Intrinsic value of Valero Energy - VLO

Previous Close

$115.05

  Intrinsic Value

$88.61

stock screener

  Rating & Target

sell

-23%

Previous close

$115.05

 
Intrinsic value

$88.61

 
Up/down potential

-23%

 
Rating

sell

We calculate the intrinsic value of VLO 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 50.9

 

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, %
  24.20
  22.28
  20.55
  19.00
  17.60
  16.34
  15.20
  14.18
  13.26
  12.44
  11.69
  11.03
  10.42
  9.88
  9.39
  8.95
  8.56
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
Revenue, $m
  116,723
  142,729
  172,063
  204,749
  240,779
  280,116
  322,704
  368,474
  417,352
  469,264
  524,143
  581,931
  642,583
  706,073
  772,390
  841,543
  913,560
  988,491
  1,066,402
  1,147,381
  1,231,533
  1,318,982
  1,409,870
  1,504,355
  1,602,612
  1,704,832
  1,811,223
  1,922,006
  2,037,419
  2,157,715
Variable operating expenses, $m
  111,237
  136,021
  163,976
  195,126
  229,463
  266,951
  307,537
  351,156
  397,737
  447,209
  499,508
  554,580
  612,382
  672,888
  736,088
  801,990
  870,623
  942,032
  1,016,281
  1,093,454
  1,173,651
  1,256,990
  1,343,606
  1,433,650
  1,527,289
  1,624,705
  1,726,095
  1,831,672
  1,941,660
  2,056,303
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
  111,237
  136,021
  163,976
  195,126
  229,463
  266,951
  307,537
  351,156
  397,737
  447,209
  499,508
  554,580
  612,382
  672,888
  736,088
  801,990
  870,623
  942,032
  1,016,281
  1,093,454
  1,173,651
  1,256,990
  1,343,606
  1,433,650
  1,527,289
  1,624,705
  1,726,095
  1,831,672
  1,941,660
  2,056,303
Operating income, $m
  5,486
  6,708
  8,087
  9,623
  11,317
  13,165
  15,167
  17,318
  19,616
  22,055
  24,635
  27,351
  30,201
  33,185
  36,302
  39,553
  42,937
  46,459
  50,121
  53,927
  57,882
  61,992
  66,264
  70,705
  75,323
  80,127
  85,127
  90,334
  95,759
  101,413
EBITDA, $m
  8,836
  10,805
  13,025
  15,500
  18,227
  21,205
  24,429
  27,894
  31,594
  35,523
  39,678
  44,052
  48,644
  53,450
  58,470
  63,705
  69,157
  74,829
  80,727
  86,857
  93,227
  99,847
  106,727
  113,880
  121,318
  129,056
  137,110
  145,496
  154,233
  163,339
Interest expense (income), $m
  427
  488
  864
  1,293
  1,777
  2,316
  2,910
  3,559
  4,261
  5,016
  5,823
  6,679
  7,584
  8,537
  9,538
  10,585
  11,679
  12,819
  14,007
  15,243
  16,528
  17,864
  19,252
  20,694
  22,193
  23,752
  25,372
  27,059
  28,813
  30,641
  32,544
Earnings before tax, $m
  4,998
  5,844
  6,794
  7,846
  9,001
  10,255
  11,608
  13,057
  14,599
  16,233
  17,956
  19,767
  21,664
  23,648
  25,717
  27,874
  30,118
  32,452
  34,878
  37,399
  40,018
  42,740
  45,570
  48,511
  51,571
  54,755
  58,069
  61,521
  65,118
  68,868
Tax expense, $m
  1,349
  1,578
  1,834
  2,119
  2,430
  2,769
  3,134
  3,525
  3,942
  4,383
  4,848
  5,337
  5,849
  6,385
  6,944
  7,526
  8,132
  8,762
  9,417
  10,098
  10,805
  11,540
  12,304
  13,098
  13,924
  14,784
  15,679
  16,611
  17,582
  18,594
Net income, $m
  3,649
  4,266
  4,960
  5,728
  6,570
  7,486
  8,474
  9,531
  10,657
  11,850
  13,108
  14,430
  15,815
  17,263
  18,774
  20,348
  21,986
  23,690
  25,461
  27,301
  29,213
  31,200
  33,266
  35,413
  37,647
  39,971
  42,390
  44,910
  47,536
  50,274

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
  62,286
  76,163
  91,816
  109,258
  128,484
  149,475
  172,201
  196,624
  222,707
  250,408
  279,692
  310,529
  342,894
  376,773
  412,161
  449,062
  487,492
  527,476
  569,051
  612,263
  657,168
  703,832
  752,332
  802,751
  855,182
  909,729
  966,501
  1,025,617
  1,087,203
  1,151,395
Adjusted assets (=assets-cash), $m
  62,286
  76,163
  91,816
  109,258
  128,484
  149,475
  172,201
  196,624
  222,707
  250,408
  279,692
  310,529
  342,894
  376,773
  412,161
  449,062
  487,492
  527,476
  569,051
  612,263
  657,168
  703,832
  752,332
  802,751
  855,182
  909,729
  966,501
  1,025,617
  1,087,203
  1,151,395
Revenue / Adjusted assets
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
  1.874
Average production assets, $m
  33,500
  40,963
  49,382
  58,763
  69,104
  80,393
  92,616
  105,752
  119,780
  134,679
  150,429
  167,014
  184,421
  202,643
  221,676
  241,523
  262,192
  283,697
  306,057
  329,298
  353,450
  378,548
  404,633
  431,750
  459,950
  489,287
  519,821
  551,616
  584,739
  619,264
Working capital, $m
  -2,451
  -2,997
  -3,613
  -4,300
  -5,056
  -5,882
  -6,777
  -7,738
  -8,764
  -9,855
  -11,007
  -12,221
  -13,494
  -14,828
  -16,220
  -17,672
  -19,185
  -20,758
  -22,394
  -24,095
  -25,862
  -27,699
  -29,607
  -31,591
  -33,655
  -35,801
  -38,036
  -40,362
  -42,786
  -45,312
Total debt, $m
  15,709
  23,508
  32,305
  42,108
  52,913
  64,710
  77,482
  91,208
  105,866
  121,434
  137,892
  155,222
  173,411
  192,452
  212,340
  233,078
  254,676
  277,147
  300,512
  324,797
  350,033
  376,259
  403,515
  431,851
  461,318
  491,973
  523,879
  557,102
  591,713
  627,789
Total liabilities, $m
  35,004
  42,803
  51,600
  61,403
  72,208
  84,005
  96,777
  110,503
  125,161
  140,729
  157,187
  174,517
  192,706
  211,747
  231,635
  252,373
  273,971
  296,442
  319,807
  344,092
  369,328
  395,554
  422,810
  451,146
  480,613
  511,268
  543,174
  576,397
  611,008
  647,084
Total equity, $m
  27,281
  33,359
  40,215
  47,855
  56,276
  65,470
  75,424
  86,122
  97,546
  109,679
  122,505
  136,012
  150,188
  165,027
  180,527
  196,689
  213,522
  231,035
  249,244
  268,171
  287,840
  308,279
  329,521
  351,605
  374,570
  398,461
  423,327
  449,220
  476,195
  504,311
Total liabilities and equity, $m
  62,285
  76,162
  91,815
  109,258
  128,484
  149,475
  172,201
  196,625
  222,707
  250,408
  279,692
  310,529
  342,894
  376,774
  412,162
  449,062
  487,493
  527,477
  569,051
  612,263
  657,168
  703,833
  752,331
  802,751
  855,183
  909,729
  966,501
  1,025,617
  1,087,203
  1,151,395
Debt-to-equity ratio
  0.580
  0.700
  0.800
  0.880
  0.940
  0.990
  1.030
  1.060
  1.090
  1.110
  1.130
  1.140
  1.150
  1.170
  1.180
  1.190
  1.190
  1.200
  1.210
  1.210
  1.220
  1.220
  1.220
  1.230
  1.230
  1.230
  1.240
  1.240
  1.240
  1.240
Adjusted equity ratio
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,649
  4,266
  4,960
  5,728
  6,570
  7,486
  8,474
  9,531
  10,657
  11,850
  13,108
  14,430
  15,815
  17,263
  18,774
  20,348
  21,986
  23,690
  25,461
  27,301
  29,213
  31,200
  33,266
  35,413
  37,647
  39,971
  42,390
  44,910
  47,536
  50,274
Depreciation, amort., depletion, $m
  3,350
  4,096
  4,938
  5,876
  6,910
  8,039
  9,262
  10,575
  11,978
  13,468
  15,043
  16,701
  18,442
  20,264
  22,168
  24,152
  26,219
  28,370
  30,606
  32,930
  35,345
  37,855
  40,463
  43,175
  45,995
  48,929
  51,982
  55,162
  58,474
  61,926
Funds from operations, $m
  6,999
  8,363
  9,898
  11,604
  13,481
  15,526
  17,735
  20,107
  22,635
  25,318
  28,151
  31,131
  34,257
  37,527
  40,941
  44,500
  48,205
  52,060
  56,067
  60,231
  64,558
  69,055
  73,729
  78,588
  83,642
  88,900
  94,372
  100,072
  106,010
  112,200
Change in working capital, $m
  -478
  -546
  -616
  -686
  -757
  -826
  -894
  -961
  -1,026
  -1,090
  -1,152
  -1,214
  -1,274
  -1,333
  -1,393
  -1,452
  -1,512
  -1,574
  -1,636
  -1,701
  -1,767
  -1,836
  -1,909
  -1,984
  -2,063
  -2,147
  -2,234
  -2,326
  -2,424
  -2,526
Cash from operations, $m
  7,476
  8,909
  10,514
  12,291
  14,237
  16,352
  18,630
  21,068
  23,662
  26,408
  29,303
  32,345
  35,531
  38,860
  42,334
  45,952
  49,718
  53,633
  57,703
  61,931
  66,325
  70,892
  75,638
  80,572
  85,705
  91,046
  96,607
  102,398
  108,434
  114,727
Maintenance CAPEX, $m
  -2,698
  -3,350
  -4,096
  -4,938
  -5,876
  -6,910
  -8,039
  -9,262
  -10,575
  -11,978
  -13,468
  -15,043
  -16,701
  -18,442
  -20,264
  -22,168
  -24,152
  -26,219
  -28,370
  -30,606
  -32,930
  -35,345
  -37,855
  -40,463
  -43,175
  -45,995
  -48,929
  -51,982
  -55,162
  -58,474
New CAPEX, $m
  -6,524
  -7,464
  -8,419
  -9,381
  -10,341
  -11,290
  -12,223
  -13,136
  -14,028
  -14,899
  -15,750
  -16,585
  -17,407
  -18,222
  -19,033
  -19,847
  -20,669
  -21,505
  -22,360
  -23,241
  -24,152
  -25,098
  -26,085
  -27,117
  -28,200
  -29,337
  -30,534
  -31,795
  -33,124
  -34,525
Cash from investing activities, $m
  -9,222
  -10,814
  -12,515
  -14,319
  -16,217
  -18,200
  -20,262
  -22,398
  -24,603
  -26,877
  -29,218
  -31,628
  -34,108
  -36,664
  -39,297
  -42,015
  -44,821
  -47,724
  -50,730
  -53,847
  -57,082
  -60,443
  -63,940
  -67,580
  -71,375
  -75,332
  -79,463
  -83,777
  -88,286
  -92,999
Free cash flow, $m
  -1,745
  -1,905
  -2,001
  -2,029
  -1,979
  -1,848
  -1,632
  -1,330
  -941
  -469
  85
  717
  1,422
  2,197
  3,037
  3,938
  4,896
  5,909
  6,973
  8,085
  9,244
  10,449
  11,698
  12,992
  14,330
  15,714
  17,144
  18,621
  20,149
  21,728
Issuance/(repayment) of debt, $m
  6,837
  7,799
  8,797
  9,802
  10,805
  11,797
  12,772
  13,726
  14,658
  15,568
  16,458
  17,330
  18,189
  19,040
  19,888
  20,738
  21,598
  22,471
  23,365
  24,285
  25,237
  26,225
  27,257
  28,335
  29,467
  30,655
  31,906
  33,223
  34,612
  36,076
Issuance/(repurchase) of shares, $m
  1,642
  1,812
  1,896
  1,912
  1,851
  1,708
  1,480
  1,166
  767
  283
  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  
  8,479
  9,611
  10,693
  11,714
  12,656
  13,505
  14,252
  14,892
  15,425
  15,851
  16,458
  17,330
  18,189
  19,040
  19,888
  20,738
  21,598
  22,471
  23,365
  24,285
  25,237
  26,225
  27,257
  28,335
  29,467
  30,655
  31,906
  33,223
  34,612
  36,076
Total cash flow (excl. dividends), $m
  6,734
  7,706
  8,692
  9,686
  10,676
  11,656
  12,620
  13,563
  14,483
  15,383
  16,543
  18,047
  19,611
  21,237
  22,925
  24,676
  26,494
  28,380
  30,338
  32,370
  34,481
  36,674
  38,955
  41,327
  43,797
  46,369
  49,050
  51,845
  54,760
  57,804
Retained Cash Flow (-), $m
  -5,290
  -6,078
  -6,856
  -7,640
  -8,421
  -9,194
  -9,954
  -10,698
  -11,424
  -12,133
  -12,827
  -13,506
  -14,176
  -14,839
  -15,500
  -16,163
  -16,832
  -17,513
  -18,210
  -18,927
  -19,668
  -20,439
  -21,243
  -22,083
  -22,965
  -23,891
  -24,866
  -25,893
  -26,975
  -28,116
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
  1,444
  1,628
  1,836
  2,046
  2,255
  2,462
  2,666
  2,865
  3,059
  3,249
  3,716
  4,540
  5,435
  6,398
  7,425
  8,514
  9,662
  10,867
  12,128
  13,443
  14,812
  16,235
  17,712
  19,244
  20,832
  22,478
  24,184
  25,952
  27,785
  29,687
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
  1,384
  1,490
  1,598
  1,685
  1,748
  1,787
  1,801
  1,791
  1,757
  1,704
  1,765
  1,938
  2,067
  2,148
  2,180
  2,164
  2,102
  2,001
  1,867
  1,708
  1,532
  1,347
  1,161
  980
  810
  656
  519
  402
  303
  224
Current shareholders' claim on cash, %
  96.9
  94.2
  91.9
  90.1
  88.6
  87.4
  86.6
  86.0
  85.7
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6

Valero Energy Corporation (Valero) is an independent petroleum refiner and ethanol producer. The Company's segments include refining, ethanol and Valero Energy Partners LP (VLP). The refining segment includes its refining operations and the associated marketing activities. The ethanol segment includes its ethanol operations and the associated marketing activities, and logistics assets that support its ethanol operations. The Company owns logistics assets (crude oil pipelines, refined petroleum product pipelines, terminals, tanks, marine docks, truck rack bays and other assets) that support its refining operations. Some of these assets are owned by VLP, which is a midstream master limited partnership owned by the Company. VLP's assets include crude oil and refined petroleum products pipeline and terminal systems in the United States Gulf Coast and the United States Mid-Continent regions. Its refineries produce conventional gasolines, premium gasolines and lubricants, among others.

FINANCIAL RATIOS  of  Valero Energy (VLO)

Valuation Ratios
P/E Ratio 22.7
Price to Sales 0.7
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 10.8
Price to Free Cash Flow 14.7
Growth Rates
Sales Growth Rate -13.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21%
Cap. Spend. - 3 Yr. Gr. Rate -9.6%
Financial Strength
Quick Ratio 42
Current Ratio 0
LT Debt to Equity 39.4%
Total Debt to Equity 40%
Interest Coverage 8
Management Effectiveness
Return On Assets 5.8%
Ret/ On Assets - 3 Yr. Avg. 7.9%
Return On Total Capital 8.2%
Ret/ On T. Cap. - 3 Yr. Avg. 12.1%
Return On Equity 11.3%
Return On Equity - 3 Yr. Avg. 16.2%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 13.7%
Gross Margin - 3 Yr. Avg. 13.2%
EBITDA Margin 7.3%
EBITDA Margin - 3 Yr. Avg. 7.5%
Operating Margin 4.7%
Oper. Margin - 3 Yr. Avg. 5.5%
Pre-Tax Margin 4.2%
Pre-Tax Margin - 3 Yr. Avg. 5.1%
Net Profit Margin 3%
Net Profit Margin - 3 Yr. Avg. 3.4%
Effective Tax Rate 24%
Eff/ Tax Rate - 3 Yr. Avg. 29.1%
Payout Ratio 48.5%

VLO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VLO stock intrinsic value calculation we used $93980 million for the last fiscal year's total revenue generated by Valero Energy. The default revenue input number comes from 2017 income statement of Valero Energy. 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 VLO stock valuation model: a) initial revenue growth rate of 24.2% 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 VLO is calculated based on our internal credit rating of Valero Energy, 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 Valero Energy.
    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 VLO stock the variable cost ratio is equal to 95.3%.

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 VLO 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 5.5% for Valero Energy.

Corporate tax rate of 27% is the nominal tax rate for Valero Energy. 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 VLO 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 VLO are equal to 28.7%.

Life of production assets of 10 years is the average useful life of capital assets used in Valero Energy 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 VLO is equal to -2.1%. 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 - $21991 million for Valero Energy - 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 442 million for Valero Energy 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 Valero Energy at the current share price and the inputted number of shares is $50.9 billion.

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