Question

You need to perform a valuation of XOM (Exxon-Mobil) in an environment where oil prices have fallen to less than zero. Which valuation method are you most likely to utilize? A Intrinsic Valuation B Relative Valuation C Contingent Claim Valuation D Replacement Cost Valuation

Answer 1

The XOM or the Exxon Mobil is the giant in the petroleum extraction and exploration and producers of petroleum.The company has huge onshore and offshore drilling facilities and has worldwide supply operations to meet the growing demand of energy.It also explores natural gases and other petrochemical products.The valuation in the declining demand of petrol leads to the question related to the methods to be adopted.1).Let us take the intrinsic valuations approach which is focussed on the fundamental analysis taking all the tangible an intangible factors , moresover it is based on the real value as against the market value , it refer to the price an investor willing to pay for the investment in share of the company.2) In relative valuation the company value is compared with the competitors inorder to ascertain the company financial worth.3 )Contingent claim valuation uses option pricing model to value the underlying assets.4 ) Replacement cost valuation model is used to value the business interms of the replacement cost as against the liquidation cost .Hence the valuation of the giant company such as the XOM is to be done with intrinsic valuation approach because it takes into account both the tangible and intangible factors and the fundamental analysis , which take into considerations the entire industry and demand and supply and cost as the energy industry is highly dynamic due to the political and economical and social environment.