Intrinsic value of Encana Corporation - ECA

Previous Close

$7.23

  Intrinsic Value

$34.23

stock screener

  Rating & Target

str. buy

+373%

Previous close

$7.23

 
Intrinsic value

$34.23

 
Up/down potential

+373%

 
Rating

str. buy

We calculate the intrinsic value of ECA 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 10.8

 

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, %
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  9,502
  14,681
  21,956
  31,857
  44,945
  61,789
  82,939
  108,904
  140,134
  177,000
  219,794
  268,719
  323,897
  385,374
  453,131
  527,100
  607,175
  693,227
  785,115
  882,702
  985,861
  1,094,484
  1,208,488
  1,327,822
  1,452,466
  1,582,439
  1,717,795
  1,858,624
  2,005,054
  2,157,249
Variable operating expenses, $m
  5,377
  8,169
  12,090
  17,426
  24,481
  33,561
  44,961
  58,956
  75,789
  95,661
  118,472
  144,843
  174,585
  207,721
  244,243
  284,114
  327,275
  373,658
  423,187
  475,788
  531,392
  589,941
  651,391
  715,713
  782,898
  852,955
  925,914
  1,001,822
  1,080,750
  1,162,785
Fixed operating expenses, $m
  826
  844
  863
  881
  901
  921
  941
  962
  983
  1,004
  1,027
  1,049
  1,072
  1,096
  1,120
  1,145
  1,170
  1,195
  1,222
  1,249
  1,276
  1,304
  1,333
  1,362
  1,392
  1,423
  1,454
  1,486
  1,519
  1,552
Total operating expenses, $m
  6,203
  9,013
  12,953
  18,307
  25,382
  34,482
  45,902
  59,918
  76,772
  96,665
  119,499
  145,892
  175,657
  208,817
  245,363
  285,259
  328,445
  374,853
  424,409
  477,037
  532,668
  591,245
  652,724
  717,075
  784,290
  854,378
  927,368
  1,003,308
  1,082,269
  1,164,337
Operating income, $m
  3,299
  5,669
  9,004
  13,549
  19,563
  27,308
  37,038
  48,987
  63,362
  80,335
  100,296
  122,827
  148,240
  176,556
  207,768
  241,842
  278,730
  318,373
  360,706
  405,666
  453,193
  503,239
  555,764
  610,746
  668,176
  728,061
  790,427
  855,315
  922,785
  992,912
EBITDA, $m
  5,357
  8,708
  13,423
  19,846
  28,343
  39,283
  53,024
  69,898
  90,196
  114,162
  141,984
  173,795
  209,674
  249,650
  293,713
  341,817
  393,893
  449,857
  509,619
  573,088
  640,182
  710,830
  784,979
  862,595
  943,666
  1,028,203
  1,116,242
  1,207,841
  1,303,084
  1,402,078
Interest expense (income), $m
  397
  353
  751
  1,330
  2,144
  3,250
  4,713
  6,596
  8,960
  11,863
  15,354
  19,475
  24,259
  29,728
  35,895
  42,767
  50,342
  58,610
  67,561
  77,180
  87,452
  98,360
  109,892
  122,034
  134,778
  148,117
  162,050
  176,579
  191,709
  207,452
  223,820
Earnings before tax, $m
  2,947
  4,917
  7,673
  11,405
  16,313
  22,595
  30,441
  40,026
  51,499
  64,981
  80,821
  98,568
  118,513
  140,661
  165,000
  191,500
  220,120
  250,812
  283,526
  318,214
  354,833
  393,347
  433,731
  475,969
  520,059
  566,011
  613,848
  663,606
  715,333
  769,091
Tax expense, $m
  796
  1,328
  2,072
  3,079
  4,404
  6,101
  8,219
  10,807
  13,905
  17,545
  21,822
  26,613
  31,998
  37,978
  44,550
  51,705
  59,432
  67,719
  76,552
  85,918
  95,805
  106,204
  117,107
  128,512
  140,416
  152,823
  165,739
  179,174
  193,140
  207,655
Net income, $m
  2,151
  3,589
  5,601
  8,326
  11,908
  16,494
  22,222
  29,219
  37,594
  47,436
  58,999
  71,955
  86,514
  102,683
  120,450
  139,795
  160,688
  183,093
  206,974
  232,296
  259,028
  287,143
  316,623
  347,457
  379,643
  413,188
  448,109
  484,432
  522,193
  561,437

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
  24,554
  37,936
  56,733
  82,317
  116,137
  159,662
  214,313
  281,407
  362,102
  457,365
  567,943
  694,365
  836,943
  995,797
  1,170,881
  1,362,015
  1,568,927
  1,791,283
  2,028,721
  2,280,885
  2,547,445
  2,828,124
  3,122,708
  3,431,064
  3,753,143
  4,088,991
  4,438,746
  4,802,645
  5,181,017
  5,574,286
Adjusted assets (=assets-cash), $m
  24,554
  37,936
  56,733
  82,317
  116,137
  159,662
  214,313
  281,407
  362,102
  457,365
  567,943
  694,365
  836,943
  995,797
  1,170,881
  1,362,015
  1,568,927
  1,791,283
  2,028,721
  2,280,885
  2,547,445
  2,828,124
  3,122,708
  3,431,064
  3,753,143
  4,088,991
  4,438,746
  4,802,645
  5,181,017
  5,574,286
Revenue / Adjusted assets
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
  0.387
Average production assets, $m
  16,401
  25,340
  37,896
  54,985
  77,575
  106,648
  143,153
  187,969
  241,871
  305,502
  379,364
  463,809
  559,046
  665,155
  782,104
  909,775
  1,047,984
  1,196,509
  1,355,109
  1,523,544
  1,701,597
  1,889,079
  2,085,850
  2,291,820
  2,506,957
  2,731,290
  2,964,914
  3,207,984
  3,460,723
  3,723,411
Working capital, $m
  162
  250
  373
  542
  764
  1,050
  1,410
  1,851
  2,382
  3,009
  3,736
  4,568
  5,506
  6,551
  7,703
  8,961
  10,322
  11,785
  13,347
  15,006
  16,760
  18,606
  20,544
  22,573
  24,692
  26,901
  29,203
  31,597
  34,086
  36,673
Total debt, $m
  8,946
  15,838
  25,519
  38,694
  56,112
  78,527
  106,672
  141,226
  182,784
  231,844
  288,792
  353,899
  427,327
  509,137
  599,305
  697,739
  804,299
  918,812
  1,041,092
  1,170,957
  1,308,235
  1,452,785
  1,604,496
  1,763,299
  1,929,170
  2,102,131
  2,282,255
  2,469,663
  2,664,525
  2,867,058
Total liabilities, $m
  12,645
  19,537
  29,218
  42,393
  59,811
  82,226
  110,371
  144,925
  186,483
  235,543
  292,491
  357,598
  431,026
  512,836
  603,004
  701,438
  807,998
  922,511
  1,044,791
  1,174,656
  1,311,934
  1,456,484
  1,608,195
  1,766,998
  1,932,869
  2,105,830
  2,285,954
  2,473,362
  2,668,224
  2,870,757
Total equity, $m
  11,909
  18,399
  27,516
  39,924
  56,327
  77,436
  103,942
  136,482
  175,620
  221,822
  275,452
  336,767
  405,917
  482,962
  567,877
  660,577
  760,930
  868,772
  983,930
  1,106,229
  1,235,511
  1,371,640
  1,514,513
  1,664,066
  1,820,274
  1,983,160
  2,152,792
  2,329,283
  2,512,793
  2,703,529
Total liabilities and equity, $m
  24,554
  37,936
  56,734
  82,317
  116,138
  159,662
  214,313
  281,407
  362,103
  457,365
  567,943
  694,365
  836,943
  995,798
  1,170,881
  1,362,015
  1,568,928
  1,791,283
  2,028,721
  2,280,885
  2,547,445
  2,828,124
  3,122,708
  3,431,064
  3,753,143
  4,088,990
  4,438,746
  4,802,645
  5,181,017
  5,574,286
Debt-to-equity ratio
  0.750
  0.860
  0.930
  0.970
  1.000
  1.010
  1.030
  1.030
  1.040
  1.050
  1.050
  1.050
  1.050
  1.050
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
Adjusted equity ratio
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485
  0.485

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,151
  3,589
  5,601
  8,326
  11,908
  16,494
  22,222
  29,219
  37,594
  47,436
  58,999
  71,955
  86,514
  102,683
  120,450
  139,795
  160,688
  183,093
  206,974
  232,296
  259,028
  287,143
  316,623
  347,457
  379,643
  413,188
  448,109
  484,432
  522,193
  561,437
Depreciation, amort., depletion, $m
  2,058
  3,040
  4,420
  6,298
  8,780
  11,975
  15,986
  20,911
  26,834
  33,827
  41,688
  50,968
  61,434
  73,094
  85,945
  99,975
  115,163
  131,484
  148,913
  167,422
  186,989
  207,591
  229,214
  251,848
  275,490
  300,142
  325,815
  352,526
  380,299
  409,166
Funds from operations, $m
  4,209
  6,629
  10,021
  14,623
  20,688
  28,469
  38,209
  50,130
  64,429
  81,263
  100,688
  122,923
  147,948
  175,776
  206,396
  239,770
  275,851
  314,577
  355,887
  399,719
  446,017
  494,734
  545,838
  599,306
  655,133
  713,330
  773,924
  836,958
  902,493
  970,603
Change in working capital, $m
  61
  88
  124
  168
  223
  286
  360
  441
  531
  627
  727
  832
  938
  1,045
  1,152
  1,257
  1,361
  1,463
  1,562
  1,659
  1,754
  1,847
  1,938
  2,029
  2,119
  2,210
  2,301
  2,394
  2,489
  2,587
Cash from operations, $m
  4,148
  6,541
  9,897
  14,455
  20,466
  28,183
  37,849
  49,689
  63,898
  80,637
  99,960
  122,091
  147,010
  174,731
  205,244
  238,513
  274,489
  313,114
  354,325
  398,060
  444,263
  492,888
  543,900
  597,277
  653,014
  711,120
  771,623
  834,564
  900,003
  968,016
Maintenance CAPEX, $m
  -1,127
  -1,802
  -2,785
  -4,164
  -6,042
  -8,525
  -11,720
  -15,731
  -20,656
  -26,579
  -33,572
  -41,688
  -50,968
  -61,434
  -73,094
  -85,945
  -99,975
  -115,163
  -131,484
  -148,913
  -167,422
  -186,989
  -207,591
  -229,214
  -251,848
  -275,490
  -300,142
  -325,815
  -352,526
  -380,299
New CAPEX, $m
  -6,148
  -8,939
  -12,556
  -17,089
  -22,591
  -29,073
  -36,505
  -44,816
  -53,901
  -63,632
  -73,862
  -84,445
  -95,237
  -106,108
  -116,949
  -127,671
  -138,209
  -148,525
  -158,600
  -168,436
  -178,052
  -187,483
  -196,771
  -205,970
  -215,137
  -224,334
  -233,624
  -243,071
  -252,738
  -262,689
Cash from investing activities, $m
  -7,275
  -10,741
  -15,341
  -21,253
  -28,633
  -37,598
  -48,225
  -60,547
  -74,557
  -90,211
  -107,434
  -126,133
  -146,205
  -167,542
  -190,043
  -213,616
  -238,184
  -263,688
  -290,084
  -317,349
  -345,474
  -374,472
  -404,362
  -435,184
  -466,985
  -499,824
  -533,766
  -568,886
  -605,264
  -642,988
Free cash flow, $m
  -3,126
  -4,200
  -5,443
  -6,798
  -8,167
  -9,415
  -10,375
  -10,858
  -10,660
  -9,574
  -7,474
  -4,042
  805
  7,189
  15,201
  24,897
  36,305
  49,426
  64,241
  80,711
  98,788
  118,417
  139,537
  162,093
  186,029
  211,297
  237,857
  265,679
  294,739
  325,028
Issuance/(repayment) of debt, $m
  4,748
  6,892
  9,681
  13,176
  17,417
  22,415
  28,145
  34,553
  41,558
  49,060
  56,948
  65,107
  73,428
  81,810
  90,168
  98,434
  106,560
  114,513
  122,281
  129,864
  137,279
  144,550
  151,711
  158,803
  165,871
  172,962
  180,124
  187,408
  194,862
  202,533
Issuance/(repurchase) of shares, $m
  2,311
  2,901
  3,515
  4,082
  4,495
  4,615
  4,284
  3,321
  1,543
  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  
  7,059
  9,793
  13,196
  17,258
  21,912
  27,030
  32,429
  37,874
  43,101
  49,060
  56,948
  65,107
  73,428
  81,810
  90,168
  98,434
  106,560
  114,513
  122,281
  129,864
  137,279
  144,550
  151,711
  158,803
  165,871
  172,962
  180,124
  187,408
  194,862
  202,533
Total cash flow (excl. dividends), $m
  3,933
  5,593
  7,753
  10,460
  13,745
  17,616
  22,054
  27,016
  32,442
  39,486
  49,474
  61,065
  74,233
  88,999
  105,369
  123,331
  142,864
  163,939
  186,521
  210,575
  236,067
  262,966
  291,248
  320,896
  351,900
  384,259
  417,982
  453,087
  489,601
  527,561
Retained Cash Flow (-), $m
  -4,462
  -6,490
  -9,117
  -12,408
  -16,403
  -21,110
  -26,506
  -32,540
  -39,137
  -46,202
  -53,631
  -61,315
  -69,150
  -77,044
  -84,915
  -92,700
  -100,352
  -107,842
  -115,158
  -122,299
  -129,282
  -136,129
  -142,873
  -149,552
  -156,208
  -162,886
  -169,632
  -176,491
  -183,511
  -190,735
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
  -529
  -897
  -1,364
  -1,948
  -2,658
  -3,494
  -4,452
  -5,524
  -6,696
  -6,716
  -4,156
  -249
  5,082
  11,955
  20,453
  30,631
  42,512
  56,097
  71,364
  88,276
  106,785
  126,837
  148,375
  171,343
  195,691
  221,372
  248,350
  276,596
  306,090
  336,826
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
  -507
  -822
  -1,187
  -1,604
  -2,060
  -2,536
  -3,008
  -3,453
  -3,846
  -3,521
  -1,974
  -106
  1,932
  4,013
  6,005
  7,784
  9,250
  10,331
  10,988
  11,217
  11,045
  10,524
  9,725
  8,727
  7,613
  6,459
  5,330
  4,279
  3,341
  2,536
Current shareholders' claim on cash, %
  82.4
  70.6
  62.4
  56.6
  52.5
  49.7
  47.9
  46.8
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5
  46.5

Encana Corporation is an energy producer that is focused on developing its multi-basin portfolio of natural gas, oil and natural gas liquids (NGLs) producing plays. The Company's operations also include the marketing of natural gas, oil and NGLs. All of its reserves and production are located in North America. It operates through three segments: Canadian Operations, USA Operations and Market optimization. Its Canadian Operations segment includes the exploration for, development of, and production of natural gas oil and NGLs and other related activities within Canada. Its Canadian operations include Montney in northeast British Columbia and northwest Alberta and Duvernay in west central Alberta. The USA Operations include the exploration for, development of, and production of natural gas, oil and NGLs, and other related activities within the United States. The Market Optimization activities are primarily responsible for the sale of the Company's production to third party customers.

FINANCIAL RATIOS  of  Encana Corporation (ECA)

Valuation Ratios
P/E Ratio -7.5
Price to Sales 2.4
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 11.3
Price to Free Cash Flow -13.9
Growth Rates
Sales Growth Rate -34%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -49.3%
Cap. Spend. - 3 Yr. Gr. Rate -16%
Financial Strength
Quick Ratio 14
Current Ratio 0
LT Debt to Equity 94.2%
Total Debt to Equity 95.1%
Interest Coverage -3
Management Effectiveness
Return On Assets -4.7%
Ret/ On Assets - 3 Yr. Avg. -3.4%
Return On Total Capital -8.1%
Ret/ On T. Cap. - 3 Yr. Avg. -7.1%
Return On Equity -15.4%
Return On Equity - 3 Yr. Avg. -11.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 56%
Gross Margin - 3 Yr. Avg. 67.8%
EBITDA Margin -12.5%
EBITDA Margin - 3 Yr. Avg. -19.6%
Operating Margin -62.5%
Oper. Margin - 3 Yr. Avg. -59.1%
Pre-Tax Margin -55.5%
Pre-Tax Margin - 3 Yr. Avg. -59.6%
Net Profit Margin -32.4%
Net Profit Margin - 3 Yr. Avg. -35.6%
Effective Tax Rate 41.7%
Eff/ Tax Rate - 3 Yr. Avg. 34.4%
Payout Ratio -5.4%

ECA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ECA stock intrinsic value calculation we used $5939 million for the last fiscal year's total revenue generated by Encana Corporation. The default revenue input number comes from 0001 income statement of Encana Corporation. 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 ECA stock valuation model: a) initial revenue growth rate of 60% 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 ECA is calculated based on our internal credit rating of Encana Corporation, 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 Encana Corporation.
    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 ECA stock the variable cost ratio is equal to 58.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $808 million in the base year in the intrinsic value calculation for ECA 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 8.4% for Encana Corporation.

Corporate tax rate of 27% is the nominal tax rate for Encana Corporation. 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 ECA 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 ECA are equal to 172.6%.

Life of production assets of 9.1 years is the average useful life of capital assets used in Encana Corporation 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 ECA is equal to 1.7%. 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 - $7447 million for Encana Corporation - 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 1495.868 million for Encana Corporation 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 Encana Corporation at the current share price and the inputted number of shares is $10.8 billion.

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