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Special Valuation Cases🔵 Intermediate

How Do You Value a Business Whose Profits Boom and Bust With the Economy?

How to Value Firms Whose Earnings Go Up and Down With Commodities

Oil producers, miners, and steel makers have earnings that swing wildly with commodity prices. The fix: normalize earnings across a full economic cycle.

Normalized EarningsCyclicalCommodity PriceMid-cycle

Live Result

$2,400

ƒ: normalized_EBITDA * EV_multipleraw: 2400.00

ƒ(x)

Use variable names from the panel above (e.g. FV, r, n) — or type numbers directly: 10000 / (1 + 0.08)^10

normalized_EBITDA

Average EBITDA across a full economic cycle

normalized_EBITDA = 400

EV_multiple

EV/EBITDA multiple for the sector

EV_multiple = 6

peak_earnings

Earnings at top of cycle

peak_earnings = 700

trough_earnings

Earnings at bottom of cycle

trough_earnings = 100

mid_cycle_price

Normalised commodity price (mid-cycle)

mid_cycle_price = 70

💡 You can also enter values directly in the formula: 10000 / (1 + 0.08)^10

⬇ Export Calculation

Exports a plain .txt file with your expression, formula, all variable values, result, and educational notes — ready to paste into any report, Word doc, Notion, or Google Docs.

The exported file includes the formula in standard mathematical notation — you can paste it directly into Excel, Google Sheets, or back into FinanceSheep.

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Learn: How to Value Firms Whose Earnings Go Up and Down With Commodities

Special Valuation Cases · Educational Guide

The Core Idea

An oil company earned $5 billion last year when oil was $120. Should you value it on $5B earnings? No — oil is back at $70 now. Cyclical firms need "normalised" earnings to avoid buying at the top and selling at the bottom.

How It Works

Normalise earnings by averaging across a full commodity/economic cycle (typically 5–10 years). Use mid-cycle prices for commodity companies. Never value a miner at peak gold prices or an airline at peak capacity utilisation — those won't last.

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Real-World Example: Oil producer: peak EBITDA at $120 oil = $700M, trough at $40 oil = $100M. Mid-cycle EBITDA at $70 oil = $400M. Apply 6× EV/EBITDA = $2,400M enterprise value. If you used peak earnings: $4,200M — dangerously overvalued.

How Do You Value a Business Whose Profits Boom and Bust With the Economy?

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