Intrinsic value of Royal Dutch Shell ADR Cl A - RDS-A

Previous Close

$69.83

  Intrinsic Value

$10.54

stock screener

  Rating & Target

str. sell

-85%

Previous close

$69.83

 
Intrinsic value

$10.54

 
Up/down potential

-85%

 
Rating

str. sell

We calculate the intrinsic value of RDS-A 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, %
  -11.84
  22.60
  20.84
  19.26
  17.83
  16.55
  15.39
  14.35
  13.42
  12.58
  11.82
  11.14
  10.52
  9.97
  9.47
  9.03
  8.62
  8.26
  7.94
  7.64
  7.38
  7.14
  6.93
  6.73
  6.56
  6.40
  6.26
  6.14
  6.02
  5.92
  5.83
Revenue, $m
  233,591
  286,383
  346,065
  412,703
  486,289
  566,758
  653,996
  747,867
  848,216
  954,889
  1,067,744
  1,186,656
  1,311,528
  1,442,298
  1,578,936
  1,721,456
  1,869,909
  2,024,388
  2,185,027
  2,352,000
  2,525,518
  2,705,834
  2,893,234
  3,088,041
  3,290,613
  3,501,340
  3,720,647
  3,948,988
  4,186,853
  4,434,761
  4,693,262
Variable operating expenses, $m
 
  289,526
  349,592
  416,660
  490,720
  571,706
  659,507
  753,982
  854,977
  962,338
  1,075,919
  1,194,298
  1,319,975
  1,451,587
  1,589,105
  1,732,543
  1,881,952
  2,037,426
  2,199,099
  2,367,147
  2,541,784
  2,723,260
  2,911,867
  3,107,929
  3,311,805
  3,523,890
  3,744,609
  3,974,421
  4,213,818
  4,463,322
  4,723,488
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
  232,733
  289,526
  349,592
  416,660
  490,720
  571,706
  659,507
  753,982
  854,977
  962,338
  1,075,919
  1,194,298
  1,319,975
  1,451,587
  1,589,105
  1,732,543
  1,881,952
  2,037,426
  2,199,099
  2,367,147
  2,541,784
  2,723,260
  2,911,867
  3,107,929
  3,311,805
  3,523,890
  3,744,609
  3,974,421
  4,213,818
  4,463,322
  4,723,488
Operating income, $m
  858
  -3,143
  -3,527
  -3,957
  -4,431
  -4,949
  -5,511
  -6,115
  -6,761
  -7,448
  -8,175
  -7,642
  -8,447
  -9,289
  -10,169
  -11,087
  -12,043
  -13,038
  -14,072
  -15,148
  -16,265
  -17,426
  -18,633
  -19,888
  -21,192
  -22,550
  -23,962
  -25,433
  -26,965
  -28,561
  -30,226
EBITDA, $m
  25,851
  27,717
  33,493
  39,942
  47,064
  54,852
  63,295
  72,380
  82,092
  92,416
  103,338
  114,847
  126,932
  139,588
  152,813
  166,606
  180,973
  195,924
  211,471
  227,631
  244,425
  261,876
  280,013
  298,867
  318,472
  338,866
  360,091
  382,191
  405,212
  429,205
  454,223
Interest expense (income), $m
  2,938
  3,237
  5,133
  7,276
  9,670
  12,313
  15,204
  18,337
  21,709
  25,313
  29,145
  33,199
  37,470
  41,955
  46,652
  51,560
  56,680
  62,012
  67,561
  73,331
  79,328
  85,561
  92,038
  98,769
  105,766
  113,043
  120,612
  128,489
  136,691
  145,235
  154,140
Earnings before tax, $m
  5,606
  -6,380
  -8,660
  -11,233
  -14,101
  -17,262
  -20,714
  -24,452
  -28,470
  -32,762
  -37,320
  -40,841
  -45,917
  -51,244
  -56,821
  -62,647
  -68,722
  -75,050
  -81,633
  -88,478
  -95,593
  -102,987
  -110,671
  -118,657
  -126,959
  -135,592
  -144,574
  -153,922
  -163,656
  -173,796
  -184,366
Tax expense, $m
  829
  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
  4,575
  -6,380
  -8,660
  -11,233
  -14,101
  -17,262
  -20,714
  -24,452
  -28,470
  -32,762
  -37,320
  -40,841
  -45,917
  -51,244
  -56,821
  -62,647
  -68,722
  -75,050
  -81,633
  -88,478
  -95,593
  -102,987
  -110,671
  -118,657
  -126,959
  -135,592
  -144,574
  -153,922
  -163,656
  -173,796
  -184,366

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  18,781
  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
  411,275
  481,315
  581,621
  693,618
  817,293
  952,534
  1,099,154
  1,256,919
  1,425,573
  1,604,856
  1,794,528
  1,994,380
  2,204,249
  2,424,030
  2,653,675
  2,893,204
  3,142,705
  3,402,333
  3,672,315
  3,952,941
  4,244,569
  4,547,620
  4,862,578
  5,189,985
  5,530,442
  5,884,605
  6,253,188
  6,636,955
  7,036,728
  7,453,379
  7,887,835
Adjusted assets (=assets-cash), $m
  392,494
  481,315
  581,621
  693,618
  817,293
  952,534
  1,099,154
  1,256,919
  1,425,573
  1,604,856
  1,794,528
  1,994,380
  2,204,249
  2,424,030
  2,653,675
  2,893,204
  3,142,705
  3,402,333
  3,672,315
  3,952,941
  4,244,569
  4,547,620
  4,862,578
  5,189,985
  5,530,442
  5,884,605
  6,253,188
  6,636,955
  7,036,728
  7,453,379
  7,887,835
Revenue / Adjusted assets
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
Average production assets, $m
  217,095
  266,049
  321,494
  383,401
  451,763
  526,518
  607,563
  694,768
  787,993
  887,092
  991,934
  1,102,403
  1,218,410
  1,339,895
  1,466,832
  1,599,233
  1,737,146
  1,880,657
  2,029,890
  2,185,008
  2,346,207
  2,513,720
  2,687,814
  2,868,790
  3,056,979
  3,252,745
  3,456,481
  3,668,610
  3,889,587
  4,119,893
  4,360,040
Working capital, $m
  12,744
  4,296
  5,191
  6,191
  7,294
  8,501
  9,810
  11,218
  12,723
  14,323
  16,016
  17,800
  19,673
  21,634
  23,684
  25,822
  28,049
  30,366
  32,775
  35,280
  37,883
  40,588
  43,399
  46,321
  49,359
  52,520
  55,810
  59,235
  62,803
  66,521
  70,399
Total debt, $m
  92,476
  131,608
  186,575
  247,950
  315,724
  389,835
  470,183
  556,639
  649,061
  747,308
  851,248
  960,767
  1,075,776
  1,196,215
  1,322,061
  1,453,323
  1,590,049
  1,732,326
  1,880,275
  2,034,059
  2,193,871
  2,359,943
  2,532,540
  2,711,959
  2,898,529
  3,092,611
  3,294,594
  3,504,898
  3,723,974
  3,952,299
  4,190,381
Total liabilities, $m
  224,629
  263,761
  318,728
  380,103
  447,877
  521,988
  602,336
  688,792
  781,214
  879,461
  983,401
  1,092,920
  1,207,929
  1,328,368
  1,454,214
  1,585,476
  1,722,202
  1,864,479
  2,012,428
  2,166,212
  2,326,024
  2,492,096
  2,664,693
  2,844,112
  3,030,682
  3,224,764
  3,426,747
  3,637,051
  3,856,127
  4,084,452
  4,322,534
Total equity, $m
  186,646
  217,554
  262,893
  313,515
  369,417
  430,545
  496,817
  568,127
  644,359
  725,395
  811,126
  901,460
  996,321
  1,095,661
  1,199,461
  1,307,728
  1,420,502
  1,537,855
  1,659,886
  1,786,729
  1,918,545
  2,055,524
  2,197,885
  2,345,873
  2,499,760
  2,659,842
  2,826,441
  2,999,904
  3,180,601
  3,368,927
  3,565,302
Total liabilities and equity, $m
  411,275
  481,315
  581,621
  693,618
  817,294
  952,533
  1,099,153
  1,256,919
  1,425,573
  1,604,856
  1,794,527
  1,994,380
  2,204,250
  2,424,029
  2,653,675
  2,893,204
  3,142,704
  3,402,334
  3,672,314
  3,952,941
  4,244,569
  4,547,620
  4,862,578
  5,189,985
  5,530,442
  5,884,606
  6,253,188
  6,636,955
  7,036,728
  7,453,379
  7,887,836
Debt-to-equity ratio
  0.495
  0.600
  0.710
  0.790
  0.850
  0.910
  0.950
  0.980
  1.010
  1.030
  1.050
  1.070
  1.080
  1.090
  1.100
  1.110
  1.120
  1.130
  1.130
  1.140
  1.140
  1.150
  1.150
  1.160
  1.160
  1.160
  1.170
  1.170
  1.170
  1.170
  1.180
Adjusted equity ratio
  0.432
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4,575
  -6,380
  -8,660
  -11,233
  -14,101
  -17,262
  -20,714
  -24,452
  -28,470
  -32,762
  -37,320
  -40,841
  -45,917
  -51,244
  -56,821
  -62,647
  -68,722
  -75,050
  -81,633
  -88,478
  -95,593
  -102,987
  -110,671
  -118,657
  -126,959
  -135,592
  -144,574
  -153,922
  -163,656
  -173,796
  -184,366
Depreciation, amort., depletion, $m
  24,993
  30,860
  37,020
  43,899
  51,495
  59,801
  68,806
  78,495
  88,853
  99,865
  111,514
  122,489
  135,379
  148,877
  162,981
  177,693
  193,016
  208,962
  225,543
  242,779
  260,690
  279,302
  298,646
  318,754
  339,664
  361,416
  384,053
  407,623
  432,176
  457,766
  484,449
Funds from operations, $m
  8,666
  24,480
  28,360
  32,666
  37,394
  42,539
  48,091
  54,043
  60,383
  67,103
  74,193
  81,648
  89,462
  97,633
  106,160
  115,046
  124,294
  133,912
  143,910
  154,300
  165,096
  176,315
  187,975
  200,098
  212,706
  225,824
  239,480
  253,702
  268,521
  283,970
  300,083
Change in working capital, $m
  -11,949
  792
  895
  1,000
  1,104
  1,207
  1,309
  1,408
  1,505
  1,600
  1,693
  1,784
  1,873
  1,962
  2,050
  2,138
  2,227
  2,317
  2,410
  2,505
  2,603
  2,705
  2,811
  2,922
  3,039
  3,161
  3,290
  3,425
  3,568
  3,719
  3,878
Cash from operations, $m
  20,615
  23,688
  27,465
  31,666
  36,290
  41,332
  46,783
  52,635
  58,878
  65,503
  72,500
  79,864
  87,589
  95,672
  104,111
  112,908
  122,067
  131,595
  141,501
  151,796
  162,494
  173,610
  185,164
  197,175
  209,667
  222,663
  236,190
  250,276
  264,953
  280,251
  296,206
Maintenance CAPEX, $m
  0
  -24,122
  -29,561
  -35,722
  -42,600
  -50,196
  -58,502
  -67,507
  -77,196
  -87,555
  -98,566
  -110,215
  -122,489
  -135,379
  -148,877
  -162,981
  -177,693
  -193,016
  -208,962
  -225,543
  -242,779
  -260,690
  -279,302
  -298,646
  -318,754
  -339,664
  -361,416
  -384,053
  -407,623
  -432,176
  -457,766
New CAPEX, $m
  -22,116
  -48,955
  -55,445
  -61,907
  -68,362
  -74,755
  -81,045
  -87,206
  -93,224
  -99,100
  -104,842
  -110,469
  -116,007
  -121,485
  -126,937
  -132,401
  -137,913
  -143,511
  -149,234
  -155,117
  -161,199
  -167,513
  -174,095
  -180,976
  -188,189
  -195,766
  -203,736
  -212,129
  -220,976
  -230,306
  -240,148
Cash from investing activities, $m
  -30,963
  -73,077
  -85,006
  -97,629
  -110,962
  -124,951
  -139,547
  -154,713
  -170,420
  -186,655
  -203,408
  -220,684
  -238,496
  -256,864
  -275,814
  -295,382
  -315,606
  -336,527
  -358,196
  -380,660
  -403,978
  -428,203
  -453,397
  -479,622
  -506,943
  -535,430
  -565,152
  -596,182
  -628,599
  -662,482
  -697,914
Free cash flow, $m
  -10,348
  -49,388
  -57,541
  -65,962
  -74,672
  -83,619
  -92,764
  -102,078
  -111,543
  -121,152
  -130,907
  -140,820
  -150,907
  -161,192
  -171,704
  -182,475
  -193,538
  -204,932
  -216,695
  -228,865
  -241,484
  -254,593
  -268,233
  -282,446
  -297,277
  -312,767
  -328,962
  -345,906
  -363,647
  -382,231
  -401,708
Issuance/(repayment) of debt, $m
  11,074
  48,616
  54,968
  61,374
  67,774
  74,112
  80,348
  86,455
  92,422
  98,247
  103,940
  109,519
  115,009
  120,440
  125,845
  131,262
  136,726
  142,277
  147,950
  153,783
  159,812
  166,072
  172,597
  179,419
  186,570
  194,082
  201,983
  210,305
  219,075
  228,325
  238,082
Issuance/(repurchase) of shares, $m
  0
  46,585
  53,999
  61,856
  70,002
  78,391
  86,986
  95,762
  104,702
  113,798
  123,052
  131,174
  140,778
  150,585
  160,621
  170,914
  181,497
  192,402
  203,664
  215,321
  227,409
  239,967
  253,032
  266,645
  280,845
  295,674
  311,173
  327,385
  344,353
  362,122
  380,740
Cash from financing (excl. dividends), $m  
  8,906
  95,201
  108,967
  123,230
  137,776
  152,503
  167,334
  182,217
  197,124
  212,045
  226,992
  240,693
  255,787
  271,025
  286,466
  302,176
  318,223
  334,679
  351,614
  369,104
  387,221
  406,039
  425,629
  446,064
  467,415
  489,756
  513,156
  537,690
  563,428
  590,447
  618,822
Total cash flow (excl. dividends), $m
  -2,945
  45,813
  51,425
  57,268
  63,104
  68,883
  74,570
  80,140
  85,581
  90,893
  96,085
  99,873
  104,880
  109,832
  114,762
  119,702
  124,685
  129,746
  134,920
  140,239
  145,737
  151,446
  157,396
  163,617
  170,139
  176,989
  184,194
  191,783
  199,781
  208,216
  217,114
Retained Cash Flow (-), $m
  -23,770
  -46,585
  -53,999
  -61,856
  -70,002
  -78,391
  -86,986
  -95,762
  -104,702
  -113,798
  -123,052
  -131,174
  -140,778
  -150,585
  -160,621
  -170,914
  -181,497
  -192,402
  -203,664
  -215,321
  -227,409
  -239,967
  -253,032
  -266,645
  -280,845
  -295,674
  -311,173
  -327,385
  -344,353
  -362,122
  -380,740
Prev. year cash balance distribution, $m
 
  9,297
  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
 
  8,524
  -2,573
  -4,588
  -6,898
  -9,507
  -12,416
  -15,622
  -19,121
  -22,905
  -26,967
  -31,301
  -35,898
  -40,752
  -45,859
  -51,213
  -56,812
  -62,656
  -68,745
  -75,082
  -81,672
  -88,520
  -95,636
  -103,027
  -110,706
  -118,685
  -126,979
  -135,602
  -144,572
  -153,906
  -163,626
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  8,118
  -2,323
  -3,906
  -5,508
  -7,078
  -8,566
  -9,922
  -11,099
  -12,060
  -12,776
  -13,228
  -13,410
  -13,325
  -12,990
  -12,429
  -11,675
  -10,769
  -9,752
  -8,669
  -7,562
  -6,470
  -5,427
  -4,461
  -3,590
  -2,826
  -2,175
  -1,635
  -1,199
  -857
  -596
Current shareholders' claim on cash, %
  100
  85.4
  73.6
  63.8
  55.8
  49.0
  43.3
  38.5
  34.4
  30.9
  27.8
  25.2
  22.8
  20.8
  19.0
  17.4
  16.0
  14.7
  13.5
  12.5
  11.5
  10.6
  9.9
  9.1
  8.5
  7.9
  7.3
  6.8
  6.3
  5.9
  5.5

The Royal Dutch Shell plc explores for crude oil and natural gas around the world, both in conventional fields and from sources, such as tight rock, shale and coal formations. The Company's segments include Integrated Gas, Upstream, Downstream and Corporate. The Integrated Gas segment is engaged in the liquefaction and transportation of gas and the conversion of natural gas to liquids to provide fuels and other products, as well as projects with an integrated activity, ranging from producing to commercializing gas. The Upstream segment includes the operations of Upstream, which is engaged in the exploration for and extraction of crude oil, natural gas and natural gas liquids, and the marketing and transportation of oil and gas, and Oil Sands, which is engaged in the extraction of bitumen from mined oil sands and conversion into synthetic crude oil. The Downstream segment is engaged in oil products and chemicals manufacturing, and marketing activities.

FINANCIAL RATIOS  of  Royal Dutch Shell ADR Cl A (RDS-A)

Valuation Ratios
P/E Ratio 124.3
Price to Sales 2.4
Price to Book 3
Price to Tangible Book
Price to Cash Flow 27.6
Price to Free Cash Flow -378.9
Growth Rates
Sales Growth Rate -11.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -15.4%
Cap. Spend. - 3 Yr. Gr. Rate -11.2%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 44.5%
Total Debt to Equity 49.5%
Interest Coverage 3
Management Effectiveness
Return On Assets 1.9%
Ret/ On Assets - 3 Yr. Avg. 2.5%
Return On Total Capital 1.8%
Ret/ On T. Cap. - 3 Yr. Avg. 3.1%
Return On Equity 2.6%
Return On Equity - 3 Yr. Avg. 4.1%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 18.2%
Gross Margin - 3 Yr. Avg. 16.4%
EBITDA Margin 14.4%
EBITDA Margin - 3 Yr. Avg. 12.9%
Operating Margin 0.4%
Oper. Margin - 3 Yr. Avg. 1.3%
Pre-Tax Margin 2.4%
Pre-Tax Margin - 3 Yr. Avg. 3.3%
Net Profit Margin 2%
Net Profit Margin - 3 Yr. Avg. 2.1%
Effective Tax Rate 14.8%
Eff/ Tax Rate - 3 Yr. Avg. 18.4%
Payout Ratio 211.5%

RDS-A stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RDS-A stock intrinsic value calculation we used $233591 million for the last fiscal year's total revenue generated by Royal Dutch Shell ADR Cl A. The default revenue input number comes from 2016 income statement of Royal Dutch Shell ADR 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 RDS-A stock valuation model: a) initial revenue growth rate of 22.6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5%, whose default value for RDS-A is calculated based on our internal credit rating of Royal Dutch Shell ADR 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 Royal Dutch Shell ADR 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 RDS-A stock the variable cost ratio is equal to 101.2%.

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 RDS-A 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 3.9% for Royal Dutch Shell ADR Cl A.

Corporate tax rate of 27% is the nominal tax rate for Royal Dutch Shell ADR 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 RDS-A 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 RDS-A are equal to 92.9%.

Life of production assets of 9 years is the average useful life of capital assets used in Royal Dutch Shell ADR 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 RDS-A is equal to 1.5%. 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 - $186646 million for Royal Dutch Shell ADR 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 4118.87 million for Royal Dutch Shell ADR 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 Royal Dutch Shell ADR Cl A at the current share price and the inputted number of shares is $287.6 billion.

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COMPANY NEWS

▶ Shell hires solar chief for Latam - source   [Jan-22-18 04:56PM  Reuters]
▶ Royal Dutch Shell Joining the Renewable Energy Bandwagon   [Jan-20-18 06:46AM  Motley Fool]
▶ Can Anything Stop The Shale Surge?   [Jan-19-18 03:00PM  Oilprice.com]
▶ Shell Buys Into Blockchain Company   [12:00PM  Oilprice.com]
▶ Shells 4Q17 Segmental Earnings Prospects   [Jan-18-18 02:50PM  Market Realist]
▶ OPEC Raises 2018 U.S. Oil Production Forecast As Prices Climb   [08:36AM  Investor's Business Daily]
▶ Iraq Is Troubling The Oil Majors   [06:00PM  Oilprice.com]
▶ Totals Dividend Yield: 4th Place in the Top 8   [09:01AM  Market Realist]
▶ Factbox: Shell oil heist - the story so far   [Jan-16-18 10:46PM  Reuters]
▶ Shells Dividend Yield: One of the Best   [03:25PM  Market Realist]
▶ Has Oil Become Overbought?   [03:00PM  Oilprice.com]
▶ [$$] Shell Bids a Long Goodbye to Middle Eastern Oil   [12:45AM  The Wall Street Journal]
▶ PRESS DIGEST- Financial Times - Jan 16   [Jan-15-18 07:46PM  Reuters]
▶ [$$] Shell Bids a Long Goodbye to Middle Eastern Oil   [04:21PM  The Wall Street Journal]
▶ Shell ventures back into solar   [01:41PM  Reuters]
▶ BPs 4Q17 Estimates: Ranks 2nd among Integrated Energy Firms   [Jan-12-18 10:34AM  Market Realist]
▶ Integrated Energy Firms Estimates for 4Q17   [07:36AM  Market Realist]
▶ 3 Top Oil Stocks to Buy in January   [06:12AM  Motley Fool]
▶ [$$] New York City Sues Oil Companies Over Climate Change   [12:13AM  The Wall Street Journal]
▶ Shells Houston-based MLP names next CEO   [Jan-10-18 06:05PM  American City Business Journals]
▶ Where Integrated Energy Stocks Betas Stand   [07:31AM  Market Realist]
▶ Can Oil Break The $70 Threshold?   [03:00PM  Oilprice.com]
▶ ExxonMobils Cash Flow: Is It Strengthening?   [10:30AM  Market Realist]
▶ Institutional Ownership of Integrated Energy Stocks   [Jan-08-18 10:33AM  Market Realist]
▶ Houston logistics co. makes second terminal deal in as many months   [09:45AM  American City Business Journals]
▶ PRESS DIGEST- Financial Times - Jan 8   [Jan-07-18 08:29PM  Reuters]
▶ Heroes, Gods And Genghis Khan: Naming An Oilfield   [Jan-06-18 07:00PM  Oilprice.com]
▶ 5 Energy Dividend Stocks for Your Portfolio   [Jan-05-18 11:00PM  Motley Fool]
▶ Here's the Best Dividend Stock in Big Oil   [09:16AM  Motley Fool]
Financial statements of RDS-A
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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