Intrinsic value of Ecopetrol ADR - EC

Previous Close

$9.08

  Intrinsic Value

$1.76

stock screener

  Rating & Target

str. sell

-81%

  Value-price divergence*

+5000%

Previous close

$9.08

 
Intrinsic value

$1.76

 
Up/down potential

-81%

 
Rating

str. sell

 
Value-price divergence*

+5000%

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

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 18.4

 

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, %
  -8.36
  27.60
  25.34
  23.31
  21.48
  19.83
  18.35
  17.01
  15.81
  14.73
  13.76
  12.88
  12.09
  11.38
  10.74
  10.17
  9.65
  9.19
  8.77
  8.39
  8.05
  7.75
  7.47
  7.23
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
Revenue, $m
  15,931
  20,328
  25,479
  31,417
  38,164
  45,731
  54,121
  63,327
  73,339
  84,140
  95,715
  108,043
  121,107
  134,893
  149,387
  164,579
  180,467
  197,048
  214,327
  232,313
  251,021
  270,470
  290,681
  311,685
  333,512
  356,200
  379,789
  404,324
  429,854
  456,431
  484,111
Variable operating expenses, $m
 
  19,750
  24,747
  30,508
  37,053
  44,393
  52,532
  61,463
  71,175
  81,653
  92,881
  104,809
  117,483
  130,856
  144,916
  159,654
  175,066
  191,150
  207,913
  225,361
  243,509
  262,375
  281,982
  302,357
  323,531
  345,540
  368,423
  392,224
  416,990
  442,771
  469,623
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
  19,750
  24,747
  30,508
  37,053
  44,393
  52,532
  61,463
  71,175
  81,653
  92,881
  104,809
  117,483
  130,856
  144,916
  159,654
  175,066
  191,150
  207,913
  225,361
  243,509
  262,375
  281,982
  302,357
  323,531
  345,540
  368,423
  392,224
  416,990
  442,771
  469,623
Operating income, $m
  2,754
  578
  732
  910
  1,111
  1,338
  1,589
  1,864
  2,164
  2,487
  2,834
  3,233
  3,624
  4,037
  4,471
  4,925
  5,401
  5,897
  6,414
  6,952
  7,512
  8,094
  8,699
  9,328
  9,981
  10,660
  11,366
  12,100
  12,864
  13,660
  14,488
EBITDA, $m
  5,288
  3,808
  4,773
  5,886
  7,150
  8,567
  10,139
  11,864
  13,739
  15,763
  17,931
  20,241
  22,688
  25,271
  27,986
  30,832
  33,809
  36,915
  40,152
  43,522
  47,027
  50,670
  54,456
  58,391
  62,480
  66,731
  71,150
  75,746
  80,529
  85,508
  90,694
Interest expense (income), $m
  833
  754
  1,073
  1,446
  1,876
  2,365
  2,913
  3,520
  4,187
  4,912
  5,694
  6,532
  7,424
  8,370
  9,368
  10,418
  11,518
  12,668
  13,869
  15,120
  16,422
  17,777
  19,185
  20,648
  22,169
  23,749
  25,392
  27,100
  28,877
  30,725
  32,649
Earnings before tax, $m
  2,356
  -177
  -341
  -537
  -765
  -1,027
  -1,324
  -1,656
  -2,022
  -2,424
  -2,860
  -3,298
  -3,800
  -4,333
  -4,898
  -5,492
  -6,117
  -6,771
  -7,455
  -8,167
  -8,910
  -9,682
  -10,486
  -11,320
  -12,188
  -13,089
  -14,026
  -15,000
  -16,012
  -17,066
  -18,161
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
  -177
  -341
  -537
  -765
  -1,027
  -1,324
  -1,656
  -2,022
  -2,424
  -2,860
  -3,298
  -3,800
  -4,333
  -4,898
  -5,492
  -6,117
  -6,771
  -7,455
  -8,167
  -8,910
  -9,682
  -10,486
  -11,320
  -12,188
  -13,089
  -14,026
  -15,000
  -16,012
  -17,066
  -18,161

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
  45,784
  57,385
  70,759
  85,955
  102,998
  121,894
  142,628
  165,177
  189,505
  215,573
  243,339
  272,764
  303,813
  336,456
  370,675
  406,456
  443,801
  482,718
  523,228
  565,363
  609,166
  654,688
  701,993
  751,153
  802,252
  855,381
  910,640
  968,140
  1,027,998
  1,090,341
Adjusted assets (=assets-cash), $m
  35,888
  45,784
  57,385
  70,759
  85,955
  102,998
  121,894
  142,628
  165,177
  189,505
  215,573
  243,339
  272,764
  303,813
  336,456
  370,675
  406,456
  443,801
  482,718
  523,228
  565,363
  609,166
  654,688
  701,993
  751,153
  802,252
  855,381
  910,640
  968,140
  1,027,998
  1,090,341
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
  37,119
  46,525
  57,368
  69,688
  83,505
  98,825
  115,635
  133,916
  153,640
  174,775
  197,286
  221,142
  246,314
  272,780
  300,522
  329,532
  359,809
  391,361
  424,204
  458,365
  493,877
  530,784
  569,136
  608,993
  650,421
  693,495
  738,296
  784,914
  833,443
  883,987
Working capital, $m
  2,584
  -813
  -1,019
  -1,257
  -1,527
  -1,829
  -2,165
  -2,533
  -2,934
  -3,366
  -3,829
  -4,322
  -4,844
  -5,396
  -5,975
  -6,583
  -7,219
  -7,882
  -8,573
  -9,293
  -10,041
  -10,819
  -11,627
  -12,467
  -13,340
  -14,248
  -15,192
  -16,173
  -17,194
  -18,257
  -19,364
Total debt, $m
  17,429
  22,835
  30,771
  39,918
  50,312
  61,970
  74,894
  89,077
  104,500
  121,141
  138,971
  157,963
  178,090
  199,327
  221,655
  245,060
  269,535
  295,079
  321,698
  349,407
  378,228
  408,188
  439,325
  471,682
  505,308
  540,260
  576,600
  614,397
  653,727
  694,669
  737,312
Total liabilities, $m
  25,910
  31,316
  39,252
  48,399
  58,793
  70,451
  83,375
  97,558
  112,981
  129,622
  147,452
  166,444
  186,571
  207,808
  230,136
  253,541
  278,016
  303,560
  330,179
  357,888
  386,709
  416,669
  447,806
  480,163
  513,789
  548,741
  585,081
  622,878
  662,208
  703,150
  745,793
Total equity, $m
  14,576
  14,468
  18,134
  22,360
  27,162
  32,548
  38,518
  45,071
  52,196
  59,884
  68,121
  76,895
  86,194
  96,005
  106,320
  117,133
  128,440
  140,241
  152,539
  165,340
  178,655
  192,496
  206,881
  221,830
  237,364
  253,512
  270,300
  287,762
  305,932
  324,847
  344,548
Total liabilities and equity, $m
  40,486
  45,784
  57,386
  70,759
  85,955
  102,999
  121,893
  142,629
  165,177
  189,506
  215,573
  243,339
  272,765
  303,813
  336,456
  370,674
  406,456
  443,801
  482,718
  523,228
  565,364
  609,165
  654,687
  701,993
  751,153
  802,253
  855,381
  910,640
  968,140
  1,027,997
  1,090,341
Debt-to-equity ratio
  1.196
  1.580
  1.700
  1.790
  1.850
  1.900
  1.940
  1.980
  2.000
  2.020
  2.040
  2.050
  2.070
  2.080
  2.080
  2.090
  2.100
  2.100
  2.110
  2.110
  2.120
  2.120
  2.120
  2.130
  2.130
  2.130
  2.130
  2.140
  2.140
  2.140
  2.140
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
  -177
  -341
  -537
  -765
  -1,027
  -1,324
  -1,656
  -2,022
  -2,424
  -2,860
  -3,298
  -3,800
  -4,333
  -4,898
  -5,492
  -6,117
  -6,771
  -7,455
  -8,167
  -8,910
  -9,682
  -10,486
  -11,320
  -12,188
  -13,089
  -14,026
  -15,000
  -16,012
  -17,066
  -18,161
Depreciation, amort., depletion, $m
  2,534
  3,231
  4,041
  4,976
  6,038
  7,229
  8,550
  9,999
  11,575
  13,276
  15,097
  17,007
  19,064
  21,234
  23,516
  25,907
  28,408
  31,018
  33,738
  36,569
  39,514
  42,576
  45,757
  49,063
  52,499
  56,071
  59,784
  63,646
  67,665
  71,849
  76,206
Funds from operations, $m
  3,300
  3,054
  3,700
  4,440
  5,274
  6,203
  7,226
  8,344
  9,553
  10,851
  12,238
  13,709
  15,264
  16,901
  18,618
  20,415
  22,291
  24,247
  26,283
  28,402
  30,604
  32,893
  35,272
  37,743
  40,311
  42,981
  45,758
  48,646
  51,653
  54,783
  58,044
Change in working capital, $m
  -1,519
  -176
  -206
  -238
  -270
  -303
  -336
  -368
  -400
  -432
  -463
  -493
  -523
  -551
  -580
  -608
  -635
  -663
  -691
  -719
  -748
  -778
  -808
  -840
  -873
  -908
  -944
  -981
  -1,021
  -1,063
  -1,107
Cash from operations, $m
  4,819
  3,230
  3,906
  4,677
  5,543
  6,505
  7,562
  8,712
  9,953
  11,283
  12,701
  14,202
  15,787
  17,452
  19,198
  21,022
  22,926
  24,910
  26,975
  29,121
  31,353
  33,671
  36,080
  38,583
  41,184
  43,889
  46,701
  49,628
  52,674
  55,846
  59,152
Maintenance CAPEX, $m
  0
  -2,508
  -3,200
  -4,011
  -4,946
  -6,008
  -7,199
  -8,519
  -9,969
  -11,545
  -13,245
  -15,067
  -17,007
  -19,064
  -21,234
  -23,516
  -25,907
  -28,408
  -31,018
  -33,738
  -36,569
  -39,514
  -42,576
  -45,757
  -49,063
  -52,499
  -56,071
  -59,784
  -63,646
  -67,665
  -71,849
New CAPEX, $m
  -1,948
  -8,025
  -9,406
  -10,843
  -12,320
  -13,818
  -15,319
  -16,811
  -18,281
  -19,724
  -21,134
  -22,511
  -23,856
  -25,172
  -26,466
  -27,742
  -29,010
  -30,277
  -31,552
  -32,844
  -34,161
  -35,512
  -36,907
  -38,352
  -39,857
  -41,428
  -43,074
  -44,801
  -46,617
  -48,529
  -50,544
Cash from investing activities, $m
  -3,200
  -10,533
  -12,606
  -14,854
  -17,266
  -19,826
  -22,518
  -25,330
  -28,250
  -31,269
  -34,379
  -37,578
  -40,863
  -44,236
  -47,700
  -51,258
  -54,917
  -58,685
  -62,570
  -66,582
  -70,730
  -75,026
  -79,483
  -84,109
  -88,920
  -93,927
  -99,145
  -104,585
  -110,263
  -116,194
  -122,393
Free cash flow, $m
  1,619
  -7,303
  -8,700
  -10,177
  -11,722
  -13,320
  -14,956
  -16,618
  -18,297
  -19,985
  -21,679
  -23,376
  -25,077
  -26,784
  -28,502
  -30,235
  -31,990
  -33,775
  -35,595
  -37,460
  -39,377
  -41,355
  -43,402
  -45,526
  -47,736
  -50,039
  -52,443
  -54,958
  -57,590
  -60,348
  -63,241
Issuance/(repayment) of debt, $m
  1,533
  6,783
  7,935
  9,148
  10,394
  11,657
  12,924
  14,183
  15,423
  16,641
  17,830
  18,992
  20,127
  21,237
  22,328
  23,405
  24,475
  25,544
  26,619
  27,709
  28,820
  29,961
  31,137
  32,357
  33,626
  34,952
  36,340
  37,797
  39,330
  40,943
  42,642
Issuance/(repurchase) of shares, $m
  -1,051
  3,289
  4,008
  4,763
  5,567
  6,412
  7,294
  8,208
  9,148
  10,112
  11,097
  12,072
  13,098
  14,145
  15,213
  16,305
  17,424
  18,572
  19,752
  20,969
  22,225
  23,524
  24,871
  26,269
  27,723
  29,237
  30,815
  32,462
  34,182
  35,981
  37,862
Cash from financing (excl. dividends), $m  
  -351
  10,072
  11,943
  13,911
  15,961
  18,069
  20,218
  22,391
  24,571
  26,753
  28,927
  31,064
  33,225
  35,382
  37,541
  39,710
  41,899
  44,116
  46,371
  48,678
  51,045
  53,485
  56,008
  58,626
  61,349
  64,189
  67,155
  70,259
  73,512
  76,924
  80,504
Total cash flow (excl. dividends), $m
  1,192
  2,769
  3,243
  3,734
  4,239
  4,750
  5,263
  5,772
  6,275
  6,767
  7,249
  7,689
  8,148
  8,598
  9,039
  9,475
  9,908
  10,341
  10,776
  11,218
  11,668
  12,129
  12,605
  13,099
  13,613
  14,150
  14,712
  15,302
  15,922
  16,575
  17,263
Retained Cash Flow (-), $m
  -106
  -3,289
  -4,008
  -4,763
  -5,567
  -6,412
  -7,294
  -8,208
  -9,148
  -10,112
  -11,097
  -12,072
  -13,098
  -14,145
  -15,213
  -16,305
  -17,424
  -18,572
  -19,752
  -20,969
  -22,225
  -23,524
  -24,871
  -26,269
  -27,723
  -29,237
  -30,815
  -32,462
  -34,182
  -35,981
  -37,862
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
 
  2,701
  -764
  -1,029
  -1,328
  -1,662
  -2,032
  -2,435
  -2,873
  -3,344
  -3,848
  -4,384
  -4,950
  -5,547
  -6,174
  -6,830
  -7,516
  -8,231
  -8,976
  -9,751
  -10,557
  -11,395
  -12,265
  -13,170
  -14,110
  -15,087
  -16,103
  -17,160
  -18,260
  -19,405
  -20,599
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
 
  2,562
  -684
  -865
  -1,042
  -1,210
  -1,362
  -1,493
  -1,599
  -1,676
  -1,721
  -1,734
  -1,715
  -1,665
  -1,588
  -1,488
  -1,370
  -1,238
  -1,099
  -957
  -818
  -685
  -562
  -451
  -355
  -273
  -204
  -150
  -107
  -74
  -50
Current shareholders' claim on cash, %
  100
  81.3
  66.7
  55.2
  46.1
  38.8
  33.0
  28.2
  24.3
  21.1
  18.4
  16.1
  14.2
  12.5
  11.1
  9.9
  8.9
  8.0
  7.2
  6.5
  5.8
  5.3
  4.8
  4.4
  4.0
  3.6
  3.3
  3.0
  2.8
  2.5
  2.3

Ecopetrol S.A., an integrated oil company, engages in the exploration, development, and production of crude oil and natural gas in Colombia, Peru, Brazil, Angola, and the United States Gulf Coast. It operates through the Exploration and Production; Transportation and Logistics; Refining, Petrochemicals, and Biofuels segments. It also owns and operates refineries that produce various refined products, including unleaded gasoline, diesel fuel, kerosene, jet fuel, aviation fuel, liquefied petroleum gas, sulfur, heavy fuel oils, and others; and petrochemicals and industrial products comprising paraffin waxes, lube base oils, low-density polyethylene, aromatics, asphalts, alkylates, cyclohexane, and aliphatic solvents, as well as refinery grade propylene. In addition, the company is involved in the transportation of crude oil, motor fuels, and fuel oils, as well as other refined products, such as bio fuels. As of December 31, 2015, it had a network of approximately 8,986 kilometers in length of crude oil and multipurpose pipelines. The company was formerly known as Empresa Colombiana de Petróleos and changed its name to Ecopetrol S.A. in June 2003. Ecopetrol S.A. was founded in 1948 and is based in Bogotá, Colombia.

FINANCIAL RATIOS  of  Ecopetrol ADR (EC)

Valuation Ratios
P/E Ratio 715.2
Price to Sales 23.4
Price to Book 25.6
Price to Tangible Book
Price to Cash Flow 77.5
Price to Free Cash Flow 130
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 27.6% 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 2024.69 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 $18.4 billion.

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COMPANY NEWS

▶ 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]
▶ Annual General Shareholders' Meeting of ECOPETROL S.A.   [Feb-27-17 08:13PM  PR Newswire]
▶ Fitch reaffirms Ecopetrol S.A. investment grade   [Dec-12-16 09:49PM  PR Newswire]
▶ Why Argentina Energy Play YPF Has 40% Upside   [Dec-07-16 12:15PM  at Barrons.com]
▶ Should You Buy Cerner Corporation (CERN)?   [Nov-30-16 09:52AM  at Insider Monkey]
▶ Is Baker Hughes Incorporated (BHI) A Good Stock To Buy?   [Nov-29-16 03:00PM  at Insider Monkey]
▶ Should You Invest in Marathon Petroleum Corp (MPC)?   [Nov-24-16 12:39PM  at Insider Monkey]
▶ Ecopetrol announces its investment plan for 2017   [Nov-21-16 10:32PM  PR Newswire]
▶ Libya: Could Oil Surge Derail OPEC & Prices?   [Oct-19-16 01:39PM  at Barrons.com]
▶ Ecopetrol S.A. Announces Prepayment of Local Bank Loan   [Oct-14-16 05:08PM  PR Newswire]
▶ Ecopetrol updates its 2020 business plan   [Sep-30-16 12:26AM  PR Newswire]
Stock chart of EC 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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