Chevron Corporation
Business Analysis and Equity Valuation
Valuated as of November 1st, 2007
Michael Eikenberry
Michael.Eikenberry@ttu.edu
Jonathan Lord
Jonathan.Lord@ttu.edu
Kelly Campbell
Kelly.Campbell@ttu.edu
Diana Duran
Diana.Duran@ttu.edu
1
Table of Contents
Executive Summary
4
Business & Industry Analysis
8
Company Overview
8
Industry Overview
10
Five Forces Model
11
Rivalry Among Exiting Firms
11
Threat of New Entrants
17
Threat of Substitute Products
18
Bargaining Power of Buyers
21
Bargaining Power of Suppliers
23
Value Creation of the Industry
25
Value Creation of the Firm
28
Accounting Analysis
31
Key Accounting Policies
31
Potential Accounting Flexibility
34
Actual Accounting Strategy
36
Qualitative Analysis of Disclosure
38
Quantitative Analysis of Disclosure
40
Sales Manipulation Diagnostics
40
Expense Manipulation Diagnostic
45
Potential “Red Flags”
50
Accounting Distortions
51
Financial Analysis, Forecasts, and Cost of Capital Estimation
52
Financial Analysis
52
Liquidity Analysis
52
Profitability Analysis
60
Capital Structure Analysis
67
2
IGR/SGR Analysis
71
Financial Statement Forecasting
73
Analysis of Valuations
82
Method of Comparables
82
Cost of Equity
87
Cost of Debt
88
Weighted Average Cost of Capital
88
Intrinsic Valuations
89
Discount Dividends Model
89
Free Cash Flows Model
91
Residual Income Model
93
Abnormal Earnings Growth Model
94
Long Run Residual Income Model
96
Credit Analysis
99
Analyst Recommendation
100
Appendix
101
Trend Analysis
101
Cost of Debt
103
Cost of Equity
104
WACC
104
Discount Dividends Model
121
Residual Income Model
122
Free Cash Flows Model
123
Abnormal Earnings Growth Model
124...