Intrinsic value of Emera Incorporated - EMA

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$47.25

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$47.25

 
Intrinsic value

$525.37

 
Up/down potential

+999%

 
Rating

str. buy

 
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 EMA 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 10.0

 

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, %
  53.35
  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
  4,277
  6,843
  10,573
  15,812
  22,942
  32,367
  44,498
  59,729
  78,428
  100,918
  127,468
  158,286
  193,519
  233,256
  277,529
  326,324
  379,594
  437,260
  499,230
  565,404
  635,682
  709,973
  788,198
  870,299
  956,237
  1,046,001
  1,139,601
  1,237,078
  1,338,497
  1,443,949
  1,553,553
Variable operating expenses, $m
 
  5,225
  7,734
  11,258
  16,055
  22,396
  30,557
  40,803
  53,383
  68,512
  86,373
  106,484
  130,187
  156,919
  186,703
  219,530
  255,366
  294,160
  335,850
  380,367
  427,646
  477,623
  530,248
  585,480
  643,294
  703,681
  766,649
  832,225
  900,453
  971,395
  1,045,129
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
  3,722
  5,225
  7,734
  11,258
  16,055
  22,396
  30,557
  40,803
  53,383
  68,512
  86,373
  106,484
  130,187
  156,919
  186,703
  219,530
  255,366
  294,160
  335,850
  380,367
  427,646
  477,623
  530,248
  585,480
  643,294
  703,681
  766,649
  832,225
  900,453
  971,395
  1,045,129
Operating income, $m
  555
  1,618
  2,839
  4,553
  6,887
  9,971
  13,941
  18,926
  25,046
  32,406
  41,094
  51,801
  63,332
  76,337
  90,826
  106,795
  124,228
  143,100
  163,381
  185,037
  208,037
  232,350
  257,950
  284,819
  312,943
  342,320
  372,952
  404,853
  438,044
  472,555
  508,424
EBITDA, $m
  1,148
  2,985
  4,612
  6,897
  10,007
  14,119
  19,410
  26,054
  34,211
  44,021
  55,602
  69,045
  84,414
  101,748
  121,060
  142,345
  165,581
  190,736
  217,768
  246,633
  277,289
  309,695
  343,817
  379,630
  417,117
  456,272
  497,102
  539,622
  583,861
  629,860
  677,670
Interest expense (income), $m
  480
  720
  1,347
  2,255
  3,531
  5,268
  7,564
  10,519
  14,229
  18,783
  24,261
  30,728
  38,235
  46,817
  56,495
  67,279
  79,164
  92,139
  106,186
  121,280
  137,398
  154,516
  172,611
  191,665
  211,663
  232,595
  254,459
  277,258
  301,001
  325,704
  351,389
Earnings before tax, $m
  244
  899
  1,492
  2,298
  3,355
  4,703
  6,377
  8,407
  10,817
  13,622
  16,833
  21,073
  25,098
  29,520
  34,330
  39,516
  45,063
  50,961
  57,195
  63,757
  70,639
  77,833
  85,339
  93,154
  101,281
  109,725
  118,493
  127,595
  137,043
  146,851
  157,035
Tax expense, $m
  -22
  243
  403
  620
  906
  1,270
  1,722
  2,270
  2,921
  3,678
  4,545
  5,690
  6,776
  7,970
  9,269
  10,669
  12,167
  13,759
  15,443
  17,214
  19,072
  21,015
  23,041
  25,151
  27,346
  29,626
  31,993
  34,451
  37,002
  39,650
  42,399
Net income, $m
  255
  656
  1,089
  1,677
  2,449
  3,433
  4,655
  6,137
  7,896
  9,944
  12,288
  15,384
  18,321
  21,550
  25,061
  28,846
  32,896
  37,201
  41,753
  46,543
  51,566
  56,818
  62,297
  68,002
  73,935
  80,099
  86,500
  93,144
  100,041
  107,201
  114,636

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  404
  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
  29,221
  46,238
  71,437
  106,835
  155,012
  218,699
  300,661
  403,575
  529,920
  681,878
  861,267
  1,069,498
  1,307,564
  1,576,054
  1,875,194
  2,204,895
  2,564,822
  2,954,460
  3,373,179
  3,820,301
  4,295,152
  4,797,114
  5,325,662
  5,880,396
  6,461,063
  7,067,573
  7,700,010
  8,358,638
  9,043,898
  9,756,414
  10,496,981
Adjusted assets (=assets-cash), $m
  28,817
  46,238
  71,437
  106,835
  155,012
  218,699
  300,661
  403,575
  529,920
  681,878
  861,267
  1,069,498
  1,307,564
  1,576,054
  1,875,194
  2,204,895
  2,564,822
  2,954,460
  3,373,179
  3,820,301
  4,295,152
  4,797,114
  5,325,662
  5,880,396
  6,461,063
  7,067,573
  7,700,010
  8,358,638
  9,043,898
  9,756,414
  10,496,981
Revenue / Adjusted assets
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
  0.148
Average production assets, $m
  11,880
  19,010
  29,371
  43,924
  63,732
  89,917
  123,615
  165,927
  217,873
  280,350
  354,105
  439,718
  537,597
  647,985
  770,975
  906,529
  1,054,511
  1,214,708
  1,386,862
  1,570,694
  1,765,926
  1,972,305
  2,189,614
  2,417,690
  2,656,427
  2,905,790
  3,165,813
  3,436,604
  3,718,345
  4,011,291
  4,315,771
Working capital, $m
  -1,213
  -287
  -444
  -664
  -964
  -1,359
  -1,869
  -2,509
  -3,294
  -4,239
  -5,354
  -6,648
  -8,128
  -9,797
  -11,656
  -13,706
  -15,943
  -18,365
  -20,968
  -23,747
  -26,699
  -29,819
  -33,104
  -36,553
  -40,162
  -43,932
  -47,863
  -51,957
  -56,217
  -60,646
  -65,249
Total debt, $m
  15,713
  28,660
  47,989
  75,138
  112,090
  160,938
  223,803
  302,738
  399,644
  516,196
  653,788
  813,501
  996,098
  1,202,030
  1,431,469
  1,684,350
  1,960,414
  2,259,266
  2,580,424
  2,923,367
  3,287,578
  3,672,583
  4,077,979
  4,503,460
  4,948,831
  5,414,024
  5,899,104
  6,404,271
  6,929,866
  7,476,366
  8,044,381
Total liabilities, $m
  22,517
  35,464
  54,793
  81,942
  118,894
  167,742
  230,607
  309,542
  406,448
  523,000
  660,592
  820,305
  1,002,902
  1,208,834
  1,438,273
  1,691,154
  1,967,218
  2,266,070
  2,587,228
  2,930,171
  3,294,382
  3,679,387
  4,084,783
  4,510,264
  4,955,635
  5,420,828
  5,905,908
  6,411,075
  6,936,670
  7,483,170
  8,051,185
Total equity, $m
  6,704
  10,773
  16,645
  24,892
  36,118
  50,957
  70,054
  94,033
  123,471
  158,878
  200,675
  249,193
  304,662
  367,221
  436,920
  513,740
  597,603
  688,389
  785,951
  890,130
  1,000,770
  1,117,728
  1,240,879
  1,370,132
  1,505,428
  1,646,744
  1,794,102
  1,947,563
  2,107,228
  2,273,244
  2,445,797
Total liabilities and equity, $m
  29,221
  46,237
  71,438
  106,834
  155,012
  218,699
  300,661
  403,575
  529,919
  681,878
  861,267
  1,069,498
  1,307,564
  1,576,055
  1,875,193
  2,204,894
  2,564,821
  2,954,459
  3,373,179
  3,820,301
  4,295,152
  4,797,115
  5,325,662
  5,880,396
  6,461,063
  7,067,572
  7,700,010
  8,358,638
  9,043,898
  9,756,414
  10,496,982
Debt-to-equity ratio
  2.344
  2.660
  2.880
  3.020
  3.100
  3.160
  3.190
  3.220
  3.240
  3.250
  3.260
  3.260
  3.270
  3.270
  3.280
  3.280
  3.280
  3.280
  3.280
  3.280
  3.290
  3.290
  3.290
  3.290
  3.290
  3.290
  3.290
  3.290
  3.290
  3.290
  3.290
Adjusted equity ratio
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233
  0.233

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  255
  656
  1,089
  1,677
  2,449
  3,433
  4,655
  6,137
  7,896
  9,944
  12,288
  15,384
  18,321
  21,550
  25,061
  28,846
  32,896
  37,201
  41,753
  46,543
  51,566
  56,818
  62,297
  68,002
  73,935
  80,099
  86,500
  93,144
  100,041
  107,201
  114,636
Depreciation, amort., depletion, $m
  593
  1,367
  1,773
  2,344
  3,121
  4,147
  5,469
  7,128
  9,165
  11,615
  14,508
  17,244
  21,082
  25,411
  30,234
  35,550
  41,353
  47,636
  54,387
  61,596
  69,252
  77,345
  85,867
  94,811
  104,174
  113,953
  124,150
  134,769
  145,817
  157,306
  169,246
Funds from operations, $m
  1,187
  2,023
  2,862
  4,021
  5,570
  7,581
  10,124
  13,266
  17,062
  21,560
  26,796
  32,627
  39,404
  46,961
  55,295
  64,397
  74,250
  84,837
  96,139
  108,139
  120,818
  134,164
  148,164
  162,813
  178,109
  194,052
  210,649
  227,913
  245,859
  264,507
  283,881
Change in working capital, $m
  134
  -108
  -157
  -220
  -299
  -396
  -509
  -640
  -785
  -945
  -1,115
  -1,294
  -1,480
  -1,669
  -1,859
  -2,049
  -2,237
  -2,422
  -2,603
  -2,779
  -2,952
  -3,120
  -3,285
  -3,448
  -3,609
  -3,770
  -3,931
  -4,094
  -4,260
  -4,429
  -4,603
Cash from operations, $m
  1,053
  7,541
  3,019
  4,241
  5,869
  7,977
  10,634
  13,905
  17,847
  22,504
  27,911
  33,922
  40,883
  48,630
  57,155
  66,446
  76,487
  87,259
  98,742
  110,918
  123,770
  137,284
  151,450
  166,262
  181,718
  197,822
  214,581
  232,007
  250,118
  268,936
  288,485
Maintenance CAPEX, $m
  0
  -466
  -746
  -1,152
  -1,723
  -2,499
  -3,526
  -4,848
  -6,507
  -8,544
  -10,994
  -13,886
  -17,244
  -21,082
  -25,411
  -30,234
  -35,550
  -41,353
  -47,636
  -54,387
  -61,596
  -69,252
  -77,345
  -85,867
  -94,811
  -104,174
  -113,953
  -124,150
  -134,769
  -145,817
  -157,306
New CAPEX, $m
  -1,031
  -7,131
  -10,361
  -14,553
  -19,808
  -26,185
  -33,698
  -42,312
  -51,946
  -62,477
  -73,755
  -85,613
  -97,879
  -110,388
  -122,989
  -135,555
  -147,982
  -160,197
  -172,154
  -183,831
  -195,232
  -206,379
  -217,309
  -228,075
  -238,738
  -249,363
  -260,023
  -270,791
  -281,741
  -292,947
  -304,480
Cash from investing activities, $m
  -9,105
  -7,597
  -11,107
  -15,705
  -21,531
  -28,684
  -37,224
  -47,160
  -58,453
  -71,021
  -84,749
  -99,499
  -115,123
  -131,470
  -148,400
  -165,789
  -183,532
  -201,550
  -219,790
  -238,218
  -256,828
  -275,631
  -294,654
  -313,942
  -333,549
  -353,537
  -373,976
  -394,941
  -416,510
  -438,764
  -461,786
Free cash flow, $m
  -8,052
  -56
  -8,087
  -11,464
  -15,661
  -20,707
  -26,590
  -33,255
  -40,606
  -48,516
  -56,838
  -65,578
  -74,240
  -82,841
  -91,246
  -99,343
  -107,045
  -114,292
  -121,047
  -127,300
  -133,058
  -138,347
  -143,205
  -147,681
  -151,831
  -155,715
  -159,395
  -162,933
  -166,391
  -169,828
  -173,301
Issuance/(repayment) of debt, $m
  7,366
  13,351
  19,328
  27,150
  36,952
  48,848
  62,865
  78,935
  96,906
  116,552
  137,592
  159,713
  182,596
  205,932
  229,440
  252,881
  276,064
  298,852
  321,158
  342,942
  364,211
  385,005
  405,396
  425,481
  445,371
  465,193
  485,079
  505,167
  525,595
  546,499
  568,015
Issuance/(repurchase) of shares, $m
  354
  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 from financing (excl. dividends), $m  
  7,697
  13,351
  19,328
  27,150
  36,952
  48,848
  62,865
  78,935
  96,906
  116,552
  137,592
  159,713
  182,596
  205,932
  229,440
  252,881
  276,064
  298,852
  321,158
  342,942
  364,211
  385,005
  405,396
  425,481
  445,371
  465,193
  485,079
  505,167
  525,595
  546,499
  568,015
Total cash flow (excl. dividends), $m
  -420
  13,296
  11,241
  15,686
  21,291
  28,141
  36,274
  45,680
  56,300
  68,035
  80,754
  94,136
  108,357
  123,091
  138,194
  153,538
  169,019
  184,560
  200,110
  215,642
  231,153
  246,658
  262,192
  277,800
  293,540
  309,478
  325,685
  342,234
  359,204
  376,671
  394,715
Retained Cash Flow (-), $m
  -2,504
  -4,069
  -5,872
  -8,248
  -11,225
  -14,839
  -19,097
  -23,979
  -29,438
  -35,406
  -41,798
  -48,518
  -55,469
  -62,558
  -69,699
  -76,820
  -83,863
  -90,786
  -97,562
  -104,179
  -110,640
  -116,957
  -123,152
  -129,253
  -135,295
  -141,317
  -147,358
  -153,460
  -159,666
  -166,016
  -172,552
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
 
  9,226
  5,369
  7,438
  10,066
  13,302
  17,177
  21,701
  26,862
  32,629
  38,956
  45,618
  52,887
  60,533
  68,495
  76,717
  85,156
  93,775
  102,549
  111,463
  120,512
  129,701
  139,040
  148,547
  158,245
  168,161
  178,327
  188,774
  199,538
  210,655
  222,162
Discount rate, %
 
  11.10
  11.66
  12.24
  12.85
  13.49
  14.17
  14.88
  15.62
  16.40
  17.22
  18.08
  18.98
  19.93
  20.93
  21.98
  23.08
  24.23
  25.44
  26.71
  28.05
  29.45
  30.92
  32.47
  34.09
  35.80
  37.59
  39.47
  41.44
  43.51
  45.69
PV of cash for distribution, $m
 
  8,305
  4,307
  5,261
  6,206
  7,064
  7,757
  8,221
  8,412
  8,318
  7,954
  7,331
  6,568
  5,698
  4,788
  3,897
  3,072
  2,346
  1,734
  1,240
  858
  574
  370
  231
  139
  80
  44
  24
  12
  6
  3
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Emera Incorporated, an energy and services company, through its subsidiaries, engages in the generation, transmission, and distribution of electricity to various customers. The company is also involved in gas transmission and utility energy services businesses; and the provision of energy marketing, trading, and other energy-related management services. In addition, it transports re-gasified liquefied natural gas to consumers in the northeastern United States through its 145-kilometre pipeline in New Brunswick. The company serves approximately 506,000 customers in Nova Scotia; 158,000 customers in the state of Maine; and 126,000 customers in the island of Barbados. Emera Incorporated was founded in 1919 and is headquartered in Halifax, Canada.

FINANCIAL RATIOS  of  Emera Incorporated (EMA)

Valuation Ratios
P/E Ratio 38.9
Price to Sales 2.3
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 9.4
Price to Free Cash Flow 451.1
Growth Rates
Sales Growth Rate 53.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 141.5%
Cap. Spend. - 3 Yr. Gr. Rate 26.6%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 212.9%
Total Debt to Equity 234.4%
Interest Coverage 2
Management Effectiveness
Return On Assets 3.8%
Ret/ On Assets - 3 Yr. Avg. 5.1%
Return On Total Capital 1.6%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity 4.7%
Return On Equity - 3 Yr. Avg. 10.1%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 30.8%
EBITDA Margin - 3 Yr. Avg. 35.6%
Operating Margin 13%
Oper. Margin - 3 Yr. Avg. 17.9%
Pre-Tax Margin 5.7%
Pre-Tax Margin - 3 Yr. Avg. 14.8%
Net Profit Margin 6%
Net Profit Margin - 3 Yr. Avg. 12%
Effective Tax Rate -9%
Eff/ Tax Rate - 3 Yr. Avg. 9.3%
Payout Ratio 97.6%

EMA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EMA stock intrinsic value calculation we used $4277 million for the last fiscal year's total revenue generated by Emera Incorporated. The default revenue input number comes from 2016 income statement of Emera Incorporated. 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 EMA 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 11.1%, whose default value for EMA is calculated based on our internal credit rating of Emera Incorporated, 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 Emera Incorporated.
    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 EMA stock the variable cost ratio is equal to 81.8%.

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 EMA 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 4.7% for Emera Incorporated.

Corporate tax rate of 27% is the nominal tax rate for Emera Incorporated. 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 EMA 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 EMA are equal to 277.8%.

Life of production assets of 25.5 years is the average useful life of capital assets used in Emera Incorporated 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 EMA is equal to -4.2%. 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 - $6704 million for Emera Incorporated - 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 210.941 million for Emera Incorporated 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 Emera Incorporated at the current share price and the inputted number of shares is $10.0 billion.


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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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