Business Valuation and Analysis

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

Business valuation and analysis 2
Contents
Introduction:.....................................................................................................................3
Forecasting:.......................................................................................................................3
Sales growth:................................................................................................................4
Asset turnover ratio forecast (ATO forecast):..............................................................5
Profit Margin:...............................................................................................................6
Free cash flow and Net dividend payout ratio forecasting:..........................................7
Cost of debt:..................................................................................................................8
Cost of equity:...............................................................................................................8
Valuation:.........................................................................................................................9
Dividend discount model:...........................................................................................10
Residual income model:.............................................................................................11
Residual operating income model:.............................................................................12
Free cash flow model:.................................................................................................13
Sensitivity analysis:........................................................................................................14
Sales growth:..............................................................................................................14
ATO:...........................................................................................................................15
PM:.............................................................................................................................15
Net dividend payout ratio:..........................................................................................16
Cost of debt:................................................................................................................16
Cost of equity and WACC:.........................................................................................16
Management consulting decisions:.................................................................................17
Opportunities..............................................................................................................17

Business valuation and analysis 3
Challenges...................................................................................................................18
Conclusion:.....................................................................................................................18
References:.....................................................................................................................20
Appendix.........................................................................................................................21

Business valuation and analysis 4
Introduction:
Evaluation over the stock and financial position of an organization is one of the
mandatory and important steps which must be taken by the investors and financial analyst to
make decision about investment into organization. The main concept of business valuation
and analysis is to gather the financial data of past few years and measure them on the basis of
various methods and ways to identify the changes faced by the company in previous few
years. This method helps the organization to evaluate the current and future performance of
the company so that the total return which could be got from the company is forecasted and a
decision could be made accordingly. Business valuation and analysis study has been
conducted over JB HI FI limited.
In order to measure and estimate the future values of stock of JB HI FI, various
financial methods have been applied over the business such as valuation model i.e. DDM
model, growth discount model etc, forecasting models such as changes in sales level,
profitability level etc, sensitivity analysis such as changes in few independent factors and
management consulting advise. All of these methods assist the shareholders and other
internal & external stakeholders of the business to measure the level of business and make a
better investment decision accordingly.
JB HI FI is running its business in Australian market. It has further expanded its
business into overseas market. Consumer goods are mainly provided by the company in its
running market. Main subsidiary company of JB HI FI is “The good guys”. Most of the
business and operations of the business are run by its subsidiary company. JB HI FI is
running its operations since 1974 in Australian market. Further, the company has diversified
its market in different industry. The changes and financial and non financial performance
study depicts that company has improved a lot in the market since last few years. The report
focuses over the overall changes and future prediction about worth of the business for the
internal and external users of the business.
Forecasting:
Forecasting is a process of identifying the future changes in an organization on the
basis of various independent and dependent factors such as changes in sales revenue, changes
in profitability level, demand fluctuations, economical changes, change in industry factors

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etc. Forecasting process makes it easier for the management of the company to consider the
previous changes and make compatible strategy for the business accordingly (Lord, 2017).
Also, this process helps the financial analyst to evaluate about investment level in the
business. In case of JB HI FI, forecasting study has been done over the company to recognize
overall performance of the company. Below is the evaluation over JB HI FI:
Sales growth:
The study over JB HI FI last 5 years data, it has been found that few changes have
occurred into previous years which would also impact in upcoming years of the company.
The study explains that initially the sales growth would be lower because of the new projects
of the business. But along with the time, sales growth level of the business would be better
and it would help the business to make better decision.
Figure 1: Sales Growth
(Appendix)
Along with the new projects, the sales growth level of the business has also affected
because of the inflation rate of Australia. The below graph explains that inflation rate of the
business would be higher at initial years which would affect the sales growth of the company
negatively. But in next year’s, it would be reduced and would impact negatively on the sale
growth of the business.

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Figure 2: Inflation rate
Source: Bloomberg, 2019
.Further, sales leevl of a business is dependent factors which is also affected by the
GDP level of the country. On the basis of the study, it has been found that GDP level of the
business is almost similar in next 5 years. It would not iamcot much over the sales of the
company.
2018 2019 2020 2021 2022
GDP Forecast of
Australia
6.3% 6.2% 6% 5.8% 5.5%
(Statista, 2019)
Further, there are various other factors which impact over the sales level of the
company and hence, it is important for the business to forecast the sales of the company. In
case of JB HI FI, all the relevant factors have been considered to make decision about sales
forecast level.
Asset turnover ratio forecast (ATO forecast):
The study over JB HI FI and last 5 years data of company, it has been found that
there are various factors which have affected over the asset turnover level of the business
such as supply of company’s products. The study explains that initially the ATO growth
would be lower because of the new projects and changes in the capital structure level of the