Intrinsic value of Imperial Oil Limited - IMO

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$39.71

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$39.71

 
Intrinsic value

$134.50

 
Up/down potential

+239%

 
Rating

str. buy

 
Value-price divergence* premium content

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*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 33.8

 

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, %
  -5.08
  18.10
  16.79
  15.61
  14.55
  13.59
  12.74
  11.96
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.18
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.85
  5.76
  5.69
  5.62
Revenue, $m
  25,446
  30,052
  35,097
  40,576
  46,480
  52,799
  59,523
  66,644
  74,151
  82,041
  90,306
  98,946
  107,961
  117,354
  127,129
  137,296
  147,864
  158,846
  170,259
  182,119
  194,448
  207,267
  220,602
  234,478
  248,924
  263,971
  279,652
  296,002
  313,057
  330,856
  349,440
Variable operating expenses, $m
 
  5,586
  6,521
  7,536
  8,630
  9,801
  11,046
  12,366
  13,757
  15,218
  16,750
  18,332
  20,002
  21,742
  23,553
  25,437
  27,395
  29,429
  31,544
  33,741
  36,025
  38,400
  40,871
  43,441
  46,118
  48,906
  51,811
  54,840
  58,000
  61,297
  64,740
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
  26,537
  27,996
  29,548
  31,192
  32,927
  34,750
  36,663
  38,661
  40,745
  42,915
  45,151
  47,492
  49,919
  52,434
  55,040
  57,738
  60,531
  63,423
  66,417
  69,518
  72,731
  76,060
  79,510
  83,088
  86,801
  90,653
  94,653
  98,808
  103,126
  107,614
Operating income, $m
  601
  3,514
  7,102
  11,029
  15,288
  19,873
  24,773
  29,981
  35,491
  41,296
  47,392
  53,796
  60,470
  67,435
  74,695
  82,256
  90,126
  98,315
  106,836
  115,702
  124,930
  134,536
  144,542
  154,967
  165,836
  177,171
  188,999
  201,349
  214,249
  227,730
  241,825
EBITDA, $m
  2,229
  5,445
  9,353
  13,628
  18,264
  23,250
  28,578
  34,239
  40,226
  46,533
  53,155
  60,090
  67,337
  74,900
  82,781
  90,989
  99,531
  108,419
  117,665
  127,286
  137,298
  147,720
  158,574
  169,882
  181,669
  193,962
  206,788
  220,177
  234,162
  248,775
  264,053
Interest expense (income), $m
  73
  176
  280
  393
  517
  650
  793
  945
  1,106
  1,275
  1,453
  1,640
  1,835
  2,038
  2,251
  2,471
  2,701
  2,939
  3,187
  3,445
  3,713
  3,991
  4,281
  4,582
  4,895
  5,221
  5,561
  5,915
  6,284
  6,669
  7,071
Earnings before tax, $m
  2,444
  3,338
  6,822
  10,635
  14,771
  19,222
  23,980
  29,036
  34,385
  40,020
  45,939
  52,156
  58,635
  65,397
  72,444
  79,785
  87,425
  95,376
  103,648
  112,257
  121,217
  130,545
  140,262
  150,386
  160,941
  171,950
  183,439
  195,434
  207,965
  221,061
  234,755
Tax expense, $m
  279
  901
  1,842
  2,872
  3,988
  5,190
  6,475
  7,840
  9,284
  10,806
  12,403
  14,082
  15,831
  17,657
  19,560
  21,542
  23,605
  25,751
  27,985
  30,309
  32,729
  35,247
  37,871
  40,604
  43,454
  46,426
  49,528
  52,767
  56,150
  59,686
  63,384
Net income, $m
  2,165
  2,437
  4,980
  7,764
  10,783
  14,032
  17,505
  21,197
  25,101
  29,215
  33,535
  38,074
  42,804
  47,740
  52,884
  58,243
  63,820
  69,624
  75,663
  81,947
  88,488
  95,298
  102,391
  109,782
  117,487
  125,523
  133,910
  142,667
  151,814
  161,375
  171,371

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
  48,706
  56,884
  65,764
  75,333
  85,574
  96,472
  108,012
  120,181
  132,967
  146,363
  160,367
  174,978
  190,201
  206,044
  222,521
  239,649
  257,449
  275,946
  295,169
  315,151
  335,928
  357,539
  380,028
  403,442
  427,830
  453,245
  479,744
  507,385
  536,233
  566,353
Adjusted assets (=assets-cash), $m
  41,263
  48,706
  56,884
  65,764
  75,333
  85,574
  96,472
  108,012
  120,181
  132,967
  146,363
  160,367
  174,978
  190,201
  206,044
  222,521
  239,649
  257,449
  275,946
  295,169
  315,151
  335,928
  357,539
  380,028
  403,442
  427,830
  453,245
  479,744
  507,385
  536,233
  566,353
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
  43,966
  51,348
  59,363
  68,001
  77,245
  87,083
  97,500
  108,484
  120,025
  132,118
  144,759
  157,948
  171,689
  185,990
  200,863
  216,324
  232,392
  249,088
  266,440
  284,477
  303,232
  322,740
  343,041
  364,176
  386,190
  409,131
  433,051
  458,002
  484,042
  511,231
Working capital, $m
  -52
  -270
  -316
  -365
  -418
  -475
  -536
  -600
  -667
  -738
  -813
  -891
  -972
  -1,056
  -1,144
  -1,236
  -1,331
  -1,430
  -1,532
  -1,639
  -1,750
  -1,865
  -1,985
  -2,110
  -2,240
  -2,376
  -2,517
  -2,664
  -2,818
  -2,978
  -3,145
Total debt, $m
  5,234
  7,986
  11,241
  14,775
  18,583
  22,660
  26,997
  31,590
  36,433
  41,522
  46,854
  52,427
  58,242
  64,301
  70,607
  77,164
  83,981
  91,066
  98,427
  106,078
  114,031
  122,300
  130,902
  139,852
  149,171
  158,877
  168,993
  179,539
  190,540
  202,022
  214,010
Total liabilities, $m
  16,633
  19,385
  22,640
  26,174
  29,982
  34,059
  38,396
  42,989
  47,832
  52,921
  58,253
  63,826
  69,641
  75,700
  82,006
  88,563
  95,380
  102,465
  109,826
  117,477
  125,430
  133,699
  142,301
  151,251
  160,570
  170,276
  180,392
  190,938
  201,939
  213,421
  225,409
Total equity, $m
  25,021
  29,321
  34,244
  39,590
  45,350
  51,516
  58,076
  65,023
  72,349
  80,046
  88,111
  96,541
  105,337
  114,501
  124,039
  133,958
  144,269
  154,984
  166,119
  177,692
  189,721
  202,228
  215,239
  228,777
  242,872
  257,554
  272,854
  288,806
  305,446
  322,812
  340,945
Total liabilities and equity, $m
  41,654
  48,706
  56,884
  65,764
  75,332
  85,575
  96,472
  108,012
  120,181
  132,967
  146,364
  160,367
  174,978
  190,201
  206,045
  222,521
  239,649
  257,449
  275,945
  295,169
  315,151
  335,927
  357,540
  380,028
  403,442
  427,830
  453,246
  479,744
  507,385
  536,233
  566,354
Debt-to-equity ratio
  0.209
  0.270
  0.330
  0.370
  0.410
  0.440
  0.460
  0.490
  0.500
  0.520
  0.530
  0.540
  0.550
  0.560
  0.570
  0.580
  0.580
  0.590
  0.590
  0.600
  0.600
  0.600
  0.610
  0.610
  0.610
  0.620
  0.620
  0.620
  0.620
  0.630
  0.630
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
  2,437
  4,980
  7,764
  10,783
  14,032
  17,505
  21,197
  25,101
  29,215
  33,535
  38,074
  42,804
  47,740
  52,884
  58,243
  63,820
  69,624
  75,663
  81,947
  88,488
  95,298
  102,391
  109,782
  117,487
  125,523
  133,910
  142,667
  151,814
  161,375
  171,371
Depreciation, amort., depletion, $m
  1,628
  1,930
  2,251
  2,600
  2,975
  3,377
  3,805
  4,258
  4,735
  5,237
  5,763
  6,294
  6,867
  7,465
  8,087
  8,733
  9,405
  10,104
  10,830
  11,584
  12,369
  13,184
  14,032
  14,915
  15,834
  16,791
  17,788
  18,828
  19,913
  21,045
  22,227
Funds from operations, $m
  2,367
  4,367
  7,231
  10,363
  13,758
  17,409
  21,310
  25,454
  29,836
  34,452
  39,298
  44,368
  49,671
  55,204
  60,971
  66,976
  73,226
  79,728
  86,493
  93,532
  100,857
  108,482
  116,423
  124,697
  133,320
  142,314
  151,699
  161,495
  171,727
  182,420
  193,598
Change in working capital, $m
  352
  -41
  -45
  -49
  -53
  -57
  -61
  -64
  -68
  -71
  -74
  -78
  -81
  -85
  -88
  -91
  -95
  -99
  -103
  -107
  -111
  -115
  -120
  -125
  -130
  -135
  -141
  -147
  -153
  -160
  -167
Cash from operations, $m
  2,015
  3,781
  7,277
  10,413
  13,811
  17,466
  21,371
  25,518
  29,904
  34,523
  39,372
  44,445
  49,752
  55,289
  61,059
  67,067
  73,321
  79,827
  86,596
  93,639
  100,968
  108,597
  116,543
  124,821
  133,450
  142,450
  151,840
  161,642
  171,881
  182,580
  193,766
Maintenance CAPEX, $m
  0
  -1,619
  -1,912
  -2,233
  -2,581
  -2,957
  -3,358
  -3,786
  -4,239
  -4,717
  -5,218
  -5,744
  -6,294
  -6,867
  -7,465
  -8,087
  -8,733
  -9,405
  -10,104
  -10,830
  -11,584
  -12,369
  -13,184
  -14,032
  -14,915
  -15,834
  -16,791
  -17,788
  -18,828
  -19,913
  -21,045
New CAPEX, $m
  -1,073
  -6,731
  -7,382
  -8,016
  -8,637
  -9,245
  -9,838
  -10,417
  -10,984
  -11,542
  -12,093
  -12,641
  -13,189
  -13,741
  -14,301
  -14,873
  -15,461
  -16,067
  -16,697
  -17,352
  -18,037
  -18,755
  -19,508
  -20,301
  -21,135
  -22,014
  -22,941
  -23,919
  -24,951
  -26,040
  -27,189
Cash from investing activities, $m
  1,947
  -8,350
  -9,294
  -10,249
  -11,218
  -12,202
  -13,196
  -14,203
  -15,223
  -16,259
  -17,311
  -18,385
  -19,483
  -20,608
  -21,766
  -22,960
  -24,194
  -25,472
  -26,801
  -28,182
  -29,621
  -31,124
  -32,692
  -34,333
  -36,050
  -37,848
  -39,732
  -41,707
  -43,779
  -45,953
  -48,234
Free cash flow, $m
  3,962
  -4,569
  -2,017
  164
  2,593
  5,265
  8,175
  11,315
  14,681
  18,265
  22,061
  26,060
  30,269
  34,680
  39,293
  44,108
  49,127
  54,354
  59,795
  65,457
  71,346
  77,474
  83,851
  90,489
  97,401
  104,602
  112,107
  119,935
  128,101
  136,627
  145,531
Issuance/(repayment) of debt, $m
  -3,282
  2,954
  3,255
  3,534
  3,808
  4,076
  4,337
  4,593
  4,843
  5,089
  5,332
  5,573
  5,815
  6,059
  6,306
  6,558
  6,817
  7,084
  7,362
  7,651
  7,953
  8,269
  8,601
  8,951
  9,319
  9,706
  10,115
  10,546
  11,001
  11,481
  11,988
Issuance/(repurchase) of shares, $m
  0
  5,915
  3,685
  1,647
  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
  8,869
  6,940
  5,181
  3,808
  4,076
  4,337
  4,593
  4,843
  5,089
  5,332
  5,573
  5,815
  6,059
  6,306
  6,558
  6,817
  7,084
  7,362
  7,651
  7,953
  8,269
  8,601
  8,951
  9,319
  9,706
  10,115
  10,546
  11,001
  11,481
  11,988
Total cash flow (excl. dividends), $m
  680
  -1,615
  1,238
  3,699
  6,401
  9,341
  12,512
  15,908
  19,524
  23,354
  27,393
  31,634
  36,084
  40,739
  45,598
  50,665
  55,944
  61,439
  67,157
  73,107
  79,299
  85,743
  92,452
  99,440
  106,719
  114,308
  122,223
  130,481
  139,103
  148,108
  157,519
Retained Cash Flow (-), $m
  -1,596
  -4,489
  -4,923
  -5,346
  -5,760
  -6,165
  -6,561
  -6,947
  -7,325
  -7,697
  -8,065
  -8,430
  -8,796
  -9,164
  -9,538
  -9,919
  -10,311
  -10,715
  -11,135
  -11,572
  -12,029
  -12,508
  -13,010
  -13,539
  -14,095
  -14,681
  -15,300
  -15,952
  -16,640
  -17,366
  -18,132
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
 
  0
  0
  0
  641
  3,176
  5,951
  8,961
  12,199
  15,656
  19,328
  23,204
  27,289
  31,575
  36,061
  40,746
  45,633
  50,723
  56,022
  61,535
  67,270
  73,236
  79,442
  85,901
  92,624
  99,627
  106,923
  114,529
  122,462
  130,742
  139,387
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
 
  0
  0
  0
  512
  2,364
  4,106
  5,691
  7,081
  8,244
  9,157
  9,806
  10,194
  10,325
  10,215
  9,889
  9,378
  8,718
  7,947
  7,105
  6,228
  5,353
  4,508
  3,719
  3,003
  2,372
  1,832
  1,381
  1,016
  728
  508
Current shareholders' claim on cash, %
  100
  85.0
  77.8
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1
  75.1

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 15.5
Price to Sales 1.3
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 16.7
Price to Free Cash Flow 35.7
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 18.1% 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 850.148 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 $33.8 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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