Multiples Valuation & Financial Distress

Multiples Valuation and Estimation of Financial Distress of William Companies The paper uses the market approach to calculate the William Companies multiples-based valuation of shares. The direct competitors of Williams Companies are: Dynegy Dominion Resources Murphy Oil The paper uses 2001 financial statements of Williams Companies and its competitors to carry out the multiple valuation of shares.

The next step is to determine the correct P/E (Price Earning) Ratio and the formula to calculate the P/E ratio is as follows: P/E = "Current Stock Price / (Net Profit / Weighted average number of shares)" The P/E ratio of Williams Companies peer companies is as follows: Stock Price Plus: Debt Less: Cash Market Capitalization Net profit Number of Shares P/E Enterprises Value EBITDA Dynegy $127.50 4, 324 M 2.372B $643.000.000 2.762 B 1,517M Dominion Resources $60.10 13,251 M B $544.000,000 31.14B 3, 030M Murphy Oil $84.04 83M 3.288 $331.000.000 9.9 3.774B 769M The enterprise value reflects the market value of an organization.

The enterprises value also reflects the worth of market value of a business. In other words, the enterprise value captures the costs of the business that include equity and debt. Theoretically, the enterprise value is the price that a purchaser is ready to pay for a business in case of taking over the business.

The formula to calculate the enterprise value is: Enterprise Value = "Market Capitalization + Current Portion of Long-Term Debt + Notes Payable + Long-Term Debt + Book Value of Preferred Stock + Book Value of Minority Interest - Cash and Cash Equivalents" (Y Chart, 2015). Using the multiple valuation method, the paper estimates the valuation of Williams Companies using the P/E ratio of the peer companies. The value of the William Companies is calculated as follows: Formula: "Average corrected P/E ratio x net profit at the end of the forecast period." (Y Chart, 2015).

William Companies net profits at the end of 2001 fiscal year is $835 Million. The paper uses the following calculation to estimate the value of the Willimans Companies; =(Sum P/E of Peer Company / 3) *835 M ((17.3 + 27.42 + 9.9) / 3) * 835.000.000 =(54.62/3)* 835,000,000 = 18.206 *835,000,000 = $15.2 Billion Using the multiples-based valuation of shares, the enterprises value of Williams Companies is $15.2 Billion. ( The Appendix 1 and 2 provide the balance sheet and income statement of Williams Companies) Question 2. Williams Companies should carry out major restructuring to come out from the financial distress. First, the company should re-organize its extensive pipeline holdings.

Williams should separate the company into stand alone two business publicly traded corporations. For example, Williams should separate the production and exploitation into two different businesses. The separation of two line of businesses will assist the company to focus on each line of business to achieve high profitability. For example, the Williams management should put directors specializing in production line to run the area of business. The strategy will assist the directors to devote their expertise to remove the company from financial distress.

It is essential to realize that the Williams Companies is a big company, thus, separating the production from exploitation will assist Williams to run the company effectively. Despite the benefits that Williams will derive from the structuring procedure, Williams should implement the structuring with caution. The's company should carry out the feasibility study of this process before carrying out the full implementation. For example, the company should estimate the costs of separating the two line of business and the revenue to derive from the line of business.

More importantly, the company should use different capital budgeting techniques to determine whether this line of business is worthwhile. First, Williams should use the NPV (net present value) to determine whether the business venture is worthwhile. If the NPV is greater than one, Williams should implement the business venture. The company should also calculate the DCF (discounted cash flow) to estimate the outcome of the business between 5 and 10 years. Using this strategy, Williams will be able to determine the profitability of the business and come out from financial stress.

Reference Y Chart, (2015) About Enterprise Value. Y Chart Inc.

Appendices Appendix 1 Williams Balance Sheet (U.S.$) Assets (Annual) 2001-12 2000-12 1999-12 1998-12 Cash & Equivalents 1.258B 1.092B Cash & Short-Term Investments 1.258B 1.092B Accounts Receivable 2.762B 3.357B 2.508B 1.725B Other Receivables Total Receivables 2.762B 3.357B 2.508B 1.725B Inventories Current Deferred Tax Assets Other Current Assets 8.261B 8.995B 2.285B Total Current Assets 12.82B 14.20B 6.517B 3.532B Other Properties Construction in Progress Gross PP&E Accumulated D&A -4.046B -4.823B -4.094B -3.621B Net PP&E 14.39B 14.21B 15.16B 12.60B Goodwill Other Intangible Assets Goodwill and Intangibles 1.141B 42.50M Long-Term Investments Derivative Instruments Long-Term Deferred Charges Other Long-Term Assets 9.295B 6.331B 3.181B 1.927B Total Long-Term Assets 25.79B 20.58B 18.77B 15.12B Total Assets 38.61B 34.78B 25.29B 18.65B Liabilities (Annual) 2001-12 2000-12 1999-12 1998-12 Accounts Payable 2.571B 3.088B 2.050B 1.158B Current Tax Payable Total Payables 2.571B 3.088B 2.050B 1.158B Accrued Expenses 8.387B 8.985B 2.148B 1.838B Payables and Accrued Expenses 10.96B 12.07B 4.197B 2.996B Commercial Paper Liability Other Current Borrowings Current Portion of Long-Term Debt 2.424B 3.671B 1.575B 1.443B Current Debt & Capital Lease Obligation 2.424B 3.671B 1.575B 1.443B Current Deferred Revenue Current Deferred Liabilities Other Current Liability 2.424B 3.671B 1.575B 1.443B Total Current Liabilities 13.38B 15.74B 5.772B 4.439B Non-Current Portion (Long-Term Debt) 8.693B 6.830B 9.235B 6.366B Non-Current Portion & Capital Lease Obligation 8.693B 6.830B 9.235B 6.366B Deferred Tax Liabilities (Long-Term) 3.690B 2.864B 2.582B 2.061B Deferred Revenue (Non-Current) Deferred Liabilities (Non-Current) 3.690B 2.864B 2.582B 2.061B Derivative Contract Liabilities Minority Interest Ownership 1.061B 98.10M Preferred Securities which is out of Shareholders Equity 1.068B Other Long-Term Liabilities 8.459B 5.145B 4.134B 3.076B Total Long-Term Liabilities 19.19B 13.14B 13.93B 9.951B Total Liabilities 32.57B 28.88B 19.70B 14.39B Shareholder's Equity (Annual) 2001-12 2000-12 1999-12 1998-12 Total Capital Stock Retained Earnings 3.066B 2.807B 2.850B Additional Paid In Capital 5.085B 2.474B 2.357B.