Intrinsic value of Imperial Oil - IMO

Previous Close

$29.51

  Intrinsic Value

$63.01

stock screener

  Rating & Target

str. buy

+114%

Previous close

$29.51

 
Intrinsic value

$63.01

 
Up/down potential

+114%

 
Rating

str. buy

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 24.7

 

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
  12.30
  11.57
  10.91
  10.32
  9.79
  9.31
  8.88
  8.49
  8.14
  7.83
  7.55
  7.29
  7.06
  6.86
  6.67
  6.50
  6.35
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
Revenue, $m
  18,834
  21,151
  23,598
  26,173
  28,874
  31,701
  34,653
  37,730
  40,933
  44,266
  47,732
  51,333
  55,076
  58,965
  63,008
  67,210
  71,581
  76,128
  80,861
  85,790
  90,926
  96,279
  101,862
  107,688
  113,769
  120,120
  126,755
  133,691
  140,943
  148,528
  156,465
Variable operating expenses, $m
 
  3,932
  4,386
  4,863
  5,363
  5,887
  6,434
  7,004
  7,597
  8,215
  8,857
  9,510
  10,204
  10,924
  11,673
  12,452
  13,262
  14,104
  14,981
  15,894
  16,846
  17,837
  18,872
  19,951
  21,078
  22,254
  23,484
  24,769
  26,112
  27,517
  28,988
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
  19,438
  20,280
  21,154
  22,061
  23,003
  23,978
  24,986
  26,029
  27,108
  28,222
  29,359
  30,549
  31,778
  33,048
  34,362
  35,720
  37,123
  38,576
  40,078
  41,635
  43,246
  44,916
  46,646
  48,440
  50,300
  52,232
  54,235
  56,315
  58,475
  60,720
Operating income, $m
  445
  1,712
  3,318
  5,019
  6,813
  8,698
  10,675
  12,743
  14,904
  17,159
  19,510
  21,974
  24,527
  27,187
  29,959
  32,848
  35,862
  39,005
  42,286
  45,712
  49,291
  53,033
  56,947
  61,042
  65,329
  69,819
  74,524
  79,456
  84,628
  90,053
  95,745
EBITDA, $m
  1,650
  3,071
  4,833
  6,698
  8,663
  10,728
  12,893
  15,157
  17,522
  19,988
  22,560
  25,239
  28,030
  30,937
  33,967
  37,124
  40,415
  43,847
  47,429
  51,169
  55,075
  59,157
  63,426
  67,891
  72,565
  77,460
  82,587
  87,960
  93,593
  99,500
  105,698
Interest expense (income), $m
  54
  130
  182
  237
  294
  354
  418
  484
  552
  624
  699
  776
  856
  940
  1,027
  1,117
  1,211
  1,309
  1,411
  1,516
  1,627
  1,741
  1,861
  1,986
  2,116
  2,252
  2,394
  2,542
  2,697
  2,859
  3,029
Earnings before tax, $m
  1,809
  1,582
  3,136
  4,782
  6,519
  8,344
  10,257
  12,260
  14,352
  16,535
  18,811
  21,198
  23,670
  26,247
  28,932
  31,731
  34,650
  37,696
  40,875
  44,195
  47,665
  51,292
  55,086
  59,056
  63,213
  67,567
  72,130
  76,914
  81,930
  87,194
  92,717
Tax expense, $m
  207
  427
  847
  1,291
  1,760
  2,253
  2,769
  3,310
  3,875
  4,464
  5,079
  5,723
  6,391
  7,087
  7,812
  8,567
  9,356
  10,178
  11,036
  11,933
  12,869
  13,849
  14,873
  15,945
  17,067
  18,243
  19,475
  20,767
  22,121
  23,542
  25,034
Net income, $m
  1,602
  1,155
  2,289
  3,491
  4,759
  6,091
  7,488
  8,950
  10,477
  12,070
  13,732
  15,474
  17,279
  19,160
  21,120
  23,164
  25,295
  27,518
  29,839
  32,263
  34,795
  37,443
  40,212
  43,111
  46,145
  49,324
  52,655
  56,147
  59,809
  63,651
  67,683

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
  34,280
  38,246
  42,420
  46,798
  51,379
  56,163
  61,150
  66,343
  71,745
  77,361
  83,198
  89,264
  95,567
  102,119
  108,930
  116,014
  123,384
  131,056
  139,044
  147,368
  156,044
  165,093
  174,534
  184,390
  194,683
  205,438
  216,679
  228,432
  240,727
  253,591
Adjusted assets (=assets-cash), $m
  30,541
  34,280
  38,246
  42,420
  46,798
  51,379
  56,163
  61,150
  66,343
  71,745
  77,361
  83,198
  89,264
  95,567
  102,119
  108,930
  116,014
  123,384
  131,056
  139,044
  147,368
  156,044
  165,093
  174,534
  184,390
  194,683
  205,438
  216,679
  228,432
  240,727
  253,591
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
  30,943
  34,523
  38,291
  42,243
  46,379
  50,697
  55,198
  59,886
  64,762
  69,831
  75,100
  80,576
  86,266
  92,180
  98,328
  104,723
  111,375
  118,300
  125,511
  133,025
  140,856
  149,024
  157,547
  166,444
  175,735
  185,443
  195,589
  206,199
  217,297
  228,909
Working capital, $m
  -38
  -63
  -71
  -79
  -87
  -95
  -104
  -113
  -123
  -133
  -143
  -154
  -165
  -177
  -189
  -202
  -215
  -228
  -243
  -257
  -273
  -289
  -306
  -323
  -341
  -360
  -380
  -401
  -423
  -446
  -469
Total debt, $m
  4,001
  5,196
  6,759
  8,403
  10,128
  11,933
  13,818
  15,783
  17,829
  19,957
  22,170
  24,470
  26,860
  29,344
  31,925
  34,609
  37,400
  40,303
  43,326
  46,473
  49,753
  53,171
  56,737
  60,456
  64,340
  68,395
  72,632
  77,061
  81,692
  86,536
  91,605
Total liabilities, $m
  12,311
  13,506
  15,069
  16,713
  18,438
  20,243
  22,128
  24,093
  26,139
  28,267
  30,480
  32,780
  35,170
  37,654
  40,235
  42,919
  45,710
  48,613
  51,636
  54,783
  58,063
  61,481
  65,047
  68,766
  72,650
  76,705
  80,942
  85,371
  90,002
  94,846
  99,915
Total equity, $m
  18,519
  20,774
  23,177
  25,706
  28,360
  31,136
  34,035
  37,057
  40,204
  43,477
  46,881
  50,418
  54,094
  57,914
  61,884
  66,012
  70,305
  74,771
  79,420
  84,261
  89,305
  94,563
  100,046
  105,768
  111,740
  117,978
  124,495
  131,307
  138,430
  145,880
  153,676
Total liabilities and equity, $m
  30,830
  34,280
  38,246
  42,419
  46,798
  51,379
  56,163
  61,150
  66,343
  71,744
  77,361
  83,198
  89,264
  95,568
  102,119
  108,931
  116,015
  123,384
  131,056
  139,044
  147,368
  156,044
  165,093
  174,534
  184,390
  194,683
  205,437
  216,678
  228,432
  240,726
  253,591
Debt-to-equity ratio
  0.216
  0.250
  0.290
  0.330
  0.360
  0.380
  0.410
  0.430
  0.440
  0.460
  0.470
  0.490
  0.500
  0.510
  0.520
  0.520
  0.530
  0.540
  0.550
  0.550
  0.560
  0.560
  0.570
  0.570
  0.580
  0.580
  0.580
  0.590
  0.590
  0.590
  0.600
Adjusted equity ratio
  0.597
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,602
  1,155
  2,289
  3,491
  4,759
  6,091
  7,488
  8,950
  10,477
  12,070
  13,732
  15,474
  17,279
  19,160
  21,120
  23,164
  25,295
  27,518
  29,839
  32,263
  34,795
  37,443
  40,212
  43,111
  46,145
  49,324
  52,655
  56,147
  59,809
  63,651
  67,683
Depreciation, amort., depletion, $m
  1,205
  1,359
  1,515
  1,679
  1,850
  2,030
  2,218
  2,414
  2,618
  2,830
  3,050
  3,265
  3,503
  3,751
  4,008
  4,275
  4,553
  4,842
  5,143
  5,457
  5,784
  6,124
  6,479
  6,850
  7,237
  7,641
  8,063
  8,504
  8,965
  9,448
  9,953
Funds from operations, $m
  1,752
  2,514
  3,804
  5,170
  6,609
  8,121
  9,706
  11,363
  13,094
  14,900
  16,782
  18,740
  20,783
  22,911
  25,128
  27,439
  29,848
  32,361
  34,982
  37,720
  40,579
  43,567
  46,692
  49,961
  53,382
  56,965
  60,718
  64,651
  68,774
  73,099
  77,636
Change in working capital, $m
  261
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Cash from operations, $m
  1,491
  2,521
  3,812
  5,177
  6,617
  8,130
  9,715
  11,373
  13,104
  14,910
  16,792
  18,750
  20,794
  22,922
  25,140
  27,451
  29,861
  32,374
  34,997
  37,734
  40,594
  43,583
  46,708
  49,978
  53,400
  56,984
  60,738
  64,672
  68,796
  73,122
  77,660
Maintenance CAPEX, $m
  0
  -1,198
  -1,345
  -1,501
  -1,665
  -1,837
  -2,016
  -2,204
  -2,400
  -2,604
  -2,816
  -3,036
  -3,265
  -3,503
  -3,751
  -4,008
  -4,275
  -4,553
  -4,842
  -5,143
  -5,457
  -5,784
  -6,124
  -6,479
  -6,850
  -7,237
  -7,641
  -8,063
  -8,504
  -8,965
  -9,448
New CAPEX, $m
  -794
  -3,384
  -3,580
  -3,768
  -3,952
  -4,135
  -4,318
  -4,502
  -4,687
  -4,876
  -5,070
  -5,269
  -5,475
  -5,690
  -5,914
  -6,148
  -6,394
  -6,653
  -6,925
  -7,211
  -7,513
  -7,832
  -8,168
  -8,523
  -8,897
  -9,291
  -9,708
  -10,147
  -10,610
  -11,098
  -11,612
Cash from investing activities, $m
  1,441
  -4,582
  -4,925
  -5,269
  -5,617
  -5,972
  -6,334
  -6,706
  -7,087
  -7,480
  -7,886
  -8,305
  -8,740
  -9,193
  -9,665
  -10,156
  -10,669
  -11,206
  -11,767
  -12,354
  -12,970
  -13,616
  -14,292
  -15,002
  -15,747
  -16,528
  -17,349
  -18,210
  -19,114
  -20,063
  -21,060
Free cash flow, $m
  2,932
  -2,061
  -1,114
  -91
  1,000
  2,158
  3,380
  4,667
  6,017
  7,430
  8,907
  10,445
  12,053
  13,729
  15,475
  17,295
  19,192
  21,168
  23,229
  25,380
  27,624
  29,968
  32,416
  34,976
  37,654
  40,456
  43,389
  46,462
  49,683
  53,059
  56,600
Issuance/(repayment) of debt, $m
  -2,429
  1,472
  1,563
  1,644
  1,725
  1,805
  1,885
  1,965
  2,046
  2,128
  2,213
  2,300
  2,390
  2,484
  2,581
  2,684
  2,791
  2,904
  3,023
  3,148
  3,279
  3,418
  3,565
  3,720
  3,883
  4,056
  4,237
  4,429
  4,631
  4,844
  5,068
Issuance/(repurchase) of shares, $m
  0
  1,112
  114
  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
  2,584
  1,677
  1,644
  1,725
  1,805
  1,885
  1,965
  2,046
  2,128
  2,213
  2,300
  2,390
  2,484
  2,581
  2,684
  2,791
  2,904
  3,023
  3,148
  3,279
  3,418
  3,565
  3,720
  3,883
  4,056
  4,237
  4,429
  4,631
  4,844
  5,068
Total cash flow (excl. dividends), $m
  503
  523
  563
  1,553
  2,725
  3,963
  5,265
  6,632
  8,063
  9,558
  11,120
  12,745
  14,443
  16,213
  18,057
  19,979
  21,983
  24,072
  26,252
  28,527
  30,903
  33,386
  35,982
  38,696
  41,537
  44,511
  47,626
  50,891
  54,314
  57,903
  61,668
Retained Cash Flow (-), $m
  -1,181
  -2,267
  -2,403
  -2,529
  -2,653
  -2,776
  -2,899
  -3,022
  -3,147
  -3,274
  -3,403
  -3,537
  -3,676
  -3,820
  -3,970
  -4,128
  -4,293
  -4,466
  -4,649
  -4,841
  -5,044
  -5,258
  -5,483
  -5,722
  -5,973
  -6,238
  -6,517
  -6,812
  -7,123
  -7,450
  -7,796
Prev. year cash balance distribution, $m
 
  12
  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
 
  -1,732
  -1,841
  -976
  72
  1,186
  2,366
  3,609
  4,916
  6,285
  7,716
  9,208
  10,767
  12,393
  14,086
  15,851
  17,690
  19,606
  21,603
  23,686
  25,860
  28,128
  30,498
  32,975
  35,564
  38,273
  41,109
  44,079
  47,191
  50,452
  53,873
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
 
  -1,649
  -1,662
  -831
  57
  883
  1,632
  2,292
  2,853
  3,309
  3,656
  3,891
  4,022
  4,052
  3,990
  3,847
  3,635
  3,370
  3,065
  2,735
  2,394
  2,056
  1,731
  1,428
  1,153
  911
  704
  531
  391
  281
  196
Current shareholders' claim on cash, %
  100
  95.7
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3
  95.3

Imperial Oil Limited is an integrated oil company. The Company is engaged in all the phases of the petroleum industry in Canada, including exploration for, and production and sale of, crude oil and natural gas. Its operations are conducted in three segments: Upstream, Downstream and Chemical. The Upstream operations include the exploration for, and production of, crude oil, natural gas, synthetic oil and bitumen. It holds an interest in the Kearl oil sands project. The Downstream operations consist of the transportation and refining of crude oil, blending of refined products and the distribution and marketing of those products. The Chemical operations consist of the manufacturing and marketing of various petrochemicals. The Company is involved in the exploration for and development of crude oil and natural gas in Canada. The Company transports its crude oil production and third-party crude oil required to supply refineries by contracted pipelines, common carrier pipelines and rail.

FINANCIAL RATIOS  of  Imperial Oil (IMO)

Valuation Ratios
P/E Ratio 15.6
Price to Sales 1.3
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 16.8
Price to Free Cash Flow 35.9
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 1
Current Ratio 0.1
LT Debt to Equity 20.1%
Total Debt to Equity 21.6%
Interest Coverage 35
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 6%
Return On Total Capital 6.9%
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 12.3% 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 -0.3%. 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 836.102 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 $24.7 billion.

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COMPANY NEWS

▶ Which Integrated Energy Stocks Are Losing this Week?   [Dec-14-17 04:00PM  Market Realist]
▶ Integrated Energy Losers Last Week: CVE, IMO   [07:34AM  Market Realist]
▶ Imperial Oil misses 3Q profit forecasts   [Oct-27-17 08:17AM  Associated Press]
▶ Fourth quarter dividend declaration   [07:56AM  CNW Group]
▶ Imperial to hold 2017 Update Call   [Oct-18-17 04:30PM  CNW Group]
▶ These Integrated Energy Stocks Are Losing This Week   [Oct-05-17 01:07PM  Market Realist]
▶ Russia's Gazprom knocks US ExxonMobil to #9   [Sep-25-17 01:53PM  Yahoo Finance Video]
▶ 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]
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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