Intrinsic value of Inter Pipeline Ltd. - IPL

Previous Close

$26.40

  Intrinsic Value

$1.89

stock screener

  Rating & Target

str. sell

-93%

Previous close

$26.40

 
Intrinsic value

$1.89

 
Up/down potential

-93%

 
Rating

str. sell

We calculate the intrinsic value of IPL 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 9.9

 

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, %
  8.89
  24.90
  22.91
  21.12
  19.51
  18.06
  16.75
  15.58
  14.52
  13.57
  12.71
  11.94
  11.24
  10.62
  10.06
  9.55
  9.10
  8.69
  8.32
  7.99
  7.69
  7.42
  7.18
  6.96
  6.76
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
Revenue, $m
  1,825
  2,279
  2,802
  3,393
  4,055
  4,787
  5,589
  6,460
  7,398
  8,402
  9,469
  10,600
  11,792
  13,044
  14,356
  15,727
  17,158
  18,649
  20,200
  21,814
  23,491
  25,234
  27,045
  28,927
  30,883
  32,918
  35,034
  37,236
  39,529
  41,917
  44,406
Variable operating expenses, $m
 
  1,191
  1,456
  1,756
  2,092
  2,464
  2,871
  3,313
  3,789
  4,299
  4,841
  5,382
  5,987
  6,622
  7,289
  7,985
  8,711
  9,468
  10,256
  11,075
  11,926
  12,811
  13,731
  14,686
  15,679
  16,712
  17,787
  18,905
  20,069
  21,281
  22,545
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  1,046
  1,191
  1,456
  1,756
  2,092
  2,464
  2,871
  3,313
  3,789
  4,299
  4,841
  5,382
  5,987
  6,622
  7,289
  7,985
  8,711
  9,468
  10,256
  11,075
  11,926
  12,811
  13,731
  14,686
  15,679
  16,712
  17,787
  18,905
  20,069
  21,281
  22,545
Operating income, $m
  779
  1,089
  1,346
  1,637
  1,963
  2,323
  2,718
  3,147
  3,609
  4,103
  4,628
  5,218
  5,805
  6,422
  7,068
  7,743
  8,447
  9,181
  9,945
  10,739
  11,564
  12,422
  13,314
  14,241
  15,204
  16,205
  17,247
  18,331
  19,460
  20,636
  21,861
EBITDA, $m
  1,009
  1,496
  1,839
  2,227
  2,662
  3,142
  3,669
  4,240
  4,856
  5,514
  6,215
  6,957
  7,740
  8,562
  9,423
  10,323
  11,262
  12,241
  13,259
  14,318
  15,419
  16,562
  17,751
  18,987
  20,271
  21,606
  22,995
  24,441
  25,945
  27,513
  29,146
Interest expense (income), $m
  140
  202
  263
  333
  411
  500
  597
  704
  820
  945
  1,079
  1,221
  1,371
  1,530
  1,697
  1,872
  2,054
  2,245
  2,443
  2,650
  2,865
  3,088
  3,320
  3,562
  3,812
  4,073
  4,344
  4,626
  4,919
  5,224
  5,543
Earnings before tax, $m
  629
  886
  1,083
  1,305
  1,552
  1,824
  2,121
  2,443
  2,789
  3,158
  3,550
  3,998
  4,434
  4,892
  5,371
  5,871
  6,393
  6,936
  7,501
  8,089
  8,700
  9,334
  9,994
  10,679
  11,392
  12,133
  12,903
  13,706
  14,541
  15,411
  16,318
Tax expense, $m
  151
  239
  292
  352
  419
  492
  573
  660
  753
  853
  958
  1,079
  1,197
  1,321
  1,450
  1,585
  1,726
  1,873
  2,025
  2,184
  2,349
  2,520
  2,698
  2,883
  3,076
  3,276
  3,484
  3,701
  3,926
  4,161
  4,406
Net income, $m
  450
  647
  790
  952
  1,133
  1,331
  1,548
  1,783
  2,036
  2,305
  2,591
  2,918
  3,237
  3,571
  3,921
  4,286
  4,667
  5,063
  5,476
  5,905
  6,351
  6,814
  7,295
  7,796
  8,316
  8,857
  9,419
  10,005
  10,615
  11,250
  11,912

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  21
  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
  10,152
  12,663
  15,565
  18,852
  22,529
  26,597
  31,052
  35,889
  41,099
  46,675
  52,607
  58,888
  65,510
  72,467
  79,756
  87,375
  95,324
  103,605
  112,223
  121,187
  130,504
  140,186
  150,248
  160,705
  171,574
  182,877
  194,633
  206,867
  219,604
  232,872
  246,698
Adjusted assets (=assets-cash), $m
  10,131
  12,663
  15,565
  18,852
  22,529
  26,597
  31,052
  35,889
  41,099
  46,675
  52,607
  58,888
  65,510
  72,467
  79,756
  87,375
  95,324
  103,605
  112,223
  121,187
  130,504
  140,186
  150,248
  160,705
  171,574
  182,877
  194,633
  206,867
  219,604
  232,872
  246,698
Revenue / Adjusted assets
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
Average production assets, $m
  8,982
  11,219
  13,790
  16,702
  19,960
  23,564
  27,511
  31,796
  36,412
  41,352
  46,608
  52,172
  58,039
  64,203
  70,661
  77,411
  84,453
  91,790
  99,426
  107,367
  115,621
  124,199
  133,114
  142,378
  152,008
  162,021
  172,437
  183,276
  194,561
  206,315
  218,565
Working capital, $m
  -1,813
  -119
  -146
  -176
  -211
  -249
  -291
  -336
  -385
  -437
  -492
  -551
  -613
  -678
  -747
  -818
  -892
  -970
  -1,050
  -1,134
  -1,222
  -1,312
  -1,406
  -1,504
  -1,606
  -1,712
  -1,822
  -1,936
  -2,055
  -2,180
  -2,309
Total debt, $m
  5,806
  7,516
  9,504
  11,755
  14,275
  17,061
  20,113
  23,426
  26,995
  30,814
  34,878
  39,180
  43,716
  48,482
  53,475
  58,694
  64,139
  69,811
  75,715
  81,855
  88,237
  94,870
  101,762
  108,925
  116,371
  124,113
  132,166
  140,546
  149,271
  158,359
  167,830
Total liabilities, $m
  6,964
  8,674
  10,662
  12,913
  15,433
  18,219
  21,271
  24,584
  28,153
  31,972
  36,036
  40,338
  44,874
  49,640
  54,633
  59,852
  65,297
  70,969
  76,873
  83,013
  89,395
  96,028
  102,920
  110,083
  117,529
  125,271
  133,324
  141,704
  150,429
  159,517
  168,988
Total equity, $m
  3,188
  3,989
  4,903
  5,938
  7,097
  8,378
  9,782
  11,305
  12,946
  14,703
  16,571
  18,550
  20,636
  22,827
  25,123
  27,523
  30,027
  32,636
  35,350
  38,174
  41,109
  44,159
  47,328
  50,622
  54,046
  57,606
  61,309
  65,163
  69,175
  73,355
  77,710
Total liabilities and equity, $m
  10,152
  12,663
  15,565
  18,851
  22,530
  26,597
  31,053
  35,889
  41,099
  46,675
  52,607
  58,888
  65,510
  72,467
  79,756
  87,375
  95,324
  103,605
  112,223
  121,187
  130,504
  140,187
  150,248
  160,705
  171,575
  182,877
  194,633
  206,867
  219,604
  232,872
  246,698
Debt-to-equity ratio
  1.821
  1.880
  1.940
  1.980
  2.010
  2.040
  2.060
  2.070
  2.090
  2.100
  2.100
  2.110
  2.120
  2.120
  2.130
  2.130
  2.140
  2.140
  2.140
  2.140
  2.150
  2.150
  2.150
  2.150
  2.150
  2.150
  2.160
  2.160
  2.160
  2.160
  2.160
Adjusted equity ratio
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  450
  647
  790
  952
  1,133
  1,331
  1,548
  1,783
  2,036
  2,305
  2,591
  2,918
  3,237
  3,571
  3,921
  4,286
  4,667
  5,063
  5,476
  5,905
  6,351
  6,814
  7,295
  7,796
  8,316
  8,857
  9,419
  10,005
  10,615
  11,250
  11,912
Depreciation, amort., depletion, $m
  230
  407
  493
  590
  699
  819
  950
  1,093
  1,247
  1,412
  1,587
  1,739
  1,935
  2,140
  2,355
  2,580
  2,815
  3,060
  3,314
  3,579
  3,854
  4,140
  4,437
  4,746
  5,067
  5,401
  5,748
  6,109
  6,485
  6,877
  7,285
Funds from operations, $m
  763
  1,054
  1,283
  1,542
  1,831
  2,150
  2,499
  2,877
  3,283
  3,717
  4,178
  4,657
  5,171
  5,711
  6,276
  6,866
  7,482
  8,123
  8,790
  9,484
  10,205
  10,954
  11,733
  12,542
  13,383
  14,257
  15,167
  16,114
  17,100
  18,127
  19,198
Change in working capital, $m
  -43
  -24
  -27
  -31
  -34
  -38
  -42
  -45
  -49
  -52
  -56
  -59
  -62
  -65
  -68
  -71
  -74
  -78
  -81
  -84
  -87
  -91
  -94
  -98
  -102
  -106
  -110
  -115
  -119
  -124
  -129
Cash from operations, $m
  806
  1,078
  1,311
  1,573
  1,866
  2,188
  2,541
  2,922
  3,332
  3,769
  4,234
  4,716
  5,233
  5,776
  6,344
  6,938
  7,556
  8,200
  8,871
  9,568
  10,292
  11,045
  11,827
  12,640
  13,485
  14,363
  15,277
  16,229
  17,219
  18,252
  19,327
Maintenance CAPEX, $m
  0
  -299
  -374
  -460
  -557
  -665
  -785
  -917
  -1,060
  -1,214
  -1,378
  -1,554
  -1,739
  -1,935
  -2,140
  -2,355
  -2,580
  -2,815
  -3,060
  -3,314
  -3,579
  -3,854
  -4,140
  -4,437
  -4,746
  -5,067
  -5,401
  -5,748
  -6,109
  -6,485
  -6,877
New CAPEX, $m
  -186
  -2,237
  -2,570
  -2,912
  -3,258
  -3,604
  -3,947
  -4,285
  -4,616
  -4,940
  -5,256
  -5,564
  -5,867
  -6,164
  -6,458
  -6,750
  -7,042
  -7,337
  -7,636
  -7,941
  -8,255
  -8,578
  -8,914
  -9,264
  -9,630
  -10,013
  -10,416
  -10,839
  -11,285
  -11,754
  -12,250
Cash from investing activities, $m
  -1,869
  -2,536
  -2,944
  -3,372
  -3,815
  -4,269
  -4,732
  -5,202
  -5,676
  -6,154
  -6,634
  -7,118
  -7,606
  -8,099
  -8,598
  -9,105
  -9,622
  -10,152
  -10,696
  -11,255
  -11,834
  -12,432
  -13,054
  -13,701
  -14,376
  -15,080
  -15,817
  -16,587
  -17,394
  -18,239
  -19,127
Free cash flow, $m
  -1,063
  -1,459
  -1,634
  -1,799
  -1,949
  -2,081
  -2,192
  -2,280
  -2,344
  -2,384
  -2,400
  -2,402
  -2,372
  -2,323
  -2,254
  -2,168
  -2,066
  -1,951
  -1,825
  -1,688
  -1,542
  -1,388
  -1,228
  -1,062
  -891
  -717
  -539
  -358
  -174
  12
  201
Issuance/(repayment) of debt, $m
  979
  1,731
  1,987
  2,252
  2,519
  2,787
  3,052
  3,313
  3,569
  3,819
  4,064
  4,302
  4,536
  4,766
  4,993
  5,219
  5,445
  5,673
  5,904
  6,140
  6,382
  6,633
  6,892
  7,163
  7,446
  7,742
  8,053
  8,380
  8,725
  9,088
  9,471
Issuance/(repurchase) of shares, $m
  600
  154
  123
  83
  26
  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  
  1,517
  1,885
  2,110
  2,335
  2,545
  2,787
  3,052
  3,313
  3,569
  3,819
  4,064
  4,302
  4,536
  4,766
  4,993
  5,219
  5,445
  5,673
  5,904
  6,140
  6,382
  6,633
  6,892
  7,163
  7,446
  7,742
  8,053
  8,380
  8,725
  9,088
  9,471
Total cash flow (excl. dividends), $m
  451
  427
  477
  536
  596
  706
  860
  1,033
  1,225
  1,435
  1,663
  1,900
  2,163
  2,443
  2,739
  3,051
  3,378
  3,721
  4,079
  4,452
  4,841
  5,245
  5,665
  6,101
  6,554
  7,025
  7,514
  8,022
  8,551
  9,100
  9,672
Retained Cash Flow (-), $m
  -367
  -801
  -914
  -1,035
  -1,158
  -1,281
  -1,403
  -1,524
  -1,641
  -1,756
  -1,869
  -1,978
  -2,086
  -2,192
  -2,296
  -2,400
  -2,504
  -2,609
  -2,715
  -2,823
  -2,935
  -3,050
  -3,169
  -3,294
  -3,424
  -3,560
  -3,703
  -3,854
  -4,012
  -4,179
  -4,355
Prev. year cash balance distribution, $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 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
 
  -374
  -437
  -499
  -563
  -576
  -544
  -491
  -417
  -321
  -205
  -78
  78
  252
  443
  651
  875
  1,113
  1,364
  1,629
  1,906
  2,195
  2,495
  2,807
  3,130
  3,465
  3,811
  4,169
  4,538
  4,921
  5,316
Discount rate, %
 
  9.80
  10.29
  10.80
  11.34
  11.91
  12.51
  13.13
  13.79
  14.48
  15.20
  15.96
  16.76
  17.60
  18.48
  19.40
  20.37
  21.39
  22.46
  23.58
  24.76
  26.00
  27.30
  28.67
  30.10
  31.61
  33.19
  34.85
  36.59
  38.42
  40.34
PV of cash for distribution, $m
 
  -341
  -359
  -367
  -366
  -328
  -268
  -207
  -148
  -95
  -50
  -15
  12
  31
  41
  46
  45
  41
  36
  29
  23
  17
  12
  9
  6
  4
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  98.5
  97.5
  97.0
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8

Inter Pipeline Ltd. is a petroleum transportation, storage and natural gas liquids processing business. The Company's segments include oil sands transportation business, conventional oil pipelines business, natural gas liquids (NGL) processing business and bulk liquid storage business. The Company geographical segments include Canada and Europe. The oil sands transportation business consists of the Cold Lake, Corridor and Polaris pipeline systems that transport petroleum products and provide related blending and handling services in Alberta. The conventional oil pipelines business involves the transportation, storage and processing of hydrocarbons, as well as midstream marketing blending and handling services. The NGL processing business consists of processing natural gas to extract NGLs and the processing of oil sands upgrader off gas to extract an NGL and olefin mix. The bulk liquid storage business involves the storage and handling of bulk liquid products.

FINANCIAL RATIOS  of  Inter Pipeline Ltd. (IPL)

Valuation Ratios
P/E Ratio 21.6
Price to Sales 5.3
Price to Book 3
Price to Tangible Book
Price to Cash Flow 12.1
Price to Free Cash Flow 15.7
Growth Rates
Sales Growth Rate 8.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -45.6%
Cap. Spend. - 3 Yr. Gr. Rate -37.5%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 127.6%
Total Debt to Equity 182.1%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.8%
Ret/ On Assets - 3 Yr. Avg. 5.7%
Return On Total Capital 5.4%
Ret/ On T. Cap. - 3 Yr. Avg. 5.4%
Return On Equity 15%
Return On Equity - 3 Yr. Avg. 15.1%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 62.8%
Gross Margin - 3 Yr. Avg. 58.6%
EBITDA Margin 54.7%
EBITDA Margin - 3 Yr. Avg. 53.6%
Operating Margin 42.7%
Oper. Margin - 3 Yr. Avg. 41.8%
Pre-Tax Margin 34.5%
Pre-Tax Margin - 3 Yr. Avg. 34.4%
Net Profit Margin 24.7%
Net Profit Margin - 3 Yr. Avg. 23.9%
Effective Tax Rate 24%
Eff/ Tax Rate - 3 Yr. Avg. 25.9%
Payout Ratio 104.4%

IPL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IPL stock intrinsic value calculation we used $1825 million for the last fiscal year's total revenue generated by Inter Pipeline Ltd.. The default revenue input number comes from 2016 income statement of Inter Pipeline Ltd.. 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 IPL stock valuation model: a) initial revenue growth rate of 24.9% 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 9.8%, whose default value for IPL is calculated based on our internal credit rating of Inter Pipeline Ltd., 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 Inter Pipeline Ltd..
    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 IPL stock the variable cost ratio is equal to 52.6%.

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 IPL 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 Inter Pipeline Ltd..

Corporate tax rate of 27% is the nominal tax rate for Inter Pipeline Ltd.. 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 IPL 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 IPL are equal to 492.2%.

Life of production assets of 40.5 years is the average useful life of capital assets used in Inter Pipeline Ltd. 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 IPL is equal to -5.2%. 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 - $3188 million for Inter Pipeline Ltd. - 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 376.653 million for Inter Pipeline Ltd. 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 Inter Pipeline Ltd. at the current share price and the inputted number of shares is $9.9 billion.

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Financial statements of IPL
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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