Intrinsic value of Valero Energy - VLO

Previous Close

$97.26

  Intrinsic Value

$590.30

stock screener

  Rating & Target

str. buy

+507%

Previous close

$97.26

 
Intrinsic value

$590.30

 
Up/down potential

+507%

 
Rating

str. buy

We calculate the intrinsic value of VLO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -13.83
  19.90
  18.41
  17.07
  15.86
  14.78
  13.80
  12.92
  12.13
  11.41
  10.77
  10.20
  9.68
  9.21
  8.79
  8.41
  8.07
  7.76
  7.48
  7.24
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
  6.07
  5.96
  5.87
  5.78
  5.70
Revenue, $m
  75,659
  90,715
  107,416
  125,751
  145,697
  167,225
  190,300
  214,883
  240,942
  268,442
  297,361
  327,677
  359,383
  392,476
  426,964
  462,866
  500,209
  539,030
  579,376
  621,302
  664,872
  710,160
  757,246
  806,219
  857,177
  910,224
  965,471
  1,023,039
  1,083,055
  1,145,654
  1,210,976
Variable operating expenses, $m
 
  69,941
  82,818
  96,954
  112,333
  128,931
  146,721
  165,675
  185,766
  206,969
  229,265
  252,639
  277,084
  302,599
  329,189
  356,869
  385,661
  415,592
  446,699
  479,024
  512,616
  547,533
  583,837
  621,595
  660,883
  701,782
  744,378
  788,763
  835,036
  883,299
  933,663
Fixed operating expenses, $m
 
  14,482
  14,844
  15,215
  15,596
  15,986
  16,385
  16,795
  17,215
  17,645
  18,086
  18,538
  19,002
  19,477
  19,964
  20,463
  20,975
  21,499
  22,036
  22,587
  23,152
  23,731
  24,324
  24,932
  25,555
  26,194
  26,849
  27,520
  28,208
  28,914
  29,637
Total operating expenses, $m
  72,087
  84,423
  97,662
  112,169
  127,929
  144,917
  163,106
  182,470
  202,981
  224,614
  247,351
  271,177
  296,086
  322,076
  349,153
  377,332
  406,636
  437,091
  468,735
  501,611
  535,768
  571,264
  608,161
  646,527
  686,438
  727,976
  771,227
  816,283
  863,244
  912,213
  963,300
Operating income, $m
  3,572
  6,292
  9,754
  13,582
  17,769
  22,309
  27,193
  32,413
  37,961
  43,828
  50,009
  56,500
  63,297
  70,400
  77,811
  85,533
  93,573
  101,939
  110,641
  119,691
  129,104
  138,896
  149,085
  159,692
  170,738
  182,247
  194,244
  206,756
  219,811
  233,441
  247,677
EBITDA, $m
  5,466
  8,566
  12,447
  16,734
  21,422
  26,502
  31,964
  37,801
  44,002
  50,558
  57,465
  64,715
  72,307
  80,240
  88,515
  97,138
  106,114
  115,453
  125,166
  135,268
  145,773
  156,701
  168,070
  179,905
  192,229
  205,067
  218,449
  232,405
  246,965
  262,164
  278,038
Interest expense (income), $m
  427
  442
  731
  1,052
  1,405
  1,790
  2,204
  2,649
  3,122
  3,624
  4,154
  4,710
  5,294
  5,905
  6,542
  7,206
  7,898
  8,617
  9,365
  10,142
  10,949
  11,788
  12,660
  13,567
  14,510
  15,492
  16,513
  17,577
  18,686
  19,842
  21,047
Earnings before tax, $m
  3,182
  5,850
  9,023
  12,529
  16,363
  20,519
  24,989
  29,765
  34,839
  40,204
  45,856
  51,789
  58,002
  64,495
  71,269
  78,327
  85,675
  93,322
  101,276
  109,549
  118,155
  127,108
  136,425
  146,125
  156,228
  166,755
  177,730
  189,178
  201,125
  213,599
  226,630
Tax expense, $m
  765
  1,579
  2,436
  3,383
  4,418
  5,540
  6,747
  8,036
  9,406
  10,855
  12,381
  13,983
  15,661
  17,414
  19,243
  21,148
  23,132
  25,197
  27,345
  29,578
  31,902
  34,319
  36,835
  39,454
  42,181
  45,024
  47,987
  51,078
  54,304
  57,672
  61,190
Net income, $m
  2,289
  4,270
  6,587
  9,146
  11,945
  14,979
  18,242
  21,728
  25,432
  29,349
  33,475
  37,806
  42,342
  47,081
  52,026
  57,179
  62,543
  68,125
  73,931
  79,971
  86,253
  92,789
  99,590
  106,671
  114,046
  121,731
  129,743
  138,100
  146,821
  155,927
  165,440

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,816
  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
  46,173
  49,598
  58,729
  68,754
  79,660
  91,430
  104,046
  117,487
  131,734
  146,770
  162,581
  179,157
  196,491
  214,585
  233,441
  253,070
  273,488
  294,713
  316,772
  339,695
  363,517
  388,278
  414,022
  440,798
  468,659
  497,662
  527,868
  559,344
  592,157
  626,382
  662,098
Adjusted assets (=assets-cash), $m
  41,357
  49,598
  58,729
  68,754
  79,660
  91,430
  104,046
  117,487
  131,734
  146,770
  162,581
  179,157
  196,491
  214,585
  233,441
  253,070
  273,488
  294,713
  316,772
  339,695
  363,517
  388,278
  414,022
  440,798
  468,659
  497,662
  527,868
  559,344
  592,157
  626,382
  662,098
Revenue / Adjusted assets
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
  1.829
Average production assets, $m
  26,588
  31,841
  37,703
  44,138
  51,140
  58,696
  66,795
  75,424
  84,570
  94,223
  104,374
  115,015
  126,143
  137,759
  149,864
  162,466
  175,573
  189,199
  203,361
  218,077
  233,370
  249,266
  265,793
  282,983
  300,869
  319,488
  338,880
  359,087
  380,152
  402,124
  425,053
Working capital, $m
  8,472
  4,536
  5,371
  6,288
  7,285
  8,361
  9,515
  10,744
  12,047
  13,422
  14,868
  16,384
  17,969
  19,624
  21,348
  23,143
  25,010
  26,951
  28,969
  31,065
  33,244
  35,508
  37,862
  40,311
  42,859
  45,511
  48,274
  51,152
  54,153
  57,283
  60,549
Total debt, $m
  8,001
  13,049
  18,793
  25,098
  31,958
  39,361
  47,297
  55,751
  64,713
  74,170
  84,115
  94,542
  105,445
  116,826
  128,686
  141,033
  153,876
  167,226
  181,101
  195,520
  210,504
  226,079
  242,272
  259,114
  276,638
  294,881
  313,881
  333,679
  354,319
  375,847
  398,311
Total liabilities, $m
  26,149
  31,197
  36,941
  43,246
  50,106
  57,509
  65,445
  73,899
  82,861
  92,318
  102,263
  112,690
  123,593
  134,974
  146,834
  159,181
  172,024
  185,374
  199,249
  213,668
  228,652
  244,227
  260,420
  277,262
  294,786
  313,029
  332,029
  351,827
  372,467
  393,995
  416,459
Total equity, $m
  20,024
  18,401
  21,789
  25,508
  29,554
  33,921
  38,601
  43,588
  48,873
  54,452
  60,318
  66,467
  72,898
  79,611
  86,607
  93,889
  101,464
  109,338
  117,522
  126,027
  134,865
  144,051
  153,602
  163,536
  173,872
  184,633
  195,839
  207,516
  219,690
  232,388
  245,638
Total liabilities and equity, $m
  46,173
  49,598
  58,730
  68,754
  79,660
  91,430
  104,046
  117,487
  131,734
  146,770
  162,581
  179,157
  196,491
  214,585
  233,441
  253,070
  273,488
  294,712
  316,771
  339,695
  363,517
  388,278
  414,022
  440,798
  468,658
  497,662
  527,868
  559,343
  592,157
  626,383
  662,097
Debt-to-equity ratio
  0.400
  0.710
  0.860
  0.980
  1.080
  1.160
  1.230
  1.280
  1.320
  1.360
  1.390
  1.420
  1.450
  1.470
  1.490
  1.500
  1.520
  1.530
  1.540
  1.550
  1.560
  1.570
  1.580
  1.580
  1.590
  1.600
  1.600
  1.610
  1.610
  1.620
  1.620
Adjusted equity ratio
  0.368
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,289
  4,270
  6,587
  9,146
  11,945
  14,979
  18,242
  21,728
  25,432
  29,349
  33,475
  37,806
  42,342
  47,081
  52,026
  57,179
  62,543
  68,125
  73,931
  79,971
  86,253
  92,789
  99,590
  106,671
  114,046
  121,731
  129,743
  138,100
  146,821
  155,927
  165,440
Depreciation, amort., depletion, $m
  1,894
  2,274
  2,693
  3,153
  3,653
  4,193
  4,771
  5,387
  6,041
  6,730
  7,455
  8,215
  9,010
  9,840
  10,705
  11,605
  12,541
  13,514
  14,526
  15,577
  16,669
  17,805
  18,985
  20,213
  21,491
  22,821
  24,206
  25,649
  27,154
  28,723
  30,361
Funds from operations, $m
  5,790
  6,545
  9,280
  12,299
  15,598
  19,172
  23,013
  27,116
  31,473
  36,079
  40,930
  46,021
  51,352
  56,921
  62,731
  68,783
  75,084
  81,639
  88,457
  95,548
  102,922
  110,593
  118,575
  126,884
  135,537
  144,552
  153,949
  163,749
  173,975
  184,651
  195,801
Change in working capital, $m
  970
  753
  835
  917
  997
  1,076
  1,154
  1,229
  1,303
  1,375
  1,446
  1,516
  1,585
  1,655
  1,724
  1,795
  1,867
  1,941
  2,017
  2,096
  2,179
  2,264
  2,354
  2,449
  2,548
  2,652
  2,762
  2,878
  3,001
  3,130
  3,266
Cash from operations, $m
  4,820
  5,792
  8,445
  11,382
  14,601
  18,095
  21,859
  25,887
  30,170
  34,704
  39,484
  44,506
  49,767
  55,267
  61,006
  66,988
  73,217
  79,698
  86,440
  93,451
  100,744
  108,329
  116,221
  124,436
  132,989
  141,899
  151,186
  160,871
  170,974
  181,521
  192,534
Maintenance CAPEX, $m
  0
  -1,899
  -2,274
  -2,693
  -3,153
  -3,653
  -4,193
  -4,771
  -5,387
  -6,041
  -6,730
  -7,455
  -8,215
  -9,010
  -9,840
  -10,705
  -11,605
  -12,541
  -13,514
  -14,526
  -15,577
  -16,669
  -17,805
  -18,985
  -20,213
  -21,491
  -22,821
  -24,206
  -25,649
  -27,154
  -28,723
New CAPEX, $m
  -1,278
  -5,254
  -5,862
  -6,436
  -7,001
  -7,556
  -8,099
  -8,629
  -9,146
  -9,653
  -10,150
  -10,641
  -11,129
  -11,616
  -12,105
  -12,602
  -13,107
  -13,626
  -14,161
  -14,716
  -15,293
  -15,896
  -16,527
  -17,190
  -17,886
  -18,619
  -19,392
  -20,206
  -21,066
  -21,972
  -22,928
Cash from investing activities, $m
  -2,006
  -7,153
  -8,136
  -9,129
  -10,154
  -11,209
  -12,292
  -13,400
  -14,533
  -15,694
  -16,880
  -18,096
  -19,344
  -20,626
  -21,945
  -23,307
  -24,712
  -26,167
  -27,675
  -29,242
  -30,870
  -32,565
  -34,332
  -36,175
  -38,099
  -40,110
  -42,213
  -44,412
  -46,715
  -49,126
  -51,651
Free cash flow, $m
  2,814
  -1,361
  309
  2,254
  4,447
  6,886
  9,568
  12,487
  15,636
  19,011
  22,604
  26,409
  30,423
  34,641
  39,061
  43,682
  48,505
  53,531
  58,764
  64,210
  69,873
  75,764
  81,889
  88,261
  94,890
  101,789
  108,974
  116,459
  124,260
  132,395
  140,883
Issuance/(repayment) of debt, $m
  678
  5,163
  5,743
  6,305
  6,860
  7,404
  7,935
  8,454
  8,961
  9,458
  9,945
  10,426
  10,904
  11,381
  11,861
  12,347
  12,842
  13,351
  13,875
  14,419
  14,984
  15,575
  16,193
  16,842
  17,525
  18,243
  19,000
  19,798
  20,640
  21,528
  22,465
Issuance/(repurchase) of shares, $m
  -1,330
  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 from financing (excl. dividends), $m  
  -901
  5,163
  5,743
  6,305
  6,860
  7,404
  7,935
  8,454
  8,961
  9,458
  9,945
  10,426
  10,904
  11,381
  11,861
  12,347
  12,842
  13,351
  13,875
  14,419
  14,984
  15,575
  16,193
  16,842
  17,525
  18,243
  19,000
  19,798
  20,640
  21,528
  22,465
Total cash flow (excl. dividends), $m
  1,813
  3,803
  6,052
  8,559
  11,307
  14,290
  17,503
  20,941
  24,598
  28,468
  32,549
  36,835
  41,326
  46,022
  50,922
  56,029
  61,347
  66,882
  72,639
  78,628
  84,858
  91,338
  98,082
  105,103
  112,414
  120,032
  127,974
  136,256
  144,899
  153,923
  163,348
Retained Cash Flow (-), $m
  503
  -3,078
  -3,388
  -3,719
  -4,046
  -4,367
  -4,680
  -4,987
  -5,286
  -5,578
  -5,866
  -6,150
  -6,431
  -6,713
  -6,996
  -7,282
  -7,575
  -7,875
  -8,184
  -8,504
  -8,838
  -9,186
  -9,551
  -9,934
  -10,336
  -10,760
  -11,207
  -11,677
  -12,174
  -12,698
  -13,250
Prev. year cash balance distribution, $m
 
  4,701
  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
 
  5,426
  2,664
  4,840
  7,260
  9,923
  12,823
  15,954
  19,312
  22,890
  26,683
  30,686
  34,895
  39,309
  43,926
  48,746
  53,772
  59,007
  64,455
  70,124
  76,020
  82,152
  88,531
  95,169
  102,078
  109,272
  116,767
  124,579
  132,726
  141,225
  150,097
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
 
  5,202
  2,439
  4,212
  5,978
  7,691
  9,306
  10,779
  12,071
  13,149
  13,989
  14,572
  14,891
  14,946
  14,747
  14,311
  13,665
  12,839
  11,870
  10,797
  9,660
  8,497
  7,346
  6,237
  5,199
  4,251
  3,407
  2,674
  2,053
  1,542
  1,130
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
  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

Valero Energy Corporation (Valero) is an independent petroleum refiner and ethanol producer. The Company's segments include refining, ethanol and Valero Energy Partners LP (VLP). The refining segment includes its refining operations and the associated marketing activities. The ethanol segment includes its ethanol operations and the associated marketing activities, and logistics assets that support its ethanol operations. The Company owns logistics assets (crude oil pipelines, refined petroleum product pipelines, terminals, tanks, marine docks, truck rack bays and other assets) that support its refining operations. Some of these assets are owned by VLP, which is a midstream master limited partnership owned by the Company. VLP's assets include crude oil and refined petroleum products pipeline and terminal systems in the United States Gulf Coast and the United States Mid-Continent regions. Its refineries produce conventional gasolines, premium gasolines and lubricants, among others.

FINANCIAL RATIOS  of  Valero Energy (VLO)

Valuation Ratios
P/E Ratio 19.2
Price to Sales 0.6
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 9.1
Price to Free Cash Flow 12.4
Growth Rates
Sales Growth Rate -13.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21%
Cap. Spend. - 3 Yr. Gr. Rate -9.6%
Financial Strength
Quick Ratio 42
Current Ratio 0
LT Debt to Equity 39.4%
Total Debt to Equity 40%
Interest Coverage 8
Management Effectiveness
Return On Assets 5.8%
Ret/ On Assets - 3 Yr. Avg. 7.9%
Return On Total Capital 8.2%
Ret/ On T. Cap. - 3 Yr. Avg. 12.1%
Return On Equity 11.3%
Return On Equity - 3 Yr. Avg. 16.2%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 13.7%
Gross Margin - 3 Yr. Avg. 13.2%
EBITDA Margin 7.3%
EBITDA Margin - 3 Yr. Avg. 7.5%
Operating Margin 4.7%
Oper. Margin - 3 Yr. Avg. 5.5%
Pre-Tax Margin 4.2%
Pre-Tax Margin - 3 Yr. Avg. 5.1%
Net Profit Margin 3%
Net Profit Margin - 3 Yr. Avg. 3.4%
Effective Tax Rate 24%
Eff/ Tax Rate - 3 Yr. Avg. 29.1%
Payout Ratio 48.5%

VLO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VLO stock intrinsic value calculation we used $75659 million for the last fiscal year's total revenue generated by Valero Energy. The default revenue input number comes from 2016 income statement of Valero Energy. 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 VLO stock valuation model: a) initial revenue growth rate of 19.9% 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 VLO is calculated based on our internal credit rating of Valero Energy, 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 Valero Energy.
    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 VLO stock the variable cost ratio is equal to 77.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $14129 million in the base year in the intrinsic value calculation for VLO 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 5.6% for Valero Energy.

Corporate tax rate of 27% is the nominal tax rate for Valero Energy. 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 VLO 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 VLO are equal to 35.1%.

Life of production assets of 14 years is the average useful life of capital assets used in Valero Energy 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 VLO is equal to 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 - $20024 million for Valero Energy - 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 443.586 million for Valero Energy 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 Valero Energy at the current share price and the inputted number of shares is $43.1 billion.

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▶ A Look at Valeros Short Interest since 3Q17   [10:30AM  Market Realist]
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▶ Could Valeros Ethanol Earnings Fall in 4Q17?   [Nov-16-17 03:05PM  Market Realist]
▶ Trends in Valeros Oil Spreads in 4Q17   [01:35PM  Market Realist]
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Financial statements of VLO
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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