Intrinsic value of Freehold Royalties Ltd. - FRU

Previous Close

$13.83

  Intrinsic Value

$1.92

stock screener

  Rating & Target

str. sell

-86%

  Value-price divergence*

-109%

Previous close

$13.83

 
Intrinsic value

$1.92

 
Up/down potential

-86%

 
Rating

str. sell

 
Value-price divergence*

-109%

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

We calculate the intrinsic value of FRU 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, %
  -3.01
  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
  129
  206
  319
  477
  692
  976
  1,342
  1,802
  2,365
  3,044
  3,845
  4,774
  5,837
  7,035
  8,371
  9,842
  11,449
  13,188
  15,057
  17,053
  19,173
  21,414
  23,773
  26,249
  28,841
  31,549
  34,372
  37,312
  40,371
  43,551
  46,857
Variable operating expenses, $m
 
  222
  344
  514
  746
  1,052
  1,447
  1,942
  2,550
  3,281
  4,144
  5,146
  6,292
  7,584
  9,024
  10,610
  12,342
  14,217
  16,232
  18,384
  20,669
  23,084
  25,627
  28,297
  31,091
  34,010
  37,053
  40,222
  43,520
  46,948
  50,512
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
  138
  222
  344
  514
  746
  1,052
  1,447
  1,942
  2,550
  3,281
  4,144
  5,146
  6,292
  7,584
  9,024
  10,610
  12,342
  14,217
  16,232
  18,384
  20,669
  23,084
  25,627
  28,297
  31,091
  34,010
  37,053
  40,222
  43,520
  46,948
  50,512
Operating income, $m
  -10
  -16
  -25
  -37
  -54
  -76
  -105
  -141
  -185
  -237
  -300
  -372
  -455
  -549
  -653
  -768
  -893
  -1,029
  -1,174
  -1,330
  -1,495
  -1,670
  -1,854
  -2,047
  -2,250
  -2,461
  -2,681
  -2,910
  -3,149
  -3,397
  -3,655
EBITDA, $m
  94
  149
  231
  345
  501
  707
  972
  1,304
  1,712
  2,203
  2,783
  3,456
  4,225
  5,093
  6,060
  7,125
  8,288
  9,547
  10,900
  12,345
  13,879
  15,501
  17,209
  19,002
  20,878
  22,838
  24,882
  27,010
  29,225
  31,527
  33,920
Interest expense (income), $m
  4
  3
  5
  9
  14
  22
  31
  43
  58
  77
  99
  126
  157
  192
  231
  276
  324
  377
  435
  497
  563
  633
  707
  785
  867
  953
  1,042
  1,136
  1,233
  1,334
  1,440
Earnings before tax, $m
  -14
  -19
  -30
  -46
  -68
  -98
  -136
  -184
  -243
  -314
  -399
  -498
  -612
  -741
  -884
  -1,043
  -1,217
  -1,406
  -1,610
  -1,827
  -2,058
  -2,303
  -2,561
  -2,833
  -3,117
  -3,414
  -3,723
  -4,046
  -4,382
  -4,731
  -5,094
Tax expense, $m
  -3
  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
  -11
  -19
  -30
  -46
  -68
  -98
  -136
  -184
  -243
  -314
  -399
  -498
  -612
  -741
  -884
  -1,043
  -1,217
  -1,406
  -1,610
  -1,827
  -2,058
  -2,303
  -2,561
  -2,833
  -3,117
  -3,414
  -3,723
  -4,046
  -4,382
  -4,731
  -5,094

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  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
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,007
  1,613
  2,491
  3,726
  5,406
  7,627
  10,485
  14,074
  18,480
  23,780
  30,036
  37,298
  45,600
  54,963
  65,396
  76,894
  89,446
  103,034
  117,636
  133,229
  149,789
  167,295
  185,727
  205,073
  225,323
  246,475
  268,530
  291,499
  315,397
  340,246
  366,072
Adjusted assets (=assets-cash), $m
  1,006
  1,613
  2,491
  3,726
  5,406
  7,627
  10,485
  14,074
  18,480
  23,780
  30,036
  37,298
  45,600
  54,963
  65,396
  76,894
  89,446
  103,034
  117,636
  133,229
  149,789
  167,295
  185,727
  205,073
  225,323
  246,475
  268,530
  291,499
  315,397
  340,246
  366,072
Revenue / Adjusted assets
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
  0.128
Average production assets, $m
  869
  1,390
  2,148
  3,212
  4,661
  6,576
  9,040
  12,135
  15,934
  20,503
  25,897
  32,158
  39,317
  47,390
  56,385
  66,298
  77,121
  88,837
  101,427
  114,871
  129,150
  144,243
  160,136
  176,816
  194,276
  212,513
  231,529
  251,333
  271,938
  293,362
  315,630
Working capital, $m
  11
  16
  25
  37
  54
  76
  105
  141
  185
  237
  300
  372
  455
  549
  653
  768
  893
  1,029
  1,174
  1,330
  1,495
  1,670
  1,854
  2,047
  2,250
  2,461
  2,681
  2,910
  3,149
  3,397
  3,655
Total debt, $m
  84
  157
  263
  413
  616
  885
  1,231
  1,665
  2,198
  2,839
  3,596
  4,475
  5,480
  6,613
  7,875
  9,266
  10,785
  12,429
  14,196
  16,083
  18,087
  20,205
  22,435
  24,776
  27,226
  29,785
  32,454
  35,233
  38,125
  41,132
  44,257
Total liabilities, $m
  123
  195
  301
  451
  654
  923
  1,269
  1,703
  2,236
  2,877
  3,634
  4,513
  5,518
  6,651
  7,913
  9,304
  10,823
  12,467
  14,234
  16,121
  18,125
  20,243
  22,473
  24,814
  27,264
  29,823
  32,492
  35,271
  38,163
  41,170
  44,295
Total equity, $m
  885
  1,417
  2,190
  3,275
  4,752
  6,704
  9,217
  12,371
  16,244
  20,902
  26,402
  32,785
  40,082
  48,313
  57,483
  67,589
  78,623
  90,567
  103,402
  117,109
  131,665
  147,052
  163,254
  180,259
  198,059
  216,651
  236,038
  256,228
  277,234
  299,076
  321,777
Total liabilities and equity, $m
  1,008
  1,612
  2,491
  3,726
  5,406
  7,627
  10,486
  14,074
  18,480
  23,779
  30,036
  37,298
  45,600
  54,964
  65,396
  76,893
  89,446
  103,034
  117,636
  133,230
  149,790
  167,295
  185,727
  205,073
  225,323
  246,474
  268,530
  291,499
  315,397
  340,246
  366,072
Debt-to-equity ratio
  0.095
  0.110
  0.120
  0.130
  0.130
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
Adjusted equity ratio
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879
  0.879

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -11
  -19
  -30
  -46
  -68
  -98
  -136
  -184
  -243
  -314
  -399
  -498
  -612
  -741
  -884
  -1,043
  -1,217
  -1,406
  -1,610
  -1,827
  -2,058
  -2,303
  -2,561
  -2,833
  -3,117
  -3,414
  -3,723
  -4,046
  -4,382
  -4,731
  -5,094
Depreciation, amort., depletion, $m
  104
  166
  256
  382
  555
  783
  1,076
  1,445
  1,897
  2,441
  3,083
  3,828
  4,681
  5,642
  6,712
  7,893
  9,181
  10,576
  12,075
  13,675
  15,375
  17,172
  19,064
  21,049
  23,128
  25,299
  27,563
  29,921
  32,374
  34,924
  37,575
Funds from operations, $m
  92
  146
  225
  336
  486
  685
  941
  1,261
  1,654
  2,126
  2,684
  3,330
  4,069
  4,901
  5,828
  6,849
  7,964
  9,170
  10,465
  11,848
  13,317
  14,868
  16,502
  18,217
  20,011
  21,885
  23,839
  25,874
  27,991
  30,193
  32,481
Change in working capital, $m
  -1
  6
  9
  12
  17
  22
  29
  36
  44
  53
  62
  73
  83
  93
  104
  115
  125
  136
  146
  156
  165
  175
  184
  193
  202
  211
  220
  229
  239
  248
  258
Cash from operations, $m
  93
  140
  217
  324
  470
  663
  912
  1,225
  1,610
  2,074
  2,621
  3,258
  3,986
  4,808
  5,724
  6,735
  7,838
  9,034
  10,319
  11,692
  13,151
  14,694
  16,318
  18,024
  19,809
  21,674
  23,619
  25,645
  27,753
  29,945
  32,223
Maintenance CAPEX, $m
  0
  -103
  -166
  -256
  -382
  -555
  -783
  -1,076
  -1,445
  -1,897
  -2,441
  -3,083
  -3,828
  -4,681
  -5,642
  -6,712
  -7,893
  -9,181
  -10,576
  -12,075
  -13,675
  -15,375
  -17,172
  -19,064
  -21,049
  -23,128
  -25,299
  -27,563
  -29,921
  -32,374
  -34,924
New CAPEX, $m
  -5
  -521
  -758
  -1,064
  -1,449
  -1,915
  -2,464
  -3,094
  -3,799
  -4,569
  -5,394
  -6,261
  -7,158
  -8,073
  -8,995
  -9,914
  -10,823
  -11,716
  -12,590
  -13,444
  -14,278
  -15,093
  -15,893
  -16,680
  -17,460
  -18,237
  -19,017
  -19,804
  -20,605
  -21,424
  -22,268
Cash from investing activities, $m
  -170
  -624
  -924
  -1,320
  -1,831
  -2,470
  -3,247
  -4,170
  -5,244
  -6,466
  -7,835
  -9,344
  -10,986
  -12,754
  -14,637
  -16,626
  -18,716
  -20,897
  -23,166
  -25,519
  -27,953
  -30,468
  -33,065
  -35,744
  -38,509
  -41,365
  -44,316
  -47,367
  -50,526
  -53,798
  -57,192
Free cash flow, $m
  -77
  -484
  -707
  -996
  -1,361
  -1,807
  -2,335
  -2,946
  -3,634
  -4,392
  -5,214
  -6,087
  -7,001
  -7,946
  -8,912
  -9,892
  -10,877
  -11,863
  -12,847
  -13,827
  -14,802
  -15,775
  -16,746
  -17,720
  -18,700
  -19,691
  -20,696
  -21,722
  -22,773
  -23,853
  -24,969
Issuance/(repayment) of debt, $m
  -68
  73
  106
  149
  203
  269
  346
  434
  533
  641
  757
  879
  1,005
  1,133
  1,262
  1,391
  1,519
  1,644
  1,767
  1,887
  2,004
  2,118
  2,230
  2,341
  2,450
  2,559
  2,669
  2,779
  2,892
  3,007
  3,125
Issuance/(repurchase) of shares, $m
  202
  552
  803
  1,131
  1,545
  2,050
  2,648
  3,338
  4,116
  4,973
  5,898
  6,881
  7,910
  8,971
  10,054
  11,150
  12,251
  13,350
  14,445
  15,533
  16,615
  17,691
  18,764
  19,838
  20,917
  22,006
  23,110
  24,236
  25,388
  26,573
  27,796
Cash from financing (excl. dividends), $m  
  134
  625
  909
  1,280
  1,748
  2,319
  2,994
  3,772
  4,649
  5,614
  6,655
  7,760
  8,915
  10,104
  11,316
  12,541
  13,770
  14,994
  16,212
  17,420
  18,619
  19,809
  20,994
  22,179
  23,367
  24,565
  25,779
  27,015
  28,280
  29,580
  30,921
Total cash flow (excl. dividends), $m
  57
  141
  203
  284
  387
  512
  659
  827
  1,015
  1,221
  1,442
  1,674
  1,913
  2,158
  2,404
  2,650
  2,893
  3,131
  3,365
  3,593
  3,816
  4,034
  4,248
  4,458
  4,667
  4,874
  5,083
  5,293
  5,507
  5,726
  5,952
Retained Cash Flow (-), $m
  -142
  -552
  -803
  -1,131
  -1,545
  -2,050
  -2,648
  -3,338
  -4,116
  -4,973
  -5,898
  -6,881
  -7,910
  -8,971
  -10,054
  -11,150
  -12,251
  -13,350
  -14,445
  -15,533
  -16,615
  -17,691
  -18,764
  -19,838
  -20,917
  -22,006
  -23,110
  -24,236
  -25,388
  -26,573
  -27,796
Prev. year cash balance distribution, $m
 
  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
  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
 
  -410
  -600
  -847
  -1,158
  -1,538
  -1,989
  -2,511
  -3,100
  -3,751
  -4,457
  -5,208
  -5,996
  -6,813
  -7,650
  -8,500
  -9,358
  -10,219
  -11,080
  -11,940
  -12,798
  -13,656
  -14,516
  -15,379
  -16,250
  -17,131
  -18,028
  -18,943
  -19,881
  -20,847
  -21,844
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
 
  -393
  -550
  -737
  -954
  -1,192
  -1,444
  -1,697
  -1,938
  -2,155
  -2,336
  -2,473
  -2,559
  -2,590
  -2,568
  -2,496
  -2,378
  -2,223
  -2,040
  -1,838
  -1,626
  -1,413
  -1,204
  -1,008
  -828
  -666
  -526
  -407
  -308
  -228
  -164
Current shareholders' claim on cash, %
  100
  74.3
  56.5
  43.9
  34.8
  28.1
  23.0
  19.2
  16.2
  13.8
  12.0
  10.5
  9.2
  8.2
  7.4
  6.6
  6.0
  5.5
  5.1
  4.7
  4.3
  4.0
  3.8
  3.5
  3.3
  3.1
  2.9
  2.8
  2.6
  2.5
  2.4

Freehold Royalties Ltd. develops and produces oil and natural gas primarily in Western Canada. It focuses on acquiring and managing oil and gas royalties; and developing and producing oil and gas assets, as well as natural gas liquids and potash properties. It also has royalty interests in seven potash mines. As of December 31, 2015, the company had net proved plus probable reserves of 36.1 million barrels of oil equivalent; total land holdings of 3.7 million gross acres; and royalty interests in approximately 36,000 wells. It has operations primarily in Alberta, British Columbia, Saskatchewan, Manitoba, and Ontario provinces of Canada. The company was founded in 1996 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Freehold Royalties Ltd. (FRU)

Valuation Ratios
P/E Ratio -148.3
Price to Sales 12.6
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 17.5
Price to Free Cash Flow 18.5
Growth Rates
Sales Growth Rate -3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -77.3%
Cap. Spend. - 3 Yr. Gr. Rate -29.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 9.5%
Total Debt to Equity 9.5%
Interest Coverage -3
Management Effectiveness
Return On Assets -0.8%
Ret/ On Assets - 3 Yr. Avg. 3.9%
Return On Total Capital -1.2%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity -1.4%
Return On Equity - 3 Yr. Avg. 5.5%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 86%
Gross Margin - 3 Yr. Avg. 87.6%
EBITDA Margin 72.9%
EBITDA Margin - 3 Yr. Avg. 73.5%
Operating Margin -7%
Oper. Margin - 3 Yr. Avg. 11.1%
Pre-Tax Margin -10.9%
Pre-Tax Margin - 3 Yr. Avg. 7.7%
Net Profit Margin -8.5%
Net Profit Margin - 3 Yr. Avg. 7.5%
Effective Tax Rate 21.4%
Eff/ Tax Rate - 3 Yr. Avg. 40.8%
Payout Ratio -518.2%

FRU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FRU stock intrinsic value calculation we used $129 million for the last fiscal year's total revenue generated by Freehold Royalties Ltd.. The default revenue input number comes from 2016 income statement of Freehold Royalties 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 FRU 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 FRU is calculated based on our internal credit rating of Freehold Royalties 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 Freehold Royalties 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 FRU stock the variable cost ratio is equal to 107.8%.

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 FRU 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 Freehold Royalties Ltd..

Corporate tax rate of 27% is the nominal tax rate for Freehold Royalties 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 FRU 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 FRU are equal to 673.6%.

Life of production assets of 8.4 years is the average useful life of capital assets used in Freehold Royalties 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 FRU is equal to 7.8%. 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 - $885 million for Freehold Royalties 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 115.356 million for Freehold Royalties 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 Freehold Royalties Ltd. at the current share price and the inputted number of shares is $1.6 billion.

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Stock chart of FRU Financial statements of FRU
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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