Intrinsic value of Imperial Oil Limited - IMO

Previous Close

$36.16

  Intrinsic Value

$529.81

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

-81%

Previous close

$36.16

 
Intrinsic value

$529.81

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

-81%

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

We calculate the intrinsic value of IMO 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 30.4

 

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, %
  -5.08
  34.60
  31.64
  28.98
  26.58
  24.42
  22.48
  20.73
  19.16
  17.74
  16.47
  15.32
  14.29
  13.36
  12.52
  11.77
  11.09
  10.48
  9.94
  9.44
  9.00
  8.60
  8.24
  7.91
  7.62
  7.36
  7.12
  6.91
  6.72
  6.55
  6.39
Revenue, $m
  25,446
  34,250
  45,087
  58,152
  73,607
  91,583
  112,169
  135,422
  161,366
  189,995
  221,283
  255,186
  291,649
  330,613
  372,018
  415,811
  461,942
  510,376
  561,090
  614,072
  669,330
  726,883
  786,770
  849,042
  913,768
  981,031
  1,050,930
  1,123,575
  1,199,093
  1,277,623
  1,359,317
Variable operating expenses, $m
 
  6,364
  8,372
  10,792
  13,656
  16,986
  20,800
  25,108
  29,915
  35,219
  41,016
  47,278
  54,033
  61,252
  68,923
  77,037
  85,584
  94,557
  103,953
  113,769
  124,006
  134,669
  145,764
  157,301
  169,293
  181,755
  194,705
  208,164
  222,155
  236,704
  251,839
Fixed operating expenses, $m
 
  20,951
  21,475
  22,012
  22,562
  23,126
  23,704
  24,297
  24,904
  25,527
  26,165
  26,819
  27,490
  28,177
  28,881
  29,603
  30,343
  31,102
  31,879
  32,676
  33,493
  34,331
  35,189
  36,069
  36,970
  37,895
  38,842
  39,813
  40,808
  41,829
  42,874
Total operating expenses, $m
  24,845
  27,315
  29,847
  32,804
  36,218
  40,112
  44,504
  49,405
  54,819
  60,746
  67,181
  74,097
  81,523
  89,429
  97,804
  106,640
  115,927
  125,659
  135,832
  146,445
  157,499
  169,000
  180,953
  193,370
  206,263
  219,650
  233,547
  247,977
  262,963
  278,533
  294,713
Operating income, $m
  601
  6,935
  15,240
  25,348
  37,390
  51,471
  67,665
  86,017
  106,547
  129,250
  154,103
  181,089
  210,126
  241,184
  274,214
  309,171
  346,015
  384,718
  425,258
  467,627
  511,830
  557,884
  605,817
  655,672
  707,505
  761,382
  817,383
  875,598
  936,130
  999,090
  1,064,603
EBITDA, $m
  2,229
  9,132
  18,127
  29,065
  42,090
  57,315
  74,818
  94,650
  116,830
  141,354
  168,197
  197,321
  228,677
  262,213
  297,877
  335,620
  375,399
  417,182
  460,948
  506,688
  554,406
  604,120
  655,862
  709,679
  765,628
  823,784
  884,231
  947,067
  1,012,403
  1,080,358
  1,151,067
Interest expense (income), $m
  73
  176
  374
  619
  914
  1,263
  1,669
  2,133
  2,658
  3,244
  3,891
  4,597
  5,362
  6,186
  7,065
  8,000
  8,989
  10,030
  11,124
  12,269
  13,465
  14,712
  16,012
  17,364
  18,770
  20,231
  21,750
  23,328
  24,968
  26,673
  28,446
Earnings before tax, $m
  2,444
  6,759
  14,866
  24,729
  36,476
  50,208
  65,996
  83,884
  103,889
  126,006
  150,212
  176,492
  204,763
  234,998
  267,148
  301,170
  337,026
  374,687
  414,134
  455,359
  498,365
  543,171
  589,805
  638,308
  688,735
  741,151
  795,633
  852,270
  911,162
  972,417
  1,036,157
Tax expense, $m
  279
  1,825
  4,014
  6,677
  9,848
  13,556
  17,819
  22,649
  28,050
  34,022
  40,557
  47,653
  55,286
  63,449
  72,130
  81,316
  90,997
  101,166
  111,816
  122,947
  134,559
  146,656
  159,247
  172,343
  185,958
  200,111
  214,821
  230,113
  246,014
  262,553
  279,762
Net income, $m
  2,165
  4,934
  10,852
  18,052
  26,627
  36,652
  48,177
  61,235
  75,839
  91,984
  109,655
  128,839
  149,477
  171,549
  195,018
  219,854
  246,029
  273,522
  302,318
  332,412
  363,807
  396,515
  430,558
  465,965
  502,776
  541,040
  580,812
  622,157
  665,148
  709,865
  756,395

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  391
  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
  41,654
  55,511
  73,075
  94,249
  119,299
  148,432
  181,797
  219,485
  261,533
  307,934
  358,644
  413,591
  472,688
  535,839
  602,947
  673,923
  748,691
  827,190
  909,384
  995,255
  1,084,813
  1,178,093
  1,275,154
  1,376,081
  1,480,985
  1,590,002
  1,703,289
  1,821,029
  1,943,425
  2,070,702
  2,203,106
Adjusted assets (=assets-cash), $m
  41,263
  55,511
  73,075
  94,249
  119,299
  148,432
  181,797
  219,485
  261,533
  307,934
  358,644
  413,591
  472,688
  535,839
  602,947
  673,923
  748,691
  827,190
  909,384
  995,255
  1,084,813
  1,178,093
  1,275,154
  1,376,081
  1,480,985
  1,590,002
  1,703,289
  1,821,029
  1,943,425
  2,070,702
  2,203,106
Revenue / Adjusted assets
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
Average production assets, $m
  37,235
  50,108
  65,962
  85,076
  107,687
  133,985
  164,103
  198,123
  236,079
  277,963
  323,737
  373,337
  426,682
  483,686
  544,263
  608,331
  675,821
  746,681
  820,874
  898,388
  979,229
  1,063,430
  1,151,044
  1,242,148
  1,336,843
  1,435,249
  1,537,510
  1,643,790
  1,754,273
  1,869,162
  1,988,680
Working capital, $m
  -52
  -308
  -406
  -523
  -662
  -824
  -1,010
  -1,219
  -1,452
  -1,710
  -1,992
  -2,297
  -2,625
  -2,976
  -3,348
  -3,742
  -4,157
  -4,593
  -5,050
  -5,527
  -6,024
  -6,542
  -7,081
  -7,641
  -8,224
  -8,829
  -9,458
  -10,112
  -10,792
  -11,499
  -12,234
Total debt, $m
  5,234
  10,694
  17,685
  26,112
  36,082
  47,677
  60,956
  75,956
  92,691
  111,159
  131,341
  153,210
  176,731
  201,865
  228,574
  256,822
  286,580
  317,823
  350,536
  384,713
  420,357
  457,482
  496,112
  536,281
  578,033
  621,422
  666,510
  713,371
  762,084
  812,740
  865,437
Total liabilities, $m
  16,633
  22,093
  29,084
  37,511
  47,481
  59,076
  72,355
  87,355
  104,090
  122,558
  142,740
  164,609
  188,130
  213,264
  239,973
  268,221
  297,979
  329,222
  361,935
  396,112
  431,756
  468,881
  507,511
  547,680
  589,432
  632,821
  677,909
  724,770
  773,483
  824,139
  876,836
Total equity, $m
  25,021
  33,418
  43,991
  56,738
  71,818
  89,356
  109,442
  132,130
  157,443
  185,376
  215,903
  248,982
  284,558
  322,575
  362,974
  405,702
  450,712
  497,969
  547,449
  599,144
  653,058
  709,212
  767,642
  828,401
  891,553
  957,181
  1,025,380
  1,096,259
  1,169,942
  1,246,562
  1,326,270
Total liabilities and equity, $m
  41,654
  55,511
  73,075
  94,249
  119,299
  148,432
  181,797
  219,485
  261,533
  307,934
  358,643
  413,591
  472,688
  535,839
  602,947
  673,923
  748,691
  827,191
  909,384
  995,256
  1,084,814
  1,178,093
  1,275,153
  1,376,081
  1,480,985
  1,590,002
  1,703,289
  1,821,029
  1,943,425
  2,070,701
  2,203,106
Debt-to-equity ratio
  0.209
  0.320
  0.400
  0.460
  0.500
  0.530
  0.560
  0.570
  0.590
  0.600
  0.610
  0.620
  0.620
  0.630
  0.630
  0.630
  0.640
  0.640
  0.640
  0.640
  0.640
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
Adjusted equity ratio
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,165
  4,934
  10,852
  18,052
  26,627
  36,652
  48,177
  61,235
  75,839
  91,984
  109,655
  128,839
  149,477
  171,549
  195,018
  219,854
  246,029
  273,522
  302,318
  332,412
  363,807
  396,515
  430,558
  465,965
  502,776
  541,040
  580,812
  622,157
  665,148
  709,865
  756,395
Depreciation, amort., depletion, $m
  1,628
  2,197
  2,887
  3,718
  4,701
  5,844
  7,154
  8,633
  10,283
  12,104
  14,094
  16,232
  18,551
  21,030
  23,664
  26,449
  29,384
  32,464
  35,690
  39,060
  42,575
  46,236
  50,045
  54,006
  58,124
  62,402
  66,848
  71,469
  76,273
  81,268
  86,464
Funds from operations, $m
  2,367
  7,131
  13,739
  21,769
  31,328
  42,496
  55,331
  69,868
  86,122
  104,088
  123,749
  145,071
  168,029
  192,578
  218,682
  246,304
  275,413
  305,986
  338,008
  371,472
  406,382
  442,751
  480,603
  519,971
  560,900
  603,442
  647,660
  693,626
  741,421
  791,133
  842,859
Change in working capital, $m
  352
  -79
  -98
  -118
  -139
  -162
  -185
  -209
  -233
  -258
  -282
  -305
  -328
  -351
  -373
  -394
  -415
  -436
  -456
  -477
  -497
  -518
  -539
  -560
  -583
  -605
  -629
  -654
  -680
  -707
  -735
Cash from operations, $m
  2,015
  7,211
  13,836
  21,887
  31,467
  42,657
  55,516
  70,077
  86,355
  104,346
  124,031
  145,376
  168,357
  192,929
  219,055
  246,698
  275,828
  306,422
  338,464
  371,949
  406,879
  443,269
  481,142
  520,532
  561,483
  604,048
  648,290
  694,280
  742,101
  791,839
  843,594
Maintenance CAPEX, $m
  0
  -1,619
  -2,179
  -2,868
  -3,699
  -4,682
  -5,825
  -7,135
  -8,614
  -10,264
  -12,085
  -14,076
  -16,232
  -18,551
  -21,030
  -23,664
  -26,449
  -29,384
  -32,464
  -35,690
  -39,060
  -42,575
  -46,236
  -50,045
  -54,006
  -58,124
  -62,402
  -66,848
  -71,469
  -76,273
  -81,268
New CAPEX, $m
  -1,073
  -12,874
  -15,854
  -19,113
  -22,612
  -26,298
  -30,118
  -34,020
  -37,956
  -41,885
  -45,774
  -49,599
  -53,345
  -57,004
  -60,576
  -64,068
  -67,491
  -70,859
  -74,194
  -77,514
  -80,842
  -84,201
  -87,614
  -91,104
  -94,694
  -98,406
  -102,261
  -106,280
  -110,483
  -114,889
  -119,518
Cash from investing activities, $m
  1,947
  -14,493
  -18,033
  -21,981
  -26,311
  -30,980
  -35,943
  -41,155
  -46,570
  -52,149
  -57,859
  -63,675
  -69,577
  -75,555
  -81,606
  -87,732
  -93,940
  -100,243
  -106,658
  -113,204
  -119,902
  -126,776
  -133,850
  -141,149
  -148,700
  -156,530
  -164,663
  -173,128
  -181,952
  -191,162
  -200,786
Free cash flow, $m
  3,962
  -7,282
  -4,196
  -94
  5,156
  11,678
  19,573
  28,923
  39,786
  52,197
  66,171
  81,701
  98,779
  117,373
  137,448
  158,966
  181,888
  206,179
  231,807
  258,745
  286,977
  316,493
  347,292
  379,382
  412,782
  447,518
  483,626
  521,152
  560,148
  600,677
  642,808
Issuance/(repayment) of debt, $m
  -3,282
  5,662
  6,990
  8,427
  9,970
  11,595
  13,279
  15,000
  16,735
  18,468
  20,182
  21,869
  23,521
  25,134
  26,709
  28,248
  29,757
  31,243
  32,713
  34,177
  35,644
  37,125
  38,630
  40,169
  41,752
  43,389
  45,088
  46,860
  48,713
  50,656
  52,697
Issuance/(repurchase) of shares, $m
  0
  3,652
  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  
  -3,282
  9,314
  6,990
  8,427
  9,970
  11,595
  13,279
  15,000
  16,735
  18,468
  20,182
  21,869
  23,521
  25,134
  26,709
  28,248
  29,757
  31,243
  32,713
  34,177
  35,644
  37,125
  38,630
  40,169
  41,752
  43,389
  45,088
  46,860
  48,713
  50,656
  52,697
Total cash flow (excl. dividends), $m
  680
  2,032
  2,794
  8,333
  15,126
  23,273
  32,852
  43,922
  56,521
  70,664
  86,354
  103,570
  122,300
  142,507
  164,157
  187,215
  211,646
  237,422
  264,519
  292,922
  322,622
  353,618
  385,922
  419,551
  454,534
  490,906
  528,715
  568,012
  608,862
  651,334
  695,506
Retained Cash Flow (-), $m
  -1,596
  -8,586
  -10,573
  -12,747
  -15,080
  -17,538
  -20,086
  -22,688
  -25,313
  -27,933
  -30,527
  -33,078
  -35,576
  -38,017
  -40,399
  -42,728
  -45,010
  -47,257
  -49,480
  -51,695
  -53,914
  -56,154
  -58,431
  -60,758
  -63,153
  -65,628
  -68,199
  -70,879
  -73,682
  -76,621
  -79,708
Prev. year cash balance distribution, $m
 
  189
  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
 
  -6,365
  -7,779
  -4,414
  46
  5,734
  12,766
  21,234
  31,208
  42,731
  55,826
  70,492
  86,724
  104,491
  123,758
  144,487
  166,636
  190,165
  215,039
  241,228
  268,707
  297,464
  327,492
  358,793
  391,381
  425,278
  460,516
  497,133
  535,180
  574,713
  615,798
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  -6,062
  -7,023
  -3,757
  37
  4,269
  8,808
  13,486
  18,115
  22,499
  26,448
  29,791
  32,396
  34,167
  35,056
  35,066
  34,245
  32,684
  30,505
  27,851
  24,879
  21,742
  18,586
  15,535
  12,691
  10,127
  7,889
  5,994
  4,438
  3,200
  2,244
Current shareholders' claim on cash, %
  100
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2
  89.2

Imperial Oil Limited explores for, produces, and sells crude oil and natural gas in Canada. The company operates through three segments: Upstream, Downstream, and Chemical. The Upstream segment explores for and produces crude oil, natural gas, synthetic oil, and bitumen. As of December 31, 2015, the Upstream segment had 513 million oil-equivalent barrels of proved undeveloped reserves. The Downstream segment is involved in the transportation and refining of crude oil, as well as blending, distribution, and marketing of refined products. This segment also maintains a distribution system to handle bulk and packaged petroleum products moving from refineries to market by pipeline, tanker, rail, and road transport; and owns and operates natural gas liquids and products pipelines in Alberta, Manitoba, and Ontario, as well as holds interests in crude oil and products pipeline companies. In addition, this segment sells petroleum products under the Esso and Mobil brand to motoring public through approximately 1,700 Esso retail service stations of which approximately 470 are company owned or leased; and approximately 1,250 Esso branded service stations, which provide customer services. The Chemical segment manufactures and markets various petrochemicals, including ethylene, benzene, aromatic and aliphatic solvents, plasticizer intermediates, and polyethylene resins. The company serves agriculture, residential heating, and commercial markets through branded resellers, as well as sells petroleum products to large industrial and transportation customers, independent marketers, resellers, and other refiners. Imperial Oil Limited was founded in 1880 and is headquartered in Calgary, Canada. Imperial Oil Limited operates as a subsidiary of Exxon Mobil Corporation.

FINANCIAL RATIOS  of  Imperial Oil Limited (IMO)

Valuation Ratios
P/E Ratio 14.2
Price to Sales 1.2
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 15.2
Price to Free Cash Flow 32.5
Growth Rates
Sales Growth Rate -5.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -64.2%
Cap. Spend. - 3 Yr. Gr. Rate -29.8%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 20.1%
Total Debt to Equity 20.9%
Interest Coverage 34
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 6%
Return On Total Capital 7%
Ret/ On T. Cap. - 3 Yr. Avg. 8.1%
Return On Equity 8.9%
Return On Equity - 3 Yr. Avg. 10.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 13.6%
Gross Margin - 3 Yr. Avg. 16.7%
EBITDA Margin 16.3%
EBITDA Margin - 3 Yr. Avg. 15.3%
Operating Margin 2.4%
Oper. Margin - 3 Yr. Avg. 7.7%
Pre-Tax Margin 9.6%
Pre-Tax Margin - 3 Yr. Avg. 10.1%
Net Profit Margin 8.5%
Net Profit Margin - 3 Yr. Avg. 7.6%
Effective Tax Rate 11.4%
Eff/ Tax Rate - 3 Yr. Avg. 25.9%
Payout Ratio 22.7%

IMO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IMO stock intrinsic value calculation we used $25446 million for the last fiscal year's total revenue generated by Imperial Oil Limited. The default revenue input number comes from 2016 income statement of Imperial Oil Limited. 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 IMO stock valuation model: a) initial revenue growth rate of 34.6% 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 5%, whose default value for IMO is calculated based on our internal credit rating of Imperial Oil Limited, 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 Imperial Oil Limited.
    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 IMO stock the variable cost ratio is equal to 18.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $20440 million in the base year in the intrinsic value calculation for IMO 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 Imperial Oil Limited.

Corporate tax rate of 27% is the nominal tax rate for Imperial Oil Limited. 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 IMO 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 IMO are equal to 146.3%.

Life of production assets of 23 years is the average useful life of capital assets used in Imperial Oil Limited 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 IMO is equal to -0.9%. 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 - $25021 million for Imperial Oil Limited - 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 842.064 million for Imperial Oil Limited 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 Imperial Oil Limited at the current share price and the inputted number of shares is $30.4 billion.

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Stock chart of IMO Financial statements of IMO
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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