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Digest Finance

Multipliers based on net income as an indicator of the investment attractiveness of domestic vertically integrated oil and gas companies

Vol. 28, Iss. 2, JUNE 2023

PDF  Article PDF Version

Received: 28 February 2022

Received in revised form: 30 March 2022

Accepted: 26 May 2022

Available online: 29 June 2023


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

Pages: 122146


Oleg V. SHIMKO Center for Innovative Economics and Industrial Policy, Institute of Economics of Russian Academy of Sciences (IE RAS), Balashikha, Moscow Oblast, Russian Federation


Subject. This article focuses on the market-capitalization-to-net-income ratios of the twenty five leading publicly traded oil and gas companies within 2008 through 2018.
Objectives. The article aims to identify key trends in the changes in the values of market-capitalization-to-corporations'-net-income ratios of the oil and gas companies, as well as identify key trends in their change within the studied period, and identify the factors that caused those changes.
Methods. For the study, I used the methods of comparative, financial and economic analyses, summarizing financial reporting data.
Results. The article finds that the studied multipliers based on net income of shareholders are of little use for assessing the value of oil and gas companies due to the volatility of oil prices. Integrated corporations are not as dependent on oil prices as independent companies. Net income can be affected not only by a decrease in revenue, but also by the cost of impairment, revaluation or write-off of assets in the event of a fall in oil prices, and therefore, the use of the multipliers is advisable in case of high profitability in the industry. Net income may also be affected by income and expenses that are not related to operating activities. This factor should be taken into account when choosing an analogue company. It was revealed that the characteristic features of the market capitalization of companies in the industry are reflected in the indicators, which include the provision with proved reserves and level of debt. It is better to use an enterprise value indicator instead of market capitalization in a multiplier if there is a noticeable difference in debt burden.
Conclusions and Relevance. To apply the multipliers based on net income is very difficult in the face of declining profitability and increasing debt burden in the stock market sector of the global oil and gas industry. The findings can help appraise the value of oil and gas assets as part of a comparative approach and decide on actions for raising the market capitalization of publicly traded oil and gas corporations.

Keywords: valuation, multiplier, market capitalization, net income, oil and gas industry


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