Intrinsic value of Precision Drilling Corporation - PD

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$5.08

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$5.08

 
Intrinsic value

$1.58

 
Up/down potential

-69%

 
Rating

str. sell

 
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 PD 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 1.4

 

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, %
  -38.88
  14.60
  13.64
  12.78
  12.00
  11.30
  10.67
  10.10
  9.59
  9.13
  8.72
  8.35
  8.01
  7.71
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
Revenue, $m
  951
  1,090
  1,239
  1,397
  1,564
  1,741
  1,927
  2,121
  2,325
  2,537
  2,758
  2,989
  3,228
  3,477
  3,736
  4,005
  4,284
  4,575
  4,876
  5,191
  5,517
  5,858
  6,212
  6,581
  6,966
  7,368
  7,787
  8,225
  8,682
  9,160
  9,659
Variable operating expenses, $m
 
  1,421
  1,612
  1,816
  2,031
  2,258
  2,497
  2,747
  3,009
  3,282
  3,566
  3,841
  4,149
  4,469
  4,801
  5,147
  5,506
  5,879
  6,267
  6,671
  7,091
  7,528
  7,984
  8,459
  8,954
  9,470
  10,009
  10,571
  11,159
  11,773
  12,415
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
  1,107
  1,421
  1,612
  1,816
  2,031
  2,258
  2,497
  2,747
  3,009
  3,282
  3,566
  3,841
  4,149
  4,469
  4,801
  5,147
  5,506
  5,879
  6,267
  6,671
  7,091
  7,528
  7,984
  8,459
  8,954
  9,470
  10,009
  10,571
  11,159
  11,773
  12,415
Operating income, $m
  -156
  -332
  -374
  -419
  -467
  -517
  -570
  -626
  -684
  -744
  -808
  -852
  -921
  -992
  -1,066
  -1,142
  -1,222
  -1,305
  -1,391
  -1,481
  -1,574
  -1,671
  -1,772
  -1,877
  -1,987
  -2,102
  -2,221
  -2,346
  -2,476
  -2,613
  -2,755
EBITDA, $m
  236
  116
  132
  149
  167
  186
  206
  227
  248
  271
  295
  319
  345
  372
  399
  428
  458
  489
  521
  555
  590
  626
  664
  703
  744
  787
  832
  879
  928
  979
  1,032
Interest expense (income), $m
  140
  130
  153
  178
  205
  233
  263
  294
  327
  362
  397
  435
  474
  514
  556
  600
  645
  692
  741
  792
  845
  900
  958
  1,018
  1,080
  1,145
  1,213
  1,284
  1,357
  1,435
  1,515
Earnings before tax, $m
  -309
  -461
  -527
  -597
  -672
  -750
  -833
  -920
  -1,011
  -1,106
  -1,205
  -1,287
  -1,394
  -1,506
  -1,622
  -1,742
  -1,867
  -1,997
  -2,132
  -2,273
  -2,419
  -2,571
  -2,730
  -2,895
  -3,067
  -3,247
  -3,434
  -3,630
  -3,834
  -4,047
  -4,270
Tax expense, $m
  -153
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -156
  -461
  -527
  -597
  -672
  -750
  -833
  -920
  -1,011
  -1,106
  -1,205
  -1,287
  -1,394
  -1,506
  -1,622
  -1,742
  -1,867
  -1,997
  -2,132
  -2,273
  -2,419
  -2,571
  -2,730
  -2,895
  -3,067
  -3,247
  -3,434
  -3,630
  -3,834
  -4,047
  -4,270

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  116
  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
  4,324
  4,822
  5,480
  6,180
  6,922
  7,704
  8,526
  9,387
  10,287
  11,227
  12,206
  13,225
  14,284
  15,386
  16,530
  17,720
  18,956
  20,241
  21,577
  22,967
  24,413
  25,919
  27,487
  29,121
  30,825
  32,603
  34,457
  36,394
  38,417
  40,531
  42,740
Adjusted assets (=assets-cash), $m
  4,208
  4,822
  5,480
  6,180
  6,922
  7,704
  8,526
  9,387
  10,287
  11,227
  12,206
  13,225
  14,284
  15,386
  16,530
  17,720
  18,956
  20,241
  21,577
  22,967
  24,413
  25,919
  27,487
  29,121
  30,825
  32,603
  34,457
  36,394
  38,417
  40,531
  42,740
Revenue / Adjusted assets
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
  0.226
Average production assets, $m
  3,766
  4,316
  4,904
  5,531
  6,195
  6,895
  7,630
  8,401
  9,207
  10,048
  10,924
  11,835
  12,784
  13,770
  14,794
  15,859
  16,965
  18,115
  19,311
  20,555
  21,849
  23,196
  24,600
  26,062
  27,587
  29,178
  30,838
  32,571
  34,382
  36,273
  38,251
Working capital, $m
  231
  132
  150
  169
  189
  211
  233
  257
  281
  307
  334
  362
  391
  421
  452
  485
  518
  554
  590
  628
  668
  709
  752
  796
  843
  892
  942
  995
  1,051
  1,108
  1,169
Total debt, $m
  1,907
  2,250
  2,619
  3,012
  3,428
  3,867
  4,328
  4,811
  5,316
  5,843
  6,392
  6,964
  7,558
  8,176
  8,819
  9,486
  10,179
  10,900
  11,650
  12,430
  13,241
  14,086
  14,965
  15,882
  16,838
  17,835
  18,876
  19,962
  21,097
  22,283
  23,522
Total liabilities, $m
  2,362
  2,705
  3,074
  3,467
  3,883
  4,322
  4,783
  5,266
  5,771
  6,298
  6,847
  7,419
  8,013
  8,631
  9,274
  9,941
  10,634
  11,355
  12,105
  12,885
  13,696
  14,541
  15,420
  16,337
  17,293
  18,290
  19,331
  20,417
  21,552
  22,738
  23,977
Total equity, $m
  1,962
  2,117
  2,406
  2,713
  3,039
  3,382
  3,743
  4,121
  4,516
  4,929
  5,358
  5,806
  6,271
  6,754
  7,257
  7,779
  8,322
  8,886
  9,472
  10,083
  10,717
  11,378
  12,067
  12,784
  13,532
  14,313
  15,127
  15,977
  16,865
  17,793
  18,763
Total liabilities and equity, $m
  4,324
  4,822
  5,480
  6,180
  6,922
  7,704
  8,526
  9,387
  10,287
  11,227
  12,205
  13,225
  14,284
  15,385
  16,531
  17,720
  18,956
  20,241
  21,577
  22,968
  24,413
  25,919
  27,487
  29,121
  30,825
  32,603
  34,458
  36,394
  38,417
  40,531
  42,740
Debt-to-equity ratio
  0.972
  1.060
  1.090
  1.110
  1.130
  1.140
  1.160
  1.170
  1.180
  1.190
  1.190
  1.200
  1.210
  1.210
  1.220
  1.220
  1.220
  1.230
  1.230
  1.230
  1.240
  1.240
  1.240
  1.240
  1.240
  1.250
  1.250
  1.250
  1.250
  1.250
  1.250
Adjusted equity ratio
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439
  0.439

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -156
  -461
  -527
  -597
  -672
  -750
  -833
  -920
  -1,011
  -1,106
  -1,205
  -1,287
  -1,394
  -1,506
  -1,622
  -1,742
  -1,867
  -1,997
  -2,132
  -2,273
  -2,419
  -2,571
  -2,730
  -2,895
  -3,067
  -3,247
  -3,434
  -3,630
  -3,834
  -4,047
  -4,270
Depreciation, amort., depletion, $m
  392
  448
  506
  568
  634
  703
  776
  852
  932
  1,016
  1,102
  1,172
  1,266
  1,363
  1,465
  1,570
  1,680
  1,794
  1,912
  2,035
  2,163
  2,297
  2,436
  2,580
  2,731
  2,889
  3,053
  3,225
  3,404
  3,591
  3,787
Funds from operations, $m
  -10
  -13
  -21
  -29
  -38
  -47
  -57
  -68
  -79
  -90
  -103
  -115
  -129
  -142
  -157
  -172
  -187
  -203
  -220
  -238
  -256
  -275
  -294
  -314
  -336
  -358
  -381
  -405
  -430
  -456
  -483
Change in working capital, $m
  -133
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  55
  58
  60
Cash from operations, $m
  123
  -151
  -39
  -48
  -58
  -68
  -80
  -91
  -103
  -116
  -129
  -143
  -158
  -173
  -188
  -204
  -221
  -239
  -257
  -276
  -295
  -316
  -337
  -359
  -382
  -406
  -431
  -458
  -485
  -514
  -544
Maintenance CAPEX, $m
  0
  -373
  -427
  -486
  -548
  -613
  -683
  -755
  -832
  -912
  -995
  -1,082
  -1,172
  -1,266
  -1,363
  -1,465
  -1,570
  -1,680
  -1,794
  -1,912
  -2,035
  -2,163
  -2,297
  -2,436
  -2,580
  -2,731
  -2,889
  -3,053
  -3,225
  -3,404
  -3,591
New CAPEX, $m
  -203
  -550
  -589
  -627
  -664
  -700
  -736
  -771
  -806
  -841
  -876
  -912
  -948
  -986
  -1,024
  -1,065
  -1,106
  -1,150
  -1,196
  -1,244
  -1,294
  -1,347
  -1,403
  -1,463
  -1,525
  -1,591
  -1,660
  -1,733
  -1,810
  -1,892
  -1,978
Cash from investing activities, $m
  -214
  -923
  -1,016
  -1,113
  -1,212
  -1,313
  -1,419
  -1,526
  -1,638
  -1,753
  -1,871
  -1,994
  -2,120
  -2,252
  -2,387
  -2,530
  -2,676
  -2,830
  -2,990
  -3,156
  -3,329
  -3,510
  -3,700
  -3,899
  -4,105
  -4,322
  -4,549
  -4,786
  -5,035
  -5,296
  -5,569
Free cash flow, $m
  -91
  -1,074
  -1,055
  -1,160
  -1,269
  -1,382
  -1,498
  -1,617
  -1,741
  -1,868
  -2,000
  -2,137
  -2,278
  -2,424
  -2,576
  -2,734
  -2,898
  -3,068
  -3,246
  -3,431
  -3,625
  -3,826
  -4,037
  -4,257
  -4,488
  -4,728
  -4,980
  -5,244
  -5,520
  -5,810
  -6,113
Issuance/(repayment) of debt, $m
  -208
  343
  369
  393
  416
  439
  461
  483
  505
  527
  549
  572
  594
  618
  642
  667
  694
  721
  750
  780
  811
  845
  880
  917
  956
  997
  1,041
  1,086
  1,135
  1,186
  1,240
Issuance/(repurchase) of shares, $m
  2
  885
  974
  1,075
  1,179
  1,286
  1,397
  1,512
  1,631
  1,754
  1,881
  2,012
  2,148
  2,290
  2,436
  2,589
  2,747
  2,912
  3,083
  3,262
  3,448
  3,643
  3,846
  4,058
  4,280
  4,512
  4,754
  5,008
  5,274
  5,552
  5,843
Cash from financing (excl. dividends), $m  
  -218
  1,228
  1,343
  1,468
  1,595
  1,725
  1,858
  1,995
  2,136
  2,281
  2,430
  2,584
  2,742
  2,908
  3,078
  3,256
  3,441
  3,633
  3,833
  4,042
  4,259
  4,488
  4,726
  4,975
  5,236
  5,509
  5,795
  6,094
  6,409
  6,738
  7,083
Total cash flow (excl. dividends), $m
  -329
  -730
  -686
  -767
  -853
  -943
  -1,037
  -1,134
  -1,236
  -1,341
  -1,451
  -1,565
  -1,683
  -1,806
  -1,934
  -2,066
  -2,204
  -2,347
  -2,497
  -2,652
  -2,813
  -2,982
  -3,157
  -3,341
  -3,532
  -3,731
  -3,940
  -4,158
  -4,385
  -4,624
  -4,873
Retained Cash Flow (-), $m
  159
  -271
  -289
  -307
  -326
  -343
  -361
  -378
  -395
  -412
  -430
  -447
  -465
  -484
  -503
  -522
  -543
  -564
  -587
  -610
  -635
  -661
  -688
  -717
  -748
  -780
  -814
  -850
  -888
  -928
  -970
Prev. year cash balance distribution, $m
 
  116
  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
  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
Discount rate, %
 
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for 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
Current shareholders' claim on cash, %
  100
  60.0
  36.6
  22.6
  14.1
  8.9
  5.6
  3.6
  2.3
  1.5
  1.0
  0.6
  0.4
  0.3
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Precision Drilling Corporation provides oil and natural gas drilling and related services and products. The company operates in two segments, Contract Drilling Services; and Completion and Production Services. The Contract Drilling Services segment offers onshore well drilling services to exploration and production companies in the oil and natural gas industry. This segmentÂ’s services include land drilling, directional drilling, and turnkey drilling; and procurement and distribution of oilfield supplies, as well as manufacture, refurbishment, and sale of drilling and service rig equipment. As of December 31, 2015, this segment operated 251 land drilling rigs, including 134 in Canada; 102 in the United States; 5 in Mexico; 4 in Saudi Arabia; 3 in Kuwait; 2 in the Kurdistan region of Iraq; and 1 in the country of Georgia. The Completion and Production Services segment offers completion and workover services, and ancillary services to oil and natural gas exploration and production companies. It provides service rigs for well completion, workover, abandonment, maintenance, and re-entry preparation services; snubbing units and coil tubing units for pressure control services; camp and catering services; and water system services, as well as engages in the rental of oilfield surface equipment, and wellsite accommodations. This segment operated 148 well completion and workover service rigs, 11 snubbing units, and 4 coil tubing units in Canada and the United States; approximately 2,400 oilfield rental items, including surface storage, small-flow wastewater treatment, and power generation, and solids control equipment; and 180 wellsite accommodation units in Canada. It also had 46 drilling camps and 4 base camps in Canada; and 10 large-flow wastewater treatment units, 24 pump houses, and 8 potable water production units in Canada. Precision Drilling Corporation was founded in 1951 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Precision Drilling Corporation (PD)

Valuation Ratios
P/E Ratio -9.5
Price to Sales 1.6
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 12.1
Price to Free Cash Flow -18.6
Growth Rates
Sales Growth Rate -38.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -55.8%
Cap. Spend. - 3 Yr. Gr. Rate -17.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 97.2%
Total Debt to Equity 97.2%
Interest Coverage -1
Management Effectiveness
Return On Assets -1.9%
Ret/ On Assets - 3 Yr. Avg. -1.1%
Return On Total Capital -3.8%
Ret/ On T. Cap. - 3 Yr. Avg. -3.8%
Return On Equity -7.6%
Return On Equity - 3 Yr. Avg. -7.4%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 36.2%
Gross Margin - 3 Yr. Avg. 39%
EBITDA Margin 23.4%
EBITDA Margin - 3 Yr. Avg. 17%
Operating Margin -16.4%
Oper. Margin - 3 Yr. Avg. -13.9%
Pre-Tax Margin -32.5%
Pre-Tax Margin - 3 Yr. Avg. -22.7%
Net Profit Margin -16.4%
Net Profit Margin - 3 Yr. Avg. -12.8%
Effective Tax Rate 49.5%
Eff/ Tax Rate - 3 Yr. Avg. 9.4%
Payout Ratio 0%

PD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PD stock intrinsic value calculation we used $951 million for the last fiscal year's total revenue generated by Precision Drilling Corporation. The default revenue input number comes from 2016 income statement of Precision Drilling Corporation. 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 PD stock valuation model: a) initial revenue growth rate of 14.6% 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 8.2%, whose default value for PD is calculated based on our internal credit rating of Precision Drilling Corporation, 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 Precision Drilling Corporation.
    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 PD stock the variable cost ratio is equal to 130.7%.

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 PD 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 6.8% for Precision Drilling Corporation.

Corporate tax rate of 27% is the nominal tax rate for Precision Drilling Corporation. 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 PD 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 PD are equal to 396%.

Life of production assets of 10.1 years is the average useful life of capital assets used in Precision Drilling Corporation 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 PD is equal to 12.1%. 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 - $1962 million for Precision Drilling Corporation - 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 277.778 million for Precision Drilling Corporation 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 Precision Drilling Corporation at the current share price and the inputted number of shares is $1.4 billion.


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