Financial Analysis: Key Factors, Valuation, and Risks in Business Strategies

Running head: FINANCIAL ANALYSIS
Finance
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Table of Contents
Introduction......................................................................................................................................2
Base Case Valuation........................................................................................................................2
Business Strategies......................................................................................................................2
Sales Revenue and Product Analysis...........................................................................................3
Key Risks Identified....................................................................................................................5
Financial Analysis.......................................................................................................................6
Key Factors..................................................................................................................................7
Free Cash Flow Valuation...........................................................................................................9
Comparison of Share Price........................................................................................................11
Assumption and Analysis..........................................................................................................12
Specific Scenario Valuation..........................................................................................................13
Technological Change...............................................................................................................13
Liquidity Position......................................................................................................................13
Third Scenario Valuation...............................................................................................................14
Conclusion.....................................................................................................................................15
References......................................................................................................................................16
Appendix........................................................................................................................................19
1) Forecasted Growth Factors of the McPherson’s Ltd..........................................................19
2) Forecasted Balance Sheet of McPherson’s Ltd Company..................................................19

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3) Forecasted Income Statement of the McPherson Ltd.........................................................20
4) Free Cash Flow for McPherson Ltd....................................................................................20
5) Valuation Factors for FCFE Models...................................................................................21
6) Additional and Key Inputs of FCFE Model.......................................................................21
7) Competitor Review for McPherson’s Ltd Company..........................................................22
8) Multix Growth and History (Grocery Division of McPhersons Ltd).................................22
9) Export Channel Model of McPherson Ltd Company.........................................................23
10) Liquidity and Profitability Position of McPherson Ltd..................................................23

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Introduction
McPherson Ltd Company is a dynamic consumer product company that is primarily
involved in the marketing and distributing of various health and beauty products throughout the
Asia Pacific, UK/Europe and North America (2018 Full Year Result, 2018). The expertise of the
company lies in managing various complex and wide range of products and services that the
consumers use in everyday lives. The company has a wide range of products in the overall
portfolio of the company that it caters. Products including kitchen households, large appliances
and several accessories are some of the key product portfolios of the company. The company is
listed in the Australian Stock Exchange with the ticker symbol “MCP” with a market cap of
around 117.76 million and its current share price to be around $1.13. The operations of the
company is distributed globally in Australia, New Zealand, South East Asia and United
Kingdom. The key competitors of the company include Pental Ltd (ASX: PTL) and Asaleo Care
Ltd (ASX: AHY). The financial analysis of the company was done with the view and approach
of the current operating scenario of the company where several business factors and macro-
economic conditions of the company were taken into account for the purpose of analysis of the
company. The report will be considering the valuation of the McPherson limited company as the
base for the assessing and evaluating the growth strategies that are deployed by the management
of the company.
Base Case Valuation
Business Strategies
McPherson Company has always had a wide range and variety of products and services
in the product portfolio of the company that has helped them garner better market share in

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Australia and globally (2018 Full Year Result, 2018). The increasing awareness and the
acceptance of the various products and services of the company has led the company to increase
both the domestic and the global revenue for the company (McPherson's Ltd. - Company Profile,
Information, Business Description, History, Background Information on McPherson's Ltd,
2018). In the year 2018 the company observed a 41% increase in the skincare brand products,
pharmacy products and through other export channel (McPherson's Limited, 2019). McPherson
has always strategized to increase the revenue base of the company both in the domestic and on a
global basis. The same can be seen where the McPherson Company’s management has focused
on increasing the global revenue of the company as the acceptance and the brand value should be
diversified.
Figure 1: Revenue Base of McPherson’s Ltd Company
(Source: 2018 Full Year Result, 2018)

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The sales revenue from the operations of the company increased by about 4%, where the
grocery brand Multix saw a major and a steady growth rate of about 11% (McPherson's Limited,
2019). The demand and the revenue growth rate of the health and beauty product division has
significantly contributed to the overall revenue of the company. The household essential saw an
increase of about 6% from the year 2017 to 2018 and on the other hand, the revenue base for the
beauty product division witnessed a major increase by 56% (McPherson's Limited, 2019). Both
the above product divisions of the company have been contributing significantly to the overall
revenue of the company. The higher profitability margin from the above division has encouraged
the management of the company focus on the growth ideas and expanding the above divisions
(Kallala et al. 2015). The same has been incorporated into the valuation assumption for
forecasting the free cash flow for the company where it is expected that on an average the
revenue of the company will be growing by about 4%. The focus of the company is on high
profit margin products and services thereby bringing operational efficiency in the business.
Through, optimum utilisation of the resources in the form of reduced cost of sales for the
company has been the key reason for constant growth rate in the profitability of the company.
Figure 2: Sales Revenue Comparison of McPherson Ltd