Intrinsic value of Phillips 66 - PSX

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$81.96

  Intrinsic Value

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  Value-price divergence*

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$81.96

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

We calculate the intrinsic value of PSX 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 42.1

 

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, %
  -14.39
  30.50
  27.95
  25.66
  23.59
  21.73
  20.06
  18.55
  17.20
  15.98
  14.88
  13.89
  13.00
  12.20
  11.48
  10.83
  10.25
  9.73
  9.25
  8.83
  8.44
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
Revenue, $m
  84,730
  110,573
  141,478
  177,774
  219,710
  267,454
  321,098
  380,668
  446,130
  517,407
  594,394
  676,963
  764,982
  858,325
  956,876
  1,060,540
  1,169,248
  1,282,959
  1,401,668
  1,525,399
  1,654,213
  1,788,208
  1,927,513
  2,072,291
  2,222,741
  2,379,089
  2,541,596
  2,710,551
  2,886,271
  3,069,103
  3,259,421
Variable operating expenses, $m
 
  87,032
  111,265
  139,727
  172,610
  210,048
  252,113
  298,824
  350,155
  406,047
  466,415
  530,834
  599,854
  673,048
  750,325
  831,613
  916,855
  1,006,021
  1,099,105
  1,196,127
  1,297,136
  1,402,207
  1,511,441
  1,624,968
  1,742,942
  1,865,541
  1,992,969
  2,125,453
  2,263,243
  2,406,609
  2,555,844
Fixed operating expenses, $m
 
  17,422
  17,857
  18,304
  18,762
  19,231
  19,711
  20,204
  20,709
  21,227
  21,758
  22,302
  22,859
  23,431
  24,016
  24,617
  25,232
  25,863
  26,510
  27,172
  27,852
  28,548
  29,262
  29,993
  30,743
  31,511
  32,299
  33,107
  33,934
  34,783
  35,652
Total operating expenses, $m
  83,325
  104,454
  129,122
  158,031
  191,372
  229,279
  271,824
  319,028
  370,864
  427,274
  488,173
  553,136
  622,713
  696,479
  774,341
  856,230
  942,087
  1,031,884
  1,125,615
  1,223,299
  1,324,988
  1,430,755
  1,540,703
  1,654,961
  1,773,685
  1,897,052
  2,025,268
  2,158,560
  2,297,177
  2,441,392
  2,591,496
Operating income, $m
  1,405
  6,119
  12,355
  19,743
  28,338
  38,175
  49,274
  61,640
  75,265
  90,133
  106,221
  123,827
  142,270
  161,847
  182,534
  204,311
  227,161
  251,076
  276,053
  302,099
  329,226
  357,454
  386,810
  417,330
  449,056
  482,037
  516,328
  551,991
  589,094
  627,712
  667,924
EBITDA, $m
  2,573
  7,769
  14,374
  22,197
  31,293
  41,701
  53,442
  66,520
  80,929
  96,649
  113,658
  131,925
  151,420
  172,114
  193,980
  216,997
  241,147
  266,422
  292,820
  320,346
  349,013
  378,844
  409,866
  442,119
  475,644
  510,495
  546,730
  584,414
  623,619
  664,423
  706,912
Interest expense (income), $m
  311
  336
  643
  1,010
  1,441
  1,938
  2,505
  3,142
  3,849
  4,626
  5,472
  6,385
  7,365
  8,410
  9,518
  10,688
  11,918
  13,208
  14,558
  15,967
  17,435
  18,964
  20,555
  22,208
  23,926
  25,712
  27,568
  29,496
  31,502
  33,587
  35,757
Earnings before tax, $m
  2,191
  5,784
  11,712
  18,733
  26,897
  36,237
  46,769
  58,498
  71,416
  85,508
  100,749
  117,442
  134,904
  153,437
  173,016
  193,623
  215,243
  237,868
  261,496
  286,132
  311,790
  338,489
  366,255
  395,122
  425,130
  456,325
  488,760
  522,494
  557,592
  594,124
  632,167
Tax expense, $m
  547
  1,562
  3,162
  5,058
  7,262
  9,784
  12,628
  15,794
  19,282
  23,087
  27,202
  31,709
  36,424
  41,428
  46,714
  52,278
  58,116
  64,224
  70,604
  77,256
  84,183
  91,392
  98,889
  106,683
  114,785
  123,208
  131,965
  141,074
  150,550
  160,414
  170,685
Net income, $m
  1,555
  4,222
  8,550
  13,675
  19,635
  26,453
  34,141
  42,703
  52,134
  62,421
  73,547
  85,732
  98,480
  112,009
  126,302
  141,345
  157,127
  173,643
  190,892
  208,877
  227,607
  247,097
  267,366
  288,439
  310,345
  333,117
  356,795
  381,421
  407,042
  433,711
  461,482

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,711
  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
  51,653
  63,878
  81,732
  102,700
  126,926
  154,508
  185,499
  219,912
  257,729
  298,907
  343,382
  391,082
  441,931
  495,855
  552,788
  612,675
  675,475
  741,167
  809,744
  881,224
  955,640
  1,033,049
  1,113,526
  1,197,164
  1,284,079
  1,374,402
  1,468,282
  1,565,887
  1,667,401
  1,773,023
  1,882,970
Adjusted assets (=assets-cash), $m
  48,942
  63,878
  81,732
  102,700
  126,926
  154,508
  185,499
  219,912
  257,729
  298,907
  343,382
  391,082
  441,931
  495,855
  552,788
  612,675
  675,475
  741,167
  809,744
  881,224
  955,640
  1,033,049
  1,113,526
  1,197,164
  1,284,079
  1,374,402
  1,468,282
  1,565,887
  1,667,401
  1,773,023
  1,882,970
Revenue / Adjusted assets
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
  1.731
Average production assets, $m
  21,185
  27,643
  35,369
  44,443
  54,927
  66,863
  80,275
  95,167
  111,532
  129,352
  148,598
  169,241
  191,246
  214,581
  239,219
  265,135
  292,312
  320,740
  350,417
  381,350
  413,553
  447,052
  481,878
  518,073
  555,685
  594,772
  635,399
  677,638
  721,568
  767,276
  814,855
Working capital, $m
  3,217
  1,327
  1,698
  2,133
  2,637
  3,209
  3,853
  4,568
  5,354
  6,209
  7,133
  8,124
  9,180
  10,300
  11,483
  12,726
  14,031
  15,396
  16,820
  18,305
  19,851
  21,458
  23,130
  24,867
  26,673
  28,549
  30,499
  32,527
  34,635
  36,829
  39,113
Total debt, $m
  10,138
  18,371
  28,852
  41,160
  55,381
  71,571
  89,763
  109,963
  132,162
  156,333
  182,440
  210,440
  240,288
  271,942
  305,362
  340,515
  377,379
  415,940
  456,195
  498,153
  541,836
  587,275
  634,515
  683,610
  734,629
  787,649
  842,757
  900,051
  959,639
  1,021,640
  1,086,178
Total liabilities, $m
  29,263
  37,496
  47,977
  60,285
  74,506
  90,696
  108,888
  129,088
  151,287
  175,458
  201,565
  229,565
  259,413
  291,067
  324,487
  359,640
  396,504
  435,065
  475,320
  517,278
  560,961
  606,400
  653,640
  702,735
  753,754
  806,774
  861,882
  919,176
  978,764
  1,040,765
  1,105,303
Total equity, $m
  22,390
  26,382
  33,755
  42,415
  52,421
  63,812
  76,611
  90,824
  106,442
  123,448
  141,817
  161,517
  182,517
  204,788
  228,301
  253,035
  278,971
  306,102
  334,424
  363,945
  394,679
  426,649
  459,886
  494,429
  530,325
  567,628
  606,401
  646,711
  688,637
  732,259
  777,667
Total liabilities and equity, $m
  51,653
  63,878
  81,732
  102,700
  126,927
  154,508
  185,499
  219,912
  257,729
  298,906
  343,382
  391,082
  441,930
  495,855
  552,788
  612,675
  675,475
  741,167
  809,744
  881,223
  955,640
  1,033,049
  1,113,526
  1,197,164
  1,284,079
  1,374,402
  1,468,283
  1,565,887
  1,667,401
  1,773,024
  1,882,970
Debt-to-equity ratio
  0.453
  0.700
  0.850
  0.970
  1.060
  1.120
  1.170
  1.210
  1.240
  1.270
  1.290
  1.300
  1.320
  1.330
  1.340
  1.350
  1.350
  1.360
  1.360
  1.370
  1.370
  1.380
  1.380
  1.380
  1.390
  1.390
  1.390
  1.390
  1.390
  1.400
  1.400
Adjusted equity ratio
  0.402
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,555
  4,222
  8,550
  13,675
  19,635
  26,453
  34,141
  42,703
  52,134
  62,421
  73,547
  85,732
  98,480
  112,009
  126,302
  141,345
  157,127
  173,643
  190,892
  208,877
  227,607
  247,097
  267,366
  288,439
  310,345
  333,117
  356,795
  381,421
  407,042
  433,711
  461,482
Depreciation, amort., depletion, $m
  1,168
  1,650
  2,019
  2,453
  2,955
  3,526
  4,168
  4,880
  5,663
  6,516
  7,437
  8,098
  9,151
  10,267
  11,446
  12,686
  13,986
  15,346
  16,766
  18,246
  19,787
  21,390
  23,056
  24,788
  26,588
  28,458
  30,402
  32,423
  34,525
  36,712
  38,988
Funds from operations, $m
  3,464
  5,872
  10,569
  16,129
  22,590
  29,979
  38,309
  47,584
  57,797
  68,937
  80,984
  93,830
  107,631
  122,276
  137,748
  154,031
  171,113
  188,990
  207,658
  227,123
  247,394
  268,487
  290,423
  313,227
  336,933
  361,575
  387,197
  413,844
  441,567
  470,423
  500,470
Change in working capital, $m
  501
  310
  371
  436
  503
  573
  644
  715
  786
  855
  924
  991
  1,056
  1,120
  1,183
  1,244
  1,304
  1,365
  1,424
  1,485
  1,546
  1,608
  1,672
  1,737
  1,805
  1,876
  1,950
  2,027
  2,109
  2,194
  2,284
Cash from operations, $m
  2,963
  5,562
  10,198
  15,693
  22,087
  29,406
  37,665
  46,869
  57,012
  68,081
  80,060
  92,839
  106,574
  121,156
  136,565
  152,787
  169,809
  187,625
  206,234
  225,638
  245,848
  266,879
  288,751
  311,490
  335,127
  359,699
  385,247
  411,816
  439,459
  468,229
  498,186
Maintenance CAPEX, $m
  0
  -1,014
  -1,323
  -1,692
  -2,126
  -2,628
  -3,199
  -3,841
  -4,553
  -5,336
  -6,189
  -7,110
  -8,098
  -9,151
  -10,267
  -11,446
  -12,686
  -13,986
  -15,346
  -16,766
  -18,246
  -19,787
  -21,390
  -23,056
  -24,788
  -26,588
  -28,458
  -30,402
  -32,423
  -34,525
  -36,712
New CAPEX, $m
  -2,844
  -6,458
  -7,726
  -9,074
  -10,484
  -11,936
  -13,411
  -14,892
  -16,365
  -17,819
  -19,247
  -20,642
  -22,005
  -23,336
  -24,638
  -25,916
  -27,177
  -28,428
  -29,677
  -30,933
  -32,204
  -33,499
  -34,826
  -36,195
  -37,612
  -39,087
  -40,627
  -42,239
  -43,930
  -45,708
  -47,579
Cash from investing activities, $m
  -3,158
  -7,472
  -9,049
  -10,766
  -12,610
  -14,564
  -16,610
  -18,733
  -20,918
  -23,155
  -25,436
  -27,752
  -30,103
  -32,487
  -34,905
  -37,362
  -39,863
  -42,414
  -45,023
  -47,699
  -50,450
  -53,286
  -56,216
  -59,251
  -62,400
  -65,675
  -69,085
  -72,641
  -76,353
  -80,233
  -84,291
Free cash flow, $m
  -195
  -1,910
  1,149
  4,927
  9,476
  14,842
  21,055
  28,136
  36,093
  44,925
  54,624
  65,087
  76,472
  88,670
  101,660
  115,425
  129,946
  145,211
  161,210
  177,939
  195,398
  213,593
  232,535
  252,239
  272,727
  294,024
  316,162
  339,176
  363,106
  387,996
  413,895
Issuance/(repayment) of debt, $m
  1,257
  8,783
  10,480
  12,308
  14,221
  16,191
  18,191
  20,201
  22,199
  24,171
  26,107
  28,000
  29,848
  31,654
  33,420
  35,154
  36,864
  38,561
  40,255
  41,958
  43,682
  45,439
  47,240
  49,096
  51,019
  53,019
  55,108
  57,294
  59,589
  62,000
  64,539
Issuance/(repurchase) of shares, $m
  -82
  1,931
  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 financing (excl. dividends), $m  
  1,104
  10,714
  10,480
  12,308
  14,221
  16,191
  18,191
  20,201
  22,199
  24,171
  26,107
  28,000
  29,848
  31,654
  33,420
  35,154
  36,864
  38,561
  40,255
  41,958
  43,682
  45,439
  47,240
  49,096
  51,019
  53,019
  55,108
  57,294
  59,589
  62,000
  64,539
Total cash flow (excl. dividends), $m
  919
  8,804
  11,629
  17,235
  23,697
  31,032
  39,246
  48,336
  58,292
  69,096
  80,731
  93,087
  106,320
  120,323
  135,080
  150,578
  166,810
  183,772
  201,465
  219,898
  239,081
  259,032
  279,775
  301,335
  323,746
  347,044
  371,270
  396,470
  422,694
  449,996
  478,434
Retained Cash Flow (-), $m
  710
  -6,153
  -7,374
  -8,660
  -10,006
  -11,391
  -12,799
  -14,213
  -15,619
  -17,006
  -18,368
  -19,700
  -21,001
  -22,271
  -23,513
  -24,733
  -25,937
  -27,131
  -28,323
  -29,521
  -30,734
  -31,970
  -33,237
  -34,543
  -35,896
  -37,303
  -38,773
  -40,311
  -41,925
  -43,622
  -45,408
Prev. year cash balance distribution, $m
 
  2,161
  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
 
  4,812
  4,256
  8,575
  13,692
  19,641
  26,447
  34,124
  42,673
  52,090
  62,363
  73,387
  85,319
  98,052
  111,567
  125,845
  140,873
  156,641
  173,143
  190,377
  208,347
  227,063
  246,538
  266,792
  287,850
  309,740
  332,497
  356,159
  380,769
  406,374
  433,026
Discount rate, %
 
  5.30
  5.57
  5.84
  6.14
  6.44
  6.76
  7.10
  7.46
  7.83
  8.22
  8.63
  9.06
  9.52
  9.99
  10.49
  11.02
  11.57
  12.15
  12.76
  13.39
  14.06
  14.77
  15.50
  16.28
  17.09
  17.95
  18.85
  19.79
  20.78
  21.82
PV of cash for distribution, $m
 
  4,570
  3,819
  7,232
  10,790
  14,375
  17,858
  21,109
  24,003
  26,429
  28,299
  29,514
  30,118
  30,071
  29,402
  28,169
  26,455
  24,359
  21,988
  19,455
  16,868
  14,327
  11,913
  9,693
  7,711
  5,994
  4,548
  3,366
  2,427
  1,704
  1,163
Current shareholders' claim on cash, %
  100
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2
  95.2

Phillips 66 operates as an energy manufacturing and logistics company. It operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties (M&S). The Midstream segment gathers, processes, transports, and markets natural gas; transports, stores, fractionates, and markets natural gas liquids in the United States; and stores, refrigerates, and exports liquefied petroleum gas (LPG) primarily to Asia and Europe. This segment also transports crude oil and other feedstocks to its refineries and other locations, as well as delivers refined and specialty products, and provides terminaling and storage services for crude oil and petroleum products. The Chemicals segment manufactures and markets ethylene and other olefin products; aromatics and styrenics products, such as benzene, styrene, paraxylene, and cyclohexane, as well as polystyrene and styrene-butadiene copolymers; and various specialty chemical products, including organosulfur chemicals, solvents, catalysts, drilling chemicals, and mining chemicals. The Refining segment buys, sells, and refines crude oil and other feedstocks into petroleum products comprising gasolines, distillates, and aviation fuels at 13 refineries primarily in the United States and Europe. The M&S segment purchases for resale and markets refined petroleum products consisting of gasolines, distillates, and aviation fuels primarily in the United States and Europe. It also manufactures and sells specialty products, such as petroleum coke products, waxes, solvents, and polypropylene. In addition, this segment generates electricity and provides merchant power into the Texas market. Phillips 66 was founded in 1875 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Phillips 66 (PSX)

Valuation Ratios
P/E Ratio 27.3
Price to Sales 0.5
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 14.3
Price to Free Cash Flow 357.3
Growth Rates
Sales Growth Rate -14.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50.7%
Cap. Spend. - 3 Yr. Gr. Rate 9.8%
Financial Strength
Quick Ratio 5
Current Ratio 0.1
LT Debt to Equity 42.8%
Total Debt to Equity 45.3%
Interest Coverage 8
Management Effectiveness
Return On Assets 3.6%
Ret/ On Assets - 3 Yr. Avg. 7.6%
Return On Total Capital 4.8%
Ret/ On T. Cap. - 3 Yr. Avg. 11.6%
Return On Equity 6.8%
Return On Equity - 3 Yr. Avg. 15.9%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 26.2%
Gross Margin - 3 Yr. Avg. 22.6%
EBITDA Margin 4.3%
EBITDA Margin - 3 Yr. Avg. 5.4%
Operating Margin 1.7%
Oper. Margin - 3 Yr. Avg. 2.7%
Pre-Tax Margin 2.6%
Pre-Tax Margin - 3 Yr. Avg. 4.1%
Net Profit Margin 1.8%
Net Profit Margin - 3 Yr. Avg. 3%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 27.6%
Payout Ratio 82.4%

PSX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PSX stock intrinsic value calculation we used $84730 million for the last fiscal year's total revenue generated by Phillips 66. The default revenue input number comes from 2016 income statement of Phillips 66. 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 PSX stock valuation model: a) initial revenue growth rate of 30.5% 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 5.3%, whose default value for PSX is calculated based on our internal credit rating of Phillips 66, 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 Phillips 66.
    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 PSX stock the variable cost ratio is equal to 78.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $16997 million in the base year in the intrinsic value calculation for PSX 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 Phillips 66.

Corporate tax rate of 27% is the nominal tax rate for Phillips 66. 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 PSX 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 PSX are equal to 25%.

Life of production assets of 20.9 years is the average useful life of capital assets used in Phillips 66 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 PSX is equal to 1.2%. 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 - $22390 million for Phillips 66 - 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 513.418 million for Phillips 66 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 Phillips 66 at the current share price and the inputted number of shares is $42.1 billion.


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Stock chart of PSX Financial statements of PSX Annual reports of PSX
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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