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Economic Analysis: Theory and Practice
 

EBITDA and DACF multipliers as an indicator of investment attractiveness of domestic vertically integrated companies

Vol. 20, Iss. 4, APRIL 2021

Received: 14 December 2020

Received in revised form: 28 December 2020

Accepted: 14 January 2021

Available online: 29 April 2021

Subject Heading: INVESTMENT ANALYSIS

JEL Classification: G32, L25, L71, M41, O12

Pages: 718–752

https://doi.org/10.24891/ea.20.4.718

Oleg V. SHIMKO Institute of Economics of Russian Academy of Sciences (IE RAS), Moscow, Russian Federation
shima_ne@mail.ru

https://orcid.org/0000-0002-0779-7097

Subject. The article addresses the EV/EBITDA and EV/DACF ratios of the twenty five largest public oil and gas corporations from 2008 to 2018.
Objectives. The purpose is to identify key trends in the value of EV/EBITDA and EV/DACF ratios of biggest public oil and gas corporations, determine factors resulted in the changes over the studied period, and establish the applicability of these multipliers for assessing the business value within the industry.
Methods. I apply methods of comparative and financial-economic analysis, and generalization of consolidated financial statements data.
Results. The study revealed that EV/EBITDA and EV/DACF multiples are acceptable for valuing oil and gas companies. The EV level depends on profitability, proved reserves, and a country factor. It is required to adjust EBITDA for information on impairment, revaluation and write-off for assets that are reported separately from depreciation, depletion and amortization costs, as well as for income or expenses arising after the sale of fixed assets and as a result of effective court decisions or settlement agreements. It is advisable to adjust DACF for income, expenses and changes in assets and liabilities, which are caused by events that are unusual for oil and gas companies.
Conclusions. The application of EV/EBITDA and EV/DACF multiples requires a detailed analysis and, if necessary, adjustments of their constituent components. However, they are quite relevant in the context of declining profitability and growing debt burden in the stock exchange sector of the global oil and gas industry.

Keywords: valuation, multiplier, EV/EBITDA, EV/DACF, oil and gas industry

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