Multiples Valuation & Financial Distress Professional Writing

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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.

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" (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.....

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