,036
  2,152
  2,273
  2,398
  2,529
  2,666
  2,808
  2,957
  3,113
  3,276

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  345
  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
  18,781
  21,650
  25,110
  28,847
  32,855
  37,127
  41,658
  46,442
  51,474
  56,751
  62,271
  68,033
  74,040
  80,293
  86,797
  93,560
  100,588
  107,891
  115,481
  123,370
  131,571
  140,101
  148,977
  158,215
  167,837
  177,862
  188,313
  199,213
  210,587
  222,461
  234,862
Adjusted assets (=assets-cash), $m
  18,436
  21,650
  25,110
  28,847
  32,855
  37,127
  41,658
  46,442
  51,474
  56,751
  62,271
  68,033
  74,040
  80,293
  86,797
  93,560
  100,588
  107,891
  115,481
  123,370
  131,571
  140,101
  148,977
  158,215
  167,837
  177,862
  188,313
  199,213
  210,587
  222,461
  234,862
Revenue / Adjusted assets
  0.000
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
Average production assets, $m
  2,312
  2,709
  3,142
  3,609
  4,111
  4,645
  5,212
  5,811
  6,440
  7,101
  7,791
  8,512
  9,264
  10,046
  10,860
  11,706
  12,586
  13,499
  14,449
  15,436
  16,462
  17,529
  18,640
  19,796
  21,000
  22,254
  23,562
  24,926
  26,349
  27,834
  29,386
Working capital, $m
  93
  -28
  -32
  -37
  -42
  -48
  -54
  -60
  -66
  -73
  -80
  -88
  -95
  -103
  -112
  -121
  -130
  -139
  -149
  -159
  -169
  -180
  -192
  -204
  -216
  -229
  -243
  -257
  -271
  -287
  -303
Total debt, $m
  8,378
  10,263
  12,539
  14,998
  17,635
  20,447
  23,428
  26,576
  29,887
  33,359
  36,991
  40,783
  44,735
  48,850
  53,130
  57,579
  62,204
  67,009
  72,004
  77,194
  82,591
  88,204
  94,044
  100,123
  106,454
  113,050
  119,927
  127,099
  134,583
  142,396
  150,556
Total liabilities, $m
  12,361
  14,246
  16,522
  18,981
  21,618
  24,430
  27,411
  30,559
  33,870
  37,342
  40,974
  44,766
  48,718
  52,833
  57,113
  61,562
  66,187
  70,992
  75,987
  81,177
  86,574
  92,187
  98,027
  104,106
  110,437
  117,033
  123,910
  131,082
  138,566
  146,379
  154,539
Total equity, $m
  6,420
  7,404
  8,588
  9,866
  11,236
  12,697
  14,247
  15,883
  17,604
  19,409
  21,297
  23,267
  25,322
  27,460
  29,685
  31,997
  34,401
  36,899
  39,495
  42,192
  44,997
  47,915
  50,950
  54,110
  57,400
  60,829
  64,403
  68,131
  72,021
  76,082
  80,323
Total liabilities and equity, $m
  18,781
  21,650
  25,110
  28,847
  32,854
  37,127
  41,658
  46,442
  51,474
  56,751
  62,271
  68,033
  74,040
  80,293
  86,798
  93,559
  100,588
  107,891
  115,482
  123,369
  131,571
  140,102
  148,977
  158,216
  167,837
  177,862
  188,313
  199,213
  210,587
  222,461
  234,862
Debt-to-equity ratio
  1.305
  1.390
  1.460
  1.520
  1.570
  1.610
  1.640
  1.670
  1.700
  1.720
  1.740
  1.750
  1.770
  1.780
  1.790
  1.800
  1.810
  1.820
  1.820
  1.830
  1.840
  1.840
  1.850
  1.850
  1.850
  1.860
  1.860
  1.870
  1.870
  1.870
  1.870
Adjusted equity ratio
  0.333
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  629
  476
  524
  576
  631
  689
  750
  813
  880
  950
  1,023
  1,098
  1,177
  1,258
  1,343
  1,431
  1,522
  1,617
  1,716
  1,819
  1,925
  2,036
  2,152
  2,273
  2,398
  2,529
  2,666
  2,808
  2,957
  3,113
  3,276
Depreciation, amort., depletion, $m
  573
  542
  628
  722
  822
  929
  1,042
  1,162
  1,288
  1,420
  1,558
  1,702
  1,853
  2,009
  2,172
  2,341
  2,517
  2,700
  2,890
  3,087
  3,292
  3,506
  3,728
  3,959
  4,200
  4,451
  4,712
  4,985
  5,270
  5,567
  5,877
Funds from operations, $m
  1,466
  1,018
  1,152
  1,298
  1,453
  1,618
  1,792
  1,976
  2,168
  2,370
  2,581
  2,801
  3,029
  3,267
  3,515
  3,772
  4,039
  4,317
  4,606
  4,906
  5,218
  5,542
  5,880
  6,232
  6,598
  6,980
  7,378
  7,794
  8,227
  8,680
  9,153
Change in working capital, $m
  -156
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
Cash from operations, $m
  1,622
  1,022
  1,157
  1,302
  1,458
  1,623
  1,798
  1,982
  2,175
  2,377
  2,588
  2,808
  3,037
  3,275
  3,523
  3,781
  4,048
  4,327
  4,616
  4,916
  5,228
  5,553
  5,892
  6,244
  6,611
  6,993
  7,392
  7,808
  8,242
  8,695
  9,169
Maintenance CAPEX, $m
  0
  -462
  -542
  -628
  -722
  -822
  -929
  -1,042
  -1,162
  -1,288
  -1,420
  -1,558
  -1,702
  -1,853
  -2,009
  -2,172
  -2,341
  -2,517
  -2,700
  -2,890
  -3,087
  -3,292
  -3,506
  -3,728
  -3,959
  -4,200
  -4,451
  -4,712
  -4,985
  -5,270
  -5,567
New CAPEX, $m
  -1,293
  -397
  -433
  -468
  -501
  -535
  -567
  -599
  -630
  -660
  -691
  -721
  -752
  -782
  -814
  -846
  -879
  -914
  -950
  -987
  -1,026
  -1,067
  -1,110
  -1,156
  -1,204
  -1,254
  -1,308
  -1,364
  -1,423
  -1,486
  -1,552
Cash from investing activities, $m
  -1,456
  -859
  -975
  -1,096
  -1,223
  -1,357
  -1,496
  -1,641
  -1,792
  -1,948
  -2,111
  -2,279
  -2,454
  -2,635
  -2,823
  -3,018
  -3,220
  -3,431
  -3,650
  -3,877
  -4,113
  -4,359
  -4,616
  -4,884
  -5,163
  -5,454
  -5,759
  -6,076
  -6,408
  -6,756
  -7,119
Free cash flow, $m
  166
  163
  182
  207
  235
  266
  302
  341
  383
  429
  477
  529
  583
  640
  700
  763
  828
  896
  966
  1,039
  1,115
  1,194
  1,275
  1,360
  1,448
  1,539
  1,633
  1,731
  1,834
  1,940
  2,050
Issuance/(repayment) of debt, $m
  410
  2,114
  2,276
  2,459
  2,637
  2,811
  2,981
  3,148
  3,311
  3,472
  3,632
  3,792
  3,952
  4,115
  4,280
  4,450
  4,624
  4,806
  4,994
  5,191
  5,397
  5,613
  5,840
  6,079
  6,331
  6,597
  6,877
  7,172
  7,484
  7,813
  8,160
Issuance/(repurchase) of shares, $m
  4
  624
  659
  702
  740
  773
  800
  823
  841
  855
  865
  873
  878
  880
  882
  882
  881
  880
  880
  879
  880
  881
  883
  887
  892
  899
  908
  919
  932
  948
  966
Cash from financing (excl. dividends), $m  
  23
  2,738
  2,935
  3,161
  3,377
  3,584
  3,781
  3,971
  4,152
  4,327
  4,497
  4,665
  4,830
  4,995
  5,162
  5,332
  5,505
  5,686
  5,874
  6,070
  6,277
  6,494
  6,723
  6,966
  7,223
  7,496
  7,785
  8,091
  8,416
  8,761
  9,126
Total cash flow (excl. dividends), $m
  185
  2,901
  3,118
  3,368
  3,612
  3,850
  4,083
  4,311
  4,535
  4,756
  4,974
  5,193
  5,413
  5,635
  5,862
  6,094
  6,334
  6,582
  6,840
  7,109
  7,391
  7,687
  7,998
  8,326
  8,671
  9,035
  9,418
  9,823
  10,250
  10,701
  11,176
Retained Cash Flow (-), $m
  -227
  -1,100
  -1,183
  -1,278
  -1,371
  -1,461
  -1,550
  -1,636
  -1,721
  -1,805
  -1,888
  -1,971
  -2,054
  -2,139
  -2,225
  -2,313
  -2,404
  -2,498
  -2,596
  -2,698
  -2,805
  -2,917
  -3,035
  -3,160
  -3,291
  -3,429
  -3,574
  -3,728
  -3,890
  -4,061
  -4,241
Prev. year cash balance distribution, $m
 
  116
  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
 
  1,916
  1,935
  2,090
  2,241
  2,389
  2,534
  2,675
  2,814
  2,951
  3,087
  3,222
  3,359
  3,497
  3,637
  3,781
  3,930
  4,084
  4,244
  4,411
  4,586
  4,770
  4,963
  5,166
  5,380
  5,606
  5,844
  6,095
  6,360
  6,640
  6,935
Discount rate, %
 
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
 
  1,771
  1,640
  1,612
  1,559
  1,486
  1,394
  1,289
  1,175
  1,054
  932
  811
  695
  586
  486
  396
  317
  249
  191
  144
  106
  76
  54
  37
  25
  16
  10
  6
  4
  2
  1
Current shareholders' claim on cash, %
  100
  94.6
  90.0
  85.9
  82.4
  79.2
  76.4
  74.0
  71.8
  69.8
  68.1
  66.5
  65.1
  63.8
  62.6
  61.6
  60.6
  59.7
  58.9
  58.2
  57.5
  56.8
  56.2
  55.7
  55.2
  54.7
  54.2
  53.8
  53.3
  52.9
  52.5

Canadian Utilities Limited engages in the electricity, and pipelines and liquids businesses. It operates through Electricity, Pipelines & Liquids, and Corporate & Other segments. The Electricity segment engages in generation, distribution, and transmission of electricity to industrial, commercial, and residential customers, as well as provides transmission and infrastructure development services in northern and central east Alberta, the Yukon, the Northwest Territories, and Australia. The Pipelines & Liquids segment offer natural gas transmission, distribution, and infrastructure development; natural gas liquids storage and processing; and industrial water solutions throughout Alberta, the Lloydminster area of Saskatchewan, and Western Australia. It owns and operates approximately 8,500 kilometers of natural gas pipelines, 18 compressor sites, approximately 4,000 receipt and delivery points, and a salt cavern storage peaking facility located near Fort Saskatchewan, Alberta in Canada, as well as 4,000 receipt and delivery points. The Corporate & Other segment includes owning of commercial real estate in Alberta; and engages in business development activities, as well as provides billing, payment processing, credit collection, and call center services. Canadian Utilities Limited was incorporated in 1927 and is headquartered in Calgary, Canada. Canadian Utilities Ltd. operates as a subsidiary of ATCO Ltd.

FINANCIAL RATIOS  of  Canadian Utilities Limited Class A Non-V (CU)

Valuation Ratios
P/E Ratio 17.7
Price to Sales 3.3
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 6.9
Price to Free Cash Flow 33.9
Growth Rates
Sales Growth Rate 4.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -22.6%
Cap. Spend. - 3 Yr. Gr. Rate -11.1%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 126.9%
Total Debt to Equity 130.5%
Interest Coverage 3
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 4.9%
Return On Total Capital 4.3%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity 10%
Return On Equity - 3 Yr. Avg. 9.7%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 53.9%
EBITDA Margin - 3 Yr. Avg. 50.6%
Operating Margin 36.7%
Oper. Margin - 3 Yr. Avg. 32.3%
Pre-Tax Margin 25.4%
Pre-Tax Margin - 3 Yr. Avg. 22.9%
Net Profit Margin 18.5%
Net Profit Margin - 3 Yr. Avg. 16.5%
Effective Tax Rate 27.3%
Eff/ Tax Rate - 3 Yr. Avg. 28.6%
Payout Ratio 57.9%

CU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CU stock intrinsic value calculation we used $3399 million for the last fiscal year's total revenue generated by Canadian Utilities Limited Class A Non-V. The default revenue input number comes from 2016 income statement of Canadian Utilities Limited Class A Non-V. 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 CU stock valuation model: a) initial revenue growth rate of 17.2% 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 8.2%, whose default value for CU is calculated based on our internal credit rating of Canadian Utilities Limited Class A Non-V, 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 Utilities Limited Class A Non-V.
    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 CU stock the variable cost ratio is equal to 73.8%.

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 CU stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.8% for Canadian Utilities Limited Class A Non-V.

Corporate tax rate of 27% is the nominal tax rate for Canadian Utilities Limited Class A Non-V. 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 CU 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 CU are equal to 68%.

Life of production assets of 4 years is the average useful life of capital assets used in Canadian Utilities Limited Class A Non-V 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 CU is equal to -0.7%. 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 - $6420 million for Canadian Utilities Limited Class A Non-V - 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 268.072 million for Canadian Utilities Limited Class A Non-V 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 Utilities Limited Class A Non-V at the current share price and the inputted number of shares is $11.1 billion.

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Stock chart of CU Financial statements of CU
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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