Posted on

Understanding the EV/2P Ratio

3 min read

What are the EV/2P RatioWhen it comes to raw materials, especially for fossil fuels, it’s essential to evaluate existing and potential production capabilities for such companies. Using the EV/2P Ratio is a powerful tool when evaluating fossil fuel-related companies.

Defining the Ratio

This ratio is calculated by dividing a business’ enterprise value into the company’s reserves. It provides financial analysts, investors and internal business stakeholders with a snapshot of a company’s reserves and the business’ likelihood of preserving operation growth. This standardizes valuations, thereby allowing analysts to compare company-to-company financials.

How to Calculate EV/2P

Enterprise Value (EV) / Total 2P Reserves

Defined as: Enterprise Value = Equity (open market price) + Debt (open market price) – Cash and Cash Equivalents

2P = Proven and Probable Reserves

Illustrating the Calculation

If a company’s capitalization is $300 million and debt consisting of $225 million, along with $30 million for proven reserve value, $20 million in probable reserves, and $25 million in possible reserves, the company’s resulting enterprise value becomes:

$300 million + $225 million = $525 million

The 2P reserves is:

$30 million + $20 million = $50 million

Plugging the numbers into the original formula, it’s: $525 million / $50 million = 10.5x (multiple)

Based on the resulting 10.5 multiple, this ratio provides a current valuation that translates to for every $1 in 2P reserves equals $10.50 of a market valuation.

Reserves are how internal/external stakeholders value the production/growth potential of oil/gas companies. It’s broken down into two categories:

1.) P1 are proven reserves, which are the highest caliber reserves. There’s at least a 9 in 10 percent likelihood (or more) of recoverable reserves. It’s also known as P90.

2.) Probable reserve (also known as P50) has an even chance of either non-recoverability or realized recoverability. This is the next best, but a lesser grade than P1.

These two resource categories are referred to as 2P.

Putting it in Perspective

Depending on the company’s calculated EV/2P Ratio, the business owner or investor can determine a course of action to take.

If it’s higher, it’s more highly valued than its competitors based on the same level of 2P reserves; therefore, the company’s shares are more expensive against its peers. This can give investors pause because other undervalued stocks are more attractive due to a higher likelihood they’ll appreciate.

However, if a company is valued higher, but the company is more efficient or a higher performer, investors also may be interested because its production and earnings justify the higher valuation. That’s why looking at the metric in a silo is not effective.

Debt Concerns

When it comes to debt and analyzing this ratio, fossil fuel businesses are often highly levered since they use massive sums of debt for research and development and continued operations.

Since the EV value looks at debt and equity concurrently, analyzing a company’s capital structure is essential when comparing companies’ valuations. Essentially, if a company has too much debt and if interest rates suddenly increase or it can’t service debt if the price of crude plummets, it may run into debt servicing issues.

While this ratio is effective in providing a level playing field for analytical uses, it’s important to remember that it needs to be used in conjunction with comprehensive financial analysis.

Version 6

Posted on

Understanding the Customer Acquisition Cost (CAC)

3 min read

What is Customer Acquisition Cost CAC?The Customer Acquisition Cost (CAC) measures how much a company spends to obtain new, additional customers. Oftentimes, this calculation is used with the customer lifetime value (LTV) metric, that also projects the customer’s profitability to calculate the newly acquired customer’s value.

It’s primarily used to measure a business’ sales and marketing departments to figure out their profitability, profit margin and return on investment figures.

How to Calculate

CAC = Sales and Marketing Expense / Number of New Customers

Examples of the expenses include product and service promotion expenditures, special compensation and commissions, regular wage payments, and operating expenses.

The tally of newly acquired customers is simply how many new, unique contracts the business acquired. It’s important to keep the expenses and customer acquisition numbers consistent over the same periods.

Why It’s Important

Business owners and their managers, along with investors, can look at sales and marketing efforts from the return on investment of their expenditures and outcomes. For example, there could be multiple channels that sales and marketing took to obtain new customers over a quarter, half-year or 12-month period (such as email marketing, social media marketing, conferences, etc.). Based upon each channel, the customer acquisition cost is determined by dividing the financial outlay per customer acquired.

From there, each channel can be analyzed to see which one works well and, equally important, which ones don’t work well and should either be discontinued or modified. Internal stakeholders and external investors (both existing and potential) can look at trends to see how ongoing efforts may be working and if existing management is productive or needs to be replaced with more competent individuals.

Accounting Considerations

Based on FASB’s Accounting Standards Codification 340-40, businesses are required to document and capitalize incremental costs of securing new customer business if the related expenses are projected to be recouped.

An incremental cost in the scope of obtaining a contract is a cost an entity incurs to obtain a contract that wouldn’t have been incurred if the contract hadn’t been obtained.

While a sales commission (be it fixed or a percentage of a new contract) may be considered an eligible incremental cost to one of its employees, it’s not necessarily always the case. Rather, the true test of whether an incremental cost is capitalizable depends on the subjective interpretation of if a mandated financial expenditure for an incremental cost is attributed to signing a contract with a new customer.

The following sample situations often require more investigation to determine whether the capitalization of costs is applicable:

  • Equity issuances based upon meeting production and essential function goals
  • Employee compensation according to previous years’ executed contracts
  • Sales commissions allocated over multiple timeframes and/or to more than one employee for a single contract

ASC 340-40 also stipulates the amortization schedule of capitalization costs of obtaining a customer contract on a scheduled timeline that follows the delivery to the customer of the contracted goods or services.

Conclusion

While the customer acquisition cost may be straightforward, when it comes to subjective cases, businesses that have experience with murkier situations are able to make the most of their subjective sales and marketing expenses when navigating the tax and accounting landscape. 

Posted on

Facilitating Access to Housing and In-State Tuition, Sanctioning Iran and the Battle Over DHS Funding

4 min read

Facilitating Access to Housing and In-State Tuition, Sanctioning Iran and the Battle Over DHS Funding21st Century ROAD to Housing Act (HR 6644) – As many local governments face the problem of rising affordability and severe housing shortages, this bipartisan bill would update existing housing programs to increase the housing supply, as well as streamline federal regulations that slow construction. Among its provisions, the legislation would authorize a pilot program designed to convert vacant or underused buildings into residential housing, issue grants for infrastructure improvements for utilities and transportation, and include construction of new housing units for low- and moderate-income residents. The legislation was introduced on Dec. 11, 2025, by Rep. French Hill (R-AR). It originally passed in the House on Feb. 9, but the Senate made changes before passing it on March 12. It has returned to the House for a final vote.

Territorial Student Access to Higher Education Act (HR 6472) – This act would amend the Higher Education Act of 1965 to provide for in-state tuition rates for certain residents of Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, and the United States Virgin Islands. The bill would help offset the high cost of attending college on the U.S. mainland, which prohibitively adds thousands of dollars to airfare, housing, and basic living expenses incurred by citizens of U.S. territories. The legislation was introduced by Rep. James Moylan (R-Guam) on Dec. 4, 2025. It passed the House on March 7 and is currently under consideration in the Senate.

Enhanced Iran Sanctions Act of 2025 (HR 1422) – On Feb. 8, 2025, Rep. Michael Lawler (R-NY) introduced this bill to strengthen secondary sanctions on foreign entities (e.g., banks, insurers, pipeline construction and operation facilities) that help process, export, or sell illicit Iranian oil, including for liquified natural gas. The bill lay dormant in the House until late February, when the U.S. launched its attack on Iran. On March 10, the bill was updated to include an interagency work group to develop more sanctions related to Iran and a multinational effort to enforce sanctions. The latest version of the act was passed in the House on March 16; its fate currently lies in the Senate.

Servicemembers’ Credit Monitoring Enhancement Act (S 2074) – The purpose of this bill is to provide free credit monitoring for veterans. Presently, only active duty members can take advantage of this service. The bill was introduced by Sen. Amy Klobuchar (D-MN) on June 12, 2025. It passed unanimously in the Senate on March 5 and is currently under consideration in the House.

Department of Homeland Security Appropriations Act, 2026 (HR 7744) – This is the bill that is currently holding up appropriations for the Department of Homeland Security (DHS) for the fiscal year ending Sept. 30. The bill was introduced by Rep. Tom Cole (R-OK) on March 2 and passed in the House on March 5. However, it has triggered a partial government shutdown and is under heated debate in the Senate. Republicans insist on passing the complete bill with increased funding for national security and border protection. The legislation also includes provisions prohibiting funds for Diversity, Equity and Inclusion and Critical Race Theory programs, as well as abortions and gender-affirming care for ICE detainees. Senate Democrats are seeking to include guardrails that would prohibit ICE agents from wearing masks or entering homes, schools, hospitals, etc., without a judicial warrant.

PAY TSA Act of 2026 – Rep. Nick Langworthy (R-NY) introduced a carve-out bill for DHS on March 16, authorizing specific fees already collected to fund the Transportation Security Administration (TSA) during shutdowns. The bill would direct the Aviation Passenger Security Fee (initiated after the 9/11 terror attacks) to be used to pay TSA agents during any period that TSA appropriations lapse. Airlines currently charge this passenger fee ($5.60 for a one-way trip and up to $11.20 for a round-trip) for flights that originate in the United States. The bill is not expected to pass due to Republican opposition to carving out funding from the general DHS appropriations bill.

End Special Treatment for Congress at Airports Act of 2026 (S 4123) – Sen. John Cornyn (R-TX) introduced this bill on March 17 as a companion bill reflecting stalled appropriations for DHS – and for TSA workers specifically. The bill calls for a ban on Congressional lawmakers’ current preferential status that enables them to sidestep security checkpoint lines at U.S. airports. The ban would require members of Congress to wait in TSA lines along with other passengers. The bill passed in the Senate on March 19, and its fate now lies with the House.

Version 2