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Financial Analytics: Science and Experience
 

Applying net income-based multipliers in the valuation of oil and gas corporations

Vol. 14, Iss. 1, MARCH 2021

Received: 11 January 2021

Received in revised form: 27 January 2021

Accepted: 14 February 2021

Available online: 26 February 2021

Subject Heading: ASSESSMENT AND APPRAISAL ACTIVITIES

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

Pages: 65–106

https://doi.org/10.24891/fa.14.1.65

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. This article explores the ratios of the company's market capitalization to the net income of shareholders of the twenty five leading public oil and gas companies between 2008 and 2018.
Objectives. The article aims to identify key trends in the changes in the values of market-capitalization-to-shareholders'-net-income ratios of the largest public oil and gas companies, identify the factors that have caused these changes, and establish the applicability of these multipliers to estimate the value of the business within the oil and gas industry.
Methods. For the study, I used comparative, and financial and economic analyses, and generalization of materials of the companies' consolidated financial statements.
Results. The article establishes that the multipliers studied based on the net profit of shareholders are of little use for assessing the value of oil and gas companies due to the volatility of oil prices.
Conclusions. To apply the multipliers based on net profit is very difficult in the face of declining profitability and increasing debt burden in the stock exchange sector of the global oil and gas industry.

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

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