Intrinsic value of Imperial Oil Limited - IMO

Previous Close

$39.29

  Intrinsic Value

$35.04

stock screener

  Rating & Target

hold

-11%

Previous close

$39.29

 
Intrinsic value

$35.04

 
Up/down potential

-11%

 
Rating

hold

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 32.9

 

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
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.17
  5.15
  5.13
  5.12
  5.11
Revenue, $m
  25,446
  27,304
  29,234
  31,240
  33,326
  35,495
  37,752
  40,101
  42,547
  45,096
  47,753
  50,523
  53,414
  56,432
  59,583
  62,876
  66,317
  69,916
  73,680
  77,618
  81,740
  86,056
  90,575
  95,309
  100,269
  105,466
  110,914
  116,624
  122,611
  128,890
  135,474
Variable operating expenses, $m
 
  5,077
  5,435
  5,806
  6,193
  6,595
  7,013
  7,448
  7,901
  8,373
  8,866
  9,360
  9,896
  10,455
  11,039
  11,649
  12,287
  12,953
  13,651
  14,380
  15,144
  15,943
  16,781
  17,658
  18,577
  19,540
  20,549
  21,607
  22,716
  23,879
  25,099
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
  26,028
  26,910
  27,818
  28,755
  29,721
  30,717
  31,745
  32,805
  33,900
  35,031
  36,179
  37,386
  38,632
  39,920
  41,252
  42,630
  44,055
  45,530
  47,056
  48,637
  50,274
  51,970
  53,727
  55,547
  57,435
  59,391
  61,420
  63,524
  65,708
  67,973
Operating income, $m
  601
  1,275
  2,324
  3,422
  4,571
  5,775
  7,035
  8,356
  9,742
  11,196
  12,722
  14,344
  16,029
  17,800
  19,663
  21,624
  23,688
  25,861
  28,150
  30,562
  33,103
  35,782
  38,606
  41,583
  44,722
  48,032
  51,523
  55,204
  59,087
  63,182
  67,500
EBITDA, $m
  2,229
  3,031
  4,203
  5,428
  6,710
  8,051
  9,455
  10,926
  12,467
  14,083
  15,778
  17,557
  19,426
  21,389
  23,453
  25,623
  27,906
  30,308
  32,837
  35,499
  38,302
  41,256
  44,367
  47,645
  51,100
  54,741
  58,578
  62,623
  66,886
  71,380
  76,118
Interest expense (income), $m
  73
  176
  217
  261
  306
  353
  402
  453
  506
  562
  619
  679
  742
  807
  875
  946
  1,021
  1,098
  1,180
  1,265
  1,353
  1,446
  1,544
  1,646
  1,753
  1,865
  1,982
  2,105
  2,234
  2,369
  2,511
Earnings before tax, $m
  2,444
  1,099
  2,107
  3,161
  4,265
  5,421
  6,633
  7,903
  9,235
  10,634
  12,103
  13,665
  15,287
  16,993
  18,788
  20,677
  22,667
  24,762
  26,970
  29,297
  31,750
  34,335
  37,062
  39,937
  42,969
  46,167
  49,541
  53,099
  56,853
  60,813
  64,989
Tax expense, $m
  279
  297
  569
  853
  1,152
  1,464
  1,791
  2,134
  2,494
  2,871
  3,268
  3,689
  4,127
  4,588
  5,073
  5,583
  6,120
  6,686
  7,282
  7,910
  8,572
  9,271
  10,007
  10,783
  11,602
  12,465
  13,376
  14,337
  15,350
  16,419
  17,547
Net income, $m
  2,165
  803
  1,538
  2,308
  3,113
  3,957
  4,842
  5,769
  6,742
  7,763
  8,835
  9,975
  11,159
  12,405
  13,715
  15,095
  16,547
  18,077
  19,688
  21,387
  23,177
  25,065
  27,055
  29,154
  31,367
  33,702
  36,165
  38,762
  41,503
  44,393
  47,442

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
  44,252
  47,381
  50,632
  54,013
  57,529
  61,187
  64,994
  68,958
  73,089
  77,395
  81,885
  86,571
  91,461
  96,569
  101,906
  107,484
  113,316
  119,416
  125,799
  132,480
  139,475
  146,799
  154,472
  162,510
  170,934
  179,763
  189,018
  198,722
  208,897
  219,568
Adjusted assets (=assets-cash), $m
  41,263
  44,252
  47,381
  50,632
  54,013
  57,529
  61,187
  64,994
  68,958
  73,089
  77,395
  81,885
  86,571
  91,461
  96,569
  101,906
  107,484
  113,316
  119,416
  125,799
  132,480
  139,475
  146,799
  154,472
  162,510
  170,934
  179,763
  189,018
  198,722
  208,897
  219,568
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
  39,945
  42,769
  45,704
  48,756
  51,930
  55,231
  58,668
  62,247
  65,975
  69,862
  73,915
  78,145
  82,560
  87,170
  91,987
  97,022
  102,287
  107,794
  113,555
  119,586
  125,900
  132,512
  139,437
  146,693
  154,297
  162,267
  170,621
  179,381
  188,566
  198,198
Working capital, $m
  -52
  -246
  -263
  -281
  -300
  -319
  -340
  -361
  -383
  -406
  -430
  -455
  -481
  -508
  -536
  -566
  -597
  -629
  -663
  -699
  -736
  -775
  -815
  -858
  -902
  -949
  -998
  -1,050
  -1,104
  -1,160
  -1,219
Total debt, $m
  5,234
  6,213
  7,459
  8,753
  10,098
  11,497
  12,953
  14,469
  16,046
  17,690
  19,404
  21,191
  23,056
  25,003
  27,036
  29,159
  31,379
  33,701
  36,129
  38,669
  41,328
  44,112
  47,027
  50,081
  53,280
  56,633
  60,147
  63,830
  67,692
  71,742
  75,989
Total liabilities, $m
  16,633
  17,612
  18,858
  20,152
  21,497
  22,896
  24,352
  25,868
  27,445
  29,089
  30,803
  32,590
  34,455
  36,402
  38,435
  40,558
  42,778
  45,100
  47,528
  50,068
  52,727
  55,511
  58,426
  61,480
  64,679
  68,032
  71,546
  75,229
  79,091
  83,141
  87,388
Total equity, $m
  25,021
  26,640
  28,523
  30,481
  32,516
  34,632
  36,834
  39,126
  41,513
  44,000
  46,592
  49,295
  52,115
  55,060
  58,135
  61,347
  64,705
  68,216
  71,889
  75,731
  79,753
  83,964
  88,373
  92,992
  97,831
  102,902
  108,217
  113,789
  119,631
  125,756
  132,180
Total liabilities and equity, $m
  41,654
  44,252
  47,381
  50,633
  54,013
  57,528
  61,186
  64,994
  68,958
  73,089
  77,395
  81,885
  86,570
  91,462
  96,570
  101,905
  107,483
  113,316
  119,417
  125,799
  132,480
  139,475
  146,799
  154,472
  162,510
  170,934
  179,763
  189,018
  198,722
  208,897
  219,568
Debt-to-equity ratio
  0.209
  0.230
  0.260
  0.290
  0.310
  0.330
  0.350
  0.370
  0.390
  0.400
  0.420
  0.430
  0.440
  0.450
  0.470
  0.480
  0.480
  0.490
  0.500
  0.510
  0.520
  0.530
  0.530
  0.540
  0.540
  0.550
  0.560
  0.560
  0.570
  0.570
  0.570
Adjusted equity ratio
  0.597
  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
  803
  1,538
  2,308
  3,113
  3,957
  4,842
  5,769
  6,742
  7,763
  8,835
  9,975
  11,159
  12,405
  13,715
  15,095
  16,547
  18,077
  19,688
  21,387
  23,177
  25,065
  27,055
  29,154
  31,367
  33,702
  36,165
  38,762
  41,503
  44,393
  47,442
Depreciation, amort., depletion, $m
  1,628
  1,755
  1,878
  2,006
  2,138
  2,276
  2,420
  2,569
  2,725
  2,887
  3,056
  3,214
  3,398
  3,590
  3,790
  3,999
  4,218
  4,447
  4,687
  4,937
  5,199
  5,474
  5,761
  6,062
  6,378
  6,709
  7,055
  7,418
  7,799
  8,199
  8,617
Funds from operations, $m
  2,367
  2,558
  3,416
  4,313
  5,252
  6,234
  7,262
  8,339
  9,467
  10,650
  11,891
  13,189
  14,557
  15,994
  17,505
  19,094
  20,765
  22,524
  24,375
  26,324
  28,377
  30,539
  32,816
  35,216
  37,745
  40,411
  43,220
  46,181
  49,302
  52,592
  56,060
Change in working capital, $m
  352
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -57
  -59
Cash from operations, $m
  2,015
  2,575
  3,434
  4,331
  5,271
  6,253
  7,282
  8,360
  9,489
  10,673
  11,915
  13,214
  14,583
  16,022
  17,534
  19,124
  20,796
  22,556
  24,409
  26,359
  28,414
  30,577
  32,857
  35,259
  37,790
  40,457
  43,269
  46,232
  49,356
  52,648
  56,119
Maintenance CAPEX, $m
  0
  -1,619
  -1,737
  -1,860
  -1,987
  -2,120
  -2,258
  -2,401
  -2,551
  -2,706
  -2,868
  -3,037
  -3,214
  -3,398
  -3,590
  -3,790
  -3,999
  -4,218
  -4,447
  -4,687
  -4,937
  -5,199
  -5,474
  -5,761
  -6,062
  -6,378
  -6,709
  -7,055
  -7,418
  -7,799
  -8,199
New CAPEX, $m
  -1,073
  -2,711
  -2,824
  -2,935
  -3,052
  -3,174
  -3,302
  -3,437
  -3,579
  -3,729
  -3,887
  -4,053
  -4,229
  -4,415
  -4,611
  -4,817
  -5,035
  -5,265
  -5,507
  -5,762
  -6,031
  -6,314
  -6,612
  -6,926
  -7,256
  -7,604
  -7,970
  -8,354
  -8,759
  -9,185
  -9,633
Cash from investing activities, $m
  1,947
  -4,330
  -4,561
  -4,795
  -5,039
  -5,294
  -5,560
  -5,838
  -6,130
  -6,435
  -6,755
  -7,090
  -7,443
  -7,813
  -8,201
  -8,607
  -9,034
  -9,483
  -9,954
  -10,449
  -10,968
  -11,513
  -12,086
  -12,687
  -13,318
  -13,982
  -14,679
  -15,409
  -16,177
  -16,984
  -17,832
Free cash flow, $m
  3,962
  -1,755
  -1,127
  -463
  232
  960
  1,723
  2,522
  3,359
  4,238
  5,160
  6,123
  7,140
  8,209
  9,333
  10,516
  11,762
  13,073
  14,455
  15,911
  17,446
  19,064
  20,771
  22,572
  24,471
  26,476
  28,591
  30,823
  33,178
  35,664
  38,288
Issuance/(repayment) of debt, $m
  -3,282
  1,181
  1,245
  1,294
  1,345
  1,399
  1,456
  1,515
  1,578
  1,644
  1,714
  1,787
  1,865
  1,947
  2,033
  2,124
  2,220
  2,321
  2,428
  2,540
  2,659
  2,784
  2,915
  3,054
  3,199
  3,353
  3,514
  3,684
  3,862
  4,050
  4,247
Issuance/(repurchase) of shares, $m
  0
  1,005
  345
  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
  2,186
  1,590
  1,294
  1,345
  1,399
  1,456
  1,515
  1,578
  1,644
  1,714
  1,787
  1,865
  1,947
  2,033
  2,124
  2,220
  2,321
  2,428
  2,540
  2,659
  2,784
  2,915
  3,054
  3,199
  3,353
  3,514
  3,684
  3,862
  4,050
  4,247
Total cash flow (excl. dividends), $m
  680
  432
  463
  831
  1,577
  2,359
  3,178
  4,037
  4,937
  5,882
  6,874
  7,910
  9,005
  10,156
  11,366
  12,640
  13,982
  15,395
  16,883
  18,451
  20,105
  21,848
  23,687
  25,625
  27,671
  29,828
  32,105
  34,506
  37,040
  39,714
  42,535
Retained Cash Flow (-), $m
  -1,596
  -1,808
  -1,883
  -1,958
  -2,035
  -2,116
  -2,202
  -2,292
  -2,387
  -2,487
  -2,592
  -2,703
  -2,821
  -2,944
  -3,075
  -3,213
  -3,358
  -3,511
  -3,672
  -3,843
  -4,022
  -4,211
  -4,409
  -4,619
  -4,839
  -5,071
  -5,315
  -5,572
  -5,842
  -6,126
  -6,424
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
 
  -1,187
  -1,420
  -1,127
  -458
  243
  976
  1,745
  2,551
  3,395
  4,282
  5,207
  6,184
  7,211
  8,291
  9,428
  10,624
  11,883
  13,210
  14,609
  16,083
  17,638
  19,277
  21,007
  22,832
  24,757
  26,790
  28,935
  31,199
  33,588
  36,111
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
 
  -1,131
  -1,282
  -959
  -366
  181
  674
  1,108
  1,481
  1,788
  2,028
  2,201
  2,310
  2,358
  2,349
  2,288
  2,183
  2,042
  1,874
  1,687
  1,489
  1,289
  1,094
  910
  740
  590
  459
  349
  259
  187
  132
Current shareholders' claim on cash, %
  100
  97.0
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1

Imperial Oil Limited is an integrated oil company. The Company is engaged in all the phases of the petroleum industry in Canada, including exploration for, and production and sale of, crude oil and natural gas. Its operations are conducted in three segments: Upstream, Downstream and Chemical. The Upstream operations include the exploration for, and production of, crude oil, natural gas, synthetic oil and bitumen. It holds an interest in the Kearl oil sands project. The Downstream operations consist of the transportation and refining of crude oil, blending of refined products and the distribution and marketing of those products. The Chemical operations consist of the manufacturing and marketing of various petrochemicals. The Company is involved in the exploration for and development of crude oil and natural gas in Canada. The Company transports its crude oil production and third-party crude oil required to supply refineries by contracted pipelines, common carrier pipelines and rail.

FINANCIAL RATIOS  of  Imperial Oil Limited (IMO)

Valuation Ratios
P/E Ratio 15.4
Price to Sales 1.3
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 16.5
Price to Free Cash Flow 35.4
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 7.3% 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 837.519 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 $32.9 billion.

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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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