Intrinsic value of Range Resources - RRC

Previous Close

$21.01

  Intrinsic Value

$3.80

stock screener

  Rating & Target

str. sell

-82%

  Value-price divergence*

+52%

Previous close

$21.01

 
Intrinsic value

$3.80

 
Up/down potential

-82%

 
Rating

str. sell

 
Value-price divergence*

+52%

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

We calculate the intrinsic value of RRC 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 5.2

 

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, %
  15.14
  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
  1,361
  2,178
  3,364
  5,031
  7,300
  10,300
  14,160
  19,007
  24,957
  32,113
  40,562
  50,369
  61,581
  74,225
  88,313
  103,841
  120,792
  139,142
  158,862
  179,919
  202,283
  225,923
  250,815
  276,941
  304,288
  332,852
  362,637
  393,655
  425,928
  459,484
  494,362
Variable operating expenses, $m
 
  3,729
  5,671
  8,399
  12,112
  17,021
  23,338
  31,269
  41,007
  52,718
  66,544
  82,427
  100,775
  121,468
  144,522
  169,933
  197,673
  227,702
  259,973
  294,433
  331,030
  369,717
  410,452
  453,206
  497,958
  544,702
  593,445
  644,206
  697,019
  751,933
  809,009
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
  1,727
  3,729
  5,671
  8,399
  12,112
  17,021
  23,338
  31,269
  41,007
  52,718
  66,544
  82,427
  100,775
  121,468
  144,522
  169,933
  197,673
  227,702
  259,973
  294,433
  331,030
  369,717
  410,452
  453,206
  497,958
  544,702
  593,445
  644,206
  697,019
  751,933
  809,009
Operating income, $m
  -365
  -1,551
  -2,307
  -3,368
  -4,812
  -6,721
  -9,178
  -12,263
  -16,050
  -20,605
  -25,982
  -32,058
  -39,194
  -47,242
  -56,209
  -66,092
  -76,881
  -88,560
  -101,111
  -114,514
  -128,747
  -143,794
  -159,637
  -176,265
  -193,671
  -211,851
  -230,808
  -250,550
  -271,091
  -292,449
  -314,647
EBITDA, $m
  202
  -567
  -877
  -1,311
  -1,902
  -2,684
  -3,690
  -4,953
  -6,504
  -8,368
  -10,570
  -13,126
  -16,047
  -19,342
  -23,014
  -27,060
  -31,477
  -36,259
  -41,398
  -46,885
  -52,713
  -58,873
  -65,360
  -72,168
  -79,294
  -86,738
  -94,499
  -102,582
  -110,992
  -119,737
  -128,825
Interest expense (income), $m
  160
  189
  364
  619
  978
  1,467
  2,112
  2,943
  3,987
  5,268
  6,809
  8,628
  10,739
  13,153
  15,875
  18,908
  22,251
  25,900
  29,851
  34,096
  38,630
  43,444
  48,534
  53,893
  59,517
  65,405
  71,554
  77,967
  84,645
  91,593
  98,817
Earnings before tax, $m
  -802
  -1,740
  -2,671
  -3,987
  -5,790
  -8,188
  -11,290
  -15,206
  -20,037
  -25,873
  -32,791
  -40,686
  -49,933
  -60,395
  -72,084
  -85,000
  -99,131
  -114,460
  -130,962
  -148,610
  -167,377
  -187,238
  -208,171
  -230,158
  -253,188
  -277,256
  -302,362
  -328,517
  -355,736
  -384,042
  -413,464
Tax expense, $m
  -281
  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
  -521
  -1,740
  -2,671
  -3,987
  -5,790
  -8,188
  -11,290
  -15,206
  -20,037
  -25,873
  -32,791
  -40,686
  -49,933
  -60,395
  -72,084
  -85,000
  -99,131
  -114,460
  -130,962
  -148,610
  -167,377
  -187,238
  -208,171
  -230,158
  -253,188
  -277,256
  -302,362
  -328,517
  -355,736
  -384,042
  -413,464

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  11,282
  17,997
  27,805
  41,582
  60,334
  85,122
  117,023
  157,080
  206,255
  265,400
  335,222
  416,270
  508,930
  613,432
  729,863
  858,189
  998,280
  1,149,935
  1,312,909
  1,486,938
  1,671,759
  1,867,133
  2,072,855
  2,288,768
  2,514,775
  2,750,841
  2,996,998
  3,253,349
  3,520,067
  3,797,392
  4,085,636
Adjusted assets (=assets-cash), $m
  11,282
  17,997
  27,805
  41,582
  60,334
  85,122
  117,023
  157,080
  206,255
  265,400
  335,222
  416,270
  508,930
  613,432
  729,863
  858,189
  998,280
  1,149,935
  1,312,909
  1,486,938
  1,671,759
  1,867,133
  2,072,855
  2,288,768
  2,514,775
  2,750,841
  2,996,998
  3,253,349
  3,520,067
  3,797,392
  4,085,636
Revenue / Adjusted assets
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
Average production assets, $m
  7,827
  12,523
  19,349
  28,936
  41,984
  59,234
  81,433
  109,307
  143,527
  184,685
  233,272
  289,670
  354,150
  426,870
  507,890
  597,189
  694,674
  800,206
  913,615
  1,034,717
  1,163,329
  1,299,284
  1,442,439
  1,592,687
  1,749,959
  1,914,230
  2,085,524
  2,263,912
  2,449,512
  2,642,495
  2,843,075
Working capital, $m
  -421
  -218
  -336
  -503
  -730
  -1,030
  -1,416
  -1,901
  -2,496
  -3,211
  -4,056
  -5,037
  -6,158
  -7,423
  -8,831
  -10,384
  -12,079
  -13,914
  -15,886
  -17,992
  -20,228
  -22,592
  -25,082
  -27,694
  -30,429
  -33,285
  -36,264
  -39,366
  -42,593
  -45,948
  -49,436
Total debt, $m
  3,774
  7,276
  12,386
  19,564
  29,334
  42,249
  58,869
  79,738
  105,359
  136,174
  172,551
  214,777
  263,053
  317,498
  378,159
  445,017
  518,004
  597,016
  681,926
  772,595
  868,887
  970,676
  1,077,857
  1,190,348
  1,308,098
  1,431,088
  1,559,336
  1,692,895
  1,831,855
  1,976,341
  2,126,516
Total liabilities, $m
  5,874
  9,376
  14,486
  21,664
  31,434
  44,349
  60,969
  81,838
  107,459
  138,274
  174,651
  216,877
  265,153
  319,598
  380,259
  447,117
  520,104
  599,116
  684,026
  774,695
  870,987
  972,776
  1,079,957
  1,192,448
  1,310,198
  1,433,188
  1,561,436
  1,694,995
  1,833,955
  1,978,441
  2,128,616
Total equity, $m
  5,408
  8,620
  13,319
  19,918
  28,900
  40,773
  56,054
  75,241
  98,796
  127,127
  160,572
  199,393
  243,778
  293,834
  349,604
  411,073
  478,176
  550,819
  628,883
  712,243
  800,773
  894,357
  992,897
  1,096,320
  1,204,577
  1,317,653
  1,435,562
  1,558,354
  1,686,112
  1,818,951
  1,957,020
Total liabilities and equity, $m
  11,282
  17,996
  27,805
  41,582
  60,334
  85,122
  117,023
  157,079
  206,255
  265,401
  335,223
  416,270
  508,931
  613,432
  729,863
  858,190
  998,280
  1,149,935
  1,312,909
  1,486,938
  1,671,760
  1,867,133
  2,072,854
  2,288,768
  2,514,775
  2,750,841
  2,996,998
  3,253,349
  3,520,067
  3,797,392
  4,085,636
Debt-to-equity ratio
  0.698
  0.840
  0.930
  0.980
  1.020
  1.040
  1.050
  1.060
  1.070
  1.070
  1.070
  1.080
  1.080
  1.080
  1.080
  1.080
  1.080
  1.080
  1.080
  1.080
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
Adjusted equity ratio
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -521
  -1,740
  -2,671
  -3,987
  -5,790
  -8,188
  -11,290
  -15,206
  -20,037
  -25,873
  -32,791
  -40,686
  -49,933
  -60,395
  -72,084
  -85,000
  -99,131
  -114,460
  -130,962
  -148,610
  -167,377
  -187,238
  -208,171
  -230,158
  -253,188
  -277,256
  -302,362
  -328,517
  -355,736
  -384,042
  -413,464
Depreciation, amort., depletion, $m
  567
  984
  1,430
  2,057
  2,909
  4,037
  5,488
  7,310
  9,546
  12,236
  15,412
  18,933
  23,147
  27,900
  33,195
  39,032
  45,404
  52,301
  59,713
  67,629
  76,035
  84,921
  94,277
  104,097
  114,376
  125,113
  136,309
  147,968
  160,099
  172,712
  185,822
Funds from operations, $m
  281
  -756
  -1,241
  -1,930
  -2,881
  -4,151
  -5,802
  -7,896
  -10,490
  -13,636
  -17,379
  -21,753
  -26,786
  -32,495
  -38,888
  -45,968
  -53,728
  -62,159
  -71,249
  -80,981
  -91,342
  -102,317
  -113,894
  -126,061
  -138,812
  -152,143
  -166,054
  -180,549
  -195,637
  -211,329
  -227,643
Change in working capital, $m
  -106
  -82
  -119
  -167
  -227
  -300
  -386
  -485
  -595
  -716
  -845
  -981
  -1,121
  -1,264
  -1,409
  -1,553
  -1,695
  -1,835
  -1,972
  -2,106
  -2,236
  -2,364
  -2,489
  -2,613
  -2,735
  -2,856
  -2,979
  -3,102
  -3,227
  -3,356
  -3,488
Cash from operations, $m
  387
  -674
  -1,122
  -1,764
  -2,654
  -3,851
  -5,416
  -7,412
  -9,895
  -12,921
  -16,534
  -20,772
  -25,665
  -31,230
  -37,480
  -44,415
  -52,033
  -60,324
  -69,277
  -78,876
  -89,106
  -99,953
  -111,404
  -123,448
  -136,077
  -149,286
  -163,075
  -177,447
  -192,410
  -207,974
  -224,155
Maintenance CAPEX, $m
  0
  -512
  -819
  -1,265
  -1,891
  -2,744
  -3,872
  -5,322
  -7,144
  -9,381
  -12,071
  -15,247
  -18,933
  -23,147
  -27,900
  -33,195
  -39,032
  -45,404
  -52,301
  -59,713
  -67,629
  -76,035
  -84,921
  -94,277
  -104,097
  -114,376
  -125,113
  -136,309
  -147,968
  -160,099
  -172,712
New CAPEX, $m
  -513
  -4,697
  -6,825
  -9,587
  -13,049
  -17,250
  -22,199
  -27,874
  -34,220
  -41,157
  -48,587
  -56,399
  -64,479
  -72,720
  -81,021
  -89,299
  -97,485
  -105,532
  -113,409
  -121,102
  -128,612
  -135,955
  -143,156
  -150,248
  -157,272
  -164,271
  -171,294
  -178,387
  -185,601
  -192,983
  -200,580
Cash from investing activities, $m
  -309
  -5,209
  -7,644
  -10,852
  -14,940
  -19,994
  -26,071
  -33,196
  -41,364
  -50,538
  -60,658
  -71,646
  -83,412
  -95,867
  -108,921
  -122,494
  -136,517
  -150,936
  -165,710
  -180,815
  -196,241
  -211,990
  -228,077
  -244,525
  -261,369
  -278,647
  -296,407
  -314,696
  -333,569
  -353,082
  -373,292
Free cash flow, $m
  78
  -5,883
  -8,766
  -12,616
  -17,594
  -23,844
  -31,487
  -40,608
  -51,260
  -63,459
  -77,192
  -92,418
  -109,077
  -127,097
  -146,401
  -166,909
  -188,550
  -211,260
  -234,986
  -259,691
  -285,347
  -311,943
  -339,481
  -367,973
  -397,446
  -427,934
  -459,482
  -492,143
  -525,979
  -561,055
  -597,447
Issuance/(repayment) of debt, $m
  -65
  3,502
  5,110
  7,178
  9,770
  12,915
  16,621
  20,869
  25,621
  30,815
  36,377
  42,226
  48,276
  54,445
  60,661
  66,858
  72,987
  79,012
  84,909
  90,669
  96,292
  101,790
  107,181
  112,491
  117,750
  122,990
  128,248
  133,559
  138,960
  144,487
  150,175
Issuance/(repurchase) of shares, $m
  13
  4,952
  7,369
  10,586
  14,772
  20,061
  26,571
  34,393
  43,592
  54,203
  66,235
  79,508
  94,317
  110,451
  127,854
  146,468
  166,235
  187,103
  209,026
  231,970
  255,907
  280,822
  306,711
  333,581
  361,445
  390,331
  420,272
  451,309
  483,493
  516,880
  551,533
Cash from financing (excl. dividends), $m  
  -61
  8,454
  12,479
  17,764
  24,542
  32,976
  43,192
  55,262
  69,213
  85,018
  102,612
  121,734
  142,593
  164,896
  188,515
  213,326
  239,222
  266,115
  293,935
  322,639
  352,199
  382,612
  413,892
  446,072
  479,195
  513,321
  548,520
  584,868
  622,453
  661,367
  701,708
Total cash flow (excl. dividends), $m
  17
  2,572
  3,713
  5,149
  6,948
  9,132
  11,704
  14,654
  17,953
  21,559
  25,421
  29,316
  33,516
  37,799
  42,114
  46,417
  50,672
  54,855
  58,949
  62,948
  66,852
  70,669
  74,412
  78,098
  81,749
  85,388
  89,038
  92,725
  96,475
  100,312
  104,261
Retained Cash Flow (-), $m
  -2,648
  -4,952
  -7,369
  -10,586
  -14,772
  -20,061
  -26,571
  -34,393
  -43,592
  -54,203
  -66,235
  -79,508
  -94,317
  -110,451
  -127,854
  -146,468
  -166,235
  -187,103
  -209,026
  -231,970
  -255,907
  -280,822
  -306,711
  -333,581
  -361,445
  -390,331
  -420,272
  -451,309
  -483,493
  -516,880
  -551,533
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
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
 
  -2,381
  -3,656
  -5,438
  -7,824
  -10,930
  -14,866
  -19,739
  -25,639
  -32,644
  -40,815
  -50,192
  -60,801
  -72,652
  -85,740
  -100,051
  -115,563
  -132,248
  -150,077
  -169,022
  -189,055
  -210,153
  -232,300
  -255,482
  -279,696
  -304,944
  -331,234
  -358,584
  -387,019
  -416,569
  -447,272
Discount rate, %
 
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.11
PV of cash for distribution, $m
 
  -2,208
  -3,123
  -4,245
  -5,537
  -6,949
  -8,412
  -9,842
  -11,145
  -12,232
  -13,024
  -13,466
  -13,530
  -13,216
  -12,556
  -11,606
  -10,437
  -9,132
  -7,772
  -6,433
  -5,176
  -4,046
  -3,071
  -2,262
  -1,615
  -1,117
  -747
  -483
  -302
  -182
  -105
Current shareholders' claim on cash, %
  100
  51.1
  27.0
  14.8
  8.3
  4.8
  2.9
  1.8
  1.1
  0.7
  0.5
  0.3
  0.2
  0.1
  0.1
  0.1
  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

Range Resources Corporation operates as an independent natural gas, natural gas liquids (NGLs), and oil company. It engages in the exploration, development, and acquisition of natural gas and oil properties. The company holds interests in developed and undeveloped natural gas and oil leases in the Appalachian and North Louisiana region of the United States. It owns and operates 4,526 net producing wells and approximately 899,000 net acres under lease in the Appalachian region; 392 net producing wells and approximately 187,000 net acres under lease in the North Louisiana region; and 337 net producing wells and approximately 209,000 net acres under lease in the Texas Panhandle, as well as in the Anadarko Basin of Western Oklahoma, and the Nemaha Uplift of Northern Oklahoma and Kansas. The company markets and sells natural gas to utilities, marketing and midstream companies, and industrial users; NGLs to natural gas processors or users of NGLs; and oil and condensate to crude oil processors, transporters, and refining and marketing companies. As of December 31, 2016, it had proved reserves of 12.1 trillion cubic feet of natural gas equivalents. The company was formerly known as Lomak Petroleum, Inc. and changed its name to Range Resources Corporation in 1998. Range Resources Corporation was founded in 1975 and is headquartered in Fort Worth, Texas.

FINANCIAL RATIOS  of  Range Resources (RRC)

Valuation Ratios
P/E Ratio -10
Price to Sales 3.8
Price to Book 1
Price to Tangible Book
Price to Cash Flow 13.4
Price to Free Cash Flow -41.2
Growth Rates
Sales Growth Rate 15.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -53.8%
Cap. Spend. - 3 Yr. Gr. Rate -16.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 69.8%
Total Debt to Equity 69.8%
Interest Coverage -4
Management Effectiveness
Return On Assets -4.6%
Ret/ On Assets - 3 Yr. Avg. -1%
Return On Total Capital -7.1%
Ret/ On T. Cap. - 3 Yr. Avg. -2.9%
Return On Equity -12.8%
Return On Equity - 3 Yr. Avg. -4.7%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 78.6%
Gross Margin - 3 Yr. Avg. 79.5%
EBITDA Margin -5.5%
EBITDA Margin - 3 Yr. Avg. 35.3%
Operating Margin -26.9%
Oper. Margin - 3 Yr. Avg. -25.5%
Pre-Tax Margin -58.9%
Pre-Tax Margin - 3 Yr. Avg. -32.5%
Net Profit Margin -38.3%
Net Profit Margin - 3 Yr. Avg. -22.6%
Effective Tax Rate 35%
Eff/ Tax Rate - 3 Yr. Avg. 35.2%
Payout Ratio -3.3%

RRC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RRC stock intrinsic value calculation we used $1361 million for the last fiscal year's total revenue generated by Range Resources. The default revenue input number comes from 2016 income statement of Range Resources. 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 RRC 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 7.8%, whose default value for RRC is calculated based on our internal credit rating of Range Resources, 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 Range Resources.
    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 RRC stock the variable cost ratio is equal to 175.8%.

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 RRC 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% for Range Resources.

Corporate tax rate of 27% is the nominal tax rate for Range Resources. 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 RRC 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 RRC are equal to 575.1%.

Life of production assets of 15.3 years is the average useful life of capital assets used in Range Resources 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 RRC is equal to -10%. 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 - $5408 million for Range Resources - 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 246.688 million for Range Resources 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 Range Resources at the current share price and the inputted number of shares is $5.2 billion.

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Stock chart of RRC Financial statements of RRC Annual reports of RRC
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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