Intrinsic value of Encana - ECA

Previous Close

$7.77

  Intrinsic Value

$1.08

stock screener

  Rating & Target

str. sell

-86%

Previous close

$7.77

 
Intrinsic value

$1.08

 
Up/down potential

-86%

 
Rating

str. sell

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 7.4

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  4,532
  4,636
  4,755
  4,889
  5,037
  5,200
  5,377
  5,569
  5,775
  5,997
  6,234
  6,487
  6,756
  7,043
  7,346
  7,668
  8,009
  8,369
  8,750
  9,152
  9,577
  10,024
  10,496
  10,992
  11,516
  12,067
  12,647
  13,257
  13,899
  14,574
Variable operating expenses, $m
  7,450
  7,615
  7,804
  8,016
  8,251
  8,509
  8,790
  9,094
  9,422
  9,773
  9,889
  10,290
  10,717
  11,172
  11,653
  12,164
  12,705
  13,276
  13,880
  14,518
  15,191
  15,901
  16,649
  17,437
  18,267
  19,141
  20,061
  21,029
  22,048
  23,119
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
  7,450
  7,615
  7,804
  8,016
  8,251
  8,509
  8,790
  9,094
  9,422
  9,773
  9,889
  10,290
  10,717
  11,172
  11,653
  12,164
  12,705
  13,276
  13,880
  14,518
  15,191
  15,901
  16,649
  17,437
  18,267
  19,141
  20,061
  21,029
  22,048
  23,119
Operating income, $m
  -2,918
  -2,979
  -3,049
  -3,127
  -3,214
  -3,309
  -3,413
  -3,526
  -3,647
  -3,777
  -3,655
  -3,803
  -3,961
  -4,129
  -4,307
  -4,496
  -4,696
  -4,907
  -5,130
  -5,366
  -5,615
  -5,877
  -6,153
  -6,445
  -6,751
  -7,074
  -7,414
  -7,772
  -8,149
  -8,545
EBITDA, $m
  -1,909
  -1,953
  -2,003
  -2,060
  -2,122
  -2,191
  -2,265
  -2,346
  -2,433
  -2,527
  -2,626
  -2,733
  -2,847
  -2,967
  -3,095
  -3,231
  -3,374
  -3,526
  -3,687
  -3,856
  -4,035
  -4,223
  -4,422
  -4,631
  -4,852
  -5,084
  -5,328
  -5,585
  -5,856
  -6,140
Interest expense (income), $m
  397
  361
  375
  392
  412
  434
  459
  486
  515
  547
  581
  617
  656
  698
  743
  790
  840
  893
  950
  1,009
  1,072
  1,139
  1,209
  1,283
  1,360
  1,443
  1,529
  1,620
  1,716
  1,817
  1,923
Earnings before tax, $m
  -3,279
  -3,354
  -3,441
  -3,539
  -3,648
  -3,768
  -3,899
  -4,041
  -4,193
  -4,357
  -4,272
  -4,460
  -4,659
  -4,872
  -5,097
  -5,336
  -5,589
  -5,857
  -6,139
  -6,438
  -6,753
  -7,085
  -7,436
  -7,805
  -8,194
  -8,603
  -9,035
  -9,488
  -9,965
  -10,467
Tax expense, $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
Net income, $m
  -3,279
  -3,354
  -3,441
  -3,539
  -3,648
  -3,768
  -3,899
  -4,041
  -4,193
  -4,357
  -4,272
  -4,460
  -4,659
  -4,872
  -5,097
  -5,336
  -5,589
  -5,857
  -6,139
  -6,438
  -6,753
  -7,085
  -7,436
  -7,805
  -8,194
  -8,603
  -9,035
  -9,488
  -9,965
  -10,467

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
  15,573
  15,932
  16,341
  16,801
  17,310
  17,869
  18,477
  19,136
  19,846
  20,608
  21,422
  22,292
  23,217
  24,201
  25,245
  26,352
  27,523
  28,761
  30,070
  31,451
  32,909
  34,447
  36,067
  37,775
  39,573
  41,466
  43,459
  45,557
  47,763
  50,083
Adjusted assets (=assets-cash), $m
  15,573
  15,932
  16,341
  16,801
  17,310
  17,869
  18,477
  19,136
  19,846
  20,608
  21,422
  22,292
  23,217
  24,201
  25,245
  26,352
  27,523
  28,761
  30,070
  31,451
  32,909
  34,447
  36,067
  37,775
  39,573
  41,466
  43,459
  45,557
  47,763
  50,083
Revenue / Adjusted assets
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
Average production assets, $m
  10,092
  10,325
  10,590
  10,888
  11,218
  11,580
  11,974
  12,401
  12,861
  13,355
  13,883
  14,446
  15,046
  15,684
  16,360
  17,077
  17,836
  18,639
  19,487
  20,382
  21,327
  22,323
  23,374
  24,480
  25,646
  26,873
  28,164
  29,523
  30,953
  32,457
Working capital, $m
  -109
  -111
  -114
  -117
  -121
  -125
  -129
  -134
  -139
  -144
  -150
  -156
  -162
  -169
  -176
  -184
  -192
  -201
  -210
  -220
  -230
  -241
  -252
  -264
  -276
  -290
  -304
  -318
  -334
  -350
Total debt, $m
  4,364
  4,564
  4,793
  5,050
  5,334
  5,647
  5,987
  6,355
  6,752
  7,178
  7,633
  8,119
  8,637
  9,187
  9,770
  10,389
  11,043
  11,735
  12,467
  13,239
  14,054
  14,914
  15,820
  16,774
  17,779
  18,838
  19,952
  21,124
  22,357
  23,655
Total liabilities, $m
  8,706
  8,906
  9,135
  9,392
  9,676
  9,989
  10,329
  10,697
  11,094
  11,520
  11,975
  12,461
  12,979
  13,529
  14,112
  14,731
  15,385
  16,077
  16,809
  17,581
  18,396
  19,256
  20,162
  21,116
  22,121
  23,180
  24,294
  25,466
  26,699
  27,997
Total equity, $m
  6,868
  7,026
  7,206
  7,409
  7,634
  7,880
  8,149
  8,439
  8,752
  9,088
  9,447
  9,831
  10,239
  10,673
  11,133
  11,621
  12,138
  12,684
  13,261
  13,870
  14,513
  15,191
  15,906
  16,659
  17,452
  18,287
  19,166
  20,090
  21,063
  22,087
Total liabilities and equity, $m
  15,574
  15,932
  16,341
  16,801
  17,310
  17,869
  18,478
  19,136
  19,846
  20,608
  21,422
  22,292
  23,218
  24,202
  25,245
  26,352
  27,523
  28,761
  30,070
  31,451
  32,909
  34,447
  36,068
  37,775
  39,573
  41,467
  43,460
  45,556
  47,762
  50,084
Debt-to-equity ratio
  0.640
  0.650
  0.670
  0.680
  0.700
  0.720
  0.730
  0.750
  0.770
  0.790
  0.810
  0.830
  0.840
  0.860
  0.880
  0.890
  0.910
  0.930
  0.940
  0.950
  0.970
  0.980
  0.990
  1.010
  1.020
  1.030
  1.040
  1.050
  1.060
  1.070
Adjusted equity ratio
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -3,279
  -3,354
  -3,441
  -3,539
  -3,648
  -3,768
  -3,899
  -4,041
  -4,193
  -4,357
  -4,272
  -4,460
  -4,659
  -4,872
  -5,097
  -5,336
  -5,589
  -5,857
  -6,139
  -6,438
  -6,753
  -7,085
  -7,436
  -7,805
  -8,194
  -8,603
  -9,035
  -9,488
  -9,965
  -10,467
Depreciation, amort., depletion, $m
  1,008
  1,026
  1,045
  1,067
  1,092
  1,119
  1,148
  1,180
  1,214
  1,250
  1,028
  1,070
  1,115
  1,162
  1,212
  1,265
  1,321
  1,381
  1,443
  1,510
  1,580
  1,654
  1,731
  1,813
  1,900
  1,991
  2,086
  2,187
  2,293
  2,404
Funds from operations, $m
  -2,270
  -2,329
  -2,396
  -2,472
  -2,557
  -2,650
  -2,751
  -2,861
  -2,980
  -3,107
  -3,244
  -3,389
  -3,545
  -3,710
  -3,885
  -4,071
  -4,268
  -4,476
  -4,696
  -4,928
  -5,173
  -5,432
  -5,705
  -5,992
  -6,294
  -6,613
  -6,948
  -7,301
  -7,673
  -8,063
Change in working capital, $m
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
Cash from operations, $m
  -2,268
  -2,326
  -2,393
  -2,469
  -2,553
  -2,646
  -2,747
  -2,856
  -2,975
  -3,102
  -3,238
  -3,383
  -3,538
  -3,703
  -3,878
  -4,063
  -4,260
  -4,467
  -4,687
  -4,919
  -5,163
  -5,421
  -5,693
  -5,980
  -6,282
  -6,600
  -6,934
  -7,287
  -7,657
  -8,047
Maintenance CAPEX, $m
  -733
  -748
  -765
  -784
  -807
  -831
  -858
  -887
  -919
  -953
  -989
  -1,028
  -1,070
  -1,115
  -1,162
  -1,212
  -1,265
  -1,321
  -1,381
  -1,443
  -1,510
  -1,580
  -1,654
  -1,731
  -1,813
  -1,900
  -1,991
  -2,086
  -2,187
  -2,293
New CAPEX, $m
  -199
  -232
  -265
  -298
  -330
  -362
  -394
  -427
  -460
  -494
  -528
  -563
  -600
  -638
  -677
  -717
  -759
  -803
  -848
  -895
  -945
  -996
  -1,050
  -1,107
  -1,165
  -1,227
  -1,292
  -1,359
  -1,430
  -1,504
Cash from investing activities, $m
  -932
  -980
  -1,030
  -1,082
  -1,137
  -1,193
  -1,252
  -1,314
  -1,379
  -1,447
  -1,517
  -1,591
  -1,670
  -1,753
  -1,839
  -1,929
  -2,024
  -2,124
  -2,229
  -2,338
  -2,455
  -2,576
  -2,704
  -2,838
  -2,978
  -3,127
  -3,283
  -3,445
  -3,617
  -3,797
Free cash flow, $m
  -3,200
  -3,306
  -3,423
  -3,551
  -3,690
  -3,839
  -3,999
  -4,170
  -4,353
  -4,548
  -4,755
  -4,975
  -5,208
  -5,455
  -5,716
  -5,992
  -6,284
  -6,591
  -6,915
  -7,257
  -7,618
  -7,997
  -8,397
  -8,818
  -9,261
  -9,726
  -10,216
  -10,732
  -11,274
  -11,844
Issuance/(repayment) of debt, $m
  167
  200
  229
  257
  285
  312
  340
  368
  397
  426
  455
  486
  517
  550
  584
  618
  655
  692
  731
  772
  815
  859
  906
  954
  1,005
  1,058
  1,114
  1,172
  1,233
  1,297
Issuance/(repurchase) of shares, $m
  3,419
  3,512
  3,622
  3,742
  3,873
  4,015
  4,167
  4,331
  4,506
  4,693
  4,631
  4,843
  5,068
  5,306
  5,557
  5,824
  6,105
  6,403
  6,716
  7,047
  7,396
  7,764
  8,151
  8,558
  8,987
  9,438
  9,913
  10,413
  10,938
  11,491
Cash from financing (excl. dividends), $m  
  3,586
  3,712
  3,851
  3,999
  4,158
  4,327
  4,507
  4,699
  4,903
  5,119
  5,086
  5,329
  5,585
  5,856
  6,141
  6,442
  6,760
  7,095
  7,447
  7,819
  8,211
  8,623
  9,057
  9,512
  9,992
  10,496
  11,027
  11,585
  12,171
  12,788
Total cash flow (excl. dividends), $m
  385
  407
  428
  448
  468
  488
  509
  529
  550
  571
  332
  354
  377
  400
  425
  450
  477
  504
  532
  562
  593
  626
  659
  695
  732
  770
  811
  853
  898
  944
Retained Cash Flow (-), $m
  -3,419
  -3,512
  -3,622
  -3,742
  -3,873
  -4,015
  -4,167
  -4,331
  -4,506
  -4,693
  -4,631
  -4,843
  -5,068
  -5,306
  -5,557
  -5,824
  -6,105
  -6,403
  -6,716
  -7,047
  -7,396
  -7,764
  -8,151
  -8,558
  -8,987
  -9,438
  -9,913
  -10,413
  -10,938
  -11,491
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
  -3,033
  -3,106
  -3,194
  -3,294
  -3,405
  -3,526
  -3,659
  -3,802
  -3,957
  -4,122
  -4,300
  -4,489
  -4,691
  -4,905
  -5,133
  -5,374
  -5,629
  -5,899
  -6,184
  -6,485
  -6,803
  -7,138
  -7,491
  -7,863
  -8,255
  -8,668
  -9,102
  -9,560
  -10,041
  -10,546
Discount rate, %
  5.70
  5.99
  6.28
  6.60
  6.93
  7.27
  7.64
  8.02
  8.42
  8.84
  9.28
  9.75
  10.24
  10.75
  11.29
  11.85
  12.44
  13.06
  13.72
  14.40
  15.12
  15.88
  16.67
  17.51
  18.38
  19.30
  20.27
  21.28
  22.34
  23.46
PV of cash for distribution, $m
  -2,870
  -2,765
  -2,661
  -2,551
  -2,436
  -2,314
  -2,186
  -2,051
  -1,911
  -1,767
  -1,619
  -1,470
  -1,321
  -1,175
  -1,032
  -896
  -767
  -647
  -538
  -440
  -353
  -279
  -216
  -164
  -121
  -88
  -62
  -43
  -29
  -19
Current shareholders' claim on cash, %
  68.5
  46.8
  31.9
  21.7
  14.7
  10.0
  6.8
  4.6
  3.1
  2.1
  1.4
  1.0
  0.7
  0.4
  0.3
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

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 (ECA)

Valuation Ratios
P/E Ratio -8
Price to Sales 2.6
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 12.1
Price to Free Cash Flow -14.9
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 $4443 million for the last fiscal year's total revenue generated by Encana. The default revenue input number comes from 0001 income statement of Encana. 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 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 5.7%, whose default value for ECA is calculated based on our internal credit rating of Encana, 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.
    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 164.5%.

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 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 8.6% for Encana.

Corporate tax rate of 27% is the nominal tax rate for Encana. 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 222.7%.

Life of production assets of 13.5 years is the average useful life of capital assets used in Encana 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 -2.4%. 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 - $6728 million for Encana - 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 956.345 million for Encana 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 at the current share price and the inputted number of shares is $7.4 billion.

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