Premium Essay

Research Paper (Basic Finance)

In: Business and Management

Submitted By supfrsh
Words 1939
Pages 8
Table of Contents

1. Introduction & Methodology
Tasked to determine if Treats Inc. is correctly priced, the team first determines the intrinsic value using the Corporate Valuation Model and compares it with the current price. Next, financial ratios of Treats are compared across its peer groups to determine its relative performance in the industry. Lastly, a Sensitivity Analysis is conducted to understand the impact of deviations of assumptions made in the model.
2. Assumptions
On top of the given assumptions found in Appendix 1, we assume (1) Depreciation expense each year is calculated by straight-line method with reference to previous year’s Fixed Asset book cost. (2) Treats Inc. is a company engaged in business retailing of food, general merchandise and it operates a series of hypermarkets and supermarkets around the world. (3) The return of the MSCI ACWI is taken as the market benchmark return.
3. Deriving the Intrinsic Value per Share (i) Using SLOPE function in EXCEL, β=0.55943882

(ii) WACC=rD*1-TC*DV+rE*EV rE=rf+βrM-rf=0.072466329 WACC=0.06632138

(iii) CFFA=OCF-NCS-ΔNOWC Year | 2014 | 2015 | 2016 | 2017 | 2018 | CFFA ($, In 000s) | 1,099,500 | 1,052,438 | 996,743 | 931,457 | 855,517 |

(iv) Terminal value represents value of firm at the point that growth becomes constant.
TV=CFFA2019WACC-gCFFA=855,5171.0150.06632-0.015=$16,919,842,000

(v) Discounting Treats’ CFFA and TV by WACC,
PV of Treats’ future operating cash flows=$16,392,965,000

(vi) Total Firm Value=PV of Treats’ future operating cash flows+Cash =$17,192,965,000 (vii) MV of Equity=MV of Firm-MV of Debt
MV of Debt=Firm Debt Ratio*Total Assets =$2,578,945,000
MV of Equity=$14,614,020,000

(viii) Treats'Equity price per share=MV of EquityTotal Number of Shares Outstanding=$182.68
4. Fundamental Analysis
We…...

Similar Documents

Premium Essay

Finance Paper

...E9121 M.B.A 1ST YEAR |Goodwill Hospital and Research Centre | |Focused on neuro and cardiac surgeries | | | |About the company | |Incorporated in 2000, Goodwill Hospital & Research Centre Ltd is engaged in running a multi speciality hospital at Noida (Ojjus Medicare). The hospital provides | |specialty treatment like Neurology and Neuro surgery, Cardiology and Cardiac surgery and Orthopaedics with emphasis on Joint Replacements and Sports Injuries. | |The hospital also offers a wide range of tertiary care services in varied fields of medicine. The services entail comprehensive medical solutions, including | |consultancy, diagnostics and therapy. | |Goodwill Hospital & Research Centre is raising money for its proposed advanced 500 bedded Oncology Super......

Words: 2421 - Pages: 10

Premium Essay

Corporate Finance Basics

...Corporate Finance Basics Topics 1) 2) 3) 4) 5) 6) Capital Budgeting Cost of Capital Measures of Leverage Dividends and Share Repurchases Working Capital Management Financial Statement Analysis Capital Budgeting Introduction The Capital Budgeting Process is the process of identifying and evaluating capital projects, i.e., projects where the cash flow to the firm will be received over a period longer than a year. Capital budgeting usually involves the calculation of each project’s future accounting profit by period, the cash flow by period, the present value of the cash flows after considering the time value of money, the number of years it takes for a project’s cash flow to pay back the initial cash investment, an assessment of risk, and other factors. 5 Key Principles of Capital Budgeting 1) Decisions are based on cash flows, not accounting income (Incremental cash flows are to be considered, not sunk costs) 2) Cash flows are based on opportunity costs 3) The timing of cash flows is important 4) Cash flows are analyzed on an after-tax basis 5) Financing costs are reflected in the project’s required rate of return Net Present Value (NPV) The NPV is the sum of present values of all expected incremental cash flows if a project is undertaken. The discount rate used is the firm’s cost of capital. For a normal project with an initial cash outflow, flowed by a series of cash inflows (after tax), the NPV is given by:- For independent projects, the NPV decision rule is......

Words: 3541 - Pages: 15

Premium Essay

The Basic Tools of Finance

...27 THE BASIC TOOLS OF FINANCE WHAT’S NEW IN THE SIXTH EDITION: There are two new In the News boxes on “A Cartoonist’s Guide to Stock Picking” and “Is the Efficient Markets Hypothesis Kaput?” LEARNING OBJECTIVES: By the end of this chapter, students should understand: the relationship between present value and future value. the effects of compound growth. how risk-averse people reduce the risk they face. how asset prices are determined. CONTEXT AND PURPOSE: Chapter 27 is the third chapter in a four-chapter sequence on the level and growth of output in the long run. In Chapter 25, we discuss how capital and labor are among the primary determinants of output and growth. In Chapter 26, we addressed how saving and investment in capital goods affect the production of output. In Chapter 28, we will show some of the tools people and firms use when choosing capital projects in which to invest. Because both capital and labor are among the primary determinants of output, Chapter 28 will address the market for labor. The purpose of Chapter 27 is to introduce the students to some tools that people use when they participate in financial markets. We will show how people compare different sums of money at different points in time, how they manage risk, and how these concepts combine to help determine the value of a financial asset, such as a share of stock. KEY POINTS:  Because savings can earn interest, a sum of money today is more valuable than the same sum of......

Words: 4409 - Pages: 18

Free Essay

Islamic Finance Research Paper

...Islamic Finance is a financial system that doesn’t work like other conventional banking systems. It follows the Islamic law, Shariah, which doesn’t allow certain aspects of a normal banking system such as usury and speculation. There are some main principles to be followed in Islamic banking. First of all, it prohibits interest, or Riba. Riba is forbidden in Islam, and therefore Islamic banking system adopts the principle of profit and loss sharing. It also prohibits uncertainty, gambling, and prohibits certain products and industries such as alcohol and tobacco. Islamic Finance needs to be in accordance with the Shariah. All products and contracts follow Islamic principles that conventional financial systems do not, such as interest and risk sharing, and uncertainty. Conventional financial systems have never worked this way and it worked for them for many years until they were hit by the financial crisis. The crisis had a minimal impact on the Islamic financial systems because they did not comply with all the factors that created the crisis in the first place. There were 3 main factors in the creation of the financial crises. First, subprime loans, which was lending to certain people who did not have a good credit history and were bound to default. The banks than charged them with higher rates that increased their risk of defaulting. Secondly, there was securitization, which was creating securities from un-liquid assets. This process is used by banks to create securities......

Words: 2899 - Pages: 12

Premium Essay

Basic Finance

...Finance has a close relationship to a number of other business disciplines. It is important that we understand why a finance major needs these other skills and abilities.  Let's take them one at a time: 1. Economics provides the theory that finance uses.  The field of finance is a very new discipline, beginning formally around 1920.  Before that, financial problems were referred to as "economic problems" or (even earlier) "problems in political economy."  During the 1920s, finance broke away from economics and became a discipline of its own.   Think of finance today as being applied economics.  In other words, economics provides the theory; finance takes that theory and applies it to real world situations. 2. Accounting is sometimes called "the language of business" and it is certainly true that it is a language that finance practitioners need to be familiar with.  Finance majors work with numbers generated by the accounting profession:  income statements, balance sheets, cash flow statements, etc.  Although  finance practitioners don't need to know the intricate details of how these numbers were determined, they do need to know enough accounting to properly use these numbers in an analysis of financial problems. 3. Management provides the communication and organizational skills that all finance personnel need.   Finance practitioners spend most of their day interacting with other people, so the ability to work effectively with others is crucial. 4.......

Words: 2026 - Pages: 9

Premium Essay

Citibank Basics of Corporate Finance

... Basics of Corporate Finance May 1994 Basics of Corporate Finance Warning These workbook and computer-based materials are the product of, and copyrighted by, Citibank N.A. They are solely for the internal use of Citi-bank, N.A., and may not be used for any other purpose. It is unlawful to reproduce the contents of these materials, in whole or in part, by any method, printed, electronic, or otherwise; or to disseminate or sell the same without the prior written consent of the Professional Development Center of Latin America Global Finance and the Citibank Asia Pacific Banking Institute. Please sign your name in the space below. Table of Contents TABLE OF CONTENTS Introduction: Basics of Corporate Finance Course Overview........................................................................................xi Course Objectives ...................................................................................xiv The Workbook...........................................................................................xv Unit 1: Financial Statement Analysis Introduction...............................................................................................1-1 Unit Objectives ........................................................................................1-1 Balance Sheet.........................................................................................1-2 Assets ...................................................................................

Words: 88052 - Pages: 353

Free Essay

Basic Tools of Finance

...Ch26-Basic Tools of Finance 1. The future value of a deposit in a savings account will be larger a. the longer a person waits to withdraw the funds. b. the higher the interest rate is. c. the larger the initial deposit is. d. All of the above are correct. 2. Edgar has four savings accounts. Which one has the most in it? a. $100 deposited 1 year ago at an 8% interest rate. b. $100 deposited 2 years ago at a 4% interest rate. c. $100 deposited 4 years ago at a 2% interest rate. d. $100 deposited 8 years ago at a 1% interest rate. 3. Suppose that the price of a bond is equal to the sum of the present value of its future payments. Suppose further that this bond pays $50 in one year and $1,050 in two years. What is the price of the bond if the interest rate is 5 percent? a. $1,050.00 b. $1,045.35 c. $1,000.00 d. $945.35 4. Prospect theory says that a. people should follow their gut feelings and purchase stocks they think have good prospects. b. people will tend to sell off winning investments too quickly and hold onto losing ones too long. c. people tend to be overly pessimistic about developments in the stock market. d. during a speculative bubble most people are thinking that they won’t be able to get out of the market before the bubble bursts. 5. Al, Ralph, and Stan are all intending to retire. Each currently has $1 million in assets. Al will earn 16% interest and retire in two......

Words: 3637 - Pages: 15

Premium Essay

Basic Finance Essential

...Essential of Finance – Glossary Accounts payable (A/P). Money owed by the firm to agencies and suppliers. Accounts receivable (A/R). Money owed to a company for goods or services sold. The figure is important in determining a business's ability to meet its financial obligations. Accrual accounting. An accounting method whereby income and expenses are booked when they are incurred, regardless of when they are actually received or paid. Revenues are recognized during the period in which the sales activity occurred; expenses are recognized in the same period as their associated revenues. Accruals. An amount incurred as an expense in a given accounting period—but not paid by the end of that period. An example would be the electricity bill for a given quarter. Acid-test ratio. See quick ratio. Activity-based costing (ABC). An approach to cost accounting that focuses on the activities or cost drivers required to produce each product or provide each service. ABC assumes that most overhead costs are related to activities within the firm and that they vary with respect to the drivers of those activities. Allocation. The process of spreading costs from one expense category to several others, typically based on usage. For example, such corporate overhead expenses as rent and utilities may be charged to departmental units based on square feet. Amortized expenses. The costs for assets, particularly intangible assets such as intellectual property, which are depreciated......

Words: 3306 - Pages: 14

Premium Essay

Managerial Finance Research Paper

...602 4,105,201 2,574,790 201,738 8,214,441 6,881,729 -----+-------·---------·----·--·----··-·-----·--·--- Operating Income 1465,267 1,244,791 820,860 Interest income Interest expense Other income (expense), net Income Before Income Taxes Incon1e Taxes 3,353 (93,605) 46,860 ----------- 1421,875 335,737 4,778 (77,578) (7,248) 1,164,743 274,350 2,336 (77,738) 4,754 750,212 176,700 Net Income Net (Income) Loss Attributable to Noncontrolling Interests 1,086,138 573,512 (139) (2,150) Net Income Attributable to VF Corporation $ 1,085,999 $ 888,089 $ 571,362 Earnings Per Share Attributable to VF Corporation Common Stockholders Basic Diluted Weighted Average Shares Outstanding Basic Diluted $ 9.89 $ 8.1;1 $ 5.2;) 9.70 7.98 5.18 109,823 109,287 108,764 111,904 111,288 110,328 Cash Dividends Per Common Share $ Basis of presentation: VF operates and reports using a 52/53 week fiscal year ending on the Saturday closest to December 31 of each year. For presentation purposes herein, all references to '·2012"', "'2011·' and "2010" relate to the 52-weck fiscal years ended December 29, 2012, December 31, 2011, and January l, 2011, respectively. 3.03 $ 2.6...

Words: 3253 - Pages: 14

Premium Essay

Basic Principles of Finance

...interest rate, just so they can get some return on their money (decrease in interest rates). Interest rates change until demand is equal to supply. 5. Describe how a bond is like a loan. A bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals. Thus a bond is like a loan: the holder of the bond is the lender the issuer of the bond is the borrower, and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Certificates of deposit or commercial paper are considered to be money market instruments and not bonds....

Words: 1067 - Pages: 5

Premium Essay

Finance Paper

...Financing Needs 13 Conclusion 14 Appendices 15 Income Statement 15 Balance Sheet 16 Sources and uses 17 Percentage of Sources and Uses 19 Firm Ratios 21 Industry Ratios 22 Graphs of Ratios 23 Bibliography 26 Introduction This paper contains the financial analysis of Stryker corporation and its major competitors during the past 5 years. Also a 3 year forecast is created to show were the company is heading and changes needed to be made to be more efficient. Theme Time are hard for the medical industry with the global economic crisis and with the announcement of the Affordable Care Act’s medical device excise tax. Stryker corporation has done better than the industry on average sustaining a strong financial while presenting new products in the market. Growth is becoming slow for mature firms but Stryker is making all the right moves to dominate the market. To increase growth the company has shifted its focus on acquisitions. With the acquisition of Trauson, a Chinese leading manufacturer of surgical products, the company continues to focus on sales outside the United States. Also with the growing demand increase for orthopedic products, the company needs to continue investment in research and developments, and increase production volume. History of the Firm Stryker is a medical equipment supplying company based on Kalamazoo, Michigan. It was founded by Dr. Home Stryker due to his need for better equipment. Dr. Homer......

Words: 4190 - Pages: 17

Premium Essay

A Basic Guide to Finance and Accounting

...A Basic guide to finance and accounting This article will explain the importance of finance and accounting in a start-up business and also demonstrate the means that business’ can source money internally and externally. The start-up idea I will be relating this too is a car dealership in Yorkshire Mikes wheels. Internal finance is money that can be sourced from inside the business. The business in question is a small start-up business so the sources of finance are limited in terms of selling assets to free up cash; the premises are fixed assets as they are vital to the business. The cars are current assets as it is easier to turn them into cash therefore due to the nature Mikes Wheels selling cars is the objective. Profits retained from start-up businesses are usually minimal, as an owner personal savings and input are the main internal source unless a bank loan is secured. An external source of finance is the phrase used to describe funds acquired outside the business, usually used in contrast to internal sources of finance the finance is acquired from a party separate to the business e.g a) Owners who invest money in the business over a long period of time. The owner of Mikes Wheels will find himself needing to inject money into the business for a couple of years as Mikes business grows. b) Loans from a bank or from family and friends. c) Debentures are loans made to a company. d) A mortgage, which is a special type of loan for buying property where monthly payments...

Words: 1515 - Pages: 7

Premium Essay

Finance Paper

...ratio analysis is a useful tool for managers and investors that would like to evaluate the company’s financial health. By using this analysis companies are able to identify opportunities for growth and areas of weakness to determine where corporations can put in place corrective measures in order to rectify their areas of weakness.  Financial statements are used in order to predict trends of cash flow within the business as well as predict the potential of a business and if they are capable of financial growth. Ratio analysis allows companies to analyze the future revenue of a company’s profit or a company’s loss.   This paper will examine the benefits and limitations of ratio analysis, explain what factors impact the meaningfulness of such measures and what new practices or theories may be emerging regarding the application of ratio and financial statement. The paper concludes that ratio and financial statements is an essential tool used in analyzing a company’s profit. Close your eyes and think about all of the products you have consumed today. You purchased lunch from McDonald’s, used Google to help you find directions, drove your Toyota to work and grabbed your Nike sneakers as you headed to the gym. What do all of these brands have in common? They are well known market leaders and multinational organizations. Consumers are unaware of how many multinational brands they come into contact with daily, however, these organizations......

Words: 1302 - Pages: 6

Premium Essay

Finance Basic

... Finance The study of money and how it is used. Finance considers the relationship of money to time and risk. One of the main subsets of finance is the study of credit and banking, as this involves money, time, and risk all together. Finance may deal with personal or corporate issues, such as how will an individual or company acquires the money needed to perform a certain act. Debt. A debt is an obligation to repay an amount you owe. Debt securities, such as bonds or commercial paper, are forms of debt that bind the issuer, such as a corporation, bank, or government, to repay the security holder. Debts are also known as liabilities. Bond. Bonds are debt securities issued by corporations and governments. Bonds are, in fact, loans that you and other investors make to the issuers in return for the promise of being paid interest, usually but not always at a fixed rate, over the loan term. The issuer also promises to repay the loan principal at maturity, on time and in full. Because most bonds pay interest on a regular basis, they are also described as fixed-income investments. While the term bond is used generically to describe all debt securities, bonds are specifically long-term investments, with maturities longer than ten years. Security 1. An instrument that, for a stock, shows ownership in a firm; for a bond, indicates a creditor relationship with a firm or with a federal, state, or local government; or signifies other rights to ownership. 2. Collateral used to guarantee......

Words: 1786 - Pages: 8

Free Essay

Basics of Finance

...Ch 1: BASIC CONCEPTS IN FINANCE • Finance is the study of how resources are valued and allocated in time. • Outcomes of financial decisions are spread out over time and not known with certainty in advance • Three key concepts in finance are : Time value of money Asset Valuation (stocks, bonds, derivatives,...) Risk management 1.1: Interest and return • Income almost never matches consumption desires exactly. Either one will need to borrow to purchase more than one can afford or save excess income. • Costs / benefits of financial decisions are spread over time. So one needs to compare values of cashflows which mature at different times. Time value of money: 1ZAR in the hand today is worth more than the expectation of 1ZAR in the future. Why? • Opportunity cost: To give up consumption of your 1ZAR today, you would expect to be rewarded with a greater amount in the future; the promise of consumption at a higher level in the future motivates one to save. The desire to receive surplus on savings leads to an interest rate called the pure time value of money. • Inflation: Prices of goods rarely stay the same over time. The purchasing power of 1ZAR now is (usually) greater than 1ZAR later. Investors expect a higher rate of return to compensate for inflation. • Uncertainty: One may not receive the expected sum - this is referred to as investment or credit risk. • Opportunity cost: Pure time value of money give rise to pure rate of interest. • Inflation: The rate......

Words: 3782 - Pages: 16