Intrinsic value of Surge Energy Inc. - SGY

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$2.38

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$2.38

 
Intrinsic value

$0.90

 
Up/down potential

-62%

 
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 SGY 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 0.5

 

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, %
  -24.74
  51.40
  46.76
  42.58
  38.83
  35.44
  32.40
  29.66
  27.19
  24.97
  22.98
  21.18
  19.56
  18.10
  16.79
  15.61
  14.55
  13.60
  12.74
  11.96
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.19
Revenue, $m
  146
  221
  324
  463
  642
  870
  1,152
  1,493
  1,899
  2,373
  2,919
  3,537
  4,229
  4,994
  5,833
  6,744
  7,725
  8,775
  9,893
  11,077
  12,325
  13,637
  15,011
  16,447
  17,946
  19,507
  21,133
  22,823
  24,580
  26,406
  28,303
Variable operating expenses, $m
 
  540
  793
  1,131
  1,570
  2,126
  2,815
  3,650
  4,643
  5,803
  7,136
  8,647
  10,339
  12,211
  14,261
  16,488
  18,888
  21,456
  24,189
  27,083
  30,135
  33,342
  36,701
  40,213
  43,878
  47,696
  51,669
  55,802
  60,097
  64,562
  69,201
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
  177
  540
  793
  1,131
  1,570
  2,126
  2,815
  3,650
  4,643
  5,803
  7,136
  8,647
  10,339
  12,211
  14,261
  16,488
  18,888
  21,456
  24,189
  27,083
  30,135
  33,342
  36,701
  40,213
  43,878
  47,696
  51,669
  55,802
  60,097
  64,562
  69,201
Operating income, $m
  -32
  -319
  -469
  -668
  -928
  -1,257
  -1,664
  -2,157
  -2,744
  -3,429
  -4,217
  -5,111
  -6,110
  -7,216
  -8,428
  -9,744
  -11,163
  -12,681
  -14,296
  -16,006
  -17,810
  -19,705
  -21,691
  -23,766
  -25,932
  -28,188
  -30,537
  -32,979
  -35,518
  -38,156
  -40,898
EBITDA, $m
  52
  -193
  -283
  -403
  -559
  -757
  -1,003
  -1,300
  -1,654
  -2,067
  -2,542
  -3,080
  -3,683
  -4,350
  -5,080
  -5,873
  -6,728
  -7,643
  -8,617
  -9,647
  -10,735
  -11,877
  -13,074
  -14,325
  -15,630
  -16,990
  -18,406
  -19,878
  -21,408
  -22,998
  -24,651
Interest expense (income), $m
  0
  6
  12
  20
  31
  46
  64
  86
  114
  147
  185
  229
  278
  334
  395
  463
  536
  615
  700
  789
  885
  985
  1,091
  1,201
  1,317
  1,437
  1,563
  1,693
  1,829
  1,971
  2,117
Earnings before tax, $m
  -32
  -325
  -480
  -688
  -959
  -1,302
  -1,728
  -2,244
  -2,858
  -3,576
  -4,402
  -5,339
  -6,388
  -7,550
  -8,824
  -10,207
  -11,699
  -13,296
  -14,995
  -16,796
  -18,694
  -20,690
  -22,781
  -24,967
  -27,248
  -29,625
  -32,099
  -34,672
  -37,347
  -40,127
  -43,015
Tax expense, $m
  -2
  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
  -30
  -325
  -480
  -688
  -959
  -1,302
  -1,728
  -2,244
  -2,858
  -3,576
  -4,402
  -5,339
  -6,388
  -7,550
  -8,824
  -10,207
  -11,699
  -13,296
  -14,995
  -16,796
  -18,694
  -20,690
  -22,781
  -24,967
  -27,248
  -29,625
  -32,099
  -34,672
  -37,347
  -40,127
  -43,015

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
  1,115
  1,687
  2,476
  3,531
  4,902
  6,639
  8,790
  11,397
  14,496
  18,117
  22,279
  26,998
  32,279
  38,123
  44,525
  51,478
  58,969
  66,988
  75,521
  84,557
  94,085
  104,096
  114,586
  125,551
  136,992
  148,912
  161,318
  174,220
  187,632
  201,569
  216,053
Adjusted assets (=assets-cash), $m
  1,115
  1,687
  2,476
  3,531
  4,902
  6,639
  8,790
  11,397
  14,496
  18,117
  22,279
  26,998
  32,279
  38,123
  44,525
  51,478
  58,969
  66,988
  75,521
  84,557
  94,085
  104,096
  114,586
  125,551
  136,992
  148,912
  161,318
  174,220
  187,632
  201,569
  216,053
Revenue / Adjusted assets
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
  0.131
Average production assets, $m
  1,056
  1,599
  2,346
  3,346
  4,645
  6,291
  8,329
  10,799
  13,736
  17,166
  21,110
  25,581
  30,585
  36,122
  42,189
  48,776
  55,875
  63,473
  71,558
  80,119
  89,147
  98,634
  108,573
  118,963
  129,803
  141,097
  152,852
  165,077
  177,785
  190,992
  204,715
Working capital, $m
  -15
  -23
  -33
  -48
  -66
  -90
  -119
  -154
  -196
  -244
  -301
  -364
  -436
  -514
  -601
  -695
  -796
  -904
  -1,019
  -1,141
  -1,269
  -1,405
  -1,546
  -1,694
  -1,848
  -2,009
  -2,177
  -2,351
  -2,532
  -2,720
  -2,915
Total debt, $m
  161
  333
  570
  888
  1,300
  1,823
  2,471
  3,256
  4,188
  5,278
  6,531
  7,951
  9,541
  11,300
  13,227
  15,320
  17,575
  19,988
  22,557
  25,277
  28,144
  31,158
  34,315
  37,616
  41,060
  44,647
  48,382
  52,265
  56,302
  60,497
  64,857
Total liabilities, $m
  336
  508
  745
  1,063
  1,475
  1,998
  2,646
  3,431
  4,363
  5,453
  6,706
  8,126
  9,716
  11,475
  13,402
  15,495
  17,750
  20,163
  22,732
  25,452
  28,319
  31,333
  34,490
  37,791
  41,235
  44,822
  48,557
  52,440
  56,477
  60,672
  65,032
Total equity, $m
  779
  1,179
  1,731
  2,468
  3,426
  4,641
  6,144
  7,967
  10,133
  12,664
  15,573
  18,871
  22,563
  26,648
  31,123
  35,983
  41,220
  46,825
  52,789
  59,105
  65,765
  72,763
  80,096
  87,760
  95,757
  104,089
  112,761
  121,780
  131,154
  140,897
  151,021
Total liabilities and equity, $m
  1,115
  1,687
  2,476
  3,531
  4,901
  6,639
  8,790
  11,398
  14,496
  18,117
  22,279
  26,997
  32,279
  38,123
  44,525
  51,478
  58,970
  66,988
  75,521
  84,557
  94,084
  104,096
  114,586
  125,551
  136,992
  148,911
  161,318
  174,220
  187,631
  201,569
  216,053
Debt-to-equity ratio
  0.207
  0.280
  0.330
  0.360
  0.380
  0.390
  0.400
  0.410
  0.410
  0.420
  0.420
  0.420
  0.420
  0.420
  0.420
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
Adjusted equity ratio
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -30
  -325
  -480
  -688
  -959
  -1,302
  -1,728
  -2,244
  -2,858
  -3,576
  -4,402
  -5,339
  -6,388
  -7,550
  -8,824
  -10,207
  -11,699
  -13,296
  -14,995
  -16,796
  -18,694
  -20,690
  -22,781
  -24,967
  -27,248
  -29,625
  -32,099
  -34,672
  -37,347
  -40,127
  -43,015
Depreciation, amort., depletion, $m
  84
  127
  186
  266
  369
  499
  661
  857
  1,090
  1,362
  1,675
  2,030
  2,427
  2,867
  3,348
  3,871
  4,435
  5,038
  5,679
  6,359
  7,075
  7,828
  8,617
  9,441
  10,302
  11,198
  12,131
  13,101
  14,110
  15,158
  16,247
Funds from operations, $m
  44
  -198
  -294
  -423
  -590
  -803
  -1,067
  -1,387
  -1,768
  -2,214
  -2,727
  -3,309
  -3,961
  -4,684
  -5,476
  -6,336
  -7,264
  -8,258
  -9,316
  -10,437
  -11,619
  -12,862
  -14,164
  -15,526
  -16,947
  -18,427
  -19,968
  -21,571
  -23,237
  -24,969
  -26,768
Change in working capital, $m
  -11
  -8
  -11
  -14
  -18
  -23
  -29
  -35
  -42
  -49
  -56
  -64
  -71
  -79
  -86
  -94
  -101
  -108
  -115
  -122
  -129
  -135
  -142
  -148
  -154
  -161
  -167
  -174
  -181
  -188
  -195
Cash from operations, $m
  55
  -205
  -284
  -409
  -572
  -780
  -1,038
  -1,352
  -1,726
  -2,165
  -2,671
  -3,245
  -3,890
  -4,605
  -5,389
  -6,242
  -7,163
  -8,150
  -9,201
  -10,315
  -11,491
  -12,727
  -14,023
  -15,378
  -16,792
  -18,266
  -19,801
  -21,397
  -23,056
  -24,781
  -26,573
Maintenance CAPEX, $m
  0
  -84
  -127
  -186
  -266
  -369
  -499
  -661
  -857
  -1,090
  -1,362
  -1,675
  -2,030
  -2,427
  -2,867
  -3,348
  -3,871
  -4,435
  -5,038
  -5,679
  -6,359
  -7,075
  -7,828
  -8,617
  -9,441
  -10,302
  -11,198
  -12,131
  -13,101
  -14,110
  -15,158
New CAPEX, $m
  -74
  -543
  -748
  -999
  -1,299
  -1,646
  -2,038
  -2,470
  -2,937
  -3,430
  -3,944
  -4,471
  -5,004
  -5,537
  -6,066
  -6,588
  -7,099
  -7,598
  -8,085
  -8,561
  -9,028
  -9,486
  -9,939
  -10,390
  -10,840
  -11,294
  -11,755
  -12,225
  -12,708
  -13,206
  -13,724
Cash from investing activities, $m
  -49
  -627
  -875
  -1,185
  -1,565
  -2,015
  -2,537
  -3,131
  -3,794
  -4,520
  -5,306
  -6,146
  -7,034
  -7,964
  -8,933
  -9,936
  -10,970
  -12,033
  -13,123
  -14,240
  -15,387
  -16,561
  -17,767
  -19,007
  -20,281
  -21,596
  -22,953
  -24,356
  -25,809
  -27,316
  -28,882
Free cash flow, $m
  6
  -832
  -1,158
  -1,594
  -2,136
  -2,794
  -3,575
  -4,483
  -5,520
  -6,685
  -7,977
  -9,391
  -10,924
  -12,569
  -14,322
  -16,178
  -18,133
  -20,182
  -22,324
  -24,556
  -26,877
  -29,288
  -31,790
  -34,384
  -37,074
  -39,863
  -42,754
  -45,753
  -48,865
  -52,097
  -55,454
Issuance/(repayment) of debt, $m
  12
  172
  237
  317
  413
  523
  647
  785
  933
  1,090
  1,253
  1,420
  1,590
  1,759
  1,927
  2,093
  2,255
  2,414
  2,568
  2,720
  2,868
  3,014
  3,157
  3,301
  3,444
  3,588
  3,734
  3,884
  4,037
  4,195
  4,360
Issuance/(repurchase) of shares, $m
  5
  1,061
  1,472
  2,014
  2,682
  3,486
  4,431
  5,521
  6,753
  8,126
  9,634
  11,269
  13,026
  14,895
  16,871
  18,946
  21,115
  23,374
  25,720
  28,152
  30,669
  33,273
  35,965
  38,749
  41,628
  44,607
  47,691
  50,888
  54,203
  57,644
  61,219
Cash from financing (excl. dividends), $m  
  16
  1,233
  1,709
  2,331
  3,095
  4,009
  5,078
  6,306
  7,686
  9,216
  10,887
  12,689
  14,616
  16,654
  18,798
  21,039
  23,370
  25,788
  28,288
  30,872
  33,537
  36,287
  39,122
  42,050
  45,072
  48,195
  51,425
  54,772
  58,240
  61,839
  65,579
Total cash flow (excl. dividends), $m
  22
  -660
  -921
  -1,277
  -1,724
  -2,271
  -2,928
  -3,698
  -4,587
  -5,596
  -6,724
  -7,971
  -9,334
  -10,810
  -12,395
  -14,086
  -15,878
  -17,769
  -19,755
  -21,836
  -24,009
  -26,275
  -28,633
  -31,084
  -33,630
  -36,275
  -39,020
  -41,869
  -44,828
  -47,902
  -51,095
Retained Cash Flow (-), $m
  33
  -400
  -552
  -737
  -958
  -1,214
  -1,504
  -1,822
  -2,166
  -2,531
  -2,910
  -3,298
  -3,691
  -4,085
  -4,475
  -4,860
  -5,237
  -5,605
  -5,965
  -6,316
  -6,660
  -6,998
  -7,332
  -7,665
  -7,997
  -8,332
  -8,672
  -9,019
  -9,375
  -9,743
  -10,124
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
  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, %
 
  4.70
  4.94
  5.18
  5.44
  5.71
  6.00
  6.30
  6.61
  6.94
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.77
  11.31
  11.88
  12.47
  13.09
  13.75
  14.44
  15.16
  15.92
  16.71
  17.55
  18.42
  19.35
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
  34.0
  12.2
  4.6
  1.8
  0.7
  0.3
  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
  0.0
  0.0
  0.0
  0.0

Surge Energy Inc. engages in the exploration, development, and production of oil and gas properties in western Canada. The company holds working interests in the Valhalla/Wembley and Nipisi properties located in northwestern Alberta; Windfall property located in western Alberta; and Nevis property located to the east of Red Deer, Alberta covering an area of approximately 134,336 net developed acres. It also holds working interests in the Sparky assets located between Provost and Wainwright in eastern Alberta and western Saskatchewan, as well as Silver Lake property to the west of Provost in eastern Alberta that covers an area of 117,395 net developed and 43,179 net undeveloped acres; and Southwest Saskatchewan properties covering an area of 21,672 net developed and 12,712 net undeveloped acres located to the southwest of Swift Current, Saskatchewan. The company was formerly known as Zapata Energy Corporation and changed its name to Surge Energy Inc. in June 2010. Surge Energy Inc. was incorporated in 1998 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Surge Energy Inc. (SGY)

Valuation Ratios
P/E Ratio -17.9
Price to Sales 3.7
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 9.8
Price to Free Cash Flow -28.3
Growth Rates
Sales Growth Rate -24.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3.9%
Cap. Spend. - 3 Yr. Gr. Rate -10.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 20.7%
Total Debt to Equity 20.7%
Interest Coverage 0
Management Effectiveness
Return On Assets -2.7%
Ret/ On Assets - 3 Yr. Avg. -6.1%
Return On Total Capital -3.2%
Ret/ On T. Cap. - 3 Yr. Avg. -7.3%
Return On Equity -3.8%
Return On Equity - 3 Yr. Avg. -10%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 60.3%
Gross Margin - 3 Yr. Avg. 63.4%
EBITDA Margin 35.6%
EBITDA Margin - 3 Yr. Avg. -7.2%
Operating Margin -21.2%
Oper. Margin - 3 Yr. Avg. -59.5%
Pre-Tax Margin -21.9%
Pre-Tax Margin - 3 Yr. Avg. -59.7%
Net Profit Margin -20.5%
Net Profit Margin - 3 Yr. Avg. -46.1%
Effective Tax Rate 6.3%
Eff/ Tax Rate - 3 Yr. Avg. 23.4%
Payout Ratio -73.3%

SGY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SGY stock intrinsic value calculation we used $146 million for the last fiscal year's total revenue generated by Surge Energy Inc.. The default revenue input number comes from 2016 income statement of Surge Energy 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 SGY stock valuation model: a) initial revenue growth rate of 51.4% 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 4.7%, whose default value for SGY is calculated based on our internal credit rating of Surge Energy 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 Surge Energy 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 SGY stock the variable cost ratio is equal to 244.5%.

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 SGY 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 Surge Energy Inc..

Corporate tax rate of 27% is the nominal tax rate for Surge Energy 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 SGY 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 SGY are equal to 723.3%.

Life of production assets of 12.6 years is the average useful life of capital assets used in Surge Energy 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 SGY is equal to -10.3%. 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 - $779 million for Surge Energy 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 217.506 million for Surge Energy 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 Surge Energy Inc. at the current share price and the inputted number of shares is $0.5 billion.


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