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Valuation Mod-7 Oil and Gas Field Services. Chris Jennis 2/19/2014. Agenda Module 7 Summary Residual Income Model Questions. Module 7 “Estimating value using anticipated accounting numbers” Residual Enterprise Income Valuation Model Free cash flow valuation model
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Valuation Mod-7Oil and Gas Field Services Chris Jennis 2/19/2014
Agenda Module 7 Summary Residual Income Model Questions
Module 7 • “Estimating value using anticipated accounting numbers” • Residual Enterprise Income Valuation Model • Free cash flow valuation model • Introduce NEA (value of enterprise assets) • Add and subtract PV of future years NEA • REIt= EPATt – rEnt * NEAt-1 • Residual earning in excess of expected return on NEA • Value should equal cash flow valuation • Effects of Accounting Choices • Choice of method doesn’t affect valuation of the project • Do not affect underlying economic transaction • Self-correcting nature of accounting • i.e. (Depreciation, Captializingvs Expensing)
Multiyear Forecasts of Sales, EPAT and NEA Sales Growth Rate 7.00% 5.00% Enterprise Profit Margin (EPM) 17.35% Enterprise asset turnover (EATO) 0.95
