Intrinsic value of Anadarko Petroleum - APC

Previous Close

$42.53

  Intrinsic Value

$5.48

stock screener

  Rating & Target

str. sell

-87%

  Value-price divergence*

-93%

Previous close

$42.53

 
Intrinsic value

$5.48

 
Up/down potential

-87%

 
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 APC 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 23.7

 

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, %
  -9.53
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  7,869
  12,590
  19,452
  29,091
  42,209
  59,551
  81,869
  109,892
  144,295
  185,673
  234,520
  291,221
  356,045
  429,154
  510,609
  600,385
  698,392
  804,489
  918,505
  1,040,254
  1,169,555
  1,306,237
  1,450,159
  1,601,211
  1,759,325
  1,924,475
  2,096,686
  2,276,028
  2,462,622
  2,656,637
  2,858,291
Variable operating expenses, $m
 
  25,344
  39,157
  58,560
  84,967
  119,876
  164,802
  221,213
  290,466
  373,760
  472,089
  586,227
  716,719
  863,887
  1,027,855
  1,208,575
  1,405,863
  1,619,436
  1,848,950
  2,094,032
  2,354,314
  2,629,456
  2,919,170
  3,223,238
  3,541,520
  3,873,968
  4,220,628
  4,581,643
  4,957,257
  5,347,810
  5,753,740
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
  10,623
  25,344
  39,157
  58,560
  84,967
  119,876
  164,802
  221,213
  290,466
  373,760
  472,089
  586,227
  716,719
  863,887
  1,027,855
  1,208,575
  1,405,863
  1,619,436
  1,848,950
  2,094,032
  2,354,314
  2,629,456
  2,919,170
  3,223,238
  3,541,520
  3,873,968
  4,220,628
  4,581,643
  4,957,257
  5,347,810
  5,753,740
Operating income, $m
  -2,754
  -12,754
  -19,705
  -29,469
  -42,758
  -60,325
  -82,933
  -111,321
  -146,171
  -188,087
  -237,569
  -295,006
  -360,674
  -434,733
  -517,247
  -608,190
  -707,471
  -814,947
  -930,445
  -1,053,778
  -1,184,759
  -1,323,218
  -1,469,011
  -1,622,027
  -1,782,196
  -1,949,493
  -2,123,942
  -2,305,616
  -2,494,636
  -2,691,173
  -2,895,449
EBITDA, $m
  1,547
  -6,502
  -10,045
  -15,022
  -21,797
  -30,752
  -42,277
  -56,748
  -74,514
  -95,881
  -121,106
  -150,386
  -183,862
  -221,615
  -263,678
  -310,039
  -360,650
  -415,438
  -474,316
  -537,187
  -603,958
  -674,541
  -748,862
  -826,865
  -908,515
  -993,799
  -1,082,728
  -1,175,341
  -1,271,698
  -1,371,887
  -1,476,021
Interest expense (income), $m
  856
  840
  1,935
  3,529
  5,770
  8,819
  12,849
  18,036
  24,549
  32,545
  42,162
  53,515
  66,694
  81,760
  98,752
  117,684
  138,549
  161,328
  185,987
  212,487
  240,784
  270,836
  302,603
  336,053
  371,161
  407,909
  446,294
  486,319
  528,001
  571,369
  616,462
Earnings before tax, $m
  -3,829
  -13,595
  -21,640
  -32,998
  -48,528
  -69,144
  -95,782
  -129,357
  -170,721
  -220,632
  -279,731
  -348,522
  -427,367
  -516,493
  -615,999
  -725,874
  -846,021
  -976,275
  -1,116,432
  -1,266,264
  -1,425,543
  -1,594,054
  -1,771,614
  -1,958,080
  -2,153,357
  -2,357,403
  -2,570,236
  -2,791,935
  -3,022,637
  -3,262,543
  -3,511,911
Tax expense, $m
  -1,021
  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
  -3,071
  -13,595
  -21,640
  -32,998
  -48,528
  -69,144
  -95,782
  -129,357
  -170,721
  -220,632
  -279,731
  -348,522
  -427,367
  -516,493
  -615,999
  -725,874
  -846,021
  -976,275
  -1,116,432
  -1,266,264
  -1,425,543
  -1,594,054
  -1,771,614
  -1,958,080
  -2,153,357
  -2,357,403
  -2,570,236
  -2,791,935
  -3,022,637
  -3,262,543
  -3,511,911

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,184
  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
  45,564
  67,690
  104,582
  156,402
  226,931
  320,167
  440,156
  590,818
  775,781
  998,241
  1,260,860
  1,565,702
  1,914,221
  2,307,280
  2,745,207
  3,227,876
  3,754,795
  4,325,209
  4,938,197
  5,592,765
  6,287,929
  7,022,781
  7,796,554
  8,608,662
  9,458,734
  10,346,640
  11,272,503
  12,236,707
  13,239,901
  14,282,995
  15,367,156
Adjusted assets (=assets-cash), $m
  42,380
  67,690
  104,582
  156,402
  226,931
  320,167
  440,156
  590,818
  775,781
  998,241
  1,260,860
  1,565,702
  1,914,221
  2,307,280
  2,745,207
  3,227,876
  3,754,795
  4,325,209
  4,938,197
  5,592,765
  6,287,929
  7,022,781
  7,796,554
  8,608,662
  9,458,734
  10,346,640
  11,272,503
  12,236,707
  13,239,901
  14,282,995
  15,367,156
Revenue / Adjusted assets
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
Average production assets, $m
  39,077
  62,524
  96,599
  144,465
  209,611
  295,730
  406,561
  545,724
  716,570
  922,052
  1,164,626
  1,446,201
  1,768,120
  2,131,179
  2,535,682
  2,981,512
  3,468,214
  3,995,092
  4,561,294
  5,165,903
  5,808,009
  6,486,774
  7,201,490
  7,951,614
  8,736,806
  9,556,943
  10,412,140
  11,302,753
  12,229,379
  13,192,860
  14,194,273
Working capital, $m
  1,938
  -1,259
  -1,945
  -2,909
  -4,221
  -5,955
  -8,187
  -10,989
  -14,430
  -18,567
  -23,452
  -29,122
  -35,605
  -42,915
  -51,061
  -60,038
  -69,839
  -80,449
  -91,850
  -104,025
  -116,955
  -130,624
  -145,016
  -160,121
  -175,932
  -192,448
  -209,669
  -227,603
  -246,262
  -265,664
  -285,829
Total debt, $m
  15,323
  35,176
  64,172
  104,903
  160,339
  233,622
  327,933
  446,354
  591,735
  766,589
  973,007
  1,212,613
  1,486,549
  1,795,493
  2,139,704
  2,519,082
  2,933,240
  3,381,585
  3,863,394
  4,377,885
  4,924,283
  5,501,877
  6,110,062
  6,748,379
  7,416,536
  8,114,430
  8,842,158
  9,600,023
  10,388,533
  11,208,405
  12,060,556
Total liabilities, $m
  33,352
  53,205
  82,201
  122,932
  178,368
  251,651
  345,962
  464,383
  609,764
  784,618
  991,036
  1,230,642
  1,504,578
  1,813,522
  2,157,733
  2,537,111
  2,951,269
  3,399,614
  3,881,423
  4,395,914
  4,942,312
  5,519,906
  6,128,091
  6,766,408
  7,434,565
  8,132,459
  8,860,187
  9,618,052
  10,406,562
  11,226,434
  12,078,585
Total equity, $m
  12,212
  14,486
  22,380
  33,470
  48,563
  68,516
  94,193
  126,435
  166,017
  213,624
  269,824
  335,060
  409,643
  493,758
  587,474
  690,766
  803,526
  925,595
  1,056,774
  1,196,852
  1,345,617
  1,502,875
  1,668,463
  1,842,254
  2,024,169
  2,214,181
  2,412,316
  2,618,655
  2,833,339
  3,056,561
  3,288,571
Total liabilities and equity, $m
  45,564
  67,691
  104,581
  156,402
  226,931
  320,167
  440,155
  590,818
  775,781
  998,242
  1,260,860
  1,565,702
  1,914,221
  2,307,280
  2,745,207
  3,227,877
  3,754,795
  4,325,209
  4,938,197
  5,592,766
  6,287,929
  7,022,781
  7,796,554
  8,608,662
  9,458,734
  10,346,640
  11,272,503
  12,236,707
  13,239,901
  14,282,995
  15,367,156
Debt-to-equity ratio
  1.255
  2.430
  2.870
  3.130
  3.300
  3.410
  3.480
  3.530
  3.560
  3.590
  3.610
  3.620
  3.630
  3.640
  3.640
  3.650
  3.650
  3.650
  3.660
  3.660
  3.660
  3.660
  3.660
  3.660
  3.660
  3.660
  3.670
  3.670
  3.670
  3.670
  3.670
Adjusted equity ratio
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -3,071
  -13,595
  -21,640
  -32,998
  -48,528
  -69,144
  -95,782
  -129,357
  -170,721
  -220,632
  -279,731
  -348,522
  -427,367
  -516,493
  -615,999
  -725,874
  -846,021
  -976,275
  -1,116,432
  -1,266,264
  -1,425,543
  -1,594,054
  -1,771,614
  -1,958,080
  -2,153,357
  -2,357,403
  -2,570,236
  -2,791,935
  -3,022,637
  -3,262,543
  -3,511,911
Depreciation, amort., depletion, $m
  4,301
  6,252
  9,660
  14,446
  20,961
  29,573
  40,656
  54,572
  71,657
  92,205
  116,463
  144,620
  176,812
  213,118
  253,568
  298,151
  346,821
  399,509
  456,129
  516,590
  580,801
  648,677
  720,149
  795,161
  873,681
  955,694
  1,041,214
  1,130,275
  1,222,938
  1,319,286
  1,419,427
Funds from operations, $m
  3,092
  -7,342
  -11,980
  -18,552
  -27,566
  -39,571
  -55,126
  -74,785
  -99,064
  -128,427
  -163,268
  -203,902
  -250,555
  -303,375
  -362,430
  -427,723
  -499,199
  -576,766
  -660,303
  -749,674
  -844,742
  -945,376
  -1,051,465
  -1,162,919
  -1,279,676
  -1,401,708
  -1,529,022
  -1,661,659
  -1,799,699
  -1,943,257
  -2,092,484
Change in working capital, $m
  92
  -472
  -686
  -964
  -1,312
  -1,734
  -2,232
  -2,802
  -3,440
  -4,138
  -4,885
  -5,670
  -6,482
  -7,311
  -8,145
  -8,978
  -9,801
  -10,610
  -11,402
  -12,175
  -12,930
  -13,668
  -14,392
  -15,105
  -15,811
  -16,515
  -17,221
  -17,934
  -18,659
  -19,402
  -20,165
Cash from operations, $m
  3,000
  -6,870
  -11,294
  -17,588
  -26,255
  -37,837
  -52,895
  -71,982
  -95,623
  -124,289
  -158,384
  -198,232
  -244,073
  -296,064
  -354,285
  -418,745
  -489,398
  -566,157
  -648,901
  -737,499
  -831,812
  -931,708
  -1,037,073
  -1,147,814
  -1,263,865
  -1,385,193
  -1,511,801
  -1,643,725
  -1,781,040
  -1,923,855
  -2,072,318
Maintenance CAPEX, $m
  0
  -3,908
  -6,252
  -9,660
  -14,446
  -20,961
  -29,573
  -40,656
  -54,572
  -71,657
  -92,205
  -116,463
  -144,620
  -176,812
  -213,118
  -253,568
  -298,151
  -346,821
  -399,509
  -456,129
  -516,590
  -580,801
  -648,677
  -720,149
  -795,161
  -873,681
  -955,694
  -1,041,214
  -1,130,275
  -1,222,938
  -1,319,286
New CAPEX, $m
  -3,505
  -23,447
  -34,076
  -47,865
  -65,146
  -86,120
  -110,831
  -139,163
  -170,846
  -205,481
  -242,575
  -281,575
  -321,918
  -363,059
  -404,503
  -445,830
  -486,702
  -526,878
  -566,202
  -604,609
  -642,105
  -678,765
  -714,716
  -750,124
  -785,191
  -820,137
  -855,197
  -890,612
  -926,626
  -963,481
  -1,001,413
Cash from investing activities, $m
  -2,762
  -27,355
  -40,328
  -57,525
  -79,592
  -107,081
  -140,404
  -179,819
  -225,418
  -277,138
  -334,780
  -398,038
  -466,538
  -539,871
  -617,621
  -699,398
  -784,853
  -873,699
  -965,711
  -1,060,738
  -1,158,695
  -1,259,566
  -1,363,393
  -1,470,273
  -1,580,352
  -1,693,818
  -1,810,891
  -1,931,826
  -2,056,901
  -2,186,419
  -2,320,699
Free cash flow, $m
  238
  -34,225
  -51,622
  -75,113
  -105,847
  -144,917
  -193,298
  -251,801
  -321,042
  -401,428
  -493,163
  -596,270
  -710,611
  -835,935
  -971,906
  -1,118,143
  -1,274,252
  -1,439,856
  -1,614,613
  -1,798,237
  -1,990,507
  -2,191,275
  -2,400,466
  -2,618,087
  -2,844,217
  -3,079,011
  -3,322,693
  -3,575,551
  -3,837,941
  -4,110,274
  -4,393,018
Issuance/(repayment) of debt, $m
  -790
  19,895
  28,997
  40,731
  55,436
  73,283
  94,311
  118,420
  145,381
  174,854
  206,418
  239,606
  273,936
  308,944
  344,211
  379,378
  414,158
  448,345
  481,809
  514,491
  546,398
  577,594
  608,186
  638,317
  668,157
  697,894
  727,728
  757,865
  788,511
  819,872
  852,150
Issuance/(repurchase) of shares, $m
  2,150
  19,010
  29,534
  44,088
  63,621
  89,096
  121,460
  161,599
  210,303
  268,239
  335,931
  413,758
  501,950
  600,608
  709,715
  829,165
  958,781
  1,098,344
  1,247,612
  1,406,342
  1,574,307
  1,751,312
  1,937,202
  2,131,871
  2,335,272
  2,547,415
  2,768,371
  2,998,274
  3,237,320
  3,485,765
  3,743,921
Cash from financing (excl. dividends), $m  
  2,113
  38,905
  58,531
  84,819
  119,057
  162,379
  215,771
  280,019
  355,684
  443,093
  542,349
  653,364
  775,886
  909,552
  1,053,926
  1,208,543
  1,372,939
  1,546,689
  1,729,421
  1,920,833
  2,120,705
  2,328,906
  2,545,388
  2,770,188
  3,003,429
  3,245,309
  3,496,099
  3,756,139
  4,025,831
  4,305,637
  4,596,071
Total cash flow (excl. dividends), $m
  2,350
  4,680
  6,909
  9,705
  13,210
  17,462
  22,473
  28,218
  34,642
  41,665
  49,186
  57,094
  65,275
  73,617
  82,020
  90,400
  98,687
  106,834
  114,808
  122,595
  130,198
  137,632
  144,921
  152,101
  159,211
  166,297
  173,406
  180,587
  187,890
  195,363
  203,054
Retained Cash Flow (-), $m
  607
  -19,010
  -29,534
  -44,088
  -63,621
  -89,096
  -121,460
  -161,599
  -210,303
  -268,239
  -335,931
  -413,758
  -501,950
  -600,608
  -709,715
  -829,165
  -958,781
  -1,098,344
  -1,247,612
  -1,406,342
  -1,574,307
  -1,751,312
  -1,937,202
  -2,131,871
  -2,335,272
  -2,547,415
  -2,768,371
  -2,998,274
  -3,237,320
  -3,485,765
  -3,743,921
Prev. year cash balance distribution, $m
 
  3,142
  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
 
  -11,188
  -22,625
  -34,382
  -50,411
  -71,634
  -98,987
  -133,381
  -175,661
  -226,574
  -286,745
  -356,664
  -436,676
  -526,991
  -627,695
  -738,765
  -860,094
  -991,510
  -1,132,804
  -1,283,747
  -1,444,109
  -1,613,681
  -1,792,281
  -1,979,770
  -2,176,061
  -2,381,117
  -2,594,964
  -2,817,687
  -3,049,431
  -3,290,402
  -3,540,867
Discount rate, %
 
  7.20
  7.56
  7.94
  8.33
  8.75
  9.19
  9.65
  10.13
  10.64
  11.17
  11.73
  12.31
  12.93
  13.58
  14.26
  14.97
  15.72
  16.50
  17.33
  18.19
  19.10
  20.06
  21.06
  22.11
  23.22
  24.38
  25.60
  26.88
  28.22
  29.64
PV of cash for distribution, $m
 
  -10,437
  -19,556
  -27,341
  -36,598
  -47,091
  -58,412
  -69,995
  -81,170
  -91,218
  -99,457
  -105,311
  -108,376
  -108,461
  -105,609
  -100,080
  -92,320
  -82,902
  -72,463
  -61,641
  -51,014
  -41,057
  -32,116
  -24,403
  -17,998
  -12,873
  -8,922
  -5,985
  -3,883
  -2,432
  -1,470
Current shareholders' claim on cash, %
  100
  48.1
  23.4
  11.6
  5.9
  3.0
  1.6
  0.8
  0.4
  0.2
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Anadarko Petroleum Corporation engages in the exploration, development, production, and marketing of oil and gas properties. It operates through three segments: Oil and Gas Exploration and Production, Midstream, and Marketing. The Oil and Gas Exploration and Production segment explores for and produces oil, natural gas, and natural gas liquids (NGLs). The Midstream segment engages in gathering, processing, treating, and transporting Anadarko and third-party oil, natural-gas, and NGLs production, as well as the gathering and disposal of produced water. The Marketing segment sells oil, natural gas, and NGLs in the United States; oil and NGLs internationally; and anticipated liquefied natural gas production from Mozambique. The company’s oil and natural gas properties are located in the U.S. onshore, deepwater Gulf of Mexico, and Alaska; and in Colombia, Côte d’Ivoire, Mozambique, and other countries As of December 31, 2016, it had approximately 1.7 billion barrels of oil equivalent of proved reserves. Anadarko Petroleum Corporation was founded in 1959 and is headquartered in The Woodlands, Texas.

FINANCIAL RATIOS  of  Anadarko Petroleum (APC)

Valuation Ratios
P/E Ratio -7.6
Price to Sales 3
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 7.8
Price to Free Cash Flow -46.4
Growth Rates
Sales Growth Rate -9.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -42.2%
Cap. Spend. - 3 Yr. Gr. Rate -14.6%
Financial Strength
Quick Ratio 76
Current Ratio 0
LT Debt to Equity 125.1%
Total Debt to Equity 125.5%
Interest Coverage -3
Management Effectiveness
Return On Assets -5.3%
Ret/ On Assets - 3 Yr. Avg. -17.4%
Return On Total Capital -11%
Ret/ On T. Cap. - 3 Yr. Avg. -12.4%
Return On Equity -24.5%
Return On Equity - 3 Yr. Avg. -24.7%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 77%
Gross Margin - 3 Yr. Avg. 79.9%
EBITDA Margin 16.9%
EBITDA Margin - 3 Yr. Avg. 3.4%
Operating Margin -35%
Oper. Margin - 3 Yr. Avg. -35.7%
Pre-Tax Margin -48.7%
Pre-Tax Margin - 3 Yr. Avg. -53.3%
Net Profit Margin -39%
Net Profit Margin - 3 Yr. Avg. -41.8%
Effective Tax Rate 26.7%
Eff/ Tax Rate - 3 Yr. Avg. 1016.9%
Payout Ratio -3.4%

APC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the APC stock intrinsic value calculation we used $7869 million for the last fiscal year's total revenue generated by Anadarko Petroleum. The default revenue input number comes from 2016 income statement of Anadarko Petroleum. 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 APC stock valuation model: a) initial revenue growth rate of 60% 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 7.2%, whose default value for APC is calculated based on our internal credit rating of Anadarko Petroleum, 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 Anadarko Petroleum.
    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 APC stock the variable cost ratio is equal to 201.3%.

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 APC 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 5.5% for Anadarko Petroleum.

Corporate tax rate of 27% is the nominal tax rate for Anadarko Petroleum. 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 APC 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 APC are equal to 496.6%.

Life of production assets of 10 years is the average useful life of capital assets used in Anadarko Petroleum 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 APC is equal to -10%. 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 - $12212 million for Anadarko Petroleum - 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 556.801 million for Anadarko Petroleum 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 Anadarko Petroleum at the current share price and the inputted number of shares is $23.7 billion.

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Stock chart of APC Financial statements of APC
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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