Intrinsic value of Ecopetrol ADR - EC

Previous Close

$17.51

  Intrinsic Value

$1.71

stock screener

  Rating & Target

str. sell

-90%

Previous close

$17.51

 
Intrinsic value

$1.71

 
Up/down potential

-90%

 
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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -8.36
  9.40
  8.96
  8.56
  8.21
  7.89
  7.60
  7.34
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.01
  5.91
  5.82
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
Revenue, $m
  15,931
  17,429
  18,990
  20,616
  22,309
  24,068
  25,897
  27,797
  29,772
  31,824
  33,958
  36,177
  38,485
  40,888
  43,390
  45,996
  48,712
  51,545
  54,501
  57,586
  60,807
  64,173
  67,690
  71,368
  75,215
  79,240
  83,452
  87,862
  92,480
  97,317
  102,384
Variable operating expenses, $m
 
  16,938
  18,452
  20,030
  21,672
  23,378
  25,152
  26,996
  28,912
  30,903
  32,973
  35,094
  37,334
  39,664
  42,091
  44,619
  47,255
  50,003
  52,870
  55,862
  58,987
  62,252
  65,665
  69,232
  72,964
  76,868
  80,954
  85,232
  89,712
  94,404
  99,320
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
  16,938
  18,452
  20,030
  21,672
  23,378
  25,152
  26,996
  28,912
  30,903
  32,973
  35,094
  37,334
  39,664
  42,091
  44,619
  47,255
  50,003
  52,870
  55,862
  58,987
  62,252
  65,665
  69,232
  72,964
  76,868
  80,954
  85,232
  89,712
  94,404
  99,320
Operating income, $m
  2,754
  491
  538
  586
  637
  690
  744
  801
  860
  922
  986
  1,083
  1,152
  1,224
  1,299
  1,377
  1,458
  1,543
  1,631
  1,723
  1,820
  1,921
  2,026
  2,136
  2,251
  2,371
  2,497
  2,629
  2,768
  2,912
  3,064
EBITDA, $m
  5,288
  3,265
  3,558
  3,862
  4,179
  4,509
  4,852
  5,208
  5,577
  5,962
  6,362
  6,777
  7,210
  7,660
  8,129
  8,617
  9,126
  9,657
  10,210
  10,788
  11,392
  12,022
  12,681
  13,370
  14,091
  14,845
  15,634
  16,460
  17,325
  18,231
  19,181
Interest expense (income), $m
  833
  754
  863
  976
  1,094
  1,217
  1,344
  1,476
  1,614
  1,757
  1,906
  2,060
  2,221
  2,388
  2,562
  2,743
  2,932
  3,128
  3,334
  3,548
  3,771
  4,004
  4,248
  4,503
  4,769
  5,047
  5,339
  5,644
  5,963
  6,297
  6,648
Earnings before tax, $m
  2,356
  -264
  -326
  -390
  -457
  -527
  -600
  -675
  -754
  -835
  -920
  -977
  -1,069
  -1,164
  -1,263
  -1,367
  -1,474
  -1,586
  -1,702
  -1,824
  -1,951
  -2,084
  -2,222
  -2,367
  -2,518
  -2,676
  -2,841
  -3,014
  -3,195
  -3,385
  -3,584
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
  -264
  -326
  -390
  -457
  -527
  -600
  -675
  -754
  -835
  -920
  -977
  -1,069
  -1,164
  -1,263
  -1,367
  -1,474
  -1,586
  -1,702
  -1,824
  -1,951
  -2,084
  -2,222
  -2,367
  -2,518
  -2,676
  -2,841
  -3,014
  -3,195
  -3,385
  -3,584

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
  39,253
  42,771
  46,433
  50,244
  54,207
  58,326
  62,606
  67,054
  71,677
  76,482
  81,480
  86,679
  92,090
  97,724
  103,594
  109,712
  116,093
  122,749
  129,697
  136,953
  144,533
  152,456
  160,739
  169,403
  178,468
  187,955
  197,887
  208,287
  219,181
  230,595
Adjusted assets (=assets-cash), $m
  35,888
  39,253
  42,771
  46,433
  50,244
  54,207
  58,326
  62,606
  67,054
  71,677
  76,482
  81,480
  86,679
  92,090
  97,724
  103,594
  109,712
  116,093
  122,749
  129,697
  136,953
  144,533
  152,456
  160,739
  169,403
  178,468
  187,955
  197,887
  208,287
  219,181
  230,595
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
  31,824
  34,676
  37,646
  40,735
  43,948
  47,287
  50,757
  54,364
  58,111
  62,008
  66,059
  70,274
  74,661
  79,229
  83,988
  88,949
  94,121
  99,518
  105,151
  111,034
  117,179
  123,603
  130,318
  137,342
  144,692
  152,383
  160,436
  168,868
  177,700
  186,953
Working capital, $m
  2,584
  -697
  -760
  -825
  -892
  -963
  -1,036
  -1,112
  -1,191
  -1,273
  -1,358
  -1,447
  -1,539
  -1,636
  -1,736
  -1,840
  -1,948
  -2,062
  -2,180
  -2,303
  -2,432
  -2,567
  -2,708
  -2,855
  -3,009
  -3,170
  -3,338
  -3,514
  -3,699
  -3,893
  -4,095
Total debt, $m
  17,429
  18,368
  20,774
  23,279
  25,886
  28,597
  31,414
  34,342
  37,384
  40,546
  43,833
  47,251
  50,807
  54,509
  58,362
  62,377
  66,562
  70,926
  75,479
  80,232
  85,195
  90,380
  95,799
  101,465
  107,391
  113,591
  120,080
  126,874
  133,988
  141,439
  149,246
Total liabilities, $m
  25,910
  26,849
  29,255
  31,760
  34,367
  37,078
  39,895
  42,823
  45,865
  49,027
  52,314
  55,732
  59,288
  62,990
  66,843
  70,858
  75,043
  79,407
  83,960
  88,713
  93,676
  98,861
  104,280
  109,946
  115,872
  122,072
  128,561
  135,355
  142,469
  149,920
  157,727
Total equity, $m
  14,576
  12,404
  13,515
  14,673
  15,877
  17,129
  18,431
  19,784
  21,189
  22,650
  24,168
  25,748
  27,391
  29,100
  30,881
  32,736
  34,669
  36,685
  38,789
  40,984
  43,277
  45,672
  48,176
  50,794
  53,531
  56,396
  59,394
  62,532
  65,819
  69,261
  72,868
Total liabilities and equity, $m
  40,486
  39,253
  42,770
  46,433
  50,244
  54,207
  58,326
  62,607
  67,054
  71,677
  76,482
  81,480
  86,679
  92,090
  97,724
  103,594
  109,712
  116,092
  122,749
  129,697
  136,953
  144,533
  152,456
  160,740
  169,403
  178,468
  187,955
  197,887
  208,288
  219,181
  230,595
Debt-to-equity ratio
  1.196
  1.480
  1.540
  1.590
  1.630
  1.670
  1.700
  1.740
  1.760
  1.790
  1.810
  1.840
  1.850
  1.870
  1.890
  1.910
  1.920
  1.930
  1.950
  1.960
  1.970
  1.980
  1.990
  2.000
  2.010
  2.010
  2.020
  2.030
  2.040
  2.040
  2.050
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
  -264
  -326
  -390
  -457
  -527
  -600
  -675
  -754
  -835
  -920
  -977
  -1,069
  -1,164
  -1,263
  -1,367
  -1,474
  -1,586
  -1,702
  -1,824
  -1,951
  -2,084
  -2,222
  -2,367
  -2,518
  -2,676
  -2,841
  -3,014
  -3,195
  -3,385
  -3,584
Depreciation, amort., depletion, $m
  2,534
  2,774
  3,020
  3,276
  3,542
  3,819
  4,107
  4,406
  4,717
  5,040
  5,376
  5,695
  6,058
  6,436
  6,830
  7,240
  7,668
  8,114
  8,579
  9,065
  9,572
  10,102
  10,655
  11,234
  11,840
  12,473
  13,136
  13,831
  14,558
  15,319
  16,117
Funds from operations, $m
  3,300
  2,511
  2,694
  2,886
  3,085
  3,292
  3,507
  3,731
  3,963
  4,205
  4,456
  4,717
  4,989
  5,272
  5,567
  5,874
  6,194
  6,528
  6,877
  7,241
  7,621
  8,018
  8,433
  8,868
  9,322
  9,797
  10,295
  10,816
  11,362
  11,934
  12,533
Change in working capital, $m
  -1,519
  -60
  -62
  -65
  -68
  -70
  -73
  -76
  -79
  -82
  -85
  -89
  -92
  -96
  -100
  -104
  -109
  -113
  -118
  -123
  -129
  -135
  -141
  -147
  -154
  -161
  -168
  -176
  -185
  -193
  -203
Cash from operations, $m
  4,819
  2,571
  2,757
  2,951
  3,153
  3,363
  3,581
  3,807
  4,042
  4,287
  4,541
  4,806
  5,081
  5,368
  5,667
  5,978
  6,303
  6,641
  6,995
  7,364
  7,750
  8,153
  8,574
  9,015
  9,476
  9,958
  10,464
  10,993
  11,547
  12,127
  12,736
Maintenance CAPEX, $m
  0
  -2,508
  -2,743
  -2,989
  -3,245
  -3,512
  -3,789
  -4,076
  -4,376
  -4,687
  -5,010
  -5,345
  -5,695
  -6,058
  -6,436
  -6,830
  -7,240
  -7,668
  -8,114
  -8,579
  -9,065
  -9,572
  -10,102
  -10,655
  -11,234
  -11,840
  -12,473
  -13,136
  -13,831
  -14,558
  -15,319
New CAPEX, $m
  -1,948
  -2,730
  -2,851
  -2,970
  -3,090
  -3,213
  -3,339
  -3,470
  -3,606
  -3,748
  -3,896
  -4,052
  -4,215
  -4,387
  -4,568
  -4,759
  -4,960
  -5,173
  -5,397
  -5,633
  -5,883
  -6,146
  -6,423
  -6,716
  -7,024
  -7,349
  -7,692
  -8,052
  -8,432
  -8,832
  -9,253
Cash from investing activities, $m
  -3,200
  -5,238
  -5,594
  -5,959
  -6,335
  -6,725
  -7,128
  -7,546
  -7,982
  -8,435
  -8,906
  -9,397
  -9,910
  -10,445
  -11,004
  -11,589
  -12,200
  -12,841
  -13,511
  -14,212
  -14,948
  -15,718
  -16,525
  -17,371
  -18,258
  -19,189
  -20,165
  -21,188
  -22,263
  -23,390
  -24,572
Free cash flow, $m
  1,619
  -2,668
  -2,838
  -3,008
  -3,182
  -3,362
  -3,547
  -3,740
  -3,939
  -4,147
  -4,364
  -4,591
  -4,828
  -5,077
  -5,338
  -5,611
  -5,898
  -6,199
  -6,516
  -6,848
  -7,198
  -7,565
  -7,951
  -8,356
  -8,783
  -9,231
  -9,701
  -10,196
  -10,716
  -11,262
  -11,836
Issuance/(repayment) of debt, $m
  1,533
  2,316
  2,406
  2,505
  2,607
  2,710
  2,817
  2,928
  3,042
  3,162
  3,287
  3,418
  3,556
  3,701
  3,854
  4,015
  4,185
  4,364
  4,553
  4,753
  4,963
  5,185
  5,419
  5,666
  5,926
  6,200
  6,489
  6,794
  7,114
  7,451
  7,807
Issuance/(repurchase) of shares, $m
  -1,051
  1,313
  1,437
  1,548
  1,662
  1,779
  1,901
  2,028
  2,159
  2,296
  2,439
  2,557
  2,712
  2,874
  3,044
  3,221
  3,407
  3,602
  3,806
  4,020
  4,244
  4,479
  4,726
  4,984
  5,256
  5,540
  5,839
  6,153
  6,482
  6,828
  7,190
Cash from financing (excl. dividends), $m  
  -351
  3,629
  3,843
  4,053
  4,269
  4,489
  4,718
  4,956
  5,201
  5,458
  5,726
  5,975
  6,268
  6,575
  6,898
  7,236
  7,592
  7,966
  8,359
  8,773
  9,207
  9,664
  10,145
  10,650
  11,182
  11,740
  12,328
  12,947
  13,596
  14,279
  14,997
Total cash flow (excl. dividends), $m
  1,192
  961
  1,005
  1,045
  1,086
  1,128
  1,171
  1,216
  1,262
  1,311
  1,361
  1,384
  1,440
  1,498
  1,560
  1,625
  1,694
  1,767
  1,843
  1,924
  2,009
  2,099
  2,194
  2,294
  2,399
  2,510
  2,627
  2,750
  2,880
  3,017
  3,160
Retained Cash Flow (-), $m
  -106
  -1,313
  -1,437
  -1,548
  -1,662
  -1,779
  -1,901
  -2,028
  -2,159
  -2,296
  -2,439
  -2,557
  -2,712
  -2,874
  -3,044
  -3,221
  -3,407
  -3,602
  -3,806
  -4,020
  -4,244
  -4,479
  -4,726
  -4,984
  -5,256
  -5,540
  -5,839
  -6,153
  -6,482
  -6,828
  -7,190
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
 
  2,869
  -432
  -503
  -575
  -651
  -730
  -812
  -897
  -985
  -1,077
  -1,173
  -1,272
  -1,376
  -1,484
  -1,596
  -1,713
  -1,835
  -1,963
  -2,096
  -2,235
  -2,380
  -2,532
  -2,691
  -2,857
  -3,030
  -3,212
  -3,403
  -3,602
  -3,811
  -4,030
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
 
  2,722
  -387
  -423
  -452
  -474
  -489
  -498
  -499
  -494
  -482
  -464
  -441
  -413
  -382
  -348
  -312
  -276
  -240
  -206
  -173
  -143
  -116
  -92
  -72
  -55
  -41
  -30
  -21
  -15
  -10
Current shareholders' claim on cash, %
  100
  95.6
  91.4
  87.4
  83.6
  80.0
  76.6
  73.4
  70.3
  67.4
  64.6
  62.0
  59.5
  57.1
  54.8
  52.6
  50.5
  48.5
  46.6
  44.7
  42.9
  41.2
  39.6
  38.0
  36.5
  35.1
  33.7
  32.3
  31.0
  29.8
  28.6

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 1379.2
Price to Sales 45.2
Price to Book 49.4
Price to Tangible Book
Price to Cash Flow 149.4
Price to Free Cash Flow 250.8
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 9.4% 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 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 2082.71 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 $36.5 billion.

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COMPANY NEWS

▶ Colombias Oil Industry Faces 3 Big Problems   [Feb-14-18 04:00PM  Oilprice.com]
▶ Here's how this analyst is playing the energy rally   [Jan-24-18 04:15PM  CNBC Videos]
▶ Colombias Crude Exports Fall Amid Unrest   [Jan-17-18 01:00PM  Oilprice.com]
▶ ETFs with exposure to Ecopetrol SA : December 29, 2017   [Dec-29-17 11:53AM  Capital Cube]
▶ Oil Market On Edge Following Outages   [Dec-19-17 03:00PM  Oilprice.com]
▶ ETFs with exposure to Ecopetrol SA : December 18, 2017   [Dec-18-17 03:23PM  Capital Cube]
▶ 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]
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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