Intrinsic value of BP ADR - BP

Previous Close

$38.75

  Intrinsic Value

$6.38

stock screener

  Rating & Target

str. sell

-84%

  Value-price divergence*

-15%

Previous close

$38.75

 
Intrinsic value

$6.38

 
Up/down potential

-84%

 
Rating

str. sell

 
Value-price divergence*

-15%

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

We calculate the intrinsic value of BP 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 127.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -17.89
  21.70
  20.03
  18.53
  17.17
  15.96
  14.86
  13.88
  12.99
  12.19
  11.47
  10.82
  10.24
  9.72
  9.24
  8.82
  8.44
  8.09
  7.79
  7.51
  7.26
  7.03
  6.83
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.79
Revenue, $m
  183,008
  222,721
  267,332
  316,860
  371,279
  430,523
  494,504
  563,117
  636,252
  713,803
  795,676
  881,792
  972,093
  1,066,547
  1,165,148
  1,267,919
  1,374,911
  1,486,204
  1,601,906
  1,722,155
  1,847,113
  1,976,971
  2,111,945
  2,252,274
  2,398,224
  2,550,082
  2,708,159
  2,872,788
  3,044,325
  3,223,148
  3,409,658
Variable operating expenses, $m
 
  232,946
  279,381
  330,934
  387,577
  449,244
  515,840
  587,258
  663,383
  744,106
  829,325
  917,842
  1,011,835
  1,110,151
  1,212,783
  1,319,756
  1,431,122
  1,546,965
  1,667,397
  1,792,562
  1,922,629
  2,057,796
  2,198,288
  2,344,355
  2,496,271
  2,654,338
  2,818,877
  2,990,237
  3,168,787
  3,354,921
  3,549,057
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
  185,936
  232,946
  279,381
  330,934
  387,577
  449,244
  515,840
  587,258
  663,383
  744,106
  829,325
  917,842
  1,011,835
  1,110,151
  1,212,783
  1,319,756
  1,431,122
  1,546,965
  1,667,397
  1,792,562
  1,922,629
  2,057,796
  2,198,288
  2,344,355
  2,496,271
  2,654,338
  2,818,877
  2,990,237
  3,168,787
  3,354,921
  3,549,057
Operating income, $m
  -2,928
  -10,225
  -12,049
  -14,074
  -16,299
  -18,721
  -21,336
  -24,141
  -27,131
  -30,302
  -33,649
  -36,051
  -39,742
  -43,604
  -47,635
  -51,837
  -56,211
  -60,761
  -65,491
  -70,407
  -75,516
  -80,825
  -86,343
  -92,080
  -98,047
  -104,256
  -110,719
  -117,449
  -124,462
  -131,773
  -139,398
EBITDA, $m
  11,577
  7,295
  8,756
  10,378
  12,161
  14,101
  16,197
  18,444
  20,839
  23,379
  26,061
  28,881
  31,839
  34,933
  38,162
  41,528
  45,033
  48,678
  52,467
  56,406
  60,499
  64,752
  69,173
  73,769
  78,549
  83,523
  88,700
  94,093
  99,711
  105,568
  111,677
Interest expense (income), $m
  1,137
  1,808
  3,035
  4,412
  5,941
  7,621
  9,450
  11,426
  13,544
  15,802
  18,196
  20,723
  23,382
  26,169
  29,085
  32,129
  35,302
  38,605
  42,041
  45,613
  49,325
  53,183
  57,192
  61,358
  65,691
  70,196
  74,884
  79,765
  84,847
  90,143
  95,663
Earnings before tax, $m
  -2,295
  -12,033
  -15,084
  -18,486
  -22,240
  -26,342
  -30,787
  -35,567
  -40,675
  -46,104
  -51,845
  -56,774
  -63,124
  -69,773
  -76,721
  -83,966
  -91,513
  -99,366
  -107,532
  -116,020
  -124,841
  -134,008
  -143,535
  -153,439
  -163,738
  -174,452
  -185,603
  -197,214
  -209,309
  -221,916
  -235,061
Tax expense, $m
  -2,467
  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
  115
  -12,033
  -15,084
  -18,486
  -22,240
  -26,342
  -30,787
  -35,567
  -40,675
  -46,104
  -51,845
  -56,774
  -63,124
  -69,773
  -76,721
  -83,966
  -91,513
  -99,366
  -107,532
  -116,020
  -124,841
  -134,008
  -143,535
  -153,439
  -163,738
  -174,452
  -185,603
  -197,214
  -209,309
  -221,916
  -235,061

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  23,528
  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
  263,316
  291,901
  350,369
  415,282
  486,604
  564,251
  648,105
  738,030
  833,882
  935,522
  1,042,826
  1,155,690
  1,274,040
  1,397,833
  1,527,062
  1,661,755
  1,801,980
  1,947,843
  2,099,484
  2,257,083
  2,420,855
  2,591,050
  2,767,948
  2,951,866
  3,143,151
  3,342,178
  3,549,356
  3,765,121
  3,989,941
  4,224,309
  4,468,753
Adjusted assets (=assets-cash), $m
  239,788
  291,901
  350,369
  415,282
  486,604
  564,251
  648,105
  738,030
  833,882
  935,522
  1,042,826
  1,155,690
  1,274,040
  1,397,833
  1,527,062
  1,661,755
  1,801,980
  1,947,843
  2,099,484
  2,257,083
  2,420,855
  2,591,050
  2,767,948
  2,951,866
  3,143,151
  3,342,178
  3,549,356
  3,765,121
  3,989,941
  4,224,309
  4,468,753
Revenue / Adjusted assets
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
Average production assets, $m
  148,179
  180,404
  216,539
  256,657
  300,736
  348,724
  400,548
  456,125
  515,364
  578,181
  644,498
  714,251
  787,395
  863,903
  943,770
  1,027,015
  1,113,678
  1,203,825
  1,297,544
  1,394,945
  1,496,161
  1,601,346
  1,710,675
  1,824,342
  1,942,561
  2,065,566
  2,193,609
  2,326,958
  2,465,903
  2,610,750
  2,761,823
Working capital, $m
  9,459
  -9,132
  -10,961
  -12,991
  -15,222
  -17,651
  -20,275
  -23,088
  -26,086
  -29,266
  -32,623
  -36,153
  -39,856
  -43,728
  -47,771
  -51,985
  -56,371
  -60,934
  -65,678
  -70,608
  -75,732
  -81,056
  -86,590
  -92,343
  -98,327
  -104,553
  -111,035
  -117,784
  -124,817
  -132,149
  -139,796
Total debt, $m
  58,300
  86,720
  126,068
  169,755
  217,754
  270,011
  326,445
  386,964
  451,473
  519,876
  592,092
  668,050
  747,699
  831,012
  917,983
  1,008,631
  1,103,003
  1,201,168
  1,303,223
  1,409,287
  1,519,506
  1,634,046
  1,753,099
  1,876,876
  2,005,610
  2,139,556
  2,278,987
  2,424,197
  2,575,500
  2,733,230
  2,897,741
Total liabilities, $m
  168,030
  196,450
  235,798
  279,485
  327,484
  379,741
  436,175
  496,694
  561,203
  629,606
  701,822
  777,780
  857,429
  940,742
  1,027,713
  1,118,361
  1,212,733
  1,310,898
  1,412,953
  1,519,017
  1,629,236
  1,743,776
  1,862,829
  1,986,606
  2,115,340
  2,249,286
  2,388,717
  2,533,927
  2,685,230
  2,842,960
  3,007,471
Total equity, $m
  95,286
  95,452
  114,571
  135,797
  159,119
  184,510
  211,930
  241,336
  272,679
  305,916
  341,004
  377,911
  416,611
  457,092
  499,349
  543,394
  589,248
  636,945
  686,531
  738,066
  791,620
  847,273
  905,119
  965,260
  1,027,810
  1,092,892
  1,160,639
  1,231,195
  1,304,711
  1,381,349
  1,461,282
Total liabilities and equity, $m
  263,316
  291,902
  350,369
  415,282
  486,603
  564,251
  648,105
  738,030
  833,882
  935,522
  1,042,826
  1,155,691
  1,274,040
  1,397,834
  1,527,062
  1,661,755
  1,801,981
  1,947,843
  2,099,484
  2,257,083
  2,420,856
  2,591,049
  2,767,948
  2,951,866
  3,143,150
  3,342,178
  3,549,356
  3,765,122
  3,989,941
  4,224,309
  4,468,753
Debt-to-equity ratio
  0.612
  0.910
  1.100
  1.250
  1.370
  1.460
  1.540
  1.600
  1.660
  1.700
  1.740
  1.770
  1.790
  1.820
  1.840
  1.860
  1.870
  1.890
  1.900
  1.910
  1.920
  1.930
  1.940
  1.940
  1.950
  1.960
  1.960
  1.970
  1.970
  1.980
  1.980
Adjusted equity ratio
  0.299
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  115
  -12,033
  -15,084
  -18,486
  -22,240
  -26,342
  -30,787
  -35,567
  -40,675
  -46,104
  -51,845
  -56,774
  -63,124
  -69,773
  -76,721
  -83,966
  -91,513
  -99,366
  -107,532
  -116,020
  -124,841
  -134,008
  -143,535
  -153,439
  -163,738
  -174,452
  -185,603
  -197,214
  -209,309
  -221,916
  -235,061
Depreciation, amort., depletion, $m
  14,505
  17,520
  20,805
  24,452
  28,459
  32,822
  37,533
  42,585
  47,971
  53,681
  59,710
  64,932
  71,581
  78,537
  85,797
  93,365
  101,243
  109,439
  117,959
  126,813
  136,015
  145,577
  155,516
  165,849
  176,596
  187,779
  199,419
  211,542
  224,173
  237,341
  251,075
Funds from operations, $m
  6,380
  5,486
  5,721
  5,966
  6,219
  6,480
  6,746
  7,018
  7,295
  7,578
  7,865
  8,158
  8,457
  8,763
  9,077
  9,399
  9,730
  10,073
  10,426
  10,793
  11,174
  11,569
  11,981
  12,410
  12,858
  13,327
  13,816
  14,328
  14,864
  15,425
  16,014
Change in working capital, $m
  -4,311
  -1,628
  -1,829
  -2,031
  -2,231
  -2,429
  -2,623
  -2,813
  -2,999
  -3,180
  -3,357
  -3,531
  -3,702
  -3,873
  -4,043
  -4,214
  -4,387
  -4,563
  -4,744
  -4,930
  -5,123
  -5,324
  -5,534
  -5,754
  -5,984
  -6,226
  -6,481
  -6,750
  -7,033
  -7,332
  -7,647
Cash from operations, $m
  10,691
  7,115
  7,550
  7,996
  8,450
  8,909
  9,369
  9,831
  10,294
  10,757
  11,222
  11,689
  12,160
  12,636
  13,119
  13,612
  14,117
  14,636
  15,170
  15,723
  16,297
  16,893
  17,515
  18,164
  18,842
  19,553
  20,297
  21,078
  21,897
  22,757
  23,661
Maintenance CAPEX, $m
  0
  -13,471
  -16,400
  -19,685
  -23,332
  -27,340
  -31,702
  -36,413
  -41,466
  -46,851
  -52,562
  -58,591
  -64,932
  -71,581
  -78,537
  -85,797
  -93,365
  -101,243
  -109,439
  -117,959
  -126,813
  -136,015
  -145,577
  -155,516
  -165,849
  -176,596
  -187,779
  -199,419
  -211,542
  -224,173
  -237,341
New CAPEX, $m
  -16,701
  -32,225
  -36,135
  -40,118
  -44,079
  -47,988
  -51,824
  -55,576
  -59,239
  -62,817
  -66,317
  -69,754
  -73,144
  -76,508
  -79,867
  -83,245
  -86,663
  -90,147
  -93,719
  -97,401
  -101,216
  -105,185
  -109,329
  -113,667
  -118,219
  -123,005
  -128,042
  -133,349
  -138,945
  -144,847
  -151,073
Cash from investing activities, $m
  -14,753
  -45,696
  -52,535
  -59,803
  -67,411
  -75,328
  -83,526
  -91,989
  -100,705
  -109,668
  -118,879
  -128,345
  -138,076
  -148,089
  -158,404
  -169,042
  -180,028
  -191,390
  -203,158
  -215,360
  -228,029
  -241,200
  -254,906
  -269,183
  -284,068
  -299,601
  -315,821
  -332,768
  -350,487
  -369,020
  -388,414
Free cash flow, $m
  -4,062
  -38,581
  -44,985
  -51,807
  -58,961
  -66,419
  -74,157
  -82,158
  -90,411
  -98,911
  -107,657
  -116,655
  -125,916
  -135,453
  -145,284
  -155,429
  -165,911
  -176,755
  -187,987
  -199,637
  -211,733
  -224,306
  -237,391
  -251,019
  -265,226
  -280,049
  -295,524
  -311,691
  -328,590
  -346,263
  -364,754
Issuance/(repayment) of debt, $m
  5,808
  35,054
  39,349
  43,686
  48,000
  52,256
  56,434
  60,520
  64,508
  68,404
  72,215
  75,958
  79,650
  83,313
  86,971
  90,649
  94,372
  98,165
  102,055
  106,064
  110,219
  114,541
  119,053
  123,777
  128,734
  133,945
  139,431
  145,210
  151,303
  157,730
  164,510
Issuance/(repurchase) of shares, $m
  0
  29,093
  34,203
  39,713
  45,562
  51,733
  58,207
  64,973
  72,019
  79,340
  86,933
  93,680
  101,825
  110,254
  118,978
  128,011
  137,367
  147,063
  157,119
  167,555
  178,395
  189,661
  201,381
  213,580
  226,288
  239,534
  253,350
  267,769
  282,825
  298,554
  314,994
Cash from financing (excl. dividends), $m  
  6,588
  64,147
  73,552
  83,399
  93,562
  103,989
  114,641
  125,493
  136,527
  147,744
  159,148
  169,638
  181,475
  193,567
  205,949
  218,660
  231,739
  245,228
  259,174
  273,619
  288,614
  304,202
  320,434
  337,357
  355,022
  373,479
  392,781
  412,979
  434,128
  456,284
  479,504
Total cash flow (excl. dividends), $m
  1,706
  25,566
  28,566
  31,592
  34,601
  37,570
  40,484
  43,334
  46,116
  48,833
  51,492
  52,983
  55,558
  58,113
  60,665
  63,230
  65,827
  68,473
  71,186
  73,983
  76,881
  79,896
  83,043
  86,338
  89,796
  93,431
  97,257
  101,288
  105,539
  110,021
  114,751
Retained Cash Flow (-), $m
  1,930
  -29,093
  -34,203
  -39,713
  -45,562
  -51,733
  -58,207
  -64,973
  -72,019
  -79,340
  -86,933
  -93,680
  -101,825
  -110,254
  -118,978
  -128,011
  -137,367
  -147,063
  -157,119
  -167,555
  -178,395
  -189,661
  -201,381
  -213,580
  -226,288
  -239,534
  -253,350
  -267,769
  -282,825
  -298,554
  -314,994
Prev. year cash balance distribution, $m
 
  16,894
  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
 
  13,367
  -5,637
  -8,121
  -10,962
  -14,163
  -17,723
  -21,639
  -25,903
  -30,507
  -35,441
  -40,698
  -46,267
  -52,141
  -58,314
  -64,781
  -71,540
  -78,590
  -85,933
  -93,572
  -101,514
  -109,766
  -118,338
  -127,242
  -136,492
  -146,103
  -156,093
  -166,481
  -177,286
  -188,533
  -200,243
Discount rate, %
 
  4.90
  5.15
  5.40
  5.67
  5.96
  6.25
  6.57
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
PV of cash for distribution, $m
 
  12,742
  -5,098
  -6,935
  -8,791
  -10,605
  -12,316
  -13,864
  -15,195
  -16,263
  -17,034
  -17,487
  -17,614
  -17,419
  -16,922
  -16,153
  -15,152
  -13,967
  -12,650
  -11,254
  -9,831
  -8,428
  -7,088
  -5,843
  -4,718
  -3,730
  -2,883
  -2,178
  -1,606
  -1,155
  -809
Current shareholders' claim on cash, %
  100
  78.3
  61.8
  49.1
  39.3
  31.6
  25.6
  20.8
  17.0
  14.0
  11.5
  9.6
  8.0
  6.7
  5.6
  4.7
  3.9
  3.3
  2.8
  2.4
  2.0
  1.7
  1.4
  1.2
  1.0
  0.9
  0.8
  0.6
  0.6
  0.5
  0.4

BP p.l.c. is an integrated oil and gas company. The Company owns an interest in OJSC Oil Company Rosneft (Rosneft), an oil and gas company. The Company's segments include Upstream, Downstream, Rosneft, and Other businesses and corporate. The Upstream segment is engaged in oil and natural gas exploration, field development and production, as well as midstream transportation, storage and processing. The Downstream segment has global manufacturing and marketing operations. The Rosneft segment has a resource base of hydrocarbons onshore and offshore. The Other businesses and corporate segment comprises the biofuels and wind businesses, shipping and treasury functions, and corporate activities around the world. The Company provides its customers with fuel for transportation, energy for heat and light, lubricants to keep engines moving and the petrochemicals products used to make everyday items as diverse as paints, clothes and packaging.

FINANCIAL RATIOS  of  BP ADR (BP)

Valuation Ratios
P/E Ratio 6548.8
Price to Sales 4.1
Price to Book 7.9
Price to Tangible Book
Price to Cash Flow 70.4
Price to Free Cash Flow -125.3
Growth Rates
Sales Growth Rate -17.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -10.4%
Cap. Spend. - 3 Yr. Gr. Rate -7.4%
Financial Strength
Quick Ratio 4
Current Ratio 0.1
LT Debt to Equity 54.2%
Total Debt to Equity 61.2%
Interest Coverage -1
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. -0.2%
Return On Total Capital 0.1%
Ret/ On T. Cap. - 3 Yr. Avg. -0.6%
Return On Equity 0.1%
Return On Equity - 3 Yr. Avg. -1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 15.1%
Gross Margin - 3 Yr. Avg. 13.7%
EBITDA Margin 7.3%
EBITDA Margin - 3 Yr. Avg. 5.4%
Operating Margin -1.6%
Oper. Margin - 3 Yr. Avg. -2%
Pre-Tax Margin -1.3%
Pre-Tax Margin - 3 Yr. Avg. -1.4%
Net Profit Margin 0.1%
Net Profit Margin - 3 Yr. Avg. -0.6%
Effective Tax Rate 107.5%
Eff/ Tax Rate - 3 Yr. Avg. 53.3%
Payout Ratio 4009.6%

BP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BP stock intrinsic value calculation we used $183008 million for the last fiscal year's total revenue generated by BP ADR. The default revenue input number comes from 2016 income statement of BP 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 BP stock valuation model: a) initial revenue growth rate of 21.7% 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 4.9%, whose default value for BP is calculated based on our internal credit rating of BP 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 BP 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 BP stock the variable cost ratio is equal to 104.7%.

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 BP 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 BP ADR.

Corporate tax rate of 27% is the nominal tax rate for BP 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 BP 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 BP are equal to 81%.

Life of production assets of 11 years is the average useful life of capital assets used in BP 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 BP 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 - $95286 million for BP 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 3295.02 million for BP 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 BP ADR at the current share price and the inputted number of shares is $127.7 billion.

RELATED COMPANIES Price Int.Val. Rating
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COMPANY NEWS

▶ Oil Shows Weakness, But Dont Expect A Plunge   [Oct-20-17 03:00PM  Oilprice.com]
▶ [$$] BP Chairman Carl-Henric Svanberg to Retire   [12:39AM  The Wall Street Journal]
▶ Company seeks to build island off Alaska for Arctic drilling   [Oct-19-17 02:31PM  Associated Press]
▶ [$$] BP Chairman to Retire   [12:27PM  The Wall Street Journal]
▶ Big Oil Refuses To Give Up On The Barents Sea   [Oct-18-17 06:00PM  Oilprice.com]
▶ The Natural Gas Market Is Set To Boom   [Oct-17-17 07:00PM  Oilprice.com]
▶ BPs MLP aims to raise more than $800M in IPO   [Oct-16-17 04:15PM  American City Business Journals]
▶ [$$] Chevron Loses Taste for Oil in Great Australian Bight   [Oct-13-17 11:20PM  The Wall Street Journal]
▶ Oil Prices Spike On Middle East Tensions   [03:30PM  Oilprice.com]
▶ [$$] Chevron Loses Taste for Oil in Great Australian Bight   [Oct-12-17 10:00PM  The Wall Street Journal]
▶ IEA Sees OPEC Extending Deal; Oil Falls On U.S. Stockpile Gain   [08:42AM  Investor's Business Daily]
▶ Midcap Bank Earnings Begin: A Spooky Friday the 13th?   [Oct-11-17 11:45AM  Barrons.com]
▶ Major Oil Scares Off Short Sellers   [11:00AM  24/7 Wall St.]
▶ Top Analyst Reports for Coca-Cola, BP & Alibaba   [Oct-09-17 03:19PM  Zacks]
▶ Private aviation startup Wheels Up secures $117.5 million in funding   [11:35AM  American City Business Journals]
▶ How Blockchain Is Changing the Energy Industry   [Oct-08-17 10:22PM  Investopedia]
▶ Nate Forces BP, Others to Evacuate Offshore Oil Platforms   [Oct-05-17 10:56PM  TheStreet.com]
▶ Can BPs Liquidity Condition Improve?   [09:06AM  Market Realist]
▶ Near a 12-Year Low, Is Hess a Buy?   [08:10AM  Motley Fool]
▶ Assessing BPs Debt Levels   [07:36AM  Market Realist]
▶ How Rising Upstream Earnings Affect BPs Segmental Dynamics   [Oct-04-17 10:37AM  Market Realist]
▶ Oil Falls Ahead Of Supply Data As Gasoline Stockpiles Weigh   [08:39AM  Investor's Business Daily]
▶ How BPs PEG Ratio Compares to Its Peers   [Oct-03-17 10:38AM  Market Realist]
▶ Why Short Interest in BP Stock Has Dropped   [09:06AM  Market Realist]
▶ [$$] BP experiments with blockchain for oil and gas trading   [Oct-02-17 11:02PM  Financial Times]
▶ The 3 Biggest Dividend Yields in the Oil Patch   [Sep-30-17 07:49AM  Motley Fool]
▶ Could BPs Upstream Earnings Rise in 3Q17?   [Sep-28-17 10:41AM  Market Realist]
▶ A Status Update of BPs Key Upstream Projects   [09:11AM  Market Realist]
▶ Top Oil Stocks Near Buy Zones Ahead Of Key Supply, Output Report   [Sep-27-17 04:06PM  Investor's Business Daily]
▶ Short Sellers Chase Major Oil Stocks Higher   [10:15AM  24/7 Wall St.]
▶ $60 Oil Enters The Realm Of Possibility   [Sep-26-17 03:00PM  Oilprice.com]
▶ Coffee sold in California could carry cancer warning labels   [Sep-25-17 03:01PM  Associated Press]
▶ Russia's Gazprom knocks US ExxonMobil to #9   [01:53PM  Yahoo Finance Video]
▶ Expect A Flurry Of Oil Deals In This Asian Nation   [Sep-22-17 12:00PM  Oilprice.com]
▶ North Sea Oil Sees Investment Rush   [Sep-21-17 07:00PM  Oilprice.com]
▶ Is Big Oil Going Green?   [Sep-20-17 05:00PM  Oilprice.com]
▶ Better Buy: ConocoPhillips vs. BP   [12:15PM  Motley Fool]
Financial statements of BP
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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