Intrinsic value of Marathon Oil - MRO

Previous Close

$14.72

  Intrinsic Value

$3.39

stock screener

  Rating & Target

str. sell

-77%

Previous close

$14.72

 
Intrinsic value

$3.39

 
Up/down potential

-77%

 
Rating

str. sell

We calculate the intrinsic value of MRO 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 12.6

 

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, %
  33.80
  30.92
  28.33
  26.00
  23.90
  22.01
  20.31
  18.77
  17.40
  16.16
  15.04
  14.04
  13.13
  12.32
  11.59
  10.93
  10.34
  9.80
  9.32
  8.89
  8.50
  8.15
  7.84
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
Revenue, $m
  6,376
  8,347
  10,711
  13,496
  16,721
  20,400
  24,543
  29,151
  34,222
  39,752
  45,731
  52,151
  59,000
  66,269
  73,949
  82,031
  90,511
  99,383
  108,649
  118,308
  128,366
  138,829
  149,708
  161,015
  172,765
  184,975
  197,666
  210,859
  224,580
  238,856
Variable operating expenses, $m
  1,813
  2,370
  3,038
  3,825
  4,737
  5,776
  6,947
  8,249
  9,682
  11,245
  12,923
  14,737
  16,673
  18,727
  20,897
  23,181
  25,577
  28,084
  30,703
  33,432
  36,274
  39,231
  42,306
  45,501
  48,821
  52,271
  55,858
  59,586
  63,463
  67,497
Fixed operating expenses, $m
  3,697
  3,778
  3,861
  3,946
  4,033
  4,121
  4,212
  4,305
  4,400
  4,496
  4,595
  4,696
  4,800
  4,905
  5,013
  5,123
  5,236
  5,351
  5,469
  5,589
  5,712
  5,838
  5,966
  6,098
  6,232
  6,369
  6,509
  6,652
  6,799
  6,948
Total operating expenses, $m
  5,510
  6,148
  6,899
  7,771
  8,770
  9,897
  11,159
  12,554
  14,082
  15,741
  17,518
  19,433
  21,473
  23,632
  25,910
  28,304
  30,813
  33,435
  36,172
  39,021
  41,986
  45,069
  48,272
  51,599
  55,053
  58,640
  62,367
  66,238
  70,262
  74,445
Operating income, $m
  866
  2,199
  3,812
  5,725
  7,951
  10,503
  13,384
  16,597
  20,140
  24,011
  28,213
  32,717
  37,528
  42,637
  48,039
  53,727
  59,697
  65,948
  72,477
  79,286
  86,379
  93,760
  101,436
  109,417
  117,712
  126,334
  135,299
  144,621
  154,318
  164,410
EBITDA, $m
  4,040
  6,351
  9,137
  12,430
  16,257
  20,633
  25,569
  31,068
  37,127
  43,740
  50,897
  58,585
  66,794
  75,509
  84,719
  94,417
  104,593
  115,245
  126,370
  137,970
  150,052
  162,623
  175,696
  189,284
  203,408
  218,087
  233,346
  249,213
  265,716
  282,889
Interest expense (income), $m
  375
  297
  486
  717
  993
  1,319
  1,697
  2,127
  2,612
  3,151
  3,744
  4,391
  5,091
  5,842
  6,643
  7,494
  8,392
  9,338
  10,330
  11,368
  12,452
  13,582
  14,759
  15,983
  17,256
  18,579
  19,954
  21,382
  22,867
  24,411
  26,016
Earnings before tax, $m
  569
  1,713
  3,095
  4,731
  6,632
  8,806
  11,257
  13,985
  16,990
  20,266
  23,822
  27,626
  31,686
  35,994
  40,545
  45,335
  50,359
  55,618
  61,109
  66,834
  72,797
  79,001
  85,453
  92,160
  99,133
  106,381
  113,916
  121,754
  129,907
  138,394
Tax expense, $m
  154
  462
  836
  1,277
  1,791
  2,378
  3,039
  3,776
  4,587
  5,472
  6,432
  7,459
  8,555
  9,718
  10,947
  12,240
  13,597
  15,017
  16,499
  18,045
  19,655
  21,330
  23,072
  24,883
  26,766
  28,723
  30,757
  32,874
  35,075
  37,366
Net income, $m
  415
  1,250
  2,259
  3,454
  4,841
  6,428
  8,217
  10,209
  12,402
  14,794
  17,390
  20,167
  23,131
  26,276
  29,598
  33,094
  36,762
  40,601
  44,609
  48,789
  53,142
  57,671
  62,381
  67,277
  72,367
  77,658
  83,159
  88,880
  94,832
  101,028

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
  29,517
  38,643
  49,590
  62,481
  77,411
  94,446
  113,624
  134,957
  158,436
  184,035
  211,718
  241,438
  273,149
  306,802
  342,356
  379,775
  419,031
  460,108
  503,003
  547,722
  594,286
  642,728
  693,093
  745,439
  799,836
  856,365
  915,118
  976,200
  1,039,724
  1,105,814
Adjusted assets (=assets-cash), $m
  29,517
  38,643
  49,590
  62,481
  77,411
  94,446
  113,624
  134,957
  158,436
  184,035
  211,718
  241,438
  273,149
  306,802
  342,356
  379,775
  419,031
  460,108
  503,003
  547,722
  594,286
  642,728
  693,093
  745,439
  799,836
  856,365
  915,118
  976,200
  1,039,724
  1,105,814
Revenue / Adjusted assets
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
Average production assets, $m
  23,086
  30,224
  38,786
  48,868
  60,546
  73,870
  88,869
  105,555
  123,918
  143,941
  165,592
  188,838
  213,640
  239,961
  267,769
  297,035
  327,739
  359,867
  393,417
  428,393
  464,813
  502,701
  542,093
  583,035
  625,581
  669,794
  715,747
  763,521
  813,205
  864,897
Working capital, $m
  -956
  -1,252
  -1,607
  -2,024
  -2,508
  -3,060
  -3,681
  -4,373
  -5,133
  -5,963
  -6,860
  -7,823
  -8,850
  -9,940
  -11,092
  -12,305
  -13,577
  -14,908
  -16,297
  -17,746
  -19,255
  -20,824
  -22,456
  -24,152
  -25,915
  -27,746
  -29,650
  -31,629
  -33,687
  -35,828
Total debt, $m
  9,004
  13,275
  18,398
  24,431
  31,418
  39,391
  48,366
  58,350
  69,338
  81,319
  94,274
  108,183
  123,024
  138,773
  155,413
  172,924
  191,296
  210,521
  230,595
  251,524
  273,316
  295,987
  319,558
  344,056
  369,513
  395,969
  423,465
  452,052
  481,781
  512,711
Total liabilities, $m
  13,814
  18,085
  23,208
  29,241
  36,228
  44,201
  53,176
  63,160
  74,148
  86,129
  99,084
  112,993
  127,834
  143,583
  160,223
  177,734
  196,106
  215,331
  235,405
  256,334
  278,126
  300,797
  324,368
  348,866
  374,323
  400,779
  428,275
  456,862
  486,591
  517,521
Total equity, $m
  15,703
  20,558
  26,382
  33,240
  41,183
  50,245
  60,448
  71,797
  84,288
  97,907
  112,634
  128,445
  145,315
  163,219
  182,133
  202,040
  222,924
  244,778
  267,598
  291,388
  316,160
  341,931
  368,726
  396,574
  425,513
  455,586
  486,843
  519,338
  553,133
  588,293
Total liabilities and equity, $m
  29,517
  38,643
  49,590
  62,481
  77,411
  94,446
  113,624
  134,957
  158,436
  184,036
  211,718
  241,438
  273,149
  306,802
  342,356
  379,774
  419,030
  460,109
  503,003
  547,722
  594,286
  642,728
  693,094
  745,440
  799,836
  856,365
  915,118
  976,200
  1,039,724
  1,105,814
Debt-to-equity ratio
  0.570
  0.650
  0.700
  0.730
  0.760
  0.780
  0.800
  0.810
  0.820
  0.830
  0.840
  0.840
  0.850
  0.850
  0.850
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.870
  0.870
  0.870
  0.870
  0.870
  0.870
  0.870
  0.870
  0.870
Adjusted equity ratio
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532
  0.532

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  415
  1,250
  2,259
  3,454
  4,841
  6,428
  8,217
  10,209
  12,402
  14,794
  17,390
  20,167
  23,131
  26,276
  29,598
  33,094
  36,762
  40,601
  44,609
  48,789
  53,142
  57,671
  62,381
  67,277
  72,367
  77,658
  83,159
  88,880
  94,832
  101,028
Depreciation, amort., depletion, $m
  3,174
  4,152
  5,325
  6,706
  8,305
  10,131
  12,185
  14,471
  16,987
  19,729
  22,684
  25,868
  29,266
  32,871
  36,681
  40,690
  44,896
  49,297
  53,893
  58,684
  63,673
  68,863
  74,259
  79,868
  85,696
  91,753
  98,048
  104,592
  111,398
  118,479
Funds from operations, $m
  3,589
  5,402
  7,584
  10,160
  13,147
  16,559
  20,403
  24,680
  29,389
  34,524
  40,074
  46,035
  52,396
  59,147
  66,279
  73,784
  81,658
  89,898
  98,502
  107,473
  116,815
  126,534
  136,640
  147,145
  158,063
  169,410
  181,207
  193,472
  206,230
  219,507
Change in working capital, $m
  -242
  -296
  -355
  -418
  -484
  -552
  -621
  -691
  -761
  -829
  -897
  -963
  -1,027
  -1,090
  -1,152
  -1,212
  -1,272
  -1,331
  -1,390
  -1,449
  -1,509
  -1,570
  -1,632
  -1,696
  -1,762
  -1,832
  -1,904
  -1,979
  -2,058
  -2,141
Cash from operations, $m
  3,831
  5,698
  7,939
  10,577
  13,631
  17,111
  21,024
  25,371
  30,150
  35,353
  40,971
  46,998
  53,424
  60,237
  67,431
  74,996
  82,930
  91,229
  99,892
  108,922
  118,323
  128,103
  138,272
  148,841
  159,825
  171,242
  183,110
  195,451
  208,289
  221,648
Maintenance CAPEX, $m
  -2,363
  -3,162
  -4,140
  -5,313
  -6,694
  -8,294
  -10,119
  -12,174
  -14,460
  -16,975
  -19,718
  -22,684
  -25,868
  -29,266
  -32,871
  -36,681
  -40,690
  -44,896
  -49,297
  -53,893
  -58,684
  -63,673
  -68,863
  -74,259
  -79,868
  -85,696
  -91,753
  -98,048
  -104,592
  -111,398
New CAPEX, $m
  -5,832
  -7,138
  -8,562
  -10,082
  -11,677
  -13,324
  -15,000
  -16,685
  -18,364
  -20,022
  -21,651
  -23,245
  -24,802
  -26,322
  -27,808
  -29,266
  -30,704
  -32,128
  -33,549
  -34,977
  -36,419
  -37,888
  -39,392
  -40,942
  -42,546
  -44,213
  -45,953
  -47,774
  -49,684
  -51,692
Cash from investing activities, $m
  -8,195
  -10,300
  -12,702
  -15,395
  -18,371
  -21,618
  -25,119
  -28,859
  -32,824
  -36,997
  -41,369
  -45,929
  -50,670
  -55,588
  -60,679
  -65,947
  -71,394
  -77,024
  -82,846
  -88,870
  -95,103
  -101,561
  -108,255
  -115,201
  -122,414
  -129,909
  -137,706
  -145,822
  -154,276
  -163,090
Free cash flow, $m
  -4,365
  -4,603
  -4,763
  -4,818
  -4,741
  -4,507
  -4,095
  -3,488
  -2,674
  -1,644
  -399
  1,069
  2,754
  4,650
  6,751
  9,049
  11,537
  14,205
  17,046
  20,053
  23,220
  26,542
  30,016
  33,640
  37,412
  41,333
  45,404
  49,630
  54,013
  58,558
Issuance/(repayment) of debt, $m
  3,510
  4,271
  5,123
  6,033
  6,987
  7,972
  8,975
  9,984
  10,988
  11,981
  12,955
  13,909
  14,840
  15,750
  16,639
  17,512
  18,372
  19,224
  20,075
  20,929
  21,792
  22,671
  23,571
  24,498
  25,458
  26,455
  27,497
  28,586
  29,729
  30,930
Issuance/(repurchase) of shares, $m
  3,579
  3,605
  3,564
  3,404
  3,101
  2,634
  1,985
  1,140
  89
  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  
  7,089
  7,876
  8,687
  9,437
  10,088
  10,606
  10,960
  11,124
  11,077
  11,981
  12,955
  13,909
  14,840
  15,750
  16,639
  17,512
  18,372
  19,224
  20,075
  20,929
  21,792
  22,671
  23,571
  24,498
  25,458
  26,455
  27,497
  28,586
  29,729
  30,930
Total cash flow (excl. dividends), $m
  2,724
  3,273
  3,924
  4,619
  5,348
  6,100
  6,866
  7,636
  8,403
  10,336
  12,557
  14,978
  17,594
  20,400
  23,390
  26,561
  29,909
  33,429
  37,120
  40,981
  45,012
  49,213
  53,587
  58,138
  62,870
  67,788
  72,901
  78,216
  83,742
  89,489
Retained Cash Flow (-), $m
  -3,995
  -4,855
  -5,824
  -6,858
  -7,943
  -9,063
  -10,203
  -11,349
  -12,491
  -13,619
  -14,727
  -15,811
  -16,870
  -17,904
  -18,915
  -19,907
  -20,884
  -21,853
  -22,820
  -23,791
  -24,772
  -25,771
  -26,794
  -27,848
  -28,939
  -30,073
  -31,257
  -32,495
  -33,795
  -35,160
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
  -1,271
  -1,582
  -1,900
  -2,239
  -2,595
  -2,963
  -3,337
  -3,713
  -4,088
  -3,283
  -2,170
  -833
  724
  2,496
  4,476
  6,655
  9,024
  11,576
  14,300
  17,191
  20,240
  23,442
  26,793
  30,290
  33,930
  37,715
  41,644
  45,720
  49,947
  54,329
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
  -1,218
  -1,448
  -1,653
  -1,844
  -2,012
  -2,150
  -2,254
  -2,321
  -2,348
  -1,721
  -1,031
  -355
  275
  838
  1,314
  1,691
  1,964
  2,132
  2,202
  2,184
  2,093
  1,945
  1,756
  1,543
  1,320
  1,100
  894
  707
  545
  409
Current shareholders' claim on cash, %
  77.8
  64.1
  55.2
  49.3
  45.4
  42.8
  41.3
  40.6
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5
  40.5

Marathon Oil Corporation is an exploration and production (E&P) company. The Company operates through three segments: North America E&P, International E&P and Oil Sands Mining. The North America E&P segment explores for, produces and markets crude oil and condensate, natural gas liquids (NGLs) and natural gas in North America. The International E&P segment explores for, produces and markets crude oil and condensate, NGLs and natural gas outside of North America, and produces and markets products manufactured from natural gas, such as liquefied natural gas (LNG) and methanol, in Equatorial Guinea (E.G.). The Oil Sands Mining segment mines, extracts and transports bitumen from oil sands deposits in Alberta, Canada, and upgrades the bitumen to produce and market synthetic crude oil and vacuum gas oil.

FINANCIAL RATIOS  of  Marathon Oil (MRO)

Valuation Ratios
P/E Ratio -5.8
Price to Sales 2.9
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 11.6
Price to Free Cash Flow -72.5
Growth Rates
Sales Growth Rate -25.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -64.2%
Cap. Spend. - 3 Yr. Gr. Rate -22.5%
Financial Strength
Quick Ratio 4
Current Ratio 0.1
LT Debt to Equity 37.5%
Total Debt to Equity 41.4%
Interest Coverage -2
Management Effectiveness
Return On Assets -4.7%
Ret/ On Assets - 3 Yr. Avg. -0.5%
Return On Total Capital -8.5%
Ret/ On T. Cap. - 3 Yr. Avg. -1.8%
Return On Equity -11.9%
Return On Equity - 3 Yr. Avg. -2.6%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 62.6%
Gross Margin - 3 Yr. Avg. 61.6%
EBITDA Margin 36%
EBITDA Margin - 3 Yr. Avg. 27.1%
Operating Margin -21.1%
Oper. Margin - 3 Yr. Avg. -18%
Pre-Tax Margin -29%
Pre-Tax Margin - 3 Yr. Avg. -22.8%
Net Profit Margin -50.2%
Net Profit Margin - 3 Yr. Avg. -20.6%
Effective Tax Rate -73.3%
Eff/ Tax Rate - 3 Yr. Avg. -6.3%
Payout Ratio -7.6%

MRO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MRO stock intrinsic value calculation we used $4765 million for the last fiscal year's total revenue generated by Marathon Oil. The default revenue input number comes from 0001 income statement of Marathon Oil. 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 MRO stock valuation model: a) initial revenue growth rate of 33.8% 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 MRO is calculated based on our internal credit rating of Marathon Oil, 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 Marathon Oil.
    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 MRO stock the variable cost ratio is equal to 28.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $3617 million in the base year in the intrinsic value calculation for MRO 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 Marathon Oil.

Corporate tax rate of 27% is the nominal tax rate for Marathon Oil. 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 MRO 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 MRO are equal to 362.1%.

Life of production assets of 7.3 years is the average useful life of capital assets used in Marathon Oil 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 MRO is equal to -15%. 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 - $11708 million for Marathon Oil - 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 854.147 million for Marathon Oil 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 Marathon Oil at the current share price and the inputted number of shares is $12.6 billion.

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COMPANY NEWS

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