Intrinsic value of Precision Drilling Corporation - PD

Previous Close

$3.43

  Intrinsic Value

$1.49

stock screener

  Rating & Target

str. sell

-56%

Previous close

$3.43

 
Intrinsic value

$1.49

 
Up/down potential

-56%

 
Rating

str. sell

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 1.0

 

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
  47.20
  42.98
  39.18
  35.76
  32.69
  29.92
  27.43
  25.18
  23.17
  21.35
  19.71
  18.24
  16.92
  15.73
  14.65
  13.69
  12.82
  12.04
  11.33
  10.70
  10.13
  9.62
  9.16
  8.74
  8.37
  8.03
  7.73
  7.45
  7.21
  6.99
Revenue, $m
  951
  1,400
  2,002
  2,786
  3,782
  5,018
  6,520
  8,308
  10,400
  12,809
  15,544
  18,609
  22,003
  25,726
  29,772
  34,135
  38,807
  43,782
  49,053
  54,612
  60,456
  66,581
  72,984
  79,666
  86,629
  93,877
  101,414
  109,250
  117,394
  125,856
  134,650
Variable operating expenses, $m
 
  1,820
  2,593
  3,601
  4,882
  6,470
  8,400
  10,698
  13,387
  16,484
  19,999
  23,916
  28,279
  33,064
  38,264
  43,871
  49,876
  56,270
  63,044
  70,189
  77,700
  85,572
  93,801
  102,390
  111,339
  120,653
  130,341
  140,412
  150,878
  161,754
  173,057
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
  1,820
  2,593
  3,601
  4,882
  6,470
  8,400
  10,698
  13,387
  16,484
  19,999
  23,916
  28,279
  33,064
  38,264
  43,871
  49,876
  56,270
  63,044
  70,189
  77,700
  85,572
  93,801
  102,390
  111,339
  120,653
  130,341
  140,412
  150,878
  161,754
  173,057
Operating income, $m
  -156
  -420
  -592
  -815
  -1,099
  -1,452
  -1,880
  -2,390
  -2,987
  -3,674
  -4,454
  -5,308
  -6,276
  -7,338
  -8,492
  -9,736
  -11,069
  -12,488
  -13,991
  -15,577
  -17,244
  -18,991
  -20,817
  -22,723
  -24,710
  -26,777
  -28,927
  -31,162
  -33,485
  -35,898
  -38,407
EBITDA, $m
  236
  150
  214
  298
  404
  536
  697
  888
  1,111
  1,369
  1,661
  1,988
  2,351
  2,749
  3,181
  3,647
  4,146
  4,678
  5,241
  5,835
  6,459
  7,114
  7,798
  8,512
  9,256
  10,030
  10,836
  11,673
  12,543
  13,447
  14,387
Interest expense (income), $m
  140
  130
  205
  307
  439
  607
  816
  1,070
  1,371
  1,725
  2,131
  2,593
  3,110
  3,683
  4,312
  4,994
  5,731
  6,520
  7,359
  8,249
  9,187
  10,174
  11,208
  12,288
  13,416
  14,592
  15,815
  17,087
  18,410
  19,785
  21,213
Earnings before tax, $m
  -309
  -550
  -797
  -1,122
  -1,539
  -2,060
  -2,696
  -3,460
  -4,359
  -5,399
  -6,586
  -7,901
  -9,386
  -11,021
  -12,803
  -14,731
  -16,800
  -19,008
  -21,351
  -23,826
  -26,431
  -29,165
  -32,025
  -35,012
  -38,126
  -41,368
  -44,742
  -48,249
  -51,895
  -55,683
  -59,620
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
  -550
  -797
  -1,122
  -1,539
  -2,060
  -2,696
  -3,460
  -4,359
  -5,399
  -6,586
  -7,901
  -9,386
  -11,021
  -12,803
  -14,731
  -16,800
  -19,008
  -21,351
  -23,826
  -26,431
  -29,165
  -32,025
  -35,012
  -38,126
  -41,368
  -44,742
  -48,249
  -51,895
  -55,683
  -59,620

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
  6,194
  8,856
  12,326
  16,735
  22,205
  28,849
  36,761
  46,019
  56,679
  68,780
  82,339
  97,360
  113,832
  131,734
  151,038
  171,713
  193,726
  217,047
  241,647
  267,504
  294,604
  322,938
  352,505
  383,314
  415,383
  448,736
  483,408
  519,441
  556,885
  595,799
Adjusted assets (=assets-cash), $m
  4,208
  6,194
  8,856
  12,326
  16,735
  22,205
  28,849
  36,761
  46,019
  56,679
  68,780
  82,339
  97,360
  113,832
  131,734
  151,038
  171,713
  193,726
  217,047
  241,647
  267,504
  294,604
  322,938
  352,505
  383,314
  415,383
  448,736
  483,408
  519,441
  556,885
  595,799
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
  5,543
  7,926
  11,032
  14,977
  19,873
  25,818
  32,899
  41,185
  50,726
  61,555
  73,690
  87,133
  101,875
  117,897
  135,173
  153,676
  173,377
  194,248
  216,264
  239,406
  263,659
  289,016
  315,478
  343,051
  371,751
  401,601
  432,631
  464,879
  498,390
  533,216
Working capital, $m
  231
  169
  242
  337
  458
  607
  789
  1,005
  1,258
  1,550
  1,881
  2,252
  2,662
  3,113
  3,602
  4,130
  4,696
  5,298
  5,935
  6,608
  7,315
  8,056
  8,831
  9,640
  10,482
  11,359
  12,271
  13,219
  14,205
  15,229
  16,293
Total debt, $m
  1,907
  3,020
  4,513
  6,460
  8,933
  12,002
  15,729
  20,168
  25,361
  31,342
  38,130
  45,737
  54,164
  63,405
  73,448
  84,277
  95,876
  108,226
  121,308
  135,109
  149,615
  164,818
  180,713
  197,300
  214,584
  232,575
  251,286
  270,737
  290,951
  311,958
  333,788
Total liabilities, $m
  2,362
  3,475
  4,968
  6,915
  9,388
  12,457
  16,184
  20,623
  25,816
  31,797
  38,585
  46,192
  54,619
  63,860
  73,903
  84,732
  96,331
  108,681
  121,763
  135,564
  150,070
  165,273
  181,168
  197,755
  215,039
  233,030
  251,741
  271,192
  291,406
  312,413
  334,243
Total equity, $m
  1,962
  2,719
  3,888
  5,411
  7,347
  9,748
  12,665
  16,138
  20,202
  24,882
  30,194
  36,147
  42,741
  49,972
  57,831
  66,306
  75,382
  85,046
  95,284
  106,083
  117,434
  129,331
  141,770
  154,750
  168,275
  182,353
  196,995
  212,216
  228,035
  244,473
  261,556
Total liabilities and equity, $m
  4,324
  6,194
  8,856
  12,326
  16,735
  22,205
  28,849
  36,761
  46,018
  56,679
  68,779
  82,339
  97,360
  113,832
  131,734
  151,038
  171,713
  193,727
  217,047
  241,647
  267,504
  294,604
  322,938
  352,505
  383,314
  415,383
  448,736
  483,408
  519,441
  556,886
  595,799
Debt-to-equity ratio
  0.972
  1.110
  1.160
  1.190
  1.220
  1.230
  1.240
  1.250
  1.260
  1.260
  1.260
  1.270
  1.270
  1.270
  1.270
  1.270
  1.270
  1.270
  1.270
  1.270
  1.270
  1.270
  1.270
  1.270
  1.280
  1.280
  1.280
  1.280
  1.280
  1.280
  1.280
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
  -550
  -797
  -1,122
  -1,539
  -2,060
  -2,696
  -3,460
  -4,359
  -5,399
  -6,586
  -7,901
  -9,386
  -11,021
  -12,803
  -14,731
  -16,800
  -19,008
  -21,351
  -23,826
  -26,431
  -29,165
  -32,025
  -35,012
  -38,126
  -41,368
  -44,742
  -48,249
  -51,895
  -55,683
  -59,620
Depreciation, amort., depletion, $m
  392
  570
  805
  1,113
  1,504
  1,988
  2,577
  3,278
  4,098
  5,043
  6,115
  7,296
  8,627
  10,087
  11,673
  13,383
  15,215
  17,166
  19,232
  21,412
  23,704
  26,105
  28,615
  31,235
  33,965
  36,807
  39,762
  42,835
  46,028
  49,346
  52,794
Funds from operations, $m
  -10
  20
  9
  -9
  -35
  -71
  -120
  -182
  -260
  -356
  -470
  -605
  -759
  -934
  -1,131
  -1,347
  -1,584
  -1,842
  -2,118
  -2,414
  -2,728
  -3,060
  -3,410
  -3,776
  -4,160
  -4,561
  -4,979
  -5,415
  -5,867
  -6,338
  -6,826
Change in working capital, $m
  -133
  54
  73
  95
  121
  150
  182
  216
  253
  292
  331
  371
  411
  450
  490
  528
  565
  602
  638
  673
  707
  741
  775
  809
  843
  877
  912
  948
  985
  1,024
  1,064
Cash from operations, $m
  123
  -34
  -64
  -104
  -156
  -221
  -301
  -398
  -513
  -647
  -801
  -975
  -1,170
  -1,385
  -1,620
  -1,875
  -2,150
  -2,444
  -2,756
  -3,087
  -3,435
  -3,801
  -4,184
  -4,585
  -5,003
  -5,438
  -5,891
  -6,363
  -6,852
  -7,361
  -7,890
Maintenance CAPEX, $m
  0
  -373
  -549
  -785
  -1,092
  -1,483
  -1,968
  -2,556
  -3,257
  -4,078
  -5,022
  -6,095
  -7,296
  -8,627
  -10,087
  -11,673
  -13,383
  -15,215
  -17,166
  -19,232
  -21,412
  -23,704
  -26,105
  -28,615
  -31,235
  -33,965
  -36,807
  -39,762
  -42,835
  -46,028
  -49,346
New CAPEX, $m
  -203
  -1,778
  -2,383
  -3,106
  -3,945
  -4,896
  -5,946
  -7,081
  -8,285
  -9,541
  -10,829
  -12,135
  -13,443
  -14,742
  -16,022
  -17,277
  -18,503
  -19,701
  -20,871
  -22,016
  -23,142
  -24,253
  -25,357
  -26,462
  -27,573
  -28,700
  -29,850
  -31,030
  -32,248
  -33,511
  -34,826
Cash from investing activities, $m
  -214
  -2,151
  -2,932
  -3,891
  -5,037
  -6,379
  -7,914
  -9,637
  -11,542
  -13,619
  -15,851
  -18,230
  -20,739
  -23,369
  -26,109
  -28,950
  -31,886
  -34,916
  -38,037
  -41,248
  -44,554
  -47,957
  -51,462
  -55,077
  -58,808
  -62,665
  -66,657
  -70,792
  -75,083
  -79,539
  -84,172
Free cash flow, $m
  -91
  -2,185
  -2,996
  -3,995
  -5,193
  -6,599
  -8,214
  -10,036
  -12,056
  -14,266
  -16,653
  -19,205
  -21,909
  -24,754
  -27,728
  -30,825
  -34,037
  -37,360
  -40,793
  -44,335
  -47,989
  -51,758
  -55,647
  -59,662
  -63,812
  -68,104
  -72,548
  -77,155
  -81,935
  -86,900
  -92,062
Issuance/(repayment) of debt, $m
  -208
  1,113
  1,494
  1,947
  2,473
  3,069
  3,727
  4,439
  5,194
  5,981
  6,788
  7,607
  8,427
  9,241
  10,043
  10,830
  11,599
  12,349
  13,083
  13,801
  14,506
  15,203
  15,895
  16,587
  17,284
  17,991
  18,711
  19,451
  20,214
  21,006
  21,830
Issuance/(repurchase) of shares, $m
  2
  1,423
  1,966
  2,646
  3,474
  4,461
  5,613
  6,933
  8,423
  10,079
  11,898
  13,853
  15,980
  18,252
  20,662
  23,205
  25,876
  28,672
  31,588
  34,626
  37,783
  41,062
  44,463
  47,992
  51,651
  55,447
  59,384
  63,470
  67,713
  72,121
  76,703
Cash from financing (excl. dividends), $m  
  -218
  2,536
  3,460
  4,593
  5,947
  7,530
  9,340
  11,372
  13,617
  16,060
  18,686
  21,460
  24,407
  27,493
  30,705
  34,035
  37,475
  41,021
  44,671
  48,427
  52,289
  56,265
  60,358
  64,579
  68,935
  73,438
  78,095
  82,921
  87,927
  93,127
  98,533
Total cash flow (excl. dividends), $m
  -329
  351
  463
  598
  754
  930
  1,126
  1,337
  1,560
  1,794
  2,033
  2,255
  2,498
  2,739
  2,977
  3,210
  3,438
  3,661
  3,878
  4,091
  4,300
  4,507
  4,712
  4,917
  5,124
  5,333
  5,547
  5,766
  5,992
  6,227
  6,471
Retained Cash Flow (-), $m
  159
  -1,423
  -1,966
  -2,646
  -3,474
  -4,461
  -5,613
  -6,933
  -8,423
  -10,079
  -11,898
  -13,853
  -15,980
  -18,252
  -20,662
  -23,205
  -25,876
  -28,672
  -31,588
  -34,626
  -37,783
  -41,062
  -44,463
  -47,992
  -51,651
  -55,447
  -59,384
  -63,470
  -67,713
  -72,121
  -76,703
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
 
  -956
  -1,502
  -2,048
  -2,720
  -3,531
  -4,487
  -5,597
  -6,862
  -8,285
  -9,865
  -11,598
  -13,482
  -15,513
  -17,685
  -19,995
  -22,438
  -25,011
  -27,710
  -30,535
  -33,483
  -36,555
  -39,751
  -43,075
  -46,528
  -50,113
  -53,837
  -57,704
  -61,721
  -65,894
  -70,231
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
 
  -884
  -1,274
  -1,580
  -1,893
  -2,195
  -2,470
  -2,698
  -2,865
  -2,960
  -2,979
  -2,921
  -2,791
  -2,601
  -2,363
  -2,093
  -1,808
  -1,522
  -1,248
  -997
  -775
  -586
  -430
  -307
  -212
  -142
  -92
  -58
  -35
  -20
  -11
Current shareholders' claim on cash, %
  100
  47.6
  23.4
  11.9
  6.2
  3.3
  1.8
  1.0
  0.6
  0.3
  0.2
  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
  0.0
  0.0
  0.0
  0.0
  0.0

Precision Drilling Corporation (Precision) is an oilfield services company. The Company provides onshore drilling and completion and production services to exploration and production companies in the oil and natural gas industry. The Company operates through two segments: Contract Drilling Services, and Completion and Production Services. The Contract Drilling Services segment operates its rigs in Canada, the United States and internationally. The Completion and Production Services segment provides completion and workover services and ancillary services to oil and natural gas exploration and production companies in Canada and the United States. As of December 31, 2016, the Contract Drilling Services segment consisted of 255 land drilling rigs, including 135 in Canada, 103 in the United States, five in Mexico, four in Saudi Arabia, five in Kuwait, two in the Kurdistan region of Iraq and one in the country of Georgia.

FINANCIAL RATIOS  of  Precision Drilling Corporation (PD)

Valuation Ratios
P/E Ratio -6.4
Price to Sales 1.1
Price to Book 0.5
Price to Tangible Book
Price to Cash Flow 8.2
Price to Free Cash Flow -12.6
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 47.2% 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 293.814 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 $1.0 billion.

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Financial statements of PD
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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