Intrinsic value of Cenovus Energy Inc. - CVE

Previous Close

$12.49

  Intrinsic Value

$2.31

stock screener

  Rating & Target

str. sell

-82%

Previous close

$12.49

 
Intrinsic value

$2.31

 
Up/down potential

-82%

 
Rating

str. sell

We calculate the intrinsic value of CVE 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 15.3

 

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, %
  -7.12
  48.90
  44.51
  40.56
  37.00
  33.80
  30.92
  28.33
  26.00
  23.90
  22.01
  20.31
  18.78
  17.40
  16.16
  15.04
  14.04
  13.13
  12.32
  11.59
  10.93
  10.34
  9.80
  9.32
  8.89
  8.50
  8.15
  7.84
  7.55
  7.30
  7.07
Revenue, $m
  12,134
  18,068
  26,109
  36,699
  50,279
  67,275
  88,078
  113,030
  142,415
  176,448
  215,281
  258,998
  307,628
  361,151
  419,509
  482,615
  550,368
  622,657
  699,376
  780,428
  865,731
  955,223
  1,048,869
  1,146,656
  1,248,603
  1,354,756
  1,465,190
  1,580,009
  1,699,343
  1,823,353
  1,952,223
Variable operating expenses, $m
 
  15,888
  22,948
  32,246
  44,169
  59,092
  77,357
  99,265
  125,065
  154,947
  189,042
  227,402
  270,099
  317,093
  368,331
  423,739
  483,226
  546,696
  614,056
  685,220
  760,117
  838,691
  920,913
  1,006,771
  1,096,281
  1,189,484
  1,286,445
  1,387,257
  1,492,033
  1,600,914
  1,714,063
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
  12,476
  15,888
  22,948
  32,246
  44,169
  59,092
  77,357
  99,265
  125,065
  154,947
  189,042
  227,402
  270,099
  317,093
  368,331
  423,739
  483,226
  546,696
  614,056
  685,220
  760,117
  838,691
  920,913
  1,006,771
  1,096,281
  1,189,484
  1,286,445
  1,387,257
  1,492,033
  1,600,914
  1,714,063
Operating income, $m
  -342
  2,180
  3,161
  4,453
  6,110
  8,183
  10,721
  13,765
  17,350
  21,502
  26,239
  31,596
  37,529
  44,058
  51,178
  58,876
  67,142
  75,961
  85,320
  95,208
  105,614
  116,532
  127,956
  139,886
  152,323
  165,273
  178,745
  192,752
  207,310
  222,439
  238,160
EBITDA, $m
  1,156
  4,409
  6,371
  8,955
  12,269
  16,416
  21,492
  27,581
  34,751
  43,056
  52,531
  63,199
  75,065
  88,125
  102,365
  117,764
  134,296
  151,936
  170,656
  190,434
  211,249
  233,086
  255,936
  279,798
  304,674
  330,577
  357,524
  385,541
  414,660
  444,920
  476,366
Interest expense (income), $m
  0
  222
  456
  774
  1,192
  1,728
  2,399
  3,220
  4,205
  5,365
  6,709
  8,242
  9,967
  11,887
  14,000
  16,304
  18,795
  21,470
  24,323
  27,352
  30,551
  33,919
  37,452
  41,148
  45,009
  49,033
  53,224
  57,583
  62,116
  66,827
  71,722
Earnings before tax, $m
  -927
  1,958
  2,705
  3,679
  4,918
  6,455
  8,322
  10,545
  13,144
  16,136
  19,530
  23,355
  27,561
  32,171
  37,178
  42,573
  48,347
  54,491
  60,997
  67,856
  75,063
  82,613
  90,504
  98,737
  107,314
  116,240
  125,521
  135,169
  145,195
  155,612
  166,438
Tax expense, $m
  -382
  529
  730
  993
  1,328
  1,743
  2,247
  2,847
  3,549
  4,357
  5,273
  6,306
  7,442
  8,686
  10,038
  11,495
  13,054
  14,713
  16,469
  18,321
  20,267
  22,306
  24,436
  26,659
  28,975
  31,385
  33,891
  36,496
  39,203
  42,015
  44,938
Net income, $m
  -545
  1,430
  1,974
  2,686
  3,590
  4,712
  6,075
  7,698
  9,595
  11,780
  14,257
  17,049
  20,120
  23,485
  27,140
  31,078
  35,293
  39,779
  44,528
  49,535
  54,796
  60,308
  66,068
  72,078
  78,339
  84,855
  91,631
  98,673
  105,992
  113,597
  121,500

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,720
  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
  25,258
  32,092
  46,375
  65,185
  89,305
  119,493
  156,443
  200,764
  252,957
  313,408
  382,381
  460,032
  546,408
  641,476
  745,131
  857,220
  977,562
  1,105,963
  1,242,232
  1,386,196
  1,537,710
  1,696,667
  1,862,999
  2,036,689
  2,217,768
  2,406,317
  2,602,470
  2,806,410
  3,018,372
  3,238,637
  3,467,536
Adjusted assets (=assets-cash), $m
  21,538
  32,092
  46,375
  65,185
  89,305
  119,493
  156,443
  200,764
  252,957
  313,408
  382,381
  460,032
  546,408
  641,476
  745,131
  857,220
  977,562
  1,105,963
  1,242,232
  1,386,196
  1,537,710
  1,696,667
  1,862,999
  2,036,689
  2,217,768
  2,406,317
  2,602,470
  2,806,410
  3,018,372
  3,238,637
  3,467,536
Revenue / Adjusted assets
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
Average production assets, $m
  16,881
  25,132
  36,318
  51,048
  69,938
  93,579
  122,516
  157,225
  198,099
  245,440
  299,456
  360,266
  427,911
  502,361
  583,537
  671,318
  765,561
  866,116
  972,833
  1,085,576
  1,204,232
  1,328,716
  1,458,976
  1,594,999
  1,736,807
  1,884,466
  2,038,080
  2,197,792
  2,363,787
  2,536,284
  2,715,542
Working capital, $m
  4,151
  650
  940
  1,321
  1,810
  2,422
  3,171
  4,069
  5,127
  6,352
  7,750
  9,324
  11,075
  13,001
  15,102
  17,374
  19,813
  22,416
  25,178
  28,095
  31,166
  34,388
  37,759
  41,280
  44,950
  48,771
  52,747
  56,880
  61,176
  65,641
  70,280
Total debt, $m
  6,332
  13,042
  22,112
  34,056
  49,373
  68,542
  92,005
  120,149
  153,292
  191,678
  235,476
  284,784
  339,633
  400,001
  465,822
  536,999
  613,416
  694,950
  781,481
  872,898
  969,110
  1,070,047
  1,175,669
  1,285,962
  1,400,947
  1,520,675
  1,645,232
  1,774,734
  1,909,330
  2,049,199
  2,194,549
Total liabilities, $m
  13,668
  20,378
  29,448
  41,392
  56,709
  75,878
  99,341
  127,485
  160,628
  199,014
  242,812
  292,120
  346,969
  407,337
  473,158
  544,335
  620,752
  702,286
  788,817
  880,234
  976,446
  1,077,383
  1,183,005
  1,293,298
  1,408,283
  1,528,011
  1,652,568
  1,782,070
  1,916,666
  2,056,535
  2,201,885
Total equity, $m
  11,590
  11,713
  16,927
  23,792
  32,596
  43,615
  57,102
  73,279
  92,329
  114,394
  139,569
  167,912
  199,439
  234,139
  271,973
  312,885
  356,810
  403,676
  453,415
  505,961
  561,264
  619,283
  679,995
  743,392
  809,485
  878,306
  949,901
  1,024,340
  1,101,706
  1,182,103
  1,265,651
Total liabilities and equity, $m
  25,258
  32,091
  46,375
  65,184
  89,305
  119,493
  156,443
  200,764
  252,957
  313,408
  382,381
  460,032
  546,408
  641,476
  745,131
  857,220
  977,562
  1,105,962
  1,242,232
  1,386,195
  1,537,710
  1,696,666
  1,863,000
  2,036,690
  2,217,768
  2,406,317
  2,602,469
  2,806,410
  3,018,372
  3,238,638
  3,467,536
Debt-to-equity ratio
  0.546
  1.110
  1.310
  1.430
  1.510
  1.570
  1.610
  1.640
  1.660
  1.680
  1.690
  1.700
  1.700
  1.710
  1.710
  1.720
  1.720
  1.720
  1.720
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
Adjusted equity ratio
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -545
  1,430
  1,974
  2,686
  3,590
  4,712
  6,075
  7,698
  9,595
  11,780
  14,257
  17,049
  20,120
  23,485
  27,140
  31,078
  35,293
  39,779
  44,528
  49,535
  54,796
  60,308
  66,068
  72,078
  78,339
  84,855
  91,631
  98,673
  105,992
  113,597
  121,500
Depreciation, amort., depletion, $m
  1,498
  2,229
  3,210
  4,502
  6,159
  8,233
  10,771
  13,816
  17,401
  21,554
  26,292
  31,602
  37,536
  44,067
  51,187
  58,888
  67,155
  75,975
  85,336
  95,226
  105,634
  116,554
  127,980
  139,912
  152,352
  165,304
  178,779
  192,789
  207,350
  222,481
  238,205
Funds from operations, $m
  299
  3,658
  5,184
  7,188
  9,749
  12,945
  16,846
  21,513
  26,997
  33,334
  40,549
  48,651
  57,656
  67,552
  78,327
  89,965
  102,448
  115,754
  129,864
  144,761
  160,430
  176,862
  194,049
  211,990
  230,691
  250,159
  270,410
  291,462
  313,342
  336,078
  359,705
Change in working capital, $m
  -562
  214
  290
  381
  489
  612
  749
  898
  1,058
  1,225
  1,398
  1,574
  1,751
  1,927
  2,101
  2,272
  2,439
  2,602
  2,762
  2,918
  3,071
  3,222
  3,371
  3,520
  3,670
  3,822
  3,976
  4,133
  4,296
  4,464
  4,639
Cash from operations, $m
  861
  3,445
  4,895
  6,807
  9,260
  12,333
  16,097
  20,615
  25,939
  32,108
  39,151
  47,077
  55,905
  65,625
  76,226
  87,694
  100,009
  113,151
  127,102
  141,843
  157,359
  173,640
  190,677
  208,470
  227,021
  246,337
  266,434
  287,329
  309,046
  331,614
  355,066
Maintenance CAPEX, $m
  0
  -1,481
  -2,205
  -3,186
  -4,478
  -6,135
  -8,209
  -10,747
  -13,792
  -17,377
  -21,530
  -26,268
  -31,602
  -37,536
  -44,067
  -51,187
  -58,888
  -67,155
  -75,975
  -85,336
  -95,226
  -105,634
  -116,554
  -127,980
  -139,912
  -152,352
  -165,304
  -178,779
  -192,789
  -207,350
  -222,481
New CAPEX, $m
  -1,034
  -8,251
  -11,186
  -14,730
  -18,890
  -23,641
  -28,937
  -34,709
  -40,874
  -47,341
  -54,016
  -60,810
  -67,645
  -74,451
  -81,175
  -87,781
  -94,244
  -100,555
  -106,717
  -112,743
  -118,656
  -124,484
  -130,261
  -136,022
  -141,809
  -147,659
  -153,614
  -159,712
  -165,994
  -172,497
  -179,258
Cash from investing activities, $m
  -1,079
  -9,732
  -13,391
  -17,916
  -23,368
  -29,776
  -37,146
  -45,456
  -54,666
  -64,718
  -75,546
  -87,078
  -99,247
  -111,987
  -125,242
  -138,968
  -153,132
  -167,710
  -182,692
  -198,079
  -213,882
  -230,118
  -246,815
  -264,002
  -281,721
  -300,011
  -318,918
  -338,491
  -358,783
  -379,847
  -401,739
Free cash flow, $m
  -218
  -6,287
  -8,496
  -11,110
  -14,107
  -17,443
  -21,048
  -24,841
  -28,727
  -32,610
  -36,394
  -40,001
  -43,342
  -46,362
  -49,016
  -51,275
  -53,123
  -54,558
  -55,590
  -56,236
  -56,523
  -56,479
  -56,137
  -55,533
  -54,700
  -53,673
  -52,484
  -51,163
  -49,737
  -48,233
  -46,673
Issuance/(repayment) of debt, $m
  0
  6,710
  9,070
  11,944
  15,316
  19,169
  23,463
  28,144
  33,143
  38,386
  43,798
  49,308
  54,849
  60,368
  65,821
  71,177
  76,417
  81,534
  86,531
  91,417
  96,212
  100,937
  105,621
  110,293
  114,985
  119,729
  124,557
  129,502
  134,596
  139,869
  145,351
Issuance/(repurchase) of shares, $m
  0
  2,414
  3,239
  4,180
  5,214
  6,306
  7,412
  8,479
  9,455
  10,285
  10,919
  11,293
  11,408
  11,215
  10,694
  9,835
  8,632
  7,088
  5,210
  3,012
  507
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -2
  9,124
  12,309
  16,124
  20,530
  25,475
  30,875
  36,623
  42,598
  48,671
  54,717
  60,601
  66,257
  71,583
  76,515
  81,012
  85,049
  88,622
  91,741
  94,429
  96,719
  100,937
  105,621
  110,293
  114,985
  119,729
  124,557
  129,502
  134,596
  139,869
  145,351
Total cash flow (excl. dividends), $m
  -219
  2,836
  3,814
  5,014
  6,423
  8,033
  9,827
  11,782
  13,871
  16,061
  18,323
  20,600
  22,915
  25,221
  27,499
  29,737
  31,926
  34,064
  36,151
  38,193
  40,196
  44,459
  49,484
  54,760
  60,285
  66,056
  72,073
  78,340
  84,858
  91,635
  98,678
Retained Cash Flow (-), $m
  801
  -3,843
  -5,214
  -6,865
  -8,804
  -11,019
  -13,487
  -16,177
  -19,050
  -22,064
  -25,175
  -28,342
  -31,528
  -34,700
  -37,834
  -40,913
  -43,925
  -46,866
  -49,738
  -52,547
  -55,303
  -58,019
  -60,711
  -63,397
  -66,094
  -68,820
  -71,596
  -74,438
  -77,366
  -80,397
  -83,548
Prev. year cash balance distribution, $m
 
  3,720
  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
 
  2,713
  -1,400
  -1,851
  -2,381
  -2,986
  -3,660
  -4,395
  -5,180
  -6,003
  -6,853
  -7,742
  -8,612
  -9,479
  -10,335
  -11,176
  -11,999
  -12,802
  -13,587
  -14,354
  -15,107
  -13,560
  -11,227
  -8,637
  -5,809
  -2,765
  477
  3,901
  7,492
  11,238
  15,130
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  2,601
  -1,282
  -1,611
  -1,960
  -2,314
  -2,656
  -2,969
  -3,237
  -3,448
  -3,593
  -3,677
  -3,675
  -3,604
  -3,470
  -3,281
  -3,049
  -2,786
  -2,502
  -2,210
  -1,920
  -1,403
  -932
  -566
  -296
  -108
  14
  84
  116
  123
  114
Current shareholders' claim on cash, %
  100
  81.2
  67.2
  56.6
  48.6
  42.4
  37.6
  33.8
  30.8
  28.4
  26.5
  24.9
  23.7
  22.8
  22.0
  21.4
  21.0
  20.7
  20.5
  20.4
  20.4
  20.4
  20.4
  20.4
  20.4
  20.4
  20.4
  20.4
  20.4
  20.4
  20.4

Cenovus Energy Inc is a Canada-based integrated oil company. It operates in the business of developing, producing and marketing crude oil, Natural Gas Liquids (NGLs) and natural gas in Canada. The Company also conducts marketing activities and owns refining interests in the United States (U.S.). Its segments include: Oil Sands, which includes the development and production of bitumen and natural gas in northeast Alberta; Conventional, which includes the development and production of conventional crude oil, NGLs and natural gas in Alberta and Saskatchewan, including the heavy oil assets at Pelican Lake, the carbon dioxide (CO2) enhanced oil recovery (EOR) project at Weyburn and emerging tight oil opportunities; Refining and Marketing, which includes transporting and selling crude oil and natural gas and joint ownership of refineries in the U.S., as well as Corporate and Eliminations.

FINANCIAL RATIOS  of  Cenovus Energy Inc. (CVE)

Valuation Ratios
P/E Ratio -19.1
Price to Sales 0.9
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 12.1
Price to Free Cash Flow -60.2
Growth Rates
Sales Growth Rate -7.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -39.7%
Cap. Spend. - 3 Yr. Gr. Rate -20.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 54.6%
Total Debt to Equity 54.6%
Interest Coverage 0
Management Effectiveness
Return On Assets -2.1%
Ret/ On Assets - 3 Yr. Avg. 1.1%
Return On Total Capital -3%
Ret/ On T. Cap. - 3 Yr. Avg. 1.8%
Return On Equity -4.5%
Return On Equity - 3 Yr. Avg. 2.8%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 42.4%
Gross Margin - 3 Yr. Avg. 43.3%
EBITDA Margin 4.7%
EBITDA Margin - 3 Yr. Avg. 13.7%
Operating Margin -2.8%
Oper. Margin - 3 Yr. Avg. 5.1%
Pre-Tax Margin -7.6%
Pre-Tax Margin - 3 Yr. Avg. 0.9%
Net Profit Margin -4.5%
Net Profit Margin - 3 Yr. Avg. 1.3%
Effective Tax Rate 41.2%
Eff/ Tax Rate - 3 Yr. Avg. 21.3%
Payout Ratio -30.5%

CVE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CVE stock intrinsic value calculation we used $12134 million for the last fiscal year's total revenue generated by Cenovus Energy Inc.. The default revenue input number comes from 2016 income statement of Cenovus Energy Inc.. 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 CVE stock valuation model: a) initial revenue growth rate of 48.9% 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 4.3%, whose default value for CVE is calculated based on our internal credit rating of Cenovus Energy Inc., 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 Cenovus Energy Inc..
    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 CVE stock the variable cost ratio is equal to 88%.

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 CVE 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 3.5% for Cenovus Energy Inc..

Corporate tax rate of 27% is the nominal tax rate for Cenovus Energy Inc.. 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 CVE 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 CVE are equal to 139.1%.

Life of production assets of 11.4 years is the average useful life of capital assets used in Cenovus Energy Inc. 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 CVE is equal to 3.6%. 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 - $11590 million for Cenovus Energy Inc. - 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 1228.44 million for Cenovus Energy Inc. 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 Cenovus Energy Inc. at the current share price and the inputted number of shares is $15.3 billion.

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Financial statements of CVE
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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