Intrinsic value of Phillips 66 - PSX

Previous Close

$96.23

  Intrinsic Value

$228.26

stock screener

  Rating & Target

str. buy

+137%

Previous close

$96.23

 
Intrinsic value

$228.26

 
Up/down potential

+137%

 
Rating

str. buy

We calculate the intrinsic value of PSX 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 44.7

 

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, %
  21.00
  19.40
  17.96
  16.66
  15.50
  14.45
  13.50
  12.65
  11.89
  11.20
  10.58
  10.02
  9.52
  9.07
  8.66
  8.29
  7.96
  7.67
  7.40
  7.16
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
Revenue, $m
  126,593
  151,152
  178,298
  208,010
  240,247
  274,957
  312,085
  351,572
  393,365
  437,417
  483,691
  532,161
  582,817
  635,661
  690,711
  748,000
  807,577
  869,505
  933,861
  1,000,739
  1,070,242
  1,142,491
  1,217,617
  1,295,765
  1,377,090
  1,461,762
  1,549,962
  1,641,881
  1,737,723
  1,837,705
Variable operating expenses, $m
  116,505
  139,026
  163,921
  191,168
  220,730
  252,560
  286,608
  322,819
  361,145
  401,542
  443,562
  488,011
  534,465
  582,925
  633,407
  685,944
  740,578
  797,368
  856,386
  917,714
  981,452
  1,047,707
  1,116,600
  1,188,264
  1,262,843
  1,340,491
  1,421,373
  1,505,666
  1,593,557
  1,685,244
Fixed operating expenses, $m
  4,388
  4,485
  4,584
  4,685
  4,788
  4,893
  5,001
  5,111
  5,223
  5,338
  5,455
  5,575
  5,698
  5,823
  5,951
  6,082
  6,216
  6,353
  6,493
  6,636
  6,782
  6,931
  7,083
  7,239
  7,398
  7,561
  7,727
  7,897
  8,071
  8,249
Total operating expenses, $m
  120,893
  143,511
  168,505
  195,853
  225,518
  257,453
  291,609
  327,930
  366,368
  406,880
  449,017
  493,586
  540,163
  588,748
  639,358
  692,026
  746,794
  803,721
  862,879
  924,350
  988,234
  1,054,638
  1,123,683
  1,195,503
  1,270,241
  1,348,052
  1,429,100
  1,513,563
  1,601,628
  1,693,493
Operating income, $m
  5,699
  7,640
  9,794
  12,158
  14,729
  17,504
  20,476
  23,642
  26,997
  30,537
  34,673
  38,574
  42,654
  46,913
  51,352
  55,974
  60,783
  65,784
  70,983
  76,389
  82,009
  87,854
  93,934
  100,261
  106,849
  113,711
  120,862
  128,318
  136,095
  144,212
EBITDA, $m
  7,578
  9,803
  12,270
  14,978
  17,922
  21,097
  24,499
  28,122
  31,960
  36,009
  40,266
  44,727
  49,393
  54,263
  59,338
  64,623
  70,120
  75,837
  81,781
  87,960
  94,383
  101,064
  108,012
  115,244
  122,772
  130,612
  138,783
  147,302
  156,188
  165,461
Interest expense (income), $m
  311
  546
  880
  1,251
  1,662
  2,111
  2,599
  3,124
  3,686
  4,283
  4,915
  5,582
  6,282
  7,015
  7,781
  8,581
  9,413
  10,280
  11,181
  12,118
  13,092
  14,104
  15,155
  16,248
  17,384
  18,567
  19,797
  21,078
  22,412
  23,803
  25,253
Earnings before tax, $m
  5,153
  6,761
  8,543
  10,496
  12,618
  14,905
  17,352
  19,957
  22,714
  25,622
  29,091
  32,293
  35,639
  39,132
  42,771
  46,560
  50,503
  54,602
  58,865
  63,297
  67,905
  72,699
  77,686
  82,877
  88,282
  93,914
  99,784
  105,906
  112,293
  118,960
Tax expense, $m
  1,391
  1,825
  2,307
  2,834
  3,407
  4,024
  4,685
  5,388
  6,133
  6,918
  7,855
  8,719
  9,623
  10,566
  11,548
  12,571
  13,636
  14,743
  15,893
  17,090
  18,334
  19,629
  20,975
  22,377
  23,836
  25,357
  26,942
  28,594
  30,319
  32,119
Net income, $m
  3,762
  4,935
  6,236
  7,662
  9,211
  10,880
  12,667
  14,568
  16,581
  18,704
  21,237
  23,574
  26,017
  28,566
  31,223
  33,989
  36,867
  39,860
  42,971
  46,207
  49,571
  53,070
  56,711
  60,500
  64,446
  68,557
  72,842
  77,311
  81,974
  86,841

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
  65,797
  78,561
  92,671
  108,113
  124,868
  142,909
  162,206
  182,730
  204,452
  227,348
  251,398
  276,591
  302,919
  330,385
  358,997
  388,773
  419,739
  451,926
  485,375
  520,134
  556,259
  593,810
  632,857
  673,474
  715,743
  759,752
  805,594
  853,368
  903,183
  955,148
Adjusted assets (=assets-cash), $m
  65,797
  78,561
  92,671
  108,113
  124,868
  142,909
  162,206
  182,730
  204,452
  227,348
  251,398
  276,591
  302,919
  330,385
  358,997
  388,773
  419,739
  451,926
  485,375
  520,134
  556,259
  593,810
  632,857
  673,474
  715,743
  759,752
  805,594
  853,368
  903,183
  955,148
Revenue / Adjusted assets
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
  1.924
Average production assets, $m
  28,104
  33,556
  39,582
  46,178
  53,335
  61,040
  69,283
  78,049
  87,327
  97,107
  107,379
  118,140
  129,385
  141,117
  153,338
  166,056
  179,282
  193,030
  207,317
  222,164
  237,594
  253,633
  270,311
  287,660
  305,714
  324,511
  344,092
  364,498
  385,775
  407,971
Working capital, $m
  1,519
  1,814
  2,140
  2,496
  2,883
  3,299
  3,745
  4,219
  4,720
  5,249
  5,804
  6,386
  6,994
  7,628
  8,289
  8,976
  9,691
  10,434
  11,206
  12,009
  12,843
  13,710
  14,611
  15,549
  16,525
  17,541
  18,600
  19,703
  20,853
  22,052
Total debt, $m
  16,288
  23,168
  30,774
  39,097
  48,128
  57,852
  68,253
  79,315
  91,023
  103,364
  116,328
  129,907
  144,098
  158,902
  174,324
  190,373
  207,063
  224,412
  242,441
  261,176
  280,648
  300,888
  321,934
  343,827
  366,610
  390,330
  415,039
  440,790
  467,639
  495,649
Total liabilities, $m
  35,464
  42,344
  49,950
  58,273
  67,304
  77,028
  87,429
  98,491
  110,199
  122,540
  135,504
  149,083
  163,274
  178,078
  193,500
  209,549
  226,239
  243,588
  261,617
  280,352
  299,824
  320,064
  341,110
  363,003
  385,786
  409,506
  434,215
  459,966
  486,815
  514,825
Total equity, $m
  30,332
  36,217
  42,721
  49,840
  57,564
  65,881
  74,777
  84,238
  94,252
  104,807
  115,895
  127,508
  139,646
  152,307
  165,498
  179,225
  193,499
  208,338
  223,758
  239,782
  256,435
  273,747
  291,747
  310,472
  329,958
  350,246
  371,379
  393,403
  416,367
  440,323
Total liabilities and equity, $m
  65,796
  78,561
  92,671
  108,113
  124,868
  142,909
  162,206
  182,729
  204,451
  227,347
  251,399
  276,591
  302,920
  330,385
  358,998
  388,774
  419,738
  451,926
  485,375
  520,134
  556,259
  593,811
  632,857
  673,475
  715,744
  759,752
  805,594
  853,369
  903,182
  955,148
Debt-to-equity ratio
  0.540
  0.640
  0.720
  0.780
  0.840
  0.880
  0.910
  0.940
  0.970
  0.990
  1.000
  1.020
  1.030
  1.040
  1.050
  1.060
  1.070
  1.080
  1.080
  1.090
  1.090
  1.100
  1.100
  1.110
  1.110
  1.110
  1.120
  1.120
  1.120
  1.130
Adjusted equity ratio
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461
  0.461

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,762
  4,935
  6,236
  7,662
  9,211
  10,880
  12,667
  14,568
  16,581
  18,704
  21,237
  23,574
  26,017
  28,566
  31,223
  33,989
  36,867
  39,860
  42,971
  46,207
  49,571
  53,070
  56,711
  60,500
  64,446
  68,557
  72,842
  77,311
  81,974
  86,841
Depreciation, amort., depletion, $m
  1,878
  2,162
  2,476
  2,820
  3,192
  3,594
  4,023
  4,480
  4,963
  5,472
  5,593
  6,153
  6,739
  7,350
  7,986
  8,649
  9,338
  10,054
  10,798
  11,571
  12,375
  13,210
  14,079
  14,982
  15,923
  16,902
  17,921
  18,984
  20,092
  21,248
Funds from operations, $m
  5,640
  7,098
  8,712
  10,482
  12,404
  14,474
  16,690
  19,048
  21,544
  24,176
  26,829
  29,727
  32,755
  35,916
  39,209
  42,638
  46,204
  49,913
  53,769
  57,778
  61,945
  66,280
  70,789
  75,482
  80,369
  85,459
  90,764
  96,295
  102,066
  108,089
Change in working capital, $m
  264
  295
  326
  357
  387
  417
  446
  474
  502
  529
  555
  582
  608
  634
  661
  687
  715
  743
  772
  803
  834
  867
  902
  938
  976
  1,016
  1,058
  1,103
  1,150
  1,200
Cash from operations, $m
  5,377
  6,803
  8,387
  10,125
  12,017
  14,058
  16,245
  18,574
  21,043
  23,647
  26,274
  29,145
  32,148
  35,282
  38,549
  41,950
  45,490
  49,170
  52,997
  56,975
  61,111
  65,413
  69,888
  74,545
  79,393
  84,443
  89,705
  95,192
  100,916
  106,889
Maintenance CAPEX, $m
  -1,210
  -1,464
  -1,748
  -2,062
  -2,405
  -2,778
  -3,179
  -3,608
  -4,065
  -4,548
  -5,058
  -5,593
  -6,153
  -6,739
  -7,350
  -7,986
  -8,649
  -9,338
  -10,054
  -10,798
  -11,571
  -12,375
  -13,210
  -14,079
  -14,982
  -15,923
  -16,902
  -17,921
  -18,984
  -20,092
New CAPEX, $m
  -4,870
  -5,452
  -6,027
  -6,596
  -7,157
  -7,706
  -8,242
  -8,766
  -9,278
  -9,780
  -10,273
  -10,760
  -11,246
  -11,731
  -12,221
  -12,718
  -13,226
  -13,748
  -14,287
  -14,847
  -15,430
  -16,039
  -16,678
  -17,349
  -18,054
  -18,797
  -19,580
  -20,406
  -21,277
  -22,196
Cash from investing activities, $m
  -6,080
  -6,916
  -7,775
  -8,658
  -9,562
  -10,484
  -11,421
  -12,374
  -13,343
  -14,328
  -15,331
  -16,353
  -17,399
  -18,470
  -19,571
  -20,704
  -21,875
  -23,086
  -24,341
  -25,645
  -27,001
  -28,414
  -29,888
  -31,428
  -33,036
  -34,720
  -36,482
  -38,327
  -40,261
  -42,288
Free cash flow, $m
  -703
  -113
  612
  1,468
  2,455
  3,574
  4,823
  6,199
  7,700
  9,320
  10,944
  12,792
  14,749
  16,812
  18,978
  21,246
  23,615
  26,085
  28,656
  31,331
  34,111
  36,999
  40,000
  43,117
  46,356
  49,723
  53,223
  56,865
  60,655
  64,601
Issuance/(repayment) of debt, $m
  6,178
  6,880
  7,605
  8,324
  9,031
  9,724
  10,401
  11,062
  11,708
  12,341
  12,963
  13,579
  14,191
  14,804
  15,422
  16,049
  16,690
  17,349
  18,029
  18,735
  19,471
  20,240
  21,046
  21,893
  22,783
  23,721
  24,709
  25,751
  26,850
  28,010
Issuance/(repurchase) of shares, $m
  1,485
  949
  268
  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 from financing (excl. dividends), $m  
  7,663
  7,829
  7,873
  8,324
  9,031
  9,724
  10,401
  11,062
  11,708
  12,341
  12,963
  13,579
  14,191
  14,804
  15,422
  16,049
  16,690
  17,349
  18,029
  18,735
  19,471
  20,240
  21,046
  21,893
  22,783
  23,721
  24,709
  25,751
  26,850
  28,010
Total cash flow (excl. dividends), $m
  6,960
  7,716
  8,486
  9,791
  11,486
  13,298
  15,224
  17,262
  19,408
  21,660
  23,907
  26,371
  28,940
  31,616
  34,400
  37,295
  40,305
  43,433
  46,685
  50,066
  53,582
  57,239
  61,046
  65,010
  69,139
  73,443
  77,932
  82,615
  87,504
  92,611
Retained Cash Flow (-), $m
  -5,247
  -5,884
  -6,505
  -7,119
  -7,724
  -8,317
  -8,896
  -9,461
  -10,014
  -10,555
  -11,087
  -11,614
  -12,137
  -12,662
  -13,190
  -13,727
  -14,275
  -14,838
  -15,420
  -16,024
  -16,653
  -17,311
  -18,001
  -18,725
  -19,486
  -20,288
  -21,133
  -22,024
  -22,964
  -23,956
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
  1,713
  1,832
  1,981
  2,672
  3,762
  4,981
  6,328
  7,800
  9,394
  11,105
  12,820
  14,757
  16,802
  18,954
  21,210
  23,568
  26,030
  28,595
  31,265
  34,042
  36,928
  39,928
  43,045
  46,285
  49,653
  53,156
  56,799
  60,591
  64,540
  68,654
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
  1,642
  1,677
  1,724
  2,200
  2,916
  3,615
  4,275
  4,875
  5,396
  5,822
  6,088
  6,297
  6,389
  6,363
  6,227
  5,989
  5,664
  5,266
  4,814
  4,326
  3,820
  3,313
  2,821
  2,357
  1,932
  1,551
  1,219
  937
  705
  517
Current shareholders' claim on cash, %
  96.8
  95.1
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7
  94.7

Phillips 66 is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses. The Company operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties (M&S). The Midstream segment gathers, processes, transports and markets natural gas, and transports, stores, fractionates and markets natural gas liquids (NGLs) in the United States. The Chemicals segment consists of its equity investment in Chevron Phillips Chemical Company LLC (CPChem), which manufactures and markets petrochemicals and plastics. The Refining segment buys, sells and refines crude oil and other feedstocks at refineries in the United States and Europe. The M&S segment purchases for resale and markets refined petroleum products, such as gasolines, distillates and aviation fuels, primarily in the United States and Europe, as well as includes the manufacturing and marketing of specialty products, and power generation operations.

FINANCIAL RATIOS  of  Phillips 66 (PSX)

Valuation Ratios
P/E Ratio 32.1
Price to Sales 0.6
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 16.8
Price to Free Cash Flow 419.5
Growth Rates
Sales Growth Rate -14.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50.7%
Cap. Spend. - 3 Yr. Gr. Rate 9.8%
Financial Strength
Quick Ratio 5
Current Ratio 0.1
LT Debt to Equity 42.8%
Total Debt to Equity 45.3%
Interest Coverage 8
Management Effectiveness
Return On Assets 3.6%
Ret/ On Assets - 3 Yr. Avg. 7.6%
Return On Total Capital 4.8%
Ret/ On T. Cap. - 3 Yr. Avg. 11.6%
Return On Equity 6.8%
Return On Equity - 3 Yr. Avg. 15.9%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 26.2%
Gross Margin - 3 Yr. Avg. 22.6%
EBITDA Margin 4.3%
EBITDA Margin - 3 Yr. Avg. 5.4%
Operating Margin 1.7%
Oper. Margin - 3 Yr. Avg. 2.7%
Pre-Tax Margin 2.6%
Pre-Tax Margin - 3 Yr. Avg. 4.1%
Net Profit Margin 1.8%
Net Profit Margin - 3 Yr. Avg. 3%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 27.6%
Payout Ratio 82.4%

PSX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PSX stock intrinsic value calculation we used $104622 million for the last fiscal year's total revenue generated by Phillips 66. The default revenue input number comes from 0001 income statement of Phillips 66. 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 PSX stock valuation model: a) initial revenue growth rate of 21% 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 PSX is calculated based on our internal credit rating of Phillips 66, 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 Phillips 66.
    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 PSX stock the variable cost ratio is equal to 92.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $4294 million in the base year in the intrinsic value calculation for PSX 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 Phillips 66.

Corporate tax rate of 27% is the nominal tax rate for Phillips 66. 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 PSX 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 PSX are equal to 22.2%.

Life of production assets of 19.2 years is the average useful life of capital assets used in Phillips 66 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 PSX is equal to 1.2%. 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 - $25085 million for Phillips 66 - 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 464.262 million for Phillips 66 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 Phillips 66 at the current share price and the inputted number of shares is $44.7 billion.

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