Intrinsic value of McDermott International, Inc. - MDR

Previous Close

$7.90

  Intrinsic Value

$711.80

stock screener

  Rating & Target

str. buy

+999%

Previous close

$7.90

 
Intrinsic value

$711.80

 
Up/down potential

+999%

 
Rating

str. buy

We calculate the intrinsic value of MDR 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 1.4

 

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, %
  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
  10,728
  16,575
  24,788
  35,966
  50,742
  69,759
  93,637
  122,951
  158,208
  199,829
  248,143
  303,378
  365,673
  435,078
  511,575
  595,084
  685,487
  782,637
  886,378
  996,552
  1,113,016
  1,235,648
  1,364,356
  1,499,081
  1,639,802
  1,786,539
  1,939,352
  2,098,345
  2,263,661
  2,435,486
Variable operating expenses, $m
  9,352
  14,242
  21,110
  30,459
  42,817
  58,721
  78,691
  103,207
  132,693
  167,502
  207,528
  253,723
  305,821
  363,867
  427,843
  497,684
  573,291
  654,540
  741,301
  833,442
  930,844
  1,033,405
  1,141,047
  1,253,721
  1,371,409
  1,494,129
  1,621,931
  1,754,900
  1,893,159
  2,036,860
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
  9,352
  14,242
  21,110
  30,459
  42,817
  58,721
  78,691
  103,207
  132,693
  167,502
  207,528
  253,723
  305,821
  363,867
  427,843
  497,684
  573,291
  654,540
  741,301
  833,442
  930,844
  1,033,405
  1,141,047
  1,253,721
  1,371,409
  1,494,129
  1,621,931
  1,754,900
  1,893,159
  2,036,860
Operating income, $m
  1,376
  2,333
  3,677
  5,507
  7,925
  11,038
  14,946
  19,744
  25,515
  32,327
  40,615
  49,655
  59,851
  71,211
  83,732
  97,400
  112,197
  128,097
  145,077
  163,110
  182,172
  202,244
  223,310
  245,361
  268,393
  292,410
  317,422
  343,445
  370,503
  398,626
EBITDA, $m
  2,090
  3,229
  4,828
  7,006
  9,884
  13,588
  18,239
  23,949
  30,817
  38,924
  48,335
  59,094
  71,228
  84,747
  99,647
  115,914
  133,523
  152,446
  172,653
  194,114
  216,799
  240,686
  265,756
  291,999
  319,409
  347,991
  377,757
  408,727
  440,928
  474,397
Interest expense (income), $m
  47
  448
  1,082
  2,031
  3,364
  5,177
  7,575
  10,660
  14,535
  19,291
  25,011
  31,765
  39,604
  48,566
  58,673
  69,935
  82,346
  95,896
  110,564
  126,327
  143,160
  161,036
  179,932
  199,830
  220,713
  242,573
  265,405
  289,214
  314,008
  339,806
  366,629
Earnings before tax, $m
  928
  1,251
  1,646
  2,143
  2,748
  3,463
  4,286
  5,209
  6,224
  7,315
  8,850
  10,051
  11,285
  12,538
  13,797
  15,053
  16,300
  17,533
  18,750
  19,950
  21,136
  22,311
  23,480
  24,648
  25,820
  27,005
  28,208
  29,436
  30,697
  31,997
Tax expense, $m
  251
  338
  444
  579
  742
  935
  1,157
  1,407
  1,680
  1,975
  2,389
  2,714
  3,047
  3,385
  3,725
  4,064
  4,401
  4,734
  5,062
  5,387
  5,707
  6,024
  6,340
  6,655
  6,971
  7,291
  7,616
  7,948
  8,288
  8,639
Net income, $m
  678
  913
  1,202
  1,564
  2,006
  2,528
  3,128
  3,803
  4,543
  5,340
  6,460
  7,338
  8,238
  9,153
  10,072
  10,989
  11,899
  12,799
  13,687
  14,564
  15,429
  16,287
  17,140
  17,993
  18,849
  19,714
  20,592
  21,489
  22,409
  23,358

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
  15,110
  23,345
  34,912
  50,656
  71,468
  98,252
  131,883
  173,170
  222,828
  281,450
  349,497
  427,293
  515,032
  612,786
  720,528
  838,147
  965,475
  1,102,306
  1,248,419
  1,403,594
  1,567,628
  1,740,350
  1,921,629
  2,111,382
  2,309,581
  2,516,252
  2,731,482
  2,955,416
  3,188,256
  3,430,262
Adjusted assets (=assets-cash), $m
  15,110
  23,345
  34,912
  50,656
  71,468
  98,252
  131,883
  173,170
  222,828
  281,450
  349,497
  427,293
  515,032
  612,786
  720,528
  838,147
  965,475
  1,102,306
  1,248,419
  1,403,594
  1,567,628
  1,740,350
  1,921,629
  2,111,382
  2,309,581
  2,516,252
  2,731,482
  2,955,416
  3,188,256
  3,430,262
Revenue / Adjusted assets
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
Average production assets, $m
  4,506
  6,961
  10,411
  15,106
  21,312
  29,299
  39,327
  51,639
  66,447
  83,928
  104,220
  127,419
  153,582
  182,733
  214,861
  249,935
  287,905
  328,708
  372,279
  418,552
  467,467
  518,972
  573,030
  629,614
  688,717
  750,346
  814,528
  881,305
  950,738
  1,022,904
Working capital, $m
  -3,186
  -4,923
  -7,362
  -10,682
  -15,070
  -20,718
  -27,810
  -36,516
  -46,988
  -59,349
  -73,698
  -90,103
  -108,605
  -129,218
  -151,938
  -176,740
  -203,590
  -232,443
  -263,254
  -295,976
  -330,566
  -366,988
  -405,214
  -445,227
  -487,021
  -530,602
  -575,988
  -623,209
  -672,307
  -723,339
Total debt, $m
  8,456
  15,867
  26,278
  40,447
  59,178
  83,284
  113,551
  150,710
  195,402
  248,162
  309,404
  379,421
  458,386
  546,365
  643,332
  749,189
  863,784
  986,933
  1,118,434
  1,258,091
  1,405,722
  1,561,172
  1,724,323
  1,895,101
  2,073,480
  2,259,484
  2,453,191
  2,654,731
  2,864,287
  3,082,093
Total liabilities, $m
  13,599
  21,010
  31,421
  45,590
  64,321
  88,427
  118,694
  155,853
  200,545
  253,305
  314,547
  384,564
  463,529
  551,508
  648,475
  754,332
  868,927
  992,076
  1,123,577
  1,263,234
  1,410,865
  1,566,315
  1,729,466
  1,900,244
  2,078,623
  2,264,627
  2,458,334
  2,659,874
  2,869,430
  3,087,236
Total equity, $m
  1,511
  2,334
  3,491
  5,066
  7,147
  9,825
  13,188
  17,317
  22,283
  28,145
  34,950
  42,729
  51,503
  61,279
  72,053
  83,815
  96,547
  110,231
  124,842
  140,359
  156,763
  174,035
  192,163
  211,138
  230,958
  251,625
  273,148
  295,542
  318,826
  343,026
Total liabilities and equity, $m
  15,110
  23,344
  34,912
  50,656
  71,468
  98,252
  131,882
  173,170
  222,828
  281,450
  349,497
  427,293
  515,032
  612,787
  720,528
  838,147
  965,474
  1,102,307
  1,248,419
  1,403,593
  1,567,628
  1,740,350
  1,921,629
  2,111,382
  2,309,581
  2,516,252
  2,731,482
  2,955,416
  3,188,256
  3,430,262
Debt-to-equity ratio
  5.600
  6.800
  7.530
  7.980
  8.280
  8.480
  8.610
  8.700
  8.770
  8.820
  8.850
  8.880
  8.900
  8.920
  8.930
  8.940
  8.950
  8.950
  8.960
  8.960
  8.970
  8.970
  8.970
  8.980
  8.980
  8.980
  8.980
  8.980
  8.980
  8.990
Adjusted equity ratio
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  678
  913
  1,202
  1,564
  2,006
  2,528
  3,128
  3,803
  4,543
  5,340
  6,460
  7,338
  8,238
  9,153
  10,072
  10,989
  11,899
  12,799
  13,687
  14,564
  15,429
  16,287
  17,140
  17,993
  18,849
  19,714
  20,592
  21,489
  22,409
  23,358
Depreciation, amort., depletion, $m
  714
  896
  1,151
  1,499
  1,959
  2,550
  3,293
  4,205
  5,302
  6,597
  7,720
  9,438
  11,376
  13,536
  15,916
  18,514
  21,326
  24,349
  27,576
  31,004
  34,627
  38,442
  42,447
  46,638
  51,016
  55,581
  60,335
  65,282
  70,425
  75,771
Funds from operations, $m
  1,391
  1,809
  2,353
  3,063
  3,965
  5,078
  6,422
  8,008
  9,845
  11,937
  14,180
  16,776
  19,615
  22,688
  25,987
  29,503
  33,225
  37,148
  41,263
  45,567
  50,057
  54,730
  59,587
  64,631
  69,865
  75,295
  80,927
  86,770
  92,834
  99,129
Change in working capital, $m
  -1,195
  -1,736
  -2,439
  -3,320
  -4,389
  -5,648
  -7,092
  -8,706
  -10,471
  -12,362
  -14,349
  -16,405
  -18,501
  -20,613
  -22,719
  -24,802
  -26,850
  -28,854
  -30,811
  -32,722
  -34,590
  -36,422
  -38,226
  -40,013
  -41,794
  -43,581
  -45,386
  -47,221
  -49,099
  -51,032
Cash from operations, $m
  2,586
  3,545
  4,792
  6,383
  8,353
  10,726
  13,513
  16,714
  20,317
  24,299
  28,529
  33,181
  38,116
  43,302
  48,707
  54,305
  60,075
  66,002
  72,074
  78,289
  84,646
  91,151
  97,813
  104,644
  111,659
  118,876
  126,313
  133,991
  141,933
  150,161
Maintenance CAPEX, $m
  -209
  -334
  -516
  -771
  -1,119
  -1,579
  -2,170
  -2,913
  -3,825
  -4,922
  -6,217
  -7,720
  -9,438
  -11,376
  -13,536
  -15,916
  -18,514
  -21,326
  -24,349
  -27,576
  -31,004
  -34,627
  -38,442
  -42,447
  -46,638
  -51,016
  -55,581
  -60,335
  -65,282
  -70,425
New CAPEX, $m
  -1,689
  -2,456
  -3,449
  -4,695
  -6,206
  -7,987
  -10,029
  -12,312
  -14,808
  -17,481
  -20,292
  -23,199
  -26,164
  -29,150
  -32,129
  -35,074
  -37,969
  -40,803
  -43,571
  -46,273
  -48,915
  -51,506
  -54,057
  -56,584
  -59,103
  -61,629
  -64,182
  -66,777
  -69,433
  -72,166
Cash from investing activities, $m
  -1,898
  -2,790
  -3,965
  -5,466
  -7,325
  -9,566
  -12,199
  -15,225
  -18,633
  -22,403
  -26,509
  -30,919
  -35,602
  -40,526
  -45,665
  -50,990
  -56,483
  -62,129
  -67,920
  -73,849
  -79,919
  -86,133
  -92,499
  -99,031
  -105,741
  -112,645
  -119,763
  -127,112
  -134,715
  -142,591
Free cash flow, $m
  688
  756
  827
  917
  1,028
  1,161
  1,314
  1,489
  1,684
  1,896
  2,021
  2,262
  2,514
  2,775
  3,043
  3,315
  3,592
  3,872
  4,155
  4,440
  4,728
  5,019
  5,313
  5,613
  5,918
  6,230
  6,550
  6,879
  7,218
  7,569
Issuance/(repayment) of debt, $m
  4,959
  7,411
  10,411
  14,169
  18,731
  24,106
  30,268
  37,159
  44,692
  52,760
  61,242
  70,017
  78,965
  87,979
  96,967
  105,857
  114,595
  123,148
  131,502
  139,657
  147,631
  155,450
  163,151
  170,778
  178,379
  186,004
  193,707
  201,540
  209,556
  217,806
Issuance/(repurchase) of shares, $m
  33
  0
  0
  10
  75
  150
  235
  326
  423
  522
  344
  442
  536
  623
  702
  773
  834
  884
  924
  954
  974
  985
  988
  983
  971
  954
  931
  905
  875
  843
Cash from financing (excl. dividends), $m  
  4,992
  7,411
  10,411
  14,179
  18,806
  24,256
  30,503
  37,485
  45,115
  53,282
  61,586
  70,459
  79,501
  88,602
  97,669
  106,630
  115,429
  124,032
  132,426
  140,611
  148,605
  156,435
  164,139
  171,761
  179,350
  186,958
  194,638
  202,445
  210,431
  218,649
Total cash flow (excl. dividends), $m
  5,681
  8,167
  11,238
  15,096
  19,834
  25,417
  31,817
  38,974
  46,798
  55,177
  63,608
  72,721
  82,015
  91,377
  100,712
  109,945
  119,021
  127,904
  136,580
  145,051
  153,332
  161,453
  169,452
  177,374
  185,268
  193,188
  201,188
  209,324
  217,649
  226,218
Retained Cash Flow (-), $m
  -711
  -823
  -1,157
  -1,574
  -2,081
  -2,678
  -3,363
  -4,129
  -4,966
  -5,862
  -6,805
  -7,780
  -8,774
  -9,775
  -10,774
  -11,762
  -12,733
  -13,683
  -14,611
  -15,517
  -16,403
  -17,272
  -18,128
  -18,975
  -19,820
  -20,667
  -21,523
  -22,393
  -23,284
  -24,201
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
  4,970
  7,344
  10,081
  13,522
  17,753
  22,738
  28,454
  34,845
  41,832
  49,315
  56,803
  64,941
  73,241
  81,601
  89,938
  98,184
  106,288
  114,221
  121,969
  129,533
  136,929
  144,181
  151,324
  158,398
  165,448
  172,521
  179,665
  186,930
  194,365
  202,017
Discount rate, %
  10.80
  11.34
  11.91
  12.50
  13.13
  13.78
  14.47
  15.20
  15.96
  16.75
  17.59
  18.47
  19.40
  20.37
  21.38
  22.45
  23.58
  24.75
  25.99
  27.29
  28.66
  30.09
  31.59
  33.17
  34.83
  36.57
  38.40
  40.32
  42.34
  44.45
PV of cash for distribution, $m
  4,485
  5,924
  7,193
  8,441
  9,582
  10,478
  11,046
  11,236
  11,037
  10,477
  9,555
  8,495
  7,310
  6,091
  4,915
  3,842
  2,908
  2,132
  1,513
  1,039
  689
  442
  274
  164
  94
  52
  28
  14
  7
  3
Current shareholders' claim on cash, %
  97.7
  97.7
  97.7
  97.6
  96.8
  95.6
  94.4
  93.1
  91.8
  90.7
  90.0
  89.4
  88.8
  88.2
  87.6
  87.1
  86.6
  86.2
  85.8
  85.4
  85.1
  84.8
  84.5
  84.3
  84.1
  83.9
  83.7
  83.5
  83.4
  83.3

McDermott International, Inc. is a provider of integrated engineering, procurement, construction and installation (EPCI), front-end engineering and design (FEED) and module fabrication services for upstream field developments across the world. The Company delivers fixed and floating production facilities, pipeline installations and subsea systems from concept to commissioning for offshore and subsea oil and gas projects. It operates through three segments: the Americas, Europe and Africa (AEA), the Middle East (MEA) and Asia (ASA). As of December 31, 2016, operated in approximately 20 countries across the Americas, Europe, Africa, the Middle East, Asia and Australia, its integrated resources include a diversified fleet of marine vessels, fabrication facilities and engineering offices. It support its activities with project management and procurement services, while utilizing its fully integrated capabilities in both shallow water and deepwater construction.

FINANCIAL RATIOS  of  McDermott International, Inc. (MDR)

Valuation Ratios
P/E Ratio 56.1
Price to Sales 0.7
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 10.7
Price to Free Cash Flow -38.1
Growth Rates
Sales Growth Rate -14.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 121.4%
Cap. Spend. - 3 Yr. Gr. Rate -4.3%
Financial Strength
Quick Ratio 12
Current Ratio 0.6
LT Debt to Equity 45.3%
Total Debt to Equity 48.4%
Interest Coverage 3
Management Effectiveness
Return On Assets 1.7%
Ret/ On Assets - 3 Yr. Avg. 0.1%
Return On Total Capital 1.5%
Ret/ On T. Cap. - 3 Yr. Avg. -1.1%
Return On Equity 2.2%
Return On Equity - 3 Yr. Avg. -1.4%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 14.6%
Gross Margin - 3 Yr. Avg. 11.7%
EBITDA Margin 8.3%
EBITDA Margin - 3 Yr. Avg. 6.2%
Operating Margin 5.4%
Oper. Margin - 3 Yr. Avg. 3.3%
Pre-Tax Margin 3.1%
Pre-Tax Margin - 3 Yr. Avg. 1.2%
Net Profit Margin 1.3%
Net Profit Margin - 3 Yr. Avg. -0.9%
Effective Tax Rate 51.2%
Eff/ Tax Rate - 3 Yr. Avg. 24.8%
Payout Ratio 0%

MDR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MDR stock intrinsic value calculation we used $6705 million for the last fiscal year's total revenue generated by McDermott International, Inc.. The default revenue input number comes from 0001 income statement of McDermott International, Inc.. 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 MDR 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 10.8%, whose default value for MDR is calculated based on our internal credit rating of McDermott International, Inc., 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 McDermott International, Inc..
    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 MDR stock the variable cost ratio is equal to 89.3%.

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 MDR 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 12.8% for McDermott International, Inc..

Corporate tax rate of 27% is the nominal tax rate for McDermott International, Inc.. 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 MDR 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 MDR are equal to 42%.

Life of production assets of 13.5 years is the average useful life of capital assets used in McDermott International, Inc. 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 MDR is equal to -29.7%. 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 - $800 million for McDermott International, Inc. - 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 181.242 million for McDermott International, Inc. 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 McDermott International, Inc. at the current share price and the inputted number of shares is $1.4 billion.

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