Intrinsic value of Suncor Energy Inc. - SU

Previous Close

$38.98

  Intrinsic Value

$6.77

stock screener

  Rating & Target

str. sell

-83%

  Value-price divergence*

-93%

Previous close

$38.98

 
Intrinsic value

$6.77

 
Up/down potential

-83%

 
Rating

str. sell

 
Value-price divergence*

-93%

*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 64.2

 

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
  38.50
  35.15
  32.14
  29.42
  26.98
  24.78
  22.80
  21.02
  19.42
  17.98
  16.68
  15.51
  14.46
  13.52
  12.66
  11.90
  11.21
  10.59
  10.03
  9.53
  9.07
  8.67
  8.30
  7.97
  7.67
  7.40
  7.16
  6.95
  6.75
  6.58
Revenue, $m
  26,807
  37,128
  50,178
  66,303
  85,810
  108,961
  135,963
  166,967
  202,069
  241,312
  284,696
  332,186
  383,716
  439,207
  498,567
  561,704
  628,532
  698,976
  772,975
  850,490
  931,503
  1,016,016
  1,104,059
  1,195,685
  1,290,970
  1,390,016
  1,492,946
  1,599,907
  1,711,069
  1,826,621
  1,946,775
Variable operating expenses, $m
 
  37,388
  50,529
  66,767
  86,411
  109,724
  136,915
  168,136
  203,483
  243,001
  286,689
  334,511
  386,402
  442,282
  502,057
  565,636
  632,932
  703,868
  778,386
  856,444
  938,023
  1,023,128
  1,111,788
  1,204,055
  1,300,007
  1,399,746
  1,503,396
  1,611,107
  1,723,047
  1,839,408
  1,960,402
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
  37,388
  50,529
  66,767
  86,411
  109,724
  136,915
  168,136
  203,483
  243,001
  286,689
  334,511
  386,402
  442,282
  502,057
  565,636
  632,932
  703,868
  778,386
  856,444
  938,023
  1,023,128
  1,111,788
  1,204,055
  1,300,007
  1,399,746
  1,503,396
  1,611,107
  1,723,047
  1,839,408
  1,960,402
Operating income, $m
  -4
  -260
  -351
  -464
  -601
  -763
  -952
  -1,169
  -1,414
  -1,689
  -1,993
  -2,325
  -2,686
  -3,074
  -3,490
  -3,932
  -4,400
  -4,893
  -5,411
  -5,953
  -6,521
  -7,112
  -7,728
  -8,370
  -9,037
  -9,730
  -10,451
  -11,199
  -11,977
  -12,786
  -13,627
EBITDA, $m
  6,113
  8,230
  11,123
  14,698
  19,022
  24,154
  30,139
  37,012
  44,793
  53,492
  63,109
  73,636
  85,059
  97,360
  110,519
  124,514
  139,328
  154,944
  171,347
  188,530
  206,489
  225,223
  244,740
  265,051
  286,173
  308,128
  330,945
  354,656
  379,297
  404,912
  431,547
Interest expense (income), $m
  992
  982
  1,985
  3,255
  4,823
  6,720
  8,971
  11,597
  14,612
  18,026
  21,842
  26,061
  30,680
  35,691
  41,087
  46,860
  53,000
  59,499
  66,350
  73,546
  81,084
  88,963
  97,182
  105,744
  114,654
  123,921
  133,553
  143,563
  153,965
  164,775
  176,012
Earnings before tax, $m
  86
  -1,242
  -2,337
  -3,719
  -5,423
  -7,483
  -9,923
  -12,766
  -16,027
  -19,715
  -23,835
  -28,387
  -33,366
  -38,765
  -44,577
  -50,792
  -57,400
  -64,392
  -71,760
  -79,499
  -87,605
  -96,075
  -104,910
  -114,114
  -123,691
  -133,651
  -144,003
  -154,762
  -165,942
  -177,561
  -189,640
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
  -1,242
  -2,337
  -3,719
  -5,423
  -7,483
  -9,923
  -12,766
  -16,027
  -19,715
  -23,835
  -28,387
  -33,366
  -38,765
  -44,577
  -50,792
  -57,400
  -64,392
  -71,760
  -79,499
  -87,605
  -96,075
  -104,910
  -114,114
  -123,691
  -133,651
  -144,003
  -154,762
  -165,942
  -177,561
  -189,640

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
  118,619
  160,313
  211,830
  274,154
  348,118
  434,387
  533,442
  645,587
  770,964
  909,572
  1,061,296
  1,225,931
  1,403,218
  1,592,866
  1,794,582
  2,008,090
  2,233,149
  2,469,569
  2,717,222
  2,976,047
  3,246,058
  3,527,346
  3,820,080
  4,124,506
  4,440,945
  4,769,795
  5,111,525
  5,466,675
  5,835,851
  6,219,727
Adjusted assets (=assets-cash), $m
  85,686
  118,619
  160,313
  211,830
  274,154
  348,118
  434,387
  533,442
  645,587
  770,964
  909,572
  1,061,296
  1,225,931
  1,403,218
  1,592,866
  1,794,582
  2,008,090
  2,233,149
  2,469,569
  2,717,222
  2,976,047
  3,246,058
  3,527,346
  3,820,080
  4,124,506
  4,440,945
  4,769,795
  5,111,525
  5,466,675
  5,835,851
  6,219,727
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
  95,938
  129,660
  171,326
  221,733
  281,555
  351,329
  431,443
  522,145
  623,550
  735,655
  858,368
  991,523
  1,134,911
  1,288,297
  1,451,444
  1,624,127
  1,806,153
  1,997,368
  2,197,667
  2,407,003
  2,625,386
  2,852,889
  3,089,650
  3,335,867
  3,591,801
  3,857,772
  4,134,161
  4,421,403
  4,719,990
  5,030,465
Working capital, $m
  2,902
  1,671
  2,258
  2,984
  3,861
  4,903
  6,118
  7,514
  9,093
  10,859
  12,811
  14,948
  17,267
  19,764
  22,436
  25,277
  28,284
  31,454
  34,784
  38,272
  41,918
  45,721
  49,683
  53,806
  58,094
  62,551
  67,183
  71,996
  76,998
  82,198
  87,605
Total debt, $m
  17,430
  32,549
  53,354
  79,061
  110,161
  147,069
  190,117
  239,545
  295,506
  358,069
  427,235
  502,945
  585,098
  673,564
  768,198
  868,854
  975,395
  1,087,699
  1,205,673
  1,329,252
  1,458,405
  1,593,141
  1,733,504
  1,879,578
  2,031,486
  2,189,389
  2,353,486
  2,524,009
  2,701,229
  2,885,448
  3,077,002
Total liabilities, $m
  44,072
  59,191
  79,996
  105,703
  136,803
  173,711
  216,759
  266,187
  322,148
  384,711
  453,877
  529,587
  611,740
  700,206
  794,840
  895,496
  1,002,037
  1,114,341
  1,232,315
  1,355,894
  1,485,047
  1,619,783
  1,760,146
  1,906,220
  2,058,128
  2,216,031
  2,380,128
  2,550,651
  2,727,871
  2,912,090
  3,103,644
Total equity, $m
  44,630
  59,428
  80,317
  106,127
  137,351
  174,407
  217,628
  267,254
  323,439
  386,253
  455,696
  531,709
  614,191
  703,012
  798,026
  899,086
  1,006,053
  1,118,808
  1,237,254
  1,361,328
  1,490,999
  1,626,275
  1,767,200
  1,913,860
  2,066,377
  2,224,913
  2,389,667
  2,560,874
  2,738,804
  2,923,761
  3,116,083
Total liabilities and equity, $m
  88,702
  118,619
  160,313
  211,830
  274,154
  348,118
  434,387
  533,441
  645,587
  770,964
  909,573
  1,061,296
  1,225,931
  1,403,218
  1,592,866
  1,794,582
  2,008,090
  2,233,149
  2,469,569
  2,717,222
  2,976,046
  3,246,058
  3,527,346
  3,820,080
  4,124,505
  4,440,944
  4,769,795
  5,111,525
  5,466,675
  5,835,851
  6,219,727
Debt-to-equity ratio
  0.391
  0.550
  0.660
  0.740
  0.800
  0.840
  0.870
  0.900
  0.910
  0.930
  0.940
  0.950
  0.950
  0.960
  0.960
  0.970
  0.970
  0.970
  0.970
  0.980
  0.980
  0.980
  0.980
  0.980
  0.980
  0.980
  0.980
  0.990
  0.990
  0.990
  0.990
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
  -1,242
  -2,337
  -3,719
  -5,423
  -7,483
  -9,923
  -12,766
  -16,027
  -19,715
  -23,835
  -28,387
  -33,366
  -38,765
  -44,577
  -50,792
  -57,400
  -64,392
  -71,760
  -79,499
  -87,605
  -96,075
  -104,910
  -114,114
  -123,691
  -133,651
  -144,003
  -154,762
  -165,942
  -177,561
  -189,640
Depreciation, amort., depletion, $m
  6,117
  8,490
  11,474
  15,162
  19,622
  24,916
  31,091
  38,181
  46,208
  55,181
  65,102
  75,962
  87,745
  100,435
  114,009
  128,446
  143,728
  159,837
  176,758
  194,484
  213,009
  232,335
  252,468
  273,420
  295,209
  317,858
  341,396
  365,855
  391,275
  417,698
  445,174
Funds from operations, $m
  5,372
  7,248
  9,138
  11,443
  14,199
  17,434
  21,168
  25,415
  30,181
  35,466
  41,267
  47,575
  54,380
  61,669
  69,431
  77,654
  86,328
  95,445
  104,998
  114,984
  125,404
  136,260
  147,558
  159,307
  171,518
  184,208
  197,392
  211,093
  225,333
  240,137
  255,534
Change in working capital, $m
  -308
  464
  587
  726
  878
  1,042
  1,215
  1,395
  1,580
  1,766
  1,952
  2,137
  2,319
  2,497
  2,671
  2,841
  3,007
  3,170
  3,330
  3,488
  3,646
  3,803
  3,962
  4,123
  4,288
  4,457
  4,632
  4,813
  5,002
  5,200
  5,407
Cash from operations, $m
  5,680
  6,783
  8,550
  10,717
  13,321
  16,392
  19,953
  24,020
  28,601
  33,700
  39,315
  45,438
  52,061
  59,172
  66,760
  74,813
  83,321
  92,275
  101,668
  111,496
  121,759
  132,457
  143,596
  155,184
  167,231
  179,751
  192,761
  206,280
  220,330
  234,937
  250,127
Maintenance CAPEX, $m
  0
  -6,131
  -8,490
  -11,474
  -15,162
  -19,622
  -24,916
  -31,091
  -38,181
  -46,208
  -55,181
  -65,102
  -75,962
  -87,745
  -100,435
  -114,009
  -128,446
  -143,728
  -159,837
  -176,758
  -194,484
  -213,009
  -232,335
  -252,468
  -273,420
  -295,209
  -317,858
  -341,396
  -365,855
  -391,275
  -417,698
New CAPEX, $m
  -6,582
  -26,656
  -33,722
  -41,666
  -50,407
  -59,822
  -69,773
  -80,114
  -90,702
  -101,404
  -112,105
  -122,713
  -133,156
  -143,388
  -153,386
  -163,146
  -172,683
  -182,026
  -191,215
  -200,299
  -209,336
  -218,383
  -227,504
  -236,761
  -246,217
  -255,934
  -265,971
  -276,389
  -287,242
  -298,587
  -310,476
Cash from investing activities, $m
  -7,507
  -32,787
  -42,212
  -53,140
  -65,569
  -79,444
  -94,689
  -111,205
  -128,883
  -147,612
  -167,286
  -187,815
  -209,118
  -231,133
  -253,821
  -277,155
  -301,129
  -325,754
  -351,052
  -377,057
  -403,820
  -431,392
  -459,839
  -489,229
  -519,637
  -551,143
  -583,829
  -617,785
  -653,097
  -689,862
  -728,174
Free cash flow, $m
  -1,827
  -26,004
  -33,662
  -42,423
  -52,247
  -63,053
  -74,737
  -87,186
  -100,282
  -113,911
  -127,972
  -142,377
  -157,056
  -171,961
  -187,061
  -202,342
  -217,809
  -233,479
  -249,384
  -265,561
  -282,061
  -298,935
  -316,243
  -334,045
  -352,407
  -371,392
  -391,069
  -411,505
  -432,767
  -454,924
  -478,047
Issuance/(repayment) of debt, $m
  -169
  16,446
  20,806
  25,707
  31,099
  36,908
  43,048
  49,428
  55,960
  62,563
  69,166
  75,710
  82,153
  88,466
  94,635
  100,656
  106,540
  112,304
  117,974
  123,579
  129,154
  134,736
  140,363
  146,074
  151,908
  157,903
  164,096
  170,523
  177,220
  184,219
  191,554
Issuance/(repurchase) of shares, $m
  2,915
  17,729
  23,226
  29,529
  36,648
  44,539
  53,144
  62,392
  72,211
  82,529
  93,278
  104,400
  115,848
  127,586
  139,591
  151,852
  164,367
  177,146
  190,207
  203,573
  217,276
  231,350
  245,835
  260,773
  276,208
  292,187
  308,757
  325,969
  343,872
  362,519
  381,962
Cash from financing (excl. dividends), $m  
  2,746
  34,175
  44,032
  55,236
  67,747
  81,447
  96,192
  111,820
  128,171
  145,092
  162,444
  180,110
  198,001
  216,052
  234,226
  252,508
  270,907
  289,450
  308,181
  327,152
  346,430
  366,086
  386,198
  406,847
  428,116
  450,090
  472,853
  496,492
  521,092
  546,738
  573,516
Total cash flow (excl. dividends), $m
  844
  8,171
  10,369
  12,812
  15,500
  18,395
  21,455
  24,635
  27,890
  31,181
  34,472
  37,733
  40,944
  44,091
  47,165
  50,166
  53,099
  55,972
  58,797
  61,591
  64,369
  67,151
  69,956
  72,802
  75,710
  78,698
  81,784
  84,987
  88,325
  91,813
  95,469
Retained Cash Flow (-), $m
  -5,591
  -17,729
  -23,226
  -29,529
  -36,648
  -44,539
  -53,144
  -62,392
  -72,211
  -82,529
  -93,278
  -104,400
  -115,848
  -127,586
  -139,591
  -151,852
  -164,367
  -177,146
  -190,207
  -203,573
  -217,276
  -231,350
  -245,835
  -260,773
  -276,208
  -292,187
  -308,757
  -325,969
  -343,872
  -362,519
  -381,962
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
 
  -7,869
  -12,856
  -16,717
  -21,148
  -26,144
  -31,689
  -37,758
  -44,321
  -51,348
  -58,806
  -66,667
  -74,903
  -83,495
  -92,426
  -101,686
  -111,268
  -121,175
  -131,410
  -141,983
  -152,907
  -164,199
  -175,880
  -187,971
  -200,498
  -213,489
  -226,973
  -240,981
  -255,547
  -270,705
  -286,493
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
 
  -7,494
  -11,606
  -14,231
  -16,886
  -19,465
  -21,863
  -23,979
  -25,727
  -27,036
  -27,860
  -28,175
  -27,981
  -27,302
  -26,181
  -24,678
  -22,867
  -20,827
  -18,641
  -16,393
  -14,157
  -12,002
  -9,981
  -8,139
  -6,501
  -5,084
  -3,888
  -2,905
  -2,119
  -1,507
  -1,044
Current shareholders' claim on cash, %
  100
  77.7
  61.1
  48.7
  39.3
  32.0
  26.4
  22.1
  18.6
  15.8
  13.5
  11.7
  10.1
  8.8
  7.8
  6.9
  6.1
  5.4
  4.9
  4.4
  3.9
  3.5
  3.2
  2.9
  2.6
  2.4
  2.2
  2.0
  1.8
  1.7
  1.5

Suncor Energy Inc. operates as an integrated energy company. The company primarily focuses on developing petroleum resource basins in Canada's Athabasca oil sands; explores, acquires, develops, produces, and markets crude oil and natural gas in Canada and internationally; transports and refines crude oil; markets petroleum and petrochemical products primarily in Canada; and markets third party petroleum products. It operates in Oil Sands; Exploration and Production; Refining and Marketing; and Corporate, Energy Trading, and Eliminations segments. The Oil Sands segment recovers bitumen from mining and in situ development in northern Alberta, and upgrades it into refinery feedstock and diesel fuel or blends the bitumen with diluent for direct sale to market. The Exploration and Production segment is involved in offshore operations off the east coast of Canada and in the North Sea; and operating onshore assets in North America, Libya, and Syria. The Refining and Marketing segment refines crude oil and intermediate feedstock into petroleum and petrochemical products; manufactures blends; and markets refined petroleum products to retail, commercial, and industrial customers through its dealers and other retail stations. The Corporate, Energy Trading, and Eliminations segment owns interest in six wind power projects with generating capacity of 287 megawatts in Canada; and ethanol plant in Ontario, as well as engages in marketing, supply, and trading crude oil, natural gas, power, and byproducts. The company was formerly known as Suncor Inc. and changed its name to Suncor Energy Inc. in April 1997. Suncor Energy Inc. was founded in 1953 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Suncor Energy Inc. (SU)

Valuation Ratios
P/E Ratio 149.8
Price to Sales 2.4
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 11.4
Price to Free Cash Flow -72.1
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 38.5% 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 1648.02 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 $64.2 billion.

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Stock chart of SU 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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