Intrinsic value of Power Financial Corporation - PWF

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$32.29

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$32.29

 
Intrinsic value

$151.77

 
Up/down potential

+370%

 
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 PWF 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 23.0

 

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, %
  34.54
  4.60
  4.64
  4.68
  4.71
  4.74
  4.76
  4.79
  4.81
  4.83
  4.85
  4.86
  4.87
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
Revenue, $m
  0
  51,382
  53,766
  56,280
  58,930
  61,722
  64,662
  67,757
  71,016
  74,444
  78,051
  81,845
  85,834
  90,029
  94,439
  99,074
  103,947
  109,067
  114,447
  120,101
  126,041
  132,282
  138,838
  145,725
  152,960
  160,559
  168,541
  176,925
  185,730
  194,977
  204,689
Variable operating expenses, $m
 
  44,813
  46,850
  48,997
  51,260
  53,645
  56,156
  58,800
  61,583
  64,512
  67,592
  69,905
  73,313
  76,896
  80,662
  84,621
  88,783
  93,156
  97,752
  102,581
  107,654
  112,985
  118,585
  124,467
  130,646
  137,137
  143,954
  151,115
  158,635
  166,534
  174,829
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
  44,645
  44,813
  46,850
  48,997
  51,260
  53,645
  56,156
  58,800
  61,583
  64,512
  67,592
  69,905
  73,313
  76,896
  80,662
  84,621
  88,783
  93,156
  97,752
  102,581
  107,654
  112,985
  118,585
  124,467
  130,646
  137,137
  143,954
  151,115
  158,635
  166,534
  174,829
Operating income, $m
  4,477
  6,568
  6,916
  7,283
  7,669
  8,077
  8,505
  8,957
  9,432
  9,932
  10,459
  11,939
  12,521
  13,133
  13,777
  14,453
  15,164
  15,911
  16,696
  17,520
  18,387
  19,297
  20,254
  21,258
  22,314
  23,422
  24,587
  25,810
  27,094
  28,443
  29,860
EBITDA, $m
  4,477
  8,235
  8,618
  9,021
  9,445
  9,893
  10,364
  10,860
  11,382
  11,932
  12,510
  13,118
  13,757
  14,430
  15,137
  15,880
  16,660
  17,481
  18,344
  19,250
  20,202
  21,202
  22,253
  23,357
  24,516
  25,734
  27,014
  28,357
  29,769
  31,251
  32,808
Interest expense (income), $m
  521
  554
  419
  1,061
  1,738
  2,451
  3,203
  3,995
  4,828
  5,705
  6,628
  7,600
  8,621
  9,695
  10,824
  12,012
  13,260
  14,571
  15,950
  17,399
  18,921
  20,520
  22,200
  23,965
  25,820
  27,767
  29,813
  31,962
  34,219
  36,590
  39,080
Earnings before tax, $m
  3,967
  6,014
  6,497
  6,221
  5,931
  5,625
  5,302
  4,962
  4,604
  4,227
  3,830
  4,340
  3,901
  3,438
  2,952
  2,441
  1,904
  1,339
  746
  122
  -534
  -1,223
  -1,947
  -2,707
  -3,506
  -4,345
  -5,227
  -6,153
  -7,125
  -8,147
  -9,220
Tax expense, $m
  581
  1,624
  1,754
  1,680
  1,601
  1,519
  1,432
  1,340
  1,243
  1,141
  1,034
  1,172
  1,053
  928
  797
  659
  514
  362
  201
  33
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  2,043
  4,390
  4,743
  4,542
  4,330
  4,106
  3,871
  3,622
  3,361
  3,086
  2,796
  3,168
  2,847
  2,510
  2,155
  1,782
  1,390
  978
  544
  89
  -534
  -1,223
  -1,947
  -2,707
  -3,506
  -4,345
  -5,227
  -6,153
  -7,125
  -8,147
  -9,220

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  418,586
  439,159
  459,536
  481,024
  503,672
  527,534
  552,665
  579,123
  606,972
  636,275
  667,103
  699,527
  733,626
  769,478
  807,170
  846,790
  888,432
  932,195
  978,183
  1,026,505
  1,077,275
  1,130,615
  1,186,651
  1,245,516
  1,307,350
  1,372,301
  1,440,522
  1,512,176
  1,587,433
  1,666,472
  1,749,482
Adjusted assets (=assets-cash), $m
  418,586
  439,159
  459,536
  481,024
  503,672
  527,534
  552,665
  579,123
  606,972
  636,275
  667,103
  699,527
  733,626
  769,478
  807,170
  846,790
  888,432
  932,195
  978,183
  1,026,505
  1,077,275
  1,130,615
  1,186,651
  1,245,516
  1,307,350
  1,372,301
  1,440,522
  1,512,176
  1,587,433
  1,666,472
  1,749,482
Revenue / Adjusted assets
  0.000
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
Average production assets, $m
  7,092
  7,399
  7,742
  8,104
  8,486
  8,888
  9,311
  9,757
  10,226
  10,720
  11,239
  11,786
  12,360
  12,964
  13,599
  14,267
  14,968
  15,706
  16,480
  17,295
  18,150
  19,049
  19,993
  20,984
  22,026
  23,121
  24,270
  25,477
  26,745
  28,077
  29,475
Working capital, $m
  0
  925
  968
  1,013
  1,061
  1,111
  1,164
  1,220
  1,278
  1,340
  1,405
  1,473
  1,545
  1,621
  1,700
  1,783
  1,871
  1,963
  2,060
  2,162
  2,269
  2,381
  2,499
  2,623
  2,753
  2,890
  3,034
  3,185
  3,343
  3,510
  3,684
Total debt, $m
  15,842
  11,980
  30,319
  49,659
  70,042
  91,518
  114,135
  137,948
  163,011
  189,385
  217,129
  246,312
  277,000
  309,267
  343,190
  378,848
  416,326
  455,712
  497,102
  540,591
  586,285
  634,291
  684,723
  737,702
  793,352
  851,808
  913,207
  977,695
  1,045,426
  1,116,562
  1,191,270
Total liabilities, $m
  399,105
  395,243
  413,582
  432,922
  453,305
  474,781
  497,398
  521,211
  546,274
  572,648
  600,392
  629,575
  660,263
  692,530
  726,453
  762,111
  799,589
  838,975
  880,365
  923,854
  969,548
  1,017,554
  1,067,986
  1,120,965
  1,176,615
  1,235,071
  1,296,470
  1,360,958
  1,428,689
  1,499,825
  1,574,533
Total equity, $m
  19,481
  43,916
  45,954
  48,102
  50,367
  52,753
  55,266
  57,912
  60,697
  63,628
  66,710
  69,953
  73,363
  76,948
  80,717
  84,679
  88,843
  93,219
  97,818
  102,650
  107,728
  113,062
  118,665
  124,552
  130,735
  137,230
  144,052
  151,218
  158,743
  166,647
  174,948
Total liabilities and equity, $m
  418,586
  439,159
  459,536
  481,024
  503,672
  527,534
  552,664
  579,123
  606,971
  636,276
  667,102
  699,528
  733,626
  769,478
  807,170
  846,790
  888,432
  932,194
  978,183
  1,026,504
  1,077,276
  1,130,616
  1,186,651
  1,245,517
  1,307,350
  1,372,301
  1,440,522
  1,512,176
  1,587,432
  1,666,472
  1,749,481
Debt-to-equity ratio
  0.813
  0.270
  0.660
  1.030
  1.390
  1.730
  2.070
  2.380
  2.690
  2.980
  3.250
  3.520
  3.780
  4.020
  4.250
  4.470
  4.690
  4.890
  5.080
  5.270
  5.440
  5.610
  5.770
  5.920
  6.070
  6.210
  6.340
  6.470
  6.590
  6.700
  6.810
Adjusted equity ratio
  0.047
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,043
  4,390
  4,743
  4,542
  4,330
  4,106
  3,871
  3,622
  3,361
  3,086
  2,796
  3,168
  2,847
  2,510
  2,155
  1,782
  1,390
  978
  544
  89
  -534
  -1,223
  -1,947
  -2,707
  -3,506
  -4,345
  -5,227
  -6,153
  -7,125
  -8,147
  -9,220
Depreciation, amort., depletion, $m
  0
  1,667
  1,702
  1,738
  1,776
  1,816
  1,859
  1,903
  1,950
  1,999
  2,051
  1,179
  1,236
  1,296
  1,360
  1,427
  1,497
  1,571
  1,648
  1,729
  1,815
  1,905
  1,999
  2,098
  2,203
  2,312
  2,427
  2,548
  2,675
  2,808
  2,948
Funds from operations, $m
  5,891
  6,057
  6,444
  6,280
  6,106
  5,922
  5,729
  5,526
  5,311
  5,085
  4,847
  4,347
  4,083
  3,806
  3,515
  3,209
  2,887
  2,548
  2,192
  1,818
  1,281
  682
  53
  -609
  -1,303
  -2,033
  -2,800
  -3,605
  -4,451
  -5,339
  -6,272
Change in working capital, $m
  -1,009
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  68
  72
  76
  79
  83
  88
  92
  97
  102
  107
  112
  118
  124
  130
  137
  144
  151
  158
  166
  175
Cash from operations, $m
  6,900
  6,019
  6,401
  6,234
  6,058
  5,872
  5,676
  5,470
  5,252
  5,023
  4,782
  4,278
  4,012
  3,731
  3,436
  3,125
  2,799
  2,456
  2,095
  1,717
  1,174
  570
  -65
  -732
  -1,433
  -2,170
  -2,943
  -3,756
  -4,609
  -5,506
  -6,447
Maintenance CAPEX, $m
  0
  -709
  -740
  -774
  -810
  -849
  -889
  -931
  -976
  -1,023
  -1,072
  -1,124
  -1,179
  -1,236
  -1,296
  -1,360
  -1,427
  -1,497
  -1,571
  -1,648
  -1,729
  -1,815
  -1,905
  -1,999
  -2,098
  -2,203
  -2,312
  -2,427
  -2,548
  -2,675
  -2,808
New CAPEX, $m
  0
  -307
  -343
  -362
  -382
  -402
  -423
  -446
  -469
  -494
  -519
  -546
  -574
  -604
  -635
  -668
  -702
  -737
  -775
  -814
  -855
  -899
  -944
  -992
  -1,042
  -1,094
  -1,149
  -1,207
  -1,268
  -1,332
  -1,399
Cash from investing activities, $m
  -5,479
  -1,016
  -1,083
  -1,136
  -1,192
  -1,251
  -1,312
  -1,377
  -1,445
  -1,517
  -1,591
  -1,670
  -1,753
  -1,840
  -1,931
  -2,028
  -2,129
  -2,234
  -2,346
  -2,462
  -2,584
  -2,714
  -2,849
  -2,991
  -3,140
  -3,297
  -3,461
  -3,634
  -3,816
  -4,007
  -4,207
Free cash flow, $m
  1,421
  5,002
  5,318
  5,098
  4,866
  4,622
  4,364
  4,093
  3,808
  3,507
  3,191
  2,608
  2,259
  1,891
  1,504
  1,098
  671
  222
  -250
  -746
  -1,411
  -2,144
  -2,914
  -3,724
  -4,574
  -5,467
  -6,405
  -7,390
  -8,425
  -9,512
  -10,653
Issuance/(repayment) of debt, $m
  1,314
  -3,862
  18,339
  19,339
  20,384
  21,476
  22,618
  23,813
  25,063
  26,373
  27,745
  29,182
  30,688
  32,267
  33,922
  35,658
  37,478
  39,387
  41,389
  43,490
  45,694
  48,006
  50,432
  52,979
  55,651
  58,455
  61,399
  64,488
  67,731
  71,135
  74,709
Issuance/(repurchase) of shares, $m
  -388
  23,294
  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 from financing (excl. dividends), $m  
  216
  19,432
  18,339
  19,339
  20,384
  21,476
  22,618
  23,813
  25,063
  26,373
  27,745
  29,182
  30,688
  32,267
  33,922
  35,658
  37,478
  39,387
  41,389
  43,490
  45,694
  48,006
  50,432
  52,979
  55,651
  58,455
  61,399
  64,488
  67,731
  71,135
  74,709
Total cash flow (excl. dividends), $m
  1,439
  1,141
  23,657
  24,437
  25,250
  26,097
  26,982
  27,906
  28,871
  29,880
  30,936
  31,790
  32,947
  34,158
  35,427
  36,756
  38,149
  39,609
  41,139
  42,744
  44,283
  45,862
  47,518
  49,255
  51,077
  52,989
  54,994
  57,098
  59,307
  61,624
  64,055
Retained Cash Flow (-), $m
  69
  -24,435
  -2,038
  -2,149
  -2,265
  -2,386
  -2,513
  -2,646
  -2,785
  -2,930
  -3,083
  -3,242
  -3,410
  -3,585
  -3,769
  -3,962
  -4,164
  -4,376
  -4,599
  -4,832
  -5,077
  -5,334
  -5,604
  -5,887
  -6,183
  -6,495
  -6,822
  -7,165
  -7,526
  -7,904
  -8,301
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
 
  0
  21,620
  22,288
  22,985
  23,711
  24,469
  25,260
  26,086
  26,950
  27,853
  28,548
  29,537
  30,573
  31,658
  32,794
  33,984
  35,232
  36,540
  37,912
  39,206
  40,528
  41,915
  43,369
  44,894
  46,494
  48,172
  49,933
  51,781
  53,720
  55,755
Discount rate, %
 
  5.60
  5.88
  6.17
  6.48
  6.81
  7.15
  7.50
  7.88
  8.27
  8.69
  9.12
  9.58
  10.06
  10.56
  11.09
  11.64
  12.22
  12.84
  13.48
  14.15
  14.86
  15.60
  16.38
  17.20
  18.06
  18.96
  19.91
  20.91
  21.95
  23.05
PV of cash for distribution, $m
 
  0
  19,285
  18,622
  17,878
  17,059
  16,171
  15,221
  14,220
  13,178
  12,108
  10,928
  9,856
  8,797
  7,765
  6,773
  5,835
  4,960
  4,157
  3,432
  2,778
  2,210
  1,727
  1,324
  995
  732
  527
  371
  254
  170
  111
Current shareholders' claim on cash, %
  100
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7

Power Financial Corporation provides financial services in Canada, the United States, Europe, and Asia. The company offers life, disability, critical illness, accidental death and dismemberment, health and dental protection, creditor, and direct marketing insurance products; and accumulation and annuity products. It also provides financial security products, including employer-sponsored defined contribution plans, administrative and recordkeeping services, individual retirement accounts, fund management, investment, and advisory services; and executive benefits products. In addition, the company offers protection and wealth management products, including payout annuity products; and reinsurance products; acts as a sub-advisor for various retail mutual funds; and manages pension fund assets. Further, it provides mutual funds, pooled funds, segregated and separate accounts, and other investment vehicles; securities, mortgages, and other financial services; and investment management services. The company was founded in 1940 and is based in Montréal, Canada. Power Financial Corporation is a subsidiary of Power Corporation of Canada.

FINANCIAL RATIOS  of  Power Financial Corporation (PWF)

Valuation Ratios
P/E Ratio 11.3
Price to Sales 0.5
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 3.3
Price to Free Cash Flow 3.3
Growth Rates
Sales Growth Rate 34.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 76.8%
Total Debt to Equity 81.3%
Interest Coverage 9
Management Effectiveness
Return On Assets 0.6%
Ret/ On Assets - 3 Yr. Avg. 0.7%
Return On Total Capital 5.9%
Ret/ On T. Cap. - 3 Yr. Avg. 6.9%
Return On Equity 10.5%
Return On Equity - 3 Yr. Avg. 12.5%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 9.1%
EBITDA Margin - 3 Yr. Avg. 11.5%
Operating Margin 9.1%
Oper. Margin - 3 Yr. Avg. 10.9%
Pre-Tax Margin 8.1%
Pre-Tax Margin - 3 Yr. Avg. 10.2%
Net Profit Margin 4.2%
Net Profit Margin - 3 Yr. Avg. 5.4%
Effective Tax Rate 14.6%
Eff/ Tax Rate - 3 Yr. Avg. 16.3%
Payout Ratio 60.3%

PWF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PWF stock intrinsic value calculation we used $49122 million for the last fiscal year's total revenue generated by Power Financial Corporation. The default revenue input number comes from 2016 income statement of Power Financial 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 PWF stock valuation model: a) initial revenue growth rate of 4.6% 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 5.6%, whose default value for PWF is calculated based on our internal credit rating of Power Financial 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 Power Financial 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 PWF stock the variable cost ratio is equal to 87.3%.

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 PWF 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 Power Financial Corporation.

Corporate tax rate of 27% is the nominal tax rate for Power Financial 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 PWF 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 PWF are equal to 14.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Power Financial 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 PWF is equal to 1.8%. 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 - $19481 million for Power Financial 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 712.465 million for Power Financial 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 Power Financial Corporation at the current share price and the inputted number of shares is $23.0 billion.


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Stock chart of PWF Financial statements of PWF
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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