Intrinsic value of Encana Corporation - ECA

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$14.68

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$14.68

 
Intrinsic value

$1.16

 
Up/down potential

-92%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of ECA 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 14.3

 

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, %
  -34.01
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  3,942
  4,021
  4,113
  4,219
  4,338
  4,469
  4,614
  4,771
  4,941
  5,124
  5,321
  5,531
  5,755
  5,994
  6,248
  6,518
  6,804
  7,106
  7,426
  7,764
  8,120
  8,497
  8,894
  9,312
  9,753
  10,217
  10,706
  11,221
  11,762
  12,332
  12,931
Variable operating expenses, $m
 
  9,767
  9,983
  10,230
  10,507
  10,814
  11,151
  11,518
  11,916
  12,344
  12,803
  12,919
  13,443
  14,001
  14,595
  15,224
  15,892
  16,598
  17,345
  18,134
  18,967
  19,846
  20,773
  21,751
  22,780
  23,865
  25,007
  26,208
  27,473
  28,804
  30,203
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
  6,405
  9,767
  9,983
  10,230
  10,507
  10,814
  11,151
  11,518
  11,916
  12,344
  12,803
  12,919
  13,443
  14,001
  14,595
  15,224
  15,892
  16,598
  17,345
  18,134
  18,967
  19,846
  20,773
  21,751
  22,780
  23,865
  25,007
  26,208
  27,473
  28,804
  30,203
Operating income, $m
  -2,463
  -5,746
  -5,870
  -6,011
  -6,170
  -6,345
  -6,538
  -6,748
  -6,975
  -7,220
  -7,482
  -7,388
  -7,688
  -8,007
  -8,346
  -8,706
  -9,088
  -9,492
  -9,919
  -10,370
  -10,847
  -11,349
  -11,880
  -12,439
  -13,027
  -13,648
  -14,301
  -14,988
  -15,711
  -16,472
  -17,272
EBITDA, $m
  -1,302
  -4,466
  -4,568
  -4,686
  -4,818
  -4,964
  -5,124
  -5,298
  -5,487
  -5,691
  -5,909
  -6,143
  -6,392
  -6,658
  -6,940
  -7,239
  -7,556
  -7,892
  -8,247
  -8,623
  -9,019
  -9,437
  -9,878
  -10,342
  -10,832
  -11,348
  -11,891
  -12,462
  -13,063
  -13,696
  -14,361
Interest expense (income), $m
  536
  553
  570
  590
  611
  636
  663
  693
  725
  760
  798
  839
  882
  928
  978
  1,030
  1,086
  1,144
  1,207
  1,273
  1,342
  1,416
  1,494
  1,576
  1,662
  1,753
  1,849
  1,949
  2,056
  2,167
  2,285
Earnings before tax, $m
  -2,189
  -6,300
  -6,440
  -6,601
  -6,781
  -6,981
  -7,201
  -7,441
  -7,700
  -7,980
  -8,280
  -8,226
  -8,570
  -8,935
  -9,324
  -9,736
  -10,173
  -10,636
  -11,126
  -11,643
  -12,189
  -12,765
  -13,373
  -14,014
  -14,689
  -15,400
  -16,149
  -16,937
  -17,767
  -18,639
  -19,557
Tax expense, $m
  -914
  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
Net income, $m
  -1,275
  -6,300
  -6,440
  -6,601
  -6,781
  -6,981
  -7,201
  -7,441
  -7,700
  -7,980
  -8,280
  -8,226
  -8,570
  -8,935
  -9,324
  -9,736
  -10,173
  -10,636
  -11,126
  -11,643
  -12,189
  -12,765
  -13,373
  -14,014
  -14,689
  -15,400
  -16,149
  -16,937
  -17,767
  -18,639
  -19,557

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,127
  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
  19,797
  19,056
  19,494
  19,995
  20,558
  21,181
  21,865
  22,610
  23,416
  24,284
  25,216
  26,213
  27,277
  28,410
  29,614
  30,891
  32,245
  33,678
  35,193
  36,794
  38,485
  40,269
  42,150
  44,133
  46,222
  48,423
  50,740
  53,178
  55,744
  58,444
  61,284
Adjusted assets (=assets-cash), $m
  18,670
  19,056
  19,494
  19,995
  20,558
  21,181
  21,865
  22,610
  23,416
  24,284
  25,216
  26,213
  27,277
  28,410
  29,614
  30,891
  32,245
  33,678
  35,193
  36,794
  38,485
  40,269
  42,150
  44,133
  46,222
  48,423
  50,740
  53,178
  55,744
  58,444
  61,284
Revenue / Adjusted assets
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
Average production assets, $m
  12,157
  12,400
  12,685
  13,011
  13,378
  13,783
  14,228
  14,713
  15,237
  15,802
  16,409
  17,057
  17,750
  18,487
  19,270
  20,101
  20,982
  21,915
  22,901
  23,943
  25,043
  26,204
  27,428
  28,718
  30,078
  31,510
  33,017
  34,604
  36,274
  38,031
  39,879
Working capital, $m
  488
  -571
  -584
  -599
  -616
  -635
  -655
  -677
  -702
  -728
  -756
  -785
  -817
  -851
  -887
  -926
  -966
  -1,009
  -1,054
  -1,102
  -1,153
  -1,207
  -1,263
  -1,322
  -1,385
  -1,451
  -1,520
  -1,593
  -1,670
  -1,751
  -1,836
Total debt, $m
  7,873
  8,034
  8,303
  8,610
  8,955
  9,337
  9,756
  10,213
  10,707
  11,239
  11,810
  12,422
  13,074
  13,768
  14,506
  15,289
  16,119
  16,997
  17,926
  18,908
  19,944
  21,038
  22,191
  23,407
  24,687
  26,036
  27,456
  28,951
  30,524
  32,179
  33,920
Total liabilities, $m
  11,521
  11,681
  11,950
  12,257
  12,602
  12,984
  13,403
  13,860
  14,354
  14,886
  15,457
  16,069
  16,721
  17,415
  18,153
  18,936
  19,766
  20,644
  21,573
  22,555
  23,591
  24,685
  25,838
  27,054
  28,334
  29,683
  31,103
  32,598
  34,171
  35,826
  37,567
Total equity, $m
  8,277
  7,375
  7,544
  7,738
  7,956
  8,197
  8,462
  8,750
  9,062
  9,398
  9,759
  10,144
  10,556
  10,995
  11,460
  11,955
  12,479
  13,033
  13,620
  14,239
  14,894
  15,584
  16,312
  17,079
  17,888
  18,740
  19,636
  20,580
  21,573
  22,618
  23,717
Total liabilities and equity, $m
  19,798
  19,056
  19,494
  19,995
  20,558
  21,181
  21,865
  22,610
  23,416
  24,284
  25,216
  26,213
  27,277
  28,410
  29,613
  30,891
  32,245
  33,677
  35,193
  36,794
  38,485
  40,269
  42,150
  44,133
  46,222
  48,423
  50,739
  53,178
  55,744
  58,444
  61,284
Debt-to-equity ratio
  0.951
  1.090
  1.100
  1.110
  1.130
  1.140
  1.150
  1.170
  1.180
  1.200
  1.210
  1.220
  1.240
  1.250
  1.270
  1.280
  1.290
  1.300
  1.320
  1.330
  1.340
  1.350
  1.360
  1.370
  1.380
  1.390
  1.400
  1.410
  1.410
  1.420
  1.430
Adjusted equity ratio
  0.383
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1,275
  -6,300
  -6,440
  -6,601
  -6,781
  -6,981
  -7,201
  -7,441
  -7,700
  -7,980
  -8,280
  -8,226
  -8,570
  -8,935
  -9,324
  -9,736
  -10,173
  -10,636
  -11,126
  -11,643
  -12,189
  -12,765
  -13,373
  -14,014
  -14,689
  -15,400
  -16,149
  -16,937
  -17,767
  -18,639
  -19,557
Depreciation, amort., depletion, $m
  1,161
  1,281
  1,301
  1,325
  1,352
  1,382
  1,414
  1,449
  1,488
  1,529
  1,573
  1,245
  1,296
  1,349
  1,407
  1,467
  1,532
  1,600
  1,672
  1,748
  1,828
  1,913
  2,002
  2,096
  2,195
  2,300
  2,410
  2,526
  2,648
  2,776
  2,911
Funds from operations, $m
  556
  -5,019
  -5,139
  -5,275
  -5,429
  -5,599
  -5,787
  -5,991
  -6,212
  -6,451
  -6,707
  -6,981
  -7,274
  -7,586
  -7,917
  -8,269
  -8,642
  -9,037
  -9,454
  -9,895
  -10,361
  -10,853
  -11,371
  -11,918
  -12,494
  -13,100
  -13,739
  -14,411
  -15,119
  -15,863
  -16,646
Change in working capital, $m
  -288
  -11
  -13
  -15
  -17
  -19
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -51
  -53
  -56
  -59
  -63
  -66
  -69
  -73
  -77
  -81
  -85
Cash from operations, $m
  844
  -6,169
  -5,126
  -5,260
  -5,412
  -5,581
  -5,766
  -5,969
  -6,188
  -6,425
  -6,679
  -6,952
  -7,242
  -7,552
  -7,881
  -8,231
  -8,601
  -8,994
  -9,409
  -9,847
  -10,310
  -10,799
  -11,315
  -11,858
  -12,431
  -13,034
  -13,670
  -14,338
  -15,042
  -15,782
  -16,561
Maintenance CAPEX, $m
  0
  -887
  -905
  -926
  -950
  -976
  -1,006
  -1,039
  -1,074
  -1,112
  -1,153
  -1,198
  -1,245
  -1,296
  -1,349
  -1,407
  -1,467
  -1,532
  -1,600
  -1,672
  -1,748
  -1,828
  -1,913
  -2,002
  -2,096
  -2,195
  -2,300
  -2,410
  -2,526
  -2,648
  -2,776
New CAPEX, $m
  -1,529
  -243
  -285
  -326
  -366
  -406
  -445
  -485
  -525
  -565
  -606
  -649
  -692
  -737
  -783
  -831
  -881
  -932
  -986
  -1,042
  -1,100
  -1,161
  -1,224
  -1,290
  -1,360
  -1,432
  -1,508
  -1,587
  -1,670
  -1,757
  -1,848
Cash from investing activities, $m
  -39
  -1,130
  -1,190
  -1,252
  -1,316
  -1,382
  -1,451
  -1,524
  -1,599
  -1,677
  -1,759
  -1,847
  -1,937
  -2,033
  -2,132
  -2,238
  -2,348
  -2,464
  -2,586
  -2,714
  -2,848
  -2,989
  -3,137
  -3,292
  -3,456
  -3,627
  -3,808
  -3,997
  -4,196
  -4,405
  -4,624
Free cash flow, $m
  805
  -7,299
  -6,316
  -6,512
  -6,728
  -6,963
  -7,217
  -7,492
  -7,787
  -8,102
  -8,439
  -8,798
  -9,180
  -9,585
  -10,014
  -10,469
  -10,949
  -11,458
  -11,994
  -12,561
  -13,158
  -13,788
  -14,452
  -15,151
  -15,887
  -16,662
  -17,477
  -18,335
  -19,238
  -20,187
  -21,185
Issuance/(repayment) of debt, $m
  -1,508
  241
  269
  307
  345
  382
  419
  456
  494
  532
  571
  611
  652
  694
  738
  783
  830
  878
  929
  982
  1,036
  1,094
  1,153
  1,216
  1,281
  1,349
  1,420
  1,495
  1,573
  1,655
  1,741
Issuance/(repurchase) of shares, $m
  1,525
  6,156
  6,217
  6,399
  6,601
  6,822
  7,063
  7,324
  7,605
  7,906
  8,229
  8,573
  8,939
  9,329
  9,742
  10,180
  10,644
  11,134
  11,652
  12,199
  12,776
  13,385
  14,027
  14,703
  15,415
  16,165
  16,954
  17,784
  18,658
  19,577
  20,543
Cash from financing (excl. dividends), $m  
  18
  6,397
  6,486
  6,706
  6,946
  7,204
  7,482
  7,780
  8,099
  8,438
  8,800
  9,184
  9,591
  10,023
  10,480
  10,963
  11,474
  12,012
  12,581
  13,181
  13,812
  14,479
  15,180
  15,919
  16,696
  17,514
  18,374
  19,279
  20,231
  21,232
  22,284
Total cash flow (excl. dividends), $m
  830
  -7,058
  -6,047
  -6,205
  -6,383
  -6,581
  -6,798
  -7,035
  -7,293
  -7,570
  -7,868
  -8,187
  -8,527
  -8,890
  -9,276
  -9,686
  -10,120
  -10,579
  -11,065
  -11,579
  -12,122
  -12,695
  -13,299
  -13,935
  -14,606
  -15,313
  -16,057
  -16,840
  -17,665
  -18,532
  -19,444
Retained Cash Flow (-), $m
  55
  -145
  -170
  -194
  -218
  -241
  -265
  -288
  -312
  -336
  -361
  -386
  -412
  -438
  -466
  -494
  -524
  -555
  -586
  -620
  -654
  -690
  -728
  -767
  -809
  -852
  -897
  -944
  -993
  -1,045
  -1,099
Prev. year cash balance distribution, $m
 
  1,047
  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
 
  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
Discount rate, %
 
  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
  15.05
  15.80
  16.59
  17.42
  18.29
  19.20
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.37
  29.79
  31.28
PV of cash for 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
Current shareholders' claim on cash, %
  100
  67.0
  45.0
  30.2
  20.2
  13.5
  9.0
  6.0
  4.0
  2.7
  1.8
  1.2
  0.8
  0.5
  0.3
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Encana Corporation, together with its subsidiaries, engages in the development, exploration, production, and marketing of natural gas, oil, and natural gas liquids in Canada and the United States. The company owns interests in plays, such as the Montney in northern British Columbia and northwest Alberta; Duvernay in west central Alberta; and other upstream operations, including Wheatland in southern Alberta, Deep Panuke located offshore Nova Scotia, and Horn River in northeast British Columbia. It also holds interests in plays that comprise the Eagle Ford in south Texas; Permian in west Texas; DJ Basin in northern Colorado; San Juan in northwest New Mexico; Piceance in northwest Colorado; and Tuscaloosa Marine Shale in east Louisiana and west Mississippi. Encana Corporation primarily markets its products to refiners, local distribution companies, energy marketing companies, and electronic exchanges. The company was founded in 1971 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Encana Corporation (ECA)

Valuation Ratios
P/E Ratio -11.2
Price to Sales 3.6
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 16.9
Price to Free Cash Flow -20.9
Growth Rates
Sales Growth Rate -34%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -49.3%
Cap. Spend. - 3 Yr. Gr. Rate -16%
Financial Strength
Quick Ratio 14
Current Ratio 0
LT Debt to Equity 94.2%
Total Debt to Equity 95.1%
Interest Coverage -3
Management Effectiveness
Return On Assets -4.7%
Ret/ On Assets - 3 Yr. Avg. -3.4%
Return On Total Capital -8%
Ret/ On T. Cap. - 3 Yr. Avg. -7.1%
Return On Equity -15.4%
Return On Equity - 3 Yr. Avg. -11.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 56%
Gross Margin - 3 Yr. Avg. 67.8%
EBITDA Margin -12.5%
EBITDA Margin - 3 Yr. Avg. -19.6%
Operating Margin -62.5%
Oper. Margin - 3 Yr. Avg. -59.1%
Pre-Tax Margin -55.5%
Pre-Tax Margin - 3 Yr. Avg. -59.7%
Net Profit Margin -32.3%
Net Profit Margin - 3 Yr. Avg. -35.6%
Effective Tax Rate 41.8%
Eff/ Tax Rate - 3 Yr. Avg. 34.4%
Payout Ratio -5.4%

ECA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ECA stock intrinsic value calculation we used $3942 million for the last fiscal year's total revenue generated by Encana Corporation. The default revenue input number comes from 2016 income statement of Encana Corporation. 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 ECA stock valuation model: a) initial revenue growth rate of 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 7.6%, whose default value for ECA is calculated based on our internal credit rating of Encana Corporation, 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 Encana Corporation.
    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 ECA stock the variable cost ratio is equal to 243.1%.

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 ECA 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 7.1% for Encana Corporation.

Corporate tax rate of 27% is the nominal tax rate for Encana Corporation. 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 ECA 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 ECA are equal to 308.4%.

Life of production assets of 13.7 years is the average useful life of capital assets used in Encana Corporation 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 ECA is equal to -14.2%. 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 - $8277 million for Encana Corporation - 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 975.016 million for Encana Corporation 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 Encana Corporation at the current share price and the inputted number of shares is $14.3 billion.


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Stock chart of ECA Financial statements of ECA
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