• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
http://TheValueatRisk.blogspot.com
 
December
 
22,
 
2009
 
XTO
 
Energy:
 
Liquidity
 
and
 
Solvency
 
Analysis
 
Anyone
 
who
 
has
 
been
 
even
 
remotely
 
cognizant
 
of 
 
financial
 
market
 
events
 
over
 
the
 
past
 
week
 
should
 
be
 
aware
 
that
 
Exxon
 
(XOM)
 
has
 
agreed
 
to
 
purchase
 
XTO
 
Energy
 
(XTO)
 
in
 
an
 
all
 
stock
 
deal
 
worth
 
$31B
 
(or
 
$41B,
 
depending
 
upon
 
whether
 
you
 
choose
 
to
 
categorize
 
debt
 
assumption
 
as
 
a
 
direct
 
cost
 
to
 
Exxon).
 
At
 
first
 
glance,
 
the
 
deal
 
looks
 
like
 
a
 
pure
‐
play
 
home
 
run
 
bet
 
on
 
the
 
natural
 
gas
 
industry.
 
After
 
all,
 
XTO's
 
revenue
 
has
 
risen
 
from
 
less
 
than
 
$400M
 
in
 
1999,
 
to
 
over
 
$8B
 
over
 
the
 
trailing
 
twelve
 
month
 
period.
 
Net
 
Income
 
has
 
risen
 
from
 
$46M
 
to
 
$2B
 
over
 
the
 
same
 
time
 
period.
 
 
http://TheValueatRisk.blogspot.com
 
December
 
22,
 
2009
 
The
 
question
 
though,
 
is
 
whether
 
XTO
 
has
 
managed
 
to
 
achieve
 
this
 
level
 
of 
 
growth
 
with
 
a
 
debt
 
level
 
that
 
is
 
manageable
 
in
 
the
 
long
 
term.
 
I'll
 
begin
 
an
 
attempt
 
to
 
answer
 
this
 
question
 
by
 
looking
 
at
 
XTO's
 
debt
 
maturity
 
profile,
 
as
 
stated
 
in
 
its
 
most
 
recent
 
10
‐
Q.
 
All
 
figures
 
are
 
in
 
$MM:
 
The
 
schedule
 
above
 
lets
 
us
 
know
 
that
 
XTO
 
has
 
several
 
billion
 
dollars
 
worth
 
of 
 
debt
 
maturing
 
in
 
the
 
next
 
6
 
years;
 
however,
 
it
 
may
 
be
 
more
 
instructive
 
to
 
observe
 
 just
 
how
 
this
 
debt
 
has
 
affected
 
the
 
firm's
 
balance
 
sheet.
 
To
 
do
 
so,
 
I
 
prepared
 
a
 
10
 
year
 
look
 
at
 
XTO's
 
debt
 
to
 
equity
 
ratio:
 
 
http://TheValueatRisk.blogspot.com
 
December
 
22,
 
2009
 
The
 
trend
 
displayed
 
by
 
the
 
chart
 
above
 
is
 
encouraging;
 
XTO's
 
debt
‐
to
‐
equity
 
ratio
 
has
 
declined
 
throughout
 
the
 
past
 
decade,
 
and
 
the
 
company
 
is
 
now
 
financed
 
by
 
roughly
 
a
 
1
 
to
 
1
 
mixture
 
of 
 
debt
 
and
 
equity.
 
Yet
 
another
 
way
 
of 
 
examining
 
XTO's
 
use
 
of 
 
leverage
 
is
 
to
 
take
 
a
 
look
 
at
 
its
 
Times
 
Interest
 
Earned
 
(TIE)
 
ratio,
 
which
 
measures
 
EBIT
 
as
 
a
 
multiple
 
of 
 
interest
 
expense:
 
In
 
2006,
 
XTO's
 
TIE
 
ratio
 
peaked
 
at
 
 just
 
over
 
14X,
 
meaning
 
that
 
the
 
company
 
reported
 
earnings
 
before
 
interest
 
and
 
taxes
 
that
 
could
 
have
 
covered
 
its
 
annual
 
interest
 
expense
 
14
 
times.
 
That
 
multiple
 
has
 
since
 
decreased
 
to
 
~6X,
 
as
 
interest
 
has
 
comprised
 
an
 
ever
 
larger
 
share
 
of 
 
XTO's
 
EBIT.
 
A
 
possible
 
explanation
 
for
 
this
 
trend
 
lies
 
in
 
TIE's
 
numerator:
 
EBIT.
 
A
 
rapidly
 
growing
 
company
 
like
 
XTO
 
will
 
have
 
large
 
amounts
 
of 
 
depletion
 
expense
 
that
 
will
 
adversely
 
affect
 
EBIT,
 
but
 
not
 
cash
 
flow.
 
To
 
see
 
whether
 
this
 
idea
 
holds
 
water,
 
I'll
 
look
 
at
 
operating
 
cash
 
flow
 
as
 
a
 
multiple
 
of 
 
interest
 
expense:
 
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...