Intrinsic value of TerraForm Power, Inc. - TERP

Previous Close

$13.17

  Intrinsic Value

$0.54

stock screener

  Rating & Target

str. sell

-96%

Previous close

$13.17

 
Intrinsic value

$0.54

 
Up/down potential

-96%

 
Rating

str. sell

We calculate the intrinsic value of TERP 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 2.8

 

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
  976
  1,508
  2,255
  3,272
  4,616
  6,346
  8,519
  11,186
  14,393
  18,180
  22,575
  27,600
  33,268
  39,582
  46,541
  54,139
  62,363
  71,202
  80,640
  90,663
  101,259
  112,415
  124,125
  136,382
  149,184
  162,534
  176,436
  190,901
  205,941
  221,573
Variable operating expenses, $m
  779
  1,144
  1,658
  2,357
  3,281
  4,470
  5,963
  7,795
  10,000
  12,602
  15,515
  18,969
  22,864
  27,204
  31,987
  37,209
  42,861
  48,936
  55,422
  62,311
  69,593
  77,261
  85,308
  93,732
  102,531
  111,706
  121,261
  131,202
  141,539
  152,282
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
  779
  1,144
  1,658
  2,357
  3,281
  4,470
  5,963
  7,795
  10,000
  12,602
  15,515
  18,969
  22,864
  27,204
  31,987
  37,209
  42,861
  48,936
  55,422
  62,311
  69,593
  77,261
  85,308
  93,732
  102,531
  111,706
  121,261
  131,202
  141,539
  152,282
Operating income, $m
  197
  364
  597
  915
  1,336
  1,877
  2,556
  3,390
  4,393
  5,577
  7,060
  8,631
  10,404
  12,378
  14,555
  16,930
  19,502
  22,266
  25,218
  28,352
  31,666
  35,155
  38,816
  42,649
  46,653
  50,828
  55,175
  59,699
  64,402
  69,291
EBITDA, $m
  664
  1,026
  1,535
  2,227
  3,142
  4,319
  5,798
  7,613
  9,796
  12,373
  15,364
  18,784
  22,641
  26,939
  31,675
  36,846
  42,443
  48,459
  54,882
  61,704
  68,915
  76,508
  84,477
  92,819
  101,532
  110,617
  120,079
  129,924
  140,160
  150,798
Interest expense (income), $m
  0
  248
  446
  732
  1,134
  1,681
  2,403
  3,334
  4,502
  5,936
  7,661
  9,698
  12,061
  14,764
  17,811
  21,207
  24,950
  29,035
  33,458
  38,211
  43,287
  48,677
  54,375
  60,375
  66,672
  73,263
  80,148
  87,327
  94,804
  102,582
  110,670
Earnings before tax, $m
  -51
  -82
  -134
  -218
  -345
  -527
  -778
  -1,112
  -1,543
  -2,084
  -2,638
  -3,430
  -4,360
  -5,433
  -6,653
  -8,019
  -9,533
  -11,192
  -12,994
  -14,935
  -17,011
  -19,220
  -21,558
  -24,022
  -26,610
  -29,320
  -32,152
  -35,105
  -38,180
  -41,380
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
  -51
  -82
  -134
  -218
  -345
  -527
  -778
  -1,112
  -1,543
  -2,084
  -2,638
  -3,430
  -4,360
  -5,433
  -6,653
  -8,019
  -9,533
  -11,192
  -12,994
  -14,935
  -17,011
  -19,220
  -21,558
  -24,022
  -26,610
  -29,320
  -32,152
  -35,105
  -38,180
  -41,380

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
  10,062
  15,546
  23,248
  33,732
  47,591
  65,427
  87,822
  115,316
  148,384
  187,421
  232,734
  284,540
  342,967
  408,062
  479,809
  558,133
  642,922
  734,040
  831,339
  934,672
  1,043,904
  1,158,922
  1,279,638
  1,405,997
  1,537,981
  1,675,606
  1,818,930
  1,968,051
  2,123,102
  2,284,257
Adjusted assets (=assets-cash), $m
  10,062
  15,546
  23,248
  33,732
  47,591
  65,427
  87,822
  115,316
  148,384
  187,421
  232,734
  284,540
  342,967
  408,062
  479,809
  558,133
  642,922
  734,040
  831,339
  934,672
  1,043,904
  1,158,922
  1,279,638
  1,405,997
  1,537,981
  1,675,606
  1,818,930
  1,968,051
  2,123,102
  2,284,257
Revenue / Adjusted assets
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
  0.097
Average production assets, $m
  8,724
  13,479
  20,158
  29,249
  41,266
  56,731
  76,149
  99,989
  128,661
  162,510
  201,800
  246,720
  297,380
  353,824
  416,034
  483,948
  557,467
  636,474
  720,840
  810,438
  905,152
  1,004,882
  1,109,552
  1,219,116
  1,333,557
  1,452,889
  1,577,164
  1,706,463
  1,840,905
  1,980,641
Working capital, $m
  10
  15
  23
  33
  46
  63
  85
  112
  144
  182
  226
  276
  333
  396
  465
  541
  624
  712
  806
  907
  1,013
  1,124
  1,241
  1,364
  1,492
  1,625
  1,764
  1,909
  2,059
  2,216
Total debt, $m
  6,461
  10,606
  16,430
  24,356
  34,833
  48,317
  65,248
  86,033
  111,032
  140,544
  174,801
  213,966
  258,137
  307,349
  361,590
  420,803
  484,903
  553,788
  627,346
  705,466
  788,045
  874,999
  966,260
  1,061,788
  1,161,567
  1,265,612
  1,373,965
  1,486,700
  1,603,919
  1,725,752
Total liabilities, $m
  7,607
  11,752
  17,576
  25,502
  35,979
  49,463
  66,394
  87,179
  112,178
  141,690
  175,947
  215,112
  259,283
  308,495
  362,736
  421,949
  486,049
  554,935
  628,492
  706,612
  789,192
  876,145
  967,406
  1,062,934
  1,162,713
  1,266,758
  1,375,111
  1,487,846
  1,605,065
  1,726,898
Total equity, $m
  2,455
  3,793
  5,673
  8,231
  11,612
  15,964
  21,429
  28,137
  36,206
  45,731
  56,787
  69,428
  83,684
  99,567
  117,073
  136,184
  156,873
  179,106
  202,847
  228,060
  254,713
  282,777
  312,232
  343,063
  375,267
  408,848
  443,819
  480,204
  518,037
  557,359
Total liabilities and equity, $m
  10,062
  15,545
  23,249
  33,733
  47,591
  65,427
  87,823
  115,316
  148,384
  187,421
  232,734
  284,540
  342,967
  408,062
  479,809
  558,133
  642,922
  734,041
  831,339
  934,672
  1,043,905
  1,158,922
  1,279,638
  1,405,997
  1,537,980
  1,675,606
  1,818,930
  1,968,050
  2,123,102
  2,284,257
Debt-to-equity ratio
  2.630
  2.800
  2.900
  2.960
  3.000
  3.030
  3.040
  3.060
  3.070
  3.070
  3.080
  3.080
  3.080
  3.090
  3.090
  3.090
  3.090
  3.090
  3.090
  3.090
  3.090
  3.090
  3.090
  3.100
  3.100
  3.100
  3.100
  3.100
  3.100
  3.100
Adjusted equity ratio
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244
  0.244

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -51
  -82
  -134
  -218
  -345
  -527
  -778
  -1,112
  -1,543
  -2,084
  -2,638
  -3,430
  -4,360
  -5,433
  -6,653
  -8,019
  -9,533
  -11,192
  -12,994
  -14,935
  -17,011
  -19,220
  -21,558
  -24,022
  -26,610
  -29,320
  -32,152
  -35,105
  -38,180
  -41,380
Depreciation, amort., depletion, $m
  467
  663
  937
  1,311
  1,806
  2,442
  3,242
  4,223
  5,403
  6,795
  8,305
  10,153
  12,238
  14,561
  17,121
  19,916
  22,941
  26,192
  29,664
  33,351
  37,249
  41,353
  45,661
  50,169
  54,879
  59,790
  64,904
  70,225
  75,757
  81,508
Funds from operations, $m
  416
  580
  803
  1,093
  1,461
  1,916
  2,464
  3,111
  3,859
  4,712
  5,667
  6,723
  7,878
  9,127
  10,468
  11,896
  13,408
  15,000
  16,671
  18,417
  20,238
  22,133
  24,102
  26,147
  28,269
  30,469
  32,752
  35,120
  37,577
  40,128
Change in working capital, $m
  4
  5
  7
  10
  13
  17
  22
  27
  32
  38
  44
  50
  57
  63
  70
  76
  82
  88
  94
  100
  106
  112
  117
  123
  128
  133
  139
  145
  150
  156
Cash from operations, $m
  412
  575
  795
  1,083
  1,448
  1,898
  2,442
  3,084
  3,827
  4,674
  5,623
  6,673
  7,821
  9,064
  10,399
  11,820
  13,326
  14,912
  16,576
  18,317
  20,132
  22,021
  23,985
  26,024
  28,141
  30,336
  32,613
  34,975
  37,427
  39,972
Maintenance CAPEX, $m
  -224
  -359
  -555
  -830
  -1,204
  -1,698
  -2,335
  -3,134
  -4,115
  -5,295
  -6,688
  -8,305
  -10,153
  -12,238
  -14,561
  -17,121
  -19,916
  -22,941
  -26,192
  -29,664
  -33,351
  -37,249
  -41,353
  -45,661
  -50,169
  -54,879
  -59,790
  -64,904
  -70,225
  -75,757
New CAPEX, $m
  -3,272
  -4,755
  -6,679
  -9,090
  -12,017
  -15,465
  -19,419
  -23,840
  -28,672
  -33,848
  -39,290
  -44,920
  -50,661
  -56,444
  -62,210
  -67,913
  -73,519
  -79,007
  -84,366
  -89,598
  -94,714
  -99,730
  -104,671
  -109,564
  -114,440
  -119,333
  -124,274
  -129,300
  -134,442
  -139,735
Cash from investing activities, $m
  -3,496
  -5,114
  -7,234
  -9,920
  -13,221
  -17,163
  -21,754
  -26,974
  -32,787
  -39,143
  -45,978
  -53,225
  -60,814
  -68,682
  -76,771
  -85,034
  -93,435
  -101,948
  -110,558
  -119,262
  -128,065
  -136,979
  -146,024
  -155,225
  -164,609
  -174,212
  -184,064
  -194,204
  -204,667
  -215,492
Free cash flow, $m
  -3,084
  -4,539
  -6,438
  -8,837
  -11,773
  -15,265
  -19,311
  -23,889
  -28,960
  -34,469
  -40,355
  -46,552
  -52,993
  -59,617
  -66,372
  -73,214
  -80,109
  -87,036
  -93,982
  -100,946
  -107,933
  -114,958
  -122,039
  -129,200
  -136,469
  -143,876
  -151,451
  -159,228
  -167,240
  -175,521
Issuance/(repayment) of debt, $m
  2,862
  4,146
  5,823
  7,926
  10,477
  13,484
  16,931
  20,785
  24,999
  29,512
  34,257
  39,165
  44,170
  49,213
  54,240
  59,213
  64,101
  68,885
  73,558
  78,120
  82,580
  86,953
  91,261
  95,528
  99,779
  104,045
  108,353
  112,735
  117,219
  121,834
Issuance/(repurchase) of shares, $m
  978
  1,420
  2,014
  2,776
  3,726
  4,879
  6,242
  7,820
  9,612
  11,609
  13,694
  16,071
  18,616
  21,317
  24,159
  27,130
  30,222
  33,425
  36,734
  40,148
  43,664
  47,285
  51,013
  54,854
  58,814
  62,901
  67,123
  71,490
  76,013
  80,702
Cash from financing (excl. dividends), $m  
  3,840
  5,566
  7,837
  10,702
  14,203
  18,363
  23,173
  28,605
  34,611
  41,121
  47,951
  55,236
  62,786
  70,530
  78,399
  86,343
  94,323
  102,310
  110,292
  118,268
  126,244
  134,238
  142,274
  150,382
  158,593
  166,946
  175,476
  184,225
  193,232
  202,536
Total cash flow (excl. dividends), $m
  756
  1,027
  1,399
  1,865
  2,431
  3,098
  3,862
  4,717
  5,651
  6,652
  7,596
  8,684
  9,794
  10,912
  12,027
  13,129
  14,213
  15,274
  16,310
  17,322
  18,311
  19,280
  20,236
  21,182
  22,124
  23,070
  24,025
  24,997
  25,991
  27,014
Retained Cash Flow (-), $m
  -978
  -1,420
  -2,014
  -2,776
  -3,726
  -4,879
  -6,242
  -7,820
  -9,612
  -11,609
  -13,694
  -16,071
  -18,616
  -21,317
  -24,159
  -27,130
  -30,222
  -33,425
  -36,734
  -40,148
  -43,664
  -47,285
  -51,013
  -54,854
  -58,814
  -62,901
  -67,123
  -71,490
  -76,013
  -80,702
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
  -222
  -393
  -615
  -911
  -1,295
  -1,781
  -2,380
  -3,104
  -3,961
  -4,957
  -6,098
  -7,386
  -8,822
  -10,405
  -12,132
  -14,001
  -16,008
  -18,151
  -20,424
  -22,826
  -25,354
  -28,004
  -30,778
  -33,673
  -36,690
  -39,831
  -43,098
  -46,493
  -50,022
  -53,687
Discount rate, %
  11.00
  11.55
  12.13
  12.73
  13.37
  14.04
  14.74
  15.48
  16.25
  17.06
  17.92
  18.81
  19.75
  20.74
  21.78
  22.87
  24.01
  25.21
  26.47
  27.80
  29.19
  30.65
  32.18
  33.79
  35.48
  37.25
  39.11
  41.07
  43.12
  45.28
PV of cash for distribution, $m
  -200
  -316
  -436
  -564
  -692
  -810
  -909
  -982
  -1,021
  -1,026
  -995
  -933
  -847
  -743
  -631
  -519
  -413
  -317
  -236
  -169
  -117
  -78
  -50
  -31
  -19
  -11
  -6
  -3
  -2
  -1
Current shareholders' claim on cash, %
  73.8
  55.9
  43.2
  34.0
  27.2
  22.1
  18.1
  15.1
  12.7
  10.8
  9.2
  8.0
  7.0
  6.1
  5.4
  4.8
  4.2
  3.8
  3.4
  3.1
  2.8
  2.5
  2.3
  2.1
  1.9
  1.7
  1.6
  1.5
  1.3
  1.2

TerraForm Power, Inc. is a United States-based holding company. The Company owns clean power generation assets. This includes solar and wind assets located in the United States, Canada and other markets. Its clean power generation assets serve utility, commercial and residential customers. As of December 31, 2016, the Company's portfolio consisted of renewable energy facilities located in the United States, Canada, the United Kingdom and Chile with a combined nameplate capacity of 2,983.1 megawatts. It owns and operates over 500 hundred wind and solar clean energy power installations. Its projects include Bluebird, River Mountains Solar, Laho Solar, SunE Perpetual Lindsday, Sandringham, California Public institutions and Summit Solar Projects. The Company holds interest in TerraForm Power, LLC (Terra LLC), which is an owner and operator of renewable energy facilities that have long-term contractual arrangements to sell the electricity generated by these facilities to third parties.

FINANCIAL RATIOS  of  TerraForm Power, Inc. (TERP)

Valuation Ratios
P/E Ratio 0
Price to Sales 0
Price to Book 0
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate -100%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 0%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. 0%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. 0%
Asset Turnover 0
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 0%
EBITDA Margin - 3 Yr. Avg. 0%
Operating Margin 0%
Oper. Margin - 3 Yr. Avg. 0%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. 0%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 0%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

TERP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TERP stock intrinsic value calculation we used $610 million for the last fiscal year's total revenue generated by TerraForm Power, Inc.. The default revenue input number comes from 0001 income statement of TerraForm Power, 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 TERP 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 11%, whose default value for TERP is calculated based on our internal credit rating of TerraForm Power, 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 TerraForm Power, 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 TERP stock the variable cost ratio is equal to 86.4%.

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 TERP 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 6.9% for TerraForm Power, Inc..

Corporate tax rate of 27% is the nominal tax rate for TerraForm Power, 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 TERP 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 TERP are equal to 893.9%.

Life of production assets of 24.3 years is the average useful life of capital assets used in TerraForm Power, 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 TERP is equal to 1%. 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 - $1527.713 million for TerraForm Power, 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 209.524 million for TerraForm Power, 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 TerraForm Power, Inc. at the current share price and the inputted number of shares is $2.8 billion.

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