Intrinsic value of Imperial Oil - IMO

Previous Close

$28.36

  Intrinsic Value

$402.92

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+346%

Previous close

$28.36

 
Intrinsic value

$402.92

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+346%

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

We calculate the intrinsic value of IMO 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 23.5

 

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, %
  -5.08
  34.70
  31.73
  29.06
  26.65
  24.49
  22.54
  20.78
  19.21
  17.78
  16.51
  15.36
  14.32
  13.39
  12.55
  11.79
  11.11
  10.50
  9.95
  9.46
  9.01
  8.61
  8.25
  7.92
  7.63
  7.37
  7.13
  6.92
  6.73
  6.55
  6.40
Revenue, $m
  18,834
  25,369
  33,419
  43,130
  54,624
  68,000
  83,325
  100,643
  119,972
  141,309
  164,634
  189,915
  217,111
  246,179
  277,072
  309,751
  344,180
  380,331
  418,186
  457,737
  498,988
  541,955
  586,665
  633,157
  681,482
  731,700
  783,886
  838,123
  894,504
  953,133
  1,014,123
Variable operating expenses, $m
 
  4,714
  6,205
  8,004
  10,134
  12,612
  15,451
  18,660
  22,241
  26,194
  30,515
  35,185
  40,224
  45,609
  51,332
  57,387
  63,765
  70,463
  77,476
  84,804
  92,446
  100,407
  108,690
  117,303
  126,256
  135,560
  145,229
  155,277
  165,722
  176,584
  187,884
Fixed operating expenses, $m
 
  15,506
  15,894
  16,291
  16,698
  17,116
  17,544
  17,982
  18,432
  18,893
  19,365
  19,849
  20,345
  20,854
  21,375
  21,910
  22,458
  23,019
  23,595
  24,184
  24,789
  25,409
  26,044
  26,695
  27,362
  28,046
  28,748
  29,466
  30,203
  30,958
  31,732
Total operating expenses, $m
  18,389
  20,220
  22,099
  24,295
  26,832
  29,728
  32,995
  36,642
  40,673
  45,087
  49,880
  55,034
  60,569
  66,463
  72,707
  79,297
  86,223
  93,482
  101,071
  108,988
  117,235
  125,816
  134,734
  143,998
  153,618
  163,606
  173,977
  184,743
  195,925
  207,542
  219,616
Operating income, $m
  445
  5,149
  11,320
  18,834
  27,792
  38,272
  50,330
  64,001
  79,300
  96,223
  114,754
  134,881
  156,542
  179,716
  204,364
  230,455
  257,957
  286,849
  317,115
  348,749
  381,753
  416,140
  451,931
  489,159
  527,863
  568,094
  609,910
  653,380
  698,579
  745,590
  794,507
EBITDA, $m
  1,650
  6,777
  13,460
  21,591
  31,280
  42,611
  55,644
  70,417
  86,945
  105,225
  125,240
  146,961
  170,352
  195,375
  221,989
  250,158
  279,850
  311,041
  343,715
  377,865
  413,493
  450,613
  489,249
  529,433
  571,211
  614,636
  659,772
  706,692
  755,477
  806,218
  859,014
Interest expense (income), $m
  54
  130
  277
  459
  678
  938
  1,240
  1,586
  1,977
  2,413
  2,895
  3,422
  3,992
  4,606
  5,263
  5,960
  6,698
  7,475
  8,291
  9,146
  10,039
  10,970
  11,940
  12,950
  13,999
  15,091
  16,224
  17,402
  18,627
  19,900
  21,224
Earnings before tax, $m
  1,809
  5,019
  11,043
  18,375
  27,113
  37,334
  49,090
  62,415
  77,323
  93,809
  111,859
  131,459
  152,550
  175,109
  199,102
  224,495
  251,259
  279,374
  308,824
  339,603
  371,714
  405,170
  439,991
  476,209
  513,863
  553,003
  593,686
  635,977
  679,952
  725,691
  773,284
Tax expense, $m
  207
  1,355
  2,981
  4,961
  7,321
  10,080
  13,254
  16,852
  20,877
  25,329
  30,202
  35,494
  41,188
  47,279
  53,757
  60,614
  67,840
  75,431
  83,382
  91,693
  100,363
  109,396
  118,798
  128,576
  138,743
  149,311
  160,295
  171,714
  183,587
  195,936
  208,787
Net income, $m
  1,602
  3,664
  8,061
  13,414
  19,793
  27,254
  35,836
  45,563
  56,446
  68,481
  81,657
  95,965
  111,361
  127,830
  145,344
  163,881
  183,419
  203,943
  225,441
  247,910
  271,351
  295,774
  321,193
  347,633
  375,120
  403,692
  433,391
  464,264
  496,365
  529,754
  564,497

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  289
  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
  30,830
  41,117
  54,164
  69,902
  88,532
  110,210
  135,049
  163,117
  194,445
  229,026
  266,830
  307,804
  351,882
  398,993
  449,064
  502,028
  557,828
  616,420
  677,773
  741,875
  808,733
  878,372
  950,835
  1,026,187
  1,104,508
  1,185,900
  1,270,480
  1,358,384
  1,449,763
  1,544,786
  1,643,635
Adjusted assets (=assets-cash), $m
  30,541
  41,117
  54,164
  69,902
  88,532
  110,210
  135,049
  163,117
  194,445
  229,026
  266,830
  307,804
  351,882
  398,993
  449,064
  502,028
  557,828
  616,420
  677,773
  741,875
  808,733
  878,372
  950,835
  1,026,187
  1,104,508
  1,185,900
  1,270,480
  1,358,384
  1,449,763
  1,544,786
  1,643,635
Revenue / Adjusted assets
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
  0.617
Average production assets, $m
  27,560
  37,115
  48,892
  63,099
  79,915
  99,484
  121,905
  147,241
  175,520
  206,735
  240,860
  277,846
  317,634
  360,159
  405,357
  453,166
  503,535
  556,424
  611,806
  669,669
  730,020
  792,881
  858,291
  926,309
  997,008
  1,070,478
  1,146,826
  1,226,174
  1,308,659
  1,394,433
  1,483,662
Working capital, $m
  -38
  -228
  -301
  -388
  -492
  -612
  -750
  -906
  -1,080
  -1,272
  -1,482
  -1,709
  -1,954
  -2,216
  -2,494
  -2,788
  -3,098
  -3,423
  -3,764
  -4,120
  -4,491
  -4,878
  -5,280
  -5,698
  -6,133
  -6,585
  -7,055
  -7,543
  -8,051
  -8,578
  -9,127
Total debt, $m
  3,874
  7,928
  13,120
  19,384
  26,799
  35,427
  45,312
  56,484
  68,952
  82,715
  97,761
  114,069
  131,612
  150,362
  170,290
  191,370
  213,579
  236,898
  261,317
  286,829
  313,439
  341,155
  369,995
  399,985
  431,157
  463,551
  497,214
  532,200
  568,569
  606,388
  645,730
Total liabilities, $m
  12,311
  16,365
  21,557
  27,821
  35,236
  43,864
  53,749
  64,921
  77,389
  91,152
  106,198
  122,506
  140,049
  158,799
  178,727
  199,807
  222,016
  245,335
  269,754
  295,266
  321,876
  349,592
  378,432
  408,422
  439,594
  471,988
  505,651
  540,637
  577,006
  614,825
  654,167
Total equity, $m
  18,519
  24,753
  32,607
  42,081
  53,296
  66,347
  81,299
  98,197
  117,056
  137,874
  160,632
  185,298
  211,833
  240,194
  270,336
  302,221
  335,813
  371,085
  408,019
  446,609
  486,857
  528,780
  572,403
  617,764
  664,914
  713,912
  764,829
  817,747
  872,758
  929,961
  989,468
Total liabilities and equity, $m
  30,830
  41,118
  54,164
  69,902
  88,532
  110,211
  135,048
  163,118
  194,445
  229,026
  266,830
  307,804
  351,882
  398,993
  449,063
  502,028
  557,829
  616,420
  677,773
  741,875
  808,733
  878,372
  950,835
  1,026,186
  1,104,508
  1,185,900
  1,270,480
  1,358,384
  1,449,764
  1,544,786
  1,643,635
Debt-to-equity ratio
  0.209
  0.320
  0.400
  0.460
  0.500
  0.530
  0.560
  0.580
  0.590
  0.600
  0.610
  0.620
  0.620
  0.630
  0.630
  0.630
  0.640
  0.640
  0.640
  0.640
  0.640
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
Adjusted equity ratio
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602
  0.602

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,602
  3,664
  8,061
  13,414
  19,793
  27,254
  35,836
  45,563
  56,446
  68,481
  81,657
  95,965
  111,361
  127,830
  145,344
  163,881
  183,419
  203,943
  225,441
  247,910
  271,351
  295,774
  321,193
  347,633
  375,120
  403,692
  433,391
  464,264
  496,365
  529,754
  564,497
Depreciation, amort., depletion, $m
  1,205
  1,628
  2,140
  2,757
  3,488
  4,339
  5,314
  6,416
  7,645
  9,002
  10,486
  12,080
  13,810
  15,659
  17,624
  19,703
  21,893
  24,192
  26,600
  29,116
  31,740
  34,473
  37,317
  40,274
  43,348
  46,543
  49,862
  53,312
  56,898
  60,628
  64,507
Funds from operations, $m
  1,752
  5,291
  10,201
  16,171
  23,281
  31,593
  41,150
  51,979
  64,091
  77,483
  92,143
  108,045
  125,172
  143,489
  162,968
  183,584
  205,312
  228,135
  252,042
  277,026
  303,091
  330,247
  358,510
  387,907
  418,468
  450,235
  483,253
  517,575
  553,263
  590,382
  629,004
Change in working capital, $m
  261
  -59
  -72
  -87
  -103
  -120
  -138
  -156
  -174
  -192
  -210
  -228
  -245
  -262
  -278
  -294
  -310
  -325
  -341
  -356
  -371
  -387
  -402
  -418
  -435
  -452
  -470
  -488
  -507
  -528
  -549
Cash from operations, $m
  1,491
  5,350
  10,273
  16,258
  23,385
  31,713
  41,288
  52,135
  64,265
  77,675
  92,353
  108,273
  125,416
  143,750
  163,247
  183,878
  205,622
  228,461
  252,382
  277,382
  303,463
  330,634
  358,913
  388,325
  418,903
  450,687
  483,722
  518,064
  553,770
  590,909
  629,553
Maintenance CAPEX, $m
  0
  -1,198
  -1,614
  -2,126
  -2,743
  -3,475
  -4,325
  -5,300
  -6,402
  -7,631
  -8,988
  -10,472
  -12,080
  -13,810
  -15,659
  -17,624
  -19,703
  -21,893
  -24,192
  -26,600
  -29,116
  -31,740
  -34,473
  -37,317
  -40,274
  -43,348
  -46,543
  -49,862
  -53,312
  -56,898
  -60,628
New CAPEX, $m
  -794
  -9,556
  -11,777
  -14,207
  -16,817
  -19,568
  -22,421
  -25,336
  -28,278
  -31,216
  -34,125
  -36,986
  -39,788
  -42,525
  -45,198
  -47,809
  -50,369
  -52,889
  -55,382
  -57,863
  -60,351
  -62,861
  -65,411
  -68,018
  -70,699
  -73,470
  -76,348
  -79,348
  -82,485
  -85,774
  -89,229
Cash from investing activities, $m
  1,441
  -10,754
  -13,391
  -16,333
  -19,560
  -23,043
  -26,746
  -30,636
  -34,680
  -38,847
  -43,113
  -47,458
  -51,868
  -56,335
  -60,857
  -65,433
  -70,072
  -74,782
  -79,574
  -84,463
  -89,467
  -94,601
  -99,884
  -105,335
  -110,973
  -116,818
  -122,891
  -129,210
  -135,797
  -142,672
  -149,857
Free cash flow, $m
  2,932
  -5,404
  -3,117
  -74
  3,825
  8,671
  14,541
  21,498
  29,584
  38,828
  49,240
  60,815
  73,548
  87,415
  102,390
  118,444
  135,550
  153,679
  172,808
  192,918
  213,996
  236,033
  259,029
  282,991
  307,930
  333,869
  360,832
  388,853
  417,973
  448,237
  479,697
Issuance/(repayment) of debt, $m
  -2,429
  4,204
  5,193
  6,264
  7,415
  8,628
  9,886
  11,171
  12,468
  13,764
  15,046
  16,308
  17,543
  18,750
  19,928
  21,080
  22,209
  23,319
  24,418
  25,513
  26,609
  27,716
  28,840
  29,990
  31,172
  32,394
  33,663
  34,986
  36,369
  37,819
  39,342
Issuance/(repurchase) of shares, $m
  0
  2,709
  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 from financing (excl. dividends), $m  
  -2,429
  6,913
  5,193
  6,264
  7,415
  8,628
  9,886
  11,171
  12,468
  13,764
  15,046
  16,308
  17,543
  18,750
  19,928
  21,080
  22,209
  23,319
  24,418
  25,513
  26,609
  27,716
  28,840
  29,990
  31,172
  32,394
  33,663
  34,986
  36,369
  37,819
  39,342
Total cash flow (excl. dividends), $m
  503
  1,509
  2,075
  6,190
  11,239
  17,298
  24,427
  32,669
  42,053
  52,591
  64,286
  77,123
  91,091
  106,165
  122,318
  139,524
  157,758
  176,998
  197,227
  218,431
  240,605
  263,749
  287,870
  312,981
  339,102
  366,263
  394,495
  423,839
  454,342
  486,056
  519,039
Retained Cash Flow (-), $m
  -1,181
  -6,373
  -7,854
  -9,475
  -11,215
  -13,050
  -14,953
  -16,897
  -18,859
  -20,818
  -22,758
  -24,666
  -26,535
  -28,361
  -30,143
  -31,885
  -33,592
  -35,272
  -36,935
  -38,590
  -40,249
  -41,922
  -43,623
  -45,362
  -47,150
  -48,998
  -50,917
  -52,918
  -55,010
  -57,204
  -59,507
Prev. year cash balance distribution, $m
 
  139
  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
 
  -4,725
  -5,779
  -3,285
  24
  4,248
  9,474
  15,772
  23,194
  31,773
  41,528
  52,456
  64,556
  77,804
  92,175
  107,640
  124,167
  141,726
  160,292
  179,841
  200,357
  221,827
  244,247
  267,619
  291,953
  317,265
  343,577
  370,921
  399,332
  428,852
  459,532
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  -4,500
  -5,217
  -2,796
  19
  3,163
  6,537
  10,017
  13,463
  16,730
  19,674
  22,169
  24,116
  25,441
  26,110
  26,123
  25,517
  24,359
  22,739
  20,764
  18,551
  16,214
  13,861
  11,587
  9,467
  7,555
  5,885
  4,472
  3,312
  2,388
  1,675
Current shareholders' claim on cash, %
  100
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6
  89.6

Imperial Oil Limited explores for, produces, and sells crude oil and natural gas in Canada. The company operates through three segments: Upstream, Downstream, and Chemical. The Upstream segment explores for and produces crude oil, natural gas, synthetic oil, and bitumen. As of December 31, 2016, the Upstream segment had 319 million oil-equivalent barrels of proved undeveloped reserves. The Downstream segment is involved in the transportation and refining of crude oil, as well as blending, distribution, and marketing of refined products. This segment also maintains a distribution system to handle bulk and packaged petroleum products moving from refineries to market by pipeline, tanker, rail, and road transport; and owns and operates natural gas liquids and products pipelines in Alberta, Manitoba, and Ontario, as well as holds interests in crude oil and products pipeline companies. In addition, this segment sells petroleum products under the Esso and Mobil brands to motoring public through approximately 1,700 Esso retail service stations. It supplies petroleum products to large industrial and transportation customers, independent marketers, and resellers, as well as other refiners serving agriculture, residential heating, and commercial markets through branded resellers. The Chemical segment manufactures and markets various petrochemicals, including benzene, aromatic and aliphatic solvents, plasticizer intermediates, and polyethylene resins. Imperial Oil Limited was founded in 1880 and is headquartered in Calgary, Canada. Imperial Oil Limited is a subsidiary of Exxon Mobil Corporation.

FINANCIAL RATIOS  of  Imperial Oil (IMO)

Valuation Ratios
P/E Ratio 15
Price to Sales 1.3
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 16.1
Price to Free Cash Flow 34.5
Growth Rates
Sales Growth Rate -5.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -64.2%
Cap. Spend. - 3 Yr. Gr. Rate -29.8%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 20.1%
Total Debt to Equity 20.9%
Interest Coverage 35
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 6%
Return On Total Capital 7%
Ret/ On T. Cap. - 3 Yr. Avg. 8.1%
Return On Equity 8.9%
Return On Equity - 3 Yr. Avg. 10.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 13.6%
Gross Margin - 3 Yr. Avg. 16.3%
EBITDA Margin 16.3%
EBITDA Margin - 3 Yr. Avg. 15.4%
Operating Margin 2.4%
Oper. Margin - 3 Yr. Avg. 7.2%
Pre-Tax Margin 9.6%
Pre-Tax Margin - 3 Yr. Avg. 10.2%
Net Profit Margin 8.5%
Net Profit Margin - 3 Yr. Avg. 7.7%
Effective Tax Rate 11.4%
Eff/ Tax Rate - 3 Yr. Avg. 25.9%
Payout Ratio 22.7%

IMO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IMO stock intrinsic value calculation we used $18834 million for the last fiscal year's total revenue generated by Imperial Oil. The default revenue input number comes from 2016 income statement of Imperial Oil. 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 IMO stock valuation model: a) initial revenue growth rate of 34.7% 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%, whose default value for IMO is calculated based on our internal credit rating of Imperial Oil, 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 Imperial Oil.
    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 IMO stock the variable cost ratio is equal to 18.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $15128 million in the base year in the intrinsic value calculation for IMO stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Imperial Oil.

Corporate tax rate of 27% is the nominal tax rate for Imperial Oil. 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 IMO 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 IMO are equal to 146.3%.

Life of production assets of 23 years is the average useful life of capital assets used in Imperial Oil 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 IMO is equal to -0.9%. 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 - $18519 million for Imperial Oil - 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 828.211 million for Imperial Oil 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 Imperial Oil at the current share price and the inputted number of shares is $23.5 billion.

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COMPANY NEWS

▶ Imperial Oil reports 2Q loss   [Jul-28-17 11:45PM  Associated Press]
▶ Third quarter dividend declaration   [07:56AM  CNW Group]
▶ Canada's Imperial Oil Posts Unexpected 2Q Loss   [Jul-27-17 08:00PM  Rigzone.com]
▶ ETFs with exposure to Imperial Oil Ltd. : June 1, 2017   [Jun-01-17 01:53PM  Capital Cube]
▶ These 3 Big Energy Stocks Could Be Turning Toxic   [May-26-17 11:29AM  TheStreet.com]
▶ ETFs with exposure to Imperial Oil Ltd. : May 18, 2017   [May-18-17 01:47PM  Capital Cube]
▶ Imperial provides update on Syncrude incident response   [Mar-27-17 07:55AM  PR Newswire]
▶ Imperial appoints senior vice-president, upstream   [Jan-31-17 03:10PM  PR Newswire]
▶ First quarter dividend declaration   [07:56AM  CNW Group]
▶ Is Imperial Oil Limited (USA) (IMO) A Good Stock To Buy?   [Dec-15-16 06:40PM  at Insider Monkey]
▶ Fourth quarter dividend declaration   [07:56AM  CNW Group]
Stock chart of IMO Financial statements of IMO
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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