Intrinsic value of Anadarko Petroleum - APC

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$57.02

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$57.02

 
Intrinsic value

$5.48

 
Up/down potential

-90%

 
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 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 31.8

 

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
  16.30
  15.17
  14.15
  13.24
  12.41
  11.67
  11.01
  10.40
  9.86
  9.38
  8.94
  8.55
  8.19
  7.87
  7.59
  7.33
  7.09
  6.88
  6.70
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
Revenue, $m
  7,869
  9,152
  10,540
  12,032
  13,624
  15,316
  17,103
  18,986
  20,961
  23,029
  25,188
  27,440
  29,785
  32,225
  34,762
  37,399
  40,139
  42,986
  45,946
  49,022
  52,222
  55,550
  59,014
  62,622
  66,380
  70,297
  74,383
  78,645
  83,094
  87,740
  92,594
Variable operating expenses, $m
 
  18,422
  21,217
  24,220
  27,426
  30,831
  34,429
  38,218
  42,195
  46,357
  50,704
  55,237
  59,958
  64,869
  69,976
  75,284
  80,799
  86,531
  92,489
  98,682
  105,122
  111,822
  118,796
  126,058
  133,623
  141,509
  149,732
  158,312
  167,268
  176,621
  186,392
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
  18,422
  21,217
  24,220
  27,426
  30,831
  34,429
  38,218
  42,195
  46,357
  50,704
  55,237
  59,958
  64,869
  69,976
  75,284
  80,799
  86,531
  92,489
  98,682
  105,122
  111,822
  118,796
  126,058
  133,623
  141,509
  149,732
  158,312
  167,268
  176,621
  186,392
Operating income, $m
  -2,754
  -9,271
  -10,677
  -12,188
  -13,802
  -15,515
  -17,326
  -19,233
  -21,234
  -23,328
  -25,516
  -27,797
  -30,173
  -32,644
  -35,214
  -37,885
  -40,661
  -43,545
  -46,543
  -49,659
  -52,900
  -56,272
  -59,782
  -63,436
  -67,243
  -71,211
  -75,350
  -79,667
  -84,174
  -88,881
  -93,798
EBITDA, $m
  1,547
  -4,276
  -4,925
  -5,622
  -6,366
  -7,157
  -7,992
  -8,872
  -9,795
  -10,761
  -11,770
  -12,822
  -13,918
  -15,058
  -16,244
  -17,476
  -18,756
  -20,087
  -21,470
  -22,907
  -24,402
  -25,958
  -27,577
  -29,262
  -31,019
  -32,849
  -34,758
  -36,750
  -38,829
  -41,000
  -43,268
Interest expense (income), $m
  856
  840
  1,135
  1,458
  1,805
  2,175
  2,568
  2,984
  3,421
  3,880
  4,361
  4,863
  5,386
  5,931
  6,498
  7,088
  7,701
  8,337
  8,999
  9,687
  10,402
  11,146
  11,919
  12,725
  13,563
  14,436
  15,347
  16,296
  17,287
  18,321
  19,401
Earnings before tax, $m
  -3,829
  -10,111
  -11,812
  -13,646
  -15,606
  -17,690
  -19,894
  -22,216
  -24,655
  -27,208
  -29,877
  -32,660
  -35,559
  -38,575
  -41,712
  -44,973
  -48,361
  -51,883
  -55,542
  -59,347
  -63,303
  -67,418
  -71,701
  -76,160
  -80,806
  -85,648
  -90,697
  -95,964
  -101,461
  -107,202
  -113,199
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
  -10,111
  -11,812
  -13,646
  -15,606
  -17,690
  -19,894
  -22,216
  -24,655
  -27,208
  -29,877
  -32,660
  -35,559
  -38,575
  -41,712
  -44,973
  -48,361
  -51,883
  -55,542
  -59,347
  -63,303
  -67,418
  -71,701
  -76,160
  -80,806
  -85,648
  -90,697
  -95,964
  -101,461
  -107,202
  -113,199

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
  49,202
  56,666
  64,686
  73,249
  82,343
  91,954
  102,074
  112,694
  123,811
  135,422
  147,528
  160,136
  173,254
  186,893
  201,069
  215,800
  231,109
  247,020
  263,560
  280,761
  298,657
  317,282
  336,677
  356,883
  377,944
  399,907
  422,822
  446,741
  471,720
  497,817
Adjusted assets (=assets-cash), $m
  42,380
  49,202
  56,666
  64,686
  73,249
  82,343
  91,954
  102,074
  112,694
  123,811
  135,422
  147,528
  160,136
  173,254
  186,893
  201,069
  215,800
  231,109
  247,020
  263,560
  280,761
  298,657
  317,282
  336,677
  356,883
  377,944
  399,907
  422,822
  446,741
  471,720
  497,817
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
  45,447
  52,341
  59,749
  67,659
  76,058
  84,936
  94,283
  104,093
  114,361
  125,086
  136,268
  147,914
  160,030
  172,628
  185,722
  199,329
  213,470
  228,166
  243,444
  259,333
  275,862
  293,066
  310,980
  329,644
  349,097
  369,384
  390,550
  412,644
  435,717
  459,821
Working capital, $m
  1,938
  -1,400
  -1,613
  -1,841
  -2,085
  -2,343
  -2,617
  -2,905
  -3,207
  -3,523
  -3,854
  -4,198
  -4,557
  -4,930
  -5,319
  -5,722
  -6,141
  -6,577
  -7,030
  -7,500
  -7,990
  -8,499
  -9,029
  -9,581
  -10,156
  -10,756
  -11,381
  -12,033
  -12,713
  -13,424
  -14,167
Total debt, $m
  15,323
  20,644
  26,511
  32,815
  39,545
  46,692
  54,247
  62,201
  70,549
  79,286
  88,412
  97,928
  107,838
  118,148
  128,869
  140,011
  151,590
  163,623
  176,128
  189,129
  202,649
  216,715
  231,355
  246,599
  262,481
  279,035
  296,298
  314,309
  333,110
  352,743
  373,255
Total liabilities, $m
  33,352
  38,673
  44,540
  50,844
  57,574
  64,721
  72,276
  80,230
  88,578
  97,315
  106,441
  115,957
  125,867
  136,177
  146,898
  158,040
  169,619
  181,652
  194,157
  207,158
  220,678
  234,744
  249,384
  264,628
  280,510
  297,064
  314,327
  332,338
  351,139
  370,772
  391,284
Total equity, $m
  12,212
  10,529
  12,127
  13,843
  15,675
  17,621
  19,678
  21,844
  24,117
  26,496
  28,980
  31,571
  34,269
  37,076
  39,995
  43,029
  46,181
  49,457
  52,862
  56,402
  60,083
  63,913
  67,898
  72,049
  76,373
  80,880
  85,580
  90,484
  95,603
  100,948
  106,533
Total liabilities and equity, $m
  45,564
  49,202
  56,667
  64,687
  73,249
  82,342
  91,954
  102,074
  112,695
  123,811
  135,421
  147,528
  160,136
  173,253
  186,893
  201,069
  215,800
  231,109
  247,019
  263,560
  280,761
  298,657
  317,282
  336,677
  356,883
  377,944
  399,907
  422,822
  446,742
  471,720
  497,817
Debt-to-equity ratio
  1.255
  1.960
  2.190
  2.370
  2.520
  2.650
  2.760
  2.850
  2.930
  2.990
  3.050
  3.100
  3.150
  3.190
  3.220
  3.250
  3.280
  3.310
  3.330
  3.350
  3.370
  3.390
  3.410
  3.420
  3.440
  3.450
  3.460
  3.470
  3.480
  3.490
  3.500
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
  -10,111
  -11,812
  -13,646
  -15,606
  -17,690
  -19,894
  -22,216
  -24,655
  -27,208
  -29,877
  -32,660
  -35,559
  -38,575
  -41,712
  -44,973
  -48,361
  -51,883
  -55,542
  -59,347
  -63,303
  -67,418
  -71,701
  -76,160
  -80,806
  -85,648
  -90,697
  -95,964
  -101,461
  -107,202
  -113,199
Depreciation, amort., depletion, $m
  4,301
  4,994
  5,752
  6,566
  7,435
  8,358
  9,334
  10,361
  11,439
  12,567
  13,746
  14,975
  16,254
  17,586
  18,970
  20,409
  21,904
  23,458
  25,073
  26,752
  28,498
  30,314
  32,205
  34,174
  36,225
  38,362
  40,592
  42,918
  45,346
  47,881
  50,530
Funds from operations, $m
  3,092
  -5,117
  -6,061
  -7,080
  -8,171
  -9,332
  -10,560
  -11,855
  -13,216
  -14,641
  -16,131
  -17,685
  -19,304
  -20,989
  -22,742
  -24,564
  -26,457
  -28,424
  -30,469
  -32,594
  -34,805
  -37,103
  -39,496
  -41,987
  -44,581
  -47,285
  -50,105
  -53,046
  -56,116
  -59,321
  -62,669
Change in working capital, $m
  92
  -196
  -212
  -228
  -244
  -259
  -274
  -288
  -302
  -316
  -330
  -345
  -359
  -373
  -388
  -403
  -419
  -436
  -453
  -471
  -490
  -509
  -530
  -552
  -575
  -599
  -625
  -652
  -681
  -711
  -743
Cash from operations, $m
  3,000
  -5,926
  -5,848
  -6,852
  -7,928
  -9,073
  -10,287
  -11,567
  -12,914
  -14,325
  -15,801
  -17,341
  -18,946
  -20,616
  -22,354
  -24,160
  -26,038
  -27,989
  -30,016
  -32,124
  -34,315
  -36,594
  -38,966
  -41,435
  -44,006
  -46,686
  -49,480
  -52,394
  -55,435
  -58,610
  -61,926
Maintenance CAPEX, $m
  0
  -4,294
  -4,994
  -5,752
  -6,566
  -7,435
  -8,358
  -9,334
  -10,361
  -11,439
  -12,567
  -13,746
  -14,975
  -16,254
  -17,586
  -18,970
  -20,409
  -21,904
  -23,458
  -25,073
  -26,752
  -28,498
  -30,314
  -32,205
  -34,174
  -36,225
  -38,362
  -40,592
  -42,918
  -45,346
  -47,881
New CAPEX, $m
  -3,505
  -6,370
  -6,894
  -7,408
  -7,909
  -8,399
  -8,878
  -9,347
  -9,810
  -10,268
  -10,725
  -11,183
  -11,646
  -12,116
  -12,598
  -13,094
  -13,607
  -14,140
  -14,696
  -15,278
  -15,888
  -16,529
  -17,204
  -17,915
  -18,664
  -19,453
  -20,287
  -21,166
  -22,094
  -23,073
  -24,105
Cash from investing activities, $m
  -2,762
  -10,664
  -11,888
  -13,160
  -14,475
  -15,834
  -17,236
  -18,681
  -20,171
  -21,707
  -23,292
  -24,929
  -26,621
  -28,370
  -30,184
  -32,064
  -34,016
  -36,044
  -38,154
  -40,351
  -42,640
  -45,027
  -47,518
  -50,120
  -52,838
  -55,678
  -58,649
  -61,758
  -65,012
  -68,419
  -71,986
Free cash flow, $m
  238
  -16,590
  -17,737
  -20,012
  -22,403
  -24,907
  -27,523
  -30,248
  -33,084
  -36,032
  -39,092
  -42,269
  -45,566
  -48,987
  -52,538
  -56,224
  -60,054
  -64,033
  -68,171
  -72,475
  -76,955
  -81,622
  -86,484
  -91,554
  -96,844
  -102,364
  -108,129
  -114,152
  -120,446
  -127,028
  -133,912
Issuance/(repayment) of debt, $m
  -790
  5,363
  5,867
  6,304
  6,731
  7,147
  7,555
  7,954
  8,348
  8,738
  9,126
  9,516
  9,910
  10,310
  10,720
  11,142
  11,579
  12,033
  12,506
  13,001
  13,520
  14,066
  14,640
  15,244
  15,882
  16,554
  17,263
  18,011
  18,801
  19,633
  20,512
Issuance/(repurchase) of shares, $m
  2,150
  9,544
  13,467
  15,424
  17,505
  19,706
  22,025
  24,460
  27,009
  29,673
  32,451
  35,344
  38,354
  41,484
  44,736
  48,116
  51,627
  55,277
  59,070
  63,014
  67,116
  71,386
  75,831
  80,461
  85,286
  90,317
  95,566
  101,044
  106,764
  112,740
  118,985
Cash from financing (excl. dividends), $m  
  2,113
  14,907
  19,334
  21,728
  24,236
  26,853
  29,580
  32,414
  35,357
  38,411
  41,577
  44,860
  48,264
  51,794
  55,456
  59,258
  63,206
  67,310
  71,576
  76,015
  80,636
  85,452
  90,471
  95,705
  101,168
  106,871
  112,829
  119,055
  125,565
  132,373
  139,497
Total cash flow (excl. dividends), $m
  2,350
  -11,227
  -11,870
  -13,708
  -15,672
  -17,760
  -19,968
  -22,294
  -24,737
  -27,294
  -29,966
  -32,753
  -35,656
  -38,676
  -41,817
  -45,082
  -48,475
  -52,001
  -55,665
  -59,474
  -63,435
  -67,556
  -71,845
  -76,310
  -80,962
  -85,810
  -90,866
  -96,140
  -101,646
  -107,394
  -113,400
Retained Cash Flow (-), $m
  607
  -1,459
  -1,597
  -1,716
  -1,832
  -1,946
  -2,057
  -2,166
  -2,273
  -2,379
  -2,485
  -2,591
  -2,698
  -2,807
  -2,919
  -3,034
  -3,153
  -3,276
  -3,405
  -3,540
  -3,681
  -3,830
  -3,986
  -4,150
  -4,324
  -4,507
  -4,700
  -4,904
  -5,119
  -5,346
  -5,585
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
 
  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, %
 
  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
 
  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
  71.2
  47.7
  32.1
  21.6
  14.5
  9.8
  6.6
  4.5
  3.1
  2.1
  1.4
  1.0
  0.7
  0.4
  0.3
  0.2
  0.1
  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

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 -10.2
Price to Sales 4
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 10.5
Price to Free Cash Flow -62.2
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 16.3% 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 9.1 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 -15.3%. 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 557.097 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 $31.8 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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