Intrinsic value of Suncor Energy Inc. - SU

Previous Close

$42.09

  Intrinsic Value

$6.71

stock screener

  Rating & Target

str. sell

-84%

  Value-price divergence*

0%

Previous close

$42.09

 
Intrinsic value

$6.71

 
Up/down potential

-84%

 
Rating

str. 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 SU 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 70.0

 

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, %
  -8.22
  22.50
  20.75
  19.18
  17.76
  16.48
  15.33
  14.30
  13.37
  12.53
  11.78
  11.10
  10.49
  9.94
  9.45
  9.00
  8.60
  8.24
  7.92
  7.63
  7.36
  7.13
  6.91
  6.72
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.82
Revenue, $m
  26,807
  32,839
  39,653
  47,256
  55,647
  64,819
  74,758
  85,449
  96,873
  109,015
  121,857
  135,385
  149,589
  164,462
  180,001
  196,207
  213,087
  230,651
  248,915
  267,899
  287,627
  308,128
  329,435
  351,584
  374,616
  398,576
  423,513
  449,477
  476,525
  504,715
  534,111
Variable operating expenses, $m
 
  33,068
  39,930
  47,587
  56,037
  65,273
  75,282
  86,047
  97,552
  109,778
  122,710
  136,333
  150,636
  165,613
  181,261
  197,581
  214,579
  232,266
  250,658
  269,775
  289,641
  310,285
  331,741
  354,045
  377,239
  401,366
  426,477
  452,623
  479,860
  508,248
  537,850
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
  26,811
  33,068
  39,930
  47,587
  56,037
  65,273
  75,282
  86,047
  97,552
  109,778
  122,710
  136,333
  150,636
  165,613
  181,261
  197,581
  214,579
  232,266
  250,658
  269,775
  289,641
  310,285
  331,741
  354,045
  377,239
  401,366
  426,477
  452,623
  479,860
  508,248
  537,850
Operating income, $m
  -4
  -230
  -278
  -331
  -390
  -454
  -523
  -598
  -678
  -763
  -853
  -948
  -1,047
  -1,151
  -1,260
  -1,373
  -1,492
  -1,615
  -1,742
  -1,875
  -2,013
  -2,157
  -2,306
  -2,461
  -2,622
  -2,790
  -2,965
  -3,146
  -3,336
  -3,533
  -3,739
EBITDA, $m
  6,113
  7,279
  8,790
  10,475
  12,336
  14,369
  16,572
  18,942
  21,474
  24,166
  27,012
  30,011
  33,160
  36,457
  39,901
  43,494
  47,236
  51,129
  55,178
  59,386
  63,759
  68,304
  73,027
  77,937
  83,042
  88,353
  93,881
  99,637
  105,632
  111,881
  118,398
Interest expense (income), $m
  992
  982
  1,568
  2,231
  2,970
  3,787
  4,678
  5,645
  6,685
  7,796
  8,976
  10,225
  11,541
  12,922
  14,369
  15,880
  17,456
  19,097
  20,805
  22,582
  24,428
  26,346
  28,340
  30,412
  32,566
  34,806
  37,136
  39,561
  42,086
  44,716
  47,458
Earnings before tax, $m
  86
  -1,212
  -1,846
  -2,562
  -3,360
  -4,240
  -5,202
  -6,243
  -7,363
  -8,559
  -9,829
  -11,173
  -12,588
  -14,073
  -15,629
  -17,253
  -18,947
  -20,712
  -22,548
  -24,457
  -26,441
  -28,503
  -30,646
  -32,873
  -35,188
  -37,596
  -40,101
  -42,707
  -45,422
  -48,249
  -51,197
Tax expense, $m
  -359
  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
  434
  -1,212
  -1,846
  -2,562
  -3,360
  -4,240
  -5,202
  -6,243
  -7,363
  -8,559
  -9,829
  -11,173
  -12,588
  -14,073
  -15,629
  -17,253
  -18,947
  -20,712
  -22,548
  -24,457
  -26,441
  -28,503
  -30,646
  -32,873
  -35,188
  -37,596
  -40,101
  -42,707
  -45,422
  -48,249
  -51,197

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,016
  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
  88,702
  104,916
  126,686
  150,978
  177,787
  207,090
  238,844
  272,999
  309,500
  348,290
  389,318
  432,540
  477,920
  525,438
  575,082
  626,860
  680,789
  736,905
  795,257
  855,908
  918,937
  984,435
  1,052,507
  1,123,271
  1,196,857
  1,273,407
  1,353,075
  1,436,028
  1,522,443
  1,612,508
  1,706,425
Adjusted assets (=assets-cash), $m
  85,686
  104,916
  126,686
  150,978
  177,787
  207,090
  238,844
  272,999
  309,500
  348,290
  389,318
  432,540
  477,920
  525,438
  575,082
  626,860
  680,789
  736,905
  795,257
  855,908
  918,937
  984,435
  1,052,507
  1,123,271
  1,196,857
  1,273,407
  1,353,075
  1,436,028
  1,522,443
  1,612,508
  1,706,425
Revenue / Adjusted assets
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
Average production assets, $m
  69,282
  84,855
  102,462
  122,109
  143,793
  167,493
  193,175
  220,800
  250,321
  281,694
  314,877
  349,835
  386,538
  424,970
  465,122
  506,999
  550,617
  596,003
  643,197
  692,252
  743,229
  796,203
  851,260
  908,493
  968,008
  1,029,921
  1,094,356
  1,161,448
  1,231,340
  1,304,184
  1,380,143
Working capital, $m
  2,902
  1,478
  1,784
  2,127
  2,504
  2,917
  3,364
  3,845
  4,359
  4,906
  5,484
  6,092
  6,732
  7,401
  8,100
  8,829
  9,589
  10,379
  11,201
  12,055
  12,943
  13,866
  14,825
  15,821
  16,858
  17,936
  19,058
  20,226
  21,444
  22,712
  24,035
Total debt, $m
  17,430
  25,711
  36,574
  48,696
  62,074
  76,696
  92,541
  109,585
  127,798
  147,155
  167,628
  189,195
  211,840
  235,551
  260,324
  286,161
  313,072
  341,074
  370,191
  400,456
  431,908
  464,591
  498,559
  533,870
  570,590
  608,788
  648,543
  689,936
  733,057
  778,000
  824,864
Total liabilities, $m
  44,072
  52,353
  63,216
  75,338
  88,716
  103,338
  119,183
  136,227
  154,440
  173,797
  194,270
  215,837
  238,482
  262,193
  286,966
  312,803
  339,714
  367,716
  396,833
  427,098
  458,550
  491,233
  525,201
  560,512
  597,232
  635,430
  675,185
  716,578
  759,699
  804,642
  851,506
Total equity, $m
  44,630
  52,563
  63,469
  75,640
  89,071
  103,752
  119,661
  136,773
  155,059
  174,493
  195,048
  216,702
  239,438
  263,244
  288,116
  314,057
  341,075
  369,189
  398,424
  428,810
  460,388
  493,202
  527,306
  562,759
  599,625
  637,977
  677,891
  719,450
  762,744
  807,867
  854,919
Total liabilities and equity, $m
  88,702
  104,916
  126,685
  150,978
  177,787
  207,090
  238,844
  273,000
  309,499
  348,290
  389,318
  432,539
  477,920
  525,437
  575,082
  626,860
  680,789
  736,905
  795,257
  855,908
  918,938
  984,435
  1,052,507
  1,123,271
  1,196,857
  1,273,407
  1,353,076
  1,436,028
  1,522,443
  1,612,509
  1,706,425
Debt-to-equity ratio
  0.391
  0.490
  0.580
  0.640
  0.700
  0.740
  0.770
  0.800
  0.820
  0.840
  0.860
  0.870
  0.880
  0.890
  0.900
  0.910
  0.920
  0.920
  0.930
  0.930
  0.940
  0.940
  0.950
  0.950
  0.950
  0.950
  0.960
  0.960
  0.960
  0.960
  0.960
Adjusted equity ratio
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501
  0.501

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  434
  -1,212
  -1,846
  -2,562
  -3,360
  -4,240
  -5,202
  -6,243
  -7,363
  -8,559
  -9,829
  -11,173
  -12,588
  -14,073
  -15,629
  -17,253
  -18,947
  -20,712
  -22,548
  -24,457
  -26,441
  -28,503
  -30,646
  -32,873
  -35,188
  -37,596
  -40,101
  -42,707
  -45,422
  -48,249
  -51,197
Depreciation, amort., depletion, $m
  6,117
  7,509
  9,067
  10,806
  12,725
  14,822
  17,095
  19,540
  22,152
  24,929
  27,865
  30,959
  34,207
  37,608
  41,161
  44,867
  48,727
  52,744
  56,920
  61,261
  65,772
  70,460
  75,333
  80,398
  85,664
  91,143
  96,846
  102,783
  108,968
  115,414
  122,137
Funds from operations, $m
  5,372
  6,297
  7,222
  8,244
  9,365
  10,582
  11,893
  13,297
  14,790
  16,370
  18,036
  19,786
  21,619
  23,534
  25,533
  27,614
  29,780
  32,032
  34,372
  36,804
  39,331
  41,957
  44,687
  47,524
  50,476
  53,547
  56,745
  60,076
  63,546
  67,165
  70,940
Change in working capital, $m
  -308
  271
  307
  342
  378
  413
  447
  481
  514
  546
  578
  609
  639
  669
  699
  729
  760
  790
  822
  854
  888
  923
  959
  997
  1,036
  1,078
  1,122
  1,168
  1,217
  1,269
  1,323
Cash from operations, $m
  5,680
  6,026
  6,915
  7,902
  8,987
  10,169
  11,446
  12,816
  14,275
  15,824
  17,458
  19,177
  20,980
  22,865
  24,833
  26,885
  29,020
  31,241
  33,550
  35,950
  38,444
  41,035
  43,728
  46,528
  49,440
  52,469
  55,623
  58,907
  62,329
  65,896
  69,617
Maintenance CAPEX, $m
  0
  -6,131
  -7,509
  -9,067
  -10,806
  -12,725
  -14,822
  -17,095
  -19,540
  -22,152
  -24,929
  -27,865
  -30,959
  -34,207
  -37,608
  -41,161
  -44,867
  -48,727
  -52,744
  -56,920
  -61,261
  -65,772
  -70,460
  -75,333
  -80,398
  -85,664
  -91,143
  -96,846
  -102,783
  -108,968
  -115,414
New CAPEX, $m
  -6,582
  -15,573
  -17,607
  -19,647
  -21,684
  -23,700
  -25,683
  -27,624
  -29,521
  -31,373
  -33,183
  -34,957
  -36,704
  -38,432
  -40,152
  -41,877
  -43,618
  -45,386
  -47,195
  -49,054
  -50,977
  -52,974
  -55,056
  -57,233
  -59,515
  -61,913
  -64,435
  -67,092
  -69,892
  -72,844
  -75,959
Cash from investing activities, $m
  -7,507
  -21,704
  -25,116
  -28,714
  -32,490
  -36,425
  -40,505
  -44,719
  -49,061
  -53,525
  -58,112
  -62,822
  -67,663
  -72,639
  -77,760
  -83,038
  -88,485
  -94,113
  -99,939
  -105,974
  -112,238
  -118,746
  -125,516
  -132,566
  -139,913
  -147,577
  -155,578
  -163,938
  -172,675
  -181,812
  -191,373
Free cash flow, $m
  -1,827
  -15,678
  -18,202
  -20,812
  -23,502
  -26,255
  -29,059
  -31,904
  -34,786
  -37,702
  -40,654
  -43,645
  -46,683
  -49,773
  -52,927
  -56,154
  -59,465
  -62,872
  -66,388
  -70,025
  -73,795
  -77,712
  -81,789
  -86,038
  -90,473
  -95,108
  -99,956
  -105,030
  -110,345
  -115,916
  -121,757
Issuance/(repayment) of debt, $m
  -169
  9,608
  10,863
  12,122
  13,378
  14,622
  15,845
  17,043
  18,214
  19,356
  20,473
  21,568
  22,645
  23,711
  24,773
  25,837
  26,911
  28,002
  29,118
  30,265
  31,451
  32,684
  33,968
  35,311
  36,719
  38,198
  39,755
  41,393
  43,121
  44,943
  46,865
Issuance/(repurchase) of shares, $m
  2,915
  10,834
  12,753
  14,732
  16,792
  18,921
  21,111
  23,355
  25,650
  27,993
  30,384
  32,827
  35,324
  37,880
  40,501
  43,194
  45,966
  48,826
  51,782
  54,843
  58,019
  61,318
  64,750
  68,326
  72,055
  75,948
  80,015
  84,267
  88,716
  93,372
  98,249
Cash from financing (excl. dividends), $m  
  2,746
  20,442
  23,616
  26,854
  30,170
  33,543
  36,956
  40,398
  43,864
  47,349
  50,857
  54,395
  57,969
  61,591
  65,274
  69,031
  72,877
  76,828
  80,900
  85,108
  89,470
  94,002
  98,718
  103,637
  108,774
  114,146
  119,770
  125,660
  131,837
  138,315
  145,114
Total cash flow (excl. dividends), $m
  844
  4,763
  5,414
  6,041
  6,668
  7,287
  7,897
  8,494
  9,078
  9,647
  10,204
  10,749
  11,286
  11,817
  12,347
  12,877
  13,412
  13,956
  14,512
  15,084
  15,675
  16,289
  16,929
  17,599
  18,301
  19,038
  19,813
  20,630
  21,491
  22,399
  23,357
Retained Cash Flow (-), $m
  -5,591
  -10,834
  -12,753
  -14,732
  -16,792
  -18,921
  -21,111
  -23,355
  -25,650
  -27,993
  -30,384
  -32,827
  -35,324
  -37,880
  -40,501
  -43,194
  -45,966
  -48,826
  -51,782
  -54,843
  -58,019
  -61,318
  -64,750
  -68,326
  -72,055
  -75,948
  -80,015
  -84,267
  -88,716
  -93,372
  -98,249
Prev. year cash balance distribution, $m
 
  1,689
  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
 
  -4,381
  -7,339
  -8,691
  -10,124
  -11,633
  -13,213
  -14,861
  -16,572
  -18,346
  -20,181
  -22,078
  -24,038
  -26,062
  -28,154
  -30,317
  -32,554
  -34,870
  -37,270
  -39,759
  -42,344
  -45,029
  -47,821
  -50,727
  -53,754
  -56,910
  -60,201
  -63,637
  -67,224
  -70,973
  -74,892
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  -4,173
  -6,625
  -7,399
  -8,084
  -8,661
  -9,116
  -9,438
  -9,619
  -9,660
  -9,561
  -9,331
  -8,980
  -8,522
  -7,975
  -7,358
  -6,690
  -5,993
  -5,287
  -4,591
  -3,920
  -3,291
  -2,714
  -2,196
  -1,743
  -1,355
  -1,031
  -767
  -558
  -395
  -273
Current shareholders' claim on cash, %
  100
  86.1
  74.6
  65.0
  56.9
  50.1
  44.4
  39.5
  35.3
  31.6
  28.5
  25.7
  23.3
  21.2
  19.3
  17.6
  16.1
  14.7
  13.5
  12.4
  11.5
  10.6
  9.7
  9.0
  8.3
  7.7
  7.1
  6.6
  6.1
  5.7
  5.3

Suncor Energy Inc. (Suncor) is an integrated energy company. The Company is focused on developing Canada's petroleum resource basin, Athabasca oil sands. The Company operates in three business segments: Oil Sands, Exploration and Production (E&P), and Refining and Marketing. The Company's Oil Sands segment includes Oil Sands operations and Oil Sands ventures operations. Its E&P segment consists of offshore operations off the east coast of Canada and in the North Sea, and onshore assets in North America, Libya and Syria. The Company's Refining and Marketing segment is engaged in Refining and Supply, and Marketing operations. In addition, it explores for, acquires, develops, produces and markets crude oil and natural gas in Canada and internationally. It transports and refines crude oil, and markets petroleum and petrochemical products primarily in Canada. It markets third-party petroleum products. Suncor also conducts energy trading activities.

FINANCIAL RATIOS  of  Suncor Energy Inc. (SU)

Valuation Ratios
P/E Ratio 161.8
Price to Sales 2.6
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 12.4
Price to Free Cash Flow -77.8
Growth Rates
Sales Growth Rate -8.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -1.3%
Cap. Spend. - 3 Yr. Gr. Rate -0.6%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 36.1%
Total Debt to Equity 39.1%
Interest Coverage 1
Management Effectiveness
Return On Assets 6.7%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital 0.7%
Ret/ On T. Cap. - 3 Yr. Avg. 0.7%
Return On Equity 1%
Return On Equity - 3 Yr. Avg. 0.9%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 63.2%
Gross Margin - 3 Yr. Avg. 59.8%
EBITDA Margin 26.8%
EBITDA Margin - 3 Yr. Avg. 25.8%
Operating Margin -0%
Oper. Margin - 3 Yr. Avg. 4%
Pre-Tax Margin 0.3%
Pre-Tax Margin - 3 Yr. Avg. 1.6%
Net Profit Margin 1.6%
Net Profit Margin - 3 Yr. Avg. 0.5%
Effective Tax Rate -417.4%
Eff/ Tax Rate - 3 Yr. Avg. -124.9%
Payout Ratio 432.5%

SU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SU stock intrinsic value calculation we used $26807 million for the last fiscal year's total revenue generated by Suncor Energy Inc.. The default revenue input number comes from 2016 income statement of Suncor 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 SU stock valuation model: a) initial revenue growth rate of 22.5% 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%, whose default value for SU is calculated based on our internal credit rating of Suncor 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 Suncor 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 SU stock the variable cost ratio is equal to 100.7%.

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 SU 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 6.1% for Suncor Energy Inc..

Corporate tax rate of 27% is the nominal tax rate for Suncor 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 SU 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 SU are equal to 258.4%.

Life of production assets of 11.3 years is the average useful life of capital assets used in Suncor 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 SU is equal to 4.5%. 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 - $44630 million for Suncor 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 1663.6 million for Suncor 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 Suncor Energy Inc. at the current share price and the inputted number of shares is $70.0 billion.

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Financial statements of SU
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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