Intrinsic value of Husky Energy Inc. - HSE

Previous Close

$15.76

  Intrinsic Value

$4.21

stock screener

  Rating & Target

str. sell

-73%

Previous close

$15.76

 
Intrinsic value

$4.21

 
Up/down potential

-73%

 
Rating

str. sell

We calculate the intrinsic value of HSE 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 15.8

 

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, %
  -21.08
  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
  12,919
  17,311
  22,695
  29,161
  36,784
  45,622
  55,716
  67,089
  79,749
  93,692
  108,902
  125,359
  143,036
  161,903
  181,933
  203,099
  225,381
  248,761
  273,230
  298,785
  325,429
  353,174
  382,040
  412,052
  443,245
  475,661
  509,347
  544,358
  580,755
  618,607
  657,987
Variable operating expenses, $m
 
  22,724
  29,770
  38,232
  48,209
  59,776
  72,986
  87,870
  104,438
  122,686
  142,593
  164,064
  187,197
  211,889
  238,103
  265,805
  294,966
  325,565
  357,589
  391,033
  425,903
  462,215
  499,992
  539,271
  580,095
  622,518
  666,605
  712,425
  760,060
  809,599
  861,137
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
  11,613
  22,724
  29,770
  38,232
  48,209
  59,776
  72,986
  87,870
  104,438
  122,686
  142,593
  164,064
  187,197
  211,889
  238,103
  265,805
  294,966
  325,565
  357,589
  391,033
  425,903
  462,215
  499,992
  539,271
  580,095
  622,518
  666,605
  712,425
  760,060
  809,599
  861,137
Operating income, $m
  1,306
  -5,413
  -7,075
  -9,071
  -11,425
  -14,154
  -17,270
  -20,781
  -24,690
  -28,995
  -33,691
  -38,704
  -44,161
  -49,987
  -56,171
  -62,706
  -69,585
  -76,804
  -84,358
  -92,248
  -100,474
  -109,040
  -117,952
  -127,219
  -136,849
  -146,858
  -157,258
  -168,067
  -179,305
  -190,991
  -203,150
EBITDA, $m
  3,768
  -2,135
  -2,799
  -3,596
  -4,537
  -5,627
  -6,872
  -8,274
  -9,836
  -11,555
  -13,431
  -15,461
  -17,641
  -19,968
  -22,438
  -25,048
  -27,797
  -30,680
  -33,698
  -36,850
  -40,136
  -43,557
  -47,117
  -50,819
  -54,666
  -58,664
  -62,818
  -67,136
  -71,625
  -76,294
  -81,150
Interest expense (income), $m
  349
  276
  538
  860
  1,246
  1,701
  2,229
  2,832
  3,512
  4,268
  5,101
  6,010
  6,993
  8,049
  9,176
  10,372
  11,637
  12,968
  14,364
  15,826
  17,353
  18,944
  20,602
  22,326
  24,119
  25,982
  27,919
  29,931
  32,022
  34,197
  36,458
Earnings before tax, $m
  950
  -5,689
  -7,613
  -9,931
  -12,671
  -15,855
  -19,499
  -23,613
  -28,202
  -33,263
  -38,792
  -44,714
  -51,154
  -58,035
  -65,346
  -73,078
  -81,222
  -89,771
  -98,723
  -108,074
  -117,827
  -127,985
  -138,554
  -149,545
  -160,968
  -172,840
  -185,176
  -197,998
  -211,327
  -225,188
  -239,607
Tax expense, $m
  28
  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
  922
  -5,689
  -7,613
  -9,931
  -12,671
  -15,855
  -19,499
  -23,613
  -28,202
  -33,263
  -38,792
  -44,714
  -51,154
  -58,035
  -65,346
  -73,078
  -81,222
  -89,771
  -98,723
  -108,074
  -117,827
  -127,985
  -138,554
  -149,545
  -160,968
  -172,840
  -185,176
  -197,998
  -211,327
  -225,188
  -239,607

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,319
  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
  32,260
  41,415
  54,295
  69,764
  88,001
  109,144
  133,292
  160,499
  190,786
  224,142
  260,532
  299,903
  342,191
  387,327
  435,245
  485,883
  539,188
  595,123
  653,661
  714,796
  778,538
  844,914
  913,970
  985,770
  1,060,395
  1,137,945
  1,218,533
  1,302,291
  1,389,367
  1,479,922
  1,574,133
Adjusted assets (=assets-cash), $m
  30,941
  41,415
  54,295
  69,764
  88,001
  109,144
  133,292
  160,499
  190,786
  224,142
  260,532
  299,903
  342,191
  387,327
  435,245
  485,883
  539,188
  595,123
  653,661
  714,796
  778,538
  844,914
  913,970
  985,770
  1,060,395
  1,137,945
  1,218,533
  1,302,291
  1,389,367
  1,479,922
  1,574,133
Revenue / Adjusted assets
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
Average production assets, $m
  26,114
  34,986
  45,867
  58,935
  74,341
  92,203
  112,602
  135,586
  161,172
  189,351
  220,092
  253,352
  289,075
  327,206
  367,686
  410,463
  455,495
  502,746
  552,199
  603,844
  657,692
  713,765
  772,102
  832,757
  895,799
  961,311
  1,029,390
  1,100,147
  1,173,707
  1,250,205
  1,329,793
Working capital, $m
  1,125
  554
  726
  933
  1,177
  1,460
  1,783
  2,147
  2,552
  2,998
  3,485
  4,012
  4,577
  5,181
  5,822
  6,499
  7,212
  7,960
  8,743
  9,561
  10,414
  11,302
  12,225
  13,186
  14,184
  15,221
  16,299
  17,419
  18,584
  19,795
  21,056
Total debt, $m
  5,627
  9,785
  15,633
  22,656
  30,935
  40,535
  51,497
  63,850
  77,600
  92,744
  109,265
  127,139
  146,338
  166,830
  188,584
  211,574
  235,775
  261,169
  287,745
  315,501
  344,439
  374,574
  405,925
  438,523
  472,403
  507,610
  544,197
  582,223
  621,756
  662,867
  705,639
Total liabilities, $m
  14,644
  18,802
  24,650
  31,673
  39,952
  49,552
  60,514
  72,867
  86,617
  101,761
  118,282
  136,156
  155,355
  175,847
  197,601
  220,591
  244,792
  270,186
  296,762
  324,518
  353,456
  383,591
  414,942
  447,540
  481,420
  516,627
  553,214
  591,240
  630,773
  671,884
  714,656
Total equity, $m
  17,616
  22,613
  29,645
  38,091
  48,048
  59,593
  72,777
  87,632
  104,169
  122,382
  142,251
  163,747
  186,836
  211,481
  237,644
  265,292
  294,397
  324,937
  356,899
  390,279
  425,082
  461,323
  499,028
  538,231
  578,976
  621,318
  665,319
  711,051
  758,594
  808,037
  859,476
Total liabilities and equity, $m
  32,260
  41,415
  54,295
  69,764
  88,000
  109,145
  133,291
  160,499
  190,786
  224,143
  260,533
  299,903
  342,191
  387,328
  435,245
  485,883
  539,189
  595,123
  653,661
  714,797
  778,538
  844,914
  913,970
  985,771
  1,060,396
  1,137,945
  1,218,533
  1,302,291
  1,389,367
  1,479,921
  1,574,132
Debt-to-equity ratio
  0.319
  0.430
  0.530
  0.590
  0.640
  0.680
  0.710
  0.730
  0.740
  0.760
  0.770
  0.780
  0.780
  0.790
  0.790
  0.800
  0.800
  0.800
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
Adjusted equity ratio
  0.533
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  922
  -5,689
  -7,613
  -9,931
  -12,671
  -15,855
  -19,499
  -23,613
  -28,202
  -33,263
  -38,792
  -44,714
  -51,154
  -58,035
  -65,346
  -73,078
  -81,222
  -89,771
  -98,723
  -108,074
  -117,827
  -127,985
  -138,554
  -149,545
  -160,968
  -172,840
  -185,176
  -197,998
  -211,327
  -225,188
  -239,607
Depreciation, amort., depletion, $m
  2,462
  3,278
  4,276
  5,475
  6,888
  8,527
  10,398
  12,507
  14,854
  17,440
  20,260
  23,243
  26,521
  30,019
  33,733
  37,657
  41,788
  46,124
  50,660
  55,399
  60,339
  65,483
  70,835
  76,400
  82,183
  88,194
  94,439
  100,931
  107,679
  114,698
  121,999
Funds from operations, $m
  1,953
  -2,411
  -3,337
  -4,456
  -5,783
  -7,328
  -9,101
  -11,106
  -13,347
  -15,823
  -18,532
  -21,470
  -24,633
  -28,016
  -31,614
  -35,421
  -39,433
  -43,648
  -48,062
  -52,676
  -57,488
  -62,502
  -67,719
  -73,145
  -78,785
  -84,646
  -90,737
  -97,067
  -103,648
  -110,490
  -117,608
Change in working capital, $m
  -18
  141
  172
  207
  244
  283
  323
  364
  405
  446
  487
  527
  566
  604
  641
  677
  713
  748
  783
  818
  853
  888
  924
  960
  998
  1,037
  1,078
  1,120
  1,165
  1,211
  1,260
Cash from operations, $m
  1,971
  -2,552
  -3,510
  -4,663
  -6,027
  -7,611
  -9,424
  -11,470
  -13,752
  -16,269
  -19,019
  -21,997
  -25,199
  -28,620
  -32,255
  -36,098
  -40,146
  -44,396
  -48,845
  -53,493
  -58,341
  -63,389
  -68,643
  -74,105
  -79,783
  -85,683
  -91,815
  -98,188
  -104,812
  -111,701
  -118,868
Maintenance CAPEX, $m
  0
  -2,396
  -3,210
  -4,208
  -5,407
  -6,820
  -8,459
  -10,330
  -12,439
  -14,786
  -17,372
  -20,192
  -23,243
  -26,521
  -30,019
  -33,733
  -37,657
  -41,788
  -46,124
  -50,660
  -55,399
  -60,339
  -65,483
  -70,835
  -76,400
  -82,183
  -88,194
  -94,439
  -100,931
  -107,679
  -114,698
New CAPEX, $m
  -1,705
  -8,873
  -10,881
  -13,068
  -15,406
  -17,862
  -20,399
  -22,984
  -25,586
  -28,179
  -30,741
  -33,260
  -35,724
  -38,130
  -40,480
  -42,778
  -45,031
  -47,252
  -49,452
  -51,646
  -53,848
  -56,073
  -58,337
  -60,655
  -63,042
  -65,512
  -68,079
  -70,757
  -73,560
  -76,499
  -79,587
Cash from investing activities, $m
  632
  -11,269
  -14,091
  -17,276
  -20,813
  -24,682
  -28,858
  -33,314
  -38,025
  -42,965
  -48,113
  -53,452
  -58,967
  -64,651
  -70,499
  -76,511
  -82,688
  -89,040
  -95,576
  -102,306
  -109,247
  -116,412
  -123,820
  -131,490
  -139,442
  -147,695
  -156,273
  -165,196
  -174,491
  -184,178
  -194,285
Free cash flow, $m
  2,603
  -13,821
  -17,600
  -21,939
  -26,840
  -32,293
  -38,282
  -44,785
  -51,777
  -59,234
  -67,132
  -75,448
  -84,166
  -93,271
  -102,753
  -112,608
  -122,835
  -133,436
  -144,421
  -155,799
  -167,587
  -179,801
  -192,463
  -205,595
  -219,224
  -233,378
  -248,088
  -263,384
  -279,303
  -295,880
  -313,153
Issuance/(repayment) of debt, $m
  -1,288
  4,761
  5,848
  7,023
  8,280
  9,599
  10,963
  12,352
  13,750
  15,144
  16,521
  17,874
  19,199
  20,492
  21,755
  22,989
  24,201
  25,394
  26,576
  27,755
  28,939
  30,135
  31,351
  32,597
  33,880
  35,207
  36,587
  38,026
  39,532
  41,112
  42,772
Issuance/(repurchase) of shares, $m
  0
  11,402
  14,646
  18,377
  22,628
  27,400
  32,684
  38,469
  44,738
  51,475
  58,661
  66,210
  74,243
  82,680
  91,509
  100,726
  110,326
  120,311
  130,685
  141,454
  152,630
  164,226
  176,259
  188,747
  201,714
  215,181
  229,177
  243,730
  258,870
  274,631
  291,047
Cash from financing (excl. dividends), $m  
  -1,335
  16,163
  20,494
  25,400
  30,908
  36,999
  43,647
  50,821
  58,488
  66,619
  75,182
  84,084
  93,442
  103,172
  113,264
  123,715
  134,527
  145,705
  157,261
  169,209
  181,569
  194,361
  207,610
  221,344
  235,594
  250,388
  265,764
  281,756
  298,402
  315,743
  333,819
Total cash flow (excl. dividends), $m
  1,276
  2,342
  2,893
  3,461
  4,068
  4,706
  5,365
  6,036
  6,711
  7,385
  8,050
  8,636
  9,276
  9,901
  10,511
  11,107
  11,692
  12,269
  12,840
  13,410
  13,982
  14,559
  15,147
  15,749
  16,369
  17,010
  17,677
  18,372
  19,100
  19,863
  20,665
Retained Cash Flow (-), $m
  -1,030
  -11,402
  -14,646
  -18,377
  -22,628
  -27,400
  -32,684
  -38,469
  -44,738
  -51,475
  -58,661
  -66,210
  -74,243
  -82,680
  -91,509
  -100,726
  -110,326
  -120,311
  -130,685
  -141,454
  -152,630
  -164,226
  -176,259
  -188,747
  -201,714
  -215,181
  -229,177
  -243,730
  -258,870
  -274,631
  -291,047
Prev. year cash balance distribution, $m
 
  716
  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
 
  -8,343
  -11,753
  -14,916
  -18,560
  -22,694
  -27,319
  -32,433
  -38,027
  -44,091
  -50,611
  -57,574
  -64,968
  -72,779
  -80,999
  -89,619
  -98,634
  -108,042
  -117,844
  -128,044
  -138,648
  -149,666
  -161,111
  -172,998
  -185,345
  -198,171
  -211,501
  -225,358
  -239,770
  -254,768
  -270,382
Discount rate, %
 
  4.60
  4.83
  5.07
  5.33
  5.59
  5.87
  6.16
  6.47
  6.80
  7.14
  7.49
  7.87
  8.26
  8.67
  9.11
  9.56
  10.04
  10.54
  11.07
  11.62
  12.21
  12.82
  13.46
  14.13
  14.84
  15.58
  16.36
  17.17
  18.03
  18.93
PV of cash for distribution, $m
 
  -7,976
  -10,694
  -12,859
  -15,082
  -17,289
  -19,400
  -21,337
  -23,024
  -24,397
  -25,403
  -26,005
  -26,182
  -25,934
  -25,277
  -24,242
  -22,877
  -21,240
  -19,397
  -17,418
  -15,373
  -13,331
  -11,351
  -9,484
  -7,771
  -6,239
  -4,905
  -3,772
  -2,835
  -2,080
  -1,489
Current shareholders' claim on cash, %
  100
  57.1
  33.2
  19.7
  11.8
  7.2
  4.5
  2.8
  1.8
  1.2
  0.8
  0.5
  0.3
  0.2
  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

Husky Energy Inc. is an integrated energy company. The Company operates through two segments. The Upstream segment includes exploration, development and production of crude oil, bitumen, natural gas and natural gas liquids, and marketing of the Company's and other producers' crude oil, natural gas, natural gas liquids, sulfur and petroleum coke, pipeline transportation, the blending of crude oil and natural gas, and storage of crude oil, diluent and natural gas. The Downstream segment includes upgrading of heavy crude oil feedstock into synthetic crude oil in Canada, refining in Canada of crude oil, marketing of refined petroleum products, including gasoline, diesel, ethanol blended fuels, asphalt and ancillary products, and production of ethanol and refining in the United States of crude oil to produce and market gasoline, jet fuel and diesel fuels. The Company also sells blended heavy crude oil directly to refiners based in the United States and Canada.

FINANCIAL RATIOS  of  Husky Energy Inc. (HSE)

Valuation Ratios
P/E Ratio 17.2
Price to Sales 1.2
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 8
Price to Free Cash Flow 59.6
Growth Rates
Sales Growth Rate -21.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -43.3%
Cap. Spend. - 3 Yr. Gr. Rate -19.4%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 28.5%
Total Debt to Equity 31.9%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. -0.8%
Return On Total Capital 3.9%
Ret/ On T. Cap. - 3 Yr. Avg. -2.2%
Return On Equity 5.4%
Return On Equity - 3 Yr. Avg. -3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 22%
Gross Margin - 3 Yr. Avg. 24.5%
EBITDA Margin 29.1%
EBITDA Margin - 3 Yr. Avg. 25.4%
Operating Margin 10.1%
Oper. Margin - 3 Yr. Avg. -4.4%
Pre-Tax Margin 7.4%
Pre-Tax Margin - 3 Yr. Avg. -6%
Net Profit Margin 7.1%
Net Profit Margin - 3 Yr. Avg. -3.7%
Effective Tax Rate 2.9%
Eff/ Tax Rate - 3 Yr. Avg. 20.3%
Payout Ratio 2.9%

HSE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HSE stock intrinsic value calculation we used $12919 million for the last fiscal year's total revenue generated by Husky Energy Inc.. The default revenue input number comes from 2016 income statement of Husky 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 HSE 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 4.6%, whose default value for HSE is calculated based on our internal credit rating of Husky 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 Husky 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 HSE stock the variable cost ratio is equal to 131.4%.

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 HSE 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 5.5% for Husky Energy Inc..

Corporate tax rate of 27% is the nominal tax rate for Husky 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 HSE 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 HSE are equal to 202.1%.

Life of production assets of 10.9 years is the average useful life of capital assets used in Husky 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 HSE is equal to 3.2%. 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 - $17616 million for Husky 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 1005.39 million for Husky 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 Husky Energy Inc. at the current share price and the inputted number of shares is $15.8 billion.

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Financial statements of HSE
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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