Chevron Profitability, Risk, and Valuation

CHEVRON

Company Analysis Project

CHEVRON

Company Analysis Project

Table of Contents

Executive Summary 2

Purpose of Analysis 2

Major Findings 2

Competitive Environment of the Firm 3

Overview of the firm 3

Information about the firm 3

Quality of management 3

Overview of the economy 4

General economic forecasts 4

Overview of the industry 4

Actual and potential competition 5

Rivalry among existing firms 5

Threat of new entrants 6

Substitute products or services 6

Relative bargaining power 6

Bargaining power of buyers 6

Bargaining power of suppliers 6

Analysis of the Financial Statements 7

Functional analysis 7

Profitability 7

Efficiency in asset utilization 7

Leverage and liquidity 7

Functional analysis by segment 8

Cash flow analyses 9

Growth measures 9

Market measures 10

Projected Financial Statements 11

Assumptions for the forecasts 11

Analysis of pro forma statements 11

Implications for investment and creditworthiness 12

Valuation 13

DCF Valuation 13

Relative Valuation 13

Summary and Conclusions 14

Bibliography 15

Executive Summary

A. Purpose of Analysis

Over the past several months, we have analyzed Chevron on two major fronts: profitability and risk. The goal was to see what derived Chevron’s value. Using a three-step approach, we evaluated different aspects of the firm. First, we analyzed the competitive environment of the firm, assessing the industry from a 5-force perspective and understanding how economic fluctuations impacted profitability and risk. Then, we moved into financial statement analysis; evaluating margins, utilization, leverage, and growth prospects, among others things. Finally, we attempted to gauge Chevron’s value by forecasting financial statements using online sources (Bloomberg and Factset), analysts’ opinions, and our own sentiments.

B. Major Findings

1. The success of the integrated oil industry is linked heavily to prices of oil and natural gas. Because these prices...