Finally, you can also use the information in Thomson One to value the entire corporation. This approach requires that you estimate XOM’s annual free cash flows. Once you estimate the value of the entire corporation, you subtract the value of debt and preferred stock to arrive at an estimate of the company’s equity value. Divide this number by the number of shares of common stock outstanding, and you calculate an alternative estimate of the stock’s intrinsic value. While this approach may take some more time and involves more judgment concerning forecasts of future free cash flows, you can use the financial statements and growth forecasts in Thomson One as useful starting points. Go to Worldscope’s Cash Flow Ratios Report (which you find by clicking on FINANCIALS, FUNDAMENTAL RATIOS, and WORLDSCOPE RATIOS) and you will find an estimate of “free cash flow per share.” While this number is useful, Worldscope’s definition of free cash flow subtracts out dividends per share; therefore, to make it comparable to the measure in this text, you must add back dividends. To see Worldscope’s definition of free cash flow (or any term), click on SEARCH FOR COMPANIES from the left toolbar, and select the ADVANCED SEARCH tab. In the middle of your screen, on the right-hand side, you will see a dialog box with terms. Use the down arrow to scroll through the terms, highlighting the term for which you would like to see a definition. Then, click on the DEFINITION button immediately below the dialog box.

Access the Thomson ONE problems though the ThomsonNOW Web site. Use the Thomson

ONE—Business School Edition online database to work this chapter’s questions.

Estimating ExxonMobil’s Intrinsic Stock Value In this chapter we described the various factors that influence stock prices and the approaches that analysts use to estimate a stock’s intrinsic value. By comparing these intrinsic value estimates to the current price, an investor can assess whether it makes sense to buy or sell a particular stock. Stocks trading at a price far below their estimated intrinsic values may be good candidates for purchase, whereas stocks trading at prices far in excess of their intrinsic value may be good stocks to avoid or sell.

While estimating a stock’s intrinsic value is a complex exercise that requires reliable data and good judgment, we can use the data available in Thomson One to arrive at a quick “back of the envelope” calculation of intrinsic value.