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Accounting and Finance TABLE OF CONTENTS BACKGROUND 1 DeBT VALUATION 2 Debt Structure of Firm

   

Added on  2020-05-04

13 Pages2970 Words237 Views
ACCOUNTING ANDFINANCE

TABLE OF CONTENTSBACKGROUND........................................................................................................................1DEBT VALUATION.................................................................................................................1Explain short term and long term debts used by an entity.....................................................1Explain the consistency of the debt structure of firm with the industry.................................2How industry influences the company’s long term and short term debt proportions............2Costs of company’s debt........................................................................................................3SHARE VALUATION..............................................................................................................3Company’s cost of equity.......................................................................................................3Evaluate and explain firm’s revenue, earnings, EPS, dividends and growth.........................3Value firm’s stock using comparable approach and constant dividend growth model..........5Explain the reasonableness of the company’s stock as compare to the market.....................6State additional information required in valuing stock along with the reasons.....................6COST OF CAPITAL..................................................................................................................6Calculate WACC....................................................................................................................6State the role of tax rate in determining WACC....................................................................7Different between costs of debt and cost of equity................................................................7Comment on the inclusion of current liabilities while ascertaining the amount of cost of capital and state its pros and cons...........................................................................................7Importance of WACC and its usage in decision making.......................................................8Examples to shows the importance of WACC.......................................................................8Define capital structure of an entity and its consistency with the industry............................8What is an optimal capital structure and state economic situation that changes the overall capital structure?.....................................................................................................................9MARKET ANALYSIS..............................................................................................................9Comment on the financial performance of the selected firm.................................................9Conduct financial analysis of the company............................................................................9State the important element about the firm............................................................................9REFERENCES.........................................................................................................................11

BACKGROUNDR3D has chosen for the current assignment which deals in providing investmentrelated services to all the users takes laces in the external environment. Previous name of thisenterprise was Red chip international Ltd which is an Australian based firm come intoexistence in the year 2004 to offer investor relation services as meeting all the demands of thecustomers is an important motive of the business. After 12 years of the services offered bythis entity finally the business has registered under the Australian stock exchange market toavail the market volatility. By taking all the advantages of stock market the so that firm canboost its overall earnings as the decision of listing under the stock market is to ensure itssurvival for time period in the same industry too get all the advantages of increasing theoverall returns by the firm (Red chip International Ltd( R3D), 2017). Apart from offeringinvestor relations services other kinds of services offered by the firm includes media services,business advisory, digital production and distribution services to attract variety of users fromthe external market.DEBT VALUATIONExplain short term and long term debts used by an entityShort term debt refers to current liabilities and long term debt refers to non-currentliabilities held in a business according to the particular time period for which debt has takenby an entity to accomplish all aims and targets (Bouabdallah and et. al., 2017). Short termdebt of the firm includes two components such as trade payables and shot term borrowingsheld in an entity and on the another hand, long term debt includes only long term borrowingstaken by the owner to meet its long term desire. A reason of the borrowings is to meet thefinancial requirements of the firm.Particulars20152016% changeShort term debtTrade payables1028693787663%Borrowings1775002828584%Total2803696616176%1

Long term debtBorrowings159926209141-31%Total159926209141-31%Explain the consistency of the debt structure of firm with the industryParticulars20152016Equity418918187608Short term debt28036966161Long term debt159926209141Total debt440295275302Debt to equity105%147%Debt/equityIndustry average37.91%37.91%Above table shows the actual performance of R3D firm with the results of the overallindustry as it shows the fluctuating performance of the business concern with the company’sperformance (Seo, Kim and Sharma, 2017). Industry average is just 37.91% and on the otherhand, debt to equity ratio in 2015 is 105% which increases to 150% in 2016 shows the overallperformance of the business.How industry influences the company’s long term and short term debt proportionsParticulars20152016% changeIndustry averageVarianceShort termdebt2803696616176%37.91%38.49%2

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