Intrinsic value of Marathon Oil - MRO

Previous Close

$19.83

  Intrinsic Value

$3.41

stock screener

  Rating & Target

str. sell

-83%

Previous close

$19.83

 
Intrinsic value

$3.41

 
Up/down potential

-83%

 
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 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 16.9

 

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, %
  25.80
  23.72
  21.85
  20.16
  18.65
  17.28
  16.05
  14.95
  13.95
  13.06
  12.25
  11.53
  10.87
  10.29
  9.76
  9.28
  8.85
  8.47
  8.12
  7.81
  7.53
  7.28
  7.05
  6.84
  6.66
  6.49
  6.34
  6.21
  6.09
  5.98
Revenue, $m
  5,994
  7,416
  9,037
  10,859
  12,883
  15,110
  17,536
  20,157
  22,970
  25,969
  29,151
  32,511
  36,047
  39,755
  43,634
  47,685
  51,907
  56,303
  60,876
  65,630
  70,571
  75,706
  81,042
  86,588
  92,354
  98,350
  104,590
  111,084
  117,848
  124,895
Variable operating expenses, $m
  1,705
  2,107
  2,565
  3,080
  3,652
  4,281
  4,967
  5,708
  6,502
  7,350
  8,238
  9,187
  10,186
  11,234
  12,330
  13,475
  14,668
  15,910
  17,203
  18,546
  19,942
  21,393
  22,901
  24,469
  26,098
  27,793
  29,556
  31,391
  33,302
  35,294
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
  5,402
  5,885
  6,426
  7,026
  7,685
  8,402
  9,179
  10,013
  10,902
  11,846
  12,833
  13,883
  14,986
  16,139
  17,343
  18,598
  19,904
  21,261
  22,672
  24,135
  25,654
  27,231
  28,867
  30,567
  32,330
  34,162
  36,065
  38,043
  40,101
  42,242
Operating income, $m
  592
  1,531
  2,610
  3,833
  5,198
  6,707
  8,357
  10,145
  12,068
  14,123
  16,318
  18,628
  21,061
  23,615
  26,291
  29,086
  32,002
  35,041
  38,204
  41,494
  44,916
  48,474
  52,174
  56,021
  60,024
  64,189
  68,525
  73,041
  77,747
  82,653
EBITDA, $m
  2,782
  4,237
  5,905
  7,789
  9,890
  12,208
  14,739
  17,479
  20,424
  23,569
  26,909
  30,439
  34,156
  38,058
  42,143
  46,410
  50,860
  55,496
  60,320
  65,338
  70,555
  75,978
  81,616
  87,479
  93,576
  99,920
  106,522
  113,398
  120,561
  128,027
Interest expense (income), $m
  375
  297
  442
  608
  798
  1,011
  1,248
  1,508
  1,792
  2,099
  2,428
  2,779
  3,151
  3,544
  3,958
  4,392
  4,845
  5,319
  5,813
  6,328
  6,863
  7,419
  7,997
  8,598
  9,222
  9,871
  10,546
  11,247
  11,977
  12,737
  13,528
Earnings before tax, $m
  296
  1,090
  2,002
  3,035
  4,188
  5,459
  6,849
  8,353
  9,969
  11,695
  13,539
  15,477
  17,517
  19,658
  21,899
  24,241
  26,683
  29,228
  31,876
  34,632
  37,497
  40,477
  43,576
  46,799
  50,153
  53,643
  57,278
  61,064
  65,010
  69,124
Tax expense, $m
  80
  294
  541
  819
  1,131
  1,474
  1,849
  2,255
  2,692
  3,158
  3,656
  4,179
  4,729
  5,308
  5,913
  6,545
  7,204
  7,891
  8,607
  9,351
  10,124
  10,929
  11,766
  12,636
  13,541
  14,484
  15,465
  16,487
  17,553
  18,664
Net income, $m
  216
  795
  1,462
  2,216
  3,057
  3,985
  4,999
  6,097
  7,277
  8,537
  9,884
  11,298
  12,787
  14,350
  15,986
  17,696
  19,479
  21,336
  23,270
  25,281
  27,373
  29,548
  31,810
  34,163
  36,612
  39,160
  41,813
  44,576
  47,457
  50,461

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
  27,752
  34,334
  41,836
  50,271
  59,645
  69,953
  81,184
  93,319
  106,341
  120,227
  134,958
  150,515
  166,883
  184,050
  202,010
  220,762
  240,309
  260,661
  281,831
  303,842
  326,717
  350,489
  375,193
  400,869
  427,563
  455,326
  484,211
  514,279
  545,591
  578,215
Adjusted assets (=assets-cash), $m
  27,752
  34,334
  41,836
  50,271
  59,645
  69,953
  81,184
  93,319
  106,341
  120,227
  134,958
  150,515
  166,883
  184,050
  202,010
  220,762
  240,309
  260,661
  281,831
  303,842
  326,717
  350,489
  375,193
  400,869
  427,563
  455,326
  484,211
  514,279
  545,591
  578,215
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
  21,778
  26,943
  32,830
  39,449
  46,805
  54,894
  63,707
  73,230
  83,449
  94,346
  105,905
  118,113
  130,958
  144,429
  158,523
  173,238
  188,577
  204,548
  221,161
  238,433
  256,384
  275,039
  294,424
  314,573
  335,521
  357,307
  379,974
  403,569
  428,140
  453,742
Working capital, $m
  -1,732
  -2,143
  -2,612
  -3,138
  -3,723
  -4,367
  -5,068
  -5,825
  -6,638
  -7,505
  -8,425
  -9,396
  -10,417
  -11,489
  -12,610
  -13,781
  -15,001
  -16,271
  -17,593
  -18,967
  -20,395
  -21,879
  -23,421
  -25,024
  -26,690
  -28,423
  -30,226
  -32,103
  -34,058
  -36,095
Total debt, $m
  8,178
  11,259
  14,769
  18,717
  23,104
  27,928
  33,184
  38,863
  44,958
  51,456
  58,350
  65,631
  73,291
  81,325
  89,731
  98,507
  107,655
  117,179
  127,087
  137,388
  148,094
  159,219
  170,780
  182,797
  195,290
  208,283
  221,801
  235,872
  250,526
  265,795
Total liabilities, $m
  12,988
  16,069
  19,579
  23,527
  27,914
  32,738
  37,994
  43,673
  49,768
  56,266
  63,160
  70,441
  78,101
  86,135
  94,541
  103,317
  112,465
  121,989
  131,897
  142,198
  152,904
  164,029
  175,590
  187,607
  200,100
  213,093
  226,611
  240,682
  255,336
  270,605
Total equity, $m
  14,764
  18,266
  22,257
  26,744
  31,731
  37,215
  43,190
  49,646
  56,573
  63,961
  71,798
  80,074
  88,782
  97,915
  107,470
  117,445
  127,844
  138,671
  149,934
  161,644
  173,814
  186,460
  199,602
  213,262
  227,464
  242,233
  257,600
  273,596
  290,254
  307,611
Total liabilities and equity, $m
  27,752
  34,335
  41,836
  50,271
  59,645
  69,953
  81,184
  93,319
  106,341
  120,227
  134,958
  150,515
  166,883
  184,050
  202,011
  220,762
  240,309
  260,660
  281,831
  303,842
  326,718
  350,489
  375,192
  400,869
  427,564
  455,326
  484,211
  514,278
  545,590
  578,216
Debt-to-equity ratio
  0.550
  0.620
  0.660
  0.700
  0.730
  0.750
  0.770
  0.780
  0.790
  0.800
  0.810
  0.820
  0.830
  0.830
  0.830
  0.840
  0.840
  0.850
  0.850
  0.850
  0.850
  0.850
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
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
  216
  795
  1,462
  2,216
  3,057
  3,985
  4,999
  6,097
  7,277
  8,537
  9,884
  11,298
  12,787
  14,350
  15,986
  17,696
  19,479
  21,336
  23,270
  25,281
  27,373
  29,548
  31,810
  34,163
  36,612
  39,160
  41,813
  44,576
  47,457
  50,461
Depreciation, amort., depletion, $m
  2,189
  2,706
  3,294
  3,956
  4,692
  5,501
  6,382
  7,335
  8,356
  9,446
  10,591
  11,811
  13,096
  14,443
  15,852
  17,324
  18,858
  20,455
  22,116
  23,843
  25,638
  27,504
  29,442
  31,457
  33,552
  35,731
  37,997
  40,357
  42,814
  45,374
Funds from operations, $m
  2,405
  3,501
  4,756
  6,172
  7,749
  9,486
  11,382
  13,432
  15,634
  17,983
  20,474
  23,109
  25,883
  28,793
  31,839
  35,020
  38,336
  41,791
  45,386
  49,124
  53,011
  57,052
  61,253
  65,621
  70,164
  74,890
  79,810
  84,933
  90,271
  95,835
Change in working capital, $m
  -355
  -411
  -468
  -527
  -585
  -643
  -701
  -758
  -813
  -867
  -920
  -971
  -1,022
  -1,072
  -1,121
  -1,171
  -1,220
  -1,270
  -1,322
  -1,374
  -1,428
  -1,484
  -1,542
  -1,603
  -1,666
  -1,733
  -1,803
  -1,877
  -1,955
  -2,037
Cash from operations, $m
  2,760
  3,912
  5,225
  6,699
  8,334
  10,130
  12,083
  14,190
  16,447
  18,850
  21,394
  24,080
  26,905
  29,865
  32,960
  36,190
  39,557
  43,061
  46,707
  50,498
  54,439
  58,536
  62,795
  67,224
  71,830
  76,623
  81,613
  86,810
  92,226
  97,872
Maintenance CAPEX, $m
  -1,731
  -2,178
  -2,694
  -3,283
  -3,945
  -4,681
  -5,489
  -6,371
  -7,323
  -8,345
  -9,435
  -10,591
  -11,811
  -13,096
  -14,443
  -15,852
  -17,324
  -18,858
  -20,455
  -22,116
  -23,843
  -25,638
  -27,504
  -29,442
  -31,457
  -33,552
  -35,731
  -37,997
  -40,357
  -42,814
New CAPEX, $m
  -4,467
  -5,166
  -5,887
  -6,620
  -7,356
  -8,089
  -8,813
  -9,523
  -10,218
  -10,897
  -11,560
  -12,208
  -12,844
  -13,472
  -14,094
  -14,715
  -15,339
  -15,970
  -16,613
  -17,272
  -17,951
  -18,654
  -19,386
  -20,149
  -20,948
  -21,786
  -22,667
  -23,595
  -24,572
  -25,602
Cash from investing activities, $m
  -6,198
  -7,344
  -8,581
  -9,903
  -11,301
  -12,770
  -14,302
  -15,894
  -17,541
  -19,242
  -20,995
  -22,799
  -24,655
  -26,568
  -28,537
  -30,567
  -32,663
  -34,828
  -37,068
  -39,388
  -41,794
  -44,292
  -46,890
  -49,591
  -52,405
  -55,338
  -58,398
  -61,592
  -64,929
  -68,416
Free cash flow, $m
  -3,437
  -3,431
  -3,356
  -3,204
  -2,967
  -2,640
  -2,219
  -1,704
  -1,095
  -392
  400
  1,282
  2,249
  3,297
  4,423
  5,623
  6,894
  8,233
  9,639
  11,110
  12,645
  14,243
  15,906
  17,632
  19,425
  21,285
  23,215
  25,218
  27,297
  29,456
Issuance/(repayment) of debt, $m
  2,684
  3,081
  3,511
  3,948
  4,387
  4,824
  5,256
  5,680
  6,094
  6,499
  6,894
  7,281
  7,660
  8,034
  8,405
  8,776
  9,148
  9,524
  9,908
  10,301
  10,706
  11,125
  11,561
  12,016
  12,493
  12,993
  13,518
  14,071
  14,654
  15,268
Issuance/(repurchase) of shares, $m
  2,840
  2,707
  2,529
  2,272
  1,930
  1,498
  975
  359
  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  
  5,524
  5,788
  6,040
  6,220
  6,317
  6,322
  6,231
  6,039
  6,094
  6,499
  6,894
  7,281
  7,660
  8,034
  8,405
  8,776
  9,148
  9,524
  9,908
  10,301
  10,706
  11,125
  11,561
  12,016
  12,493
  12,993
  13,518
  14,071
  14,654
  15,268
Total cash flow (excl. dividends), $m
  2,087
  2,356
  2,683
  3,016
  3,350
  3,683
  4,011
  4,334
  4,999
  6,107
  7,294
  8,563
  9,909
  11,332
  12,828
  14,399
  16,042
  17,758
  19,547
  21,411
  23,351
  25,368
  27,467
  29,649
  31,918
  34,278
  36,734
  39,290
  41,951
  44,724
Retained Cash Flow (-), $m
  -3,056
  -3,502
  -3,991
  -4,488
  -4,987
  -5,484
  -5,975
  -6,456
  -6,927
  -7,388
  -7,837
  -8,276
  -8,708
  -9,133
  -9,555
  -9,976
  -10,399
  -10,827
  -11,263
  -11,710
  -12,170
  -12,647
  -13,142
  -13,660
  -14,201
  -14,770
  -15,367
  -15,996
  -16,658
  -17,356
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
  48
  60
  74
  90
  109
  129
  151
  175
  202
  230
  260
  292
  325
  360
  398
  436
  477
  519
  563
  609
  656
  706
  757
  810
  866
  924
  984
  1,046
  1,111
  1,178
Cash available for distribution, $m
  -969
  -1,146
  -1,307
  -1,472
  -1,637
  -1,801
  -1,963
  -2,122
  -1,928
  -1,280
  -543
  286
  1,202
  2,199
  3,273
  4,423
  5,643
  6,931
  8,284
  9,701
  11,181
  12,722
  14,325
  15,989
  17,716
  19,508
  21,367
  23,294
  25,293
  27,368
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
  -929
  -1,049
  -1,138
  -1,212
  -1,269
  -1,307
  -1,326
  -1,327
  -1,108
  -671
  -258
  122
  457
  738
  961
  1,124
  1,228
  1,276
  1,276
  1,233
  1,156
  1,056
  939
  814
  689
  569
  459
  360
  276
  206
Current shareholders' claim on cash, %
  85.6
  75.9
  69.3
  64.7
  61.6
  59.6
  58.6
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2
  58.2

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 -7.8
Price to Sales 3.9
Price to Book 1
Price to Tangible Book
Price to Cash Flow 15.7
Price to Free Cash Flow -97.7
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 2017 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 25.8% 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 1%.

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 363.3%.

Life of production assets of 10 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 -28.9%. 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 850 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 $16.9 billion.

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