Intrinsic value of Chevron - CVX

Previous Close

$106.84

  Intrinsic Value

$18.49

stock screener

  Rating & Target

str. sell

-83%

  Value-price divergence*

-81%

Previous close

$106.84

 
Intrinsic value

$18.49

 
Up/down potential

-83%

 
Rating

str. sell

 
Value-price divergence*

-81%

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

We calculate the intrinsic value of CVX 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 203.6

 

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, %
  -14.78
  35.80
  32.72
  29.95
  27.45
  25.21
  23.19
  21.37
  19.73
  18.26
  16.93
  15.74
  14.67
  13.70
  12.83
  12.05
  11.34
  10.71
  10.14
  9.62
  9.16
  8.74
  8.37
  8.03
  7.73
  7.46
  7.21
  6.99
  6.79
  6.61
  6.45
Revenue, $m
  110,484
  150,037
  199,129
  258,765
  329,804
  412,941
  508,689
  617,388
  739,208
  874,176
  1,022,196
  1,183,083
  1,356,586
  1,542,423
  1,740,299
  1,949,936
  2,171,087
  2,403,552
  2,647,190
  2,901,927
  3,167,762
  3,444,769
  3,733,099
  4,032,983
  4,344,724
  4,668,701
  5,005,367
  5,355,243
  5,718,918
  6,097,048
  6,490,351
Variable operating expenses, $m
 
  116,265
  154,157
  200,187
  255,019
  319,188
  393,092
  476,991
  571,019
  675,194
  789,444
  913,167
  1,047,086
  1,190,525
  1,343,256
  1,505,066
  1,675,762
  1,855,191
  2,043,244
  2,239,863
  2,445,049
  2,658,857
  2,881,406
  3,112,873
  3,353,491
  3,603,554
  3,863,411
  4,133,464
  4,414,168
  4,706,029
  5,009,602
Fixed operating expenses, $m
 
  30,625
  31,391
  32,175
  32,980
  33,804
  34,649
  35,516
  36,403
  37,314
  38,246
  39,203
  40,183
  41,187
  42,217
  43,272
  44,354
  45,463
  46,599
  47,764
  48,959
  50,183
  51,437
  52,723
  54,041
  55,392
  56,777
  58,196
  59,651
  61,143
  62,671
Total operating expenses, $m
  114,866
  146,890
  185,548
  232,362
  287,999
  352,992
  427,741
  512,507
  607,422
  712,508
  827,690
  952,370
  1,087,269
  1,231,712
  1,385,473
  1,548,338
  1,720,116
  1,900,654
  2,089,843
  2,287,627
  2,494,008
  2,709,040
  2,932,843
  3,165,596
  3,407,532
  3,658,946
  3,920,188
  4,191,660
  4,473,819
  4,767,172
  5,072,273
Operating income, $m
  -4,382
  3,147
  13,582
  26,403
  41,806
  59,949
  80,948
  104,881
  131,786
  161,668
  194,506
  230,713
  269,318
  310,711
  354,826
  401,599
  450,972
  502,899
  557,347
  614,299
  673,755
  735,729
  800,256
  867,387
  937,191
  1,009,755
  1,085,179
  1,163,582
  1,245,099
  1,329,876
  1,418,079
EBITDA, $m
  15,075
  28,767
  47,434
  70,256
  97,572
  129,657
  166,714
  208,875
  256,209
  308,726
  366,386
  429,116
  496,817
  569,375
  646,674
  728,603
  815,063
  905,974
  1,001,281
  1,100,953
  1,204,988
  1,313,416
  1,426,296
  1,543,718
  1,665,802
  1,792,696
  1,924,579
  2,061,657
  2,204,161
  2,352,351
  2,506,510
Interest expense (income), $m
  158
  1,369
  2,713
  4,384
  6,414
  8,832
  11,662
  14,921
  18,621
  22,768
  27,362
  32,401
  37,877
  43,783
  50,109
  56,844
  63,980
  71,508
  79,420
  87,714
  96,385
  105,433
  114,862
  124,677
  134,884
  145,496
  156,524
  167,983
  179,893
  192,272
  205,143
Earnings before tax, $m
  -2,160
  1,778
  10,869
  22,018
  35,392
  51,116
  69,286
  89,960
  113,165
  138,900
  167,144
  198,313
  231,441
  266,928
  304,717
  344,755
  386,992
  431,391
  477,927
  526,586
  577,370
  630,295
  685,393
  742,710
  802,307
  864,259
  928,655
  995,599
  1,065,206
  1,137,605
  1,212,936
Tax expense, $m
  -1,729
  480
  2,935
  5,945
  9,556
  13,801
  18,707
  24,289
  30,554
  37,503
  45,129
  53,544
  62,489
  72,071
  82,274
  93,084
  104,488
  116,476
  129,040
  142,178
  155,890
  170,180
  185,056
  200,532
  216,623
  233,350
  250,737
  268,812
  287,606
  307,153
  327,493
Net income, $m
  -497
  1,298
  7,934
  16,074
  25,836
  37,315
  50,579
  65,671
  82,610
  101,397
  122,015
  144,768
  168,952
  194,857
  222,444
  251,671
  282,504
  314,916
  348,887
  384,408
  421,480
  460,116
  500,337
  542,179
  585,684
  630,909
  677,918
  726,787
  777,600
  830,451
  885,443

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  7,001
  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
  260,078
  343,335
  455,674
  592,139
  754,700
  944,944
  1,164,049
  1,412,788
  1,691,552
  2,000,403
  2,339,122
  2,707,283
  3,104,316
  3,529,571
  3,982,378
  4,462,097
  4,968,164
  5,500,120
  6,057,643
  6,640,565
  7,248,883
  7,882,766
  8,542,561
  9,228,793
  9,942,159
  10,683,527
  11,453,929
  12,254,560
  13,086,769
  13,952,055
  14,852,062
Adjusted assets (=assets-cash), $m
  253,077
  343,335
  455,674
  592,139
  754,700
  944,944
  1,164,049
  1,412,788
  1,691,552
  2,000,403
  2,339,122
  2,707,283
  3,104,316
  3,529,571
  3,982,378
  4,462,097
  4,968,164
  5,500,120
  6,057,643
  6,640,565
  7,248,883
  7,882,766
  8,542,561
  9,228,793
  9,942,159
  10,683,527
  11,453,929
  12,254,560
  13,086,769
  13,952,055
  14,852,062
Revenue / Adjusted assets
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
  0.437
Average production assets, $m
  185,291
  251,613
  333,940
  433,949
  553,081
  692,501
  853,072
  1,035,360
  1,239,652
  1,465,993
  1,714,223
  1,984,030
  2,274,995
  2,586,643
  2,918,482
  3,270,043
  3,640,914
  4,030,757
  4,439,338
  4,866,532
  5,312,336
  5,776,877
  6,260,407
  6,763,312
  7,286,101
  7,829,412
  8,394,001
  8,980,742
  9,590,626
  10,224,749
  10,884,319
Working capital, $m
  -2,166
  2,251
  2,987
  3,881
  4,947
  6,194
  7,630
  9,261
  11,088
  13,113
  15,333
  17,746
  20,349
  23,136
  26,104
  29,249
  32,566
  36,053
  39,708
  43,529
  47,516
  51,672
  55,996
  60,495
  65,171
  70,031
  75,081
  80,329
  85,784
  91,456
  97,355
Total debt, $m
  46,126
  77,521
  125,265
  183,263
  252,352
  333,205
  426,325
  532,039
  650,514
  781,775
  925,731
  1,082,199
  1,250,938
  1,431,672
  1,624,115
  1,827,995
  2,043,074
  2,269,155
  2,506,102
  2,753,844
  3,012,379
  3,281,779
  3,562,193
  3,853,841
  4,157,022
  4,472,103
  4,799,524
  5,139,792
  5,493,481
  5,861,227
  6,243,731
Total liabilities, $m
  114,522
  145,917
  193,661
  251,659
  320,748
  401,601
  494,721
  600,435
  718,910
  850,171
  994,127
  1,150,595
  1,319,334
  1,500,068
  1,692,511
  1,896,391
  2,111,470
  2,337,551
  2,574,498
  2,822,240
  3,080,775
  3,350,175
  3,630,589
  3,922,237
  4,225,418
  4,540,499
  4,867,920
  5,208,188
  5,561,877
  5,929,623
  6,312,127
Total equity, $m
  145,556
  197,417
  262,012
  340,480
  433,953
  543,343
  669,328
  812,353
  972,643
  1,150,232
  1,344,995
  1,556,688
  1,784,982
  2,029,503
  2,289,867
  2,565,706
  2,856,694
  3,162,569
  3,483,145
  3,818,325
  4,168,107
  4,532,590
  4,911,973
  5,306,556
  5,716,741
  6,143,028
  6,586,009
  7,046,372
  7,524,892
  8,022,431
  8,539,936
Total liabilities and equity, $m
  260,078
  343,334
  455,673
  592,139
  754,701
  944,944
  1,164,049
  1,412,788
  1,691,553
  2,000,403
  2,339,122
  2,707,283
  3,104,316
  3,529,571
  3,982,378
  4,462,097
  4,968,164
  5,500,120
  6,057,643
  6,640,565
  7,248,882
  7,882,765
  8,542,562
  9,228,793
  9,942,159
  10,683,527
  11,453,929
  12,254,560
  13,086,769
  13,952,054
  14,852,063
Debt-to-equity ratio
  0.317
  0.390
  0.480
  0.540
  0.580
  0.610
  0.640
  0.650
  0.670
  0.680
  0.690
  0.700
  0.700
  0.710
  0.710
  0.710
  0.720
  0.720
  0.720
  0.720
  0.720
  0.720
  0.730
  0.730
  0.730
  0.730
  0.730
  0.730
  0.730
  0.730
  0.730
Adjusted equity ratio
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575
  0.575

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -497
  1,298
  7,934
  16,074
  25,836
  37,315
  50,579
  65,671
  82,610
  101,397
  122,015
  144,768
  168,952
  194,857
  222,444
  251,671
  282,504
  314,916
  348,887
  384,408
  421,480
  460,116
  500,337
  542,179
  585,684
  630,909
  677,918
  726,787
  777,600
  830,451
  885,443
Depreciation, amort., depletion, $m
  19,457
  25,619
  33,852
  43,853
  55,766
  69,708
  85,765
  103,994
  124,423
  147,057
  171,880
  198,403
  227,499
  258,664
  291,848
  327,004
  364,091
  403,076
  443,934
  486,653
  531,234
  577,688
  626,041
  676,331
  728,610
  782,941
  839,400
  898,074
  959,063
  1,022,475
  1,088,432
Funds from operations, $m
  11,967
  26,917
  41,786
  59,926
  81,602
  107,023
  136,344
  169,665
  207,034
  248,455
  293,895
  343,171
  396,451
  453,522
  514,292
  578,675
  646,595
  717,991
  792,820
  871,061
  952,714
  1,037,803
  1,126,378
  1,218,510
  1,314,294
  1,413,850
  1,517,319
  1,624,862
  1,736,663
  1,852,926
  1,973,875
Change in working capital, $m
  -879
  593
  736
  895
  1,066
  1,247
  1,436
  1,630
  1,827
  2,025
  2,220
  2,413
  2,603
  2,788
  2,968
  3,145
  3,317
  3,487
  3,655
  3,821
  3,988
  4,155
  4,325
  4,498
  4,676
  4,860
  5,050
  5,248
  5,455
  5,672
  5,900
Cash from operations, $m
  12,846
  26,324
  41,050
  59,032
  80,536
  105,776
  134,908
  168,034
  205,206
  246,430
  291,675
  340,758
  393,849
  450,734
  511,324
  575,531
  643,278
  714,504
  789,166
  867,240
  948,726
  1,033,648
  1,122,053
  1,214,011
  1,309,618
  1,408,991
  1,512,269
  1,619,613
  1,731,208
  1,847,254
  1,967,975
Maintenance CAPEX, $m
  0
  -18,529
  -25,161
  -33,394
  -43,395
  -55,308
  -69,250
  -85,307
  -103,536
  -123,965
  -146,599
  -171,422
  -198,403
  -227,499
  -258,664
  -291,848
  -327,004
  -364,091
  -403,076
  -443,934
  -486,653
  -531,234
  -577,688
  -626,041
  -676,331
  -728,610
  -782,941
  -839,400
  -898,074
  -959,063
  -1,022,475
New CAPEX, $m
  -18,109
  -66,322
  -82,328
  -100,008
  -119,133
  -139,420
  -160,571
  -182,288
  -204,293
  -226,341
  -248,230
  -269,807
  -290,965
  -311,648
  -331,839
  -351,562
  -370,870
  -389,844
  -408,581
  -427,194
  -445,805
  -464,540
  -483,531
  -502,904
  -522,789
  -543,310
  -564,589
  -586,742
  -609,883
  -634,124
  -659,570
Cash from investing activities, $m
  -16,852
  -84,851
  -107,489
  -133,402
  -162,528
  -194,728
  -229,821
  -267,595
  -307,829
  -350,306
  -394,829
  -441,229
  -489,368
  -539,147
  -590,503
  -643,410
  -697,874
  -753,935
  -811,657
  -871,128
  -932,458
  -995,774
  -1,061,219
  -1,128,945
  -1,199,120
  -1,271,920
  -1,347,530
  -1,426,142
  -1,507,957
  -1,593,187
  -1,682,045
Free cash flow, $m
  -4,006
  -58,527
  -66,439
  -74,370
  -81,991
  -88,952
  -94,913
  -99,561
  -102,622
  -103,876
  -103,154
  -100,471
  -95,520
  -88,413
  -79,180
  -67,879
  -54,597
  -39,431
  -22,491
  -3,888
  16,268
  37,874
  60,835
  85,066
  110,498
  137,070
  164,739
  193,472
  223,250
  254,068
  285,930
Issuance/(repayment) of debt, $m
  7,470
  38,396
  47,744
  57,998
  69,088
  80,854
  93,120
  105,714
  118,475
  131,261
  143,956
  156,469
  168,739
  180,733
  192,443
  203,881
  215,078
  226,081
  236,948
  247,742
  258,535
  269,400
  280,413
  291,649
  303,180
  315,081
  327,421
  340,268
  353,689
  367,746
  382,503
Issuance/(repurchase) of shares, $m
  650
  50,564
  56,661
  62,394
  67,637
  72,075
  75,407
  77,354
  77,679
  76,192
  72,749
  66,924
  59,342
  49,664
  37,920
  24,168
  8,484
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  8,057
  88,960
  104,405
  120,392
  136,725
  152,929
  168,527
  183,068
  196,154
  207,453
  216,705
  223,393
  228,081
  230,397
  230,363
  228,049
  223,562
  226,081
  236,948
  247,742
  258,535
  269,400
  280,413
  291,649
  303,180
  315,081
  327,421
  340,268
  353,689
  367,746
  382,503
Total cash flow (excl. dividends), $m
  3,998
  30,433
  37,966
  46,021
  54,734
  63,977
  73,613
  83,507
  93,532
  103,577
  113,550
  122,922
  132,562
  141,985
  151,184
  160,169
  168,966
  186,651
  214,457
  243,854
  274,803
  307,274
  341,248
  376,715
  413,678
  452,151
  492,160
  533,740
  576,939
  621,814
  668,434
Retained Cash Flow (-), $m
  7,160
  -51,861
  -64,595
  -78,467
  -93,473
  -109,390
  -125,985
  -143,025
  -160,290
  -177,589
  -194,764
  -211,693
  -228,294
  -244,522
  -260,364
  -275,839
  -290,988
  -305,875
  -320,576
  -335,180
  -349,782
  -364,483
  -379,383
  -394,583
  -410,185
  -426,286
  -442,981
  -460,363
  -478,520
  -497,539
  -517,505
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
 
  -21,428
  -26,629
  -32,446
  -38,738
  -45,413
  -52,372
  -59,517
  -66,757
  -74,012
  -81,214
  -88,771
  -95,732
  -102,537
  -109,180
  -115,669
  -122,022
  -119,224
  -106,119
  -91,326
  -74,979
  -57,208
  -38,135
  -17,869
  3,493
  25,865
  49,178
  73,377
  98,419
  124,275
  150,929
Discount rate, %
 
  5.10
  5.36
  5.62
  5.90
  6.20
  6.51
  6.83
  7.18
  7.54
  7.91
  8.31
  8.72
  9.16
  9.62
  10.10
  10.60
  11.13
  11.69
  12.27
  12.89
  13.53
  14.21
  14.92
  15.66
  16.45
  17.27
  18.13
  19.04
  19.99
  20.99
PV of cash for distribution, $m
 
  -20,388
  -23,991
  -27,535
  -30,796
  -33,619
  -35,874
  -37,468
  -38,345
  -38,490
  -37,926
  -36,900
  -35,092
  -32,818
  -30,190
  -27,324
  -24,333
  -19,818
  -14,507
  -10,123
  -6,638
  -3,981
  -2,051
  -730
  106
  575
  781
  816
  748
  629
  497
Current shareholders' claim on cash, %
  100
  80.1
  66.5
  56.8
  49.7
  44.5
  40.4
  37.4
  35.0
  33.1
  31.7
  30.6
  29.8
  29.2
  28.8
  28.6
  28.5
  28.5
  28.5
  28.5
  28.5
  28.5
  28.5
  28.5
  28.5
  28.5
  28.5
  28.5
  28.5
  28.5
  28.5

Chevron Corporation, through its subsidiaries, engages in integrated energy, chemicals, and petroleum operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and transportation, storage, and marketing of natural gas, as well as operates a gas-to-liquids plant. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products; transporting crude oil and refined products through pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing commodity petrochemicals, and fuel and lubricant additives, as well as plastics for industrial uses. It is also involved in the cash management and debt financing activities; insurance operations; real estate activities; and technology businesses. Further, the company holds interests in power plants, as well as operates geothermal plants; and engages in the transportation of refined products primarily in the coastal waters of the United States. The company was formerly known as ChevronTexaco Corporation and changed its name to Chevron Corporation in 2005. Chevron Corporation was founded in 1879 and is headquartered in San Ramon, California.

FINANCIAL RATIOS  of  Chevron (CVX)

Valuation Ratios
P/E Ratio -406.6
Price to Sales 1.8
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 15.7
Price to Free Cash Flow -38.4
Growth Rates
Sales Growth Rate -14.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -38.6%
Cap. Spend. - 3 Yr. Gr. Rate -13.8%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 24.2%
Total Debt to Equity 31.7%
Interest Coverage -13
Management Effectiveness
Return On Assets -0.2%
Ret/ On Assets - 3 Yr. Avg. 3%
Return On Total Capital -0.3%
Ret/ On T. Cap. - 3 Yr. Avg. 4.4%
Return On Equity -0.3%
Return On Equity - 3 Yr. Avg. 5.1%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 40%
Gross Margin - 3 Yr. Avg. 38.9%
EBITDA Margin 15.8%
EBITDA Margin - 3 Yr. Avg. 19.9%
Operating Margin -4%
Oper. Margin - 3 Yr. Avg. 2.6%
Pre-Tax Margin -2%
Pre-Tax Margin - 3 Yr. Avg. 5.8%
Net Profit Margin -0.4%
Net Profit Margin - 3 Yr. Avg. 4.2%
Effective Tax Rate 80%
Eff/ Tax Rate - 3 Yr. Avg. 40.3%
Payout Ratio -1616.1%

CVX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CVX stock intrinsic value calculation we used $110484 million for the last fiscal year's total revenue generated by Chevron. The default revenue input number comes from 2016 income statement of Chevron. 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 CVX stock valuation model: a) initial revenue growth rate of 35.8% 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 5.1%, whose default value for CVX is calculated based on our internal credit rating of Chevron, 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 Chevron.
    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 CVX stock the variable cost ratio is equal to 77.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $29878 million in the base year in the intrinsic value calculation for CVX 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 3.5% for Chevron.

Corporate tax rate of 27% is the nominal tax rate for Chevron. 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 CVX 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 CVX are equal to 167.7%.

Life of production assets of 10 years is the average useful life of capital assets used in Chevron 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 CVX is equal to 1.5%. 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 - $145556 million for Chevron - 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 1905.78 million for Chevron 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 Chevron at the current share price and the inputted number of shares is $203.6 billion.

RELATED COMPANIES Price Int.Val. Rating
XOM Exxon Mobil 77.47 102.38  buy
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BP BP ADR 34.29 6.50  str.sell
E ENI ADR 31.34 7.44  str.sell
PBR Petroleo Brasi 8.65 3.08  str.sell
YPF YPF ADR 20.30 4.81  str.sell
PSX Phillips 66 83.03 889.09  str.buy
MPC Marathon Petro 51.06 684.21  str.buy

COMPANY NEWS

▶ 8 Familiar Oil Stocks At Risk If Venezuela Collapses   [Aug-17-17 11:47AM  Barrons.com]
▶ How Good Is Chevron as a Dividend Payer?   [Aug-16-17 12:35PM  Market Realist]
▶ ExxonMobils Journey as a Dividend Aristocrat   [09:32AM  Market Realist]
▶ How BP Stock Measures up SPY so Far in 3Q17   [07:36AM  Market Realist]
▶ U.S. Sanctions On Venezuela Could Boost Gasoline Prices   [Aug-15-17 05:00PM  Oilprice.com]
▶ The Oil Price Tug Of War   [04:00PM  Oilprice.com]
▶ Supply Risks Could Push Oil Prices Higher This Week   [Aug-14-17 07:00PM  Oilprice.com]
▶ Chevron Faces Price Pullback   [03:34PM  TheStreet.com]
▶ Kuwait battles oil spill in Persian Gulf waters   [10:01AM  Associated Press]
▶ Major Oil Short Interest Crumbles as Oil Reaches $50   [Aug-10-17 08:30AM  24/7 Wall St.]
▶ US oil industry pushes back on sanctions against Venezuela   [Aug-09-17 10:06PM  Associated Press]
▶ Chevron Corp. Value Analysis (NYSE:CVX) : August 8, 2017   [Aug-08-17 05:43PM  Capital Cube]
▶ Climate deal swing votes among top oil money recipients   [Aug-07-17 07:21PM  Associated Press]
▶ US Market Indexes Gain on Tuesday   [10:37AM  GuruFocus.com]
▶ Oil Holds Under $50 With Key Inventory, Production Data On Tap   [10:23AM  Investor's Business Daily]
▶ [$$] Big Oil Bites the Low-Price Bullet   [12:08AM  The Wall Street Journal]
▶ What Is Chevrons Price Forecast?   [10:39AM  Market Realist]
▶ [$$] Big Oil Bites the Low-Price Bullet   [07:55AM  The Wall Street Journal]
▶ Chevron Stock Rose 2% on 2Q17 Earnings Beat   [07:41AM  Market Realist]
▶ How Did Chevrons Segments Perform in 2Q17?   [Jul-31-17 05:35PM  Market Realist]
▶ Chevrons 2Q17 Earnings Beat Estimates   [03:50PM  Market Realist]
▶ [$$] Big Oil Posts Healthy Profits   [Jul-29-17 12:07AM  The Wall Street Journal]
▶ Chevron beats Street 2Q forecasts   [Jul-28-17 11:45PM  Associated Press]
▶ Chevron swings to profit, Exxon misses   [04:26PM  Reuters Videos]
▶ [$$] Big Oil Posts Healthy Profits   [01:54PM  The Wall Street Journal]
▶ Will oil be 'lower forever'?   [01:41PM  CNBC Videos]
▶ ETFs for S&P 500 Earnings Growth   [12:00PM  Investopedia]
▶ Why Chevron Earnings Disappointed Investors   [09:50AM  24/7 Wall St.]
▶ [$$] Chevron Swings to Profit, Buoyed by Cost Cuts   [09:45AM  The Wall Street Journal]
▶ Nine Oil Picks From Goldman Sachs   [09:41AM  Barrons.com]
Stock chart of CVX Financial statements of CVX
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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