Intrinsic value of Schlumberger - SLB

Previous Close

$67.02

  Intrinsic Value

$34.06

stock screener

  Rating & Target

sell

-49%

  Value-price divergence*

-79%

Previous close

$67.02

 
Intrinsic value

$34.06

 
Up/down potential

-49%

 
Rating

sell

 
Value-price divergence*

-79%

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

We calculate the intrinsic value of SLB 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 92.6

 

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, %
  -21.41
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
Revenue, $m
  27,920
  29,567
  31,285
  33,077
  34,948
  36,902
  38,943
  41,077
  43,307
  45,641
  48,082
  50,637
  53,312
  56,113
  59,047
  62,121
  65,342
  68,718
  72,257
  75,967
  79,858
  83,938
  88,218
  92,707
  97,416
  102,357
  107,541
  112,981
  118,689
  124,679
  130,966
Variable operating expenses, $m
 
  11,709
  12,244
  12,802
  13,385
  13,994
  14,630
  15,294
  15,989
  16,716
  17,476
  15,773
  16,606
  17,479
  18,393
  19,350
  20,354
  21,405
  22,508
  23,663
  24,875
  26,146
  27,479
  28,878
  30,345
  31,884
  33,498
  35,193
  36,971
  38,837
  40,795
Fixed operating expenses, $m
 
  19,340
  19,823
  20,319
  20,827
  21,347
  21,881
  22,428
  22,989
  23,564
  24,153
  24,756
  25,375
  26,010
  26,660
  27,326
  28,010
  28,710
  29,428
  30,163
  30,917
  31,690
  32,483
  33,295
  34,127
  34,980
  35,855
  36,751
  37,670
  38,612
  39,577
Total operating expenses, $m
  29,591
  31,049
  32,067
  33,121
  34,212
  35,341
  36,511
  37,722
  38,978
  40,280
  41,629
  40,529
  41,981
  43,489
  45,053
  46,676
  48,364
  50,115
  51,936
  53,826
  55,792
  57,836
  59,962
  62,173
  64,472
  66,864
  69,353
  71,944
  74,641
  77,449
  80,372
Operating income, $m
  -1,671
  -1,481
  -782
  -44
  736
  1,561
  2,433
  3,354
  4,330
  5,361
  6,453
  10,107
  11,330
  12,624
  13,994
  15,444
  16,979
  18,603
  20,322
  22,141
  24,065
  26,102
  28,256
  30,535
  32,945
  35,493
  38,188
  41,037
  44,048
  47,231
  50,594
EBITDA, $m
  2,423
  3,170
  3,994
  4,863
  5,780
  6,746
  7,767
  8,844
  9,981
  11,183
  12,452
  13,794
  15,211
  16,709
  18,293
  19,966
  21,735
  23,605
  25,582
  27,671
  29,879
  32,212
  34,678
  37,284
  40,037
  42,945
  46,017
  49,262
  52,689
  56,307
  60,128
Interest expense (income), $m
  599
  576
  647
  720
  796
  875
  958
  1,044
  1,135
  1,229
  1,328
  1,431
  1,539
  1,652
  1,771
  1,895
  2,025
  2,162
  2,304
  2,454
  2,611
  2,776
  2,949
  3,130
  3,320
  3,519
  3,728
  3,948
  4,178
  4,420
  4,673
Earnings before tax, $m
  -1,905
  -2,058
  -1,430
  -764
  -60
  686
  1,475
  2,310
  3,195
  4,132
  5,125
  8,676
  9,791
  10,972
  12,223
  13,549
  14,953
  16,441
  18,017
  19,686
  21,454
  23,326
  25,307
  27,405
  29,625
  31,974
  34,460
  37,089
  39,870
  42,811
  45,921
Tax expense, $m
  -278
  0
  0
  0
  0
  185
  398
  624
  863
  1,116
  1,384
  2,343
  2,644
  2,962
  3,300
  3,658
  4,037
  4,439
  4,865
  5,315
  5,793
  6,298
  6,833
  7,399
  7,999
  8,633
  9,304
  10,014
  10,765
  11,559
  12,399
Net income, $m
  -1,687
  -2,058
  -1,430
  -764
  -60
  501
  1,077
  1,687
  2,332
  3,017
  3,741
  6,334
  7,147
  8,009
  8,923
  9,891
  10,916
  12,002
  13,152
  14,371
  15,661
  17,028
  18,474
  20,005
  21,626
  23,341
  25,155
  27,075
  29,105
  31,252
  33,522

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  9,257
  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
  77,956
  72,826
  77,057
  81,472
  86,080
  90,892
  95,920
  101,174
  106,669
  112,415
  118,428
  124,721
  131,309
  138,209
  145,435
  153,006
  160,940
  169,256
  177,973
  187,112
  196,695
  206,745
  217,285
  228,342
  239,942
  252,111
  264,879
  278,277
  292,337
  307,091
  322,576
Adjusted assets (=assets-cash), $m
  68,699
  72,826
  77,057
  81,472
  86,080
  90,892
  95,920
  101,174
  106,669
  112,415
  118,428
  124,721
  131,309
  138,209
  145,435
  153,006
  160,940
  169,256
  177,973
  187,112
  196,695
  206,745
  217,285
  228,342
  239,942
  252,111
  264,879
  278,277
  292,337
  307,091
  322,576
Revenue / Adjusted assets
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
Average production assets, $m
  20,330
  21,525
  22,776
  24,080
  25,442
  26,865
  28,351
  29,904
  31,528
  33,226
  35,004
  36,864
  38,811
  40,850
  42,986
  45,224
  47,569
  50,027
  52,603
  55,304
  58,137
  61,107
  64,223
  67,491
  70,919
  74,516
  78,290
  82,250
  86,405
  90,766
  95,343
Working capital, $m
  8,868
  2,927
  3,097
  3,275
  3,460
  3,653
  3,855
  4,067
  4,287
  4,518
  4,760
  5,013
  5,278
  5,555
  5,846
  6,150
  6,469
  6,803
  7,153
  7,521
  7,906
  8,310
  8,734
  9,178
  9,644
  10,133
  10,647
  11,185
  11,750
  12,343
  12,966
Total debt, $m
  19,616
  18,495
  20,573
  22,741
  25,003
  27,366
  29,835
  32,415
  35,112
  37,934
  40,886
  43,976
  47,211
  50,598
  54,147
  57,864
  61,760
  65,843
  70,123
  74,610
  79,315
  84,250
  89,425
  94,854
  100,549
  106,524
  112,794
  119,372
  126,275
  133,520
  141,123
Total liabilities, $m
  36,878
  35,757
  37,835
  40,003
  42,265
  44,628
  47,097
  49,677
  52,374
  55,196
  58,148
  61,238
  64,473
  67,860
  71,409
  75,126
  79,022
  83,105
  87,385
  91,872
  96,577
  101,512
  106,687
  112,116
  117,811
  123,786
  130,056
  136,634
  143,537
  150,782
  158,385
Total equity, $m
  41,078
  37,068
  39,222
  41,469
  43,815
  46,264
  48,823
  51,498
  54,294
  57,219
  60,280
  63,483
  66,836
  70,348
  74,027
  77,880
  81,919
  86,151
  90,588
  95,240
  100,118
  105,233
  110,598
  116,226
  122,130
  128,324
  134,824
  141,643
  148,799
  156,309
  164,191
Total liabilities and equity, $m
  77,956
  72,825
  77,057
  81,472
  86,080
  90,892
  95,920
  101,175
  106,668
  112,415
  118,428
  124,721
  131,309
  138,208
  145,436
  153,006
  160,941
  169,256
  177,973
  187,112
  196,695
  206,745
  217,285
  228,342
  239,941
  252,110
  264,880
  278,277
  292,336
  307,091
  322,576
Debt-to-equity ratio
  0.478
  0.500
  0.520
  0.550
  0.570
  0.590
  0.610
  0.630
  0.650
  0.660
  0.680
  0.690
  0.710
  0.720
  0.730
  0.740
  0.750
  0.760
  0.770
  0.780
  0.790
  0.800
  0.810
  0.820
  0.820
  0.830
  0.840
  0.840
  0.850
  0.850
  0.860
Adjusted equity ratio
  0.480
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509
  0.509

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1,687
  -2,058
  -1,430
  -764
  -60
  501
  1,077
  1,687
  2,332
  3,017
  3,741
  6,334
  7,147
  8,009
  8,923
  9,891
  10,916
  12,002
  13,152
  14,371
  15,661
  17,028
  18,474
  20,005
  21,626
  23,341
  25,155
  27,075
  29,105
  31,252
  33,522
Depreciation, amort., depletion, $m
  4,094
  4,651
  4,777
  4,907
  5,043
  5,185
  5,334
  5,489
  5,652
  5,822
  5,999
  3,686
  3,881
  4,085
  4,299
  4,522
  4,757
  5,003
  5,260
  5,530
  5,814
  6,111
  6,422
  6,749
  7,092
  7,452
  7,829
  8,225
  8,641
  9,077
  9,534
Funds from operations, $m
  6,015
  2,594
  3,347
  4,143
  4,984
  5,686
  6,411
  7,176
  7,984
  8,838
  9,741
  10,020
  11,028
  12,094
  13,221
  14,413
  15,673
  17,005
  18,413
  19,901
  21,475
  23,138
  24,896
  26,755
  28,718
  30,793
  32,984
  35,300
  37,746
  40,329
  43,056
Change in working capital, $m
  -246
  163
  170
  177
  185
  193
  202
  211
  221
  231
  242
  253
  265
  277
  290
  304
  319
  334
  350
  367
  385
  404
  424
  444
  466
  489
  513
  539
  565
  593
  622
Cash from operations, $m
  6,261
  2,431
  3,177
  3,966
  4,799
  5,493
  6,209
  6,965
  7,763
  8,607
  9,499
  9,767
  10,764
  11,817
  12,931
  14,109
  15,354
  16,670
  18,062
  19,534
  21,090
  22,734
  24,473
  26,310
  28,252
  30,303
  32,471
  34,761
  37,181
  39,736
  42,434
Maintenance CAPEX, $m
  0
  -2,033
  -2,152
  -2,278
  -2,408
  -2,544
  -2,686
  -2,835
  -2,990
  -3,153
  -3,323
  -3,500
  -3,686
  -3,881
  -4,085
  -4,299
  -4,522
  -4,757
  -5,003
  -5,260
  -5,530
  -5,814
  -6,111
  -6,422
  -6,749
  -7,092
  -7,452
  -7,829
  -8,225
  -8,641
  -9,077
New CAPEX, $m
  -2,055
  -1,195
  -1,251
  -1,305
  -1,362
  -1,422
  -1,486
  -1,553
  -1,624
  -1,699
  -1,777
  -1,860
  -1,947
  -2,039
  -2,136
  -2,238
  -2,345
  -2,458
  -2,576
  -2,701
  -2,832
  -2,970
  -3,116
  -3,268
  -3,428
  -3,597
  -3,774
  -3,960
  -4,156
  -4,361
  -4,577
Cash from investing activities, $m
  -624
  -3,228
  -3,403
  -3,583
  -3,770
  -3,966
  -4,172
  -4,388
  -4,614
  -4,852
  -5,100
  -5,360
  -5,633
  -5,920
  -6,221
  -6,537
  -6,867
  -7,215
  -7,579
  -7,961
  -8,362
  -8,784
  -9,227
  -9,690
  -10,177
  -10,689
  -11,226
  -11,789
  -12,381
  -13,002
  -13,654
Free cash flow, $m
  5,637
  -797
  -226
  383
  1,028
  1,526
  2,036
  2,576
  3,149
  3,756
  4,399
  4,407
  5,130
  5,897
  6,710
  7,572
  8,487
  9,456
  10,483
  11,573
  12,727
  13,950
  15,247
  16,620
  18,074
  19,615
  21,246
  22,972
  24,800
  26,734
  28,781
Issuance/(repayment) of debt, $m
  -2,377
  2,032
  2,078
  2,168
  2,263
  2,363
  2,469
  2,580
  2,698
  2,822
  2,952
  3,090
  3,235
  3,388
  3,548
  3,717
  3,896
  4,083
  4,280
  4,487
  4,705
  4,935
  5,176
  5,429
  5,695
  5,975
  6,269
  6,578
  6,903
  7,244
  7,603
Issuance/(repurchase) of shares, $m
  -363
  4,152
  3,583
  3,011
  2,405
  1,949
  1,482
  988
  464
  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  
  -2,781
  6,184
  5,661
  5,179
  4,668
  4,312
  3,951
  3,568
  3,162
  2,822
  2,952
  3,090
  3,235
  3,388
  3,548
  3,717
  3,896
  4,083
  4,280
  4,487
  4,705
  4,935
  5,176
  5,429
  5,695
  5,975
  6,269
  6,578
  6,903
  7,244
  7,603
Total cash flow (excl. dividends), $m
  2,783
  5,387
  5,435
  5,562
  5,696
  5,838
  5,987
  6,145
  6,311
  6,578
  7,352
  7,497
  8,365
  9,284
  10,258
  11,290
  12,382
  13,539
  14,763
  16,060
  17,432
  18,885
  20,422
  22,049
  23,770
  25,590
  27,515
  29,551
  31,703
  33,979
  36,384
Retained Cash Flow (-), $m
  -5,445
  -4,152
  -3,583
  -3,011
  -2,405
  -2,449
  -2,559
  -2,675
  -2,797
  -2,925
  -3,060
  -3,203
  -3,353
  -3,512
  -3,678
  -3,854
  -4,038
  -4,233
  -4,437
  -4,652
  -4,878
  -5,115
  -5,365
  -5,628
  -5,904
  -6,194
  -6,499
  -6,820
  -7,156
  -7,510
  -7,882
Prev. year cash balance distribution, $m
 
  6,104
  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
 
  7,339
  1,851
  2,551
  3,291
  3,388
  3,428
  3,470
  3,514
  3,653
  4,291
  4,293
  5,011
  5,773
  6,580
  7,436
  8,344
  9,306
  10,326
  11,408
  12,555
  13,769
  15,057
  16,421
  17,866
  19,396
  21,016
  22,731
  24,547
  26,469
  28,502
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  7,037
  1,695
  2,220
  2,710
  2,626
  2,488
  2,344
  2,197
  2,098
  2,250
  2,039
  2,139
  2,195
  2,209
  2,183
  2,120
  2,025
  1,902
  1,757
  1,595
  1,424
  1,249
  1,076
  910
  755
  613
  488
  380
  289
  215
Current shareholders' claim on cash, %
  100
  95.0
  91.1
  88.1
  85.9
  84.2
  83.0
  82.3
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0
  82.0

Schlumberger Limited supplies technology products and services to the oil and gas exploration and production industry worldwide. Its Reservoir Characterization Group segment provides reservoir imaging, monitoring, and development services; wireline technologies for open and cased-hole services; slickline services; exploration and production pressure and flow-rate measurement services comprising surface and downhole services; software integrated solutions, such as software, consulting, information management, and IT infrastructure services; consulting services for reservoir characterization, field development planning, and production enhancement; and petrotechnical data services and training solutions, as well as integrated management services. Its Drilling Group segment designs, manufactures, and markets roller cone and fixed cutter drill bits; supplies drilling fluid systems; provides pressure drilling and underbalanced drilling solutions, and environmental services and products; mud logging services; land drilling rigs and support services; and well planning and drilling, engineering, supervision, logistics, procurement, contracting, and drilling rig management services, as well as bottom-hole-assembly, borehole-enlargement technologies, impact tools, tubulars, and tubular services. Its Production Group segment provides well services comprising pressure pumping, well cementing, and stimulation services; coiled tubing equipment; well completion services and equipment that include packers, safety valves, and sand control technology, as well as completions technology and equipment; artificial lifts; and integrated production and production management services. Its Cameron Group segment offers integrated subsea production systems; surface systems; drilling equipment and services; and valve products and measurement systems. The company was formerly known as Socie´te´ de Prospection E´lectrique. Schlumberger Limited was founded in 1926 and is based in Houston, Texas.

FINANCIAL RATIOS  of  Schlumberger (SLB)

Valuation Ratios
P/E Ratio -55.3
Price to Sales 3.3
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 14.9
Price to Free Cash Flow 22.2
Growth Rates
Sales Growth Rate -21.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -14.7%
Cap. Spend. - 3 Yr. Gr. Rate -12.2%
Financial Strength
Quick Ratio 3
Current Ratio 0.1
LT Debt to Equity 40.1%
Total Debt to Equity 47.8%
Interest Coverage -2
Management Effectiveness
Return On Assets -1.6%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital -2.9%
Ret/ On T. Cap. - 3 Yr. Avg. 3.8%
Return On Equity -4.4%
Return On Equity - 3 Yr. Avg. 5.1%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 12.8%
Gross Margin - 3 Yr. Avg. 18.5%
EBITDA Margin 10%
EBITDA Margin - 3 Yr. Avg. 18.5%
Operating Margin -6%
Oper. Margin - 3 Yr. Avg. 6%
Pre-Tax Margin -6.8%
Pre-Tax Margin - 3 Yr. Avg. 5.7%
Net Profit Margin -6%
Net Profit Margin - 3 Yr. Avg. 3.7%
Effective Tax Rate 14.6%
Eff/ Tax Rate - 3 Yr. Avg. 21.9%
Payout Ratio -156.9%

SLB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SLB stock intrinsic value calculation we used $27920 million for the last fiscal year's total revenue generated by Schlumberger. The default revenue input number comes from 2016 income statement of Schlumberger. 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 SLB stock valuation model: a) initial revenue growth rate of 5.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for SLB is calculated based on our internal credit rating of Schlumberger, 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 Schlumberger.
    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 SLB stock the variable cost ratio is equal to 40.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $18868 million in the base year in the intrinsic value calculation for SLB 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 Schlumberger.

Corporate tax rate of 27% is the nominal tax rate for Schlumberger. 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 SLB 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 SLB are equal to 72.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Schlumberger 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 SLB is equal to 9.9%. 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 - $41078 million for Schlumberger - 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 1382.04 million for Schlumberger 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 Schlumberger at the current share price and the inputted number of shares is $92.6 billion.

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COMPANY NEWS

▶ Schlumberger Turns Upbeat On Foreign Markets As Q2 Beats   [Jul-21-17 07:49AM  Investor's Business Daily]
▶ Schlumberger reports 2Q loss   [07:12AM  Associated Press]
▶ Zimmer Biomet: Cramer's Top Takeaways   [06:25AM  TheStreet.com]
▶ Schlumberger To Report As Cracks Appear Even In U.S. Market   [Jul-17-17 04:37PM  Investor's Business Daily]
▶ Schlumbergers 1-Year Returns on July 14, 2017   [11:24AM  Market Realist]
▶ What Analysts Recommend for SLB, HAL, NOV, and WFT   [Jul-12-17 07:37AM  Market Realist]
▶ U.S. Shale Players Return to Oil & Gas Patches   [Jul-10-17 05:10PM  Zacks]
▶ Why OFS Stocks Are Seeing Bearish Trends   [01:04PM  Market Realist]
▶ Wall Streets Recommendations for Schlumberger   [07:36AM  Market Realist]
▶ A Look at Schlumbergers Short Interest   [09:07AM  Market Realist]
▶ Forecasting Schlumbergers Stock Price   [07:37AM  Market Realist]
▶ Today's top gainers   [Jul-06-17 05:02PM  CNBC Videos]
▶ What Drove Schlumberger in 1Q17   [10:37AM  Market Realist]
▶ What Schlumberger Expects for 2017   [07:39AM  Market Realist]
▶ What Analysts Expect from Schlumberger in 2Q17   [Jul-05-17 05:30PM  Market Realist]
▶ Markets Overcome The Crash: Oil Rally Continues   [Jul-04-17 03:00PM  Oilprice.com]
▶ 4 ways to trade energy in a down year   [05:00PM  CNBC Videos]
▶ What Was the Short Interest in Schlumberger on June 23?   [Jun-26-17 05:35PM  Market Realist]
▶ Schlumberger Is Still Looking for a Bottom   [Jun-22-17 02:11PM  TheStreet.com]
▶ Energy on track for its worst week in six months   [Jun-21-17 05:29PM  CNBC Videos]
▶ Winners of oil's decline   [01:48PM  CNBC Videos]
▶ Schlumberger: Why Do You Hate Me?   [11:51AM  Barrons.com]
▶ Inside Schlumbergers 1-Year Returns as of June 16   [Jun-19-17 05:50PM  Market Realist]
▶ 3 Bargain Stocks You Can Buy Today   [Jun-14-17 12:09PM  Motley Fool]
▶ Fast Money final trades: AAPL, GS and more   [Jun-13-17 05:59PM  CNBC Videos]
▶ Seeking Value in the US: Schlumberger   [03:53PM  GuruFocus.com]
▶ Whats the Correlation between Schlumberger and Crude Oil?   [Jun-12-17 02:05PM  Market Realist]
▶ An Overview of Deepwater Drillers   [01:53PM  Investopedia]
▶ What Analysts Recommend for Schlumberger   [07:36AM  Market Realist]
▶ The Dark Side Of The Oil Tech Boom   [Jun-05-17 07:00PM  Oilprice.com]
▶ What Analysts Recommend for Energy Companies   [06:05PM  Market Realist]
▶ Whats Schlumbergers Net Debt after 1Q17?   [10:36AM  Market Realist]
Stock chart of SLB Financial statements of SLB Annual reports of SLB
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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