Intrinsic value of Parsley Energy Cl A - PE

Previous Close

$31.55

  Intrinsic Value

$4.89

stock screener

  Rating & Target

str. sell

-85%

Previous close

$31.55

 
Intrinsic value

$4.89

 
Up/down potential

-85%

 
Rating

str. sell

We calculate the intrinsic value of PE 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  72.18
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  458
  1,547
  2,390
  3,575
  5,187
  7,318
  10,061
  13,504
  17,732
  22,817
  28,820
  35,787
  43,753
  52,738
  62,747
  73,780
  85,823
  98,861
  112,873
  127,834
  143,723
  160,520
  178,206
  196,768
  216,199
  236,494
  257,656
  279,695
  302,625
  326,467
  351,248
Variable operating expenses, $m
 
  832
  1,286
  1,923
  2,791
  3,937
  5,413
  7,265
  9,540
  12,275
  15,505
  19,254
  23,539
  28,373
  33,758
  39,693
  46,173
  53,187
  60,725
  68,775
  77,323
  86,360
  95,875
  105,861
  116,315
  127,234
  138,619
  150,476
  162,812
  175,639
  188,971
Fixed operating expenses, $m
 
  189
  193
  197
  202
  206
  211
  215
  220
  225
  230
  235
  240
  245
  251
  256
  262
  268
  274
  280
  286
  292
  299
  305
  312
  319
  326
  333
  340
  348
  355
Total operating expenses, $m
  463
  1,021
  1,479
  2,120
  2,993
  4,143
  5,624
  7,480
  9,760
  12,500
  15,735
  19,489
  23,779
  28,618
  34,009
  39,949
  46,435
  53,455
  60,999
  69,055
  77,609
  86,652
  96,174
  106,166
  116,627
  127,553
  138,945
  150,809
  163,152
  175,987
  189,326
Operating income, $m
  -5
  526
  911
  1,454
  2,195
  3,175
  4,437
  6,024
  7,972
  10,316
  13,085
  16,299
  19,974
  24,119
  28,738
  33,830
  39,388
  45,406
  51,873
  58,780
  66,114
  73,868
  82,033
  90,602
  99,572
  108,941
  118,711
  128,886
  139,472
  150,480
  161,921
EBITDA, $m
  229
  1,442
  2,327
  3,571
  5,266
  7,508
  10,394
  14,019
  18,471
  23,826
  30,149
  37,488
  45,880
  55,345
  65,891
  77,515
  90,204
  103,942
  118,705
  134,470
  151,213
  168,912
  187,548
  207,108
  227,583
  248,969
  271,269
  294,493
  318,657
  343,781
  369,895
Interest expense (income), $m
  66
  123
  256
  451
  724
  1,095
  1,586
  2,219
  3,012
  3,987
  5,159
  6,542
  8,149
  9,985
  12,056
  14,363
  16,906
  19,682
  22,687
  25,917
  29,365
  33,028
  36,899
  40,976
  45,255
  49,733
  54,411
  59,289
  64,369
  69,655
  75,150
Earnings before tax, $m
  -106
  403
  655
  1,004
  1,471
  2,080
  2,851
  3,805
  4,960
  6,330
  7,926
  9,756
  11,825
  14,135
  16,683
  19,467
  22,483
  25,724
  29,186
  32,863
  36,749
  40,840
  45,133
  49,626
  54,317
  59,208
  64,300
  69,597
  75,103
  80,825
  86,771
Tax expense, $m
  -17
  109
  177
  271
  397
  561
  770
  1,027
  1,339
  1,709
  2,140
  2,634
  3,193
  3,816
  4,504
  5,256
  6,070
  6,946
  7,880
  8,873
  9,922
  11,027
  12,186
  13,399
  14,666
  15,986
  17,361
  18,791
  20,278
  21,823
  23,428
Net income, $m
  -74
  294
  478
  733
  1,074
  1,518
  2,081
  2,778
  3,621
  4,621
  5,786
  7,122
  8,633
  10,318
  12,178
  14,211
  16,412
  18,779
  21,306
  23,990
  26,827
  29,813
  32,947
  36,227
  39,652
  43,222
  46,939
  50,806
  54,825
  59,003
  63,343

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  133
  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
  3,939
  13,814
  21,343
  31,919
  46,312
  65,340
  89,827
  120,574
  158,322
  203,722
  257,317
  319,530
  390,655
  470,871
  560,244
  658,747
  766,281
  882,692
  1,007,791
  1,141,375
  1,283,245
  1,433,214
  1,591,126
  1,756,861
  1,930,345
  2,111,549
  2,300,500
  2,497,275
  2,702,008
  2,914,883
  3,136,139
Adjusted assets (=assets-cash), $m
  3,806
  13,814
  21,343
  31,919
  46,312
  65,340
  89,827
  120,574
  158,322
  203,722
  257,317
  319,530
  390,655
  470,871
  560,244
  658,747
  766,281
  882,692
  1,007,791
  1,141,375
  1,283,245
  1,433,214
  1,591,126
  1,756,861
  1,930,345
  2,111,549
  2,300,500
  2,497,275
  2,702,008
  2,914,883
  3,136,139
Revenue / Adjusted assets
  0.120
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
  0.112
Average production assets, $m
  2,801
  9,161
  14,154
  21,167
  30,712
  43,330
  59,569
  79,959
  104,991
  135,098
  170,640
  211,897
  259,064
  312,259
  371,527
  436,849
  508,161
  585,359
  668,318
  756,905
  850,986
  950,439
  1,055,158
  1,165,066
  1,280,112
  1,400,278
  1,525,581
  1,656,073
  1,791,842
  1,933,011
  2,079,737
Working capital, $m
  -46
  -653
  -1,009
  -1,509
  -2,189
  -3,088
  -4,246
  -5,699
  -7,483
  -9,629
  -12,162
  -15,102
  -18,464
  -22,255
  -26,479
  -31,135
  -36,218
  -41,720
  -47,632
  -53,946
  -60,651
  -67,739
  -75,203
  -83,036
  -91,236
  -99,800
  -108,731
  -118,031
  -127,708
  -137,769
  -148,226
Total debt, $m
  1,109
  4,575
  8,045
  12,921
  19,556
  28,328
  39,617
  53,791
  71,193
  92,122
  116,829
  145,509
  178,298
  215,278
  256,479
  301,889
  351,462
  405,127
  462,798
  524,380
  589,782
  658,918
  731,715
  808,119
  888,095
  971,630
  1,058,737
  1,149,450
  1,243,832
  1,341,967
  1,443,966
Total liabilities, $m
  1,849
  6,368
  9,839
  14,714
  21,350
  30,122
  41,410
  55,585
  72,986
  93,916
  118,623
  147,303
  180,092
  217,072
  258,272
  303,682
  353,256
  406,921
  464,591
  526,174
  591,576
  660,712
  733,509
  809,913
  889,889
  973,424
  1,060,530
  1,151,244
  1,245,626
  1,343,761
  1,445,760
Total equity, $m
  2,090
  7,446
  11,504
  17,204
  24,962
  35,218
  48,417
  64,990
  85,335
  109,806
  138,694
  172,226
  210,563
  253,800
  301,971
  355,065
  413,026
  475,771
  543,199
  615,201
  691,669
  772,502
  857,617
  946,948
  1,040,456
  1,138,125
  1,239,969
  1,346,031
  1,456,382
  1,571,122
  1,690,379
Total liabilities and equity, $m
  3,939
  13,814
  21,343
  31,918
  46,312
  65,340
  89,827
  120,575
  158,321
  203,722
  257,317
  319,529
  390,655
  470,872
  560,243
  658,747
  766,282
  882,692
  1,007,790
  1,141,375
  1,283,245
  1,433,214
  1,591,126
  1,756,861
  1,930,345
  2,111,549
  2,300,499
  2,497,275
  2,702,008
  2,914,883
  3,136,139
Debt-to-equity ratio
  0.531
  0.610
  0.700
  0.750
  0.780
  0.800
  0.820
  0.830
  0.830
  0.840
  0.840
  0.840
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
Adjusted equity ratio
  0.514
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -74
  294
  478
  733
  1,074
  1,518
  2,081
  2,778
  3,621
  4,621
  5,786
  7,122
  8,633
  10,318
  12,178
  14,211
  16,412
  18,779
  21,306
  23,990
  26,827
  29,813
  32,947
  36,227
  39,652
  43,222
  46,939
  50,806
  54,825
  59,003
  63,343
Depreciation, amort., depletion, $m
  234
  916
  1,415
  2,117
  3,071
  4,333
  5,957
  7,996
  10,499
  13,510
  17,064
  21,190
  25,906
  31,226
  37,153
  43,685
  50,816
  58,536
  66,832
  75,691
  85,099
  95,044
  105,516
  116,507
  128,011
  140,028
  152,558
  165,607
  179,184
  193,301
  207,974
Funds from operations, $m
  173
  1,210
  1,893
  2,849
  4,145
  5,851
  8,038
  10,774
  14,120
  18,130
  22,850
  28,312
  34,539
  41,544
  49,331
  57,896
  67,228
  77,315
  88,138
  99,680
  111,925
  124,857
  138,463
  152,733
  167,663
  183,250
  199,497
  216,413
  234,010
  252,304
  271,316
Change in working capital, $m
  -55
  -245
  -356
  -500
  -680
  -899
  -1,157
  -1,453
  -1,784
  -2,146
  -2,533
  -2,940
  -3,362
  -3,791
  -4,224
  -4,656
  -5,082
  -5,502
  -5,913
  -6,314
  -6,705
  -7,088
  -7,464
  -7,833
  -8,200
  -8,564
  -8,931
  -9,300
  -9,676
  -10,061
  -10,457
Cash from operations, $m
  228
  1,455
  2,249
  3,349
  4,825
  6,750
  9,195
  12,227
  15,904
  20,276
  25,383
  31,252
  37,901
  45,335
  53,555
  62,552
  72,311
  82,817
  94,051
  105,994
  118,631
  131,945
  145,927
  160,567
  175,862
  191,814
  208,428
  225,713
  243,686
  262,365
  281,774
Maintenance CAPEX, $m
  0
  -573
  -916
  -1,415
  -2,117
  -3,071
  -4,333
  -5,957
  -7,996
  -10,499
  -13,510
  -17,064
  -21,190
  -25,906
  -31,226
  -37,153
  -43,685
  -50,816
  -58,536
  -66,832
  -75,691
  -85,099
  -95,044
  -105,516
  -116,507
  -128,011
  -140,028
  -152,558
  -165,607
  -179,184
  -193,301
New CAPEX, $m
  -1,380
  -3,435
  -4,993
  -7,013
  -9,545
  -12,618
  -16,239
  -20,390
  -25,032
  -30,107
  -35,542
  -41,256
  -47,167
  -53,195
  -59,268
  -65,323
  -71,311
  -77,198
  -82,960
  -88,587
  -94,081
  -99,452
  -104,720
  -109,908
  -115,046
  -120,166
  -125,303
  -130,492
  -135,769
  -141,169
  -146,727
Cash from investing activities, $m
  -1,885
  -4,008
  -5,909
  -8,428
  -11,662
  -15,689
  -20,572
  -26,347
  -33,028
  -40,606
  -49,052
  -58,320
  -68,357
  -79,101
  -90,494
  -102,476
  -114,996
  -128,014
  -141,496
  -155,419
  -169,772
  -184,551
  -199,764
  -215,424
  -231,553
  -248,177
  -265,331
  -283,050
  -301,376
  -320,353
  -340,028
Free cash flow, $m
  -1,657
  -2,553
  -3,659
  -5,079
  -6,837
  -8,939
  -11,376
  -14,120
  -17,124
  -20,330
  -23,669
  -27,068
  -30,456
  -33,766
  -36,938
  -39,924
  -42,685
  -45,197
  -47,445
  -49,425
  -51,141
  -52,606
  -53,837
  -54,857
  -55,690
  -56,363
  -56,903
  -57,337
  -57,690
  -57,988
  -58,254
Issuance/(repayment) of debt, $m
  536
  2,374
  3,471
  4,875
  6,635
  8,772
  11,289
  14,174
  17,402
  20,929
  24,707
  28,680
  32,789
  36,979
  41,201
  45,410
  49,573
  53,665
  57,671
  61,583
  65,402
  69,136
  72,797
  76,404
  79,976
  83,535
  87,106
  90,713
  94,382
  98,136
  101,999
Issuance/(repurchase) of shares, $m
  930
  2,486
  3,580
  4,968
  6,684
  8,738
  11,118
  13,795
  16,725
  19,850
  23,102
  26,410
  29,704
  32,918
  35,993
  38,882
  41,548
  43,966
  46,122
  48,012
  49,641
  51,020
  52,167
  53,105
  53,856
  54,447
  54,905
  55,256
  55,525
  55,737
  55,914
Cash from financing (excl. dividends), $m  
  1,447
  4,860
  7,051
  9,843
  13,319
  17,510
  22,407
  27,969
  34,127
  40,779
  47,809
  55,090
  62,493
  69,897
  77,194
  84,292
  91,121
  97,631
  103,793
  109,595
  115,043
  120,156
  124,964
  129,509
  133,832
  137,982
  142,011
  145,969
  149,907
  153,873
  157,913
Total cash flow (excl. dividends), $m
  -210
  2,308
  3,391
  4,763
  6,483
  8,571
  11,030
  13,849
  17,002
  20,449
  24,141
  28,022
  32,037
  36,131
  40,256
  44,369
  48,436
  52,434
  56,348
  60,170
  63,902
  67,550
  71,128
  74,652
  78,142
  81,619
  85,109
  88,633
  92,217
  95,885
  99,660
Retained Cash Flow (-), $m
  -826
  -2,780
  -4,058
  -5,700
  -7,758
  -10,256
  -13,199
  -16,573
  -20,346
  -24,471
  -28,888
  -33,532
  -38,337
  -43,236
  -48,172
  -53,093
  -57,961
  -62,745
  -67,428
  -72,002
  -76,468
  -80,833
  -85,115
  -89,331
  -93,508
  -97,669
  -101,844
  -106,062
  -110,351
  -114,740
  -119,257
Prev. year cash balance distribution, $m
 
  46
  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
 
  19
  31
  48
  71
  104
  146
  201
  270
  355
  456
  576
  716
  875
  1,055
  1,255
  1,476
  1,716
  1,977
  2,257
  2,557
  2,874
  3,210
  3,564
  3,935
  4,324
  4,730
  5,153
  5,594
  6,052
  6,529
Cash available for distribution, $m
 
  -426
  -667
  -937
  -1,275
  -1,685
  -2,169
  -2,723
  -3,343
  -4,021
  -4,747
  -5,510
  -6,300
  -7,105
  -7,916
  -8,725
  -9,525
  -10,311
  -11,080
  -11,832
  -12,566
  -13,283
  -13,987
  -14,680
  -15,366
  -16,050
  -16,736
  -17,429
  -18,134
  -18,855
  -19,597
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  -409
  -610
  -815
  -1,050
  -1,306
  -1,574
  -1,840
  -2,090
  -2,310
  -2,489
  -2,617
  -2,688
  -2,701
  -2,658
  -2,561
  -2,420
  -2,243
  -2,041
  -1,822
  -1,597
  -1,374
  -1,161
  -962
  -783
  -624
  -488
  -374
  -281
  -206
  -148
Current shareholders' claim on cash, %
  100
  75.2
  57.9
  45.7
  36.8
  30.3
  25.3
  21.5
  18.6
  16.2
  14.3
  12.8
  11.6
  10.6
  9.7
  9.0
  8.4
  7.9
  7.4
  7.0
  6.7
  6.4
  6.2
  5.9
  5.7
  5.5
  5.4
  5.2
  5.1
  5.0
  4.9

Parsley Energy, Inc. is a holding company. The Company is an independent oil and natural gas company. The Company focuses on the acquisition, development and exploitation of unconventional oil and natural gas reserves in the Permian Basin. The Permian Basin is located in West Texas and Southeastern New Mexico and includes three primary sub-areas: the Midland Basin, the Central Basin Platform and the Delaware Basin. The Company's properties are primarily located in the Midland and Delaware Basins, where it focuses on horizontal development drilling and target various stacked pay intervals in the Spraberry, Wolfcamp, Upper Pennsylvanian (Cline) and Atoka shales. As of December 31, 2016, it had an average working interest of 87% in 166 gross (146.7 net) horizontal wells, of which 151 gross (132.4 net) are in the Midland Basin. As of December 31, 2016, the Company operated seven horizontal rigs and three vertical drilling rigs.

FINANCIAL RATIOS  of  Parsley Energy Cl A (PE)

Valuation Ratios
P/E Ratio -88.5
Price to Sales 14.3
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 28.7
Price to Free Cash Flow -5.7
Growth Rates
Sales Growth Rate 72.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 1368.1%
Cap. Spend. - 3 Yr. Gr. Rate 44.8%
Financial Strength
Quick Ratio 2
Current Ratio 0.3
LT Debt to Equity 49.9%
Total Debt to Equity 53.1%
Interest Coverage -1
Management Effectiveness
Return On Assets -0.6%
Ret/ On Assets - 3 Yr. Avg. 0.5%
Return On Total Capital -3%
Ret/ On T. Cap. - 3 Yr. Avg. -1.2%
Return On Equity -4.4%
Return On Equity - 3 Yr. Avg. -1.3%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 81%
Gross Margin - 3 Yr. Avg. 77.4%
EBITDA Margin 42.4%
EBITDA Margin - 3 Yr. Avg. 53.3%
Operating Margin -1.1%
Oper. Margin - 3 Yr. Avg. -4.1%
Pre-Tax Margin -23.1%
Pre-Tax Margin - 3 Yr. Avg. -9.6%
Net Profit Margin -16.2%
Net Profit Margin - 3 Yr. Avg. -9.1%
Effective Tax Rate 16%
Eff/ Tax Rate - 3 Yr. Avg. 26.5%
Payout Ratio 0%

PE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PE stock intrinsic value calculation we used $967 million for the last fiscal year's total revenue generated by Parsley Energy Cl A. The default revenue input number comes from 2016 income statement of Parsley Energy Cl A. 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 PE stock valuation model: a) initial revenue growth rate of 60% 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 4.3%, whose default value for PE is calculated based on our internal credit rating of Parsley Energy Cl A, 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 Parsley Energy Cl A.
    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 PE stock the variable cost ratio is equal to 53.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $185 million in the base year in the intrinsic value calculation for PE 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 5.6% for Parsley Energy Cl A.

Corporate tax rate of 27% is the nominal tax rate for Parsley Energy Cl A. 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 PE stock is equal to 2%.

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 PE are equal to 592.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Parsley Energy Cl A 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 PE is equal to -42.2%. 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 - $4712 million for Parsley Energy Cl A - 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 241 million for Parsley Energy Cl A 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 Parsley Energy Cl A at the current share price and the inputted number of shares is $7.6 billion.

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Financial statements of PE
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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