Intrinsic value of NRG Energy - NRG

Previous Close

$29.49

  Intrinsic Value

$1.09

stock screener

  Rating & Target

str. sell

-96%

Previous close

$29.49

 
Intrinsic value

$1.09

 
Up/down potential

-96%

 
Rating

str. sell

We calculate the intrinsic value of NRG 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 9.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -15.83
  20.20
  18.68
  17.31
  16.08
  14.97
  13.98
  13.08
  12.27
  11.54
  10.89
  10.30
  9.77
  9.29
  8.86
  8.48
  8.13
  7.82
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.80
  5.72
Revenue, $m
  12,351
  14,846
  17,619
  20,669
  23,993
  27,586
  31,441
  35,553
  39,915
  44,522
  49,370
  54,455
  59,776
  65,330
  71,121
  77,150
  83,422
  89,943
  96,720
  103,763
  111,081
  118,688
  126,597
  134,822
  143,379
  152,286
  161,562
  171,227
  181,302
  191,809
  202,773
Variable operating expenses, $m
 
  18,900
  22,419
  26,288
  30,505
  35,062
  39,953
  45,170
  50,704
  56,549
  62,699
  69,084
  75,834
  82,881
  90,227
  97,876
  105,833
  114,105
  122,703
  131,638
  140,922
  150,573
  160,606
  171,040
  181,896
  193,196
  204,964
  217,226
  230,007
  243,337
  257,246
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
  12,234
  18,900
  22,419
  26,288
  30,505
  35,062
  39,953
  45,170
  50,704
  56,549
  62,699
  69,084
  75,834
  82,881
  90,227
  97,876
  105,833
  114,105
  122,703
  131,638
  140,922
  150,573
  160,606
  171,040
  181,896
  193,196
  204,964
  217,226
  230,007
  243,337
  257,246
Operating income, $m
  117
  -4,054
  -4,799
  -5,619
  -6,512
  -7,477
  -8,512
  -9,617
  -10,789
  -12,027
  -13,329
  -14,629
  -16,058
  -17,550
  -19,106
  -20,726
  -22,411
  -24,162
  -25,983
  -27,875
  -29,841
  -31,884
  -34,009
  -36,218
  -38,517
  -40,910
  -43,402
  -45,998
  -48,705
  -51,528
  -54,473
EBITDA, $m
  1,575
  -2,304
  -2,735
  -3,208
  -3,724
  -4,282
  -4,880
  -5,518
  -6,195
  -6,910
  -7,663
  -8,452
  -9,278
  -10,140
  -11,039
  -11,974
  -12,948
  -13,960
  -15,012
  -16,105
  -17,241
  -18,422
  -19,649
  -20,926
  -22,254
  -23,636
  -25,076
  -26,576
  -28,140
  -29,771
  -31,472
Interest expense (income), $m
  1,106
  989
  1,242
  1,615
  2,025
  2,472
  2,955
  3,473
  4,026
  4,612
  5,232
  5,884
  6,568
  7,283
  8,030
  8,808
  9,619
  10,462
  11,339
  12,250
  13,197
  14,181
  15,204
  16,268
  17,373
  18,524
  19,722
  20,969
  22,268
  23,623
  25,036
Earnings before tax, $m
  -875
  -5,044
  -6,041
  -7,233
  -8,536
  -9,948
  -11,467
  -13,090
  -14,815
  -16,639
  -18,561
  -20,513
  -22,626
  -24,833
  -27,136
  -29,534
  -32,030
  -34,625
  -37,322
  -40,125
  -43,038
  -46,066
  -49,213
  -52,486
  -55,891
  -59,434
  -63,124
  -66,967
  -70,973
  -75,151
  -79,509
Tax expense, $m
  16
  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
  -774
  -5,044
  -6,041
  -7,233
  -8,536
  -9,948
  -11,467
  -13,090
  -14,815
  -16,639
  -18,561
  -20,513
  -22,626
  -24,833
  -27,136
  -29,534
  -32,030
  -34,625
  -37,322
  -40,125
  -43,038
  -46,066
  -49,213
  -52,486
  -55,891
  -59,434
  -63,124
  -66,967
  -70,973
  -75,151
  -79,509

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  938
  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
  30,682
  35,773
  42,456
  49,806
  57,815
  66,471
  75,761
  85,669
  96,180
  107,283
  118,964
  131,218
  144,038
  157,423
  171,376
  185,904
  201,017
  216,730
  233,061
  250,031
  267,666
  285,996
  305,052
  324,871
  345,491
  366,955
  389,307
  412,595
  436,872
  462,191
  488,609
Adjusted assets (=assets-cash), $m
  29,744
  35,773
  42,456
  49,806
  57,815
  66,471
  75,761
  85,669
  96,180
  107,283
  118,964
  131,218
  144,038
  157,423
  171,376
  185,904
  201,017
  216,730
  233,061
  250,031
  267,666
  285,996
  305,052
  324,871
  345,491
  366,955
  389,307
  412,595
  436,872
  462,191
  488,609
Revenue / Adjusted assets
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
  0.415
Average production assets, $m
  19,192
  23,071
  27,380
  32,120
  37,285
  42,868
  48,859
  55,249
  62,028
  69,188
  76,721
  84,624
  92,891
  101,524
  110,522
  119,892
  129,638
  139,771
  150,303
  161,247
  172,621
  184,442
  196,731
  209,513
  222,811
  236,653
  251,068
  266,087
  281,743
  298,071
  315,109
Working capital, $m
  2,012
  1,915
  2,273
  2,666
  3,095
  3,559
  4,056
  4,586
  5,149
  5,743
  6,369
  7,025
  7,711
  8,428
  9,175
  9,952
  10,761
  11,603
  12,477
  13,385
  14,330
  15,311
  16,331
  17,392
  18,496
  19,645
  20,842
  22,088
  23,388
  24,743
  26,158
Total debt, $m
  16,473
  20,028
  26,042
  32,657
  39,865
  47,656
  56,017
  64,934
  74,394
  84,386
  94,900
  105,928
  117,466
  129,513
  142,071
  155,146
  168,748
  182,889
  197,587
  212,860
  228,732
  245,228
  262,379
  280,216
  298,774
  318,091
  338,208
  359,168
  381,017
  403,804
  427,580
Total liabilities, $m
  28,641
  32,196
  38,210
  44,825
  52,033
  59,824
  68,185
  77,102
  86,562
  96,554
  107,068
  118,096
  129,634
  141,681
  154,239
  167,314
  180,916
  195,057
  209,755
  225,028
  240,900
  257,396
  274,547
  292,384
  310,942
  330,259
  350,376
  371,336
  393,185
  415,972
  439,748
Total equity, $m
  2,041
  3,577
  4,246
  4,981
  5,781
  6,647
  7,576
  8,567
  9,618
  10,728
  11,896
  13,122
  14,404
  15,742
  17,138
  18,590
  20,102
  21,673
  23,306
  25,003
  26,767
  28,600
  30,505
  32,487
  34,549
  36,695
  38,931
  41,260
  43,687
  46,219
  48,861
Total liabilities and equity, $m
  30,682
  35,773
  42,456
  49,806
  57,814
  66,471
  75,761
  85,669
  96,180
  107,282
  118,964
  131,218
  144,038
  157,423
  171,377
  185,904
  201,018
  216,730
  233,061
  250,031
  267,667
  285,996
  305,052
  324,871
  345,491
  366,954
  389,307
  412,596
  436,872
  462,191
  488,609
Debt-to-equity ratio
  8.071
  5.600
  6.130
  6.560
  6.900
  7.170
  7.390
  7.580
  7.730
  7.870
  7.980
  8.070
  8.160
  8.230
  8.290
  8.350
  8.390
  8.440
  8.480
  8.510
  8.550
  8.570
  8.600
  8.630
  8.650
  8.670
  8.690
  8.710
  8.720
  8.740
  8.750
Adjusted equity ratio
  0.037
  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
  -774
  -5,044
  -6,041
  -7,233
  -8,536
  -9,948
  -11,467
  -13,090
  -14,815
  -16,639
  -18,561
  -20,513
  -22,626
  -24,833
  -27,136
  -29,534
  -32,030
  -34,625
  -37,322
  -40,125
  -43,038
  -46,066
  -49,213
  -52,486
  -55,891
  -59,434
  -63,124
  -66,967
  -70,973
  -75,151
  -79,509
Depreciation, amort., depletion, $m
  1,458
  1,750
  2,065
  2,411
  2,788
  3,195
  3,633
  4,099
  4,594
  5,116
  5,666
  6,177
  6,780
  7,410
  8,067
  8,751
  9,463
  10,202
  10,971
  11,770
  12,600
  13,463
  14,360
  15,293
  16,264
  17,274
  18,326
  19,422
  20,565
  21,757
  23,001
Funds from operations, $m
  1,997
  -3,294
  -3,976
  -4,823
  -5,749
  -6,753
  -7,835
  -8,991
  -10,221
  -11,523
  -12,895
  -14,336
  -15,845
  -17,423
  -19,068
  -20,783
  -22,567
  -24,422
  -26,351
  -28,355
  -30,438
  -32,603
  -34,853
  -37,193
  -39,627
  -42,160
  -44,798
  -47,545
  -50,408
  -53,394
  -56,508
Change in working capital, $m
  -75
  322
  358
  393
  429
  463
  497
  530
  563
  594
  625
  656
  686
  717
  747
  778
  809
  841
  874
  908
  944
  981
  1,020
  1,061
  1,104
  1,149
  1,197
  1,247
  1,300
  1,355
  1,414
Cash from operations, $m
  2,072
  -3,615
  -4,334
  -5,216
  -6,177
  -7,217
  -8,332
  -9,522
  -10,784
  -12,117
  -13,520
  -14,992
  -16,532
  -18,139
  -19,815
  -21,561
  -23,376
  -25,264
  -27,225
  -29,264
  -31,382
  -33,584
  -35,873
  -38,254
  -40,731
  -43,309
  -45,994
  -48,792
  -51,708
  -54,749
  -57,922
Maintenance CAPEX, $m
  0
  -1,401
  -1,684
  -1,999
  -2,345
  -2,722
  -3,129
  -3,566
  -4,033
  -4,528
  -5,050
  -5,600
  -6,177
  -6,780
  -7,410
  -8,067
  -8,751
  -9,463
  -10,202
  -10,971
  -11,770
  -12,600
  -13,463
  -14,360
  -15,293
  -16,264
  -17,274
  -18,326
  -19,422
  -20,565
  -21,757
New CAPEX, $m
  -1,244
  -3,879
  -4,310
  -4,740
  -5,165
  -5,583
  -5,991
  -6,390
  -6,779
  -7,160
  -7,534
  -7,902
  -8,268
  -8,632
  -8,999
  -9,369
  -9,747
  -10,133
  -10,532
  -10,944
  -11,373
  -11,821
  -12,290
  -12,781
  -13,298
  -13,842
  -14,415
  -15,019
  -15,656
  -16,328
  -17,038
Cash from investing activities, $m
  -824
  -5,280
  -5,994
  -6,739
  -7,510
  -8,305
  -9,120
  -9,956
  -10,812
  -11,688
  -12,584
  -13,502
  -14,445
  -15,412
  -16,409
  -17,436
  -18,498
  -19,596
  -20,734
  -21,915
  -23,143
  -24,421
  -25,753
  -27,141
  -28,591
  -30,106
  -31,689
  -33,345
  -35,078
  -36,893
  -38,795
Free cash flow, $m
  1,248
  -8,895
  -10,328
  -11,955
  -13,687
  -15,521
  -17,452
  -19,478
  -21,596
  -23,805
  -26,104
  -28,494
  -30,976
  -33,552
  -36,225
  -38,997
  -41,874
  -44,859
  -47,959
  -51,179
  -54,525
  -58,005
  -61,626
  -65,395
  -69,322
  -73,415
  -77,683
  -82,137
  -86,786
  -91,643
  -96,717
Issuance/(repayment) of debt, $m
  -386
  4,071
  6,014
  6,615
  7,208
  7,791
  8,361
  8,917
  9,460
  9,992
  10,514
  11,028
  11,538
  12,047
  12,558
  13,075
  13,602
  14,141
  14,697
  15,273
  15,872
  16,497
  17,151
  17,837
  18,558
  19,317
  20,117
  20,960
  21,849
  22,787
  23,777
Issuance/(repurchase) of shares, $m
  -225
  7,002
  6,709
  7,968
  9,337
  10,814
  12,396
  14,081
  15,866
  17,749
  19,729
  21,738
  23,908
  26,172
  28,531
  30,987
  33,541
  36,196
  38,955
  41,822
  44,802
  47,899
  51,119
  54,468
  57,953
  61,581
  65,359
  69,296
  73,401
  77,683
  82,151
Cash from financing (excl. dividends), $m  
  -718
  11,073
  12,723
  14,583
  16,545
  18,605
  20,757
  22,998
  25,326
  27,741
  30,243
  32,766
  35,446
  38,219
  41,089
  44,062
  47,143
  50,337
  53,652
  57,095
  60,674
  64,396
  68,270
  72,305
  76,511
  80,898
  85,476
  90,256
  95,250
  100,470
  105,928
Total cash flow (excl. dividends), $m
  531
  2,178
  2,396
  2,629
  2,858
  3,084
  3,305
  3,520
  3,731
  3,937
  4,139
  4,272
  4,469
  4,667
  4,865
  5,065
  5,269
  5,478
  5,693
  5,916
  6,148
  6,390
  6,644
  6,909
  7,189
  7,483
  7,793
  8,119
  8,464
  8,827
  9,210
Retained Cash Flow (-), $m
  968
  -7,002
  -6,709
  -7,968
  -9,337
  -10,814
  -12,396
  -14,081
  -15,866
  -17,749
  -19,729
  -21,738
  -23,908
  -26,172
  -28,531
  -30,987
  -33,541
  -36,196
  -38,955
  -41,822
  -44,802
  -47,899
  -51,119
  -54,468
  -57,953
  -61,581
  -65,359
  -69,296
  -73,401
  -77,683
  -82,151
Prev. year cash balance distribution, $m
 
  422
  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
 
  -4,402
  -4,313
  -5,340
  -6,479
  -7,730
  -9,091
  -10,560
  -12,135
  -13,813
  -15,590
  -17,466
  -19,438
  -21,505
  -23,667
  -25,922
  -28,272
  -30,718
  -33,262
  -35,906
  -38,654
  -41,509
  -44,475
  -47,558
  -50,764
  -54,098
  -57,566
  -61,177
  -64,937
  -68,856
  -72,940
Discount rate, %
 
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.10
  33.71
  35.40
  37.17
  39.02
  40.97
  43.02
  45.17
  47.43
  49.81
PV of cash for distribution, $m
 
  -3,927
  -3,396
  -3,668
  -3,835
  -3,892
  -3,841
  -3,688
  -3,450
  -3,143
  -2,791
  -2,414
  -2,034
  -1,669
  -1,332
  -1,034
  -780
  -571
  -406
  -279
  -186
  -120
  -75
  -45
  -26
  -14
  -8
  -4
  -2
  -1
  0
Current shareholders' claim on cash, %
  100
  51.4
  36.4
  25.8
  18.3
  13.0
  9.2
  6.6
  4.7
  3.3
  2.4
  1.7
  1.2
  0.9
  0.6
  0.4
  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

NRG Energy, Inc. (NRG) is an integrated power company. The Company is engaged in producing, selling and delivering electricity and related products and services in various markets in the United States. The Company's segments include Generation, Retail, Renewables, NRG Yield, Inc. (NRG Yield) and Corporate activities. The Generation segment includes generation, international and Boston Energy Trading and Marketing LLC (BETM). The Retail segment includes Mass customers and Business Solutions. Its Business Solutions include commercial, industrial and governmental/institutional (C&I) customers, and other distributed and reliability products. The Renewables segment includes solar and wind assets. The NRG Yield segment includes certain of the Company's contracted generation assets. The corporate activities segment includes residential solar and electric vehicle services. The Company owned and operated approximately 47,000 megawatts (MW) of generation, as of December 31, 2016.

FINANCIAL RATIOS  of  NRG Energy (NRG)

Valuation Ratios
P/E Ratio -12
Price to Sales 0.8
Price to Book 4.6
Price to Tangible Book
Price to Cash Flow 4.5
Price to Free Cash Flow 11.2
Growth Rates
Sales Growth Rate -15.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3%
Cap. Spend. - 3 Yr. Gr. Rate -8.9%
Financial Strength
Quick Ratio 2
Current Ratio 0.8
LT Debt to Equity 781.8%
Total Debt to Equity 807.1%
Interest Coverage 0
Management Effectiveness
Return On Assets 1.1%
Ret/ On Assets - 3 Yr. Avg. -3%
Return On Total Capital -3.8%
Ret/ On T. Cap. - 3 Yr. Avg. -9.2%
Return On Equity -30.7%
Return On Equity - 3 Yr. Avg. -42.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 30.7%
Gross Margin - 3 Yr. Avg. 27.7%
EBITDA Margin 13.7%
EBITDA Margin - 3 Yr. Avg. 5.2%
Operating Margin 0.9%
Oper. Margin - 3 Yr. Avg. -6.3%
Pre-Tax Margin -7.1%
Pre-Tax Margin - 3 Yr. Avg. -13.6%
Net Profit Margin -6.3%
Net Profit Margin - 3 Yr. Avg. -16.3%
Effective Tax Rate -1.8%
Eff/ Tax Rate - 3 Yr. Avg. -8.7%
Payout Ratio -9.8%

NRG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NRG stock intrinsic value calculation we used $12351 million for the last fiscal year's total revenue generated by NRG Energy. The default revenue input number comes from 2016 income statement of NRG Energy. 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 NRG stock valuation model: a) initial revenue growth rate of 20.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 12.1%, whose default value for NRG is calculated based on our internal credit rating of NRG Energy, 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 NRG Energy.
    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 NRG stock the variable cost ratio is equal to 127.4%.

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 NRG 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 6.2% for NRG Energy.

Corporate tax rate of 27% is the nominal tax rate for NRG Energy. 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 NRG 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 NRG are equal to 155.4%.

Life of production assets of 13.7 years is the average useful life of capital assets used in NRG Energy 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 NRG is equal to 12.9%. 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 - $2041 million for NRG Energy - 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 316.535 million for NRG Energy 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 NRG Energy at the current share price and the inputted number of shares is $9.3 billion.

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Financial statements of NRG
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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