Intrinsic value of Occidental Petroleum - OXY

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$61.56

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$61.56

 
Intrinsic value

$7.13

 
Up/down potential

-88%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of OXY 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 46.4

 

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, %
  -19.07
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  10,196
  10,400
  10,639
  10,913
  11,220
  11,560
  11,933
  12,339
  12,779
  13,253
  13,762
  14,306
  14,886
  15,505
  16,162
  16,859
  17,598
  18,380
  19,207
  20,081
  21,003
  21,977
  23,003
  24,086
  25,226
  26,427
  27,691
  29,022
  30,423
  31,896
  33,446
Variable operating expenses, $m
 
  18,356
  18,778
  19,261
  19,802
  20,403
  21,062
  21,779
  22,555
  23,392
  24,289
  25,250
  26,275
  27,366
  28,525
  29,756
  31,060
  32,440
  33,900
  35,442
  37,071
  38,789
  40,601
  42,511
  44,524
  46,643
  48,875
  51,224
  53,696
  56,296
  59,032
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
  11,951
  18,356
  18,778
  19,261
  19,802
  20,403
  21,062
  21,779
  22,555
  23,392
  24,289
  25,250
  26,275
  27,366
  28,525
  29,756
  31,060
  32,440
  33,900
  35,442
  37,071
  38,789
  40,601
  42,511
  44,524
  46,643
  48,875
  51,224
  53,696
  56,296
  59,032
Operating income, $m
  -1,755
  -7,956
  -8,139
  -8,348
  -8,583
  -8,843
  -9,129
  -9,440
  -9,776
  -10,139
  -10,528
  -10,944
  -11,388
  -11,861
  -12,364
  -12,897
  -13,462
  -14,060
  -14,693
  -15,362
  -16,067
  -16,812
  -17,598
  -18,426
  -19,298
  -20,217
  -21,184
  -22,202
  -23,273
  -24,400
  -25,586
EBITDA, $m
  2,513
  -3,606
  -3,689
  -3,784
  -3,890
  -4,008
  -4,138
  -4,278
  -4,431
  -4,595
  -4,772
  -4,960
  -5,162
  -5,376
  -5,604
  -5,846
  -6,102
  -6,373
  -6,660
  -6,963
  -7,283
  -7,620
  -7,976
  -8,351
  -8,747
  -9,163
  -9,601
  -10,063
  -10,549
  -11,059
  -11,597
Interest expense (income), $m
  312
  344
  361
  378
  399
  421
  447
  475
  505
  537
  573
  611
  651
  694
  740
  789
  841
  896
  954
  1,015
  1,080
  1,149
  1,221
  1,298
  1,378
  1,463
  1,552
  1,646
  1,745
  1,849
  1,959
Earnings before tax, $m
  -1,845
  -8,300
  -8,499
  -8,726
  -8,982
  -9,265
  -9,575
  -9,914
  -10,281
  -10,676
  -11,100
  -11,555
  -12,039
  -12,555
  -13,104
  -13,686
  -14,303
  -14,956
  -15,647
  -16,377
  -17,148
  -17,961
  -18,819
  -19,723
  -20,676
  -21,680
  -22,736
  -23,848
  -25,019
  -26,250
  -27,545
Tax expense, $m
  -662
  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
  -574
  -8,300
  -8,499
  -8,726
  -8,982
  -9,265
  -9,575
  -9,914
  -10,281
  -10,676
  -11,100
  -11,555
  -12,039
  -12,555
  -13,104
  -13,686
  -14,303
  -14,956
  -15,647
  -16,377
  -17,148
  -17,961
  -18,819
  -19,723
  -20,676
  -21,680
  -22,736
  -23,848
  -25,019
  -26,250
  -27,545

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,233
  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
  43,109
  41,767
  42,727
  43,825
  45,058
  46,424
  47,923
  49,555
  51,322
  53,225
  55,268
  57,453
  59,785
  62,268
  64,906
  67,706
  70,673
  73,814
  77,135
  80,645
  84,350
  88,260
  92,383
  96,730
  101,309
  106,132
  111,210
  116,555
  122,179
  128,096
  134,320
Adjusted assets (=assets-cash), $m
  40,876
  41,767
  42,727
  43,825
  45,058
  46,424
  47,923
  49,555
  51,322
  53,225
  55,268
  57,453
  59,785
  62,268
  64,906
  67,706
  70,673
  73,814
  77,135
  80,645
  84,350
  88,260
  92,383
  96,730
  101,309
  106,132
  111,210
  116,555
  122,179
  128,096
  134,320
Revenue / Adjusted assets
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
Average production assets, $m
  31,988
  32,625
  33,375
  34,233
  35,196
  36,263
  37,433
  38,708
  40,088
  41,575
  43,170
  44,877
  46,699
  48,638
  50,699
  52,886
  55,204
  57,657
  60,251
  62,993
  65,887
  68,941
  72,162
  75,557
  79,134
  82,901
  86,868
  91,043
  95,436
  100,058
  104,919
Working capital, $m
  2,066
  -166
  -170
  -175
  -180
  -185
  -191
  -197
  -204
  -212
  -220
  -229
  -238
  -248
  -259
  -270
  -282
  -294
  -307
  -321
  -336
  -352
  -368
  -385
  -404
  -423
  -443
  -464
  -487
  -510
  -535
Total debt, $m
  9,819
  10,302
  10,810
  11,391
  12,043
  12,765
  13,558
  14,422
  15,356
  16,363
  17,444
  18,600
  19,833
  21,147
  22,542
  24,024
  25,593
  27,255
  29,012
  30,868
  32,828
  34,897
  37,078
  39,377
  41,799
  44,351
  47,037
  49,865
  52,840
  55,970
  59,262
Total liabilities, $m
  21,612
  22,095
  22,603
  23,184
  23,836
  24,558
  25,351
  26,215
  27,149
  28,156
  29,237
  30,393
  31,626
  32,940
  34,335
  35,817
  37,386
  39,048
  40,805
  42,661
  44,621
  46,690
  48,871
  51,170
  53,592
  56,144
  58,830
  61,658
  64,633
  67,763
  71,055
Total equity, $m
  21,497
  19,672
  20,125
  20,642
  21,222
  21,866
  22,572
  23,341
  24,173
  25,069
  26,031
  27,060
  28,159
  29,328
  30,571
  31,890
  33,287
  34,766
  36,331
  37,984
  39,729
  41,570
  43,513
  45,560
  47,716
  49,988
  52,380
  54,897
  57,546
  60,333
  63,265
Total liabilities and equity, $m
  43,109
  41,767
  42,728
  43,826
  45,058
  46,424
  47,923
  49,556
  51,322
  53,225
  55,268
  57,453
  59,785
  62,268
  64,906
  67,707
  70,673
  73,814
  77,136
  80,645
  84,350
  88,260
  92,384
  96,730
  101,308
  106,132
  111,210
  116,555
  122,179
  128,096
  134,320
Debt-to-equity ratio
  0.457
  0.520
  0.540
  0.550
  0.570
  0.580
  0.600
  0.620
  0.640
  0.650
  0.670
  0.690
  0.700
  0.720
  0.740
  0.750
  0.770
  0.780
  0.800
  0.810
  0.830
  0.840
  0.850
  0.860
  0.880
  0.890
  0.900
  0.910
  0.920
  0.930
  0.940
Adjusted equity ratio
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -574
  -8,300
  -8,499
  -8,726
  -8,982
  -9,265
  -9,575
  -9,914
  -10,281
  -10,676
  -11,100
  -11,555
  -12,039
  -12,555
  -13,104
  -13,686
  -14,303
  -14,956
  -15,647
  -16,377
  -17,148
  -17,961
  -18,819
  -19,723
  -20,676
  -21,680
  -22,736
  -23,848
  -25,019
  -26,250
  -27,545
Depreciation, amort., depletion, $m
  4,268
  4,350
  4,450
  4,564
  4,693
  4,835
  4,991
  5,161
  5,345
  5,543
  5,756
  5,984
  6,227
  6,485
  6,760
  7,051
  7,360
  7,688
  8,034
  8,399
  8,785
  9,192
  9,622
  10,074
  10,551
  11,053
  11,582
  12,139
  12,725
  13,341
  13,989
Funds from operations, $m
  2,533
  -3,950
  -4,049
  -4,162
  -4,289
  -4,430
  -4,584
  -4,753
  -4,936
  -5,133
  -5,344
  -5,571
  -5,813
  -6,070
  -6,344
  -6,634
  -6,943
  -7,269
  -7,614
  -7,978
  -8,363
  -8,769
  -9,197
  -9,649
  -10,125
  -10,626
  -11,154
  -11,709
  -12,294
  -12,909
  -13,556
Change in working capital, $m
  -850
  -3
  -4
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
Cash from operations, $m
  3,383
  -3,597
  -4,046
  -4,158
  -4,284
  -4,424
  -4,578
  -4,746
  -4,929
  -5,125
  -5,336
  -5,562
  -5,803
  -6,060
  -6,333
  -6,623
  -6,931
  -7,256
  -7,600
  -7,964
  -8,348
  -8,753
  -9,181
  -9,632
  -10,107
  -10,607
  -11,134
  -11,688
  -12,271
  -12,885
  -13,531
Maintenance CAPEX, $m
  0
  -4,265
  -4,350
  -4,450
  -4,564
  -4,693
  -4,835
  -4,991
  -5,161
  -5,345
  -5,543
  -5,756
  -5,984
  -6,227
  -6,485
  -6,760
  -7,051
  -7,360
  -7,688
  -8,034
  -8,399
  -8,785
  -9,192
  -9,622
  -10,074
  -10,551
  -11,053
  -11,582
  -12,139
  -12,725
  -13,341
New CAPEX, $m
  -4,761
  -637
  -750
  -858
  -963
  -1,067
  -1,171
  -1,275
  -1,380
  -1,487
  -1,596
  -1,707
  -1,821
  -1,939
  -2,061
  -2,187
  -2,318
  -2,453
  -2,594
  -2,741
  -2,894
  -3,054
  -3,221
  -3,395
  -3,577
  -3,767
  -3,967
  -4,175
  -4,393
  -4,622
  -4,862
Cash from investing activities, $m
  -4,742
  -4,902
  -5,100
  -5,308
  -5,527
  -5,760
  -6,006
  -6,266
  -6,541
  -6,832
  -7,139
  -7,463
  -7,805
  -8,166
  -8,546
  -8,947
  -9,369
  -9,813
  -10,282
  -10,775
  -11,293
  -11,839
  -12,413
  -13,017
  -13,651
  -14,318
  -15,020
  -15,757
  -16,532
  -17,347
  -18,203
Free cash flow, $m
  -1,359
  -8,499
  -9,146
  -9,465
  -9,811
  -10,184
  -10,584
  -11,012
  -11,470
  -11,957
  -12,475
  -13,025
  -13,608
  -14,226
  -14,879
  -15,570
  -16,300
  -17,070
  -17,882
  -18,739
  -19,642
  -20,592
  -21,594
  -22,648
  -23,758
  -24,925
  -26,154
  -27,445
  -28,804
  -30,232
  -31,733
Issuance/(repayment) of debt, $m
  1,493
  483
  508
  581
  652
  723
  793
  863
  935
  1,007
  1,081
  1,156
  1,234
  1,313
  1,396
  1,481
  1,570
  1,661
  1,757
  1,856
  1,960
  2,068
  2,181
  2,299
  2,422
  2,551
  2,686
  2,827
  2,975
  3,130
  3,292
Issuance/(repurchase) of shares, $m
  14
  6,192
  9,090
  9,402
  9,740
  10,105
  10,497
  10,918
  11,367
  11,847
  12,357
  12,898
  13,473
  14,082
  14,726
  15,408
  16,128
  16,888
  17,690
  18,535
  19,427
  20,366
  21,355
  22,396
  23,492
  24,646
  25,859
  27,135
  28,477
  29,889
  31,372
Cash from financing (excl. dividends), $m  
  2,700
  6,675
  9,598
  9,983
  10,392
  10,828
  11,290
  11,781
  12,302
  12,854
  13,438
  14,054
  14,707
  15,395
  16,122
  16,889
  17,698
  18,549
  19,447
  20,391
  21,387
  22,434
  23,536
  24,695
  25,914
  27,197
  28,545
  29,962
  31,452
  33,019
  34,664
Total cash flow (excl. dividends), $m
  1,341
  -8,016
  -8,638
  -8,885
  -9,159
  -9,461
  -9,791
  -10,149
  -10,535
  -10,950
  -11,395
  -11,869
  -12,375
  -12,913
  -13,484
  -14,089
  -14,730
  -15,408
  -16,125
  -16,882
  -17,681
  -18,524
  -19,413
  -20,349
  -21,335
  -22,374
  -23,467
  -24,618
  -25,828
  -27,102
  -28,441
Retained Cash Flow (-), $m
  2,853
  -408
  -452
  -517
  -581
  -643
  -706
  -769
  -832
  -896
  -962
  -1,029
  -1,098
  -1,169
  -1,243
  -1,319
  -1,398
  -1,479
  -1,564
  -1,653
  -1,745
  -1,842
  -1,942
  -2,047
  -2,157
  -2,272
  -2,392
  -2,517
  -2,649
  -2,787
  -2,931
Prev. year cash balance distribution, $m
 
  2,233
  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
 
  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
Discount rate, %
 
  4.50
  4.73
  4.96
  5.21
  5.47
  5.74
  6.03
  6.33
  6.65
  6.98
  7.33
  7.70
  8.08
  8.49
  8.91
  9.36
  9.82
  10.31
  10.83
  11.37
  11.94
  12.54
  13.16
  13.82
  14.51
  15.24
  16.00
  16.80
  17.64
  18.52
PV of cash for 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
Current shareholders' claim on cash, %
  100
  87.0
  71.7
  58.9
  48.4
  39.6
  32.4
  26.5
  21.6
  17.6
  14.3
  11.7
  9.5
  7.7
  6.2
  5.1
  4.1
  3.3
  2.7
  2.2
  1.8
  1.4
  1.1
  0.9
  0.7
  0.6
  0.5
  0.4
  0.3
  0.3
  0.2

Occidental Petroleum Corporation engages in the acquisition, exploration, and development of oil and gas properties in the United States and internationally. The company operates in three segments: Oil and Gas, Chemical, and Midstream and Marketing. The Oil and Gas segment explores for, develops, and produces oil and condensate, natural gas liquids (NGLs), and natural gas. The Chemical segment manufactures and markets basic chemicals, including chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates, and calcium chloride; vinyls comprising vinyl chloride monomer and polyvinyl chloride; and other chemicals, such as resorcinol. The Midstream and Marketing segment gathers, processes, transports, stores, purchases, and markets oil, condensate, NGLs, natural gas, carbon dioxide, and power. This segment also trades around its assets consisting of transportation and storage capacity, as well as oil, NGLs, gas, and other commodities. Occidental Petroleum Corporation was founded in 1920 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Occidental Petroleum (OXY)

Valuation Ratios
P/E Ratio -82
Price to Sales 4.6
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 13.9
Price to Free Cash Flow -34.1
Growth Rates
Sales Growth Rate -19.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.5%
Cap. Spend. - 3 Yr. Gr. Rate -9.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 45.7%
Total Debt to Equity 45.7%
Interest Coverage -5
Management Effectiveness
Return On Assets -0.9%
Ret/ On Assets - 3 Yr. Avg. -5.1%
Return On Total Capital -1.8%
Ret/ On T. Cap. - 3 Yr. Avg. -7.2%
Return On Equity -2.5%
Return On Equity - 3 Yr. Avg. -9.1%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 49.1%
Gross Margin - 3 Yr. Avg. 56%
EBITDA Margin 26.8%
EBITDA Margin - 3 Yr. Avg. 5.8%
Operating Margin -17.2%
Oper. Margin - 3 Yr. Avg. -33.3%
Pre-Tax Margin -18.1%
Pre-Tax Margin - 3 Yr. Avg. -29.6%
Net Profit Margin -5.6%
Net Profit Margin - 3 Yr. Avg. -21.5%
Effective Tax Rate 35.9%
Eff/ Tax Rate - 3 Yr. Avg. 62.4%
Payout Ratio -402.3%

OXY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OXY stock intrinsic value calculation we used $10196 million for the last fiscal year's total revenue generated by Occidental Petroleum. The default revenue input number comes from 2016 income statement of Occidental Petroleum. 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 OXY stock valuation model: a) initial revenue growth rate of 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 4.5%, whose default value for OXY is calculated based on our internal credit rating of Occidental Petroleum, 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 Occidental Petroleum.
    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 OXY stock the variable cost ratio is equal to 176.5%.

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 OXY 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 Occidental Petroleum.

Corporate tax rate of 27% is the nominal tax rate for Occidental Petroleum. 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 OXY 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 OXY are equal to 313.7%.

Life of production assets of 7.5 years is the average useful life of capital assets used in Occidental Petroleum 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 OXY is equal to -1.6%. 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 - $21497 million for Occidental Petroleum - 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 753.788 million for Occidental Petroleum 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 Occidental Petroleum at the current share price and the inputted number of shares is $46.4 billion.


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Stock chart of OXY Financial statements of OXY Annual reports of OXY
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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