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Statoil ASA—Global Energy Company Case Solution & Answer

Statoil ASA—Global Energy Company Case Solution

            Furthermore, all the other rates which has been used for the analysis are mentioned in the same table. However, there is another assumption used for valuating the future profitability of BP plc which is that the analyst calculated the variance and predicted the future cash flows using the simple forecasting method. Finally, the financial statement of Statoil has been used to calculate the WACC and other required elements.

Inputs

            As it has been discussed earlier that the analyst wanted to evaluate the future performance of BP plc therefore, the analyst used the financial information of BP plc (appendix 2) and noted this information as inputs. From this information initially, it can be seen that the company has almost 250 million of revenue in 2005, while it has assets of 206 million and having a net profit of 22 million approximately.

            This shows that the company is having a strong business structure since, the revenue is very high while the assets are also showing a healthy portfolio. Moreover, the long term debt is around 10 million and the equity is almost 80 million. This shows that the company is not highly levered and having a low debt and high equity in its capital structure.

Workings

            In this section, the analyst has made a projected financial statement by the help of simple forecasting method taking the variances and averaging them to get the final results (Appendix 3). From this section it can be seen that the company will be able to grow its assets from 234 to 383 million in 2010. Moreover, the company will have a revenue of 462 million in 2010 from 319 million in 2007. Afterwards, the long term debt will become 17 million from 10 million, which is a high amount but if this will be compared to total assets in 2010 than the rate will remain same as of total assets. Finally, the shareholders’ equity will be 148 million from 90 million. Conclusively, it can be said from the workings that the company has a lot of growth potential based on its past.

Output (DCF valuation)

            The output of the DCF valuation (appendix 4) suggests that the company will have free cash flows (FCF) ranging from 36 million to 59 million over the period 2007-2010. While the company will have a DCF of 34 million to 44 million. However, the DCF of BP plc has been calculated by using the discount rate of Statoil WACC which was 6.10%.

            Finally, the Terminal or Foreseeable future cash flows of the company havebeen calculated and it has been found that the company will have almost 1.1 billion of cash flows over its foreseeable life. Furthermore, the growth rate was assumed at 2% using a conservative growth approach. Afterwards, the NPV or the Acquisition offer value is calculated using the same discount rate as of DCF and it has been found that the company will have an NPV of 193 million.

            The offer price of the acquisition should not exceed 193 million in fact, it should be kept lesser than the NPV as there will be risk factors which will be incorporated in this amount. However, the mystery has been solved that Statoil should acquire BP plc or not then the answer is yes based on the analysis. Nonetheless, the most substantial reason for this acquisition is growth and profit potential…………………

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