Intrinsic value of Marathon Oil - MRO

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$11.68

  Intrinsic Value

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  Value-price divergence*

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$11.68

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

We calculate the intrinsic value of MRO 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 10.0

 

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, %
  -25.78
  35.60
  32.54
  29.79
  27.31
  25.08
  23.07
  21.26
  19.64
  18.17
  16.86
  15.67
  14.60
  13.64
  12.78
  12.00
  11.30
  10.67
  10.10
  9.59
  9.13
  8.72
  8.35
  8.01
  7.71
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
Revenue, $m
  4,261
  5,778
  7,658
  9,939
  12,653
  15,826
  19,477
  23,618
  28,256
  33,391
  39,019
  45,133
  51,724
  58,780
  66,291
  74,246
  82,636
  91,453
  100,693
  110,352
  120,432
  130,933
  141,864
  153,232
  165,050
  177,331
  190,093
  203,356
  217,142
  231,476
  246,386
Variable operating expenses, $m
 
  8,484
  11,241
  14,585
  18,565
  23,217
  28,571
  34,643
  41,443
  48,972
  57,225
  66,178
  75,842
  86,189
  97,202
  108,867
  121,169
  134,098
  147,646
  161,810
  176,589
  191,988
  208,015
  224,684
  242,012
  260,020
  278,733
  298,181
  318,395
  339,414
  361,277
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
  5,161
  8,484
  11,241
  14,585
  18,565
  23,217
  28,571
  34,643
  41,443
  48,972
  57,225
  66,178
  75,842
  86,189
  97,202
  108,867
  121,169
  134,098
  147,646
  161,810
  176,589
  191,988
  208,015
  224,684
  242,012
  260,020
  278,733
  298,181
  318,395
  339,414
  361,277
Operating income, $m
  -900
  -2,706
  -3,582
  -4,646
  -5,912
  -7,391
  -9,094
  -11,025
  -13,187
  -15,582
  -18,206
  -21,046
  -24,119
  -27,409
  -30,911
  -34,621
  -38,533
  -42,645
  -46,953
  -51,457
  -56,157
  -61,054
  -66,151
  -71,452
  -76,963
  -82,689
  -88,640
  -94,825
  -101,254
  -107,938
  -114,890
EBITDA, $m
  1,495
  -2,694
  -3,571
  -4,635
  -5,900
  -7,380
  -9,082
  -11,013
  -13,176
  -15,570
  -18,195
  -21,046
  -24,119
  -27,409
  -30,911
  -34,621
  -38,533
  -42,645
  -46,953
  -51,457
  -56,157
  -61,054
  -66,151
  -71,452
  -76,963
  -82,689
  -88,640
  -94,825
  -101,254
  -107,938
  -114,890
Interest expense (income), $m
  375
  342
  581
  876
  1,234
  1,660
  2,159
  2,732
  3,382
  4,111
  4,917
  5,801
  6,761
  7,796
  8,904
  10,084
  11,333
  12,651
  14,036
  15,487
  17,004
  18,587
  20,236
  21,952
  23,738
  25,594
  27,522
  29,527
  31,610
  33,775
  36,026
Earnings before tax, $m
  -1,235
  -3,048
  -4,163
  -5,522
  -7,146
  -9,052
  -11,252
  -13,757
  -16,570
  -19,692
  -23,123
  -26,846
  -30,880
  -35,205
  -39,816
  -44,705
  -49,866
  -55,296
  -60,989
  -66,944
  -73,161
  -79,641
  -86,387
  -93,405
  -100,701
  -108,283
  -116,163
  -124,352
  -132,863
  -141,712
  -150,916
Tax expense, $m
  905
  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
  -2,140
  -3,048
  -4,163
  -5,522
  -7,146
  -9,052
  -11,252
  -13,757
  -16,570
  -19,692
  -23,123
  -26,846
  -30,880
  -35,205
  -39,816
  -44,705
  -49,866
  -55,296
  -60,989
  -66,944
  -73,161
  -79,641
  -86,387
  -93,405
  -100,701
  -108,283
  -116,163
  -124,352
  -132,863
  -141,712
  -150,916

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,488
  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
  31,094
  38,778
  51,396
  66,705
  84,921
  106,216
  130,719
  158,512
  189,638
  224,099
  261,871
  302,906
  347,138
  394,495
  444,904
  498,294
  554,603
  613,780
  675,792
  740,620
  808,265
  878,748
  952,108
  1,028,404
  1,107,715
  1,190,138
  1,275,790
  1,364,803
  1,457,328
  1,553,533
  1,653,600
Adjusted assets (=assets-cash), $m
  28,606
  38,778
  51,396
  66,705
  84,921
  106,216
  130,719
  158,512
  189,638
  224,099
  261,871
  302,906
  347,138
  394,495
  444,904
  498,294
  554,603
  613,780
  675,792
  740,620
  808,265
  878,748
  952,108
  1,028,404
  1,107,715
  1,190,138
  1,275,790
  1,364,803
  1,457,328
  1,553,533
  1,653,600
Revenue / Adjusted assets
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
Average production assets, $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
  0
Working capital, $m
  1,425
  -508
  -674
  -875
  -1,113
  -1,393
  -1,714
  -2,078
  -2,487
  -2,938
  -3,434
  -3,972
  -4,552
  -5,173
  -5,834
  -6,534
  -7,272
  -8,048
  -8,861
  -9,711
  -10,598
  -11,522
  -12,484
  -13,484
  -14,524
  -15,605
  -16,728
  -17,895
  -19,108
  -20,370
  -21,682
Total debt, $m
  7,267
  11,164
  16,842
  23,731
  31,928
  41,511
  52,537
  65,045
  79,051
  94,559
  111,556
  130,021
  149,926
  171,237
  193,921
  217,946
  243,285
  269,915
  297,820
  326,993
  357,433
  389,151
  422,162
  456,496
  492,186
  529,276
  567,819
  607,875
  649,512
  692,804
  737,834
Total liabilities, $m
  13,553
  17,450
  23,128
  30,017
  38,214
  47,797
  58,823
  71,331
  85,337
  100,845
  117,842
  136,307
  156,212
  177,523
  200,207
  224,232
  249,571
  276,201
  304,106
  333,279
  363,719
  395,437
  428,448
  462,782
  498,472
  535,562
  574,105
  614,161
  655,798
  699,090
  744,120
Total equity, $m
  17,541
  21,328
  28,268
  36,688
  46,706
  58,419
  71,895
  87,182
  104,301
  123,255
  144,029
  166,598
  190,926
  216,972
  244,697
  274,062
  305,032
  337,579
  371,685
  407,341
  444,546
  483,311
  523,659
  565,622
  609,243
  654,576
  701,684
  750,642
  801,530
  854,443
  909,480
Total liabilities and equity, $m
  31,094
  38,778
  51,396
  66,705
  84,920
  106,216
  130,718
  158,513
  189,638
  224,100
  261,871
  302,905
  347,138
  394,495
  444,904
  498,294
  554,603
  613,780
  675,791
  740,620
  808,265
  878,748
  952,107
  1,028,404
  1,107,715
  1,190,138
  1,275,789
  1,364,803
  1,457,328
  1,553,533
  1,653,600
Debt-to-equity ratio
  0.414
  0.520
  0.600
  0.650
  0.680
  0.710
  0.730
  0.750
  0.760
  0.770
  0.770
  0.780
  0.790
  0.790
  0.790
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
Adjusted equity ratio
  0.526
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -2,140
  -3,048
  -4,163
  -5,522
  -7,146
  -9,052
  -11,252
  -13,757
  -16,570
  -19,692
  -23,123
  -26,846
  -30,880
  -35,205
  -39,816
  -44,705
  -49,866
  -55,296
  -60,989
  -66,944
  -73,161
  -79,641
  -86,387
  -93,405
  -100,701
  -108,283
  -116,163
  -124,352
  -132,863
  -141,712
  -150,916
Depreciation, amort., depletion, $m
  2,395
  12
  12
  12
  12
  12
  12
  12
  12
  12
  12
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Funds from operations, $m
  989
  -3,036
  -4,151
  -5,510
  -7,134
  -9,040
  -11,241
  -13,745
  -16,558
  -19,681
  -23,112
  -26,846
  -30,880
  -35,205
  -39,816
  -44,705
  -49,866
  -55,296
  -60,989
  -66,944
  -73,161
  -79,641
  -86,387
  -93,405
  -100,701
  -108,283
  -116,163
  -124,352
  -132,863
  -141,712
  -150,916
Change in working capital, $m
  -84
  -133
  -165
  -201
  -239
  -279
  -321
  -364
  -408
  -452
  -495
  -538
  -580
  -621
  -661
  -700
  -738
  -776
  -813
  -850
  -887
  -924
  -962
  -1,000
  -1,040
  -1,081
  -1,123
  -1,167
  -1,213
  -1,261
  -1,312
Cash from operations, $m
  1,073
  -2,903
  -3,986
  -5,310
  -6,895
  -8,761
  -10,919
  -13,381
  -16,150
  -19,229
  -22,616
  -26,308
  -30,300
  -34,584
  -39,155
  -44,005
  -49,128
  -54,520
  -60,176
  -66,094
  -72,274
  -78,717
  -85,425
  -92,404
  -99,661
  -107,202
  -115,040
  -123,184
  -131,650
  -140,451
  -149,604
Maintenance CAPEX, $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
  0
New CAPEX, $m
  -1,245
  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 from investing activities, $m
  -874
  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
Free cash flow, $m
  199
  -2,903
  -3,986
  -5,310
  -6,895
  -8,761
  -10,919
  -13,381
  -16,150
  -19,229
  -22,616
  -26,308
  -30,300
  -34,584
  -39,155
  -44,005
  -49,128
  -54,520
  -60,176
  -66,094
  -72,274
  -78,717
  -85,425
  -92,404
  -99,661
  -107,202
  -115,040
  -123,184
  -131,650
  -140,451
  -149,604
Issuance/(repayment) of debt, $m
  -1
  4,583
  5,678
  6,889
  8,197
  9,583
  11,026
  12,507
  14,006
  15,508
  16,997
  18,465
  19,904
  21,311
  22,684
  24,025
  25,339
  26,630
  27,905
  29,173
  30,440
  31,717
  33,012
  34,333
  35,690
  37,091
  38,543
  40,056
  41,636
  43,292
  45,030
Issuance/(repurchase) of shares, $m
  1,236
  8,637
  11,103
  13,942
  17,164
  20,764
  24,729
  29,043
  33,689
  38,646
  43,898
  49,415
  55,207
  61,252
  67,541
  74,069
  80,836
  87,843
  95,095
  102,599
  110,366
  118,406
  126,735
  135,368
  144,322
  153,616
  163,271
  173,309
  183,752
  194,625
  205,953
Cash from financing (excl. dividends), $m  
  1,236
  13,220
  16,781
  20,831
  25,361
  30,347
  35,755
  41,550
  47,695
  54,154
  60,895
  67,880
  75,111
  82,563
  90,225
  98,094
  106,175
  114,473
  123,000
  131,772
  140,806
  150,123
  159,747
  169,701
  180,012
  190,707
  201,814
  213,365
  225,388
  237,917
  250,983
Total cash flow (excl. dividends), $m
  1,431
  10,317
  12,795
  15,521
  18,466
  21,586
  24,836
  28,170
  31,545
  34,925
  38,279
  41,572
  44,812
  47,979
  51,070
  54,090
  57,047
  59,953
  62,825
  65,678
  68,532
  71,407
  74,322
  77,297
  80,351
  83,504
  86,775
  90,180
  93,738
  97,466
  101,380
Retained Cash Flow (-), $m
  1,012
  -8,637
  -11,103
  -13,942
  -17,164
  -20,764
  -24,729
  -29,043
  -33,689
  -38,646
  -43,898
  -49,415
  -55,207
  -61,252
  -67,541
  -74,069
  -80,836
  -87,843
  -95,095
  -102,599
  -110,366
  -118,406
  -126,735
  -135,368
  -144,322
  -153,616
  -163,271
  -173,309
  -183,752
  -194,625
  -205,953
Prev. year cash balance distribution, $m
 
  1,802
  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
 
  3,482
  1,692
  1,579
  1,302
  822
  107
  -874
  -2,144
  -3,721
  -5,619
  -7,843
  -10,395
  -13,273
  -16,471
  -19,979
  -23,789
  -27,890
  -32,271
  -36,921
  -41,834
  -47,000
  -52,413
  -58,071
  -63,971
  -70,112
  -76,497
  -83,129
  -90,013
  -97,159
  -104,574
Discount rate, %
 
  5.60
  5.88
  6.17
  6.48
  6.81
  7.15
  7.50
  7.88
  8.27
  8.69
  9.12
  9.58
  10.06
  10.56
  11.09
  11.64
  12.22
  12.84
  13.48
  14.15
  14.86
  15.60
  16.38
  17.20
  18.06
  18.96
  19.91
  20.91
  21.95
  23.05
PV of cash for distribution, $m
 
  3,297
  1,509
  1,320
  1,012
  591
  71
  -526
  -1,169
  -1,820
  -2,443
  -3,002
  -3,469
  -3,819
  -4,040
  -4,127
  -4,084
  -3,926
  -3,671
  -3,342
  -2,964
  -2,563
  -2,159
  -1,773
  -1,418
  -1,105
  -837
  -617
  -442
  -308
  -207
Current shareholders' claim on cash, %
  100
  56.1
  32.1
  18.9
  11.3
  6.9
  4.3
  2.7
  1.8
  1.2
  0.8
  0.5
  0.3
  0.2
  0.2
  0.1
  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

Marathon Oil Corporation operates as an energy company. It operates through three segments: North America E&P, International E&P, and Oil Sands Mining. The North America E&P segment develops, explores for, produces, and markets crude oil and condensate, natural gas liquids (NGLs), and natural gas in North America. The International E&P segment explores for, produces, and markets crude oil and condensate, NGLs, and natural gas in Equatorial Guinea, Gabon, the Kurdistan Region of Iraq, Libya, and the United Kingdom; and produces and markets products manufactured from natural gas, such as liquefied natural gas and methanol in Equatorial Guinea. The Oil Sands Mining segment mines, extracts, and transports bitumen from oil sands deposits in Alberta, Canada; and upgrades the bitumen to produce and market synthetic crude oil and vacuum gas oil. As of December 31, 2016, it had rights to participate in developed and undeveloped surface mineable leases totaling approximately 31,000 net acres. The company was formerly known as USX Corporation and changed its name to Marathon Oil Corporation in July 2001. Marathon Oil Corporation was founded in 1887 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Marathon Oil (MRO)

Valuation Ratios
P/E Ratio -4.6
Price to Sales 2.3
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 9.2
Price to Free Cash Flow -57.5
Growth Rates
Sales Growth Rate -25.8%
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 -22.5%
Financial Strength
Quick Ratio 4
Current Ratio 0.1
LT Debt to Equity 37.5%
Total Debt to Equity 41.4%
Interest Coverage -2
Management Effectiveness
Return On Assets -4.7%
Ret/ On Assets - 3 Yr. Avg. -0.5%
Return On Total Capital -8.5%
Ret/ On T. Cap. - 3 Yr. Avg. -1.8%
Return On Equity -11.9%
Return On Equity - 3 Yr. Avg. -2.6%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 62.6%
Gross Margin - 3 Yr. Avg. 61.6%
EBITDA Margin 36%
EBITDA Margin - 3 Yr. Avg. 27.1%
Operating Margin -21.1%
Oper. Margin - 3 Yr. Avg. -18%
Pre-Tax Margin -29%
Pre-Tax Margin - 3 Yr. Avg. -22.8%
Net Profit Margin -50.2%
Net Profit Margin - 3 Yr. Avg. -20.6%
Effective Tax Rate -73.3%
Eff/ Tax Rate - 3 Yr. Avg. -6.3%
Payout Ratio -7.6%

MRO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MRO stock intrinsic value calculation we used $4261 million for the last fiscal year's total revenue generated by Marathon Oil. The default revenue input number comes from 2016 income statement of Marathon 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 MRO stock valuation model: a) initial revenue growth rate of 35.6% 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 5.6%, whose default value for MRO is calculated based on our internal credit rating of Marathon 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 Marathon 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 MRO stock the variable cost ratio is equal to 146.9%.

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 MRO 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 5.2% for Marathon Oil.

Corporate tax rate of 27% is the nominal tax rate for Marathon 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 MRO 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 MRO are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Marathon 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 MRO is equal to -8.8%. 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 - $17541 million for Marathon 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 855.319 million for Marathon 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 Marathon Oil at the current share price and the inputted number of shares is $10.0 billion.


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Stock chart of MRO Financial statements of MRO Annual reports of MRO
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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