1.0 Executive Summary
This report presents a financial evaluation of two Canadian oil and gas companies, Encana Corporation (ECA) and Canadian Natural Resources Limited (CNQ). These two Canadian owned companies are amongst the most dynamic and rapidly growing companies in this industry.
Although the conventional oil production is expected to decline by about 46% between 2003 and 2015; natural gas production is expected to decline by about 2.5% over the next decade, these two companies are expected to continue growing due to their aggressive strategy to purchase other companies, diversify internationally, and invest in oilsands projects for future oil production.
The assessment of two companies' most recent years' financial statements shows the following results:
* Both ECA and CNQ will be profitable in future and continue to generate positive operating cash flows.
* Both companies appear to be attractive for investment. Comparatively, CNQ seems to be more attractive just based on the open market price and P/E ratio.
* Both companies appear liquid. However, ECA has higher liquid than CNQ.
* The activity ratios provide evidence that both companies have a good control of their business components.
* The debt, interest coverage, and cash flow ratios indicate that both companies appear to be low long-term solvency risk. Their solvency position supports their growth strategy. The companies have available the resources to grow and respond to competitive pressures.
We use FASP to prepare pro forma financial statements, including the projected balance sheet, the projected income statement and the implied statement of cash flows for two companies. Some assumptions were applied in forecasting the two companies' pro forma financial statements. Especially, we assume the sale growth rate in the future for both companies is 5% based on the two companies' historical growth rate , industry environment and the two companies'...