Intrinsic value of Canadian Natural Resources - CNQ

Previous Close

$35.23

  Intrinsic Value

$5.60

stock screener

  Rating & Target

str. sell

-84%

Previous close

$35.23

 
Intrinsic value

$5.60

 
Up/down potential

-84%

 
Rating

str. sell

We calculate the intrinsic value of CNQ 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, %
  -14.87
  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
  7,789
  20,928
  32,334
  48,355
  70,161
  98,987
  136,084
  182,665
  239,850
  308,629
  389,823
  484,072
  591,825
  713,348
  848,743
  997,971
  1,160,880
  1,337,237
  1,526,756
  1,729,130
  1,944,056
  2,171,252
  2,410,482
  2,661,563
  2,924,382
  3,198,899
  3,485,150
  3,783,256
  4,093,416
  4,415,912
  4,751,105
Variable operating expenses, $m
 
  9,397
  14,518
  21,711
  31,502
  44,445
  61,102
  82,016
  107,693
  138,574
  175,031
  217,348
  265,729
  320,293
  381,086
  448,089
  521,235
  600,419
  685,513
  776,380
  872,881
  974,892
  1,082,306
  1,195,042
  1,313,048
  1,436,306
  1,564,832
  1,698,682
  1,837,944
  1,982,745
  2,133,246
Fixed operating expenses, $m
 
  5,334
  5,451
  5,571
  5,694
  5,819
  5,947
  6,078
  6,211
  6,348
  6,488
  6,631
  6,776
  6,925
  7,078
  7,234
  7,393
  7,555
  7,722
  7,891
  8,065
  8,242
  8,424
  8,609
  8,799
  8,992
  9,190
  9,392
  9,599
  9,810
  10,026
Total operating expenses, $m
  8,735
  14,731
  19,969
  27,282
  37,196
  50,264
  67,049
  88,094
  113,904
  144,922
  181,519
  223,979
  272,505
  327,218
  388,164
  455,323
  528,628
  607,974
  693,235
  784,271
  880,946
  983,134
  1,090,730
  1,203,651
  1,321,847
  1,445,298
  1,574,022
  1,708,074
  1,847,543
  1,992,555
  2,143,272
Operating income, $m
  -947
  6,198
  12,365
  21,073
  32,965
  48,723
  69,035
  94,570
  125,946
  163,706
  208,305
  260,093
  319,319
  386,129
  460,580
  542,649
  632,252
  729,262
  833,521
  944,859
  1,063,110
  1,188,117
  1,319,752
  1,457,912
  1,602,536
  1,753,601
  1,911,128
  2,075,182
  2,245,874
  2,423,358
  2,607,833
EBITDA, $m
  2,649
  13,631
  23,850
  38,248
  57,886
  83,883
  117,372
  159,453
  211,141
  273,331
  346,770
  432,036
  529,535
  639,510
  762,053
  897,128
  1,044,597
  1,204,249
  1,375,825
  1,559,047
  1,753,638
  1,959,346
  2,175,955
  2,403,299
  2,641,277
  2,889,850
  3,149,053
  3,418,994
  3,699,855
  3,991,890
  4,295,426
Interest expense (income), $m
  457
  953
  2,030
  3,593
  5,789
  8,777
  12,727
  17,811
  24,194
  32,031
  41,456
  52,583
  65,499
  80,266
  96,919
  115,474
  135,924
  158,249
  182,417
  208,389
  236,122
  265,575
  296,710
  329,494
  363,903
  399,919
  437,539
  476,767
  517,619
  560,124
  604,319
Earnings before tax, $m
  -787
  5,245
  10,335
  17,480
  27,176
  39,946
  56,308
  76,760
  101,752
  131,675
  166,848
  207,510
  253,820
  305,864
  363,661
  427,175
  496,328
  571,013
  651,104
  736,471
  826,988
  922,542
  1,023,041
  1,128,418
  1,238,634
  1,353,682
  1,473,589
  1,598,415
  1,728,254
  1,863,234
  2,003,515
Tax expense, $m
  -636
  1,416
  2,790
  4,719
  7,338
  10,785
  15,203
  20,725
  27,473
  35,552
  45,049
  56,028
  68,531
  82,583
  98,188
  115,337
  134,009
  154,174
  175,798
  198,847
  223,287
  249,086
  276,221
  304,673
  334,431
  365,494
  397,869
  431,572
  466,629
  503,073
  540,949
Net income, $m
  -151
  3,829
  7,544
  12,760
  19,839
  29,161
  41,105
  56,034
  74,279
  96,123
  121,799
  151,482
  185,288
  223,280
  265,472
  311,838
  362,320
  416,840
  475,306
  537,624
  603,701
  673,456
  746,820
  823,745
  904,203
  988,188
  1,075,720
  1,166,843
  1,261,626
  1,360,161
  1,462,566

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  688
  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
  43,408
  93,013
  143,706
  214,912
  311,826
  439,942
  604,818
  811,843
  1,066,001
  1,371,684
  1,732,549
  2,151,433
  2,630,333
  3,170,435
  3,772,192
  4,435,428
  5,159,468
  5,943,274
  6,785,581
  7,685,024
  8,640,248
  9,650,010
  10,713,252
  11,829,170
  12,997,255
  14,217,327
  15,489,556
  16,814,470
  18,192,960
  19,626,276
  21,116,023
Adjusted assets (=assets-cash), $m
  42,720
  93,013
  143,706
  214,912
  311,826
  439,942
  604,818
  811,843
  1,066,001
  1,371,684
  1,732,549
  2,151,433
  2,630,333
  3,170,435
  3,772,192
  4,435,428
  5,159,468
  5,943,274
  6,785,581
  7,685,024
  8,640,248
  9,650,010
  10,713,252
  11,829,170
  12,997,255
  14,217,327
  15,489,556
  16,814,470
  18,192,960
  19,626,276
  21,116,023
Revenue / Adjusted assets
  0.182
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
Average production assets, $m
  37,890
  74,336
  114,850
  171,757
  249,211
  351,601
  483,371
  648,825
  851,948
  1,096,250
  1,384,653
  1,719,425
  2,102,162
  2,533,812
  3,014,736
  3,544,794
  4,123,446
  4,749,864
  5,423,037
  6,141,871
  6,905,286
  7,712,288
  8,562,031
  9,453,873
  10,387,406
  11,362,488
  12,379,253
  13,438,125
  14,539,814
  15,685,320
  16,875,925
Working capital, $m
  -560
  146
  226
  338
  491
  693
  953
  1,279
  1,679
  2,160
  2,729
  3,389
  4,143
  4,993
  5,941
  6,986
  8,126
  9,361
  10,687
  12,104
  13,608
  15,199
  16,873
  18,631
  20,471
  22,392
  24,396
  26,483
  28,654
  30,911
  33,258
Total debt, $m
  12,438
  37,591
  66,537
  107,195
  162,534
  235,687
  329,832
  448,043
  593,168
  767,713
  973,766
  1,212,949
  1,486,401
  1,794,799
  2,138,403
  2,517,110
  2,930,537
  3,378,090
  3,859,048
  4,372,630
  4,918,063
  5,494,636
  6,101,748
  6,738,937
  7,405,913
  8,102,575
  8,829,017
  9,585,543
  10,372,661
  11,191,085
  12,041,730
Total liabilities, $m
  23,967
  53,111
  82,056
  122,715
  178,053
  251,207
  345,351
  463,562
  608,687
  783,232
  989,285
  1,228,468
  1,501,920
  1,810,318
  2,153,922
  2,532,629
  2,946,056
  3,393,609
  3,874,567
  4,388,149
  4,933,582
  5,510,155
  6,117,267
  6,754,456
  7,421,433
  8,118,094
  8,844,537
  9,601,062
  10,388,180
  11,206,604
  12,057,249
Total equity, $m
  19,441
  39,903
  61,650
  92,197
  133,773
  188,735
  259,467
  348,281
  457,314
  588,453
  743,263
  922,965
  1,128,413
  1,360,117
  1,618,270
  1,902,799
  2,213,412
  2,549,664
  2,911,014
  3,296,875
  3,706,667
  4,139,854
  4,595,985
  5,074,714
  5,575,822
  6,099,233
  6,645,020
  7,213,408
  7,804,780
  8,419,673
  9,058,774
Total liabilities and equity, $m
  43,408
  93,014
  143,706
  214,912
  311,826
  439,942
  604,818
  811,843
  1,066,001
  1,371,685
  1,732,548
  2,151,433
  2,630,333
  3,170,435
  3,772,192
  4,435,428
  5,159,468
  5,943,273
  6,785,581
  7,685,024
  8,640,249
  9,650,009
  10,713,252
  11,829,170
  12,997,255
  14,217,327
  15,489,557
  16,814,470
  18,192,960
  19,626,277
  21,116,023
Debt-to-equity ratio
  0.640
  0.940
  1.080
  1.160
  1.210
  1.250
  1.270
  1.290
  1.300
  1.300
  1.310
  1.310
  1.320
  1.320
  1.320
  1.320
  1.320
  1.320
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
  1.330
Adjusted equity ratio
  0.439
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -151
  3,829
  7,544
  12,760
  19,839
  29,161
  41,105
  56,034
  74,279
  96,123
  121,799
  151,482
  185,288
  223,280
  265,472
  311,838
  362,320
  416,840
  475,306
  537,624
  603,701
  673,456
  746,820
  823,745
  904,203
  988,188
  1,075,720
  1,166,843
  1,261,626
  1,360,161
  1,462,566
Depreciation, amort., depletion, $m
  3,596
  7,434
  11,485
  17,176
  24,921
  35,160
  48,337
  64,882
  85,195
  109,625
  138,465
  171,942
  210,216
  253,381
  301,474
  354,479
  412,345
  474,986
  542,304
  614,187
  690,529
  771,229
  856,203
  945,387
  1,038,741
  1,136,249
  1,237,925
  1,343,812
  1,453,981
  1,568,532
  1,687,593
Funds from operations, $m
  2,154
  11,262
  19,029
  29,936
  44,760
  64,321
  89,442
  120,917
  159,474
  205,748
  260,265
  323,425
  395,505
  476,662
  566,946
  666,317
  774,664
  891,826
  1,017,610
  1,151,811
  1,294,230
  1,444,685
  1,603,023
  1,769,132
  1,942,943
  2,124,436
  2,313,645
  2,510,655
  2,715,607
  2,928,693
  3,150,158
Change in working capital, $m
  -401
  55
  80
  112
  153
  202
  260
  326
  400
  481
  568
  660
  754
  851
  948
  1,045
  1,140
  1,234
  1,327
  1,417
  1,504
  1,590
  1,675
  1,758
  1,840
  1,922
  2,004
  2,087
  2,171
  2,257
  2,346
Cash from operations, $m
  2,555
  11,207
  18,950
  29,824
  44,607
  64,119
  89,182
  120,591
  159,073
  205,267
  259,696
  322,765
  394,750
  475,811
  565,998
  665,272
  773,524
  890,591
  1,016,283
  1,150,394
  1,292,725
  1,443,094
  1,601,349
  1,767,375
  1,941,103
  2,122,515
  2,311,641
  2,508,569
  2,713,436
  2,926,435
  3,147,812
Maintenance CAPEX, $m
  0
  -4,646
  -7,434
  -11,485
  -17,176
  -24,921
  -35,160
  -48,337
  -64,882
  -85,195
  -109,625
  -138,465
  -171,942
  -210,216
  -253,381
  -301,474
  -354,479
  -412,345
  -474,986
  -542,304
  -614,187
  -690,529
  -771,229
  -856,203
  -945,387
  -1,038,741
  -1,136,249
  -1,237,925
  -1,343,812
  -1,453,981
  -1,568,532
New CAPEX, $m
  -2,815
  -27,880
  -40,513
  -56,908
  -77,454
  -102,390
  -131,769
  -165,454
  -203,123
  -244,302
  -288,403
  -334,772
  -382,737
  -431,650
  -480,924
  -530,058
  -578,653
  -626,418
  -673,172
  -718,835
  -763,415
  -807,001
  -849,743
  -891,842
  -933,534
  -975,082
  -1,016,765
  -1,058,871
  -1,101,689
  -1,145,506
  -1,190,605
Cash from investing activities, $m
  -2,821
  -32,526
  -47,947
  -68,393
  -94,630
  -127,311
  -166,929
  -213,791
  -268,005
  -329,497
  -398,028
  -473,237
  -554,679
  -641,866
  -734,305
  -831,532
  -933,132
  -1,038,763
  -1,148,158
  -1,261,139
  -1,377,602
  -1,497,530
  -1,620,972
  -1,748,045
  -1,878,921
  -2,013,823
  -2,153,014
  -2,296,796
  -2,445,501
  -2,599,487
  -2,759,137
Free cash flow, $m
  -266
  -21,318
  -28,997
  -38,569
  -50,022
  -63,192
  -77,747
  -93,200
  -108,932
  -124,230
  -138,332
  -150,472
  -159,929
  -166,055
  -168,307
  -166,259
  -159,608
  -148,171
  -131,876
  -110,744
  -84,877
  -54,436
  -19,623
  19,330
  62,183
  108,692
  158,627
  211,772
  267,934
  326,948
  388,675
Issuance/(repayment) of debt, $m
  375
  19,950
  28,945
  40,659
  55,338
  73,154
  94,145
  118,211
  145,124
  174,545
  206,054
  239,183
  273,452
  308,399
  343,603
  378,708
  413,427
  447,553
  480,958
  513,582
  545,433
  576,574
  607,111
  637,189
  666,977
  696,661
  726,443
  756,526
  787,118
  818,424
  850,645
Issuance/(repurchase) of shares, $m
  414
  11,209
  14,203
  17,787
  21,737
  25,801
  29,627
  32,779
  34,755
  35,015
  33,011
  28,219
  20,160
  8,424
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  788
  31,159
  43,148
  58,446
  77,075
  98,955
  123,772
  150,990
  179,879
  209,560
  239,065
  267,402
  293,612
  316,823
  343,603
  378,708
  413,427
  447,553
  480,958
  513,582
  545,433
  576,574
  607,111
  637,189
  666,977
  696,661
  726,443
  756,526
  787,118
  818,424
  850,645
Total cash flow (excl. dividends), $m
  523
  9,841
  14,150
  19,877
  27,053
  35,763
  46,024
  57,790
  70,947
  85,330
  100,734
  116,929
  133,683
  150,767
  175,296
  212,448
  253,819
  299,382
  349,082
  402,838
  460,556
  522,138
  587,488
  656,519
  729,159
  805,354
  885,070
  968,298
  1,055,052
  1,145,371
  1,239,320
Retained Cash Flow (-), $m
  825
  -15,038
  -21,747
  -30,547
  -41,576
  -54,961
  -70,732
  -88,814
  -109,034
  -131,138
  -154,811
  -179,701
  -205,448
  -231,704
  -258,154
  -284,528
  -310,613
  -336,253
  -361,350
  -385,861
  -409,791
  -433,188
  -456,131
  -478,729
  -501,109
  -523,411
  -545,786
  -568,388
  -591,372
  -614,893
  -639,101
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
 
  105
  167
  259
  387
  561
  792
  1,089
  1,461
  1,919
  2,469
  3,119
  3,873
  4,735
  5,707
  6,790
  7,984
  9,287
  10,698
  12,214
  13,833
  15,552
  17,370
  19,284
  21,293
  23,395
  25,591
  27,881
  30,266
  32,747
  35,327
Cash available for distribution, $m
 
  -5,197
  -7,596
  -10,671
  -14,523
  -19,199
  -24,708
  -31,024
  -38,087
  -45,808
  -54,077
  -62,772
  -71,766
  -80,937
  -82,858
  -72,080
  -56,794
  -36,871
  -12,268
  16,977
  50,765
  88,950
  131,357
  177,790
  228,051
  281,943
  339,284
  399,910
  463,680
  530,479
  600,219
Discount rate, %
 
  5.90
  6.20
  6.50
  6.83
  7.17
  7.53
  7.91
  8.30
  8.72
  9.15
  9.61
  10.09
  10.60
  11.13
  11.68
  12.27
  12.88
  13.52
  14.20
  14.91
  15.65
  16.44
  17.26
  18.12
  19.03
  19.98
  20.98
  22.03
  23.13
  24.29
PV of cash for distribution, $m
 
  -4,907
  -6,736
  -8,832
  -11,150
  -13,579
  -15,983
  -18,212
  -20,123
  -21,591
  -22,525
  -22,877
  -22,641
  -21,855
  -18,921
  -13,743
  -8,920
  -4,702
  -1,251
  1,362
  3,151
  4,195
  4,618
  4,566
  4,189
  3,622
  2,977
  2,338
  1,760
  1,271
  883
Current shareholders' claim on cash, %
  100
  77.7
  63.4
  53.6
  46.6
  41.5
  37.7
  34.9
  32.9
  31.3
  30.3
  29.5
  29.1
  29.0
  29.0
  29.0
  29.0
  29.0
  29.0
  29.0
  29.0
  29.0
  29.0
  29.0
  29.0
  29.0
  29.0
  29.0
  29.0
  29.0
  29.0

Canadian Natural Resources Limited is an independent crude oil and natural gas exploration, development and production company. The Company's segments include Exploration and Production, Oil Sands Mining and Upgrading, and Midstream. The Exploration and Production segment includes exploration, development, production and marketing of crude oil, natural gas liquids (NGLs) and natural gas. The Company's exploration and production operations are focused in North America in Western Canada, the United Kingdom portion of the North Sea, and Cote d'Ivoire, Gabon and South Africa in Offshore Africa. The Horizon Oil Sands Mining and Upgrading segment (Horizon) produces synthetic crude oil (SCO) through bitumen mining and upgrading operations. Midstream activities include the Company's pipeline operations, an electricity co-generation system and an investment in the North West Redwater Partnership (Redwater Partnership).

FINANCIAL RATIOS  of  Canadian Natural Resources (CNQ)

Valuation Ratios
P/E Ratio -259.2
Price to Sales 5
Price to Book 2
Price to Tangible Book
Price to Cash Flow 15.3
Price to Free Cash Flow -150.5
Growth Rates
Sales Growth Rate -14.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -28.7%
Cap. Spend. - 3 Yr. Gr. Rate -12.2%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 57.1%
Total Debt to Equity 64%
Interest Coverage -1
Management Effectiveness
Return On Assets -0.1%
Ret/ On Assets - 3 Yr. Avg. 2.5%
Return On Total Capital -0.5%
Ret/ On T. Cap. - 3 Yr. Avg. 2.7%
Return On Equity -0.8%
Return On Equity - 3 Yr. Avg. 3.8%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 42%
Gross Margin - 3 Yr. Avg. 46.5%
EBITDA Margin 41.9%
EBITDA Margin - 3 Yr. Avg. 47.1%
Operating Margin -12.1%
Oper. Margin - 3 Yr. Avg. 3.1%
Pre-Tax Margin -10.1%
Pre-Tax Margin - 3 Yr. Avg. 4%
Net Profit Margin -1.9%
Net Profit Margin - 3 Yr. Avg. 4.6%
Effective Tax Rate 80.8%
Eff/ Tax Rate - 3 Yr. Avg. 36.5%
Payout Ratio -371.5%

CNQ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CNQ stock intrinsic value calculation we used $13080 million for the last fiscal year's total revenue generated by Canadian Natural Resources. The default revenue input number comes from 2016 income statement of Canadian Natural Resources. 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 CNQ 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 5.9%, whose default value for CNQ is calculated based on our internal credit rating of Canadian Natural Resources, 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 Canadian Natural Resources.
    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 CNQ stock the variable cost ratio is equal to 44.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $5219 million in the base year in the intrinsic value calculation for CNQ 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 5.4% for Canadian Natural Resources.

Corporate tax rate of 27% is the nominal tax rate for Canadian Natural Resources. 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 CNQ stock is equal to 0.8%.

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 CNQ are equal to 355.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Canadian Natural Resources 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 CNQ is equal to 0.7%. 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 - $24865 million for Canadian Natural Resources - 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 1111 million for Canadian Natural Resources 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 Canadian Natural Resources at the current share price and the inputted number of shares is $39.1 billion.

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▶ Canadian Natural Resources posts 3Q profit   [05:47AM  Associated Press]
Financial statements of CNQ
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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