Intrinsic value of Cenovus Energy Inc. - CVE

Previous Close

$12.69

  Intrinsic Value

$2.31

stock screener

  Rating & Target

str. sell

-82%

  Value-price divergence*

0%

Previous close

$12.69

 
Intrinsic value

$2.31

 
Up/down potential

-82%

 
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 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 15.6

 

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, %
  -7.12
  47.00
  42.80
  39.02
  35.62
  32.56
  29.80
  27.32
  25.09
  23.08
  21.27
  19.64
  18.18
  16.86
  15.68
  14.61
  13.65
  12.78
  12.00
  11.30
  10.67
  10.11
  9.60
  9.14
  8.72
  8.35
  8.02
  7.71
  7.44
  7.20
  6.98
Revenue, $m
  12,134
  17,837
  25,471
  35,410
  48,022
  63,657
  82,627
  105,201
  131,594
  161,966
  196,418
  235,004
  277,727
  324,558
  375,435
  430,280
  489,002
  551,509
  617,715
  687,541
  760,926
  837,827
  918,222
  1,002,111
  1,089,519
  1,180,496
  1,275,115
  1,373,473
  1,475,691
  1,581,912
  1,692,302
Variable operating expenses, $m
 
  15,685
  22,388
  31,114
  42,188
  55,915
  72,571
  92,391
  115,565
  142,231
  172,481
  206,335
  243,846
  284,964
  329,634
  377,788
  429,346
  484,228
  542,357
  603,665
  668,098
  735,617
  806,204
  879,859
  956,604
  1,036,482
  1,119,558
  1,205,917
  1,295,665
  1,388,928
  1,485,851
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
  15,685
  22,388
  31,114
  42,188
  55,915
  72,571
  92,391
  115,565
  142,231
  172,481
  206,335
  243,846
  284,964
  329,634
  377,788
  429,346
  484,228
  542,357
  603,665
  668,098
  735,617
  806,204
  879,859
  956,604
  1,036,482
  1,119,558
  1,205,917
  1,295,665
  1,388,928
  1,485,851
Operating income, $m
  -342
  2,152
  3,083
  4,296
  5,834
  7,742
  10,056
  12,810
  16,030
  19,735
  23,938
  28,669
  33,881
  39,594
  45,801
  52,492
  59,655
  67,281
  75,358
  83,876
  92,829
  102,210
  112,018
  122,252
  132,915
  144,014
  155,557
  167,556
  180,026
  192,984
  206,451
EBITDA, $m
  1,156
  4,352
  6,215
  8,640
  11,718
  15,533
  20,162
  25,670
  32,111
  39,522
  47,928
  57,344
  67,769
  79,196
  91,611
  104,993
  119,322
  134,575
  150,730
  167,768
  185,675
  204,440
  224,057
  244,527
  265,856
  288,055
  311,143
  335,144
  360,086
  386,005
  412,942
Interest expense (income), $m
  0
  222
  447
  749
  1,141
  1,639
  2,256
  3,005
  3,896
  4,938
  6,137
  7,497
  9,020
  10,707
  12,555
  14,564
  16,729
  19,047
  21,515
  24,128
  26,885
  29,782
  32,817
  35,991
  39,303
  42,753
  46,345
  50,080
  53,962
  57,998
  62,191
Earnings before tax, $m
  -927
  1,930
  2,636
  3,547
  4,693
  6,103
  7,800
  9,805
  12,133
  14,797
  17,801
  21,172
  24,861
  28,887
  33,245
  37,928
  42,927
  48,234
  53,843
  59,748
  65,944
  72,429
  79,201
  86,261
  93,613
  101,261
  109,212
  117,476
  126,064
  134,987
  144,261
Tax expense, $m
  -382
  521
  712
  958
  1,267
  1,648
  2,106
  2,647
  3,276
  3,995
  4,806
  5,716
  6,712
  7,800
  8,976
  10,241
  11,590
  13,023
  14,538
  16,132
  17,805
  19,556
  21,384
  23,290
  25,275
  27,340
  29,487
  31,719
  34,037
  36,446
  38,950
Net income, $m
  -545
  1,409
  1,924
  2,589
  3,426
  4,455
  5,694
  7,157
  8,857
  10,802
  12,995
  15,456
  18,148
  21,088
  24,269
  27,687
  31,336
  35,211
  39,305
  43,616
  48,139
  52,873
  57,816
  62,970
  68,337
  73,920
  79,725
  85,758
  92,026
  98,540
  105,310

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
  31,682
  45,242
  62,895
  85,297
  113,067
  146,762
  186,858
  233,737
  287,683
  348,878
  417,413
  493,299
  576,480
  666,848
  764,262
  868,565
  979,590
  1,097,185
  1,221,210
  1,351,557
  1,488,148
  1,630,945
  1,779,948
  1,935,203
  2,096,796
  2,264,858
  2,439,562
  2,621,121
  2,809,791
  3,005,865
Adjusted assets (=assets-cash), $m
  21,538
  31,682
  45,242
  62,895
  85,297
  113,067
  146,762
  186,858
  233,737
  287,683
  348,878
  417,413
  493,299
  576,480
  666,848
  764,262
  868,565
  979,590
  1,097,185
  1,221,210
  1,351,557
  1,488,148
  1,630,945
  1,779,948
  1,935,203
  2,096,796
  2,264,858
  2,439,562
  2,621,121
  2,809,791
  3,005,865
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
  24,811
  35,430
  49,255
  66,799
  88,546
  114,934
  146,334
  183,047
  225,294
  273,218
  326,890
  386,319
  451,460
  522,230
  598,519
  680,202
  767,150
  859,241
  956,370
  1,058,449
  1,165,418
  1,277,247
  1,393,936
  1,515,522
  1,642,071
  1,773,685
  1,910,501
  2,052,686
  2,200,440
  2,353,992
Working capital, $m
  4,151
  642
  917
  1,275
  1,729
  2,292
  2,975
  3,787
  4,737
  5,831
  7,071
  8,460
  9,998
  11,684
  13,516
  15,490
  17,604
  19,854
  22,238
  24,751
  27,393
  30,162
  33,056
  36,076
  39,223
  42,498
  45,904
  49,445
  53,125
  56,949
  60,923
Total debt, $m
  6,332
  12,782
  21,393
  32,603
  46,828
  64,462
  85,858
  111,319
  141,087
  175,343
  214,202
  257,721
  305,909
  358,729
  416,112
  477,971
  544,202
  614,704
  689,376
  768,132
  850,903
  937,638
  1,028,314
  1,122,931
  1,221,518
  1,324,130
  1,430,849
  1,541,786
  1,657,076
  1,776,881
  1,901,388
Total liabilities, $m
  13,668
  20,118
  28,729
  39,939
  54,164
  71,798
  93,194
  118,655
  148,423
  182,679
  221,538
  265,057
  313,245
  366,065
  423,448
  485,307
  551,538
  622,040
  696,712
  775,468
  858,239
  944,974
  1,035,650
  1,130,267
  1,228,854
  1,331,466
  1,438,185
  1,549,122
  1,664,412
  1,784,217
  1,908,724
Total equity, $m
  11,590
  11,564
  16,513
  22,957
  31,134
  41,269
  53,568
  68,203
  85,314
  105,004
  127,340
  152,356
  180,054
  210,415
  243,399
  278,956
  317,026
  357,550
  400,472
  445,742
  493,318
  543,174
  595,295
  649,681
  706,349
  765,331
  826,673
  890,440
  956,709
  1,025,574
  1,097,141
Total liabilities and equity, $m
  25,258
  31,682
  45,242
  62,896
  85,298
  113,067
  146,762
  186,858
  233,737
  287,683
  348,878
  417,413
  493,299
  576,480
  666,847
  764,263
  868,564
  979,590
  1,097,184
  1,221,210
  1,351,557
  1,488,148
  1,630,945
  1,779,948
  1,935,203
  2,096,797
  2,264,858
  2,439,562
  2,621,121
  2,809,791
  3,005,865
Debt-to-equity ratio
  0.546
  1.110
  1.300
  1.420
  1.500
  1.560
  1.600
  1.630
  1.650
  1.670
  1.680
  1.690
  1.700
  1.700
  1.710
  1.710
  1.720
  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
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
  1,409
  1,924
  2,589
  3,426
  4,455
  5,694
  7,157
  8,857
  10,802
  12,995
  15,456
  18,148
  21,088
  24,269
  27,687
  31,336
  35,211
  39,305
  43,616
  48,139
  52,873
  57,816
  62,970
  68,337
  73,920
  79,725
  85,758
  92,026
  98,540
  105,310
Depreciation, amort., depletion, $m
  1,498
  2,201
  3,132
  4,345
  5,884
  7,791
  10,106
  12,861
  16,081
  19,787
  23,991
  28,675
  33,888
  39,602
  45,810
  52,502
  59,667
  67,294
  75,372
  83,892
  92,846
  102,230
  112,039
  122,275
  132,940
  144,041
  155,586
  167,588
  180,060
  193,021
  206,491
Funds from operations, $m
  299
  3,610
  5,056
  6,934
  9,310
  12,246
  15,800
  20,018
  24,938
  30,588
  36,985
  44,130
  52,036
  60,690
  70,079
  80,189
  91,003
  102,505
  114,678
  127,508
  140,986
  155,103
  169,856
  185,246
  201,278
  217,962
  235,311
  253,346
  272,087
  291,561
  311,801
Change in working capital, $m
  -562
  205
  275
  358
  454
  563
  683
  813
  950
  1,093
  1,240
  1,389
  1,538
  1,686
  1,832
  1,974
  2,114
  2,250
  2,383
  2,514
  2,642
  2,768
  2,894
  3,020
  3,147
  3,275
  3,406
  3,541
  3,680
  3,824
  3,974
Cash from operations, $m
  861
  3,404
  4,781
  6,576
  8,856
  11,683
  15,117
  19,205
  23,988
  29,495
  35,745
  42,741
  50,498
  59,004
  68,247
  78,215
  88,889
  100,254
  112,294
  124,994
  138,344
  152,334
  166,961
  182,226
  198,131
  214,686
  231,905
  249,805
  268,407
  287,737
  307,827
Maintenance CAPEX, $m
  0
  -1,481
  -2,176
  -3,108
  -4,321
  -5,860
  -7,767
  -10,082
  -12,836
  -16,057
  -19,763
  -23,966
  -28,675
  -33,888
  -39,602
  -45,810
  -52,502
  -59,667
  -67,294
  -75,372
  -83,892
  -92,846
  -102,230
  -112,039
  -122,275
  -132,940
  -144,041
  -155,586
  -167,588
  -180,060
  -193,021
New CAPEX, $m
  -1,034
  -7,931
  -10,619
  -13,825
  -17,544
  -21,747
  -26,387
  -31,401
  -36,713
  -42,247
  -47,924
  -53,672
  -59,429
  -65,141
  -70,770
  -76,289
  -81,682
  -86,948
  -92,092
  -97,128
  -102,079
  -106,969
  -111,829
  -116,690
  -121,585
  -126,549
  -131,615
  -136,816
  -142,185
  -147,754
  -153,552
Cash from investing activities, $m
  -1,079
  -9,412
  -12,795
  -16,933
  -21,865
  -27,607
  -34,154
  -41,483
  -49,549
  -58,304
  -67,687
  -77,638
  -88,104
  -99,029
  -110,372
  -122,099
  -134,184
  -146,615
  -159,386
  -172,500
  -185,971
  -199,815
  -214,059
  -228,729
  -243,860
  -259,489
  -275,656
  -292,402
  -309,773
  -327,814
  -346,573
Free cash flow, $m
  -218
  -6,007
  -8,014
  -10,357
  -13,009
  -15,923
  -19,038
  -22,277
  -25,561
  -28,808
  -31,942
  -34,898
  -37,605
  -40,025
  -42,125
  -43,884
  -45,295
  -46,360
  -47,092
  -47,506
  -47,627
  -47,481
  -47,097
  -46,503
  -45,729
  -44,803
  -43,751
  -42,598
  -41,366
  -40,076
  -38,747
Issuance/(repayment) of debt, $m
  0
  6,450
  8,611
  11,210
  14,225
  17,634
  21,396
  25,461
  29,769
  34,256
  38,859
  43,520
  48,188
  52,820
  57,384
  61,858
  66,232
  70,501
  74,672
  78,756
  82,770
  86,735
  90,676
  94,617
  98,587
  102,612
  106,719
  110,937
  115,290
  119,805
  124,507
Issuance/(repurchase) of shares, $m
  0
  2,285
  3,025
  3,854
  4,751
  5,681
  6,605
  7,478
  8,254
  8,889
  9,342
  9,560
  9,550
  9,273
  8,715
  7,869
  6,734
  5,314
  3,616
  1,653
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -2
  8,735
  11,636
  15,064
  18,976
  23,315
  28,001
  32,939
  38,023
  43,145
  48,201
  53,080
  57,738
  62,093
  66,099
  69,727
  72,966
  75,815
  78,288
  80,409
  82,770
  86,735
  90,676
  94,617
  98,587
  102,612
  106,719
  110,937
  115,290
  119,805
  124,507
Total cash flow (excl. dividends), $m
  -219
  2,728
  3,622
  4,708
  5,967
  7,391
  8,963
  10,661
  12,461
  14,336
  16,259
  18,182
  20,132
  22,067
  23,974
  25,844
  27,671
  29,455
  31,197
  32,903
  35,143
  39,254
  43,579
  48,114
  52,858
  57,809
  62,968
  68,339
  73,924
  79,729
  85,761
Retained Cash Flow (-), $m
  801
  -3,694
  -4,949
  -6,443
  -8,177
  -10,136
  -12,299
  -14,635
  -17,111
  -19,690
  -22,336
  -25,015
  -27,698
  -30,361
  -32,984
  -35,556
  -38,070
  -40,524
  -42,922
  -45,269
  -47,577
  -49,856
  -52,121
  -54,386
  -56,668
  -58,982
  -61,343
  -63,767
  -66,269
  -68,864
  -71,567
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
 
  2,754
  -1,328
  -1,736
  -2,209
  -2,745
  -3,335
  -3,974
  -4,650
  -5,354
  -6,077
  -6,833
  -7,566
  -8,294
  -9,010
  -9,713
  -10,399
  -11,070
  -11,725
  -12,366
  -12,434
  -10,602
  -8,542
  -6,272
  -3,810
  -1,173
  1,626
  4,572
  7,655
  10,864
  14,193
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
 
  2,640
  -1,216
  -1,511
  -1,819
  -2,127
  -2,421
  -2,684
  -2,906
  -3,076
  -3,186
  -3,245
  -3,229
  -3,153
  -3,025
  -2,852
  -2,643
  -2,409
  -2,159
  -1,904
  -1,580
  -1,097
  -709
  -411
  -194
  -46
  47
  98
  118
  119
  107
Current shareholders' claim on cash, %
  100
  82.2
  68.9
  58.7
  50.8
  44.8
  40.0
  36.3
  33.3
  30.9
  29.0
  27.4
  26.2
  25.2
  24.5
  23.9
  23.5
  23.2
  23.0
  23.0
  23.0
  23.0
  23.0
  23.0
  23.0
  23.0
  23.0
  23.0
  23.0
  23.0
  23.0

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 -19.4
Price to Sales 0.9
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 12.3
Price to Free Cash Flow -61.1
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 47% 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 1228.45 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 $15.6 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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