Intrinsic value of TransCanada Corporation - TRP

Previous Close

$57.53

  Intrinsic Value

$2.93

stock screener

  Rating & Target

str. sell

-95%

Previous close

$57.53

 
Intrinsic value

$2.93

 
Up/down potential

-95%

 
Rating

str. sell

We calculate the intrinsic value of TRP 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  10.66
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  12,505
  12,755
  13,048
  13,384
  13,760
  14,177
  14,635
  15,134
  15,673
  16,254
  16,878
  17,546
  18,258
  19,016
  19,822
  20,677
  21,583
  22,542
  23,556
  24,628
  25,760
  26,954
  28,213
  29,540
  30,939
  32,412
  33,962
  35,595
  37,312
  39,119
  41,020
Variable operating expenses, $m
 
  12,970
  13,236
  13,540
  13,882
  14,260
  14,675
  15,128
  15,617
  16,145
  16,711
  15,921
  16,567
  17,255
  17,986
  18,762
  19,584
  20,454
  21,375
  22,347
  23,374
  24,457
  25,600
  26,804
  28,073
  29,410
  30,817
  32,298
  33,856
  35,496
  37,221
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
  9,873
  12,970
  13,236
  13,540
  13,882
  14,260
  14,675
  15,128
  15,617
  16,145
  16,711
  15,921
  16,567
  17,255
  17,986
  18,762
  19,584
  20,454
  21,375
  22,347
  23,374
  24,457
  25,600
  26,804
  28,073
  29,410
  30,817
  32,298
  33,856
  35,496
  37,221
Operating income, $m
  2,632
  -214
  -187
  -156
  -121
  -83
  -40
  6
  56
  110
  167
  1,625
  1,691
  1,761
  1,836
  1,915
  1,999
  2,088
  2,182
  2,281
  2,386
  2,496
  2,613
  2,736
  2,866
  3,002
  3,146
  3,297
  3,456
  3,623
  3,799
EBITDA, $m
  4,571
  2,955
  3,023
  3,100
  3,188
  3,284
  3,390
  3,506
  3,631
  3,765
  3,910
  4,064
  4,229
  4,405
  4,592
  4,790
  5,000
  5,222
  5,457
  5,705
  5,967
  6,244
  6,536
  6,843
  7,167
  7,508
  7,867
  8,246
  8,643
  9,062
  9,502
Interest expense (income), $m
  1,721
  1,885
  1,932
  1,995
  2,067
  2,148
  2,238
  2,337
  2,444
  2,560
  2,685
  2,819
  2,963
  3,116
  3,280
  3,453
  3,637
  3,832
  4,039
  4,257
  4,488
  4,732
  4,989
  5,260
  5,546
  5,847
  6,164
  6,498
  6,849
  7,219
  7,608
Earnings before tax, $m
  837
  -2,100
  -2,119
  -2,151
  -2,188
  -2,231
  -2,278
  -2,331
  -2,388
  -2,450
  -2,518
  -1,194
  -1,272
  -1,355
  -1,444
  -1,538
  -1,638
  -1,745
  -1,857
  -1,976
  -2,102
  -2,235
  -2,376
  -2,524
  -2,680
  -2,845
  -3,018
  -3,201
  -3,393
  -3,596
  -3,809
Tax expense, $m
  352
  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
  233
  -2,100
  -2,119
  -2,151
  -2,188
  -2,231
  -2,278
  -2,331
  -2,388
  -2,450
  -2,518
  -1,194
  -1,272
  -1,355
  -1,444
  -1,538
  -1,638
  -1,745
  -1,857
  -1,976
  -2,102
  -2,235
  -2,376
  -2,524
  -2,680
  -2,845
  -3,018
  -3,201
  -3,393
  -3,596
  -3,809

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,016
  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
  88,051
  88,577
  90,614
  92,943
  95,558
  98,455
  101,633
  105,095
  108,841
  112,878
  117,210
  121,844
  126,789
  132,055
  137,650
  143,588
  149,881
  156,541
  163,585
  171,028
  178,886
  187,178
  195,923
  205,140
  214,851
  225,080
  235,849
  247,184
  259,112
  271,661
  284,860
Adjusted assets (=assets-cash), $m
  87,035
  88,577
  90,614
  92,943
  95,558
  98,455
  101,633
  105,095
  108,841
  112,878
  117,210
  121,844
  126,789
  132,055
  137,650
  143,588
  149,881
  156,541
  163,585
  171,028
  178,886
  187,178
  195,923
  205,140
  214,851
  225,080
  235,849
  247,184
  259,112
  271,661
  284,860
Revenue / Adjusted assets
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
Average production assets, $m
  52,160
  53,202
  54,425
  55,824
  57,394
  59,134
  61,043
  63,122
  65,373
  67,797
  70,399
  73,183
  76,153
  79,315
  82,676
  86,242
  90,022
  94,023
  98,253
  102,723
  107,443
  112,424
  117,676
  123,212
  129,045
  135,188
  141,657
  148,465
  155,629
  163,166
  171,094
Working capital, $m
  404
  2,041
  2,088
  2,141
  2,202
  2,268
  2,342
  2,421
  2,508
  2,601
  2,701
  2,807
  2,921
  3,043
  3,171
  3,308
  3,453
  3,607
  3,769
  3,940
  4,122
  4,313
  4,514
  4,726
  4,950
  5,186
  5,434
  5,695
  5,970
  6,259
  6,563
Total debt, $m
  44,855
  44,925
  46,394
  48,073
  49,958
  52,047
  54,339
  56,834
  59,536
  62,446
  65,569
  68,911
  72,476
  76,272
  80,307
  84,588
  89,125
  93,927
  99,006
  104,372
  110,038
  116,016
  122,321
  128,967
  135,969
  143,344
  151,108
  159,281
  167,881
  176,929
  186,445
Total liabilities, $m
  63,794
  63,864
  65,333
  67,012
  68,897
  70,986
  73,278
  75,773
  78,475
  81,385
  84,508
  87,850
  91,415
  95,211
  99,246
  103,527
  108,064
  112,866
  117,945
  123,311
  128,977
  134,955
  141,260
  147,906
  154,908
  162,283
  170,047
  178,220
  186,820
  195,868
  205,384
Total equity, $m
  24,257
  24,713
  25,281
  25,931
  26,661
  27,469
  28,356
  29,321
  30,367
  31,493
  32,702
  33,995
  35,374
  36,843
  38,404
  40,061
  41,817
  43,675
  45,640
  47,717
  49,909
  52,223
  54,662
  57,234
  59,944
  62,797
  65,802
  68,964
  72,292
  75,793
  79,476
Total liabilities and equity, $m
  88,051
  88,577
  90,614
  92,943
  95,558
  98,455
  101,634
  105,094
  108,842
  112,878
  117,210
  121,845
  126,789
  132,054
  137,650
  143,588
  149,881
  156,541
  163,585
  171,028
  178,886
  187,178
  195,922
  205,140
  214,852
  225,080
  235,849
  247,184
  259,112
  271,661
  284,860
Debt-to-equity ratio
  1.849
  1.820
  1.840
  1.850
  1.870
  1.890
  1.920
  1.940
  1.960
  1.980
  2.010
  2.030
  2.050
  2.070
  2.090
  2.110
  2.130
  2.150
  2.170
  2.190
  2.200
  2.220
  2.240
  2.250
  2.270
  2.280
  2.300
  2.310
  2.320
  2.330
  2.350
Adjusted equity ratio
  0.276
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  233
  -2,100
  -2,119
  -2,151
  -2,188
  -2,231
  -2,278
  -2,331
  -2,388
  -2,450
  -2,518
  -1,194
  -1,272
  -1,355
  -1,444
  -1,538
  -1,638
  -1,745
  -1,857
  -1,976
  -2,102
  -2,235
  -2,376
  -2,524
  -2,680
  -2,845
  -3,018
  -3,201
  -3,393
  -3,596
  -3,809
Depreciation, amort., depletion, $m
  1,939
  3,169
  3,210
  3,257
  3,309
  3,367
  3,431
  3,500
  3,575
  3,656
  3,742
  2,439
  2,538
  2,644
  2,756
  2,875
  3,001
  3,134
  3,275
  3,424
  3,581
  3,747
  3,923
  4,107
  4,301
  4,506
  4,722
  4,949
  5,188
  5,439
  5,703
Funds from operations, $m
  5,317
  1,070
  1,091
  1,105
  1,120
  1,136
  1,152
  1,169
  1,187
  1,205
  1,225
  1,245
  1,266
  1,289
  1,312
  1,337
  1,362
  1,390
  1,418
  1,448
  1,479
  1,512
  1,547
  1,583
  1,621
  1,662
  1,704
  1,748
  1,794
  1,843
  1,894
Change in working capital, $m
  248
  40
  47
  54
  60
  67
  73
  80
  86
  93
  100
  107
  114
  121
  129
  137
  145
  153
  162
  171
  181
  191
  201
  212
  224
  236
  248
  261
  275
  289
  304
Cash from operations, $m
  5,069
  1,030
  1,044
  1,052
  1,060
  1,069
  1,079
  1,089
  1,101
  1,112
  1,125
  1,138
  1,152
  1,167
  1,183
  1,200
  1,217
  1,236
  1,256
  1,276
  1,298
  1,321
  1,345
  1,371
  1,398
  1,426
  1,456
  1,487
  1,520
  1,554
  1,590
Maintenance CAPEX, $m
  0
  -1,739
  -1,773
  -1,814
  -1,861
  -1,913
  -1,971
  -2,035
  -2,104
  -2,179
  -2,260
  -2,347
  -2,439
  -2,538
  -2,644
  -2,756
  -2,875
  -3,001
  -3,134
  -3,275
  -3,424
  -3,581
  -3,747
  -3,923
  -4,107
  -4,301
  -4,506
  -4,722
  -4,949
  -5,188
  -5,439
New CAPEX, $m
  -5,302
  -1,042
  -1,224
  -1,399
  -1,570
  -1,740
  -1,909
  -2,079
  -2,250
  -2,424
  -2,602
  -2,784
  -2,970
  -3,162
  -3,361
  -3,566
  -3,779
  -4,001
  -4,231
  -4,470
  -4,720
  -4,980
  -5,252
  -5,536
  -5,833
  -6,143
  -6,468
  -6,808
  -7,164
  -7,537
  -7,928
Cash from investing activities, $m
  -18,783
  -2,781
  -2,997
  -3,213
  -3,431
  -3,653
  -3,880
  -4,114
  -4,354
  -4,603
  -4,862
  -5,131
  -5,409
  -5,700
  -6,005
  -6,322
  -6,654
  -7,002
  -7,365
  -7,745
  -8,144
  -8,561
  -8,999
  -9,459
  -9,940
  -10,444
  -10,974
  -11,530
  -12,113
  -12,725
  -13,367
Free cash flow, $m
  -13,714
  -1,751
  -1,953
  -2,161
  -2,371
  -2,584
  -2,801
  -3,024
  -3,254
  -3,491
  -3,737
  -3,992
  -4,257
  -4,534
  -4,822
  -5,122
  -5,437
  -5,765
  -6,109
  -6,469
  -6,846
  -7,241
  -7,654
  -8,088
  -8,542
  -9,019
  -9,519
  -10,043
  -10,594
  -11,171
  -11,776
Issuance/(repayment) of debt, $m
  6,400
  1,086
  1,469
  1,679
  1,885
  2,089
  2,292
  2,496
  2,701
  2,910
  3,123
  3,341
  3,565
  3,796
  4,035
  4,281
  4,537
  4,802
  5,079
  5,366
  5,666
  5,978
  6,305
  6,646
  7,002
  7,375
  7,765
  8,173
  8,600
  9,048
  9,517
Issuance/(repurchase) of shares, $m
  9,207
  2,556
  2,687
  2,801
  2,918
  3,039
  3,165
  3,296
  3,433
  3,577
  3,726
  2,487
  2,652
  2,824
  3,005
  3,195
  3,394
  3,603
  3,822
  4,053
  4,295
  4,549
  4,815
  5,095
  5,390
  5,698
  6,023
  6,363
  6,721
  7,097
  7,491
Cash from financing (excl. dividends), $m  
  15,543
  3,642
  4,156
  4,480
  4,803
  5,128
  5,457
  5,792
  6,134
  6,487
  6,849
  5,828
  6,217
  6,620
  7,040
  7,476
  7,931
  8,405
  8,901
  9,419
  9,961
  10,527
  11,120
  11,741
  12,392
  13,073
  13,788
  14,536
  15,321
  16,145
  17,008
Total cash flow (excl. dividends), $m
  1,702
  1,891
  2,203
  2,319
  2,432
  2,544
  2,656
  2,768
  2,881
  2,996
  3,113
  1,837
  1,960
  2,087
  2,218
  2,353
  2,494
  2,640
  2,792
  2,950
  3,115
  3,287
  3,466
  3,653
  3,849
  4,054
  4,268
  4,493
  4,728
  4,974
  5,232
Retained Cash Flow (-), $m
  -7,819
  -2,556
  -2,687
  -2,801
  -2,918
  -3,039
  -3,165
  -3,296
  -3,433
  -3,577
  -3,726
  -2,487
  -2,652
  -2,824
  -3,005
  -3,195
  -3,394
  -3,603
  -3,822
  -4,053
  -4,295
  -4,549
  -4,815
  -5,095
  -5,390
  -5,698
  -6,023
  -6,363
  -6,721
  -7,097
  -7,491
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
 
  -664
  -484
  -482
  -486
  -495
  -509
  -529
  -553
  -581
  -614
  -651
  -692
  -737
  -787
  -841
  -900
  -963
  -1,030
  -1,103
  -1,180
  -1,262
  -1,349
  -1,442
  -1,540
  -1,644
  -1,754
  -1,871
  -1,993
  -2,123
  -2,260
Discount rate, %
 
  10.10
  10.61
  11.14
  11.69
  12.28
  12.89
  13.53
  14.21
  14.92
  15.67
  16.45
  17.27
  18.14
  19.05
  20.00
  21.00
  22.05
  23.15
  24.31
  25.52
  26.80
  28.14
  29.55
  31.02
  32.57
  34.20
  35.91
  37.71
  39.59
  41.57
PV of cash for distribution, $m
 
  -603
  -396
  -351
  -312
  -277
  -246
  -217
  -191
  -166
  -143
  -122
  -102
  -84
  -69
  -55
  -43
  -33
  -24
  -18
  -13
  -9
  -6
  -4
  -2
  -1
  -1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  95.2
  90.5
  85.9
  81.5
  77.2
  73.2
  69.3
  65.6
  62.1
  58.8
  56.7
  54.7
  52.6
  50.7
  48.7
  46.8
  44.9
  43.1
  41.4
  39.6
  38.0
  36.4
  34.8
  33.3
  31.9
  30.4
  29.1
  27.8
  26.5
  25.3

TransCanada Corporation is an energy infrastructure company. The Company is engaged in the development and operation of North American energy infrastructure, including natural gas and liquids pipelines, power generation and natural gas storage facilities. Its segments include Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines, Mexico Natural Gas Pipelines, Liquids Pipelines and Energy. The Company operates in three businesses: Natural Gas Pipelines, Liquids Pipelines and Energy. The Natural Gas Pipelines and Liquids Pipelines segments principally consist of its respective natural gas and liquids pipelines in Canada, the United States and Mexico, as well as its regulated natural gas storage operations in the United States. The Energy segment includes its power operations and the non-regulated natural gas storage business in Canada. TransCanada PipeLines Limited (TCPL) is its principal operating subsidiary.

FINANCIAL RATIOS  of  TransCanada Corporation (TRP)

Valuation Ratios
P/E Ratio 213.3
Price to Sales 4
Price to Book 2
Price to Tangible Book
Price to Cash Flow 9.8
Price to Free Cash Flow -213.3
Growth Rates
Sales Growth Rate 10.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 19.7%
Cap. Spend. - 3 Yr. Gr. Rate 3.5%
Financial Strength
Quick Ratio 0
Current Ratio 0.6
LT Debt to Equity 174.1%
Total Debt to Equity 184.9%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.6%
Ret/ On Assets - 3 Yr. Avg. 2.2%
Return On Total Capital 0.4%
Ret/ On T. Cap. - 3 Yr. Avg. 0.7%
Return On Equity 1.1%
Return On Equity - 3 Yr. Avg. 1.5%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 52.1%
Gross Margin - 3 Yr. Avg. 52.1%
EBITDA Margin 36%
EBITDA Margin - 3 Yr. Avg. 35.9%
Operating Margin 21%
Oper. Margin - 3 Yr. Avg. 17.2%
Pre-Tax Margin 6.7%
Pre-Tax Margin - 3 Yr. Avg. 8.2%
Net Profit Margin 1.9%
Net Profit Margin - 3 Yr. Avg. 3.3%
Effective Tax Rate 42.1%
Eff/ Tax Rate - 3 Yr. Avg. 22.8%
Payout Ratio 659.2%

TRP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TRP stock intrinsic value calculation we used $12505 million for the last fiscal year's total revenue generated by TransCanada Corporation. The default revenue input number comes from 2016 income statement of TransCanada Corporation. 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 TRP stock valuation model: a) initial revenue growth rate of 2% 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 10.1%, whose default value for TRP is calculated based on our internal credit rating of TransCanada Corporation, 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 TransCanada Corporation.
    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 TRP stock the variable cost ratio is equal to 101.9%.

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 TRP 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 4.3% for TransCanada Corporation.

Corporate tax rate of 27% is the nominal tax rate for TransCanada Corporation. 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 TRP 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 TRP are equal to 417.1%.

Life of production assets of 31.7 years is the average useful life of capital assets used in TransCanada Corporation 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 TRP is equal to 16%. 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 - $24257 million for TransCanada Corporation - 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 877.574 million for TransCanada Corporation 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 TransCanada Corporation at the current share price and the inputted number of shares is $50.5 billion.

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Financial statements of TRP
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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