Abn amro have just reduced the net asset value of cairn energy from 2300 to 1800. how do you work these amount

Answer 1

These targets are mostly guesswork. ABN (and other investment banks) employ staff to research energy companies full time. From time to time they make try to guess what the share price should be. They make a whole series of assumptions; like how much oil will be worth in 3 years time, what tax rate Cairn Energy is likely to be paying, how much oil China will want to buy, etc, etc. They use all these figures to write up a report suggesting what the share price should be. It is of course completely bogus, most of the assumptions made by investment banks are rubbish and the figures are mostly driven by whether or not they want some business from the company involved. The quickest way to get a large corporate client to give you some business is to tell the world that their shares are 25% undervalued and should be bought immediately.

These sort of announcements should be ignored. They have zero impact on the long term share price and are mostly wrong.