Intrinsic value of China Petroleum&Chemical ADR - SNP

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$79.94

  Intrinsic Value

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  Value-price divergence*

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

We calculate the intrinsic value of SNP 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 102.6

 

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, %
  -4.43
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  279,349
  2,059,261
  2,106,624
  2,160,764
  2,221,546
  2,288,897
  2,362,795
  2,443,264
  2,530,369
  2,624,210
  2,724,920
  2,832,663
  2,947,628
  3,070,035
  3,200,125
  3,338,169
  3,484,459
  3,639,311
  3,803,069
  3,976,098
  4,158,789
  4,351,560
  4,554,854
  4,769,140
  4,994,917
  5,232,710
  5,483,076
  5,746,601
  6,023,906
  6,315,644
  6,622,502
Variable operating expenses, $m
 
  2,005,707
  2,051,824
  2,104,540
  2,163,723
  2,229,302
  2,301,255
  2,379,607
  2,464,420
  2,555,792
  2,653,853
  2,758,133
  2,870,074
  2,989,260
  3,115,928
  3,250,340
  3,392,780
  3,543,559
  3,703,008
  3,871,484
  4,049,369
  4,237,068
  4,435,013
  4,643,661
  4,863,497
  5,095,034
  5,338,812
  5,595,405
  5,865,414
  6,149,476
  6,448,260
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
  268,181
  2,005,707
  2,051,824
  2,104,540
  2,163,723
  2,229,302
  2,301,255
  2,379,607
  2,464,420
  2,555,792
  2,653,853
  2,758,133
  2,870,074
  2,989,260
  3,115,928
  3,250,340
  3,392,780
  3,543,559
  3,703,008
  3,871,484
  4,049,369
  4,237,068
  4,435,013
  4,643,661
  4,863,497
  5,095,034
  5,338,812
  5,595,405
  5,865,414
  6,149,476
  6,448,260
Operating income, $m
  11,168
  53,553
  54,799
  56,224
  57,823
  59,595
  61,539
  63,657
  65,948
  68,417
  71,067
  74,529
  77,554
  80,775
  84,197
  87,829
  91,678
  95,753
  100,061
  104,614
  109,420
  114,492
  119,841
  125,479
  131,419
  137,676
  144,263
  151,197
  158,493
  166,168
  174,242
EBITDA, $m
  26,854
  151,995
  155,491
  159,487
  163,974
  168,945
  174,399
  180,339
  186,768
  193,695
  201,128
  209,081
  217,566
  226,601
  236,203
  246,392
  257,190
  268,620
  280,707
  293,478
  306,963
  321,191
  336,197
  352,013
  368,678
  386,230
  404,709
  424,160
  444,628
  466,162
  488,811
Interest expense (income), $m
  1,008
  6,532
  7,036
  7,611
  8,269
  9,008
  9,826
  10,724
  11,702
  12,760
  13,900
  15,124
  16,433
  17,830
  19,318
  20,898
  22,576
  24,353
  26,235
  28,225
  30,327
  32,547
  34,890
  37,360
  39,964
  42,707
  45,597
  48,639
  51,841
  55,210
  58,755
Earnings before tax, $m
  11,596
  47,021
  47,764
  48,613
  49,554
  50,588
  51,714
  52,933
  54,247
  55,657
  57,167
  59,405
  61,121
  62,944
  64,880
  66,931
  69,103
  71,399
  73,826
  76,389
  79,093
  81,945
  84,951
  88,119
  91,456
  94,969
  98,667
  102,558
  106,652
  110,958
  115,487
Tax expense, $m
  2,996
  12,696
  12,896
  13,125
  13,380
  13,659
  13,963
  14,292
  14,647
  15,028
  15,435
  16,039
  16,503
  16,995
  17,518
  18,071
  18,658
  19,278
  19,933
  20,625
  21,355
  22,125
  22,937
  23,792
  24,693
  25,642
  26,640
  27,691
  28,796
  29,959
  31,181
Net income, $m
  6,752
  34,325
  34,868
  35,487
  36,175
  36,929
  37,751
  38,641
  39,600
  40,630
  41,732
  43,366
  44,618
  45,949
  47,362
  48,860
  50,445
  52,121
  53,893
  55,764
  57,738
  59,820
  62,015
  64,327
  66,763
  69,327
  72,027
  74,867
  77,856
  80,999
  84,305

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  20,615
  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
  216,807
  1,401,811
  1,434,053
  1,470,908
  1,512,285
  1,558,133
  1,608,437
  1,663,216
  1,722,511
  1,786,392
  1,854,949
  1,928,293
  2,006,554
  2,089,881
  2,178,438
  2,272,409
  2,371,994
  2,477,407
  2,588,883
  2,706,670
  2,831,034
  2,962,260
  3,100,649
  3,246,522
  3,400,216
  3,562,090
  3,732,522
  3,911,914
  4,100,685
  4,299,281
  4,508,170
Adjusted assets (=assets-cash), $m
  196,192
  1,401,811
  1,434,053
  1,470,908
  1,512,285
  1,558,133
  1,608,437
  1,663,216
  1,722,511
  1,786,392
  1,854,949
  1,928,293
  2,006,554
  2,089,881
  2,178,438
  2,272,409
  2,371,994
  2,477,407
  2,588,883
  2,706,670
  2,831,034
  2,962,260
  3,100,649
  3,246,522
  3,400,216
  3,562,090
  3,732,522
  3,911,914
  4,100,685
  4,299,281
  4,508,170
Revenue / Adjusted assets
  1.424
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
  1.469
Average production assets, $m
  123,402
  899,897
  920,595
  944,254
  970,816
  1,000,248
  1,032,541
  1,067,706
  1,105,771
  1,146,780
  1,190,790
  1,237,874
  1,288,113
  1,341,605
  1,398,455
  1,458,780
  1,522,708
  1,590,379
  1,661,941
  1,737,555
  1,817,391
  1,901,632
  1,990,471
  2,084,114
  2,182,779
  2,286,694
  2,396,104
  2,511,265
  2,632,447
  2,759,936
  2,894,033
Working capital, $m
  -10,602
  -84,430
  -86,372
  -88,591
  -91,083
  -93,845
  -96,875
  -100,174
  -103,745
  -107,593
  -111,722
  -116,139
  -120,853
  -125,871
  -131,205
  -136,865
  -142,863
  -149,212
  -155,926
  -163,020
  -170,510
  -178,414
  -186,749
  -195,535
  -204,792
  -214,541
  -224,806
  -235,611
  -246,980
  -258,941
  -271,523
Total debt, $m
  27,815
  201,016
  217,459
  236,255
  257,357
  280,740
  306,395
  334,332
  364,573
  397,152
  432,116
  469,521
  509,435
  551,931
  597,095
  645,021
  695,809
  749,570
  806,422
  866,493
  929,919
  996,845
  1,067,423
  1,141,818
  1,220,202
  1,302,758
  1,389,678
  1,481,168
  1,577,441
  1,678,725
  1,785,259
Total liabilities, $m
  113,946
  714,924
  731,367
  750,163
  771,265
  794,648
  820,303
  848,240
  878,481
  911,060
  946,024
  983,429
  1,023,343
  1,065,839
  1,111,003
  1,158,929
  1,209,717
  1,263,478
  1,320,330
  1,380,401
  1,443,827
  1,510,753
  1,581,331
  1,655,726
  1,734,110
  1,816,666
  1,903,586
  1,995,076
  2,091,349
  2,192,633
  2,299,167
Total equity, $m
  102,861
  686,887
  702,686
  720,745
  741,019
  763,485
  788,134
  814,976
  844,030
  875,332
  908,925
  944,864
  983,212
  1,024,041
  1,067,435
  1,113,481
  1,162,277
  1,213,930
  1,268,553
  1,326,268
  1,387,207
  1,451,508
  1,519,318
  1,590,796
  1,666,106
  1,745,424
  1,828,936
  1,916,838
  2,009,336
  2,106,648
  2,209,003
Total liabilities and equity, $m
  216,807
  1,401,811
  1,434,053
  1,470,908
  1,512,284
  1,558,133
  1,608,437
  1,663,216
  1,722,511
  1,786,392
  1,854,949
  1,928,293
  2,006,555
  2,089,880
  2,178,438
  2,272,410
  2,371,994
  2,477,408
  2,588,883
  2,706,669
  2,831,034
  2,962,261
  3,100,649
  3,246,522
  3,400,216
  3,562,090
  3,732,522
  3,911,914
  4,100,685
  4,299,281
  4,508,170
Debt-to-equity ratio
  0.270
  0.290
  0.310
  0.330
  0.350
  0.370
  0.390
  0.410
  0.430
  0.450
  0.480
  0.500
  0.520
  0.540
  0.560
  0.580
  0.600
  0.620
  0.640
  0.650
  0.670
  0.690
  0.700
  0.720
  0.730
  0.750
  0.760
  0.770
  0.790
  0.800
  0.810
Adjusted equity ratio
  0.419
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490
  0.490

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6,752
  34,325
  34,868
  35,487
  36,175
  36,929
  37,751
  38,641
  39,600
  40,630
  41,732
  43,366
  44,618
  45,949
  47,362
  48,860
  50,445
  52,121
  53,893
  55,764
  57,738
  59,820
  62,015
  64,327
  66,763
  69,327
  72,027
  74,867
  77,856
  80,999
  84,305
Depreciation, amort., depletion, $m
  15,686
  98,442
  100,692
  103,263
  106,151
  109,350
  112,860
  116,682
  120,820
  125,277
  130,061
  134,551
  140,012
  145,827
  152,006
  158,563
  165,512
  172,867
  180,646
  188,865
  197,542
  206,699
  216,356
  226,534
  237,259
  248,554
  260,446
  272,964
  286,136
  299,993
  314,569
Funds from operations, $m
  34,501
  132,767
  135,559
  138,751
  142,325
  146,279
  150,611
  155,323
  160,420
  165,907
  171,793
  177,917
  184,630
  191,776
  199,368
  207,423
  215,957
  224,989
  234,539
  244,628
  255,280
  266,519
  278,370
  290,861
  304,021
  317,881
  332,473
  347,831
  363,991
  380,992
  398,874
Change in working capital, $m
  3,463
  -1,655
  -1,942
  -2,220
  -2,492
  -2,761
  -3,030
  -3,299
  -3,571
  -3,847
  -4,129
  -4,417
  -4,714
  -5,019
  -5,334
  -5,660
  -5,998
  -6,349
  -6,714
  -7,094
  -7,490
  -7,904
  -8,335
  -8,786
  -9,257
  -9,750
  -10,265
  -10,805
  -11,370
  -11,961
  -12,581
Cash from operations, $m
  31,038
  136,273
  137,501
  140,971
  144,817
  149,040
  153,641
  158,622
  163,991
  169,754
  175,922
  182,335
  189,344
  196,795
  204,702
  213,082
  221,955
  231,338
  241,253
  251,723
  262,771
  274,423
  286,705
  299,647
  313,278
  327,630
  342,738
  358,635
  375,361
  392,954
  411,455
Maintenance CAPEX, $m
  0
  -95,979
  -97,815
  -100,065
  -102,636
  -105,523
  -108,723
  -112,233
  -116,055
  -120,193
  -124,650
  -129,434
  -134,551
  -140,012
  -145,827
  -152,006
  -158,563
  -165,512
  -172,867
  -180,646
  -188,865
  -197,542
  -206,699
  -216,356
  -226,534
  -237,259
  -248,554
  -260,446
  -272,964
  -286,136
  -299,993
New CAPEX, $m
  -9,471
  -16,894
  -20,698
  -23,659
  -26,562
  -29,432
  -32,293
  -35,165
  -38,065
  -41,009
  -44,010
  -47,083
  -50,240
  -53,492
  -56,850
  -60,325
  -63,929
  -67,671
  -71,562
  -75,614
  -79,836
  -84,241
  -88,839
  -93,643
  -98,664
  -103,916
  -109,410
  -115,161
  -121,182
  -127,489
  -134,097
Cash from investing activities, $m
  -9,580
  -112,873
  -118,513
  -123,724
  -129,198
  -134,955
  -141,016
  -147,398
  -154,120
  -161,202
  -168,660
  -176,517
  -184,791
  -193,504
  -202,677
  -212,331
  -222,492
  -233,183
  -244,429
  -256,260
  -268,701
  -281,783
  -295,538
  -309,999
  -325,198
  -341,175
  -357,964
  -375,607
  -394,146
  -413,625
  -434,090
Free cash flow, $m
  21,458
  23,400
  18,989
  17,247
  15,619
  14,084
  12,625
  11,225
  9,871
  8,553
  7,261
  5,817
  4,553
  3,291
  2,025
  751
  -537
  -1,845
  -3,176
  -4,537
  -5,930
  -7,361
  -8,833
  -10,352
  -11,920
  -13,544
  -15,226
  -16,971
  -18,785
  -20,671
  -22,635
Issuance/(repayment) of debt, $m
  -9,113
  14,381
  16,443
  18,796
  21,102
  23,382
  25,655
  27,937
  30,241
  32,579
  34,964
  37,405
  39,913
  42,496
  45,164
  47,925
  50,788
  53,761
  56,853
  60,071
  63,426
  66,925
  70,578
  74,395
  78,384
  82,556
  86,921
  91,490
  96,273
  101,284
  106,533
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  947
  2,181
  3,443
  4,736
  6,066
  7,434
  8,847
  10,306
  11,817
  13,384
  15,010
  16,699
  18,457
Cash from financing (excl. dividends), $m  
  -11,020
  14,381
  16,443
  18,796
  21,102
  23,382
  25,655
  27,937
  30,241
  32,579
  34,964
  37,405
  39,913
  42,496
  45,164
  47,925
  50,788
  53,761
  57,800
  62,252
  66,869
  71,661
  76,644
  81,829
  87,231
  92,862
  98,738
  104,874
  111,283
  117,983
  124,990
Total cash flow (excl. dividends), $m
  10,475
  37,781
  35,432
  36,043
  36,721
  37,467
  38,280
  39,161
  40,112
  41,133
  42,226
  43,223
  44,466
  45,787
  47,190
  48,677
  50,251
  51,916
  53,676
  55,535
  57,496
  59,564
  61,745
  64,043
  66,464
  69,012
  71,695
  74,518
  77,488
  80,613
  83,899
Retained Cash Flow (-), $m
  -5,034
  -12,858
  -15,798
  -18,059
  -20,275
  -22,465
  -24,649
  -26,841
  -29,055
  -31,302
  -33,593
  -35,939
  -38,348
  -40,830
  -43,393
  -46,046
  -48,796
  -51,653
  -54,623
  -57,716
  -60,939
  -64,301
  -67,811
  -71,477
  -75,310
  -79,318
  -83,512
  -87,902
  -92,498
  -97,312
  -102,356
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
 
  24,923
  19,634
  17,984
  16,447
  15,001
  13,631
  12,320
  11,057
  9,831
  8,633
  7,284
  6,118
  4,957
  3,797
  2,631
  1,455
  264
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
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
 
  23,895
  17,974
  15,651
  13,542
  11,628
  9,892
  8,323
  6,911
  5,647
  4,526
  3,459
  2,611
  1,885
  1,275
  772
  370
  57
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  99.9
  99.6
  99.3
  98.8
  98.2
  97.5
  96.8
  95.9
  95.0
  94.0
  93.0
  91.9
  90.7

China Petroleum & Chemical Corporation, an energy and chemical company, engages in the oil and gas, and chemical operations and businesses in the People’s Republic of China. It operates through Exploration and Production, Refining, Marketing and Distribution, Chemicals, and Corporate and Others segments. The company explores and develops oil fields, and produces and sells crude oil and natural gas; processes and purifies crude oil into refined petroleum products; and manufactures and sells petroleum products. It also owns and operates oil depots and service stations; and distributes and sells refined petroleum products, such as gasoline and diesel through wholesale and retail sales networks. In addition, the company manufactures and sells petrochemical products, derivative petrochemical products, and other chemical products, such as basic organic chemicals, synthetic resins, synthetic fiber monomers and polymers, synthetic fibers, synthetic rubbers, and chemical fertilizers. Further, it is also involved in the pipeline transportation of crude oil and natural gas; and production and supplies electricity and coal. Additionally, the company engages in the import and export of petroleum, natural gas, petroleum products, petrochemical and chemical products, and other commodities and technologies; and research, development, and application of technologies and information. China Petroleum & Chemical Corporation was founded in 2000 and is headquartered in Beijing, the People’s Republic of China. China Petroleum & Chemical Corporation operates as a subsidiary of China Petrochemical Corporation.

FINANCIAL RATIOS  of  China Petroleum&Chemical ADR (SNP)

Valuation Ratios
P/E Ratio 1433.4
Price to Sales 34.6
Price to Book 94.1
Price to Tangible Book
Price to Cash Flow 311.8
Price to Free Cash Flow 448.8
Growth Rates
Sales Growth Rate -4.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -31.4%
Cap. Spend. - 3 Yr. Gr. Rate -14.7%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 16.5%
Total Debt to Equity 27%
Interest Coverage 13
Management Effectiveness
Return On Assets 3.5%
Ret/ On Assets - 3 Yr. Avg. 3.3%
Return On Total Capital 5.1%
Ret/ On T. Cap. - 3 Yr. Avg. 4.6%
Return On Equity 6.7%
Return On Equity - 3 Yr. Avg. 6.6%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 27.8%
Gross Margin - 3 Yr. Avg. 23.3%
EBITDA Margin 10.1%
EBITDA Margin - 3 Yr. Avg. 8%
Operating Margin 4%
Oper. Margin - 3 Yr. Avg. 3.1%
Pre-Tax Margin 4.2%
Pre-Tax Margin - 3 Yr. Avg. 3.1%
Net Profit Margin 2.4%
Net Profit Margin - 3 Yr. Avg. 1.9%
Effective Tax Rate 25.8%
Eff/ Tax Rate - 3 Yr. Avg. 25%
Payout Ratio 36.2%

SNP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SNP stock intrinsic value calculation we used $2018883 million for the last fiscal year's total revenue generated by China Petroleum&Chemical ADR. The default revenue input number comes from 2016 income statement of China Petroleum&Chemical ADR. 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 SNP stock valuation model: a) initial revenue growth rate of 2% 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 SNP is calculated based on our internal credit rating of China Petroleum&Chemical ADR, 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 China Petroleum&Chemical ADR.
    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 SNP stock the variable cost ratio is equal to 97.4%.

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 SNP 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 China Petroleum&Chemical ADR.

Corporate tax rate of 27% is the nominal tax rate for China Petroleum&Chemical ADR. 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 SNP 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 SNP are equal to 43.7%.

Life of production assets of 9.2 years is the average useful life of capital assets used in China Petroleum&Chemical ADR 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 SNP is equal to -4.1%. 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 - $674029 million for China Petroleum&Chemical ADR - 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 1283.06 million for China Petroleum&Chemical ADR 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 China Petroleum&Chemical ADR at the current share price and the inputted number of shares is $102.6 billion.


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Stock chart of SNP Financial statements of SNP Annual reports of SNP
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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