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percent on the TBVIC multiple. Thus, earnings-based multiples
were weighed more heavily in aggregate.
Mr. Kimball selected low (rather than mean or average)
multiples of the guideline companies to apply against True Oil’s
financial fundamentals, because he found that True Oil had low or
negative growth relative to the guideline companies. He also
chose lower multiples because of the depressive effect of True
Oil’s buy-sell agreement terms (other than the book value price
term). Mr. Kimball did not adjust True Oil’s actual earnings
over the valuation period to reflect differences in accounting
for intangible drilling costs, saying that such adjustments would
not be made by a hypothetical buyer of a closely held business.60
Instead, he made qualitative adjustments to the market multiples
to reflect such differences. Mr. Kimball did not quantify the
effect of those adjustments on the market multiples.
Lastly, Mr. Kimball multiplied True Oil’s financial
fundamentals by the selected multiples derived from guideline
company data, and he ascribed different weights to each product.
Because True Oil had no long-term debt, the sum of these amounts
represented the market value of its equity.
60As previously stated, True Oil deducted intangible
drilling costs in arriving at taxable income. In contrast,
public companies would be required to capitalize some of those
costs under either the successful efforts or full cost method of
accounting required by SEC rules or GAAP. See supra p. 23.
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