Intrinsic value of Canadian Natural Resources - CNQ

Previous Close

$33.17

  Intrinsic Value

$3.99

stock screener

  Rating & Target

str. sell

-88%

  Value-price divergence*

-26%

Previous close

$33.17

 
Intrinsic value

$3.99

 
Up/down potential

-88%

 
Rating

str. sell

 
Value-price divergence*

-26%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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

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 40.4

 

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
  45.40
  41.36
  37.72
  34.45
  31.51
  28.86
  26.47
  24.32
  22.39
  20.65
  19.09
  17.68
  16.41
  15.27
  14.24
  13.32
  12.49
  11.74
  11.06
  10.46
  9.91
  9.42
  8.98
  8.58
  8.22
  7.90
  7.61
  7.35
  7.11
  6.90
Revenue, $m
  7,789
  11,325
  16,009
  22,049
  29,645
  38,985
  50,234
  63,531
  78,984
  96,669
  116,633
  138,895
  163,448
  190,270
  219,323
  250,560
  283,929
  319,381
  356,869
  396,352
  437,800
  481,194
  526,525
  573,799
  623,034
  674,264
  727,532
  782,900
  840,437
  900,228
  962,370
Variable operating expenses, $m
 
  8,030
  11,351
  15,633
  21,018
  27,640
  35,616
  45,044
  56,000
  68,539
  82,693
  98,476
  115,885
  134,902
  155,500
  177,647
  201,306
  226,441
  253,020
  281,014
  310,400
  341,166
  373,306
  406,823
  441,731
  478,053
  515,820
  555,076
  595,870
  638,262
  682,320
Fixed operating expenses, $m
 
  3,374
  3,459
  3,545
  3,634
  3,725
  3,818
  3,913
  4,011
  4,111
  4,214
  4,319
  4,427
  4,538
  4,652
  4,768
  4,887
  5,009
  5,134
  5,263
  5,394
  5,529
  5,667
  5,809
  5,954
  6,103
  6,256
  6,412
  6,572
  6,737
  6,905
Total operating expenses, $m
  8,735
  11,404
  14,810
  19,178
  24,652
  31,365
  39,434
  48,957
  60,011
  72,650
  86,907
  102,795
  120,312
  139,440
  160,152
  182,415
  206,193
  231,450
  258,154
  286,277
  315,794
  346,695
  378,973
  412,632
  447,685
  484,156
  522,076
  561,488
  602,442
  644,999
  689,225
Operating income, $m
  -947
  -79
  1,200
  2,871
  4,993
  7,620
  10,800
  14,574
  18,973
  24,020
  29,726
  36,099
  43,136
  50,831
  59,172
  68,145
  77,736
  87,931
  98,714
  110,076
  122,006
  134,498
  147,551
  161,166
  175,349
  190,107
  205,456
  221,412
  237,995
  255,230
  273,144
EBITDA, $m
  2,649
  5,169
  8,618
  13,087
  18,728
  25,683
  34,076
  44,011
  55,569
  68,810
  83,766
  100,453
  118,867
  138,989
  160,791
  184,238
  209,290
  235,911
  264,064
  293,719
  324,853
  357,451
  391,508
  427,026
  464,021
  502,516
  542,546
  584,155
  627,397
  672,335
  719,043
Interest expense (income), $m
  457
  435
  828
  1,347
  2,016
  2,858
  3,893
  5,139
  6,612
  8,325
  10,284
  12,496
  14,962
  17,683
  20,655
  23,874
  27,335
  31,032
  34,960
  39,113
  43,488
  48,080
  52,888
  57,911
  63,148
  68,604
  74,280
  80,182
  86,316
  92,691
  99,316
Earnings before tax, $m
  -787
  -513
  372
  1,524
  2,977
  4,762
  6,908
  9,435
  12,361
  15,695
  19,442
  23,603
  28,174
  33,148
  38,517
  44,271
  50,402
  56,899
  63,755
  70,962
  78,518
  86,418
  94,663
  103,256
  112,200
  121,504
  131,177
  141,230
  151,679
  162,539
  173,829
Tax expense, $m
  -636
  0
  100
  411
  804
  1,286
  1,865
  2,548
  3,337
  4,238
  5,249
  6,373
  7,607
  8,950
  10,400
  11,953
  13,608
  15,363
  17,214
  19,160
  21,200
  23,333
  25,559
  27,879
  30,294
  32,806
  35,418
  38,132
  40,953
  43,885
  46,934
Net income, $m
  -151
  -513
  271
  1,112
  2,173
  3,476
  5,043
  6,888
  9,023
  11,457
  14,193
  17,230
  20,567
  24,198
  28,117
  32,318
  36,793
  41,536
  46,541
  51,803
  57,318
  63,085
  69,104
  75,377
  81,906
  88,698
  95,759
  103,098
  110,725
  118,653
  126,895

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
  62,226
  87,963
  121,147
  162,883
  214,202
  276,012
  349,073
  433,979
  531,150
  640,842
  763,157
  898,068
  1,045,442
  1,205,072
  1,376,701
  1,560,050
  1,754,841
  1,960,817
  2,177,758
  2,405,496
  2,643,922
  2,892,993
  3,152,740
  3,423,264
  3,704,745
  3,997,431
  4,301,646
  4,617,785
  4,946,309
  5,287,748
Adjusted assets (=assets-cash), $m
  42,720
  62,226
  87,963
  121,147
  162,883
  214,202
  276,012
  349,073
  433,979
  531,150
  640,842
  763,157
  898,068
  1,045,442
  1,205,072
  1,376,701
  1,560,050
  1,754,841
  1,960,817
  2,177,758
  2,405,496
  2,643,922
  2,892,993
  3,152,740
  3,423,264
  3,704,745
  3,997,431
  4,301,646
  4,617,785
  4,946,309
  5,287,748
Revenue / Adjusted assets
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
Average production assets, $m
  37,890
  55,097
  77,885
  107,267
  144,222
  189,661
  244,389
  309,080
  384,258
  470,296
  567,421
  675,722
  795,176
  925,666
  1,067,007
  1,218,972
  1,381,315
  1,553,789
  1,736,166
  1,928,253
  2,129,898
  2,341,008
  2,561,543
  2,791,530
  3,031,061
  3,280,292
  3,539,445
  3,808,807
  4,088,725
  4,379,611
  4,681,930
Working capital, $m
  -560
  136
  192
  265
  356
  468
  603
  762
  948
  1,160
  1,400
  1,667
  1,961
  2,283
  2,632
  3,007
  3,407
  3,833
  4,282
  4,756
  5,254
  5,774
  6,318
  6,886
  7,476
  8,091
  8,730
  9,395
  10,085
  10,803
  11,548
Total debt, $m
  12,438
  22,384
  36,411
  54,496
  77,242
  105,211
  138,897
  178,716
  224,989
  277,948
  337,730
  404,392
  477,918
  558,237
  645,235
  738,773
  838,698
  944,859
  1,057,116
  1,175,349
  1,299,466
  1,429,408
  1,565,152
  1,706,714
  1,854,150
  2,007,557
  2,167,071
  2,332,868
  2,505,164
  2,684,210
  2,870,293
Total liabilities, $m
  23,967
  33,913
  47,940
  66,025
  88,771
  116,740
  150,426
  190,245
  236,518
  289,477
  349,259
  415,921
  489,447
  569,766
  656,764
  750,302
  850,227
  956,388
  1,068,645
  1,186,878
  1,310,995
  1,440,937
  1,576,681
  1,718,243
  1,865,679
  2,019,086
  2,178,600
  2,344,397
  2,516,693
  2,695,739
  2,881,822
Total equity, $m
  19,441
  28,313
  40,023
  55,122
  74,112
  97,462
  125,585
  158,828
  197,460
  241,673
  291,583
  347,237
  408,621
  475,676
  548,308
  626,399
  709,823
  798,453
  892,172
  990,880
  1,094,501
  1,202,984
  1,316,312
  1,434,497
  1,557,585
  1,685,659
  1,818,831
  1,957,249
  2,101,092
  2,250,571
  2,405,925
Total liabilities and equity, $m
  43,408
  62,226
  87,963
  121,147
  162,883
  214,202
  276,011
  349,073
  433,978
  531,150
  640,842
  763,158
  898,068
  1,045,442
  1,205,072
  1,376,701
  1,560,050
  1,754,841
  1,960,817
  2,177,758
  2,405,496
  2,643,921
  2,892,993
  3,152,740
  3,423,264
  3,704,745
  3,997,431
  4,301,646
  4,617,785
  4,946,310
  5,287,747
Debt-to-equity ratio
  0.640
  0.790
  0.910
  0.990
  1.040
  1.080
  1.110
  1.130
  1.140
  1.150
  1.160
  1.160
  1.170
  1.170
  1.180
  1.180
  1.180
  1.180
  1.180
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
Adjusted equity ratio
  0.439
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -151
  -513
  271
  1,112
  2,173
  3,476
  5,043
  6,888
  9,023
  11,457
  14,193
  17,230
  20,567
  24,198
  28,117
  32,318
  36,793
  41,536
  46,541
  51,803
  57,318
  63,085
  69,104
  75,377
  81,906
  88,698
  95,759
  103,098
  110,725
  118,653
  126,895
Depreciation, amort., depletion, $m
  3,596
  5,247
  7,418
  10,216
  13,735
  18,063
  23,275
  29,436
  36,596
  44,790
  54,040
  64,355
  75,731
  88,159
  101,620
  116,093
  131,554
  147,980
  165,349
  183,643
  202,847
  222,953
  243,956
  265,860
  288,672
  312,409
  337,090
  362,743
  389,402
  417,106
  445,898
Funds from operations, $m
  2,154
  4,734
  7,689
  11,328
  15,908
  21,539
  28,318
  36,324
  45,619
  56,247
  68,233
  81,585
  96,298
  112,356
  129,737
  148,411
  168,347
  189,516
  211,890
  235,446
  260,165
  286,038
  313,061
  341,237
  370,579
  401,107
  432,849
  465,841
  500,128
  535,759
  572,793
Change in working capital, $m
  -401
  42
  56
  72
  91
  112
  135
  160
  185
  212
  240
  267
  295
  322
  349
  375
  400
  425
  450
  474
  497
  521
  544
  567
  591
  615
  639
  664
  690
  717
  746
Cash from operations, $m
  2,555
  4,691
  7,633
  11,256
  15,817
  21,427
  28,183
  36,164
  45,434
  56,035
  67,993
  81,318
  96,003
  112,035
  129,388
  148,036
  167,947
  189,091
  211,440
  234,972
  259,668
  285,517
  312,517
  340,669
  369,988
  400,492
  432,210
  465,177
  499,437
  535,041
  572,047
Maintenance CAPEX, $m
  0
  -3,609
  -5,247
  -7,418
  -10,216
  -13,735
  -18,063
  -23,275
  -29,436
  -36,596
  -44,790
  -54,040
  -64,355
  -75,731
  -88,159
  -101,620
  -116,093
  -131,554
  -147,980
  -165,349
  -183,643
  -202,847
  -222,953
  -243,956
  -265,860
  -288,672
  -312,409
  -337,090
  -362,743
  -389,402
  -417,106
New CAPEX, $m
  -2,815
  -17,207
  -22,788
  -29,381
  -36,955
  -45,439
  -54,728
  -64,690
  -75,178
  -86,039
  -97,125
  -108,301
  -119,454
  -130,490
  -141,341
  -151,966
  -162,343
  -172,474
  -182,377
  -192,086
  -201,646
  -211,109
  -220,535
  -229,987
  -239,531
  -249,231
  -259,153
  -269,362
  -279,919
  -290,885
  -302,320
Cash from investing activities, $m
  -2,821
  -20,816
  -28,035
  -36,799
  -47,171
  -59,174
  -72,791
  -87,965
  -104,614
  -122,635
  -141,915
  -162,341
  -183,809
  -206,221
  -229,500
  -253,586
  -278,436
  -304,028
  -330,357
  -357,435
  -385,289
  -413,956
  -443,488
  -473,943
  -505,391
  -537,903
  -571,562
  -606,452
  -642,662
  -680,287
  -719,426
Free cash flow, $m
  -266
  -16,124
  -20,403
  -25,543
  -31,354
  -37,747
  -44,608
  -51,801
  -59,180
  -66,599
  -73,921
  -81,024
  -87,805
  -94,186
  -100,112
  -105,549
  -110,489
  -114,937
  -118,917
  -122,464
  -125,621
  -128,439
  -130,972
  -133,275
  -135,403
  -137,412
  -139,352
  -141,275
  -143,225
  -145,246
  -147,378
Issuance/(repayment) of debt, $m
  375
  10,634
  14,027
  18,085
  22,747
  27,969
  33,686
  39,818
  46,274
  52,959
  59,782
  66,662
  73,526
  80,319
  86,998
  93,538
  99,925
  106,161
  112,257
  118,233
  124,117
  129,942
  135,744
  141,562
  147,436
  153,407
  159,514
  165,797
  172,296
  179,046
  186,084
Issuance/(repurchase) of shares, $m
  414
  9,385
  11,439
  13,986
  16,817
  19,874
  23,081
  26,355
  29,609
  32,756
  35,717
  38,423
  40,818
  42,857
  44,514
  45,773
  46,631
  47,094
  47,178
  46,906
  46,303
  45,399
  44,223
  42,808
  41,183
  39,376
  37,413
  35,320
  33,118
  30,825
  28,459
Cash from financing (excl. dividends), $m  
  788
  20,019
  25,466
  32,071
  39,564
  47,843
  56,767
  66,173
  75,883
  85,715
  95,499
  105,085
  114,344
  123,176
  131,512
  139,311
  146,556
  153,255
  159,435
  165,139
  170,420
  175,341
  179,967
  184,370
  188,619
  192,783
  196,927
  201,117
  205,414
  209,871
  214,543
Total cash flow (excl. dividends), $m
  523
  3,896
  5,063
  6,528
  8,210
  10,095
  12,159
  14,372
  16,702
  19,115
  21,578
  24,061
  26,539
  28,990
  31,401
  33,762
  36,067
  38,318
  40,518
  42,675
  44,799
  46,901
  48,995
  51,095
  53,216
  55,371
  57,575
  59,843
  62,188
  64,625
  67,165
Retained Cash Flow (-), $m
  825
  -9,385
  -11,710
  -15,098
  -18,990
  -23,350
  -28,123
  -33,243
  -38,632
  -44,213
  -49,910
  -55,653
  -61,384
  -67,055
  -72,632
  -78,091
  -83,424
  -88,630
  -93,719
  -98,708
  -103,621
  -108,484
  -113,327
  -118,185
  -123,089
  -128,073
  -133,172
  -138,418
  -143,843
  -149,479
  -155,354
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
 
  -5,490
  -6,648
  -8,571
  -10,780
  -13,255
  -15,965
  -18,871
  -21,930
  -25,098
  -28,332
  -31,592
  -34,846
  -38,065
  -41,230
  -44,330
  -47,357
  -50,312
  -53,201
  -56,033
  -58,822
  -61,582
  -64,332
  -67,089
  -69,873
  -72,703
  -75,597
  -78,575
  -81,655
  -84,854
  -88,189
Discount rate, %
 
  6.60
  6.93
  7.28
  7.64
  8.02
  8.42
  8.84
  9.29
  9.75
  10.24
  10.75
  11.29
  11.85
  12.45
  13.07
  13.72
  14.41
  15.13
  15.88
  16.68
  17.51
  18.39
  19.31
  20.27
  21.29
  22.35
  23.47
  24.64
  25.87
  27.17
PV of cash for distribution, $m
 
  -5,150
  -5,814
  -6,942
  -8,030
  -9,012
  -9,827
  -10,427
  -10,777
  -10,863
  -10,689
  -10,275
  -9,655
  -8,874
  -7,981
  -7,025
  -6,053
  -5,105
  -4,214
  -3,404
  -2,690
  -2,078
  -1,569
  -1,157
  -832
  -584
  -399
  -265
  -171
  -107
  -65
Current shareholders' claim on cash, %
  100
  81.1
  67.9
  58.1
  50.7
  44.9
  40.3
  36.6
  33.6
  31.1
  29.0
  27.3
  25.8
  24.6
  23.5
  22.6
  21.8
  21.2
  20.6
  20.1
  19.6
  19.2
  18.9
  18.6
  18.4
  18.1
  18.0
  17.8
  17.6
  17.5
  17.4

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 -244
Price to Sales 4.7
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 14.4
Price to Free Cash Flow -141.7
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 $7789 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 45.4% 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 6.6%, 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 70.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $3292 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 3.7% 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%.

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 486.5%.

Life of production assets of 10.5 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 1.2%. 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 - $19441 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 1217.05 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 $40.4 billion.

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COMPANY NEWS

▶ New Strong Buy Stocks for October 12th   [Oct-12-17 10:04AM  Zacks]
▶ Canadian Natural Resources posts 2Q profit   [Aug-04-17 02:36AM  Associated Press]
▶ [$$] 8 Great Energy Stocks at Bargain Prices   [Jul-15-17 12:01AM  Barrons.com]
▶ Top Ranked Income Stocks to Buy for June 21st   [Jun-21-17 11:29AM  Zacks]
▶ ConocoPhillips' Most Brilliant Moves in 2017 So Far   [Jun-15-17 04:30PM  Motley Fool]
▶ [$$] Energy Shares Could Soon Heat Up   [Jun-10-17 12:58AM  Barrons.com]
▶ Why These 5 Oil Companies Fell More Than 10% in May   [Jun-08-17 09:44AM  Motley Fool]
▶ U.S. Crude Supplies Slump Amid Record Refining   [Jun-02-17 04:20PM  Zacks]
▶ Canadian Oil Sands Brace As Oil Majors Dump Shares   [May-30-17 06:00PM  Oilprice.com]
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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