Intrinsic value of Suncor Energy Inc. - SU

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$42.19

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$42.19

 
Intrinsic value

$6.71

 
Up/down potential

-84%

 
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 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 70.1

 

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
  20.60
  19.04
  17.64
  16.37
  15.24
  14.21
  13.29
  12.46
  11.72
  11.04
  10.44
  9.90
  9.41
  8.97
  8.57
  8.21
  7.89
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.24
  6.12
  6.01
  5.91
  5.82
  5.73
Revenue, $m
  26,807
  32,329
  38,485
  45,272
  52,684
  60,710
  69,338
  78,554
  88,343
  98,692
  109,592
  121,032
  133,009
  145,520
  158,566
  172,153
  186,290
  200,990
  216,269
  232,146
  248,645
  265,793
  283,620
  302,158
  321,444
  341,516
  362,416
  384,190
  406,885
  430,551
  455,242
Variable operating expenses, $m
 
  32,556
  38,754
  45,589
  53,053
  61,135
  69,824
  79,104
  88,961
  99,383
  110,359
  121,880
  133,940
  146,539
  159,676
  173,358
  187,594
  202,397
  217,782
  233,771
  250,386
  267,654
  285,605
  304,273
  323,694
  343,906
  364,953
  386,879
  409,733
  433,564
  458,428
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
  32,556
  38,754
  45,589
  53,053
  61,135
  69,824
  79,104
  88,961
  99,383
  110,359
  121,880
  133,940
  146,539
  159,676
  173,358
  187,594
  202,397
  217,782
  233,771
  250,386
  267,654
  285,605
  304,273
  323,694
  343,906
  364,953
  386,879
  409,733
  433,564
  458,428
Operating income, $m
  -4
  -226
  -269
  -317
  -369
  -425
  -485
  -550
  -618
  -691
  -767
  -847
  -931
  -1,019
  -1,110
  -1,205
  -1,304
  -1,407
  -1,514
  -1,625
  -1,741
  -1,861
  -1,985
  -2,115
  -2,250
  -2,391
  -2,537
  -2,689
  -2,848
  -3,014
  -3,187
EBITDA, $m
  6,113
  7,167
  8,531
  10,036
  11,679
  13,458
  15,370
  17,413
  19,583
  21,877
  24,293
  26,830
  29,484
  32,258
  35,150
  38,162
  41,295
  44,554
  47,941
  51,460
  55,118
  58,919
  62,871
  66,980
  71,255
  75,705
  80,338
  85,164
  90,195
  95,441
  100,915
Interest expense (income), $m
  992
  982
  1,519
  2,117
  2,777
  3,498
  4,279
  5,118
  6,014
  6,966
  7,973
  9,033
  10,145
  11,310
  12,527
  13,795
  15,117
  16,491
  17,921
  19,407
  20,951
  22,555
  24,223
  25,957
  27,759
  29,635
  31,587
  33,620
  35,737
  37,944
  40,246
Earnings before tax, $m
  86
  -1,209
  -1,788
  -2,434
  -3,146
  -3,923
  -4,764
  -5,668
  -6,633
  -7,657
  -8,740
  -9,880
  -11,076
  -12,329
  -13,636
  -15,000
  -16,421
  -17,898
  -19,435
  -21,032
  -22,691
  -24,416
  -26,208
  -28,072
  -30,010
  -32,026
  -34,124
  -36,309
  -38,585
  -40,958
  -43,432
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
  -1,209
  -1,788
  -2,434
  -3,146
  -3,923
  -4,764
  -5,668
  -6,633
  -7,657
  -8,740
  -9,880
  -11,076
  -12,329
  -13,636
  -15,000
  -16,421
  -17,898
  -19,435
  -21,032
  -22,691
  -24,416
  -26,208
  -28,072
  -30,010
  -32,026
  -34,124
  -36,309
  -38,585
  -40,958
  -43,432

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
  103,288
  122,954
  144,639
  168,319
  193,963
  221,529
  250,971
  282,245
  315,311
  350,133
  386,685
  424,949
  464,920
  506,601
  550,011
  595,177
  642,141
  690,954
  741,680
  794,394
  849,180
  906,134
  965,361
  1,026,976
  1,091,104
  1,157,879
  1,227,444
  1,299,951
  1,375,561
  1,454,447
Adjusted assets (=assets-cash), $m
  85,686
  103,288
  122,954
  144,639
  168,319
  193,963
  221,529
  250,971
  282,245
  315,311
  350,133
  386,685
  424,949
  464,920
  506,601
  550,011
  595,177
  642,141
  690,954
  741,680
  794,394
  849,180
  906,134
  965,361
  1,026,976
  1,091,104
  1,157,879
  1,227,444
  1,299,951
  1,375,561
  1,454,447
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
  83,539
  99,445
  116,983
  136,135
  156,876
  179,171
  202,983
  228,278
  255,021
  283,185
  312,748
  343,696
  376,023
  409,735
  444,844
  481,374
  519,358
  558,838
  599,865
  642,499
  686,810
  732,874
  780,776
  830,610
  882,477
  936,483
  992,747
  1,051,390
  1,112,543
  1,176,345
Working capital, $m
  2,902
  1,455
  1,732
  2,037
  2,371
  2,732
  3,120
  3,535
  3,975
  4,441
  4,932
  5,446
  5,985
  6,548
  7,135
  7,747
  8,383
  9,045
  9,732
  10,447
  11,189
  11,961
  12,763
  13,597
  14,465
  15,368
  16,309
  17,289
  18,310
  19,375
  20,486
Total debt, $m
  17,430
  24,899
  34,712
  45,533
  57,349
  70,146
  83,901
  98,592
  114,198
  130,698
  148,075
  166,314
  185,408
  205,353
  226,152
  247,813
  270,351
  293,786
  318,144
  343,456
  369,761
  397,099
  425,519
  455,073
  485,819
  517,819
  551,140
  585,852
  622,033
  659,763
  699,127
Total liabilities, $m
  44,072
  51,541
  61,354
  72,175
  83,991
  96,788
  110,543
  125,234
  140,840
  157,340
  174,717
  192,956
  212,050
  231,995
  252,794
  274,455
  296,993
  320,428
  344,786
  370,098
  396,403
  423,741
  452,161
  481,715
  512,461
  544,461
  577,782
  612,494
  648,675
  686,405
  725,769
Total equity, $m
  44,630
  51,747
  61,600
  72,464
  84,328
  97,176
  110,986
  125,736
  141,405
  157,971
  175,417
  193,729
  212,900
  232,925
  253,807
  275,555
  298,184
  321,713
  346,168
  371,582
  397,991
  425,439
  453,973
  483,646
  514,515
  546,643
  580,097
  614,949
  651,275
  689,156
  728,678
Total liabilities and equity, $m
  88,702
  103,288
  122,954
  144,639
  168,319
  193,964
  221,529
  250,970
  282,245
  315,311
  350,134
  386,685
  424,950
  464,920
  506,601
  550,010
  595,177
  642,141
  690,954
  741,680
  794,394
  849,180
  906,134
  965,361
  1,026,976
  1,091,104
  1,157,879
  1,227,443
  1,299,950
  1,375,561
  1,454,447
Debt-to-equity ratio
  0.391
  0.480
  0.560
  0.630
  0.680
  0.720
  0.760
  0.780
  0.810
  0.830
  0.840
  0.860
  0.870
  0.880
  0.890
  0.900
  0.910
  0.910
  0.920
  0.920
  0.930
  0.930
  0.940
  0.940
  0.940
  0.950
  0.950
  0.950
  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
  -1,209
  -1,788
  -2,434
  -3,146
  -3,923
  -4,764
  -5,668
  -6,633
  -7,657
  -8,740
  -9,880
  -11,076
  -12,329
  -13,636
  -15,000
  -16,421
  -17,898
  -19,435
  -21,032
  -22,691
  -24,416
  -26,208
  -28,072
  -30,010
  -32,026
  -34,124
  -36,309
  -38,585
  -40,958
  -43,432
Depreciation, amort., depletion, $m
  6,117
  7,393
  8,800
  10,352
  12,047
  13,883
  15,856
  17,963
  20,202
  22,568
  25,061
  27,677
  30,416
  33,276
  36,260
  39,367
  42,600
  45,961
  49,455
  53,085
  56,858
  60,780
  64,856
  69,095
  73,505
  78,095
  82,875
  87,854
  93,043
  98,455
  104,101
Funds from operations, $m
  5,365
  6,184
  7,012
  7,918
  8,901
  9,960
  11,092
  12,295
  13,569
  14,911
  16,321
  17,797
  19,339
  20,948
  22,623
  24,366
  26,179
  28,063
  30,020
  32,054
  34,167
  36,364
  38,648
  41,023
  43,496
  46,070
  48,751
  51,545
  54,458
  57,497
  60,669
Change in working capital, $m
  -315
  249
  277
  305
  334
  361
  388
  415
  441
  466
  490
  515
  539
  563
  587
  611
  636
  661
  688
  714
  742
  772
  802
  834
  868
  903
  941
  980
  1,021
  1,065
  1,111
Cash from operations, $m
  5,680
  10,988
  6,735
  7,613
  8,568
  9,598
  10,703
  11,881
  13,129
  14,446
  15,830
  17,282
  18,800
  20,385
  22,036
  23,755
  25,543
  27,401
  29,332
  31,339
  33,425
  35,592
  37,846
  40,189
  42,628
  45,166
  47,810
  50,565
  53,437
  56,432
  59,558
Maintenance CAPEX, $m
  0
  -6,131
  -7,393
  -8,800
  -10,352
  -12,047
  -13,883
  -15,856
  -17,963
  -20,202
  -22,568
  -25,061
  -27,677
  -30,416
  -33,276
  -36,260
  -39,367
  -42,600
  -45,961
  -49,455
  -53,085
  -56,858
  -60,780
  -64,856
  -69,095
  -73,505
  -78,095
  -82,875
  -87,854
  -93,043
  -98,455
New CAPEX, $m
  -6,582
  -14,257
  -15,906
  -17,538
  -19,153
  -20,740
  -22,295
  -23,813
  -25,295
  -26,743
  -28,164
  -29,563
  -30,948
  -32,328
  -33,712
  -35,109
  -36,530
  -37,984
  -39,480
  -41,027
  -42,634
  -44,311
  -46,064
  -47,902
  -49,834
  -51,866
  -54,007
  -56,263
  -58,643
  -61,153
  -63,802
Cash from investing activities, $m
  -7,507
  -20,388
  -23,299
  -26,338
  -29,505
  -32,787
  -36,178
  -39,669
  -43,258
  -46,945
  -50,732
  -54,624
  -58,625
  -62,744
  -66,988
  -71,369
  -75,897
  -80,584
  -85,441
  -90,482
  -95,719
  -101,169
  -106,844
  -112,758
  -118,929
  -125,371
  -132,102
  -139,138
  -146,497
  -154,196
  -162,257
Free cash flow, $m
  -1,827
  -9,400
  -16,563
  -18,726
  -20,938
  -23,189
  -25,474
  -27,788
  -30,129
  -32,499
  -34,902
  -37,341
  -39,824
  -42,358
  -44,952
  -47,614
  -50,354
  -53,182
  -56,108
  -59,143
  -62,295
  -65,577
  -68,998
  -72,569
  -76,301
  -80,205
  -84,292
  -88,573
  -93,060
  -97,764
  -102,699
Issuance/(repayment) of debt, $m
  -169
  8,796
  9,813
  10,820
  11,817
  12,796
  13,755
  14,692
  15,606
  16,500
  17,376
  18,239
  19,094
  19,945
  20,799
  21,661
  22,538
  23,435
  24,358
  25,312
  26,304
  27,338
  28,420
  29,554
  30,746
  32,000
  33,321
  34,713
  36,181
  37,730
  39,364
Issuance/(repurchase) of shares, $m
  2,915
  7,722
  16,603
  18,769
  20,985
  23,241
  25,529
  27,847
  30,192
  32,566
  34,971
  37,414
  39,901
  42,438
  45,035
  47,701
  50,445
  53,276
  56,206
  59,244
  62,401
  65,686
  69,112
  72,688
  76,425
  80,333
  84,425
  88,712
  93,205
  97,916
  102,857
Cash from financing (excl. dividends), $m  
  2,746
  16,518
  26,416
  29,589
  32,802
  36,037
  39,284
  42,539
  45,798
  49,066
  52,347
  55,653
  58,995
  62,383
  65,834
  69,362
  72,983
  76,711
  80,564
  84,556
  88,705
  93,024
  97,532
  102,242
  107,171
  112,333
  117,746
  123,425
  129,386
  135,646
  142,221
Total cash flow (excl. dividends), $m
  844
  -604
  -6,750
  -7,905
  -9,121
  -10,393
  -11,719
  -13,096
  -14,523
  -16,000
  -17,525
  -19,102
  -20,730
  -22,413
  -24,153
  -25,953
  -27,816
  -29,747
  -31,751
  -33,830
  -35,991
  -38,239
  -40,578
  -43,015
  -45,555
  -48,205
  -50,971
  -53,860
  -56,879
  -60,035
  -63,335
Retained Cash Flow (-), $m
  -5,591
  -8,806
  -9,853
  -10,864
  -11,864
  -12,848
  -13,810
  -14,751
  -15,669
  -16,566
  -17,446
  -18,312
  -19,170
  -20,025
  -20,882
  -21,748
  -22,628
  -23,529
  -24,455
  -25,414
  -26,410
  -27,448
  -28,534
  -29,673
  -30,869
  -32,128
  -33,454
  -34,852
  -36,326
  -37,881
  -39,522
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
 
  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, %
 
  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
 
  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
  89.7
  74.5
  62.4
  52.7
  44.8
  38.4
  33.1
  28.7
  25.1
  22.0
  19.3
  17.1
  15.2
  13.5
  12.1
  10.8
  9.7
  8.7
  7.9
  7.1
  6.4
  5.8
  5.3
  4.8
  4.4
  4.0
  3.6
  3.3
  3.0
  2.8

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 162.1
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 -78
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 20.6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5%, 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 1661.75 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 $70.1 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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