Intrinsic value of Legacy Reserves - LGCY

Previous Close

$1.30

  Intrinsic Value

$0.00

stock screener

  Rating & Target

str. sell

-100%

  Value-price divergence*

-84%

Previous close

$1.30

 
Intrinsic value

$0.00

 
Up/down potential

-100%

 
Rating

str. sell

 
Value-price divergence*

-84%

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

We calculate the intrinsic value of LGCY 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 0.1

 

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, %
  -7.37
  51.50
  46.85
  42.67
  38.90
  35.51
  32.46
  29.71
  27.24
  25.02
  23.02
  21.21
  19.59
  18.13
  16.82
  15.64
  14.57
  13.62
  12.75
  11.98
  11.28
  10.65
  10.09
  9.58
  9.12
  8.71
  8.34
  8.00
  7.70
  7.43
  7.19
Revenue, $m
  314
  476
  699
  997
  1,384
  1,876
  2,485
  3,223
  4,101
  5,127
  6,307
  7,645
  9,142
  10,800
  12,617
  14,590
  16,716
  18,992
  21,415
  23,980
  26,685
  29,528
  32,507
  35,621
  38,870
  42,255
  45,779
  49,443
  53,252
  57,211
  61,324
Variable operating expenses, $m
 
  1,494
  2,194
  3,129
  4,347
  5,890
  7,802
  10,120
  12,877
  16,098
  19,803
  24,004
  28,707
  33,913
  39,617
  45,812
  52,489
  59,636
  67,242
  75,297
  83,792
  92,719
  102,072
  111,850
  122,052
  132,682
  143,745
  155,251
  167,211
  179,641
  192,558
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
  249
  1,494
  2,194
  3,129
  4,347
  5,890
  7,802
  10,120
  12,877
  16,098
  19,803
  24,004
  28,707
  33,913
  39,617
  45,812
  52,489
  59,636
  67,242
  75,297
  83,792
  92,719
  102,072
  111,850
  122,052
  132,682
  143,745
  155,251
  167,211
  179,641
  192,558
Operating income, $m
  66
  -1,018
  -1,495
  -2,133
  -2,962
  -4,014
  -5,317
  -6,897
  -8,776
  -10,971
  -13,497
  -16,360
  -19,565
  -23,113
  -27,000
  -31,222
  -35,772
  -40,643
  -45,827
  -51,317
  -57,107
  -63,190
  -69,565
  -76,229
  -83,182
  -90,426
  -97,966
  -105,808
  -113,959
  -122,430
  -131,233
EBITDA, $m
  216
  -821
  -1,205
  -1,720
  -2,389
  -3,237
  -4,287
  -5,561
  -7,076
  -8,846
  -10,882
  -13,191
  -15,775
  -18,636
  -21,770
  -25,175
  -28,844
  -32,771
  -36,951
  -41,378
  -46,046
  -50,951
  -56,091
  -61,464
  -67,070
  -72,911
  -78,991
  -85,314
  -91,886
  -98,717
  -105,815
Interest expense (income), $m
  0
  41
  49
  78
  117
  168
  232
  311
  407
  521
  655
  808
  982
  1,177
  1,393
  1,630
  1,886
  2,163
  2,459
  2,775
  3,109
  3,461
  3,831
  4,219
  4,624
  5,047
  5,488
  5,946
  6,423
  6,919
  7,434
Earnings before tax, $m
  -55
  -1,059
  -1,544
  -2,211
  -3,080
  -4,182
  -5,549
  -7,208
  -9,183
  -11,493
  -14,151
  -17,168
  -20,547
  -24,290
  -28,393
  -32,852
  -37,659
  -42,807
  -48,287
  -54,092
  -60,215
  -66,651
  -73,396
  -80,447
  -87,806
  -95,473
  -103,454
  -111,754
  -120,382
  -129,349
  -138,668
Tax expense, $m
  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
Net income, $m
  -56
  -1,059
  -1,544
  -2,211
  -3,080
  -4,182
  -5,549
  -7,208
  -9,183
  -11,493
  -14,151
  -17,168
  -20,547
  -24,290
  -28,393
  -32,852
  -37,659
  -42,807
  -48,287
  -54,092
  -60,215
  -66,651
  -73,396
  -80,447
  -87,806
  -95,473
  -103,454
  -111,754
  -120,382
  -129,349
  -138,668

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3
  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
  1,300
  1,966
  2,887
  4,118
  5,720
  7,751
  10,267
  13,318
  16,946
  21,185
  26,061
  31,590
  37,779
  44,629
  52,136
  60,288
  69,075
  78,480
  88,491
  99,091
  110,270
  122,017
  134,327
  147,194
  160,620
  174,609
  189,168
  204,310
  220,050
  236,407
  253,405
Adjusted assets (=assets-cash), $m
  1,297
  1,966
  2,887
  4,118
  5,720
  7,751
  10,267
  13,318
  16,946
  21,185
  26,061
  31,590
  37,779
  44,629
  52,136
  60,288
  69,075
  78,480
  88,491
  99,091
  110,270
  122,017
  134,327
  147,194
  160,620
  174,609
  189,168
  204,310
  220,050
  236,407
  253,405
Revenue / Adjusted assets
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
Average production assets, $m
  1,302
  1,972
  2,896
  4,131
  5,738
  7,775
  10,299
  13,359
  16,998
  21,251
  26,142
  31,687
  37,895
  44,767
  52,297
  60,475
  69,288
  78,723
  88,764
  99,397
  110,611
  122,395
  134,742
  147,649
  161,116
  175,148
  189,752
  204,941
  220,729
  237,138
  254,188
Working capital, $m
  -4
  -10
  -15
  -22
  -30
  -41
  -55
  -71
  -90
  -113
  -139
  -168
  -201
  -238
  -278
  -321
  -368
  -418
  -471
  -528
  -587
  -650
  -715
  -784
  -855
  -930
  -1,007
  -1,088
  -1,172
  -1,259
  -1,349
Total debt, $m
  1,161
  1,408
  2,237
  3,345
  4,787
  6,615
  8,880
  11,625
  14,890
  18,706
  23,094
  28,070
  33,640
  39,805
  46,561
  53,899
  61,806
  70,271
  79,280
  88,821
  98,882
  109,455
  120,533
  132,114
  144,197
  156,787
  169,890
  183,518
  197,684
  212,405
  227,704
Total liabilities, $m
  1,522
  1,769
  2,598
  3,706
  5,148
  6,976
  9,241
  11,986
  15,251
  19,067
  23,455
  28,431
  34,001
  40,166
  46,922
  54,260
  62,167
  70,632
  79,641
  89,182
  99,243
  109,816
  120,894
  132,475
  144,558
  157,148
  170,251
  183,879
  198,045
  212,766
  228,065
Total equity, $m
  -222
  197
  289
  412
  572
  775
  1,027
  1,332
  1,695
  2,119
  2,606
  3,159
  3,778
  4,463
  5,214
  6,029
  6,907
  7,848
  8,849
  9,909
  11,027
  12,202
  13,433
  14,719
  16,062
  17,461
  18,917
  20,431
  22,005
  23,641
  25,341
Total liabilities and equity, $m
  1,300
  1,966
  2,887
  4,118
  5,720
  7,751
  10,268
  13,318
  16,946
  21,186
  26,061
  31,590
  37,779
  44,629
  52,136
  60,289
  69,074
  78,480
  88,490
  99,091
  110,270
  122,018
  134,327
  147,194
  160,620
  174,609
  189,168
  204,310
  220,050
  236,407
  253,406
Debt-to-equity ratio
  -5.230
  7.160
  7.750
  8.120
  8.370
  8.530
  8.650
  8.730
  8.790
  8.830
  8.860
  8.890
  8.900
  8.920
  8.930
  8.940
  8.950
  8.950
  8.960
  8.960
  8.970
  8.970
  8.970
  8.980
  8.980
  8.980
  8.980
  8.980
  8.980
  8.980
  8.990
Adjusted equity ratio
  -0.173
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -56
  -1,059
  -1,544
  -2,211
  -3,080
  -4,182
  -5,549
  -7,208
  -9,183
  -11,493
  -14,151
  -17,168
  -20,547
  -24,290
  -28,393
  -32,852
  -37,659
  -42,807
  -48,287
  -54,092
  -60,215
  -66,651
  -73,396
  -80,447
  -87,806
  -95,473
  -103,454
  -111,754
  -120,382
  -129,349
  -138,668
Depreciation, amort., depletion, $m
  150
  197
  290
  413
  574
  778
  1,030
  1,336
  1,700
  2,125
  2,614
  3,169
  3,790
  4,477
  5,230
  6,047
  6,929
  7,872
  8,876
  9,940
  11,061
  12,239
  13,474
  14,765
  16,112
  17,515
  18,975
  20,494
  22,073
  23,714
  25,419
Funds from operations, $m
  -14
  -861
  -1,255
  -1,798
  -2,506
  -3,404
  -4,519
  -5,872
  -7,483
  -9,368
  -11,537
  -13,999
  -16,758
  -19,813
  -23,164
  -26,804
  -30,730
  -34,934
  -39,411
  -44,152
  -49,154
  -54,412
  -59,922
  -65,683
  -71,694
  -77,958
  -84,479
  -91,260
  -98,309
  -105,636
  -113,249
Change in working capital, $m
  -14
  -4
  -5
  -7
  -9
  -11
  -13
  -16
  -19
  -23
  -26
  -29
  -33
  -36
  -40
  -43
  -47
  -50
  -53
  -56
  -60
  -63
  -66
  -69
  -71
  -74
  -78
  -81
  -84
  -87
  -90
Cash from operations, $m
  0
  -858
  -1,250
  -1,791
  -2,497
  -3,394
  -4,506
  -5,856
  -7,464
  -9,345
  -11,511
  -13,970
  -16,725
  -19,777
  -23,124
  -26,761
  -30,683
  -34,884
  -39,357
  -44,096
  -49,095
  -54,349
  -59,856
  -65,614
  -71,623
  -77,884
  -84,401
  -91,179
  -98,226
  -105,549
  -113,158
Maintenance CAPEX, $m
  0
  -130
  -197
  -290
  -413
  -574
  -778
  -1,030
  -1,336
  -1,700
  -2,125
  -2,614
  -3,169
  -3,790
  -4,477
  -5,230
  -6,047
  -6,929
  -7,872
  -8,876
  -9,940
  -11,061
  -12,239
  -13,474
  -14,765
  -16,112
  -17,515
  -18,975
  -20,494
  -22,073
  -23,714
New CAPEX, $m
  0
  -670
  -924
  -1,235
  -1,607
  -2,037
  -2,524
  -3,060
  -3,639
  -4,252
  -4,891
  -5,546
  -6,208
  -6,872
  -7,530
  -8,178
  -8,814
  -9,435
  -10,041
  -10,633
  -11,213
  -11,784
  -12,347
  -12,907
  -13,467
  -14,032
  -14,604
  -15,189
  -15,789
  -16,408
  -17,051
Cash from investing activities, $m
  120
  -800
  -1,121
  -1,525
  -2,020
  -2,611
  -3,302
  -4,090
  -4,975
  -5,952
  -7,016
  -8,160
  -9,377
  -10,662
  -12,007
  -13,408
  -14,861
  -16,364
  -17,913
  -19,509
  -21,153
  -22,845
  -24,586
  -26,381
  -28,232
  -30,144
  -32,119
  -34,164
  -36,283
  -38,481
  -40,765
Free cash flow, $m
  120
  -1,658
  -2,371
  -3,316
  -4,517
  -6,005
  -7,807
  -9,946
  -12,439
  -15,297
  -18,527
  -22,130
  -26,102
  -30,438
  -35,130
  -40,169
  -45,544
  -51,248
  -57,271
  -63,606
  -70,248
  -77,194
  -84,443
  -91,995
  -99,855
  -108,027
  -116,520
  -125,343
  -134,508
  -144,030
  -153,923
Issuance/(repayment) of debt, $m
  -110
  247
  829
  1,108
  1,442
  1,828
  2,264
  2,746
  3,265
  3,815
  4,388
  4,976
  5,570
  6,165
  6,756
  7,338
  7,908
  8,465
  9,009
  9,541
  10,061
  10,573
  11,078
  11,581
  12,083
  12,590
  13,103
  13,628
  14,166
  14,722
  15,298
Issuance/(repurchase) of shares, $m
  0
  1,477
  1,636
  2,334
  3,240
  4,385
  5,800
  7,513
  9,546
  11,917
  14,639
  17,721
  21,166
  24,975
  29,144
  33,667
  38,538
  43,747
  49,288
  55,152
  61,333
  67,826
  74,627
  81,734
  89,148
  96,872
  104,910
  113,268
  121,956
  130,985
  140,367
Cash from financing (excl. dividends), $m  
  -119
  1,724
  2,465
  3,442
  4,682
  6,213
  8,064
  10,259
  12,811
  15,732
  19,027
  22,697
  26,736
  31,140
  35,900
  41,005
  46,446
  52,212
  58,297
  64,693
  71,394
  78,399
  85,705
  93,315
  101,231
  109,462
  118,013
  126,896
  136,122
  145,707
  155,665
Total cash flow (excl. dividends), $m
  1
  66
  94
  126
  164
  208
  258
  313
  372
  435
  500
  567
  635
  702
  770
  836
  901
  964
  1,026
  1,087
  1,146
  1,205
  1,262
  1,319
  1,377
  1,434
  1,493
  1,553
  1,614
  1,677
  1,743
Retained Cash Flow (-), $m
  42
  -1,477
  -1,636
  -2,334
  -3,240
  -4,385
  -5,800
  -7,513
  -9,546
  -11,917
  -14,639
  -17,721
  -21,166
  -24,975
  -29,144
  -33,667
  -38,538
  -43,747
  -49,288
  -55,152
  -61,333
  -67,826
  -74,627
  -81,734
  -89,148
  -96,872
  -104,910
  -113,268
  -121,956
  -130,985
  -140,367
Prev. year cash balance 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
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
 
  -1,411
  -1,542
  -2,208
  -3,075
  -4,177
  -5,542
  -7,200
  -9,174
  -11,482
  -14,139
  -17,154
  -20,532
  -24,273
  -28,374
  -32,831
  -37,637
  -42,783
  -48,262
  -54,065
  -60,187
  -66,621
  -73,365
  -80,415
  -87,772
  -95,438
  -103,417
  -111,715
  -120,342
  -129,308
  -138,624
Discount rate, %
 
  15.90
  16.70
  17.53
  18.41
  19.33
  20.29
  21.31
  22.37
  23.49
  24.67
  25.90
  27.19
  28.55
  29.98
  31.48
  33.05
  34.71
  36.44
  38.27
  40.18
  42.19
  44.30
  46.51
  48.84
  51.28
  53.84
  56.54
  59.36
  62.33
  65.45
PV of cash for distribution, $m
 
  -1,218
  -1,132
  -1,360
  -1,565
  -1,726
  -1,829
  -1,863
  -1,824
  -1,719
  -1,559
  -1,362
  -1,145
  -927
  -722
  -541
  -390
  -270
  -180
  -115
  -70
  -41
  -23
  -12
  -6
  -3
  -1
  -1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  5.4
  0.6
  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
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Legacy Reserves LP acquires and develops oil and natural gas properties primarily in the Permian Basin, East Texas, Rocky Mountain, and Mid-Continent regions of the United States. As of December 31, 2016, the company owned interests in producing oil and natural gas properties in 627 fields comprising 10,775 gross productive wells, including 3,799 operated and 6,976 non-operated wells located in the Permian Basin, East Texas, Piceance Basin of Colorado, Texas Panhandle, Wyoming, North Dakota, Montana, Oklahoma, and other states. It had proved reserves of approximately 144.8 million barrels of crude oil equivalent. Legacy Reserves LP was founded in 2005 and is headquartered in Midland, Texas.


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FINANCIAL RATIOS  of  Legacy Reserves (LGCY)

Valuation Ratios
P/E Ratio -1.7
Price to Sales 0.3
Price to Book -0.4
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate -7.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity -523%
Total Debt to Equity -523%
Interest Coverage 0
Management Effectiveness
Return On Assets -3.8%
Ret/ On Assets - 3 Yr. Avg. -19.9%
Return On Total Capital -5.1%
Ret/ On T. Cap. - 3 Yr. Avg. -24.7%
Return On Equity 27.9%
Return On Equity - 3 Yr. Avg. -109.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 38.5%
Gross Margin - 3 Yr. Avg. 44.4%
EBITDA Margin 30.3%
EBITDA Margin - 3 Yr. Avg. -48.6%
Operating Margin 20.7%
Oper. Margin - 3 Yr. Avg. -86.8%
Pre-Tax Margin -17.5%
Pre-Tax Margin - 3 Yr. Avg. -92.8%
Net Profit Margin -17.8%
Net Profit Margin - 3 Yr. Avg. -92.8%
Effective Tax Rate -1.8%
Eff/ Tax Rate - 3 Yr. Avg. -0.4%
Payout Ratio 0%

LGCY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LGCY stock intrinsic value calculation we used $314 million for the last fiscal year's total revenue generated by Legacy Reserves. The default revenue input number comes from 2016 income statement of Legacy Reserves. 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 LGCY stock valuation model: a) initial revenue growth rate of 51.5% 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 15.9%, whose default value for LGCY is calculated based on our internal credit rating of Legacy Reserves, 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 Legacy Reserves.
    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 LGCY stock the variable cost ratio is equal to 314%.

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 LGCY 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 Legacy Reserves.

Corporate tax rate of 27% is the nominal tax rate for Legacy Reserves. 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 LGCY 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 LGCY are equal to 414.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Legacy Reserves 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 LGCY is equal to -2.2%. 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 - $-222 million for Legacy Reserves - 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 75.987 million for Legacy Reserves 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 Legacy Reserves at the current share price and the inputted number of shares is $0.1 billion.

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▶ Conference-OGIS New York for Legacy Reserves LP   [Mar-08-17 05:56PM  at Company Spotlight]
▶ Legacy Reserves LP Announces 2016 Schedules K-1 Available   [Mar-07-17 05:53PM  GlobeNewswire]
▶ Legacy Reserves LP Announces Year-End 2016 Conference Call   [Feb-08-17 04:01PM  GlobeNewswire]
▶ Legacy Looks to New Partnership for Capital (LGCY)   [Dec-06-16 09:10PM  at Investopedia]
▶ Legacy a 'Strong Buy' after Robust 3Q (LGCY)   [Nov-15-16 08:20AM  at Investopedia]
▶ Alerian Index Series June 2016 Index Review   [Jun-10-16 08:30AM  PR Newswire]
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Stock chart of LGCY Financial statements of LGCY Annual reports of LGCY
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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