How do you Value an Energy Company Compared to a Consumer compared to a Technology etc.

How would you value an energy company differently than you would value a technology company or a consumer company? I am trying to understand what in specifically is different about the way you value companies in a given sector as I heard this sometimes will come up in an interview? Thanks.

 
Best Response

The key is getting the value of undeveloped reserves and the value of production assets in place.

Value undeveloped reserves like calls with "exclusive rights" to develop. You may have to estimate the (S) underlying asset (expert opinion), and the (K) cost of developing the reserve, so these estimates will introduce some error. Look up black scholes for other parameters to value the call..

For value of production in place, do the DCF of expected cash flows from all running reserves...

The firm value will just be value of exlusive right to undeveloped assets (option part) + Production assets (Regular DCF on expected CF's).

Intrinsic Equity Value = Firm Value - Debt

If you need a quicky do a relative comparables.. EXXON/SHELL, etc

Hey, I think Damodaran has spreadsheets readily available on natural resource options..His site has answers to most valuation questions.

 
thadonmega:
The key is getting the value of undeveloped reserves and the value of production assets in place.

Value undeveloped reserves like calls with "exclusive rights" to develop. You may have to estimate the (S) underlying asset (expert opinion), and the (K) cost of developing the reserve, so these estimates will introduce some error. Look up black scholes for other parameters to value the call..

For value of production in place, do the DCF of expected cash flows from all running reserves...

The firm value will just be value of exlusive right to undeveloped assets (option part) + Production assets (Regular DCF on expected CF's).

Intrinsic Equity Value = Firm Value - Debt

If you need a quicky do a relative comparables.. EXXON/SHELL, etc

Hey, I think Damodaran has spreadsheets readily available on natural resource options..His site has answers to most valuation questions.

Ok and how about a consumer company? Or a technology company? How do you value those differently?

 

Technology companies place a value on intellectual property. I couldn't tell you the details, but this can sometimes be a key driver in obtaining a high multiple for the seller.

CompBanker’s Career Guidance Services: https://www.rossettiadvisors.com/
 

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