Business Valuation and Analysis Project Report

This project report focuses on the business valuation and analysis of Blackmore Limited, an Australian company offering health products. It includes forecasting, valuation, sensitivity analysis, and management consulting decisions.

Running Head: Business valuation and analysis
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Project Report: Business valuation and analysis

Business valuation and analysis 2
Contents
Introduction:.....................................................................................................................4
Forecasting:.......................................................................................................................4
Sales growth:................................................................................................................4
Asset turnover ratio forecast (ATO forecast):..............................................................7
PM:...............................................................................................................................8
Free cash flow and Net dividend payout ratio forecasting:........................................10
Cost of debt:................................................................................................................11
Cost of equity:.............................................................................................................12
Valuation:.......................................................................................................................13
Dividend discount model:...........................................................................................14
Residual income model:.............................................................................................15
Residual operating income model:.............................................................................15
Free cash flow model:.................................................................................................16
Sensitivity analysis:........................................................................................................16
Sales growth:..............................................................................................................16
ATO:...........................................................................................................................17
PM:.............................................................................................................................17
Net dividend payout ratio:..........................................................................................18
Cost of debt:................................................................................................................18
Cost of equity and WACC:.........................................................................................18
Management consulting decisions:.................................................................................19
Opportunities..............................................................................................................19

Business valuation and analysis 3
Challenges...................................................................................................................19
Conclusion:.....................................................................................................................20
References:.....................................................................................................................21
Appendix.........................................................................................................................22

Business valuation and analysis 4
Introduction:
The report has been prepared on Blackmore limited. The future forecasting, valuation,
sensitivity analysis, management consulting decision etc models have been applied on the
company to measure the future performance and current capital market performance of the
business. Blackmore limited is an Australian company which offers health products such as
herbal supplements and vitamins. The company has started its operations in the year of 1930
and from that time, it has expanded its business into overseas market. The prospective
analysis has been done on the company along with the other financial models to measure the
future performance of the company. the main objectives of the report is to evaluate the
overall market performance and the future forecasting of the company in order to make a
better investment decision in the company.
Forecasting:
Forecasting analysis is a financial analysis model which is used by the financial analyst
or financial manager of an organization in concern to evaluate the future performance &
position of an organization. In the case of Blackmore limited, a forecasting process has been
done on the company for the next 5 years from 2019 to 2023. The historical data of the
company has been taken into the context to calculate the future changes in the business. The
other factors have also been taken into the context to measure the company’s overall financial
performance in next 5 years.
Sales growth:
In order to forecast the sales growth, sales price and the quality of the products of the
company, the forecasting application has been applied on the business. In order to evaluate
the past sales growth of the business, it has been found that the sales growth of the company
has been influenced with the industry, GDP; inflation rate etc. on the basis of calculations,
sales growth rate of the business was higher in 2016. The revenue of the Blackmore limited
was $ 717,211 thousand. The reasons behind this expansion are china market which has boost
up the overall sales of the company.
Though, in the year of 2017 and 2018, a decrement has been seen in the sales growth of
the business because of the sales pattern of the business. However, the sales price and product

Business valuation and analysis 5
quality of the business is better and which would help the business to improve the
performance in near future. The sales growth rate of the company in next 5 years is as
follows:
Figure 1: Sales Growth
(Statista, 2018)
Blackmore has faced different growth rate of sales in last 5 years. On the basis of the
calculations, it has been found that the changes in the sales structure of the company would
affect the sales growth rate of the company in next 2 years as well. But along with the time,
positive changes would take place in the sales performance of the company because of the
changes in the strategically positions and the diversification of business at new market. the
sales of the company has been reduced by 13% in the year of 2018 and further it has been
estimated that in the next 2 year, it would take some time to the company to manage the sales
level of the business and further, it would be improved at a great extent.
Though, the changes in the sales pattern of the company has affected the sales
position of the company from number 1 to number 2 at host country as well as at other
diversified companies. The new strategies of the company such as opening the new stores,
diversified at new market, offer quality products etc would help the company to improve the
sales level in the market (Moles, Parrino and Kidwekk, 2011).
The inflation rate of the global market has also been studied and it has been found that
the price of the product is very much influenced with the inflation rate of the global. The
below given figure explains the inflation rate of the country would be improved at a constant

Business valuation and analysis 6
rate. The inflation rate would improve the sales price of the company’s product which would
affect the overall sales level of the business.
Source: Bloomberg, 2018
The figure epxlains that in the year of 2021, the inflation rate has been reduced. It
would help the business to manage the sales price of the products and improve the demand of
the company’s products. Along with it, the GDP factors have also been taken into the context
to recah overa better conclusion about the sales forecast of the company. GDP factors would
also pressurise the prices of Balcmore limited. The australian market and china market’s GDP
has been taken into the context mainly to meausre the impact of the sales kevel of the
company.
On the basis of the study, the chnages into the GDP rate in the australian market and
china market, it has bene found that the GDP level would be reduced in the year of 2022 and
2023 which would improve the sales level of the company.
2018 2019 2020 2021 2022
GDP
Forecast of
Australia
and china
market
6.3% 6.2% 6% 5.8% 5.5%

Business valuation and analysis 7
The other factors such as population rate, industry growth rate etc has been taken into
the concern. The population rate of the country is expected to be decreased because of the
low fertility rate as well as the industry growth rate would be expected to be improved in near
future which would lead to the business towards better performance. On the basis of the
overall study on the sales growth rate, it has been measured that the overall performance of
sales would be improved in the year of 2021, 2022 and 2023. The diversification and other
strategies would help the business to achieve the level.
Asset turnover ratio forecast (ATO forecast):
In order to forecast the asset turnover ratio, efficiency level and the past figures,
performance of the assets have been measured. The forecasting application has been applied
on the business to identify the overall performance in near future. In order to evaluate the
ATO ratio of the business, it has been found that the level of asset depends on the demand of
the products of the business. On the basis of calculations, asset turnover forecast of the
company was higher in the year of 2016. The ATO ratio of the company was 2.92. The
reasons behind this expansion are the better management of the assets in order to expand the
sales level in the china market (Madura, 2014).
Though, in the year of 2017 and 2018, a decrement has been seen in the ATO ratio of
the business because of the decrement in the sales level of the business. However, the few
changes into the strategically performance and the resources level would make the changes in
the overall performance of the business. The ATO forecast of the company in next 5 years is
as follows:

Business valuation and analysis 8
Figure 2: ATO Forecast
Source: Market.ft.com, 2018
The above figures explain that the ATO level of the Blackmore limited has been
changed at a great extent from 2013 to 2018. The average ATO position of the Blackmore
limited is 2.25 in last 5 years. Blackmore was not able to make the changes in the assets and
resources level on the basis of the available demand of the products in the market. Thus, it
has been estimated that it would lead to the asset turnover level same. The current efficiency
rate of the business explains that the sales position of the company is average against the
available resources of the business.
The forecast of ATO explains that the ATO ratio of the company would be improve in
the year of 2021, 2022 and 2023 because of the higher sales in the market against the
available resources of the business. It has also been measured that this would improve the
efficiency level of the business.
PM:
In order to forecast the profit margin ratio, the past figures of the business has been
measured and the profit level has been measured on the various bases such as the forecasted
sales, cost of goods sold and expenses of the business. Evaluation on the profit margin is one
of the crucial tools of the business which helps the business to understand the revenue over
the expenses of the business. The forecasting application has been applied on the business to
identify the overall performance in near future. In order to evaluate the profitability margin
ratio of the business, the profit margin of the company has been found highest in the year of

Business valuation and analysis 9
2016. The PM ratio of the company was 101,287 thousands and the increment rate in profit
margin is 107%. The reasons behind this expansion are the higher sales turnover of the
business and the better management of the expenses of the company (Blackmore.com.au,
2018).
Though, in the year of 2017 and 2018, a decrement has been seen in the PM ratio of the
business because of the decrement in the sales level of the business. However, the few
changes into the strategically performance and the resources level would make the changes in
the overall performance of the business. The Pm forecast of the company in next 5 years is as
follows:
Figure 3: Forecasted PM
(Market.at.com, 2018)
The calculations express that the profit margin rate of the company would be lower in
the next 2 years abut along with the changes and improvement in the strategic result of the
business, the profit margin level of the business would also be improved. On the basis of the
study, the profit margin level in the year of 2019, 2020, 2021, 2022 and 2023 is 7%, 7%, 8%,
8% and 8% respectively. It expresses that the profitability margin of the business would be
improved after the changes into the GDP level, sales price, sales volume, overall turnover,
expenses etc of the business.
The company has heavily invested in the robotics in order to reduce the level of cost
and improve the economies of scale of the business in the year of 2017-2018. But the
implementation and the benefit from this project could be got after 2 years. The new product

Business valuation and analysis 10
launch of the company, infant baby formula would also improve the profitability level of the
business. Further, it has been found that the demand in the industry is continuously improving
which would improve the profit margin of Blackmore limited.
In the profitability trend of the company, the profit margin of the Blackmore limited has
been reduced in the year of 2017 and 2018. The negative trend has come into the profitability
margin of the business because of the shield increment in the sales level and profitability
level of the company in the year of 2016. The forecasting level explains that in next 5 years,
the highest profit margin growth rate of the company would be 8% only because of the lower
demand of the products and various GDP, inflation rate, political factors etc in the business
(Higgins, 2012).
However, the international market diversification could help the business to improve
the sales and the profit margin level of the business. The previous data of the company
represent that around $ 312 million sales of the company id from Asian market only. So a
conversion rate would help the company to reduce the overall expenses and improve the
profitability margin of the business. It has been estimated that the AUD conversion rate slows
at reduced rate on the basis of the USD rate. However, in case of Chinese currency, Yuan, it
has been found that the reduced rate of Yuan is higher. The changes and the implementation
of conversion rate in the business would improve the overall performance of the business.
Free cash flow and Net dividend payout ratio forecasting:
Free cash flow is a crucial figure of finance which explains the total cash managed by
the company at a particular date. In order to forecast the free cash flow, the past figures of the
business have been measured and the profit margin of the business as a function of NOPAT
has been measured. Evaluation on the free cash flow forecasting is offers a decision base to
the management and other stakeholders of the business. The positive FCFF explains that the
company has enough funds to raise, run and manage the operations of the business whereas
the negative FCFF explains that the company has not enough funds to run the business and
thus it is depending on the stakeholders for the funds (Kaplan and Atkinson, 2015).
The forecasting application has been applied on the business to identify the overall
performance in near future. In order to evaluate the free cash flow of the business, NOA
position of the company has been improved at great extent because of the changes in the
operations and acquisitions. The company has improved the level of free cash flow in order to
meet the demands of the business. Because of the increment in the NOA, the returns of the

Business valuation and analysis 11
company have been improved as well the FCF level of the company represents about the
better cash management.
2019 2020 2021 2022 2023
Calculated FCFs (‘000) -15,436 56,362 94,186 41,638 40,577
Forecasted net dividend
payout 58.00% 58.00% 58.00% 58.00% 58.00%
(Statista, 2018)
On the basis of the estimated level of FCFF of the business, it has been found that the
main issues with FCF level of the business are dividend payout. The forecasting process
briefs about the dividend payout ratio of the company which would be 58%. In the year of
2019, it has been estimated that the FCF of the company would be lower because of the huge
impact on the sales level. From the historic dividend payout, it has been found that the free
cash flow of the company would be $ -15,436,000 in the year of 2019. But along with the
time and the changes into the sales turnover and credit policies of the business would
improve the overall free cash flow level of the business.
In the year of 2020, 2021, 2022 and 2023, it has been estimated that the cash level of
the business would be improved along with the same %. It has been estimated that in the year
of 2021, the free cash flow level of the business would at highest because of the demand of
the market and in order to manage the liquidity ratio of the business. The company is
managing the positive cash flow, in order to improve the liquidity position and maintain the
sudden demand of the stakeholders of the company.
Cost of debt:
Cost of debt of Blackmore limited has been studied further to measure the total cost
which is associated with the business because of the debt level of the business. It has been
estimated that the cost of debt of the business from the year of 2019 to 2023 would be 3.71%.
No changes would occur in the cost of debt level of the business. It has been found that the
interest rate which would be paid by Blackmore is estimated to be remain the same. The
borrowing interest rate paid by Blackmore limited is almost similar with the RBA pricing, the
reasons behind the similar pricing of debt interest rate is reserve bank of Australia. The slight
changes in the expansion of the debt level in the capital structure of the business could affect
the overall cost level of the business.

Business valuation and analysis 12
2019 2020 2021 2022 2023
Forecasted cost of debt
after tax 3.77% 3.77% 3.77% 3.77% 3.77%
(Bloomberg, 2018)
It expresses that the level of the cost of the debt would be similar in all the next 5 years
and it would not affect the level of cost of debt of the company.
Cost of equity:
Further, to measure the Blackmore’s stock price, the calculations of cost of equity of
the business have been done. Cost of equity of Blackmore limited has been studied further to
measure the total cost which is associated with the business because of the equity level of the
business. It has been estimated that the CAPM is used to measure the cost of equity of the
business that is a function of market risk premium, risk free rate and beta factor. Further, in
order to calculate the cost of debt and cost of equity level of the business, WACC has been
measured.
Through the overall study, it has been assumed that the risk free (rf) rate of the
Australian market is 2.64% along with the 6.5% market risk premium (Bloomberg, 2018).
The beta of the stock is 0.63. It leads to the conclusion that the cost of equity of the company
is 6.77%. It is expected that in next 5 upcoming years, the cost of equity of the company
would be 6.77%. The stakeholders of the company could expect to get 6.77% return from the
company.
After the calculation of cost of debt and cost of equity of the business, the study has
been conducted on the weighted average cost of capital of the business which explains that
how much cost would be occurred into the business because of the external source of funds.
The calculations of CAPM and WACC of the company are as follows:
CAPM
Risk free rate 2.64%
Βeta 0.63
Market Risk Premium 6.50%
Cost of equity =Rf+β*(Rm-Rf) 6.77%
Cost of Firm (WACC)

Business valuation and analysis 13
Shares Outstanding 17,227,000
Shares Outstanding ($’000) 17,227
Market Price (at the closing of trading on
Friday) 154.4
Market Value of Equity 2,659,848,800
Market Value of Equity ($’000) 2,659,849
NFO 78,180
Rd 3.77%
MV 2,659,849
Re 6.77%
NFO+MV 2,738,029
WACC 6.69%
(Bloomberg, 2018)
It represents that the total associated cost with the Blackmore limited is 6.69%.
Valuation:
In order to evaluate further on the future performance of Blackmore limited, the
valuation models have been applied on the business. Four valuation model has been applied
to measure the intrinsic value of stock of the company and it has been compared with the
company’s actual stock price on the date of 30th Sept, 2018 i.e. $ 132.42. Dividend discount
model (DDM), residual income model (RIM), free cash flow model (FCF model) and
residual operating income model (ROIM) has been applied on the business to measure the
actual stock price of the business. The models have been taken into the concern, the
perpetuity growth assumption and the time value of money.
The intrinsic value of the Blackmore stock from the entire 4 valuation model is as
follows:
Models
Total Value '000 Share Price Differences=Actual
price-estimated priceEstimated Actual Estimated Actual
DDM
$
650,757 $
2,659,849
$37.78 $132.42 $94.64
RIM
$
2,036,752 $118.23 $14.19
ROIM
$
2,116,218 15th Sept
2018
$122.84 30th
Sept
2018
$9.58
FCFM
$
491,951 $23.56 $108.86

Business valuation and analysis 14
(Yahoo finance, 2018)
On the basis of the above table, it has been measured that the stock price of the
company is overvalued on the basis of all the 4 valuation models.
Figure 4: Stock intrinsic values
(Yahoo finance, 2018)
Dividend discount model:
Dividend discount model has been applied firstly on the Blackmore stock to measure
the stock price of the company. It is a simple model which takes the concern on future
dividend’s present value to measure the stock price of the company. The model is mostly
used by the companies in order to evaluate the dividend payout performance and position of
the company among the stockholders. The limitations of the model are its dependency on the
sales.
Through the DDM model, the dividend growth patterns of the company have been
measured which would be changed on the basis of the huge number of aspects in the
business. on the basis of the overall study on the company and the future performance of the
business, the growth rate of the company would be 4%. The stock price value of Blackmore
limited on the basis of DDM is $ 34.48 whereas the company’s stock price on the date of 30th
Sept 2018 is $ 132.42. It expresses that the difference among the intrinsic value and the stock

Business valuation and analysis 15
price is $ 94.64 and it represents that the stock price of the company is overvalued in the
market (Yahoo finance, 2018).
Through conducting the study, it has been measured that the sales level of the
company has been changed a lot and thus the dividend discount model is better option in
order to measure the stock price of the business. In order to forecast the performance of the
company, it has been measured that the dividend payout ratio of the company is 58% which
is one of the reason behind the decrement in the stock price of the company.
Residual income model:
Residual income model, a valuation model (RIM) has been conducted further on the
Blackmore stock to measure the stock price of Blackmore limited. This model focuses on the
creation of the value rather than distribution of the values. It calculates the total return earn
by the company alongside the total expenses of the company. It is a simple model which
assumes that if the cost of capital and the return of the company are same than the market
value of the stock would be similar to the cost of equity of the business. The model is mostly
used by the companies in order to evaluate the cost of equity against the total cost of capital
of the business.
On the basis of this model, it has been found that this model is one of the effective
models in case of Blackmore limited because it takes the concern on the long term efficiency
of the business. However, it has been assumed that the perpetuity business’s growth rate
would be 5%. The value of stock price of the company on the basis of this model is $ 11.8.23
whereas the company’s stock price on the date of 30th Sept 2018 is $ 132.42 (Yahoo finance,
2018). It expresses that the difference among the intrinsic value and the stock price is $ 14.69
and it represents that the stock price is overvalued in the market.
Residual operating income model:
Residual operating income model (ROIM) study has been further conducted on the
Blackmore stock to calculate the stock price of the company (Lord, 2007).
On the basis of this model, the perpetuity growth rate of the business would be 2%.
The value of company’s stock price on the basis of this model is $ 122.84 whereas the stock
price of the company on the date of 30th Sept 2018 is $ 132.42 (Yahoo finance, 2018). It
expresses that the difference among the intrinsic value and the stock price is $ 9.58 and it
represents that the stock price of the company is overvalued in the market.

Business valuation and analysis 16
Free cash flow model:
Free cash flow (FCF) model has been conducted further on the Blackmore stock to
calculate the stock price. This model focuses on the cash flow level of the business.
On the basis of this model, the value of stock price of the company is $ 23.56 whereas
the stock price of the company on the date of 30th Sept 2018 is $ 132.42. It expresses that the
difference among the intrinsic value and the stock price of Blackmore is $ 108.86 and it
represents that the stock price of the business is overvalued in the market
On the basis of the entire valuation model, it has been assumed that the stock price of
the company is overstated.
Sensitivity analysis:
The residual income model has been taken into the concern in order to apply the
sensitivity analysis on the business. The main objective of this analysis model is to measure
that how stock price of the company has been changed along with the changes in other factors
of the company. the main factors which have affected the level of residual income model are
sales growth, ATO, profit margin (PM), cost of debt (Kd), cost of equity (Ke), net dividend
payout ratio etc. the optimistic and pessimistic level of the business has been chosen on the
basis of the various economical, industrial and internal factors of the business.
Sales growth:
Share price of a stock majorly depends on the sale growth of the business. Any
changes into the sales position directly affect the stock price of the company. Along with the
stock price, it also affects the NOPAT and NOA level of the business.
Sales growth
Δ share price Δ share price change
sensitive
valuation
Optimistic 20% 1.20% 124.85 1.63% 1815.000
10% 1.10% 123.02 0.14%
0 1.00% 122.84 0.00%
Pessimistic -10% 0.90% 119.35 -2.84%
-20% 0.80% 117.59 -4.28%
(Statista, 2018)
The above table explains that along with the few changes into the sales growth of the
business the stock price of the company has been affected. 20% positive changes lead to

Business valuation and analysis 17
1.63% positive changes into the stock price of the company. The table and the analysis
explain that the stock price of the company is quite sensitive because of the huge changes in
the stock price of the company along with the changes in sales volume.
ATO:
Asset turnover ratio is other factor which affects the stock price of the business. on the
basis of below given table, it has been found that from -20% changes to 20% changes in ATO
of the company affects the stock price of the company by -16.81% to 5.07%. It leads to the
conclusion that ATO could affect the stock price at great level and the stock of Blackmore
limited is quite sensitive.
ATO
Δ 2.00 share price Δ share price change sensitive
valuation
Optimistic 20% 2.40 129.07 5.07% 33.544
10% 2.20 124.18 1.09%
0 2.00 122.84 0.00%
Pessimistic -10% 1.80 111.15 -9.52%
-20% 1.60 102.19 -16.81%
(Markets.ft.com, 2018)
PM:
Profit margin ratio is other factor which affects the stock price of the business. on the
basis of below given table, it has been found that from -20% changes to 20% changes in
profitability margin of the company affects the stock price of the company by -32.01% to
57.03%. It leads to the conclusion that PM could affect the stock price at great extent and the
stock of Blackmore limited is quite sensitive.
PM:7.00%
Δ share price Δ share price change sensitive
valuation
Optimistic 20% 9.20% 192.90 57.03% 3566.739
10% 8.43% 179.96 46.50%
0 7.67% 122.84 0.00%
Pessimistic -10% 6.90% 99.44 -19.05%

Business valuation and analysis 18
-20% 6.13% 83.52 -32.01%
(Balcmores.com.au, 2018)
Net dividend payout ratio:
On the basis of the given table, it has been measured that there is no difference among
the stock price of the company because of the net dividend payout ratio.
Net dividend payout ratio
Δ share price Δ share price change
sensitive
valuation
Optimistic 20% 69.60% 122.84 0.00% 0
10% 63.80% 122.84 0.00%
0 58.00% 122.84 0.00%
Pessimistic -10% 52.20% 122.84 0.00%
-20% 46.40% 122.84 0.00%
Cost of debt:
Further, the cost of debt level of the company represents that the stock price of the
company would be affected because of cost of debt. But the level of effectiveness would be
lower against the other factors of the business.
Cost of debt (4.13%)
Δ share price Δ share price change
sensitive
valuation
Optimistic -20% 3.02% 123.67 0.67% -263.115
-10% 3.39% 122.64 -0.17%
0 3.77% 122.84 0.00%
Pessimistic 10% 4.15% 120.68 -1.76%
20% 4.53% 119.70 -2.56%
(Bloomberg, 2018)
Cost of equity and WACC:
Cost of equity level has also been studied and it has been measured that the changes in
both the factors could affect the stock price of the company at great extent.
Cost of equity
Δ CAPM Cost of equity share price Δ share price change
sensitive
valuation
Optimistic 10% 7.45% 84.29 -31.38% -10336.835
5% 7.11% 99.51 -18.99%

Business valuation and analysis 19
0 6.77% 122.84 0.00%
Pessimistic -5% 6.43% 158.24 28.81%
-10% 6.10% 224.32 82.61%
Δ WACC Cost of equity(firm) share price Δ share price change
sensitive
valuation
Optimistic 10% 7.36% 83.73 -31.84% -10820.684
5% 7.02% 99.23 -19.22%
0 6.69% 122.84 0.00%
Pessimistic -5% 6.35% 158.87 29.33%
-10% 6.02% 228.46 85.98%
(Bloomberg, 2018)
Management consulting decisions:
The application of sensitivity analysis represents that the main factors behind the
impact of stock price of the company are profit margin and sales growth. Some of the
opportunities and challenges of the company has been discussed below in order to measure
the future performance of the business. As studied, the Blackmore limited is expanding its
business in the Asian market after the successful establishment in the Australian and New
Zealand market. The opportunities and challenges of the company are as follows:
Opportunities:
Product differentiation and new venture:
The main opportunities for the Blackmore limited are to adopt new venture and
expand the business more. The company could develop and sell new products in the market
such as natural medicines, quality vitamins etc which would improve the demand of the
company’s products in the Asian market. However, the company would require huge
investment for the product differentiation and new venture of the company which could be
raised by the company through equity and debt (Market.at.com, 2018).
Market strategies:
The marketing strategies of the company have been changed in the year of 2018
because of the various changes in the sales pattern and the competitive level in the market.
The company has adopted new ways to improve the level of market share and sales turnover
of the business. The company has made new and different strategies for each of the market
because of the different customers segment and the different culture of each of the country.
Challenges:

Business valuation and analysis 20
Further, the challenges of the company have been studied.
Increased expenses:
One of the main issues with the business is increment in the total expenses of the
business such as the raw material expenses, operating expenses; marketing expenses, labour
expenses etc are fluctuate in nature and explains that the company is required to maintain the
level of expenses in order to meet the performance and the market position of the business
(Blackmore.com.au, 2018).
Competition:
The competition is higher in the market which leads to the affect on the total market
share of the business. The entry of the company into the new market would improve the
competition level and could affect the sales turnover and other factors of the business. Thus,
it is important for the business to evaluate that whether the competitor companies are offering
the substitute products and how could be the company could make the better share in the
market.
The company could follow the above given strategies and policies in order to improve
the performance of the company in near future.
Conclusion:
On the basis of the overall study, it could be concluded that the Blackmore limited
would tend to perform better in the near future. Few changes into the strategically
performance would lead to the business towards better financial position, performance and
better capital market. The main focus of the business is on sales growth, profit margin and the
stock value of the company.

Business valuation and analysis 21
References:
Blackmores.com.au. 2018. Quality & research. [online] Available at: https:
//www.blackmores.com.au/about-us/company-information/quality-assurance [Accessed 26
May 2018].
Bloomberg.com. 2018. Australian Rates & Bonds. [online] Available at:
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[Accessed 26 May 2018].
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Business valuation and analysis 22
Appendix:
Blackmores (BKL)
Forecasted Financial Statements
Actual Forecasted Forecasted Forecasted Forecasted Forecasted
2018 2019 2020 2021 2022 2023
Forecasted sales
Estimated growth in operating
revenue 17% -4.5% -4.5% 2.0% 3.0% 4.0%
Operating Income 601,854 574,771 548,906 559,884 576,681 599,748
Forecasted ATO and calculated
NOA
Forecasted ATO 2.26 1.77 1.77 2.12 2.12 2.12
Calculated NOA (NOA=sales/ATO) 265,783 324,729 310,116 264,096 272,019 282,900
Revised sales forecasts
Forecasted PM and calculated
NOPAT
Forecasted PM 12.0% 7.0% 7.0% 8.0% 8.0% 8.0%
Calculated NOPAT (NOPAT = Sales x
PM) 71,974 40,234 38,423 44,791 46,134 47,980
Forecasted any other operating
income (unusual items) 2% 2% 2% 2% 2%
Other comprehensive income 3,228 3,276 3,326 3,375 3,426 3,477
Calculated free cash flow (NOPAT –
change in NOA+ OCI) (FCFs)
Change in NOA 58,946 -14,613 -46,020 7,923 10,881
Calculated FCFs 57,634 -15,436 56,362 94,186 41,638 40,577
Forecasted net dividend payout 58.00% 58.00% 58.00% 58.00% 58.00%
Estimated as a % of NOPAT 23,336 22,286 25,979 26,758 27,828
Calculated net payments to debt
holders
Payments = FCF - dividend -38,771 34,076 68,208 14,880 12,748
Forecasted cost of debt and debt
balance
Forecasted cost of debt after tax 3.77% 3.77% 3.77% 3.77% 3.77% 3.77%
Opening debt balance (Opening
NFO) 86,149 128,170 98,929 34,453 20,873
Calculate cost of debt (net
financing after tax) 3,250 4,835 3,732 1,300 787
Calculate closing debt (Closing
NFO) 86,149 128,170 98,929 34,453 20,873 8,912
Leverage (d/noa ratio) 39.47% 31.90% 13.05% 7.67% 3.15%
Calculated comprehensive income
(NOPAT - NFEAT) + Other
Comprehensive Income 40,261 36,914 44,434 48,261 50,670
Calculated equity (and check it
works both ways)
Equity = Assets - Liabilities (NOA -
Closing NFO) 179,634 196,559 211,188 229,644 251,146 273,988
Closing Equity = Opening Equity +
Income - Dividend 196,559 211,188 229,644 251,146 273,988

Business valuation and analysis 23
2017 2018 2019 2020 2021 2022
RNOA 27.08% 12.39% 12.39% 16.96% 16.96% 16.96%
NBC 4.13% 4.13% 4.13% 4.13% 4.13% 4.13%
Difference 22.95% 8.26% 8.26% 12.83% 12.83% 12.83%
Blackmores (BKL)
Valuation Models Actual Forecasted
2018 2019 2020 2021 2022 2023
Discounted Dividend Model
Forecasted Dividends 23,336 22,286 25,979 26,758 27,828
Estimated Cost of Equity (Re) 6.77% 1.07 1.14 1.22 1.30 1.39
Calculate forecast dividend
growth patterns (g) -5% 17% 3% 4%
TV pattern - perpetuity with 4%
Growth from 2021
TV = Div (t+1) / (re-g)
737,49
6
Discount dividend stream to TV
year 83,332 21,855 19,548 21,342 20,587
Discount TV 567,424
567,42
4
Equity value 650,757
Share outstanding 17,227
Share Price=Equity Value/No. of
Shares 37.78
Actual share price as at (Sept
30,2018) 132.42
Difference 94.64
Actual
2018 2019 2020 2021 2022 2023
Discounted Residual Income
Model
Forecasted NI 72451 40,261 36,914 44,434 48,261 50,670
Forecasted OE 179,634
196,55
9
211,18
8
229,64
4
251,14
6 273,988
Estimated cost of capital for
equity 6.77% 1.07 1.14 1.22 1.30 1.39
Calculated residual income 28,093 23,601 30,130 32,706 33,659
Calculated forecast RI growth
patterns -16% 28% 9% 5%

Business valuation and analysis 24
TV pattern (perpetuity @ 5%)
Calculate TV 2,409,061
Discount RI 121,183 26,311 20,701 24,752 25,164 24,254
Discount TV
1,735,93
5 1,735,935
Equity value
2,036,75
2
Share Price=Equity Value/No. of
Shares 118.23
Actual share price as at (Sept
30,2018) 132.42
Difference 14.19
Actual
2018 2019 2020 2021 2022 2023
Discounted Residual Operating
Income Model
1 2 3 4 5
Forecasted NOPAT 71,974 40,234 38,423 44,791 46,134 47,980
Forecasted NOA 265,783
324,72
9
310,11
6
264,09
6
272,01
9 282,900
NFO 86,149
Estimated cost of capital (WACC) 6.69% 1.07 1.14 1.21 1.30 1.38
Calculated residual operating
income 22,459 16,707 24,051 28,473 29,788
Calculated forecast RI growth
patterns -26% 44.0% 18.4% 5%
TV pattern (perpetuity @ 2%)
Calculate TV
2301670.6
9
Discount RI 99,063 21,051 14,678 19,806 21,977 21,551
Discount TV
1,665,22
3
1665222.7
9
Total value of firm
2,030,06
9
Value of NFO 86,149
Total value of equity
2,116,21
8
Share Price=Equity Value/No. of
Shares 122.84
Actual share price as at (Sept
30,2018) 132.42
Difference 9.58
Actual Forecasted
2018 2019 2020 2021 2022 2023 2024

Business valuation and analysis 25
Free Cash Flow Model
Forecasted FCF 57,634 -15,436 56,362 94,186 41,638 40,577
37,41
4
Estimated cost of capital for the
firm 6.69% 1.07 1.14 1.21 1.30 1.38 1.38
Calculated forecast FCF growth
patterns -127% -465% 67% -56% -3% -8%
NFO 86149
TV Pattern
Calculate TV 439,326
Discount FCF 174,106 -14,468 49,517 77,561 32,139 29,356
Discount TV 317,845 317,845
Total value of the firm 491,951
NFO 86,149
Total value of equity 405,802
Share Price=Equity Value/No. of
Shares 23.56
Actual share price as at (Sept
30,2018) 132.42
Difference 108.86