Intrinsic value of Encana - ECA

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$8.65

  Intrinsic Value

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  Value-price divergence*

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$8.65

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

We calculate the intrinsic value of ECA 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 8.3

 

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, %
  -34.01
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  2,918
  2,976
  3,045
  3,123
  3,211
  3,308
  3,415
  3,531
  3,657
  3,793
  3,938
  4,094
  4,260
  4,437
  4,625
  4,825
  5,036
  5,260
  5,497
  5,747
  6,011
  6,290
  6,583
  6,893
  7,219
  7,563
  7,925
  8,306
  8,707
  9,128
  9,572
Variable operating expenses, $m
 
  7,230
  7,390
  7,573
  7,778
  8,005
  8,255
  8,526
  8,820
  9,137
  9,477
  9,563
  9,951
  10,364
  10,804
  11,270
  11,764
  12,286
  12,839
  13,423
  14,040
  14,691
  15,377
  16,101
  16,863
  17,666
  18,511
  19,401
  20,337
  21,322
  22,358
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
  4,741
  7,230
  7,390
  7,573
  7,778
  8,005
  8,255
  8,526
  8,820
  9,137
  9,477
  9,563
  9,951
  10,364
  10,804
  11,270
  11,764
  12,286
  12,839
  13,423
  14,040
  14,691
  15,377
  16,101
  16,863
  17,666
  18,511
  19,401
  20,337
  21,322
  22,358
Operating income, $m
  -1,823
  -4,254
  -4,345
  -4,450
  -4,567
  -4,697
  -4,840
  -4,995
  -5,163
  -5,344
  -5,539
  -5,469
  -5,691
  -5,927
  -6,178
  -6,445
  -6,727
  -7,026
  -7,342
  -7,676
  -8,029
  -8,401
  -8,794
  -9,208
  -9,643
  -10,103
  -10,586
  -11,095
  -11,630
  -12,193
  -12,786
EBITDA, $m
  -964
  -3,306
  -3,382
  -3,469
  -3,566
  -3,674
  -3,793
  -3,922
  -4,062
  -4,213
  -4,374
  -4,547
  -4,732
  -4,928
  -5,137
  -5,359
  -5,594
  -5,842
  -6,105
  -6,383
  -6,676
  -6,986
  -7,312
  -7,656
  -8,018
  -8,400
  -8,802
  -9,225
  -9,670
  -10,138
  -10,631
Interest expense (income), $m
  397
  410
  422
  436
  452
  471
  491
  513
  537
  563
  591
  621
  653
  687
  724
  762
  804
  847
  893
  942
  994
  1,048
  1,106
  1,166
  1,230
  1,297
  1,368
  1,443
  1,522
  1,604
  1,691
Earnings before tax, $m
  -1,620
  -4,663
  -4,767
  -4,886
  -5,019
  -5,168
  -5,330
  -5,508
  -5,700
  -5,907
  -6,129
  -6,090
  -6,344
  -6,614
  -6,902
  -7,207
  -7,531
  -7,873
  -8,236
  -8,619
  -9,023
  -9,450
  -9,899
  -10,374
  -10,874
  -11,400
  -11,954
  -12,538
  -13,152
  -13,798
  -14,477
Tax expense, $m
  -676
  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
  -944
  -4,663
  -4,767
  -4,886
  -5,019
  -5,168
  -5,330
  -5,508
  -5,700
  -5,907
  -6,129
  -6,090
  -6,344
  -6,614
  -6,902
  -7,207
  -7,531
  -7,873
  -8,236
  -8,619
  -9,023
  -9,450
  -9,899
  -10,374
  -10,874
  -11,400
  -11,954
  -12,538
  -13,152
  -13,798
  -14,477

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  834
  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
  14,653
  14,106
  14,430
  14,801
  15,218
  15,679
  16,185
  16,736
  17,333
  17,976
  18,666
  19,404
  20,191
  21,030
  21,921
  22,867
  23,869
  24,929
  26,051
  27,236
  28,488
  29,808
  31,201
  32,669
  34,215
  35,844
  37,559
  39,364
  41,264
  43,262
  45,364
Adjusted assets (=assets-cash), $m
  13,819
  14,106
  14,430
  14,801
  15,218
  15,679
  16,185
  16,736
  17,333
  17,976
  18,666
  19,404
  20,191
  21,030
  21,921
  22,867
  23,869
  24,929
  26,051
  27,236
  28,488
  29,808
  31,201
  32,669
  34,215
  35,844
  37,559
  39,364
  41,264
  43,262
  45,364
Revenue / Adjusted assets
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
  0.211
Average production assets, $m
  8,998
  9,179
  9,390
  9,632
  9,902
  10,203
  10,532
  10,891
  11,279
  11,697
  12,146
  12,627
  13,139
  13,685
  14,264
  14,880
  15,532
  16,222
  16,952
  17,723
  18,538
  19,397
  20,303
  21,258
  22,265
  23,325
  24,441
  25,615
  26,851
  28,152
  29,520
Working capital, $m
  361
  -423
  -432
  -443
  -456
  -470
  -485
  -501
  -519
  -539
  -559
  -581
  -605
  -630
  -657
  -685
  -715
  -747
  -781
  -816
  -854
  -893
  -935
  -979
  -1,025
  -1,074
  -1,125
  -1,179
  -1,236
  -1,296
  -1,359
Total debt, $m
  5,827
  5,947
  6,146
  6,373
  6,628
  6,911
  7,222
  7,559
  7,925
  8,319
  8,742
  9,195
  9,677
  10,191
  10,738
  11,317
  11,931
  12,582
  13,269
  13,996
  14,763
  15,572
  16,426
  17,326
  18,274
  19,272
  20,324
  21,430
  22,595
  23,820
  25,108
Total liabilities, $m
  8,527
  8,647
  8,846
  9,073
  9,328
  9,611
  9,922
  10,259
  10,625
  11,019
  11,442
  11,895
  12,377
  12,891
  13,438
  14,017
  14,631
  15,282
  15,969
  16,696
  17,463
  18,272
  19,126
  20,026
  20,974
  21,972
  23,024
  24,130
  25,295
  26,520
  27,808
Total equity, $m
  6,126
  5,459
  5,585
  5,728
  5,889
  6,068
  6,264
  6,477
  6,708
  6,957
  7,224
  7,509
  7,814
  8,139
  8,483
  8,849
  9,237
  9,648
  10,082
  10,540
  11,025
  11,536
  12,075
  12,643
  13,241
  13,872
  14,535
  15,234
  15,969
  16,742
  17,556
Total liabilities and equity, $m
  14,653
  14,106
  14,431
  14,801
  15,217
  15,679
  16,186
  16,736
  17,333
  17,976
  18,666
  19,404
  20,191
  21,030
  21,921
  22,866
  23,868
  24,930
  26,051
  27,236
  28,488
  29,808
  31,201
  32,669
  34,215
  35,844
  37,559
  39,364
  41,264
  43,262
  45,364
Debt-to-equity ratio
  0.951
  1.090
  1.100
  1.110
  1.130
  1.140
  1.150
  1.170
  1.180
  1.200
  1.210
  1.220
  1.240
  1.250
  1.270
  1.280
  1.290
  1.300
  1.320
  1.330
  1.340
  1.350
  1.360
  1.370
  1.380
  1.390
  1.400
  1.410
  1.410
  1.420
  1.430
Adjusted equity ratio
  0.383
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -944
  -4,663
  -4,767
  -4,886
  -5,019
  -5,168
  -5,330
  -5,508
  -5,700
  -5,907
  -6,129
  -6,090
  -6,344
  -6,614
  -6,902
  -7,207
  -7,531
  -7,873
  -8,236
  -8,619
  -9,023
  -9,450
  -9,899
  -10,374
  -10,874
  -11,400
  -11,954
  -12,538
  -13,152
  -13,798
  -14,477
Depreciation, amort., depletion, $m
  859
  948
  963
  981
  1,001
  1,023
  1,047
  1,073
  1,101
  1,132
  1,164
  922
  959
  999
  1,041
  1,086
  1,134
  1,184
  1,237
  1,294
  1,353
  1,416
  1,482
  1,552
  1,625
  1,703
  1,784
  1,870
  1,960
  2,055
  2,155
Funds from operations, $m
  412
  -3,715
  -3,804
  -3,905
  -4,019
  -4,145
  -4,284
  -4,435
  -4,599
  -4,775
  -4,965
  -5,168
  -5,385
  -5,615
  -5,861
  -6,121
  -6,397
  -6,689
  -6,998
  -7,325
  -7,670
  -8,034
  -8,417
  -8,822
  -9,248
  -9,697
  -10,170
  -10,668
  -11,192
  -11,743
  -12,322
Change in working capital, $m
  -213
  -8
  -10
  -11
  -12
  -14
  -15
  -17
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -37
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
Cash from operations, $m
  625
  -4,566
  -3,794
  -3,894
  -4,006
  -4,131
  -4,268
  -4,418
  -4,581
  -4,756
  -4,944
  -5,146
  -5,361
  -5,590
  -5,834
  -6,093
  -6,367
  -6,657
  -6,965
  -7,289
  -7,632
  -7,994
  -8,376
  -8,778
  -9,202
  -9,649
  -10,119
  -10,614
  -11,135
  -11,683
  -12,259
Maintenance CAPEX, $m
  0
  -657
  -670
  -685
  -703
  -723
  -745
  -769
  -795
  -823
  -854
  -887
  -922
  -959
  -999
  -1,041
  -1,086
  -1,134
  -1,184
  -1,237
  -1,294
  -1,353
  -1,416
  -1,482
  -1,552
  -1,625
  -1,703
  -1,784
  -1,870
  -1,960
  -2,055
New CAPEX, $m
  -1,132
  -181
  -211
  -241
  -271
  -300
  -329
  -359
  -388
  -418
  -449
  -480
  -512
  -546
  -580
  -615
  -652
  -690
  -730
  -771
  -814
  -859
  -906
  -955
  -1,006
  -1,060
  -1,116
  -1,175
  -1,236
  -1,300
  -1,368
Cash from investing activities, $m
  -29
  -838
  -881
  -926
  -974
  -1,023
  -1,074
  -1,128
  -1,183
  -1,241
  -1,303
  -1,367
  -1,434
  -1,505
  -1,579
  -1,656
  -1,738
  -1,824
  -1,914
  -2,008
  -2,108
  -2,212
  -2,322
  -2,437
  -2,558
  -2,685
  -2,819
  -2,959
  -3,106
  -3,260
  -3,423
Free cash flow, $m
  596
  -5,404
  -4,675
  -4,821
  -4,980
  -5,154
  -5,343
  -5,546
  -5,764
  -5,998
  -6,247
  -6,513
  -6,795
  -7,095
  -7,413
  -7,749
  -8,105
  -8,481
  -8,879
  -9,298
  -9,740
  -10,207
  -10,698
  -11,215
  -11,760
  -12,334
  -12,937
  -13,572
  -14,241
  -14,943
  -15,682
Issuance/(repayment) of debt, $m
  -1,116
  179
  199
  227
  255
  283
  310
  338
  366
  394
  423
  452
  483
  514
  546
  580
  614
  650
  688
  727
  767
  809
  854
  900
  948
  999
  1,051
  1,107
  1,164
  1,225
  1,289
Issuance/(repurchase) of shares, $m
  1,129
  4,558
  4,602
  4,737
  4,886
  5,050
  5,228
  5,421
  5,629
  5,852
  6,091
  6,346
  6,617
  6,905
  7,211
  7,536
  7,879
  8,242
  8,625
  9,030
  9,457
  9,908
  10,383
  10,884
  11,411
  11,966
  12,550
  13,165
  13,811
  14,492
  15,207
Cash from financing (excl. dividends), $m  
  13
  4,737
  4,801
  4,964
  5,141
  5,333
  5,538
  5,759
  5,995
  6,246
  6,514
  6,798
  7,100
  7,419
  7,757
  8,116
  8,493
  8,892
  9,313
  9,757
  10,224
  10,717
  11,237
  11,784
  12,359
  12,965
  13,601
  14,272
  14,975
  15,717
  16,496
Total cash flow (excl. dividends), $m
  614
  -5,225
  -4,476
  -4,593
  -4,725
  -4,871
  -5,032
  -5,208
  -5,398
  -5,604
  -5,824
  -6,060
  -6,312
  -6,581
  -6,866
  -7,170
  -7,491
  -7,831
  -8,191
  -8,571
  -8,973
  -9,397
  -9,844
  -10,315
  -10,812
  -11,335
  -11,886
  -12,466
  -13,076
  -13,718
  -14,393
Retained Cash Flow (-), $m
  41
  -108
  -126
  -144
  -161
  -179
  -196
  -213
  -231
  -249
  -267
  -286
  -305
  -324
  -345
  -366
  -388
  -411
  -434
  -459
  -484
  -511
  -539
  -568
  -599
  -630
  -664
  -699
  -735
  -773
  -813
Prev. year cash balance distribution, $m
 
  775
  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
 
  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
Discount rate, %
 
  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
  15.05
  15.80
  16.59
  17.42
  18.29
  19.20
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.37
  29.79
  31.28
PV of cash for 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
Current shareholders' claim on cash, %
  100
  61.5
  38.0
  23.4
  14.4
  8.8
  5.4
  3.3
  2.0
  1.2
  0.7
  0.5
  0.3
  0.2
  0.1
  0.1
  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

Encana Corporation, together with its subsidiaries, engages in the development, exploration, production, and marketing of natural gas, oil, and natural gas liquids in Canada and the United States. The company owns interests in plays, such as the Montney in northern British Columbia and northwest Alberta; Duvernay in west central Alberta; and other upstream operations, including Wheatland in southern Alberta, Deep Panuke located offshore Nova Scotia, and Horn River in northeast British Columbia. It also holds interests in plays that comprise the Eagle Ford in south Texas; Permian in west Texas; DJ Basin in northern Colorado; San Juan in northwest New Mexico; Piceance in northwest Colorado; and Tuscaloosa Marine Shale in east Louisiana and west Mississippi. Encana Corporation primarily markets its products to refiners, local distribution companies, energy marketing companies, and electronic exchanges. The company was founded in 1971 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Encana (ECA)

Valuation Ratios
P/E Ratio -8.9
Price to Sales 2.9
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 13.5
Price to Free Cash Flow -16.6
Growth Rates
Sales Growth Rate -34%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -49.3%
Cap. Spend. - 3 Yr. Gr. Rate -16%
Financial Strength
Quick Ratio 14
Current Ratio 0
LT Debt to Equity 94.2%
Total Debt to Equity 95.1%
Interest Coverage -3
Management Effectiveness
Return On Assets -4.7%
Ret/ On Assets - 3 Yr. Avg. -3.4%
Return On Total Capital -8.1%
Ret/ On T. Cap. - 3 Yr. Avg. -7.1%
Return On Equity -15.4%
Return On Equity - 3 Yr. Avg. -11.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 56%
Gross Margin - 3 Yr. Avg. 67.8%
EBITDA Margin -12.5%
EBITDA Margin - 3 Yr. Avg. -19.6%
Operating Margin -62.5%
Oper. Margin - 3 Yr. Avg. -59.1%
Pre-Tax Margin -55.5%
Pre-Tax Margin - 3 Yr. Avg. -59.6%
Net Profit Margin -32.4%
Net Profit Margin - 3 Yr. Avg. -35.6%
Effective Tax Rate 41.7%
Eff/ Tax Rate - 3 Yr. Avg. 34.4%
Payout Ratio -5.4%

ECA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ECA stock intrinsic value calculation we used $2918 million for the last fiscal year's total revenue generated by Encana. The default revenue input number comes from 2016 income statement of Encana. 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 ECA stock valuation model: a) initial revenue growth rate of 2% 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 7.6%, whose default value for ECA is calculated based on our internal credit rating of Encana, 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 Encana.
    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 ECA stock the variable cost ratio is equal to 243.1%.

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 ECA 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 7.1% for Encana.

Corporate tax rate of 27% is the nominal tax rate for Encana. 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 ECA 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 ECA are equal to 308.4%.

Life of production assets of 13.7 years is the average useful life of capital assets used in Encana 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 ECA is equal to -14.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $6126 million for Encana - 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 963.668 million for Encana 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 Encana at the current share price and the inputted number of shares is $8.3 billion.


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COMPANY NEWS

▶ Story Stocks from Briefing.com   [Jun-28-17 11:35AM  Briefing.com]
▶ What Wall Street Recommends for COP, MRO, SWN, and ECA   [Jun-27-17 10:37AM  Market Realist]
▶ 3 Top Energy Stocks to Buy Now   [Jun-24-17 02:04PM  Motley Fool]
▶ Are Institutional Investors Selling Encana?   [09:06AM  Market Realist]
▶ [$$] EQT and Rice in $6.7bn gas producer tie-up   [Jun-19-17 03:27PM  Financial Times]
▶ What Analysts Recommend for Energy Stocks   [02:17PM  Market Realist]
▶ Analyzing Short Interest in Encana Stock   [09:07AM  Market Realist]
▶ Noble Energy to slash Denver office staff by one-third   [Jun-17-17 08:42PM  American City Business Journals]
▶ Analyzing Encanas 1Q17 Revenues   [Jun-16-17 10:38AM  Market Realist]
▶ Encana Turns 1Q16 Loss to Profit in 1Q17   [09:08AM  Market Realist]
▶ How Encana Is Performing in Fiscal 2017   [07:38AM  Market Realist]
▶ Bullish on EOG Resources Inc? You'll Love These Stocks   [Jun-12-17 04:30PM  Motley Fool]
▶ Encana To Sell Natgas Assets To Caerus Oil For $735MM   [Jun-08-17 08:00PM  Rigzone.com]
▶ ETFs with exposure to Encana Corp. : June 1, 2017   [Jun-01-17 01:45PM  Capital Cube]
▶ Why Southwestern Energy Stock Is on the Decline   [May-30-17 10:52AM  Market Realist]
▶ How Short Interest in Devon Energy Stock Is Evolving in 2017   [May-25-17 09:06AM  Market Realist]
▶ Devon Energys Production Costs and Margins for 1Q17   [May-24-17 10:36AM  Market Realist]
▶ ETFs with exposure to Encana Corp. : May 22, 2017   [May-22-17 01:35PM  Capital Cube]
▶ Story Stocks from Briefing.com   [May-12-17 11:32AM  Briefing.com]
▶ ETFs with exposure to Encana Corp. : May 11, 2017   [May-11-17 04:33PM  Capital Cube]
▶ EOG Resources Inc. Absolutely Crushed It This Quarter   [May-09-17 01:32PM  Motley Fool]
▶ Devon Energy Corp.'s Turnaround Continues to Gain Steam   [May-04-17 12:15PM  Motley Fool]
▶ Encana tops Street 1Q forecasts   [06:31AM  Associated Press]
▶ Institutional Investors Positions on Encana   [May-01-17 07:36AM  Market Realist]
▶ How Encana Has Performed since Its 4Q16 Earnings Release   [Apr-28-17 10:36AM  Market Realist]
▶ What Analysts Are Saying about Encana, Pre-1Q17 Results   [Apr-27-17 10:36AM  Market Realist]
▶ A Look at Encanas Cash Flow Estimates   [09:06AM  Market Realist]
▶ Encanas Plans for Its Montney Assets   [07:37AM  Market Realist]
▶ Could Encana See Production Growth in 2017?   [Apr-26-17 10:38AM  Market Realist]
▶ A Look at Encanas Stock Price Forecast   [09:09AM  Market Realist]
▶ Analyzing Encanas 1Q17 Revenue Expectations   [07:37AM  Market Realist]
▶ Could Encana Report Higher Net Profits in 1Q17?   [Apr-25-17 05:39PM  Market Realist]
▶ 2 Stocks to Avoid (and 1 to Buy)   [12:00PM  Motley Fool]
▶ Encana Corp. Value Analysis (NYSE:ECA) : April 21, 2017   [Apr-21-17 03:28PM  Capital Cube]
▶ ConocoPhillipss Production Costs and Margins for 4Q16   [Apr-07-17 09:05AM  Market Realist]
▶ Analyzing Wall Streets Targets for COP, MRO, SWN, and ECA   [Mar-23-17 10:36AM  Market Realist]
▶ How Crude Oil and Natural Gas Prices Affected Upstream Capex   [Mar-22-17 03:52PM  Market Realist]
Stock chart of ECA Financial statements of ECA Annual reports of ECA
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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