Intrinsic value of EnerCare Inc. - ECI

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$18.80

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$18.80

 
Intrinsic value

$22.39

 
Up/down potential

+19%

 
Rating

hold

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

We calculate the intrinsic value of ECI 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 2.0

 

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, %
  76.60
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  996
  1,594
  2,462
  3,682
  5,343
  7,538
  10,362
  13,909
  18,264
  23,501
  29,684
  36,861
  45,066
  54,319
  64,629
  75,992
  88,397
  101,826
  116,258
  131,668
  148,034
  165,334
  183,550
  202,669
  222,682
  243,586
  265,383
  288,083
  311,700
  336,258
  361,781
Variable operating expenses, $m
 
  1,379
  2,110
  3,137
  4,534
  6,381
  8,759
  11,744
  15,408
  19,816
  25,019
  31,020
  37,925
  45,712
  54,388
  63,951
  74,390
  85,692
  97,836
  110,804
  124,577
  139,136
  154,466
  170,556
  187,397
  204,989
  223,332
  242,435
  262,310
  282,976
  304,456
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
  908
  1,379
  2,110
  3,137
  4,534
  6,381
  8,759
  11,744
  15,408
  19,816
  25,019
  31,020
  37,925
  45,712
  54,388
  63,951
  74,390
  85,692
  97,836
  110,804
  124,577
  139,136
  154,466
  170,556
  187,397
  204,989
  223,332
  242,435
  262,310
  282,976
  304,456
Operating income, $m
  88
  214
  352
  545
  808
  1,156
  1,604
  2,166
  2,856
  3,686
  4,665
  5,841
  7,141
  8,607
  10,241
  12,041
  14,007
  16,135
  18,421
  20,863
  23,456
  26,198
  29,084
  32,114
  35,285
  38,597
  42,051
  45,648
  49,390
  53,281
  57,326
EBITDA, $m
  233
  442
  684
  1,022
  1,483
  2,093
  2,877
  3,862
  5,071
  6,526
  8,242
  10,235
  12,513
  15,083
  17,946
  21,101
  24,545
  28,274
  32,281
  36,560
  41,104
  45,908
  50,966
  56,275
  61,832
  67,636
  73,689
  79,992
  86,550
  93,368
  100,456
Interest expense (income), $m
  37
  41
  75
  124
  193
  287
  411
  570
  771
  1,017
  1,314
  1,663
  2,069
  2,533
  3,057
  3,640
  4,282
  4,984
  5,743
  6,560
  7,431
  8,357
  9,335
  10,366
  11,447
  12,579
  13,761
  14,994
  16,278
  17,613
  19,002
Earnings before tax, $m
  86
  173
  277
  421
  616
  869
  1,193
  1,595
  2,085
  2,668
  3,352
  4,177
  5,072
  6,074
  7,184
  8,402
  9,725
  11,151
  12,678
  14,304
  16,025
  17,841
  19,749
  21,748
  23,838
  26,018
  28,290
  30,654
  33,113
  35,668
  38,323
Tax expense, $m
  25
  47
  75
  114
  166
  235
  322
  431
  563
  720
  905
  1,128
  1,369
  1,640
  1,940
  2,268
  2,626
  3,011
  3,423
  3,862
  4,327
  4,817
  5,332
  5,872
  6,436
  7,025
  7,638
  8,277
  8,940
  9,630
  10,347
Net income, $m
  61
  127
  202
  308
  449
  635
  871
  1,164
  1,522
  1,948
  2,447
  3,050
  3,702
  4,434
  5,244
  6,133
  7,099
  8,140
  9,255
  10,442
  11,698
  13,024
  14,417
  15,876
  17,402
  18,993
  20,652
  22,377
  24,172
  26,038
  27,976

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  48
  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
  1,973
  3,082
  4,762
  7,122
  10,334
  14,579
  20,043
  26,904
  35,327
  45,457
  57,415
  71,297
  87,167
  105,066
  125,008
  146,987
  170,981
  196,956
  224,870
  254,676
  286,332
  319,795
  355,030
  392,011
  430,720
  471,153
  513,313
  557,220
  602,902
  650,401
  699,771
Adjusted assets (=assets-cash), $m
  1,925
  3,082
  4,762
  7,122
  10,334
  14,579
  20,043
  26,904
  35,327
  45,457
  57,415
  71,297
  87,167
  105,066
  125,008
  146,987
  170,981
  196,956
  224,870
  254,676
  286,332
  319,795
  355,030
  392,011
  430,720
  471,153
  513,313
  557,220
  602,902
  650,401
  699,771
Revenue / Adjusted assets
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
Average production assets, $m
  1,212
  1,938
  2,994
  4,477
  6,497
  9,166
  12,601
  16,914
  22,209
  28,577
  36,096
  44,822
  54,800
  66,052
  78,589
  92,407
  107,491
  123,821
  141,369
  160,108
  180,009
  201,046
  223,197
  246,446
  270,782
  296,200
  322,706
  350,309
  379,028
  408,889
  439,926
Working capital, $m
  -285
  -110
  -170
  -254
  -369
  -520
  -715
  -960
  -1,260
  -1,622
  -2,048
  -2,543
  -3,110
  -3,748
  -4,459
  -5,243
  -6,099
  -7,026
  -8,022
  -9,085
  -10,214
  -11,408
  -12,665
  -13,984
  -15,365
  -16,807
  -18,311
  -19,878
  -21,507
  -23,202
  -24,963
Total debt, $m
  995
  1,734
  2,876
  4,481
  6,665
  9,552
  13,267
  17,933
  23,660
  30,549
  38,681
  48,120
  58,912
  71,083
  84,643
  99,589
  115,905
  133,568
  152,549
  172,818
  194,344
  217,098
  241,058
  266,205
  292,528
  320,022
  348,691
  378,548
  409,612
  441,911
  475,482
Total liabilities, $m
  1,356
  2,096
  3,238
  4,843
  7,027
  9,914
  13,629
  18,295
  24,022
  30,911
  39,043
  48,482
  59,274
  71,445
  85,005
  99,951
  116,267
  133,930
  152,911
  173,180
  194,706
  217,460
  241,420
  266,567
  292,890
  320,384
  349,053
  378,910
  409,974
  442,273
  475,844
Total equity, $m
  616
  986
  1,524
  2,279
  3,307
  4,665
  6,414
  8,609
  11,304
  14,546
  18,373
  22,815
  27,894
  33,621
  40,003
  47,036
  54,714
  63,026
  71,958
  81,496
  91,626
  102,334
  113,610
  125,443
  137,830
  150,769
  164,260
  178,310
  192,929
  208,128
  223,927
Total liabilities and equity, $m
  1,972
  3,082
  4,762
  7,122
  10,334
  14,579
  20,043
  26,904
  35,326
  45,457
  57,416
  71,297
  87,168
  105,066
  125,008
  146,987
  170,981
  196,956
  224,869
  254,676
  286,332
  319,794
  355,030
  392,010
  430,720
  471,153
  513,313
  557,220
  602,903
  650,401
  699,771
Debt-to-equity ratio
  1.615
  1.760
  1.890
  1.970
  2.020
  2.050
  2.070
  2.080
  2.090
  2.100
  2.110
  2.110
  2.110
  2.110
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
  2.120
Adjusted equity ratio
  0.296
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  61
  127
  202
  308
  449
  635
  871
  1,164
  1,522
  1,948
  2,447
  3,050
  3,702
  4,434
  5,244
  6,133
  7,099
  8,140
  9,255
  10,442
  11,698
  13,024
  14,417
  15,876
  17,402
  18,993
  20,652
  22,377
  24,172
  26,038
  27,976
Depreciation, amort., depletion, $m
  145
  228
  332
  477
  675
  937
  1,274
  1,697
  2,216
  2,840
  3,577
  4,394
  5,373
  6,476
  7,705
  9,059
  10,538
  12,139
  13,860
  15,697
  17,648
  19,710
  21,882
  24,161
  26,547
  29,039
  31,638
  34,344
  37,160
  40,087
  43,130
Funds from operations, $m
  147
  355
  534
  785
  1,125
  1,572
  2,144
  2,861
  3,737
  4,788
  6,024
  7,444
  9,075
  10,910
  12,949
  15,193
  17,637
  20,279
  23,115
  26,139
  29,346
  32,734
  36,299
  40,038
  43,949
  48,033
  52,290
  56,721
  61,332
  66,125
  71,106
Change in working capital, $m
  -18
  -41
  -60
  -84
  -115
  -151
  -195
  -245
  -300
  -361
  -427
  -495
  -566
  -638
  -711
  -784
  -856
  -927
  -996
  -1,063
  -1,129
  -1,194
  -1,257
  -1,319
  -1,381
  -1,442
  -1,504
  -1,566
  -1,630
  -1,694
  -1,761
Cash from operations, $m
  165
  539
  594
  869
  1,239
  1,723
  2,339
  3,106
  4,038
  5,149
  6,450
  7,939
  9,641
  11,548
  13,661
  15,977
  18,493
  21,206
  24,110
  27,202
  30,476
  33,928
  37,556
  41,357
  45,330
  49,475
  53,794
  58,288
  62,961
  67,819
  72,867
Maintenance CAPEX, $m
  0
  -119
  -190
  -294
  -439
  -637
  -899
  -1,235
  -1,658
  -2,177
  -2,802
  -3,539
  -4,394
  -5,373
  -6,476
  -7,705
  -9,059
  -10,538
  -12,139
  -13,860
  -15,697
  -17,648
  -19,710
  -21,882
  -24,161
  -26,547
  -29,039
  -31,638
  -34,344
  -37,160
  -40,087
New CAPEX, $m
  -154
  -726
  -1,056
  -1,483
  -2,019
  -2,669
  -3,435
  -4,313
  -5,295
  -6,369
  -7,518
  -8,727
  -9,977
  -11,252
  -12,537
  -13,818
  -15,084
  -16,330
  -17,548
  -18,739
  -19,901
  -21,037
  -22,151
  -23,249
  -24,336
  -25,419
  -26,505
  -27,603
  -28,719
  -29,861
  -31,037
Cash from investing activities, $m
  -518
  -845
  -1,246
  -1,777
  -2,458
  -3,306
  -4,334
  -5,548
  -6,953
  -8,546
  -10,320
  -12,266
  -14,371
  -16,625
  -19,013
  -21,523
  -24,143
  -26,868
  -29,687
  -32,599
  -35,598
  -38,685
  -41,861
  -45,131
  -48,497
  -51,966
  -55,544
  -59,241
  -63,063
  -67,021
  -71,124
Free cash flow, $m
  -353
  -306
  -652
  -908
  -1,219
  -1,583
  -1,994
  -2,443
  -2,915
  -3,397
  -3,869
  -4,327
  -4,731
  -5,077
  -5,352
  -5,546
  -5,651
  -5,662
  -5,577
  -5,397
  -5,122
  -4,757
  -4,306
  -3,774
  -3,167
  -2,491
  -1,751
  -953
  -102
  798
  1,743
Issuance/(repayment) of debt, $m
  216
  787
  1,142
  1,605
  2,184
  2,887
  3,715
  4,665
  5,727
  6,888
  8,132
  9,439
  10,792
  12,171
  13,560
  14,946
  16,316
  17,663
  18,981
  20,269
  21,526
  22,755
  23,960
  25,147
  26,322
  27,494
  28,669
  29,857
  31,064
  32,299
  33,571
Issuance/(repurchase) of shares, $m
  230
  0
  47
  58
  63
  55
  27
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  447
  787
  1,189
  1,663
  2,247
  2,942
  3,742
  4,665
  5,727
  6,888
  8,132
  9,439
  10,792
  12,171
  13,560
  14,946
  16,316
  17,663
  18,981
  20,269
  21,526
  22,755
  23,960
  25,147
  26,322
  27,494
  28,669
  29,857
  31,064
  32,299
  33,571
Total cash flow (excl. dividends), $m
  95
  481
  490
  697
  965
  1,304
  1,721
  2,223
  2,812
  3,492
  4,262
  5,113
  6,061
  7,094
  8,208
  9,400
  10,665
  12,001
  13,404
  14,872
  16,404
  17,998
  19,654
  21,373
  23,155
  25,003
  26,918
  28,904
  30,962
  33,098
  35,314
Retained Cash Flow (-), $m
  -226
  -370
  -538
  -755
  -1,028
  -1,359
  -1,748
  -2,195
  -2,695
  -3,242
  -3,827
  -4,442
  -5,079
  -5,728
  -6,381
  -7,033
  -7,678
  -8,312
  -8,932
  -9,538
  -10,130
  -10,708
  -11,275
  -11,834
  -12,387
  -12,938
  -13,491
  -14,050
  -14,618
  -15,200
  -15,798
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  110
  0
  0
  0
  0
  0
  27
  117
  250
  436
  671
  983
  1,367
  1,827
  2,367
  2,987
  3,689
  4,472
  5,334
  6,274
  7,290
  8,379
  9,539
  10,768
  12,065
  13,427
  14,853
  16,344
  17,898
  19,516
Discount rate, %
 
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
  21.18
  22.24
  23.35
  24.52
  25.74
  27.03
  28.38
  29.80
  31.29
  32.85
  34.50
  36.22
PV of cash for distribution, $m
 
  101
  0
  0
  0
  0
  0
  12
  46
  83
  121
  154
  183
  203
  213
  213
  203
  186
  164
  139
  113
  89
  67
  49
  35
  23
  15
  10
  6
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  98.5
  97.4
  96.5
  96.0
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8
  95.8

Enercare Inc., through its subsidiaries, provides home and commercial services, and energy solutions in Ontario. The company's Home Services segment provides a portfolio of rental water heaters, HVAC, and other assets, as well as contracted protection plans; and other chargeable service offerings primarily to residential customers. It also engages in the sale and installation of residential furnaces, boilers, air conditioners, and other equipment. Enercare's Submetering segment provides equipment and services to allow submetering and remote measurement of electricity and water consumption in individual units in condominiums, apartment building, and commercial properties. It also designs and manufactures energy management meters for multi-unit residential, commercial, and institutional applications; and offers chargeable services, such as on demand repairs and maintenance, and duct cleaning, as well as royalties on the services performed by third party franchisees. Enercare Inc. was founded in 2002 and is headquartered in Toronto, Canada.

FINANCIAL RATIOS  of  EnerCare Inc. (ECI)

Valuation Ratios
P/E Ratio 32.4
Price to Sales 2
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 12
Price to Free Cash Flow 179.6
Growth Rates
Sales Growth Rate 76.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.9%
Cap. Spend. - 3 Yr. Gr. Rate 14.3%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 118.7%
Total Debt to Equity 161.5%
Interest Coverage 3
Management Effectiveness
Return On Assets 5.2%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 4.4%
Ret/ On T. Cap. - 3 Yr. Avg. 3.8%
Return On Equity 12.1%
Return On Equity - 3 Yr. Avg. 10.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 53.8%
Gross Margin - 3 Yr. Avg. 62.3%
EBITDA Margin 26.9%
EBITDA Margin - 3 Yr. Avg. 37.2%
Operating Margin 8.8%
Oper. Margin - 3 Yr. Avg. 9.9%
Pre-Tax Margin 8.6%
Pre-Tax Margin - 3 Yr. Avg. 9.9%
Net Profit Margin 6.1%
Net Profit Margin - 3 Yr. Avg. 7.1%
Effective Tax Rate 29.1%
Eff/ Tax Rate - 3 Yr. Avg. 28.8%
Payout Ratio 139.3%

ECI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ECI stock intrinsic value calculation we used $996 million for the last fiscal year's total revenue generated by EnerCare Inc.. The default revenue input number comes from 2016 income statement of EnerCare 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 ECI stock valuation model: a) initial revenue growth rate of 60% 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 8.8%, whose default value for ECI is calculated based on our internal credit rating of EnerCare 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 EnerCare 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 ECI 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 ECI 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 4.3% for EnerCare Inc..

Corporate tax rate of 27% is the nominal tax rate for EnerCare 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 ECI 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 ECI are equal to 121.6%.

Life of production assets of 10.2 years is the average useful life of capital assets used in EnerCare 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 ECI is equal to -6.9%. 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 - $616 million for EnerCare 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 104.422 million for EnerCare 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 EnerCare Inc. at the current share price and the inputted number of shares is $2.0 billion.


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Stock chart of ECI Financial statements of ECI
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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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