Business Valuation and Financial Analysis - Desklib

Running head: BUSINESS VALUATION AND FINANCIAL ANALYSIS
Business Valuation and Financial Analysis
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Author’s Note

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BUSINESS VALUATION AND FINANCIAL ANALYSIS
Table of Contents
1. Introduction.................................................................................................................................................3
2. Blackmore’s Prospective Analysis.............................................................................................................4
2.1 Future Financial Performance of Blackmores..........................................................................................4
2.1.1 Growth Rate of Sales.........................................................................................................................4
2.1.2 Profit Margin.........................................................................................................................................6
2.1.3 Asset Turnover...................................................................................................................................7
2.1.4 Net Dividend Payout..........................................................................................................................8
2.1.5 Cost of Debt after Tax.......................................................................................................................9
2.2 Valuation of Blackmores..........................................................................................................................9
2.2.1 Assumptions for the Valuations...........................................................................................................10
2.2.2 Four Valuation Model......................................................................................................................10
2.2.2.1 Divided Discount Model (DDM)..................................................................................................11
2.2.2.2 Residual Income Model (RIM).....................................................................................................11
2.2.2.3 Residual Operating Income Model (ROIM).................................................................................11
2.2.2.4 Discounted Cash Flow Model (DCM)..........................................................................................11
2.3. Sensitivity Analysis...............................................................................................................................12
2.3.1. Sales Growth...................................................................................................................................13
2.3.2. Profit Margin (PM).........................................................................................................................14
2.3.3. Asset Turnover (ATO)....................................................................................................................14
2.3.4. Weighted Average Cost of Capital (WACC).................................................................................14
3. Management Application for Blackmores Ltd.........................................................................................15
3.1. Opportunities.........................................................................................................................................15
3.1.1. Growth Opportunities in Asian Market..........................................................................................15
3.1.2. Revenue Generation and Brand Loyalty.........................................................................................15
3.1.3. Innovation and Product Development............................................................................................16
3.2. Challenges..............................................................................................................................................16
3.2.1. Focus on Australia Market..............................................................................................................16

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BUSINESS VALUATION AND FINANCIAL ANALYSIS
3.2.2. Competitors.....................................................................................................................................17
3.2.3. Increase in the Costs of the Business..............................................................................................18
3.3. Measures to be Adopted by the Business..............................................................................................18
4. Reference..................................................................................................................................................19
5. Appendix...................................................................................................................................................22

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BUSINESS VALUATION AND FINANCIAL ANALYSIS
1. Introduction
The managements of the business organizations have to deal with different types of business
operations in order to ensure the smooth running of the companies and thus, they are needed to put equal
attention to each dimensions of the business operations of the companies. One of such aspects or
dimensions is the Accounting and Financial Operations of the companies. It needs to be mentioned that
the success of the business organizations largely depends on the financial performance of the companies
(Vogel 2014). In order to ensure the effective financial performamce of the business organizations, it is
the prime responsibility of the upper level management to develop effective financial strategies by taking
into consideration all the relevant financial as well as accounting aspects. This aspect indicates towards
the vast responsibilities of the financial managers of the business organizations related to some of the
crucial areas of accounting and finance. For this reason, the major considerable areas by the finance
managers of the companies are the future financial performance of the companies, analysis as well as
evaluation of the stock prices of the companies with the aim to evaluate the financial performance,
valuation of different aspects of the business like asset valuation and recommendations with the aim to
formulate effective financial strategies for the businesses’ sustainable growth (Cucchiella, D’Adamo and
Gastaldi 2015). At the time of the analysis and evaluation of these important factors, the finance managers
of the business organizations are needed to take into consideration certain factors like historical data
related to the financial performance of the companies, the financial performance of the industries in which
the companies are operating, economic environment of the countries in which the companies are
operating, nature of the business, the style of strategic development of the managements of the companies
and others; and all these aspects are used as basis of financial forecast as well as analysis of the financial
performance of the companies (Trugman 2016).
This report focuses on the financial performance as well as financial forecast of one of the major
Australian companies, Blackmores Limited (Blackmores). The main aim of this report is the analysis as
well as evaluation of the future financial performance of Blakemores along with analyzing and evaluating
the stock price, business valuation so that effective strategies can be recommended. In order to achieve
this objective, this report takes into account aspects like historical financial data of Blakemores, present
situation of the industry, economic development, nature of business and others. Blakemores is a major
Australian health supplement company operates in the health supplement industry of Australia. The
company was founded in the year of 1930 and it is headquartered at Sydney, Australia
(blackmores.com.au 2018). Different parts of the report consider the financial analysis and forecast the
company.

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BUSINESS VALUATION AND FINANCIAL ANALYSIS
2. Blackmore’s Prospective Analysis
It is an essential part of this report as this part of the report takes into consideration the prediction
of the future financial performance of Blakemores and the main aim of this is the estimation of the value
of the organizations with the use of various models for business valuation along with the sensitivity
analysis. In order to achieve these objectives, this report takes into consideration the financial statements
of the Blakemores from the year 2013 to 2018.
2.1 Future Financial Performance of Blackmores
This part of the report takes into consideration the future financial performance of Blakemores by
considering all the relevant aspects like historical data, industry condition, economic condition and others.
2.1.1 Growth Rate of Sales
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
-30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
6.17%
36.01%
52.08%
-23.01%
8.87%
2.50%
2.50%
2.50%
2.50%
2.50%
Sales Growth Rate
Forecasted
Actual
Figure 1: Sales Growth Rate of Blackmores Limited
Source: (Created by the Author)
Sales growth can be considered as a certain metric that helps in the measurement of the ability of
the business organizations to increase their sales revenue over a fixed period of time; and there is not any
exception of this fact in case of Blackmores. This section of the report takes into consideration the
analysis of various financial factors of Blackmores such as historical financial performance of the
company, orientation of the health supplement industry of Australia, the present economic situation of

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BUSINESS VALUATION AND FINANCIAL ANALYSIS
Australia, the nature of the business of Blackmores and others as all these aspects are required for
forecasting the sales growth of Blackmores for the next five years (Wales, Parida and Patel 2013).
The above figure indicates towards the fact that the growth of the sales of Blackmores is steady at
2.5% from the year 2019 to 2023. Steadiness in sales growth can be considered as a good indicator for the
sustainability of the company as it provides the motivation to the potential investors in invest in
Blackmores in the presence of steady sales growth. It can be observed from the historical performance of
Blackmores over the years that there have been some major fluctuations in the growth of the sales for the
company. As per the above table, the year 2014 witnessed small growth on sales that is 6.17%, but the
opposite situation can be seen in the year 2015 as the company registered huge growth in sales as
compared to 2014 that is 36.01%. As per the same trend, Blackmores registered growth in sales in the year
2016 that is 52.08%. The presence of some major contributors to this growth can be seen in Blackmores
like the expansion of the business of the company in China in the year 2015 as it has strengthen the
opportunity for investment in the company (Delen, Kuzey and Uyar 2013).
In addition, in the sale year, Blackmores added 170 new products too their product portfolio in
order to cater to the ever increasing demand of the customers. Apart from this, as a part of the strategy to
decrease the number of competitors, Blackmores acquired some major companies in the same industry
that led to the increase in sales. For example, Blackmores made the 100% acquisition of the shares of New
Century Herbals Pty Ltd and Global Therapeutics in the year 2016 in order to increase the sales growth by
increasing the amount of customers. Moreover, the nature of the product of Blackmores along with the
nature of the market provides the company with the opportunity to increase the sales. In addition,
expansion in China has majorly helped the company in increasing the sales due to the huge population of
the country (Coad, Segarra and Teruel 2016).