Intrinsic value of Canadian Pacific Railway - CP

Previous Close

$194.97

  Intrinsic Value

$113.59

stock screener

  Rating & Target

sell

-42%

Previous close

$194.97

 
Intrinsic value

$113.59

 
Up/down potential

-42%

 
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 2017), $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 28.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
  5.01
  5.01
  5.01
  5.01
Revenue, $m
  6,895
  7,252
  7,626
  8,019
  8,430
  8,862
  9,314
  9,789
  10,287
  10,809
  11,357
  11,932
  12,535
  13,168
  13,833
  14,530
  15,262
  16,030
  16,837
  17,683
  18,571
  19,504
  20,483
  21,511
  22,590
  23,723
  24,912
  26,160
  27,471
  28,847
Variable operating expenses, $m
  2,288
  2,406
  2,529
  2,658
  2,793
  2,935
  3,084
  3,241
  3,405
  3,576
  3,738
  3,927
  4,126
  4,334
  4,553
  4,783
  5,023
  5,276
  5,542
  5,820
  6,113
  6,420
  6,742
  7,080
  7,435
  7,808
  8,200
  8,611
  9,042
  9,495
Fixed operating expenses, $m
  1,655
  1,691
  1,728
  1,766
  1,805
  1,845
  1,885
  1,927
  1,969
  2,013
  2,057
  2,102
  2,148
  2,196
  2,244
  2,293
  2,344
  2,395
  2,448
  2,502
  2,557
  2,613
  2,671
  2,729
  2,789
  2,851
  2,914
  2,978
  3,043
  3,110
Total operating expenses, $m
  3,943
  4,097
  4,257
  4,424
  4,598
  4,780
  4,969
  5,168
  5,374
  5,589
  5,795
  6,029
  6,274
  6,530
  6,797
  7,076
  7,367
  7,671
  7,990
  8,322
  8,670
  9,033
  9,413
  9,809
  10,224
  10,659
  11,114
  11,589
  12,085
  12,605
Operating income, $m
  2,952
  3,155
  3,369
  3,594
  3,832
  4,081
  4,344
  4,621
  4,913
  5,220
  5,562
  5,902
  6,261
  6,638
  7,036
  7,454
  7,895
  8,359
  8,847
  9,361
  9,902
  10,471
  11,070
  11,701
  12,365
  13,064
  13,799
  14,572
  15,386
  16,242
EBITDA, $m
  4,764
  5,060
  5,372
  5,699
  6,043
  6,405
  6,786
  7,186
  7,607
  8,050
  8,516
  9,006
  9,521
  10,064
  10,634
  11,234
  11,865
  12,528
  13,226
  13,960
  14,732
  15,544
  16,398
  17,296
  18,241
  19,234
  20,278
  21,376
  22,531
  23,745
Interest expense (income), $m
  361
  457
  495
  537
  581
  626
  675
  725
  778
  833
  891
  952
  1,016
  1,084
  1,154
  1,228
  1,306
  1,387
  1,473
  1,562
  1,656
  1,755
  1,859
  1,968
  2,082
  2,202
  2,329
  2,461
  2,600
  2,746
  2,899
Earnings before tax, $m
  2,495
  2,660
  2,832
  3,014
  3,205
  3,407
  3,619
  3,843
  4,080
  4,329
  4,610
  4,886
  5,177
  5,484
  5,808
  6,149
  6,508
  6,886
  7,285
  7,704
  8,146
  8,612
  9,102
  9,619
  10,163
  10,735
  11,338
  11,972
  12,640
  13,343
Tax expense, $m
  674
  718
  765
  814
  865
  920
  977
  1,038
  1,101
  1,169
  1,245
  1,319
  1,398
  1,481
  1,568
  1,660
  1,757
  1,859
  1,967
  2,080
  2,200
  2,325
  2,458
  2,597
  2,744
  2,898
  3,061
  3,233
  3,413
  3,603
Net income, $m
  1,821
  1,942
  2,068
  2,200
  2,340
  2,487
  2,642
  2,806
  2,978
  3,160
  3,365
  3,567
  3,779
  4,004
  4,240
  4,489
  4,751
  5,027
  5,318
  5,624
  5,947
  6,287
  6,645
  7,022
  7,419
  7,837
  8,277
  8,740
  9,227
  9,741

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
  21,150
  22,245
  23,394
  24,597
  25,860
  27,183
  28,571
  30,027
  31,554
  33,156
  34,837
  36,601
  38,452
  40,394
  42,432
  44,571
  46,816
  49,173
  51,646
  54,242
  56,967
  59,828
  62,832
  65,984
  69,294
  72,769
  76,416
  80,246
  84,267
  88,488
Adjusted assets (=assets-cash), $m
  21,150
  22,245
  23,394
  24,597
  25,860
  27,183
  28,571
  30,027
  31,554
  33,156
  34,837
  36,601
  38,452
  40,394
  42,432
  44,571
  46,816
  49,173
  51,646
  54,242
  56,967
  59,828
  62,832
  65,984
  69,294
  72,769
  76,416
  80,246
  84,267
  88,488
Revenue / Adjusted assets
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
Average production assets, $m
  17,933
  18,862
  19,836
  20,857
  21,927
  23,049
  24,226
  25,461
  26,756
  28,114
  29,539
  31,035
  32,604
  34,251
  35,979
  37,793
  39,697
  41,695
  43,792
  45,993
  48,304
  50,730
  53,276
  55,950
  58,756
  61,702
  64,796
  68,043
  71,452
  75,031
Working capital, $m
  -1,145
  -1,204
  -1,266
  -1,331
  -1,399
  -1,471
  -1,546
  -1,625
  -1,708
  -1,794
  -1,885
  -1,981
  -2,081
  -2,186
  -2,296
  -2,412
  -2,534
  -2,661
  -2,795
  -2,935
  -3,083
  -3,238
  -3,400
  -3,571
  -3,750
  -3,938
  -4,135
  -4,343
  -4,560
  -4,789
Total debt, $m
  8,843
  9,588
  10,369
  11,187
  12,045
  12,945
  13,889
  14,879
  15,918
  17,007
  18,150
  19,350
  20,608
  21,929
  23,315
  24,769
  26,296
  27,898
  29,580
  31,346
  33,199
  35,144
  37,186
  39,330
  41,581
  43,944
  46,424
  49,028
  51,762
  54,633
Total liabilities, $m
  14,382
  15,127
  15,908
  16,726
  17,584
  18,484
  19,428
  20,418
  21,457
  22,546
  23,689
  24,889
  26,147
  27,468
  28,854
  30,308
  31,835
  33,437
  35,119
  36,885
  38,738
  40,683
  42,725
  44,869
  47,120
  49,483
  51,963
  54,567
  57,301
  60,172
Total equity, $m
  6,768
  7,118
  7,486
  7,871
  8,275
  8,699
  9,143
  9,609
  10,097
  10,610
  11,148
  11,712
  12,305
  12,926
  13,578
  14,263
  14,981
  15,735
  16,527
  17,358
  18,230
  19,145
  20,106
  21,115
  22,174
  23,286
  24,453
  25,679
  26,965
  28,316
Total liabilities and equity, $m
  21,150
  22,245
  23,394
  24,597
  25,859
  27,183
  28,571
  30,027
  31,554
  33,156
  34,837
  36,601
  38,452
  40,394
  42,432
  44,571
  46,816
  49,172
  51,646
  54,243
  56,968
  59,828
  62,831
  65,984
  69,294
  72,769
  76,416
  80,246
  84,266
  88,488
Debt-to-equity ratio
  1.310
  1.350
  1.390
  1.420
  1.460
  1.490
  1.520
  1.550
  1.580
  1.600
  1.630
  1.650
  1.670
  1.700
  1.720
  1.740
  1.760
  1.770
  1.790
  1.810
  1.820
  1.840
  1.850
  1.860
  1.880
  1.890
  1.900
  1.910
  1.920
  1.930
Adjusted equity ratio
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,821
  1,942
  2,068
  2,200
  2,340
  2,487
  2,642
  2,806
  2,978
  3,160
  3,365
  3,567
  3,779
  4,004
  4,240
  4,489
  4,751
  5,027
  5,318
  5,624
  5,947
  6,287
  6,645
  7,022
  7,419
  7,837
  8,277
  8,740
  9,227
  9,741
Depreciation, amort., depletion, $m
  1,812
  1,905
  2,002
  2,104
  2,211
  2,324
  2,441
  2,565
  2,694
  2,830
  2,954
  3,103
  3,260
  3,425
  3,598
  3,779
  3,970
  4,169
  4,379
  4,599
  4,830
  5,073
  5,328
  5,595
  5,876
  6,170
  6,480
  6,804
  7,145
  7,503
Funds from operations, $m
  3,634
  3,847
  4,070
  4,304
  4,551
  4,811
  5,083
  5,370
  5,672
  5,990
  6,319
  6,670
  7,040
  7,429
  7,838
  8,268
  8,720
  9,196
  9,697
  10,223
  10,777
  11,360
  11,972
  12,617
  13,294
  14,007
  14,756
  15,544
  16,373
  17,244
Change in working capital, $m
  -57
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -91
  -95
  -100
  -105
  -110
  -116
  -121
  -128
  -134
  -140
  -147
  -155
  -163
  -171
  -179
  -188
  -197
  -207
  -218
  -228
Cash from operations, $m
  3,690
  3,906
  4,132
  4,370
  4,619
  4,882
  5,159
  5,449
  5,755
  6,077
  6,410
  6,766
  7,140
  7,534
  7,948
  8,384
  8,842
  9,324
  9,831
  10,364
  10,925
  11,515
  12,135
  12,787
  13,473
  14,195
  14,954
  15,751
  16,590
  17,472
Maintenance CAPEX, $m
  -1,705
  -1,793
  -1,886
  -1,984
  -2,086
  -2,193
  -2,305
  -2,423
  -2,546
  -2,676
  -2,811
  -2,954
  -3,103
  -3,260
  -3,425
  -3,598
  -3,779
  -3,970
  -4,169
  -4,379
  -4,599
  -4,830
  -5,073
  -5,328
  -5,595
  -5,876
  -6,170
  -6,480
  -6,804
  -7,145
New CAPEX, $m
  -886
  -929
  -974
  -1,021
  -1,070
  -1,122
  -1,177
  -1,234
  -1,295
  -1,359
  -1,425
  -1,496
  -1,569
  -1,647
  -1,728
  -1,814
  -1,904
  -1,998
  -2,097
  -2,201
  -2,311
  -2,426
  -2,546
  -2,673
  -2,806
  -2,946
  -3,093
  -3,247
  -3,409
  -3,579
Cash from investing activities, $m
  -2,591
  -2,722
  -2,860
  -3,005
  -3,156
  -3,315
  -3,482
  -3,657
  -3,841
  -4,035
  -4,236
  -4,450
  -4,672
  -4,907
  -5,153
  -5,412
  -5,683
  -5,968
  -6,266
  -6,580
  -6,910
  -7,256
  -7,619
  -8,001
  -8,401
  -8,822
  -9,263
  -9,727
  -10,213
  -10,724
Free cash flow, $m
  1,099
  1,184
  1,272
  1,365
  1,464
  1,567
  1,677
  1,792
  1,914
  2,043
  2,173
  2,316
  2,467
  2,627
  2,795
  2,972
  3,159
  3,356
  3,564
  3,783
  4,015
  4,258
  4,515
  4,786
  5,072
  5,373
  5,690
  6,024
  6,377
  6,748
Issuance/(repayment) of debt, $m
  684
  745
  781
  819
  858
  900
  944
  990
  1,038
  1,089
  1,143
  1,199
  1,258
  1,321
  1,386
  1,455
  1,527
  1,602
  1,682
  1,765
  1,853
  1,945
  2,042
  2,144
  2,251
  2,363
  2,481
  2,604
  2,734
  2,870
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  
  684
  745
  781
  819
  858
  900
  944
  990
  1,038
  1,089
  1,143
  1,199
  1,258
  1,321
  1,386
  1,455
  1,527
  1,602
  1,682
  1,765
  1,853
  1,945
  2,042
  2,144
  2,251
  2,363
  2,481
  2,604
  2,734
  2,870
Total cash flow (excl. dividends), $m
  1,783
  1,929
  2,053
  2,184
  2,322
  2,467
  2,621
  2,782
  2,953
  3,132
  3,316
  3,516
  3,726
  3,947
  4,181
  4,426
  4,686
  4,958
  5,246
  5,549
  5,868
  6,204
  6,558
  6,930
  7,323
  7,736
  8,171
  8,629
  9,111
  9,618
Retained Cash Flow (-), $m
  -331
  -351
  -367
  -385
  -404
  -424
  -444
  -466
  -489
  -513
  -538
  -564
  -592
  -621
  -652
  -685
  -718
  -754
  -791
  -831
  -872
  -915
  -961
  -1,009
  -1,059
  -1,112
  -1,167
  -1,226
  -1,287
  -1,351
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
  1,452
  1,578
  1,685
  1,799
  1,918
  2,044
  2,176
  2,316
  2,464
  2,619
  2,778
  2,951
  3,134
  3,326
  3,528
  3,742
  3,967
  4,204
  4,454
  4,718
  4,996
  5,288
  5,597
  5,921
  6,263
  6,624
  7,003
  7,403
  7,824
  8,267
Discount rate, %
  7.40
  7.77
  8.16
  8.57
  8.99
  9.44
  9.92
  10.41
  10.93
  11.48
  12.05
  12.66
  13.29
  13.95
  14.65
  15.38
  16.15
  16.96
  17.81
  18.70
  19.63
  20.62
  21.65
  22.73
  23.87
  25.06
  26.31
  27.63
  29.01
  30.46
PV of cash for distribution, $m
  1,352
  1,359
  1,332
  1,295
  1,247
  1,189
  1,123
  1,049
  968
  884
  794
  706
  619
  534
  454
  379
  311
  251
  198
  153
  116
  86
  62
  43
  30
  20
  13
  8
  5
  3
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 (CP)

Valuation Ratios
P/E Ratio 24.1
Price to Sales 6.2
Price to Book 8.3
Price to Tangible Book
Price to Cash Flow 18.5
Price to Free Cash Flow 42.5
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 $6554 million for the last fiscal year's total revenue generated by Canadian Pacific Railway. The default revenue input number comes from 2017 income statement of Canadian Pacific Railway. 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 5.2% 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 7.4%, whose default value for CP is calculated based on our internal credit rating of Canadian Pacific Railway, 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.
    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 33.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1619 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 5.6% for Canadian Pacific Railway.

Corporate tax rate of 27% is the nominal tax rate for Canadian Pacific Railway. 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 260.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Canadian Pacific Railway 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 -16.6%. 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 - $6437 million for Canadian Pacific Railway - 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 146 million for Canadian Pacific Railway 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 at the current share price and the inputted number of shares is $28.5 billion.

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COMPANY NEWS

▶ TCRC-T&E ratify four-year agreement with CP   [Jul-20-18 01:19PM  PR Newswire]
▶ Stock Market Retreats; Trump Tariffs Slam Alcoa   [Jul-19-18 10:17AM  Investor's Business Daily]
▶ Canadian Pacific: 2Q Earnings Snapshot   [04:10PM  Associated Press]
▶ [$$] Canadian Pacific Railway Strike Ends   [May-30-18 08:09PM  The Wall Street Journal]
▶ [$$] Canadian Pacific Railway Strike Ends   [03:41PM  The Wall Street Journal]
▶ [$$] Workers Strike at Canadian Pacific Railway   [11:26AM  The Wall Street Journal]
▶ [$$] Canadian Pacific Teamsters, Electrical Workers File Strike Notice   [May-28-18 11:52PM  The Wall Street Journal]
▶ Stifel Rides The Rails, Initiates Seven Stocks   [May-24-18 12:42PM  Benzinga]
▶ Value-Adding TSX Stocks   [May-17-18 07:02AM  Simply Wall St.]
▶ Canadian Pacific: 1Q Earnings Snapshot   [04:13PM  Associated Press]
▶ Labor Strike Threatens a Canadian Rail Network   [Apr-14-18 08:59AM  Bloomberg]
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