Intrinsic value of Gran Tierra Energy Inc. - GTE

Previous Close

$2.71

  Intrinsic Value

$0.65

stock screener

  Rating & Target

str. sell

-76%

Previous close

$2.71

 
Intrinsic value

$0.65

 
Up/down potential

-76%

 
Rating

str. sell

We calculate the intrinsic value of GTE 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 1.1

 

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, %
  4.83
  34.00
  31.10
  28.49
  26.14
  24.03
  22.12
  20.41
  18.87
  17.48
  16.24
  15.11
  14.10
  13.19
  12.37
  11.63
  10.97
  10.37
  9.84
  9.35
  8.92
  8.53
  8.17
  7.86
  7.57
  7.31
  7.08
  6.87
  6.69
  6.52
  6.37
Revenue, $m
  391
  524
  687
  883
  1,113
  1,381
  1,686
  2,030
  2,414
  2,836
  3,296
  3,794
  4,329
  4,900
  5,506
  6,147
  6,821
  7,529
  8,269
  9,043
  9,849
  10,689
  11,563
  12,471
  13,415
  14,396
  15,416
  16,475
  17,577
  18,722
  19,914
Variable operating expenses, $m
 
  1,220
  1,595
  2,046
  2,577
  3,193
  3,896
  4,689
  5,571
  6,543
  7,603
  8,736
  9,967
  11,282
  12,678
  14,153
  15,706
  17,335
  19,040
  20,821
  22,677
  24,611
  26,622
  28,714
  30,887
  33,146
  35,494
  37,933
  40,470
  43,108
  45,852
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
  1,273
  1,220
  1,595
  2,046
  2,577
  3,193
  3,896
  4,689
  5,571
  6,543
  7,603
  8,736
  9,967
  11,282
  12,678
  14,153
  15,706
  17,335
  19,040
  20,821
  22,677
  24,611
  26,622
  28,714
  30,887
  33,146
  35,494
  37,933
  40,470
  43,108
  45,852
Operating income, $m
  -882
  -696
  -909
  -1,163
  -1,464
  -1,812
  -2,210
  -2,658
  -3,158
  -3,707
  -4,307
  -4,942
  -5,638
  -6,382
  -7,172
  -8,006
  -8,884
  -9,806
  -10,771
  -11,778
  -12,828
  -13,922
  -15,060
  -16,243
  -17,472
  -18,750
  -20,078
  -21,458
  -22,893
  -24,385
  -25,937
EBITDA, $m
  -693
  -523
  -685
  -881
  -1,111
  -1,378
  -1,683
  -2,026
  -2,408
  -2,830
  -3,289
  -3,786
  -4,320
  -4,890
  -5,494
  -6,134
  -6,807
  -7,513
  -8,252
  -9,023
  -9,828
  -10,666
  -11,538
  -12,444
  -13,386
  -14,365
  -15,382
  -16,440
  -17,539
  -18,682
  -19,872
Interest expense (income), $m
  8
  16
  30
  46
  66
  90
  117
  148
  183
  222
  265
  312
  362
  417
  475
  537
  602
  670
  742
  818
  896
  979
  1,064
  1,153
  1,245
  1,341
  1,441
  1,545
  1,653
  1,765
  1,882
Earnings before tax, $m
  -879
  -712
  -938
  -1,210
  -1,530
  -1,902
  -2,327
  -2,806
  -3,340
  -3,929
  -4,572
  -5,253
  -6,001
  -6,799
  -7,647
  -8,543
  -9,486
  -10,476
  -11,513
  -12,596
  -13,725
  -14,900
  -16,124
  -17,396
  -18,718
  -20,092
  -21,519
  -23,003
  -24,546
  -26,150
  -27,819
Tax expense, $m
  -250
  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
  -629
  -712
  -938
  -1,210
  -1,530
  -1,902
  -2,327
  -2,806
  -3,340
  -3,929
  -4,572
  -5,253
  -6,001
  -6,799
  -7,647
  -8,543
  -9,486
  -10,476
  -11,513
  -12,596
  -13,725
  -14,900
  -16,124
  -17,396
  -18,718
  -20,092
  -21,519
  -23,003
  -24,546
  -26,150
  -27,819

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  34
  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
  1,848
  2,426
  3,180
  4,086
  5,154
  6,393
  7,807
  9,400
  11,174
  13,128
  15,259
  17,565
  20,042
  22,686
  25,492
  28,458
  31,580
  34,856
  38,285
  41,865
  45,598
  49,486
  53,531
  57,736
  62,107
  66,649
  71,369
  76,274
  81,374
  86,678
  92,196
Adjusted assets (=assets-cash), $m
  1,814
  2,426
  3,180
  4,086
  5,154
  6,393
  7,807
  9,400
  11,174
  13,128
  15,259
  17,565
  20,042
  22,686
  25,492
  28,458
  31,580
  34,856
  38,285
  41,865
  45,598
  49,486
  53,531
  57,736
  62,107
  66,649
  71,369
  76,274
  81,374
  86,678
  92,196
Revenue / Adjusted assets
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
Average production assets, $m
  596
  798
  1,046
  1,344
  1,696
  2,103
  2,568
  3,092
  3,676
  4,319
  5,020
  5,778
  6,593
  7,463
  8,386
  9,362
  10,389
  11,466
  12,594
  13,772
  15,000
  16,279
  17,610
  18,993
  20,431
  21,925
  23,478
  25,092
  26,770
  28,514
  30,330
Working capital, $m
  -31
  -87
  -114
  -147
  -185
  -229
  -280
  -337
  -401
  -471
  -547
  -630
  -719
  -813
  -914
  -1,020
  -1,132
  -1,250
  -1,373
  -1,501
  -1,635
  -1,774
  -1,919
  -2,070
  -2,227
  -2,390
  -2,559
  -2,735
  -2,918
  -3,108
  -3,306
Total debt, $m
  277
  509
  795
  1,139
  1,543
  2,013
  2,549
  3,153
  3,825
  4,565
  5,373
  6,247
  7,186
  8,188
  9,251
  10,376
  11,559
  12,800
  14,100
  15,457
  16,872
  18,345
  19,878
  21,472
  23,128
  24,850
  26,639
  28,498
  30,431
  32,441
  34,532
Total liabilities, $m
  688
  919
  1,205
  1,549
  1,953
  2,423
  2,959
  3,563
  4,235
  4,975
  5,783
  6,657
  7,596
  8,598
  9,661
  10,786
  11,969
  13,210
  14,510
  15,867
  17,282
  18,755
  20,288
  21,882
  23,538
  25,260
  27,049
  28,908
  30,841
  32,851
  34,942
Total equity, $m
  1,161
  1,506
  1,975
  2,537
  3,201
  3,970
  4,848
  5,838
  6,939
  8,152
  9,476
  10,908
  12,446
  14,088
  15,831
  17,672
  19,611
  21,646
  23,775
  25,998
  28,317
  30,731
  33,243
  35,854
  38,568
  41,389
  44,320
  47,366
  50,533
  53,827
  57,254
Total liabilities and equity, $m
  1,849
  2,425
  3,180
  4,086
  5,154
  6,393
  7,807
  9,401
  11,174
  13,127
  15,259
  17,565
  20,042
  22,686
  25,492
  28,458
  31,580
  34,856
  38,285
  41,865
  45,599
  49,486
  53,531
  57,736
  62,106
  66,649
  71,369
  76,274
  81,374
  86,678
  92,196
Debt-to-equity ratio
  0.239
  0.340
  0.400
  0.450
  0.480
  0.510
  0.530
  0.540
  0.550
  0.560
  0.570
  0.570
  0.580
  0.580
  0.580
  0.590
  0.590
  0.590
  0.590
  0.590
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
Adjusted equity ratio
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621
  0.621

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -629
  -712
  -938
  -1,210
  -1,530
  -1,902
  -2,327
  -2,806
  -3,340
  -3,929
  -4,572
  -5,253
  -6,001
  -6,799
  -7,647
  -8,543
  -9,486
  -10,476
  -11,513
  -12,596
  -13,725
  -14,900
  -16,124
  -17,396
  -18,718
  -20,092
  -21,519
  -23,003
  -24,546
  -26,150
  -27,819
Depreciation, amort., depletion, $m
  189
  173
  223
  283
  353
  434
  528
  632
  749
  878
  1,018
  1,156
  1,319
  1,493
  1,677
  1,872
  2,078
  2,293
  2,519
  2,754
  3,000
  3,256
  3,522
  3,799
  4,086
  4,385
  4,696
  5,018
  5,354
  5,703
  6,066
Funds from operations, $m
  126
  -539
  -715
  -927
  -1,177
  -1,467
  -1,799
  -2,174
  -2,591
  -3,051
  -3,554
  -4,098
  -4,682
  -5,306
  -5,969
  -6,670
  -7,408
  -8,183
  -8,994
  -9,841
  -10,725
  -11,645
  -12,602
  -13,597
  -14,632
  -15,707
  -16,824
  -17,985
  -19,192
  -20,447
  -21,753
Change in working capital, $m
  0
  -22
  -27
  -32
  -38
  -44
  -51
  -57
  -64
  -70
  -76
  -83
  -89
  -95
  -101
  -106
  -112
  -117
  -123
  -128
  -134
  -139
  -145
  -151
  -157
  -163
  -169
  -176
  -183
  -190
  -198
Cash from operations, $m
  126
  -517
  -688
  -894
  -1,139
  -1,423
  -1,749
  -2,117
  -2,528
  -2,981
  -3,477
  -4,015
  -4,593
  -5,212
  -5,869
  -6,564
  -7,296
  -8,066
  -8,871
  -9,713
  -10,591
  -11,505
  -12,457
  -13,446
  -14,475
  -15,544
  -16,655
  -17,809
  -19,009
  -20,257
  -21,555
Maintenance CAPEX, $m
  0
  -119
  -160
  -209
  -269
  -339
  -421
  -514
  -618
  -735
  -864
  -1,004
  -1,156
  -1,319
  -1,493
  -1,677
  -1,872
  -2,078
  -2,293
  -2,519
  -2,754
  -3,000
  -3,256
  -3,522
  -3,799
  -4,086
  -4,385
  -4,696
  -5,018
  -5,354
  -5,703
New CAPEX, $m
  -199
  -202
  -248
  -298
  -351
  -407
  -465
  -524
  -584
  -643
  -701
  -759
  -815
  -870
  -923
  -976
  -1,027
  -1,078
  -1,128
  -1,178
  -1,228
  -1,279
  -1,331
  -1,383
  -1,438
  -1,494
  -1,553
  -1,614
  -1,678
  -1,745
  -1,815
Cash from investing activities, $m
  -839
  -321
  -408
  -507
  -620
  -746
  -886
  -1,038
  -1,202
  -1,378
  -1,565
  -1,763
  -1,971
  -2,189
  -2,416
  -2,653
  -2,899
  -3,156
  -3,421
  -3,697
  -3,982
  -4,279
  -4,587
  -4,905
  -5,237
  -5,580
  -5,938
  -6,310
  -6,696
  -7,099
  -7,518
Free cash flow, $m
  -713
  -838
  -1,096
  -1,402
  -1,759
  -2,169
  -2,635
  -3,155
  -3,730
  -4,359
  -5,042
  -5,777
  -6,564
  -7,400
  -8,285
  -9,217
  -10,196
  -11,221
  -12,292
  -13,410
  -14,573
  -15,784
  -17,043
  -18,352
  -19,711
  -21,124
  -22,592
  -24,118
  -25,705
  -27,356
  -29,073
Issuance/(repayment) of debt, $m
  153
  232
  286
  343
  405
  469
  536
  604
  672
  740
  808
  874
  939
  1,002
  1,064
  1,124
  1,183
  1,242
  1,299
  1,357
  1,415
  1,473
  1,533
  1,594
  1,657
  1,721
  1,789
  1,859
  1,933
  2,010
  2,091
Issuance/(repurchase) of shares, $m
  173
  1,092
  1,407
  1,772
  2,193
  2,671
  3,205
  3,796
  4,442
  5,142
  5,895
  6,685
  7,539
  8,441
  9,389
  10,384
  11,425
  12,511
  13,642
  14,819
  16,043
  17,315
  18,635
  20,007
  21,432
  22,912
  24,451
  26,050
  27,713
  29,444
  31,246
Cash from financing (excl. dividends), $m  
  550
  1,324
  1,693
  2,115
  2,598
  3,140
  3,741
  4,400
  5,114
  5,882
  6,703
  7,559
  8,478
  9,443
  10,453
  11,508
  12,608
  13,753
  14,941
  16,176
  17,458
  18,788
  20,168
  21,601
  23,089
  24,633
  26,240
  27,909
  29,646
  31,454
  33,337
Total cash flow (excl. dividends), $m
  -162
  486
  597
  714
  839
  971
  1,107
  1,245
  1,385
  1,523
  1,661
  1,782
  1,914
  2,043
  2,169
  2,292
  2,412
  2,531
  2,649
  2,767
  2,885
  3,004
  3,125
  3,249
  3,377
  3,510
  3,647
  3,791
  3,941
  4,098
  4,264
Retained Cash Flow (-), $m
  192
  -1,092
  -1,407
  -1,772
  -2,193
  -2,671
  -3,205
  -3,796
  -4,442
  -5,142
  -5,895
  -6,685
  -7,539
  -8,441
  -9,389
  -10,384
  -11,425
  -12,511
  -13,642
  -14,819
  -16,043
  -17,315
  -18,635
  -20,007
  -21,432
  -22,912
  -24,451
  -26,050
  -27,713
  -29,444
  -31,246
Prev. year cash balance distribution, $m
 
  34
  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
 
  -572
  -810
  -1,058
  -1,354
  -1,700
  -2,099
  -2,551
  -3,057
  -3,619
  -4,234
  -4,903
  -5,625
  -6,398
  -7,221
  -8,093
  -9,013
  -9,979
  -10,993
  -12,053
  -13,158
  -14,311
  -15,510
  -16,758
  -18,055
  -19,403
  -20,803
  -22,259
  -23,772
  -25,346
  -26,982
Discount rate, %
 
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
 
  -548
  -740
  -918
  -1,110
  -1,310
  -1,512
  -1,708
  -1,891
  -2,053
  -2,188
  -2,290
  -2,355
  -2,380
  -2,366
  -2,312
  -2,221
  -2,099
  -1,950
  -1,781
  -1,598
  -1,408
  -1,218
  -1,035
  -862
  -703
  -562
  -440
  -336
  -251
  -183
Current shareholders' claim on cash, %
  100
  48.8
  24.2
  12.3
  6.3
  3.3
  1.8
  1.0
  0.5
  0.3
  0.2
  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
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Gran Tierra Energy Inc. is an energy company engaged in oil and gas acquisition, exploration, development and production. The Company focuses on onshore oil and gas properties in Colombia, and also own rights to oil and gas properties in Brazil and Peru. Its segments are Colombia, Peru and Brazil based on geographic organization. It operates principally in the Putumayo Basin in Colombia, and has properties in other basins, including the Catatumbo, Cauca, Llanos, Sinu-San Jacinto, Middle Magdalena and Lower Magdalena Basins. It has interests in over 30 blocks in Colombia and it is the operator on over 20 of these blocks. Its blocks and fields include Chaza-Costayaco and Moqueta Fields, Guayuyaco-Guayuyaco and Juanambu Fields, Garibay-Jilguero Field and over 11 Other Blocks. Blocks REC-T-129, REC-T-142, REC-T-155 and REC-T-224 are located over 70 kilometers northeast of Salvador, Brazil in the Reconcavo Basin. Its blocks in Peru include Block 123, Block 129, Block 107 and Block 133.

FINANCIAL RATIOS  of  Gran Tierra Energy Inc. (GTE)

Valuation Ratios
P/E Ratio -1.7
Price to Sales 2.7
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 8.4
Price to Free Cash Flow -14.5
Growth Rates
Sales Growth Rate 4.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -6.1%
Cap. Spend. - 3 Yr. Gr. Rate -15.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 23.9%
Total Debt to Equity 23.9%
Interest Coverage -109
Management Effectiveness
Return On Assets -36.7%
Ret/ On Assets - 3 Yr. Avg. -21.6%
Return On Total Capital -45.1%
Ret/ On T. Cap. - 3 Yr. Avg. -27.1%
Return On Equity -50%
Return On Equity - 3 Yr. Avg. -28.7%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 89%
Gross Margin - 3 Yr. Avg. 90.1%
EBITDA Margin -174.4%
EBITDA Margin - 3 Yr. Avg. -71.2%
Operating Margin -225.6%
Oper. Margin - 3 Yr. Avg. -121%
Pre-Tax Margin -224.8%
Pre-Tax Margin - 3 Yr. Avg. -120.4%
Net Profit Margin -160.9%
Net Profit Margin - 3 Yr. Avg. -96.2%
Effective Tax Rate 28.4%
Eff/ Tax Rate - 3 Yr. Avg. -230.7%
Payout Ratio 0%

GTE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GTE stock intrinsic value calculation we used $391 million for the last fiscal year's total revenue generated by Gran Tierra Energy Inc.. The default revenue input number comes from 2016 income statement of Gran Tierra Energy 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 GTE stock valuation model: a) initial revenue growth rate of 34% 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 4.4%, whose default value for GTE is calculated based on our internal credit rating of Gran Tierra Energy 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 Gran Tierra Energy 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 GTE stock the variable cost ratio is equal to 233.8%.

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 GTE 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 5.8% for Gran Tierra Energy Inc..

Corporate tax rate of 27% is the nominal tax rate for Gran Tierra Energy 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 GTE 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 GTE are equal to 152.3%.

Life of production assets of 3.9 years is the average useful life of capital assets used in Gran Tierra Energy 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 GTE is equal to -16.6%. 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 - $1161 million for Gran Tierra Energy 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 395.018 million for Gran Tierra Energy 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 Gran Tierra Energy Inc. at the current share price and the inputted number of shares is $1.1 billion.

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Financial statements of GTE
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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