Performance Analysis of CSR LTD. in Forecasted Period

The study sheds light on the performance analysis of the CSR LTD. in the forecasted period. The capital structure has been identified through the analysis of WACC. The performance analysis included the analysis of the profit and loss statement and the cash flow statement in the forecasted period. For the better evaluation of the performance a forecasted cash flow has been prepared which has helped to create FCFF at the forecasted period. For the evaluation of the company value beyond the forecasted period a terminal value has been identified. The terminal value identification has helped the study to identify the company’s earning capability beyond the forecasted period at time “n”. Further, the study has provided idea on the share price analysis. This has also included a comparison between the actual share price and estimated share price at time Zero. To identify the difference the study has provided the reason of the difference.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the student:
Name of the University:
Author’s Note:

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Executive summary
The study sheds light on the performance analysis of the CSR LTD. in the forecasted period.
The capital structure has been identified through the analysis of WACC. The performance
analysis included the analysis of the profit and loss statement and the cash flow statement in
the forecasted period. For the better evaluation of the performance a forecasted cash flow has
been prepared which has helped to create FCFF at the forecasted period. For the evaluation of
the company value beyond the forecasted period a terminal value has been identified. The
terminal value identification has helped the study to identify the company’s earning
capability beyond the forecasted period at time “n”. Further, the study has provided idea on
the share price analysis. This has also included a comparison between the actual share price
and estimated share price at time Zero. To identify the difference the study has provided the
reason of the difference.

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Table of Contents
Introduction................................................................................................................................3
Determination of non cash and cash items in P&L statement...................................................3
Forecasted Operating cash flow.................................................................................................4
Forecasted P&L statement.........................................................................................................4
Identification of WACC.............................................................................................................5
Calculation of terminal value.....................................................................................................5
Debt to equity ratio analysis and the calculation of the equity value.........................................6
Equity value...............................................................................................................................6
Compression of the estimated share price..................................................................................7
Conclusion..................................................................................................................................8
References................................................................................................................................10

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Introduction
Performance analysis is the best way to identify the company’s capability in earning
returns at the future period. This analysis has been done through evaluating the financial
statements and information. This has been done to identify the growth prospective of the
company where investors search their invest opportunity. The performance analysis includes
the identification of the cash inflow in the future time and the present value of the project
before investing. The financial analysis includes the identification of the terminal value
through which company’s value beyond the forecasted period has been recognised. For the
better understanding of the financial performance the report has contracted a financial
analysis of the CSR LTD. The study has identified financial performance through the analysis
of financial statement, future cash flow and free cash flow statement. The study also includes
the identification of the present value depending on the discount rate which has been derived
from the commonwealth government bond rates. Further, the report includes the
identification of the cost of capital which has helped the researcher to understand company’s
capital structure. Lastly, depending on the company’s equity value the share value has been
calculated and a comparison has been done with the market price to understand the reason of
the difference.
Determination of non cash and cash items in P&L statement
The P&L account provides idea on the company’s income through deducting
operating expenses. This includes all the cash and non-cash incomes and expenditures.
Depending on the changes of rates in the previous year the rate of the operating income and
expenditures in the forecasted period has been assumed (Reid 2018). The cash items are
receipt from customer, interest received on lending and received from tenant, dividend and
distribution received. On the other side, the cash item under the operating expenses are
payment to supplier and employees, financing cost. The noncash items are depreciation and

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the interest receives in the bank. The cash items are also recognised in the sale of good. There
this has been assumed that 25.89% of sales are credit sales and the rest of the sales are done
through cash basis. The percentage of credit sales has been assumed depending on the debt
and previous year’s sales report (Corporate, 2019).
Forecasted Operating cash flow
Operating cash flow has been done based on the direct method. The closing balance
has represented a value of $8597 during the forecasted period at 2024. This has shown an
increase in the cash inflow where the CSR LTD. has realised an increased in liquidity
position at the forecasted period. The depreciation rate for the forecasted period has been set
depending on the previous 5 years’ rate. This has been seen that the depreciation rate has
decreased at 4.63% each year and due to this the same growth rate has been followed at the
forecasted period in the determination of depreciation rate (Mulenga and Bhatia 2017).
Forecasted P&L statement
The P&L statement has been forecasted for 5 years where the company realises an
increase in net profit every year. Each item in the profit and loss statement has been assumed
in the forecasted period depending on the growth trend on the previous year. The growth
trend has been analysed and depending on the growth rate the operating income and operating
expenses have been forecasted. An average growth rate has been followed for five years
depending on the previous year’s growth trend. The forecasted P&L statement has
represented a value of $251 at the end of 2019 and at the end of forecasted period this has
represented a value of $3970. This has shown an increase in performance (Robinson et al.,
2015).

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Identification of WACC
The weighted average cost of capital has been calculated to identify the terminal
value. Through this the cost of capital has been recognised. This refers to the cost that the
company has invested through incorporating debt and equity share capital. This is the rate at
which the company expects to pay on average to all their security holders to finance its assets
(Frank and Shen 2016). In this report this has been recognised that the WACC has realised at
10.71% which means, at this rate the company needs to pay their share holders. The cost of
equity has been recognised at 17.79% depending on the risk free rate of 2.22. The risk free
rate has been assumed as the similar to the 5 year’s commonwealth government bond rate.
Along with that the cost of debt has been identified at 3%. This refers to the value at which
the debt has been acquired through the debt financing (Borisova et al., 2015). This debt has
been employed to the company’s capital structure. While calculating the cost of equity a
dividend growth model has been followed. An increase in the growth rate has been noticed as
the capital employment has increased due to increase in performance.
Calculation of terminal value
The terminal value has represented a negative value. This refers to the decrease in the
company’s position/value. The terminal value has been identified to understand company’s
value beyond the forecasted period. This has indicated that after a certain period of time at
time “n” the company’s value will realise a negative value. However the increase in the
forecasted current liability has reduced the company’s terminal value. For the calculation of
the terminal value a free cash flow has been formulated. An increase has been noticed in the
free cash flow throughout the forecasted period due to the increase in the EBIT. The free cash
flow represents the value of cash inflow after deducting changes in working capital and the
capital expenditures. This represents the value that the company is left with (Nekhili et al.,
2016). This has been recognised that the company has expected a free cash flow value of $77

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during the 2020 however with the decrease in the capital expenditure and the increase in the
operating profit has increased it to $8246 at the end of forecasted period. This means that if
the company. This means that the company has a growth prospective after incurring all
expenditure during the forecasted period. However the terminal value has realised a negative
terminal value at $44164.26. While calculating the change in working capital, this has been
recognised that the changes in the current liability are higher than the changes in the current
assets. This indicates that the company would generate more current liability in the forecasted
period which would increase the debt for the company. Hence, this can be said that the assets
have shown a reduction while the liability has shown an increase and as a result of which the
terminal value became negative (Natolski and Werner 2015).
Debt to equity ratio analysis and the calculation of the equity value
The debt to equity ratio refers to the debt portion that the company is having against
the equity portion into the company’s capital structure. This has been recognised that the
company has been increased with their equity share capital along with the decrease in the
debt capital at the forecasted period. As a result of which this has decreased the debt to equity
ratio at .47 during the forecasted period at 2024. Through following the trend of the previous
year’s liability and equity value the debt to equity ratio has been identified. This indicates that
the company is performing well through which the profitability has been earned over the
period (Anwar, Fathoni and Gagah 2018).
Equity value
The Equity value has been identified through identifying the difference between the
asset value and liability value present in the company. However, during the forecasted period
this has been recognised that during 2024 the equity value has realised a positive value due to
the increase in the capital employment. The equity value has represented positive growth
since 2017 to 2024. This refers to the increase into the company’s market value (Song 2017).

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Compression of the estimated share price
The estimated share price has been achieved through creating a forecast using the
share valuation method (Hájek and Stejskal 2015). The estimated share price has been
calculated for 5 forecasted period. However, for the better understanding of the difference,
the 2019 share price has been taken for the compression as 2019 has been identified as the
period at time Zero. This has been recognised that there is a difference between the actual
share price the estimated share price. The actual current share price during 2019 is $3.62 but
the value estimated at the time zero is $2.56. The actual share price is the market price of the
share and the estimated share price is the book value of the share price which is calculated
depending on the book value of the equity. The book value does not include the profit
portion. This means that the book value does not include daily market changes but the market
price of the share includes the profit margin and also affected by the market changes (Markus
and Sormunen 2018).
In 2019 this has been recognised that the number of shares have increased with the
increase in the equity value. This has increased the shared price during 2019. However, the
sudden increase in the equity value during 2024 compared to 2023 has increased the share
price extensively (Chen et al., 2015).
Variables are the drivers for changes in share price. This has been recognised that,
with the change in any variable, the market price of the share would get changed. As the
market price of the share depends on the value of the company hence the share price also
depends on the capital structure of the company (Zhou, Simnett and Green 2017). This has
been recognised that with the change in WACC portion keeping other variables constant this
would change the company’s capital structure. The WACC gets lower with the increase in
debt portion. As the debt become cheaper than the equity this increases the debt into the
capital structure. With the increase in long term debt this would decrease the WACC for the

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company. The decreased in WACC refers to the reduction in the company’s valuation as this
reflects that the company is having more debt than the equity.This reduces the company’s
value into the market. When company’s value gets decreased the share price also gets
decreased and investors show less interest towards buying the share. This also represents a
high risk associated with the company (Pillai 2015).
This has been recognised that the actual price reflects a high WACC value in the
current capital structure of the CSR LTD. However, on the estimated share price at time zero
an increase in share price has been noticed compared to the previous year. The increase in
share price refers to the increase in capital employment. This means that the company has
realised an increase in net profit. The increase in the share price has been a result of increase
in demand into the market. This has increased the book value of the share price at the time
zero. Along with that the equity value has increased as the short and long term interest
borrowing debt have reduced and as a result of which the share price has increased during the
2019 to 2024. All these values have represented a book value. This is the reason why the
share price at the estimated period is different from the actual price (Au.finance.yahoo.com,
2019).
Conclusion
The study has provided idea on the company’s financial performance at the forecasted
period. This refers to the performance evaluation depending on the financial information. The
performance analysis has been done through identifying the growth rate and the possible cash
inflow in the forecasted period. The study has provided idea on the CSR LTD. capital
structure and terminal value of the company for identifying the company’s value beyond the
forecasted period. The study has also analysed the share price through comparing the
estimated share price with the actual share price. Lastly, the reason for the difference between

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estimated and actual share price has been explained where the effect of changes in variable
components has been recognised.

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References
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