Intrinsic value of Royal Dutch Shell ADR B - RDS-B

Previous Close

$66.24

  Intrinsic Value

$10.70

stock screener

  Rating & Target

str. sell

-84%

Previous close

$66.24

 
Intrinsic value

$10.70

 
Up/down potential

-84%

 
Rating

str. sell

We calculate the intrinsic value of RDS-B 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 268.7

 

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
  23.50
  21.65
  19.99
  18.49
  17.14
  15.92
  14.83
  13.85
  12.96
  12.17
  11.45
  10.81
  10.22
  9.70
  9.23
  8.81
  8.43
  8.09
  7.78
  7.50
  7.25
  7.02
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
Revenue, $m
  233,591
  288,485
  350,942
  421,078
  498,920
  584,424
  677,488
  777,971
  885,708
  1,000,529
  1,122,266
  1,250,771
  1,385,923
  1,527,633
  1,675,851
  1,830,569
  1,991,824
  2,159,696
  2,334,314
  2,515,847
  2,704,513
  2,900,567
  3,104,311
  3,316,081
  3,536,257
  3,765,254
  4,003,523
  4,251,554
  4,509,868
  4,779,026
  5,059,620
Variable operating expenses, $m
 
  291,642
  354,501
  425,088
  503,432
  589,487
  683,150
  784,280
  892,711
  1,008,271
  1,130,792
  1,258,827
  1,394,849
  1,537,472
  1,686,644
  1,842,358
  2,004,652
  2,173,605
  2,349,347
  2,532,050
  2,721,931
  2,919,248
  3,124,303
  3,337,438
  3,559,032
  3,789,503
  4,029,307
  4,278,935
  4,538,913
  4,809,804
  5,092,206
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
  291,642
  354,501
  425,088
  503,432
  589,487
  683,150
  784,280
  892,711
  1,008,271
  1,130,792
  1,258,827
  1,394,849
  1,537,472
  1,686,644
  1,842,358
  2,004,652
  2,173,605
  2,349,347
  2,532,050
  2,721,931
  2,919,248
  3,124,303
  3,337,438
  3,559,032
  3,789,503
  4,029,307
  4,278,935
  4,538,913
  4,809,804
  5,092,206
Operating income, $m
  858
  -3,157
  -3,559
  -4,011
  -4,512
  -5,063
  -5,662
  -6,309
  -7,003
  -7,742
  -8,526
  -8,055
  -8,926
  -9,838
  -10,793
  -11,789
  -12,828
  -13,909
  -15,034
  -16,203
  -17,418
  -18,680
  -19,993
  -21,356
  -22,774
  -24,249
  -25,784
  -27,381
  -29,045
  -30,778
  -32,585
EBITDA, $m
  25,851
  27,920
  33,965
  40,753
  48,286
  56,562
  65,569
  75,294
  85,721
  96,833
  108,615
  121,052
  134,132
  147,847
  162,192
  177,166
  192,773
  209,020
  225,919
  243,489
  261,748
  280,723
  300,441
  320,937
  342,246
  364,409
  387,469
  411,474
  436,474
  462,523
  489,680
Interest expense (income), $m
  2,938
  3,237
  5,208
  7,452
  9,971
  12,767
  15,838
  19,181
  22,790
  26,660
  30,784
  35,157
  39,773
  44,627
  49,718
  55,041
  60,599
  66,391
  72,421
  78,693
  85,214
  91,990
  99,032
  106,351
  113,957
  121,866
  130,091
  138,650
  147,559
  156,837
  166,505
Earnings before tax, $m
  5,606
  -6,393
  -8,767
  -11,462
  -14,483
  -17,829
  -21,500
  -25,490
  -29,793
  -34,402
  -39,311
  -43,212
  -48,699
  -54,466
  -60,511
  -66,831
  -73,427
  -80,300
  -87,455
  -94,896
  -102,631
  -110,671
  -119,025
  -127,707
  -136,732
  -146,115
  -155,875
  -166,031
  -176,604
  -187,616
  -199,091
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
  -6,393
  -8,767
  -11,462
  -14,483
  -17,829
  -21,500
  -25,490
  -29,793
  -34,402
  -39,311
  -43,212
  -48,699
  -54,466
  -60,511
  -66,831
  -73,427
  -80,300
  -87,455
  -94,896
  -102,631
  -110,671
  -119,025
  -127,707
  -136,732
  -146,115
  -155,875
  -166,031
  -176,604
  -187,616
  -199,091

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
  484,849
  589,818
  707,693
  838,521
  982,226
  1,138,636
  1,307,515
  1,488,586
  1,681,561
  1,886,161
  2,102,136
  2,329,283
  2,567,451
  2,816,556
  3,076,587
  3,347,603
  3,629,742
  3,923,216
  4,228,315
  4,545,400
  4,874,903
  5,217,329
  5,573,246
  5,943,289
  6,328,158
  6,728,611
  7,145,468
  7,579,611
  8,031,976
  8,503,564
Adjusted assets (=assets-cash), $m
  392,494
  484,849
  589,818
  707,693
  838,521
  982,226
  1,138,636
  1,307,515
  1,488,586
  1,681,561
  1,886,161
  2,102,136
  2,329,283
  2,567,451
  2,816,556
  3,076,587
  3,347,603
  3,629,742
  3,923,216
  4,228,315
  4,545,400
  4,874,903
  5,217,329
  5,573,246
  5,943,289
  6,328,158
  6,728,611
  7,145,468
  7,579,611
  8,031,976
  8,503,564
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
  268,002
  326,025
  391,181
  463,497
  542,930
  629,387
  722,735
  822,823
  929,491
  1,042,585
  1,161,966
  1,287,523
  1,419,171
  1,556,866
  1,700,599
  1,850,404
  2,006,358
  2,168,577
  2,337,222
  2,512,492
  2,694,627
  2,883,905
  3,080,639
  3,285,183
  3,497,921
  3,719,273
  3,949,693
  4,189,668
  4,439,715
  4,700,387
Working capital, $m
  12,744
  4,327
  5,264
  6,316
  7,484
  8,766
  10,162
  11,670
  13,286
  15,008
  16,834
  18,762
  20,789
  22,914
  25,138
  27,459
  29,877
  32,395
  35,015
  37,738
  40,568
  43,509
  46,565
  49,741
  53,044
  56,479
  60,053
  63,773
  67,648
  71,685
  75,894
Total debt, $m
  92,476
  133,544
  191,067
  255,663
  327,357
  406,107
  491,819
  584,365
  683,592
  789,342
  901,463
  1,019,818
  1,144,294
  1,274,810
  1,411,320
  1,553,816
  1,702,333
  1,856,945
  2,017,770
  2,184,964
  2,358,726
  2,539,294
  2,726,943
  2,921,986
  3,124,770
  3,335,677
  3,555,126
  3,783,564
  4,021,474
  4,269,370
  4,527,800
Total liabilities, $m
  224,629
  265,697
  323,220
  387,816
  459,510
  538,260
  623,972
  716,518
  815,745
  921,495
  1,033,616
  1,151,971
  1,276,447
  1,406,963
  1,543,473
  1,685,969
  1,834,486
  1,989,098
  2,149,923
  2,317,117
  2,490,879
  2,671,447
  2,859,096
  3,054,139
  3,256,923
  3,467,830
  3,687,279
  3,915,717
  4,153,627
  4,401,523
  4,659,953
Total equity, $m
  186,646
  219,152
  266,598
  319,877
  379,012
  443,966
  514,663
  590,997
  672,841
  760,065
  852,545
  950,166
  1,052,836
  1,160,488
  1,273,083
  1,390,617
  1,513,116
  1,640,643
  1,773,294
  1,911,198
  2,054,521
  2,203,456
  2,358,233
  2,519,107
  2,686,367
  2,860,327
  3,041,332
  3,229,752
  3,425,984
  3,630,453
  3,843,611
Total liabilities and equity, $m
  411,275
  484,849
  589,818
  707,693
  838,522
  982,226
  1,138,635
  1,307,515
  1,488,586
  1,681,560
  1,886,161
  2,102,137
  2,329,283
  2,567,451
  2,816,556
  3,076,586
  3,347,602
  3,629,741
  3,923,217
  4,228,315
  4,545,400
  4,874,903
  5,217,329
  5,573,246
  5,943,290
  6,328,157
  6,728,611
  7,145,469
  7,579,611
  8,031,976
  8,503,564
Debt-to-equity ratio
  0.495
  0.610
  0.720
  0.800
  0.860
  0.910
  0.960
  0.990
  1.020
  1.040
  1.060
  1.070
  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
  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
  -6,393
  -8,767
  -11,462
  -14,483
  -17,829
  -21,500
  -25,490
  -29,793
  -34,402
  -39,311
  -43,212
  -48,699
  -54,466
  -60,511
  -66,831
  -73,427
  -80,300
  -87,455
  -94,896
  -102,631
  -110,671
  -119,025
  -127,707
  -136,732
  -146,115
  -155,875
  -166,031
  -176,604
  -187,616
  -199,091
Depreciation, amort., depletion, $m
  24,993
  31,077
  37,524
  44,763
  52,798
  61,624
  71,231
  81,603
  92,723
  104,575
  117,141
  129,107
  143,058
  157,686
  172,985
  188,955
  205,600
  222,929
  240,953
  259,691
  279,166
  299,403
  320,434
  342,293
  365,020
  388,658
  413,253
  438,855
  465,519
  493,302
  522,265
Funds from operations, $m
  8,666
  24,683
  28,757
  33,301
  38,316
  43,795
  49,730
  56,113
  62,930
  70,173
  77,831
  85,895
  94,359
  103,220
  112,475
  122,125
  132,174
  142,629
  153,499
  164,796
  176,534
  188,732
  201,409
  214,586
  228,288
  242,543
  257,377
  272,824
  288,915
  305,686
  323,174
Change in working capital, $m
  -11,949
  823
  937
  1,052
  1,168
  1,283
  1,396
  1,507
  1,616
  1,722
  1,826
  1,928
  2,027
  2,126
  2,223
  2,321
  2,419
  2,518
  2,619
  2,723
  2,830
  2,941
  3,056
  3,177
  3,303
  3,435
  3,574
  3,720
  3,875
  4,037
  4,209
Cash from operations, $m
  20,615
  23,860
  27,820
  32,249
  37,148
  42,512
  48,335
  54,605
  61,314
  68,451
  76,005
  83,967
  92,332
  101,094
  110,251
  119,804
  129,755
  140,111
  150,879
  162,073
  173,704
  185,791
  198,353
  211,409
  224,986
  239,108
  253,803
  269,103
  285,040
  301,649
  318,966
Maintenance CAPEX, $m
  0
  -24,122
  -29,778
  -36,225
  -43,465
  -51,500
  -60,326
  -69,932
  -80,304
  -91,425
  -103,277
  -115,843
  -129,107
  -143,058
  -157,686
  -172,985
  -188,955
  -205,600
  -222,929
  -240,953
  -259,691
  -279,166
  -299,403
  -320,434
  -342,293
  -365,020
  -388,658
  -413,253
  -438,855
  -465,519
  -493,302
New CAPEX, $m
  -22,116
  -50,908
  -58,023
  -65,156
  -72,316
  -79,433
  -86,457
  -93,348
  -100,088
  -106,668
  -113,094
  -119,382
  -125,556
  -131,649
  -137,694
  -143,733
  -149,805
  -155,954
  -162,220
  -168,645
  -175,270
  -182,135
  -189,277
  -196,735
  -204,543
  -212,738
  -221,352
  -230,420
  -239,974
  -250,047
  -260,672
Cash from investing activities, $m
  -30,963
  -75,030
  -87,801
  -101,381
  -115,781
  -130,933
  -146,783
  -163,280
  -180,392
  -198,093
  -216,371
  -235,225
  -254,663
  -274,707
  -295,380
  -316,718
  -338,760
  -361,554
  -385,149
  -409,598
  -434,961
  -461,301
  -488,680
  -517,169
  -546,836
  -577,758
  -610,010
  -643,673
  -678,829
  -715,566
  -753,974
Free cash flow, $m
  -10,348
  -51,170
  -59,981
  -69,132
  -78,632
  -88,421
  -98,448
  -108,675
  -119,078
  -129,642
  -140,366
  -151,257
  -162,331
  -173,612
  -185,129
  -196,914
  -209,006
  -221,444
  -234,269
  -247,525
  -261,257
  -275,509
  -290,328
  -305,759
  -321,851
  -338,651
  -356,207
  -374,569
  -393,789
  -413,918
  -435,008
Issuance/(repayment) of debt, $m
  11,074
  50,552
  57,523
  64,596
  71,694
  78,750
  85,713
  92,545
  99,227
  105,750
  112,121
  118,355
  124,476
  130,516
  136,510
  142,497
  148,517
  154,612
  160,824
  167,194
  173,762
  180,568
  187,649
  195,043
  202,784
  210,908
  219,448
  228,438
  237,910
  247,896
  258,430
Issuance/(repurchase) of shares, $m
  0
  48,196
  56,213
  64,742
  73,617
  82,784
  92,198
  101,823
  111,637
  121,627
  131,790
  140,833
  151,369
  162,118
  173,106
  184,365
  195,926
  207,827
  220,105
  232,800
  245,954
  259,606
  273,801
  288,582
  303,992
  320,076
  336,880
  354,451
  372,836
  392,085
  412,248
Cash from financing (excl. dividends), $m  
  8,906
  98,748
  113,736
  129,338
  145,311
  161,534
  177,911
  194,368
  210,864
  227,377
  243,911
  259,188
  275,845
  292,634
  309,616
  326,862
  344,443
  362,439
  380,929
  399,994
  419,716
  440,174
  461,450
  483,625
  506,776
  530,984
  556,328
  582,889
  610,746
  639,981
  670,678
Total cash flow (excl. dividends), $m
  -2,945
  47,578
  53,756
  60,205
  66,678
  73,113
  79,463
  85,694
  91,787
  97,735
  103,545
  107,931
  113,513
  119,021
  124,487
  129,947
  135,437
  140,995
  146,660
  152,469
  158,459
  164,665
  171,123
  177,865
  184,925
  192,333
  200,121
  208,319
  216,957
  226,064
  235,670
Retained Cash Flow (-), $m
  -23,770
  -48,196
  -56,213
  -64,742
  -73,617
  -82,784
  -92,198
  -101,823
  -111,637
  -121,627
  -131,790
  -140,833
  -151,369
  -162,118
  -173,106
  -184,365
  -195,926
  -207,827
  -220,105
  -232,800
  -245,954
  -259,606
  -273,801
  -288,582
  -303,992
  -320,076
  -336,880
  -354,451
  -372,836
  -392,085
  -412,248
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
 
  8,679
  -2,457
  -4,536
  -6,939
  -9,671
  -12,735
  -16,130
  -19,851
  -23,892
  -28,245
  -32,902
  -37,855
  -43,096
  -48,619
  -54,418
  -60,489
  -66,832
  -73,445
  -80,331
  -87,495
  -94,941
  -102,679
  -110,717
  -119,067
  -127,743
  -136,759
  -146,131
  -155,879
  -166,021
  -176,579
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
 
  8,266
  -2,218
  -3,862
  -5,540
  -7,200
  -8,786
  -10,244
  -11,523
  -12,580
  -13,381
  -13,905
  -14,141
  -14,092
  -13,772
  -13,207
  -12,431
  -11,487
  -10,419
  -9,275
  -8,101
  -6,939
  -5,827
  -4,794
  -3,861
  -3,042
  -2,343
  -1,762
  -1,293
  -924
  -644
Current shareholders' claim on cash, %
  100
  84.1
  71.4
  61.1
  52.7
  45.7
  40.0
  35.1
  31.1
  27.6
  24.6
  22.1
  19.9
  18.0
  16.3
  14.8
  13.5
  12.3
  11.3
  10.3
  9.5
  8.7
  8.0
  7.4
  6.8
  6.3
  5.8
  5.4
  5.0
  4.6
  4.3

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 B (RDS-B)

Valuation Ratios
P/E Ratio 117.9
Price to Sales 2.3
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 26.2
Price to Free Cash Flow -359.5
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-B stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RDS-B stock intrinsic value calculation we used $233591 million for the last fiscal year's total revenue generated by Royal Dutch Shell ADR B. The default revenue input number comes from 2016 income statement of Royal Dutch Shell ADR B. 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-B stock valuation model: a) initial revenue growth rate of 23.5% 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%, whose default value for RDS-B is calculated based on our internal credit rating of Royal Dutch Shell ADR B, 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 B.
    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-B 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-B 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 B.

Corporate tax rate of 27% is the nominal tax rate for Royal Dutch Shell ADR B. 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-B 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-B 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 B 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-B 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 B - 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 4055.85 million for Royal Dutch Shell ADR B 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 B at the current share price and the inputted number of shares is $268.7 billion.

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COMPANY NEWS

▶ Correlation of Shell Stock with WTI in 4Q17   [Dec-15-17 10:30AM  Market Realist]
▶ What Shells PEG Ratio Indicates   [07:30AM  Market Realist]
▶ Has Short Interest in Shell Risen?   [12:28PM  Market Realist]
▶ Chart in Focus: Shells Valuations   [12:28PM  Market Realist]
▶ Royal Dutch Shell plc: Additional Listing   [Dec-13-17 12:43PM  PR Newswire]
▶ What Shells Moving Averages in 9M17 Indicate   [09:01AM  Market Realist]
▶ How Analysts Rate Shell   [07:35AM  Market Realist]
▶ Here Are Analysts Top 10 Integrated Energy Picks   [Dec-12-17 03:05PM  Market Realist]
▶ A Look at Shells 3Q17 Segmental Earnings   [10:31AM  Market Realist]
▶ 5 Energy Dividend Stocks You Can Buy Right Now   [Dec-11-17 08:45PM  Motley Fool]
▶ Why Shell Canceled Its Scrip Dividend Program   [07:33AM  Market Realist]
▶ [$$] Meet Your New Boss: An Algorithm   [12:26AM  The Wall Street Journal]
▶ Meet Your New Boss: An Algorithm   [Dec-10-17 08:00AM  The Wall Street Journal]
▶ Only 1 energy company makes Glassdoors 2018 Best Places to Work list   [04:15PM  American City Business Journals]
▶ 3 Dividend Stocks Perfect for Retirement   [Dec-06-17 08:09PM  Motley Fool]
▶ 7 of the Best Energy Stocks to Buy for 2018   [Dec-04-17 01:35PM  U.S.News & World Report]
▶ [$$] Shell Strikes Deal to Develop Vast Australian Coal-Seam Gas Fields   [Dec-02-17 12:23AM  The Wall Street Journal]
▶ Royal Dutch Shell plc: Director/PDMR Shareholding   [Dec-01-17 01:11PM  PR Newswire]
▶ How Big Oil Is Transforming Shale   [06:00PM  Oilprice.com]
▶ Shell Aims To Half Emissions By 2050   [05:00PM  Oilprice.com]
▶ Oil Majors Are Leading The Recovery Race   [Nov-29-17 04:00PM  Oilprice.com]
▶ Shell Midstream acquiring terminals, pipeline stakes for $825M   [10:15AM  American City Business Journals]
▶ [$$] Shell's Gift to Investors Could Prove Premature   [05:01AM  The Wall Street Journal]
▶ All Eyes On OPEC As Meeting Nears   [03:00PM  Oilprice.com]
▶ Six stocks to own in final trades   [02:09PM  CNBC Videos]
▶ Shell Atones for Its Past Sins   [08:30AM  Bloomberg]
▶ Shell signals return to pure cash dividend   [07:55AM  Reuters Videos]
▶ Shell Shores Up Its Dividend   [03:41AM  The Wall Street Journal]
▶ [$$] Shell Cancels Scrip Dividend, Plans $25B Buyback   [03:17AM  The Wall Street Journal]
Financial statements of RDS-B
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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