Self-Taught XOM Model

This is my first post - feedback is welcome if I am using the site wrong.

I am working in real estate finance, looking to make it into IB. I'm trying to put together a coherent valuation on XOM to send in with my resume, but I'm having issues without clear solutions online.

My biggest problem at the moment is that I don't know how to account for issuance of debt in my debt schedule - as a result, I am showing a negative cash balance across the balance sheet. It's likely that I have a lot of other inaccuracies in this model, but I "don't know what I don't know."

It would be much appreciated if somebody could take a quick look. Thanks all!

 
Best Response

In your debt schedule you just need to create a new tranche of debt or make the assumption that it will come out of a stated revolver. If you have the new debt flowing through to the total debt amount - then it should flow through to your statements if everything is linking properly.

You can also structure it so that if your cash flow before debt payment / issuance is negative - that the model automatically issues through the use of if statements. However, all of this is probably not necessary for a model that you are sending around with your resume. Just build in some assumptions for the amount you are issuing each year and make sure it is all flowing properly.

On the Balance Sheet make sure that Total Debt is pulling from the debt schedule and on the cash flow statement make sure you have a line that is proceeds / expense from the issuance / repayment of debt and that should be the current year total debt balance - previous year debt balance.

 

Thank you very much for the detailed answer. What goes into new issuance assumptions? Will I be looking into the filings for an indication of planned issuances, or is there a way to assume when/how much new debt to expect?

Appreciate your time helping out.

 

No problem. It depends what this is for - in a bank model your senior banker will give you assumptions - you often times will time the assumption to an average historical debt / ebitda multiple. So you put in an assumption for that (ex. 2.5x) and multiply that by the companies projected EBITDA. If the debt balance that you get from that is higher than what the current debt balance is you might assume that they will issue additional debt / or repay debt in line with that. The thought process behind that is that if there EBITDA is expanding they can afford to take on more debt but obviously that is a simplistic way of thinking about things.

You can also look at the historic issuances.. if there is any kind of pattern (ie they issue new debt every year) you can imitate that. In 2016, 2015, and 2014 XOM issued like 12, 8, 5 bn in debt respectively so you could take an average number of those and then maybe lower your assumptions in later projections years assuming that as the environment improves they won't have to issue as much debt.

You could also just asssume enough issuance to make your cash balance non-negative. Like I mentioned before you can create an IF fucntion to issue new debt based on your cash deficit. Like you said - you can look at management commentary to see if they have any plans to issue debt and then just use that assumption.

In the end its up to you - you just need to have a reasonable way to explain it. Hope that helps.

 

This seems to have worked! I used the multiple you suggested (with EBITDAX for O&G, though I am not a pro at deciding when EBITDA vs EBITDAX is appropriate) and adjusted until it looked reasonable. This will be coming with me to an interview next week, say a prayer for me.

 

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