Intrinsic value of Enerflex Ltd. - EFX

Previous Close

$18.41

  Intrinsic Value

$428.05

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

0%

Previous close

$18.41

 
Intrinsic value

$428.05

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

0%

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

We calculate the intrinsic value of EFX 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 1.6

 

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, %
  -30.57
  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
  1,131
  1,810
  2,796
  4,181
  6,067
  8,559
  11,767
  15,795
  20,739
  26,686
  33,707
  41,857
  51,174
  61,682
  73,389
  86,292
  100,379
  115,628
  132,015
  149,514
  168,098
  187,744
  208,429
  230,140
  252,865
  276,602
  301,354
  327,130
  353,949
  381,835
  410,818
Variable operating expenses, $m
 
  1,120
  1,700
  2,513
  3,621
  5,085
  6,969
  9,335
  12,240
  15,734
  19,858
  24,588
  30,061
  36,233
  43,111
  50,690
  58,965
  67,923
  77,549
  87,828
  98,745
  110,285
  122,437
  135,190
  148,539
  162,483
  177,023
  192,165
  207,919
  224,299
  241,325
Fixed operating expenses, $m
 
  530
  543
  557
  571
  585
  600
  615
  630
  646
  662
  678
  695
  713
  731
  749
  767
  787
  806
  827
  847
  868
  890
  912
  935
  958
  982
  1,007
  1,032
  1,058
  1,084
Total operating expenses, $m
  1,226
  1,650
  2,243
  3,070
  4,192
  5,670
  7,569
  9,950
  12,870
  16,380
  20,520
  25,266
  30,756
  36,946
  43,842
  51,439
  59,732
  68,710
  78,355
  88,655
  99,592
  111,153
  123,327
  136,102
  149,474
  163,441
  178,005
  193,172
  208,951
  225,357
  242,409
Operating income, $m
  -95
  159
  553
  1,111
  1,875
  2,889
  4,198
  5,845
  7,869
  10,307
  13,188
  16,591
  20,418
  24,736
  29,548
  34,853
  40,646
  46,919
  53,660
  60,859
  68,506
  76,590
  85,103
  94,038
  103,391
  113,161
  123,348
  133,959
  144,998
  156,477
  168,409
EBITDA, $m
  159
  406
  903
  1,606
  2,568
  3,843
  5,488
  7,557
  10,100
  13,161
  16,777
  20,977
  25,781
  31,200
  37,239
  43,897
  51,166
  59,036
  67,495
  76,528
  86,123
  96,265
  106,946
  118,156
  129,891
  142,148
  154,930
  168,242
  182,092
  196,494
  211,462
Interest expense (income), $m
  14
  14
  30
  53
  86
  131
  190
  266
  361
  479
  620
  786
  979
  1,200
  1,449
  1,727
  2,032
  2,366
  2,728
  3,116
  3,531
  3,972
  4,437
  4,928
  5,442
  5,981
  6,544
  7,130
  7,741
  8,377
  9,038
Earnings before tax, $m
  -96
  146
  523
  1,058
  1,789
  2,758
  4,008
  5,579
  7,508
  9,829
  12,568
  15,805
  19,439
  23,536
  28,099
  33,127
  38,614
  44,552
  50,932
  57,743
  64,975
  72,618
  80,665
  89,110
  97,948
  107,180
  116,805
  126,828
  137,257
  148,100
  159,371
Tax expense, $m
  9
  39
  141
  286
  483
  745
  1,082
  1,506
  2,027
  2,654
  3,393
  4,267
  5,248
  6,355
  7,587
  8,944
  10,426
  12,029
  13,752
  15,591
  17,543
  19,607
  21,780
  24,060
  26,446
  28,938
  31,537
  34,244
  37,059
  39,987
  43,030
Net income, $m
  -105
  106
  382
  772
  1,306
  2,014
  2,926
  4,073
  5,481
  7,175
  9,175
  11,537
  14,190
  17,181
  20,512
  24,183
  28,188
  32,523
  37,180
  42,152
  47,432
  53,011
  58,886
  65,050
  71,502
  78,241
  85,267
  92,585
  100,197
  108,113
  116,340

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  168
  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
  1,882
  2,742
  4,236
  6,335
  9,192
  12,968
  17,829
  23,931
  31,423
  40,434
  51,072
  63,419
  77,536
  93,457
  111,196
  130,746
  152,089
  175,194
  200,023
  226,537
  254,695
  284,460
  315,802
  348,697
  383,129
  419,094
  456,596
  495,652
  536,286
  578,537
  622,452
Adjusted assets (=assets-cash), $m
  1,714
  2,742
  4,236
  6,335
  9,192
  12,968
  17,829
  23,931
  31,423
  40,434
  51,072
  63,419
  77,536
  93,457
  111,196
  130,746
  152,089
  175,194
  200,023
  226,537
  254,695
  284,460
  315,802
  348,697
  383,129
  419,094
  456,596
  495,652
  536,286
  578,537
  622,452
Revenue / Adjusted assets
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
Average production assets, $m
  593
  948
  1,465
  2,191
  3,179
  4,485
  6,166
  8,276
  10,867
  13,984
  17,663
  21,933
  26,815
  32,321
  38,456
  45,217
  52,599
  60,589
  69,176
  78,345
  88,084
  98,378
  109,217
  120,593
  132,501
  144,939
  157,909
  171,416
  185,469
  200,081
  215,269
Working capital, $m
  340
  275
  425
  636
  922
  1,301
  1,789
  2,401
  3,152
  4,056
  5,123
  6,362
  7,778
  9,376
  11,155
  13,116
  15,258
  17,575
  20,066
  22,726
  25,551
  28,537
  31,681
  34,981
  38,436
  42,044
  45,806
  49,724
  53,800
  58,039
  62,444
Total debt, $m
  394
  853
  1,521
  2,459
  3,736
  5,424
  7,596
  10,324
  13,673
  17,701
  22,456
  27,975
  34,286
  41,402
  49,331
  58,071
  67,611
  77,939
  89,037
  100,889
  113,475
  126,781
  140,790
  155,494
  170,886
  186,962
  203,726
  221,183
  239,347
  258,233
  277,863
Total liabilities, $m
  767
  1,226
  1,894
  2,832
  4,109
  5,797
  7,969
  10,697
  14,046
  18,074
  22,829
  28,348
  34,659
  41,775
  49,704
  58,444
  67,984
  78,312
  89,410
  101,262
  113,848
  127,154
  141,163
  155,867
  171,259
  187,335
  204,099
  221,556
  239,720
  258,606
  278,236
Total equity, $m
  1,115
  1,516
  2,343
  3,503
  5,083
  7,172
  9,859
  13,234
  17,377
  22,360
  28,243
  35,071
  42,877
  51,682
  61,491
  72,303
  84,105
  96,882
  110,613
  125,275
  140,846
  157,306
  174,638
  192,829
  211,870
  231,759
  252,498
  274,095
  296,566
  319,931
  344,216
Total liabilities and equity, $m
  1,882
  2,742
  4,237
  6,335
  9,192
  12,969
  17,828
  23,931
  31,423
  40,434
  51,072
  63,419
  77,536
  93,457
  111,195
  130,747
  152,089
  175,194
  200,023
  226,537
  254,694
  284,460
  315,801
  348,696
  383,129
  419,094
  456,597
  495,651
  536,286
  578,537
  622,452
Debt-to-equity ratio
  0.353
  0.560
  0.650
  0.700
  0.730
  0.760
  0.770
  0.780
  0.790
  0.790
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
Adjusted equity ratio
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -105
  106
  382
  772
  1,306
  2,014
  2,926
  4,073
  5,481
  7,175
  9,175
  11,537
  14,190
  17,181
  20,512
  24,183
  28,188
  32,523
  37,180
  42,152
  47,432
  53,011
  58,886
  65,050
  71,502
  78,241
  85,267
  92,585
  100,197
  108,113
  116,340
Depreciation, amort., depletion, $m
  254
  247
  350
  495
  693
  954
  1,290
  1,712
  2,231
  2,854
  3,590
  4,387
  5,363
  6,464
  7,691
  9,043
  10,520
  12,118
  13,835
  15,669
  17,617
  19,676
  21,843
  24,119
  26,500
  28,988
  31,582
  34,283
  37,094
  40,016
  43,054
Funds from operations, $m
  51
  353
  732
  1,268
  1,999
  2,968
  4,216
  5,785
  7,712
  10,029
  12,765
  15,924
  19,553
  23,645
  28,203
  33,226
  38,708
  44,641
  51,016
  57,821
  65,048
  72,687
  80,729
  89,169
  98,003
  107,229
  116,849
  126,868
  137,291
  148,129
  159,394
Change in working capital, $m
  -41
  103
  150
  211
  287
  379
  488
  612
  752
  904
  1,067
  1,239
  1,416
  1,597
  1,780
  1,961
  2,141
  2,318
  2,491
  2,660
  2,825
  2,986
  3,144
  3,300
  3,454
  3,608
  3,762
  3,918
  4,076
  4,239
  4,405
Cash from operations, $m
  92
  250
  582
  1,057
  1,712
  2,589
  3,729
  5,173
  6,960
  9,125
  11,697
  14,685
  18,137
  22,048
  26,424
  31,265
  36,567
  42,323
  48,525
  55,162
  62,224
  69,701
  77,585
  85,869
  94,548
  103,621
  113,087
  122,950
  133,215
  143,891
  154,989
Maintenance CAPEX, $m
  0
  -119
  -190
  -293
  -438
  -636
  -897
  -1,233
  -1,655
  -2,173
  -2,797
  -3,533
  -4,387
  -5,363
  -6,464
  -7,691
  -9,043
  -10,520
  -12,118
  -13,835
  -15,669
  -17,617
  -19,676
  -21,843
  -24,119
  -26,500
  -28,988
  -31,582
  -34,283
  -37,094
  -40,016
New CAPEX, $m
  -22
  -356
  -517
  -726
  -988
  -1,306
  -1,681
  -2,111
  -2,591
  -3,116
  -3,679
  -4,270
  -4,882
  -5,506
  -6,135
  -6,761
  -7,381
  -7,991
  -8,587
  -9,169
  -9,738
  -10,294
  -10,839
  -11,376
  -11,908
  -12,438
  -12,970
  -13,507
  -14,053
  -14,612
  -15,187
Cash from investing activities, $m
  19
  -475
  -707
  -1,019
  -1,426
  -1,942
  -2,578
  -3,344
  -4,246
  -5,289
  -6,476
  -7,803
  -9,269
  -10,869
  -12,599
  -14,452
  -16,424
  -18,511
  -20,705
  -23,004
  -25,407
  -27,911
  -30,515
  -33,219
  -36,027
  -38,938
  -41,958
  -45,089
  -48,336
  -51,706
  -55,203
Free cash flow, $m
  111
  -224
  -124
  38
  286
  647
  1,151
  1,829
  2,714
  3,835
  5,222
  6,882
  8,868
  11,179
  13,825
  16,812
  20,142
  23,813
  27,820
  32,157
  36,816
  41,790
  47,070
  52,649
  58,522
  64,683
  71,129
  77,861
  84,879
  92,185
  99,785
Issuance/(repayment) of debt, $m
  -186
  459
  668
  938
  1,277
  1,688
  2,173
  2,728
  3,349
  4,028
  4,755
  5,519
  6,310
  7,117
  7,929
  8,739
  9,540
  10,328
  11,099
  11,852
  12,587
  13,305
  14,010
  14,704
  15,391
  16,076
  16,764
  17,458
  18,164
  18,886
  19,630
Issuance/(repurchase) of shares, $m
  114
  463
  444
  388
  274
  75
  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 from financing (excl. dividends), $m  
  -73
  922
  1,112
  1,326
  1,551
  1,763
  2,173
  2,728
  3,349
  4,028
  4,755
  5,519
  6,310
  7,117
  7,929
  8,739
  9,540
  10,328
  11,099
  11,852
  12,587
  13,305
  14,010
  14,704
  15,391
  16,076
  16,764
  17,458
  18,164
  18,886
  19,630
Total cash flow (excl. dividends), $m
  36
  697
  988
  1,365
  1,837
  2,410
  3,323
  4,557
  6,063
  7,863
  9,977
  12,402
  15,178
  18,296
  21,754
  25,551
  29,682
  34,141
  38,919
  44,009
  49,403
  55,095
  61,080
  67,353
  73,913
  80,759
  87,893
  95,319
  103,042
  111,071
  119,415
Retained Cash Flow (-), $m
  39
  -569
  -826
  -1,161
  -1,580
  -2,088
  -2,688
  -3,375
  -4,143
  -4,983
  -5,883
  -6,828
  -7,807
  -8,804
  -9,809
  -10,812
  -11,803
  -12,777
  -13,731
  -14,662
  -15,571
  -16,460
  -17,332
  -18,191
  -19,041
  -19,889
  -20,739
  -21,598
  -22,471
  -23,365
  -24,285
Prev. year cash balance distribution, $m
 
  168
  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
 
  296
  162
  204
  257
  322
  636
  1,182
  1,920
  2,880
  4,094
  5,574
  7,372
  9,491
  11,945
  14,740
  17,880
  21,364
  25,188
  29,347
  33,832
  38,635
  43,748
  49,162
  54,872
  60,870
  67,154
  73,721
  80,571
  87,706
  95,130
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
 
  284
  148
  178
  212
  249
  461
  799
  1,200
  1,654
  2,146
  2,647
  3,146
  3,609
  4,010
  4,327
  4,544
  4,648
  4,639
  4,519
  4,299
  3,996
  3,630
  3,222
  2,795
  2,368
  1,959
  1,582
  1,247
  957
  716
Current shareholders' claim on cash, %
  100
  75.0
  62.4
  56.1
  53.2
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7
  52.7

Enerflex Ltd. is a Canada-based supplier of natural gas compression, oil and gas processing, refrigeration systems and electric power equipment. The Company's inā€house resources provide the capability to engineer, design, manufacture, construct, commission and service hydrocarbon handling systems. The Company operates through three segments: Canada, USA and Rest of World. The Canada segment is engaged in manufacturing (primarily compression equipment), service and rentals. The USA segment is engaged in the manufacture of natural gas compression equipment and process equipment. It also offers product support services and rentals. The Company Rest of World segment is engaged in manufacturing primarily process equipment, service and rentals. Its solutions include field production facilities, compression and natural gas processing plants, carbon dioxide processing plants, refrigeration systems, and electric power equipment serving the natural gas production industry.

FINANCIAL RATIOS  of  Enerflex Ltd. (EFX)

Valuation Ratios
P/E Ratio -15.5
Price to Sales 1.4
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 17.7
Price to Free Cash Flow 23.2
Growth Rates
Sales Growth Rate -30.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -87.8%
Cap. Spend. - 3 Yr. Gr. Rate -9.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 35.3%
Total Debt to Equity 35.3%
Interest Coverage -6
Management Effectiveness
Return On Assets -4.4%
Ret/ On Assets - 3 Yr. Avg. 0.8%
Return On Total Capital -6.5%
Ret/ On T. Cap. - 3 Yr. Avg. 0.6%
Return On Equity -9.3%
Return On Equity - 3 Yr. Avg. 0.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 21.6%
Gross Margin - 3 Yr. Avg. 20.3%
EBITDA Margin 15.2%
EBITDA Margin - 3 Yr. Avg. 13.3%
Operating Margin -8.4%
Oper. Margin - 3 Yr. Avg. 1.5%
Pre-Tax Margin -8.5%
Pre-Tax Margin - 3 Yr. Avg. 1.3%
Net Profit Margin -9.3%
Net Profit Margin - 3 Yr. Avg. -0.8%
Effective Tax Rate -9.4%
Eff/ Tax Rate - 3 Yr. Avg. 22.2%
Payout Ratio -25.7%

EFX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EFX stock intrinsic value calculation we used $1131 million for the last fiscal year's total revenue generated by Enerflex Ltd.. The default revenue input number comes from 2016 income statement of Enerflex Ltd.. 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 EFX 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 4.3%, whose default value for EFX is calculated based on our internal credit rating of Enerflex Ltd., 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 Enerflex Ltd..
    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 EFX stock the variable cost ratio is equal to 63.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $517 million in the base year in the intrinsic value calculation for EFX 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 Enerflex Ltd..

Corporate tax rate of 27% is the nominal tax rate for Enerflex Ltd.. 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 EFX 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 EFX are equal to 52.4%.

Life of production assets of 4.9 years is the average useful life of capital assets used in Enerflex Ltd. 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 EFX is equal to 15.2%. 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 - $1115 million for Enerflex Ltd. - 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 88.575 million for Enerflex Ltd. 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 Enerflex Ltd. at the current share price and the inputted number of shares is $1.6 billion.

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Financial statements of EFX
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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