Intrinsic value of Canadian Pacific Railway Limited - CP

Previous Close

$223.50

  Intrinsic Value

$127.38

stock screener

  Rating & Target

sell

-43%

Previous close

$223.50

 
Intrinsic value

$127.38

 
Up/down potential

-43%

 
Rating

sell

We calculate the intrinsic value of CP 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 0001), $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 31.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  17.10
  15.89
  14.80
  13.82
  12.94
  12.14
  11.43
  10.79
  10.21
  9.69
  9.22
  8.80
  8.42
  8.08
  7.77
  7.49
  7.24
  7.02
  6.82
  6.63
  6.47
  6.32
  6.19
  6.07
  5.97
  5.87
  5.78
  5.70
  5.63
  5.57
Revenue, $m
  8,567
  9,928
  11,398
  12,973
  14,652
  16,431
  18,309
  20,284
  22,355
  24,521
  26,781
  29,137
  31,590
  34,141
  36,793
  39,550
  42,414
  45,390
  48,484
  51,701
  55,046
  58,528
  62,151
  65,925
  69,858
  73,958
  78,234
  82,696
  87,355
  92,220
Variable operating expenses, $m
  5,034
  5,831
  6,691
  7,613
  8,595
  9,636
  10,735
  11,891
  13,103
  14,371
  15,674
  17,052
  18,488
  19,981
  21,533
  23,146
  24,822
  26,564
  28,375
  30,257
  32,215
  34,253
  36,373
  38,582
  40,884
  43,283
  45,786
  48,397
  51,123
  53,971
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
  5,034
  5,831
  6,691
  7,613
  8,595
  9,636
  10,735
  11,891
  13,103
  14,371
  15,674
  17,052
  18,488
  19,981
  21,533
  23,146
  24,822
  26,564
  28,375
  30,257
  32,215
  34,253
  36,373
  38,582
  40,884
  43,283
  45,786
  48,397
  51,123
  53,971
Operating income, $m
  3,533
  4,098
  4,707
  5,361
  6,057
  6,795
  7,574
  8,393
  9,252
  10,150
  11,108
  12,085
  13,102
  14,160
  15,260
  16,404
  17,592
  18,826
  20,109
  21,444
  22,831
  24,275
  25,778
  27,343
  28,974
  30,675
  32,448
  34,299
  36,231
  38,249
EBITDA, $m
  4,365
  5,059
  5,807
  6,610
  7,465
  8,372
  9,329
  10,335
  11,390
  12,494
  13,645
  14,846
  16,095
  17,395
  18,746
  20,151
  21,610
  23,127
  24,703
  26,342
  28,047
  29,820
  31,667
  33,590
  35,593
  37,682
  39,861
  42,134
  44,508
  46,987
Interest expense (income), $m
  361
  470
  605
  752
  911
  1,081
  1,263
  1,455
  1,658
  1,871
  2,095
  2,328
  2,573
  2,827
  3,092
  3,367
  3,654
  3,952
  4,261
  4,582
  4,917
  5,264
  5,625
  6,001
  6,393
  6,800
  7,225
  7,668
  8,129
  8,611
  9,114
Earnings before tax, $m
  3,063
  3,492
  3,955
  4,449
  4,975
  5,532
  6,119
  6,735
  7,381
  8,056
  8,779
  9,512
  10,275
  11,068
  11,893
  12,750
  13,640
  14,565
  15,527
  16,527
  17,567
  18,650
  19,777
  20,951
  22,174
  23,450
  24,781
  26,170
  27,620
  29,135
Tax expense, $m
  827
  943
  1,068
  1,201
  1,343
  1,494
  1,652
  1,819
  1,993
  2,175
  2,370
  2,568
  2,774
  2,988
  3,211
  3,442
  3,683
  3,933
  4,192
  4,462
  4,743
  5,035
  5,340
  5,657
  5,987
  6,331
  6,691
  7,066
  7,457
  7,866
Net income, $m
  2,236
  2,549
  2,887
  3,248
  3,632
  4,039
  4,467
  4,917
  5,388
  5,881
  6,409
  6,944
  7,501
  8,080
  8,682
  9,307
  9,957
  10,633
  11,335
  12,065
  12,824
  13,614
  14,437
  15,294
  16,187
  17,118
  18,090
  19,104
  20,163
  21,268

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  24,904
  28,861
  33,133
  37,713
  42,592
  47,765
  53,225
  58,966
  64,986
  71,281
  77,853
  84,702
  91,831
  99,247
  106,957
  114,970
  123,296
  131,949
  140,942
  150,293
  160,019
  170,138
  180,673
  191,644
  203,076
  214,994
  227,424
  240,395
  253,938
  268,082
Adjusted assets (=assets-cash), $m
  24,904
  28,861
  33,133
  37,713
  42,592
  47,765
  53,225
  58,966
  64,986
  71,281
  77,853
  84,702
  91,831
  99,247
  106,957
  114,970
  123,296
  131,949
  140,942
  150,293
  160,019
  170,138
  180,673
  191,644
  203,076
  214,994
  227,424
  240,395
  253,938
  268,082
Revenue / Adjusted assets
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
Average production assets, $m
  20,861
  24,176
  27,754
  31,590
  35,677
  40,010
  44,583
  49,392
  54,435
  59,708
  65,213
  70,950
  76,922
  83,134
  89,592
  96,303
  103,277
  110,525
  118,059
  125,892
  134,038
  142,515
  151,339
  160,529
  170,104
  180,087
  190,499
  201,365
  212,708
  224,556
Working capital, $m
  -463
  -536
  -615
  -701
  -791
  -887
  -989
  -1,095
  -1,207
  -1,324
  -1,446
  -1,573
  -1,706
  -1,844
  -1,987
  -2,136
  -2,290
  -2,451
  -2,618
  -2,792
  -2,973
  -3,160
  -3,356
  -3,560
  -3,772
  -3,994
  -4,225
  -4,466
  -4,717
  -4,980
Total debt, $m
  11,212
  13,935
  16,874
  20,024
  23,381
  26,940
  30,697
  34,647
  38,788
  43,120
  47,641
  52,353
  57,258
  62,360
  67,664
  73,177
  78,905
  84,859
  91,046
  97,480
  104,171
  111,133
  118,381
  125,929
  133,794
  141,994
  150,546
  159,470
  168,787
  178,518
Total liabilities, $m
  17,134
  19,857
  22,796
  25,946
  29,303
  32,862
  36,619
  40,569
  44,710
  49,042
  53,563
  58,275
  63,180
  68,282
  73,586
  79,099
  84,827
  90,781
  96,968
  103,402
  110,093
  117,055
  124,303
  131,851
  139,716
  147,916
  156,468
  165,392
  174,709
  184,440
Total equity, $m
  7,770
  9,005
  10,338
  11,766
  13,289
  14,903
  16,606
  18,397
  20,276
  22,240
  24,290
  26,427
  28,651
  30,965
  33,371
  35,870
  38,468
  41,168
  43,974
  46,892
  49,926
  53,083
  56,370
  59,793
  63,360
  67,078
  70,956
  75,003
  79,229
  83,641
Total liabilities and equity, $m
  24,904
  28,862
  33,134
  37,712
  42,592
  47,765
  53,225
  58,966
  64,986
  71,282
  77,853
  84,702
  91,831
  99,247
  106,957
  114,969
  123,295
  131,949
  140,942
  150,294
  160,019
  170,138
  180,673
  191,644
  203,076
  214,994
  227,424
  240,395
  253,938
  268,081
Debt-to-equity ratio
  1.440
  1.550
  1.630
  1.700
  1.760
  1.810
  1.850
  1.880
  1.910
  1.940
  1.960
  1.980
  2.000
  2.010
  2.030
  2.040
  2.050
  2.060
  2.070
  2.080
  2.090
  2.090
  2.100
  2.110
  2.110
  2.120
  2.120
  2.130
  2.130
  2.130
Adjusted equity ratio
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,236
  2,549
  2,887
  3,248
  3,632
  4,039
  4,467
  4,917
  5,388
  5,881
  6,409
  6,944
  7,501
  8,080
  8,682
  9,307
  9,957
  10,633
  11,335
  12,065
  12,824
  13,614
  14,437
  15,294
  16,187
  17,118
  18,090
  19,104
  20,163
  21,268
Depreciation, amort., depletion, $m
  832
  961
  1,100
  1,249
  1,408
  1,577
  1,755
  1,942
  2,138
  2,343
  2,537
  2,761
  2,993
  3,235
  3,486
  3,747
  4,019
  4,301
  4,594
  4,899
  5,215
  5,545
  5,889
  6,246
  6,619
  7,007
  7,412
  7,835
  8,277
  8,738
Funds from operations, $m
  3,068
  3,510
  3,987
  4,497
  5,040
  5,616
  6,222
  6,859
  7,526
  8,224
  8,946
  9,705
  10,494
  11,315
  12,168
  13,054
  13,976
  14,933
  15,928
  16,963
  18,040
  19,160
  20,326
  21,540
  22,806
  24,126
  25,502
  26,939
  28,439
  30,006
Change in working capital, $m
  -68
  -74
  -79
  -85
  -91
  -96
  -101
  -107
  -112
  -117
  -122
  -127
  -132
  -138
  -143
  -149
  -155
  -161
  -167
  -174
  -181
  -188
  -196
  -204
  -212
  -221
  -231
  -241
  -252
  -263
Cash from operations, $m
  3,136
  3,584
  4,066
  4,582
  5,131
  5,712
  6,323
  6,966
  7,638
  8,341
  9,069
  9,832
  10,626
  11,453
  12,311
  13,203
  14,130
  15,094
  16,096
  17,137
  18,220
  19,348
  20,521
  21,744
  23,018
  24,347
  25,733
  27,180
  28,691
  30,269
Maintenance CAPEX, $m
  -693
  -812
  -941
  -1,080
  -1,229
  -1,388
  -1,557
  -1,735
  -1,922
  -2,118
  -2,323
  -2,537
  -2,761
  -2,993
  -3,235
  -3,486
  -3,747
  -4,019
  -4,301
  -4,594
  -4,899
  -5,215
  -5,545
  -5,889
  -6,246
  -6,619
  -7,007
  -7,412
  -7,835
  -8,277
New CAPEX, $m
  -3,046
  -3,315
  -3,578
  -3,836
  -4,087
  -4,333
  -4,573
  -4,809
  -5,042
  -5,274
  -5,505
  -5,737
  -5,972
  -6,212
  -6,458
  -6,712
  -6,974
  -7,248
  -7,534
  -7,833
  -8,147
  -8,477
  -8,824
  -9,190
  -9,576
  -9,983
  -10,412
  -10,865
  -11,343
  -11,848
Cash from investing activities, $m
  -3,739
  -4,127
  -4,519
  -4,916
  -5,316
  -5,721
  -6,130
  -6,544
  -6,964
  -7,392
  -7,828
  -8,274
  -8,733
  -9,205
  -9,693
  -10,198
  -10,721
  -11,267
  -11,835
  -12,427
  -13,046
  -13,692
  -14,369
  -15,079
  -15,822
  -16,602
  -17,419
  -18,277
  -19,178
  -20,125
Free cash flow, $m
  -604
  -543
  -452
  -333
  -185
  -10
  193
  421
  674
  949
  1,241
  1,558
  1,894
  2,248
  2,618
  3,006
  3,409
  3,827
  4,261
  4,711
  5,175
  5,656
  6,152
  6,666
  7,196
  7,745
  8,314
  8,902
  9,512
  10,144
Issuance/(repayment) of debt, $m
  2,516
  2,723
  2,939
  3,151
  3,357
  3,559
  3,756
  3,950
  4,142
  4,331
  4,521
  4,712
  4,905
  5,102
  5,304
  5,513
  5,728
  5,953
  6,188
  6,433
  6,691
  6,962
  7,248
  7,548
  7,865
  8,199
  8,552
  8,924
  9,317
  9,731
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  2,516
  2,723
  2,939
  3,151
  3,357
  3,559
  3,756
  3,950
  4,142
  4,331
  4,521
  4,712
  4,905
  5,102
  5,304
  5,513
  5,728
  5,953
  6,188
  6,433
  6,691
  6,962
  7,248
  7,548
  7,865
  8,199
  8,552
  8,924
  9,317
  9,731
Total cash flow (excl. dividends), $m
  1,912
  2,180
  2,486
  2,817
  3,172
  3,549
  3,949
  4,372
  4,816
  5,281
  5,762
  6,270
  6,799
  7,350
  7,923
  8,518
  9,137
  9,781
  10,449
  11,144
  11,866
  12,618
  13,400
  14,214
  15,061
  15,945
  16,866
  17,827
  18,829
  19,876
Retained Cash Flow (-), $m
  -1,134
  -1,235
  -1,333
  -1,429
  -1,522
  -1,614
  -1,703
  -1,791
  -1,878
  -1,964
  -2,050
  -2,137
  -2,224
  -2,314
  -2,405
  -2,500
  -2,598
  -2,700
  -2,806
  -2,917
  -3,034
  -3,157
  -3,287
  -3,423
  -3,567
  -3,718
  -3,878
  -4,047
  -4,225
  -4,413
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
  778
  945
  1,154
  1,389
  1,649
  1,935
  2,246
  2,580
  2,937
  3,317
  3,712
  4,133
  4,574
  5,036
  5,517
  6,018
  6,540
  7,081
  7,643
  8,226
  8,832
  9,461
  10,113
  10,791
  11,495
  12,227
  12,988
  13,779
  14,604
  15,463
Discount rate, %
  7.30
  7.67
  8.05
  8.45
  8.87
  9.32
  9.78
  10.27
  10.79
  11.32
  11.89
  12.49
  13.11
  13.77
  14.45
  15.18
  15.93
  16.73
  17.57
  18.45
  19.37
  20.34
  21.35
  22.42
  23.54
  24.72
  25.96
  27.25
  28.62
  30.05
PV of cash for distribution, $m
  725
  815
  915
  1,004
  1,078
  1,134
  1,169
  1,180
  1,168
  1,134
  1,078
  1,007
  922
  828
  728
  628
  530
  437
  353
  278
  214
  161
  118
  84
  58
  39
  26
  16
  10
  6
Current shareholders' claim on cash, %
  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

Canadian Pacific Railway Limited, together with its subsidiaries, owns and operates a transcontinental freight railway in Canada and the United States. The Company operates through rail transportation segment. The Company's transports bulk commodities, merchandise freight, and intermodal traffic over a network of approximately 12,400 miles. Its railway feeds directly into the United States heartland from the east and west coasts. Its Bulk commodities include grain, coal, potash, fertilizers and sulfur. Its Merchandise freight consists of finished vehicles and machinery, as well as forest and industrial and consumer products. Its Intermodal traffic consists of retail goods in overseas containers that can be transported by train, ship and truck and in domestic containers and trailers that can be moved by train and truck. Its subsidiaries include Canadian Pacific Railway Company, Soo Line Railroad Company, Delaware and Hudson Railway Company, Inc. and Mount Stephen Properties Inc.

FINANCIAL RATIOS  of  Canadian Pacific Railway Limited (CP)

Valuation Ratios
P/E Ratio 27.6
Price to Sales 7.1
Price to Book 9.5
Price to Tangible Book
Price to Cash Flow 21.2
Price to Free Cash Flow 48.7
Growth Rates
Sales Growth Rate -7.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -22.4%
Cap. Spend. - 3 Yr. Gr. Rate -0.9%
Financial Strength
Quick Ratio 6
Current Ratio 0.1
LT Debt to Equity 187.1%
Total Debt to Equity 187.7%
Interest Coverage 5
Management Effectiveness
Return On Assets 10.1%
Ret/ On Assets - 3 Yr. Avg. 9.6%
Return On Total Capital 11.8%
Ret/ On T. Cap. - 3 Yr. Avg. 11.7%
Return On Equity 33.9%
Return On Equity - 3 Yr. Avg. 27.7%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 88%
Gross Margin - 3 Yr. Avg. 85.3%
EBITDA Margin 52.6%
EBITDA Margin - 3 Yr. Avg. 46.5%
Operating Margin 41%
Oper. Margin - 3 Yr. Avg. 38.8%
Pre-Tax Margin 34.5%
Pre-Tax Margin - 3 Yr. Avg. 31.5%
Net Profit Margin 25.6%
Net Profit Margin - 3 Yr. Avg. 22.7%
Effective Tax Rate 25.7%
Eff/ Tax Rate - 3 Yr. Avg. 28.1%
Payout Ratio 16%

CP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CP stock intrinsic value calculation we used $7316 million for the last fiscal year's total revenue generated by Canadian Pacific Railway Limited. The default revenue input number comes from 0001 income statement of Canadian Pacific Railway Limited. 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 CP stock valuation model: a) initial revenue growth rate of 17.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.3%, whose default value for CP is calculated based on our internal credit rating of Canadian Pacific Railway Limited, 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 Canadian Pacific Railway Limited.
    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 CP stock the variable cost ratio is equal to 58.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CP 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 5.4% for Canadian Pacific Railway Limited.

Corporate tax rate of 27% is the nominal tax rate for Canadian Pacific Railway Limited. 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 CP 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 CP are equal to 243.5%.

Life of production assets of 25.7 years is the average useful life of capital assets used in Canadian Pacific Railway Limited 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 CP is equal to -5.4%. 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 - $6636 million for Canadian Pacific Railway Limited - 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 140.150 million for Canadian Pacific Railway Limited 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 Canadian Pacific Railway Limited at the current share price and the inputted number of shares is $31.3 billion.

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