Intrinsic value of Ecopetrol ADR - EC

Previous Close

$12.43

  Intrinsic Value

$1.74

stock screener

  Rating & Target

str. sell

-86%

Previous close

$12.43

 
Intrinsic value

$1.74

 
Up/down potential

-86%

 
Rating

str. sell

We calculate the intrinsic value of EC 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 25.5

 

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, %
  -8.36
  11.90
  11.21
  10.59
  10.03
  9.53
  9.07
  8.67
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
Revenue, $m
  15,931
  17,827
  19,825
  21,924
  24,124
  26,422
  28,819
  31,317
  33,917
  36,620
  39,430
  42,350
  45,384
  48,538
  51,816
  55,225
  58,771
  62,461
  66,302
  70,304
  74,475
  78,823
  83,359
  88,094
  93,037
  98,201
  103,598
  109,239
  115,140
  121,312
  127,772
Variable operating expenses, $m
 
  17,324
  19,263
  21,299
  23,432
  25,662
  27,988
  30,411
  32,932
  35,555
  38,280
  41,082
  44,026
  47,085
  50,265
  53,572
  57,012
  60,591
  64,318
  68,200
  72,246
  76,464
  80,865
  85,457
  90,253
  95,262
  100,497
  105,970
  111,694
  117,682
  123,948
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
  13,176
  17,324
  19,263
  21,299
  23,432
  25,662
  27,988
  30,411
  32,932
  35,555
  38,280
  41,082
  44,026
  47,085
  50,265
  53,572
  57,012
  60,591
  64,318
  68,200
  72,246
  76,464
  80,865
  85,457
  90,253
  95,262
  100,497
  105,970
  111,694
  117,682
  123,948
Operating income, $m
  2,754
  503
  563
  625
  691
  760
  832
  907
  984
  1,065
  1,149
  1,267
  1,358
  1,453
  1,551
  1,653
  1,759
  1,869
  1,984
  2,104
  2,229
  2,359
  2,495
  2,636
  2,784
  2,939
  3,100
  3,269
  3,446
  3,631
  3,824
EBITDA, $m
  5,288
  3,340
  3,714
  4,107
  4,519
  4,950
  5,399
  5,867
  6,354
  6,860
  7,387
  7,934
  8,502
  9,093
  9,707
  10,346
  11,010
  11,701
  12,421
  13,171
  13,952
  14,767
  15,617
  16,504
  17,430
  18,397
  19,408
  20,465
  21,570
  22,727
  23,937
Interest expense (income), $m
  833
  754
  892
  1,037
  1,189
  1,348
  1,514
  1,688
  1,869
  2,057
  2,253
  2,456
  2,668
  2,887
  3,116
  3,353
  3,600
  3,857
  4,124
  4,402
  4,692
  4,994
  5,309
  5,637
  5,980
  6,338
  6,712
  7,102
  7,511
  7,938
  8,385
Earnings before tax, $m
  2,356
  -252
  -330
  -411
  -498
  -588
  -683
  -782
  -885
  -992
  -1,104
  -1,189
  -1,310
  -1,435
  -1,565
  -1,700
  -1,841
  -1,987
  -2,140
  -2,298
  -2,463
  -2,635
  -2,814
  -3,001
  -3,196
  -3,399
  -3,611
  -3,833
  -4,065
  -4,308
  -4,561
Tax expense, $m
  1,554
  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
  522
  -252
  -330
  -411
  -498
  -588
  -683
  -782
  -885
  -992
  -1,104
  -1,189
  -1,310
  -1,435
  -1,565
  -1,700
  -1,841
  -1,987
  -2,140
  -2,298
  -2,463
  -2,635
  -2,814
  -3,001
  -3,196
  -3,399
  -3,611
  -3,833
  -4,065
  -4,308
  -4,561

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,598
  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
  40,486
  40,150
  44,651
  49,379
  54,332
  59,508
  64,909
  70,534
  76,389
  82,477
  88,806
  95,382
  102,217
  109,320
  116,703
  124,380
  132,366
  140,677
  149,330
  158,343
  167,736
  177,530
  187,746
  198,409
  209,543
  221,174
  233,328
  246,035
  259,324
  273,226
  287,776
Adjusted assets (=assets-cash), $m
  35,888
  40,150
  44,651
  49,379
  54,332
  59,508
  64,909
  70,534
  76,389
  82,477
  88,806
  95,382
  102,217
  109,320
  116,703
  124,380
  132,366
  140,677
  149,330
  158,343
  167,736
  177,530
  187,746
  198,409
  209,543
  221,174
  233,328
  246,035
  259,324
  273,226
  287,776
Revenue / Adjusted assets
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
  0.444
Average production assets, $m
  29,094
  32,552
  36,201
  40,034
  44,050
  48,246
  52,624
  57,185
  61,932
  66,868
  71,999
  77,331
  82,872
  88,630
  94,616
  100,841
  107,315
  114,053
  121,068
  128,375
  135,991
  143,931
  152,214
  160,859
  169,886
  179,315
  189,169
  199,471
  210,245
  221,517
  233,312
Working capital, $m
  2,584
  -713
  -793
  -877
  -965
  -1,057
  -1,153
  -1,253
  -1,357
  -1,465
  -1,577
  -1,694
  -1,815
  -1,942
  -2,073
  -2,209
  -2,351
  -2,498
  -2,652
  -2,812
  -2,979
  -3,153
  -3,334
  -3,524
  -3,721
  -3,928
  -4,144
  -4,370
  -4,606
  -4,852
  -5,111
Total debt, $m
  17,429
  18,982
  22,060
  25,295
  28,682
  32,223
  35,916
  39,764
  43,769
  47,933
  52,262
  56,761
  61,435
  66,294
  71,344
  76,595
  82,058
  87,742
  93,661
  99,825
  106,250
  112,949
  119,938
  127,231
  134,847
  142,802
  151,115
  159,807
  168,896
  178,406
  188,357
Total liabilities, $m
  25,910
  27,463
  30,541
  33,776
  37,163
  40,704
  44,397
  48,245
  52,250
  56,414
  60,743
  65,242
  69,916
  74,775
  79,825
  85,076
  90,539
  96,223
  102,142
  108,306
  114,731
  121,430
  128,419
  135,712
  143,328
  151,283
  159,596
  168,288
  177,377
  186,887
  196,838
Total equity, $m
  14,576
  12,688
  14,110
  15,604
  17,169
  18,805
  20,511
  22,289
  24,139
  26,063
  28,063
  30,141
  32,301
  34,545
  36,878
  39,304
  41,828
  44,454
  47,188
  50,036
  53,004
  56,099
  59,328
  62,697
  66,216
  69,891
  73,732
  77,747
  81,946
  86,339
  90,937
Total liabilities and equity, $m
  40,486
  40,151
  44,651
  49,380
  54,332
  59,509
  64,908
  70,534
  76,389
  82,477
  88,806
  95,383
  102,217
  109,320
  116,703
  124,380
  132,367
  140,677
  149,330
  158,342
  167,735
  177,529
  187,747
  198,409
  209,544
  221,174
  233,328
  246,035
  259,323
  273,226
  287,775
Debt-to-equity ratio
  1.196
  1.500
  1.560
  1.620
  1.670
  1.710
  1.750
  1.780
  1.810
  1.840
  1.860
  1.880
  1.900
  1.920
  1.930
  1.950
  1.960
  1.970
  1.980
  2.000
  2.000
  2.010
  2.020
  2.030
  2.040
  2.040
  2.050
  2.060
  2.060
  2.070
  2.070
Adjusted equity ratio
  0.278
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316
  0.316

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  522
  -252
  -330
  -411
  -498
  -588
  -683
  -782
  -885
  -992
  -1,104
  -1,189
  -1,310
  -1,435
  -1,565
  -1,700
  -1,841
  -1,987
  -2,140
  -2,298
  -2,463
  -2,635
  -2,814
  -3,001
  -3,196
  -3,399
  -3,611
  -3,833
  -4,065
  -4,308
  -4,561
Depreciation, amort., depletion, $m
  2,534
  2,837
  3,151
  3,482
  3,828
  4,190
  4,567
  4,960
  5,370
  5,795
  6,237
  6,666
  7,144
  7,641
  8,157
  8,693
  9,251
  9,832
  10,437
  11,067
  11,723
  12,408
  13,122
  13,867
  14,645
  15,458
  16,308
  17,196
  18,125
  19,096
  20,113
Funds from operations, $m
  3,300
  2,585
  2,822
  3,071
  3,330
  3,602
  3,885
  4,179
  4,485
  4,803
  5,134
  5,478
  5,835
  6,206
  6,591
  6,993
  7,410
  7,845
  8,297
  8,769
  9,260
  9,773
  10,308
  10,867
  11,450
  12,059
  12,696
  13,363
  14,059
  14,789
  15,552
Change in working capital, $m
  -1,519
  -76
  -80
  -84
  -88
  -92
  -96
  -100
  -104
  -108
  -112
  -117
  -121
  -126
  -131
  -136
  -142
  -148
  -154
  -160
  -167
  -174
  -181
  -189
  -198
  -207
  -216
  -226
  -236
  -247
  -258
Cash from operations, $m
  4,819
  2,661
  2,902
  3,154
  3,418
  3,694
  3,980
  4,279
  4,589
  4,911
  5,246
  5,594
  5,956
  6,332
  6,723
  7,129
  7,552
  7,992
  8,451
  8,929
  9,427
  9,947
  10,489
  11,056
  11,648
  12,266
  12,912
  13,588
  14,295
  15,036
  15,810
Maintenance CAPEX, $m
  0
  -2,508
  -2,806
  -3,121
  -3,451
  -3,797
  -4,159
  -4,537
  -4,930
  -5,339
  -5,764
  -6,207
  -6,666
  -7,144
  -7,641
  -8,157
  -8,693
  -9,251
  -9,832
  -10,437
  -11,067
  -11,723
  -12,408
  -13,122
  -13,867
  -14,645
  -15,458
  -16,308
  -17,196
  -18,125
  -19,096
New CAPEX, $m
  -1,948
  -3,458
  -3,649
  -3,833
  -4,015
  -4,197
  -4,378
  -4,561
  -4,747
  -4,936
  -5,131
  -5,332
  -5,541
  -5,759
  -5,986
  -6,224
  -6,475
  -6,738
  -7,015
  -7,307
  -7,615
  -7,940
  -8,283
  -8,645
  -9,027
  -9,429
  -9,854
  -10,302
  -10,774
  -11,271
  -11,796
Cash from investing activities, $m
  -3,200
  -5,966
  -6,455
  -6,954
  -7,466
  -7,994
  -8,537
  -9,098
  -9,677
  -10,275
  -10,895
  -11,539
  -12,207
  -12,903
  -13,627
  -14,381
  -15,168
  -15,989
  -16,847
  -17,744
  -18,682
  -19,663
  -20,691
  -21,767
  -22,894
  -24,074
  -25,312
  -26,610
  -27,970
  -29,396
  -30,892
Free cash flow, $m
  1,619
  -3,305
  -3,553
  -3,800
  -4,048
  -4,300
  -4,557
  -4,819
  -5,087
  -5,364
  -5,649
  -5,945
  -6,251
  -6,571
  -6,904
  -7,252
  -7,616
  -7,997
  -8,396
  -8,815
  -9,255
  -9,717
  -10,202
  -10,711
  -11,246
  -11,809
  -12,400
  -13,021
  -13,674
  -14,360
  -15,082
Issuance/(repayment) of debt, $m
  1,533
  2,930
  3,079
  3,234
  3,388
  3,541
  3,694
  3,848
  4,004
  4,164
  4,329
  4,499
  4,675
  4,858
  5,050
  5,251
  5,462
  5,685
  5,918
  6,165
  6,425
  6,699
  6,988
  7,294
  7,616
  7,955
  8,314
  8,691
  9,090
  9,509
  9,952
Issuance/(repurchase) of shares, $m
  -1,051
  1,584
  1,752
  1,905
  2,063
  2,224
  2,389
  2,559
  2,735
  2,916
  3,103
  3,267
  3,469
  3,679
  3,898
  4,126
  4,365
  4,614
  4,874
  5,146
  5,431
  5,730
  6,042
  6,370
  6,714
  7,074
  7,452
  7,848
  8,264
  8,701
  9,159
Cash from financing (excl. dividends), $m  
  -351
  4,514
  4,831
  5,139
  5,451
  5,765
  6,083
  6,407
  6,739
  7,080
  7,432
  7,766
  8,144
  8,537
  8,948
  9,377
  9,827
  10,299
  10,792
  11,311
  11,856
  12,429
  13,030
  13,664
  14,330
  15,029
  15,766
  16,539
  17,354
  18,210
  19,111
Total cash flow (excl. dividends), $m
  1,192
  1,209
  1,277
  1,340
  1,402
  1,464
  1,526
  1,588
  1,652
  1,717
  1,783
  1,821
  1,893
  1,967
  2,045
  2,126
  2,211
  2,301
  2,396
  2,496
  2,601
  2,712
  2,829
  2,953
  3,083
  3,221
  3,366
  3,519
  3,680
  3,850
  4,029
Retained Cash Flow (-), $m
  -106
  -1,584
  -1,752
  -1,905
  -2,063
  -2,224
  -2,389
  -2,559
  -2,735
  -2,916
  -3,103
  -3,267
  -3,469
  -3,679
  -3,898
  -4,126
  -4,365
  -4,614
  -4,874
  -5,146
  -5,431
  -5,730
  -6,042
  -6,370
  -6,714
  -7,074
  -7,452
  -7,848
  -8,264
  -8,701
  -9,159
Prev. year cash balance distribution, $m
 
  3,221
  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
 
  2,846
  -475
  -566
  -661
  -760
  -863
  -971
  -1,083
  -1,199
  -1,320
  -1,446
  -1,577
  -1,713
  -1,854
  -2,001
  -2,153
  -2,312
  -2,478
  -2,650
  -2,830
  -3,018
  -3,213
  -3,418
  -3,631
  -3,854
  -4,086
  -4,330
  -4,585
  -4,851
  -5,130
Discount rate, %
 
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
 
  2,700
  -425
  -475
  -518
  -553
  -579
  -595
  -603
  -601
  -591
  -572
  -546
  -514
  -477
  -436
  -392
  -348
  -303
  -260
  -219
  -181
  -147
  -117
  -91
  -70
  -52
  -38
  -27
  -19
  -12
Current shareholders' claim on cash, %
  100
  92.6
  85.8
  79.7
  74.1
  68.9
  64.3
  60.0
  56.0
  52.4
  49.1
  46.0
  43.2
  40.5
  38.1
  35.8
  33.6
  31.6
  29.8
  28.0
  26.4
  24.8
  23.4
  22.0
  20.8
  19.6
  18.4
  17.4
  16.4
  15.5
  14.6

Ecopetrol S.A. is an oil company. The Company operates in Colombia, Peru, Brazil and the United States Gulf Coast. The Company's segments include Exploration and Production, Transportation and Logistics, and Refining, Petrochemicals and Biofuels. The Company's Exploration and Production segment includes exploration, development and production activities in Colombia and abroad. The Company's Transportation and Logistics segment includes the transportation of crude oil, motor fuels, fuel oil and other refined products, including diesel and biofuels. The Company's main crude oil pipeline systems' operating capacity is approximately 1.34 million barrels per day (BPD). The Company's main refineries are the Barrancabermeja refinery, which it directly owns and operates, and a refinery in the Free Trade Zone in Cartagena that is operated by Reficar S.A., a subsidiary of the Company. The Company also owns and operates two other minor refineries: Orito and Apiay.

FINANCIAL RATIOS  of  Ecopetrol ADR (EC)

Valuation Ratios
P/E Ratio 979.1
Price to Sales 32.1
Price to Book 35.1
Price to Tangible Book
Price to Cash Flow 106.1
Price to Free Cash Flow 178
Growth Rates
Sales Growth Rate -8.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -59%
Cap. Spend. - 3 Yr. Gr. Rate -6%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 110.1%
Total Debt to Equity 119.6%
Interest Coverage 4
Management Effectiveness
Return On Assets 2%
Ret/ On Assets - 3 Yr. Avg. 3.8%
Return On Total Capital 1.6%
Ret/ On T. Cap. - 3 Yr. Avg. 1.2%
Return On Equity 3.6%
Return On Equity - 3 Yr. Avg. 1.5%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 28.3%
Gross Margin - 3 Yr. Avg. 30.7%
EBITDA Margin 35.9%
EBITDA Margin - 3 Yr. Avg. 31.2%
Operating Margin 17.3%
Oper. Margin - 3 Yr. Avg. 14%
Pre-Tax Margin 14.8%
Pre-Tax Margin - 3 Yr. Avg. 9%
Net Profit Margin 3.3%
Net Profit Margin - 3 Yr. Avg. 1.4%
Effective Tax Rate 66%
Eff/ Tax Rate - 3 Yr. Avg. 28.1%
Payout Ratio 109.4%

EC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EC stock intrinsic value calculation we used $15931 million for the last fiscal year's total revenue generated by Ecopetrol ADR. The default revenue input number comes from 2016 income statement of Ecopetrol ADR. 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 EC stock valuation model: a) initial revenue growth rate of 11.9% 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 5.4%, whose default value for EC is calculated based on our internal credit rating of Ecopetrol ADR, 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 Ecopetrol ADR.
    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 EC stock the variable cost ratio is equal to 97.2%.

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 EC 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 4.7% for Ecopetrol ADR.

Corporate tax rate of 27% is the nominal tax rate for Ecopetrol ADR. 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 EC 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 EC are equal to 182.6%.

Life of production assets of 11.6 years is the average useful life of capital assets used in Ecopetrol ADR 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 EC is equal to -4%. 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 - $14576 million for Ecopetrol ADR - 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 2048.29 million for Ecopetrol ADR 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 Ecopetrol ADR at the current share price and the inputted number of shares is $25.5 billion.

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COMPANY NEWS

▶ ETFs with exposure to Ecopetrol SA : December 8, 2017   [Dec-08-17 12:43PM  Capital Cube]
▶ Director authorization to purchase Ecopetrol shares   [Nov-23-17 08:56AM  CNW Group]
▶ Colombia's Ecopetrol To Invest Up To $4B In 2018   [Nov-21-17 07:00PM  Rigzone.com]
▶ The Best Red-Hot Value Stocks   [Nov-15-17 06:37PM  Zacks]
▶ Stocks To Watch: Ecopetrol Sees RS Rating Rise To 91   [03:00AM  Investor's Business Daily]
▶ Bull of the Day: Ecopetrol (EC)   [07:00AM  Zacks]
▶ ETFs with exposure to Ecopetrol SA : October 30, 2017   [Oct-30-17 11:43AM  Capital Cube]
▶ New Strong Buy Stocks for October 26th   [Oct-26-17 11:10AM  Zacks]
▶ ETFs with exposure to Ecopetrol SA : October 17, 2017   [Oct-17-17 09:41AM  Capital Cube]
▶ Russia's Gazprom knocks US ExxonMobil to #9   [Sep-25-17 01:53PM  Yahoo Finance Video]
▶ ETFs with exposure to Ecopetrol SA : September 15, 2017   [Sep-15-17 05:25PM  Capital Cube]
▶ YPF v Ecopetrol: 2 Latin America Energy CEOs Resign   [Aug-30-17 06:56PM  Barrons.com]
▶ Colombia Looks At Shale As Oil Reserves Plunge   [Aug-21-17 05:00PM  Oilprice.com]
▶ Ecopetrol Board of Directors Appoints New President   [Aug-17-17 09:39AM  CNW Group]
▶ Investor Network: Ecopetrol SA to Host Earnings Call   [Aug-09-17 09:30AM  ACCESSWIRE]
▶ Ecopetrol approves creation of subsidiary in Mexico   [Jul-13-17 06:58AM  CNW Group]
▶ Colombia's Ecopetrol Rubiales Oil Output Hit By Protests   [Jun-26-17 08:00PM  Rigzone.com]
▶ ETFs with exposure to Ecopetrol SA : May 31, 2017   [May-31-17 12:30PM  Capital Cube]
▶ ETFs with exposure to Ecopetrol SA : April 7, 2017   [Apr-07-17 04:23PM  Capital Cube]
▶ Distribution of profits for 2016 fiscal year   [Mar-31-17 10:02PM  PR Newswire]
▶ Ecopetrol announces oil discovery at Santander   [Mar-30-17 09:59AM  PR Newswire]
▶ Barrow Continues to Buy ExxonMobil, Ecopetrol   [Mar-27-17 04:22PM  GuruFocus.com]
▶ 2016 Earnings Distribution Proposal   [Mar-06-17 05:46AM  PR Newswire]
Financial statements of EC
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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