Intrinsic value of TransAlta Renewables Inc. - RNW

Previous Close

$13.61

  Intrinsic Value

$8.75

stock screener

  Rating & Target

sell

-36%

  Value-price divergence*

0%

Previous close

$13.61

 
Intrinsic value

$8.75

 
Up/down potential

-36%

 
Rating

sell

 
Value-price divergence*

0%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of RNW 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 3.4

 

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, %
  9.75
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  259
  414
  640
  957
  1,389
  1,960
  2,695
  3,617
  4,749
  6,111
  7,719
  9,585
  11,719
  14,125
  16,806
  19,761
  22,987
  26,479
  30,232
  34,239
  38,495
  42,993
  47,730
  52,702
  57,906
  63,342
  69,010
  74,913
  81,055
  87,440
  94,078
Variable operating expenses, $m
 
  245
  378
  566
  821
  1,158
  1,593
  2,138
  2,807
  3,612
  4,562
  5,665
  6,926
  8,348
  9,932
  11,679
  13,585
  15,649
  17,867
  20,235
  22,750
  25,409
  28,209
  31,147
  34,223
  37,435
  40,785
  44,274
  47,903
  51,677
  55,600
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
  163
  245
  378
  566
  821
  1,158
  1,593
  2,138
  2,807
  3,612
  4,562
  5,665
  6,926
  8,348
  9,932
  11,679
  13,585
  15,649
  17,867
  20,235
  22,750
  25,409
  28,209
  31,147
  34,223
  37,435
  40,785
  44,274
  47,903
  51,677
  55,600
Operating income, $m
  96
  169
  262
  392
  568
  802
  1,102
  1,479
  1,942
  2,499
  3,157
  3,920
  4,793
  5,777
  6,874
  8,082
  9,402
  10,830
  12,365
  14,004
  15,744
  17,584
  19,522
  21,555
  23,684
  25,907
  28,225
  30,639
  33,151
  35,763
  38,478
EBITDA, $m
  175
  296
  458
  684
  993
  1,401
  1,926
  2,585
  3,394
  4,367
  5,516
  6,850
  8,374
  10,094
  12,010
  14,121
  16,426
  18,922
  21,603
  24,467
  27,508
  30,723
  34,108
  37,661
  41,380
  45,264
  49,315
  53,533
  57,922
  62,485
  67,228
Interest expense (income), $m
  46
  51
  105
  182
  292
  441
  638
  891
  1,209
  1,599
  2,069
  2,624
  3,267
  4,003
  4,833
  5,757
  6,776
  7,889
  9,093
  10,387
  11,769
  13,237
  14,788
  16,422
  18,136
  19,931
  21,805
  23,760
  25,796
  27,914
  30,116
Earnings before tax, $m
  22
  118
  157
  209
  276
  361
  465
  588
  733
  900
  1,088
  1,297
  1,526
  1,774
  2,041
  2,325
  2,625
  2,941
  3,272
  3,617
  3,975
  4,348
  4,734
  5,134
  5,548
  5,976
  6,420
  6,879
  7,356
  7,850
  8,362
Tax expense, $m
  21
  32
  42
  56
  75
  97
  125
  159
  198
  243
  294
  350
  412
  479
  551
  628
  709
  794
  883
  976
  1,073
  1,174
  1,278
  1,386
  1,498
  1,614
  1,733
  1,857
  1,986
  2,119
  2,258
Net income, $m
  -2
  86
  115
  153
  202
  263
  339
  430
  535
  657
  794
  947
  1,114
  1,295
  1,490
  1,697
  1,916
  2,147
  2,388
  2,640
  2,902
  3,174
  3,456
  3,747
  4,050
  4,363
  4,686
  5,022
  5,370
  5,730
  6,104

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  15
  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
  3,841
  6,094
  9,415
  14,081
  20,430
  28,824
  39,627
  53,191
  69,843
  89,871
  113,514
  140,959
  172,336
  207,723
  247,149
  290,604
  338,042
  389,396
  444,583
  503,513
  566,098
  632,257
  701,919
  775,032
  851,564
  931,502
  1,014,856
  1,101,663
  1,191,980
  1,285,889
  1,383,495
Adjusted assets (=assets-cash), $m
  3,826
  6,094
  9,415
  14,081
  20,430
  28,824
  39,627
  53,191
  69,843
  89,871
  113,514
  140,959
  172,336
  207,723
  247,149
  290,604
  338,042
  389,396
  444,583
  503,513
  566,098
  632,257
  701,919
  775,032
  851,564
  931,502
  1,014,856
  1,101,663
  1,191,980
  1,285,889
  1,383,495
Revenue / Adjusted assets
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
  0.068
Average production assets, $m
  1,852
  2,963
  4,578
  6,847
  9,935
  14,016
  19,269
  25,865
  33,962
  43,701
  55,198
  68,544
  83,802
  101,009
  120,181
  141,311
  164,379
  189,351
  216,186
  244,842
  275,275
  307,446
  341,321
  376,873
  414,088
  452,959
  493,492
  535,704
  579,622
  625,287
  672,750
Working capital, $m
  -428
  -597
  -922
  -1,379
  -2,001
  -2,822
  -3,880
  -5,208
  -6,839
  -8,800
  -11,115
  -13,803
  -16,875
  -20,340
  -24,201
  -28,456
  -33,101
  -38,130
  -43,534
  -49,304
  -55,432
  -61,911
  -68,732
  -75,891
  -83,385
  -91,213
  -99,375
  -107,875
  -116,719
  -125,914
  -135,472
Total debt, $m
  1,042
  2,091
  3,649
  5,837
  8,815
  12,752
  17,818
  24,180
  31,989
  41,383
  52,471
  65,343
  80,059
  96,655
  115,146
  135,526
  157,775
  181,860
  207,742
  235,381
  264,733
  295,761
  328,433
  362,723
  398,616
  436,107
  475,201
  515,913
  558,272
  602,315
  648,092
Total liabilities, $m
  1,809
  2,858
  4,416
  6,604
  9,582
  13,519
  18,585
  24,947
  32,756
  42,150
  53,238
  66,110
  80,826
  97,422
  115,913
  136,293
  158,542
  182,627
  208,509
  236,148
  265,500
  296,528
  329,200
  363,490
  399,383
  436,874
  475,968
  516,680
  559,039
  603,082
  648,859
Total equity, $m
  2,032
  3,236
  5,000
  7,477
  10,849
  15,306
  21,042
  28,244
  37,087
  47,722
  60,276
  74,849
  91,510
  110,301
  131,236
  154,311
  179,500
  206,769
  236,073
  267,366
  300,598
  335,728
  372,719
  411,542
  452,180
  494,627
  538,889
  584,983
  632,941
  682,807
  734,636
Total liabilities and equity, $m
  3,841
  6,094
  9,416
  14,081
  20,431
  28,825
  39,627
  53,191
  69,843
  89,872
  113,514
  140,959
  172,336
  207,723
  247,149
  290,604
  338,042
  389,396
  444,582
  503,514
  566,098
  632,256
  701,919
  775,032
  851,563
  931,501
  1,014,857
  1,101,663
  1,191,980
  1,285,889
  1,383,495
Debt-to-equity ratio
  0.513
  0.650
  0.730
  0.780
  0.810
  0.830
  0.850
  0.860
  0.860
  0.870
  0.870
  0.870
  0.870
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
  0.880
Adjusted equity ratio
  0.527
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531
  0.531

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -2
  86
  115
  153
  202
  263
  339
  430
  535
  657
  794
  947
  1,114
  1,295
  1,490
  1,697
  1,916
  2,147
  2,388
  2,640
  2,902
  3,174
  3,456
  3,747
  4,050
  4,363
  4,686
  5,022
  5,370
  5,730
  6,104
Depreciation, amort., depletion, $m
  79
  127
  196
  293
  425
  599
  823
  1,105
  1,451
  1,868
  2,359
  2,929
  3,581
  4,317
  5,136
  6,039
  7,025
  8,092
  9,239
  10,463
  11,764
  13,139
  14,586
  16,106
  17,696
  19,357
  21,089
  22,893
  24,770
  26,722
  28,750
Funds from operations, $m
  289
  213
  310
  445
  626
  862
  1,163
  1,535
  1,987
  2,525
  3,153
  3,876
  4,695
  5,612
  6,626
  7,736
  8,941
  10,239
  11,627
  13,103
  14,666
  16,313
  18,042
  19,853
  21,746
  23,720
  25,776
  27,915
  30,140
  32,452
  34,854
Change in working capital, $m
  7
  -224
  -325
  -457
  -622
  -822
  -1,058
  -1,328
  -1,631
  -1,961
  -2,315
  -2,687
  -3,072
  -3,465
  -3,861
  -4,255
  -4,645
  -5,029
  -5,404
  -5,770
  -6,128
  -6,478
  -6,821
  -7,159
  -7,494
  -7,827
  -8,162
  -8,500
  -8,844
  -9,196
  -9,558
Cash from operations, $m
  282
  437
  636
  902
  1,248
  1,684
  2,220
  2,863
  3,617
  4,486
  5,468
  6,563
  7,768
  9,077
  10,486
  11,991
  13,586
  15,268
  17,031
  18,874
  20,794
  22,791
  24,863
  27,012
  29,240
  31,547
  33,938
  36,415
  38,984
  41,647
  44,412
Maintenance CAPEX, $m
  0
  -79
  -127
  -196
  -293
  -425
  -599
  -823
  -1,105
  -1,451
  -1,868
  -2,359
  -2,929
  -3,581
  -4,317
  -5,136
  -6,039
  -7,025
  -8,092
  -9,239
  -10,463
  -11,764
  -13,139
  -14,586
  -16,106
  -17,696
  -19,357
  -21,089
  -22,893
  -24,770
  -26,722
New CAPEX, $m
  -15
  -1,111
  -1,615
  -2,269
  -3,088
  -4,082
  -5,253
  -6,596
  -8,097
  -9,739
  -11,497
  -13,346
  -15,258
  -17,207
  -19,172
  -21,130
  -23,068
  -24,972
  -26,836
  -28,656
  -30,433
  -32,171
  -33,875
  -35,553
  -37,215
  -38,871
  -40,533
  -42,211
  -43,918
  -45,665
  -47,463
Cash from investing activities, $m
  -241
  -1,190
  -1,742
  -2,465
  -3,381
  -4,507
  -5,852
  -7,419
  -9,202
  -11,190
  -13,365
  -15,705
  -18,187
  -20,788
  -23,489
  -26,266
  -29,107
  -31,997
  -34,928
  -37,895
  -40,896
  -43,935
  -47,014
  -50,139
  -53,321
  -56,567
  -59,890
  -63,300
  -66,811
  -70,435
  -74,185
Free cash flow, $m
  41
  -754
  -1,106
  -1,562
  -2,132
  -2,822
  -3,632
  -4,556
  -5,585
  -6,705
  -7,896
  -9,141
  -10,419
  -11,712
  -13,002
  -14,275
  -15,520
  -16,729
  -17,897
  -19,021
  -20,102
  -21,144
  -22,150
  -23,127
  -24,081
  -25,020
  -25,952
  -26,885
  -27,828
  -28,788
  -29,773
Issuance/(repayment) of debt, $m
  11
  1,064
  1,558
  2,188
  2,978
  3,937
  5,066
  6,362
  7,810
  9,393
  11,089
  12,872
  14,716
  16,596
  18,491
  20,380
  22,249
  24,085
  25,883
  27,638
  29,352
  31,028
  32,672
  34,290
  35,893
  37,491
  39,093
  40,712
  42,359
  44,043
  45,777
Issuance/(repurchase) of shares, $m
  162
  1,118
  1,649
  2,325
  3,170
  4,194
  5,397
  6,773
  8,307
  9,978
  11,760
  13,626
  15,547
  17,495
  19,445
  21,377
  23,273
  25,122
  26,916
  28,652
  30,331
  31,956
  33,535
  35,076
  36,589
  38,084
  39,575
  41,072
  42,589
  44,136
  45,725
Cash from financing (excl. dividends), $m  
  166
  2,182
  3,207
  4,513
  6,148
  8,131
  10,463
  13,135
  16,117
  19,371
  22,849
  26,498
  30,263
  34,091
  37,936
  41,757
  45,522
  49,207
  52,799
  56,290
  59,683
  62,984
  66,207
  69,366
  72,482
  75,575
  78,668
  81,784
  84,948
  88,179
  91,502
Total cash flow (excl. dividends), $m
  207
  1,428
  2,100
  2,951
  4,016
  5,309
  6,832
  8,578
  10,531
  12,666
  14,953
  17,357
  19,844
  22,380
  24,935
  27,482
  30,001
  32,478
  34,902
  37,269
  39,581
  41,841
  44,057
  46,239
  48,401
  50,555
  52,716
  54,899
  57,119
  59,391
  61,729
Retained Cash Flow (-), $m
  -43
  -1,204
  -1,764
  -2,477
  -3,372
  -4,457
  -5,736
  -7,202
  -8,842
  -10,635
  -12,555
  -14,573
  -16,661
  -18,790
  -20,935
  -23,074
  -25,190
  -27,269
  -29,304
  -31,292
  -33,233
  -35,130
  -36,991
  -38,823
  -40,638
  -42,447
  -44,261
  -46,094
  -47,958
  -49,866
  -51,829
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
 
  224
  337
  473
  644
  851
  1,096
  1,376
  1,689
  2,031
  2,398
  2,784
  3,183
  3,589
  3,999
  4,408
  4,812
  5,209
  5,598
  5,977
  6,348
  6,711
  7,066
  7,416
  7,763
  8,108
  8,455
  8,805
  9,161
  9,525
  9,900
Discount rate, %
 
  6.30
  6.62
  6.95
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.78
  11.31
  11.88
  12.47
  13.10
  13.75
  14.44
  15.16
  15.92
  16.72
  17.55
  18.43
  19.35
  20.32
  21.33
  22.40
  23.52
  24.70
  25.93
PV of cash for distribution, $m
 
  211
  296
  387
  486
  589
  689
  780
  856
  912
  944
  950
  932
  891
  831
  756
  672
  583
  494
  409
  331
  261
  201
  152
  111
  80
  55
  38
  25
  16
  10
Current shareholders' claim on cash, %
  100
  75.3
  57.7
  45.2
  36.1
  29.3
  24.2
  20.3
  17.3
  14.9
  13.0
  11.4
  10.2
  9.1
  8.3
  7.5
  6.9
  6.4
  5.9
  5.5
  5.2
  4.9
  4.6
  4.3
  4.1
  3.9
  3.7
  3.6
  3.4
  3.3
  3.2

TransAlta Renewables Inc is a Canada-based company engaged in developing, owning and operating renewable power generation facilities. The Company owns and operates over 10 hydro facilities and approximately 20 wind farms in Western and Eastern Canada with a total installed capacity of approximately 1,140 megawatts (MW) and holds economic interest in approximately 140 MW Wyoming Wind Farm and approximately 420 MW Australian gas-fired generation assets, as well as over 270 kilometers gas pipeline. The Company also owns economic interests in Sarnia cogeneration plant, Le Nordais wind farm and Ragged Chute hydro facility totaling approximately 610 MW of contracted power generation assets located in Ontario and Quebec. The Company's subsidiaries include Canadian Hydro Developers, Inc. and Western Sustainable Power Inc.

FINANCIAL RATIOS  of  TransAlta Renewables Inc. (RNW)

Valuation Ratios
P/E Ratio -1524.3
Price to Sales 11.8
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 10.8
Price to Free Cash Flow 11.4
Growth Rates
Sales Growth Rate 9.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 66.7%
Cap. Spend. - 3 Yr. Gr. Rate -20.4%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 47.8%
Total Debt to Equity 51.3%
Interest Coverage 1
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 4.1%
Return On Total Capital -0.1%
Ret/ On T. Cap. - 3 Yr. Avg. 3.9%
Return On Equity -0.1%
Return On Equity - 3 Yr. Avg. 5.9%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 91.1%
Gross Margin - 3 Yr. Avg. 93.3%
EBITDA Margin 56.8%
EBITDA Margin - 3 Yr. Avg. 92.3%
Operating Margin 37.1%
Oper. Margin - 3 Yr. Avg. 39.4%
Pre-Tax Margin 8.5%
Pre-Tax Margin - 3 Yr. Avg. 44.6%
Net Profit Margin -0.8%
Net Profit Margin - 3 Yr. Avg. 34.3%
Effective Tax Rate 95.5%
Eff/ Tax Rate - 3 Yr. Avg. 43.4%
Payout Ratio -9700%

RNW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RNW stock intrinsic value calculation we used $259 million for the last fiscal year's total revenue generated by TransAlta Renewables Inc.. The default revenue input number comes from 2016 income statement of TransAlta Renewables Inc.. 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 RNW stock valuation model: a) initial revenue growth rate of 60% 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 6.3%, whose default value for RNW is calculated based on our internal credit rating of TransAlta Renewables Inc., 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 TransAlta Renewables Inc..
    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 RNW stock the variable cost ratio is equal to 59.1%.

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 RNW 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 5% for TransAlta Renewables Inc..

Corporate tax rate of 27% is the nominal tax rate for TransAlta Renewables Inc.. 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 RNW 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 RNW are equal to 715.1%.

Life of production assets of 23.4 years is the average useful life of capital assets used in TransAlta Renewables Inc. 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 RNW is equal to -144%. 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 - $2032 million for TransAlta Renewables Inc. - 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 250.174 million for TransAlta Renewables Inc. 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 TransAlta Renewables Inc. at the current share price and the inputted number of shares is $3.4 billion.

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Financial statements of RNW
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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