Valuation of the Shares of the Companies

8 Computation of the Price earnings Ratio 8 Rank the ten investments in order of desirability 10 Which investment of the ten would you select 13 Task-2 13 Research and summarise some interesting facts about Warren Buffet 13 Task 3 16 Compare Warren Buffet’s approach to share valuation and the share valuation methodology 16 Share valuation Methodology 17 Conclusion 17 References 18 Appendix 20 Introduction Investors are the persons who invest their capital in company with a view to create value on their investment.

Running Head: Valuation of the shares of the Companies
0
Valuation of the shares of the Companies

Financial Analysis of the Companies 1
Executive Summary
In this report, share price valuation methods and technique have been used to evaluate
the market value of the companies. By using the different valuation methods, share price
calculated by one value method could be analyzed by using other valuation method. In this
report valuation theory of the Warren Buffet and other valuation methods have been taken
into consideration. Investors will be inclined to invest only in those companies in which they
will have higher return and less risk.

Financial Analysis of the Companies 2
Table of Contents
Executive Summary...............................................................................................................................1
Introduction...........................................................................................................................................3
Task 1....................................................................................................................................................4
Answer to question no-1........................................................................................................................4
Use of equity valuation method.........................................................................................................4
Dividend Discount Model.....................................................................................................................6
(ASX., 2018).........................................................................................................................................8
Computation of the Price earnings Ratio...............................................................................................8
Rank the ten investments in order of desirability.............................................................................10
Which investment of the ten would you select................................................................................13
Why the investment option selected................................................................................................13
Task-2..................................................................................................................................................13
Research and summarise some interesting facts about Warren Buffet.................................................13
Task 3..................................................................................................................................................16
Compare Warren Buffet’s approach to share valuation and the share valuation methodology............16
Share valuation Methodology..........................................................................................................17
Conclusion...........................................................................................................................................17
References...........................................................................................................................................18
Appendix.............................................................................................................................................20

Financial Analysis of the Companies 3
Introduction
Investors are the persons who invest their capital in company with a view to create
value on their investment. The main factors which are considered by investors are the return
available on the invested capital and risk associated with the same. In this report, different
valuation methods have been used to evaluate the share price of different companies. All the
companies have been selected from the information technologies business sector, energy
sector and financial market sector. In the end, comparisons between the Warrant buffet
valuation theory and dividend discount model and PE ratio has been done.

Financial Analysis of the Companies 4
Task 1
Answer to question no-1
Use of equity valuation method
In this 10 selected companies has been selected and by using the Capital Assets
Pricing model the share price of these companies have been computed (Yahoo finance,
2018).
CAPM Method
RF Risk free rate of return
RM Market premium
Beta risk of the Company
Cost of equity RF+(RM-Rf)B
PARTICULARS
PRICE
OF
SHAR
ES
GR
O
WT
H
COST OF EQUITY
Computed by using
the CAPM model
RISK FREE
RATE OF
RETURN
B
E
T
A
MAR
KET
RATE
INFORMATIO
N
TECHNOLOGY
COMPUTERSH
ARE LIMITED
17.57 -
0.28
7% 2.77% 1.
04
6.5%

Financial Analysis of the Companies 5
%
WISETECH
GLOBAL 13.25
0.15
% 12% 2.77%
2.
39 6.5%
Altium 22.28
1.67
% 6% 2.77%
0.
82 6.5%
ENERGY
BHP Billiton 50.3
-
0.10
% 9% 2.77%
1.
29
15 7.7%
CALTEX
AUSTRALIA
LIMITED 30.5
2.11
% 7% 2.77%
0.
91 7.7%
WORLEYPARS
ONS LIMITED 17.44
1.99
% 11% 2.77%
1.
69 7.7%
APAC COAL
LIMITED 2.43
0.83
% 26% 2.77%
4.
82 7.7%
FINANACIALS
COMMON
WEALTH BANK
OF AUSTRALIA 70.94
-
0.06
% 8% 2.77%
1.
01 8.2%

Financial Analysis of the Companies 6
National
Australian Bank 28.4
-
0.63
% 9% 2.77%
1.
18 8.2%
SUNCORP
GROUP
LIMITED 13.93
-
0.29
% 8% 2.77%
0.
89 8.2%
(Yahoo finance, 2018).
Dividend Discount Model
This dividend discount model is used to compute the share price of these companies and
analysis their growth, dividend paid and retained earning throughout the time.
Dividend Discount Model
Price of the company D1/ Ke-G
D1 Dividend payment
Ke= Cost of the equity
G= Growth rate
Particular
Net
income(
$ in
million
Dividen
d pay-
out
ratio
Divide
nd
paym
ent
Rete
ntion
ratio
Gro
wth
rate
K
E
D1
(In
milli
on)
K
E
-
G
Share
price of
Compan
y

Financial Analysis of the Companies 7
Information
technologies
COMPUTERSH
ARE LIMITED 2105.8 2%
45.485
28 98%
2.1
%
7
% 46.45
4.
5
% 1024.0
WISETECH
GLOBAL 1537 0% 2.6129
100
%
0.2
%
1
2
% 2.62
1
1.
5
% 22.7
Altium 63.31 2% 1.2662 98%
2.0
%
6
% 1.29
3.
9
% 33.4
ENERGY
BHP Billiton 64.29 2%
1.4143
8 98%
2.2
%
9
% 1.44
6.
9
% 20.9
CALTEX
AUSTRALIA
LIMITED 24.35 2%
0.3652
5 99%
1.5
%
7
% 0.37
5.
7
% 6.5
WORLEYPARS
ONS LIMITED 520 3% 15.6 97%
2.9
%
1
1
% 16.05
8.
1
% 198.0

Financial Analysis of the Companies 8
APAC COAL
LIMITED -235 0%
100
%
0.0
%
2
6
% 0.00
2
6.
3
%
FINANACIALS
COMMON
WEALTH
BANK OF
AUSTRALIA 9928 6% 595.68 94%
5.6
%
8
%
629.2
8
2.
6
% 24070.5
National
Australian Bank 4975 4% 199 96%
3.8
%
9
%
206.6
4
5.
3
% 3871.6
SUNCORP
GROUP
LIMITED 1075 5%
56.222
5 95%
5.0
%
8
% 59.01
2.
6
% 2229.9
(ASX., 2018).
Computation of the Price earnings Ratio
Computation of the PE Ratio
MPS
EP
S PE ratio (MPS/EPS)
Information technologies

Financial Analysis of the Companies 9
COMPUTERSHARE LIMITED
17.5
7
0.5
7 30.82
WISETECH GLOBAL
13.2
5
0.5
7 23.25
Altium
22.2
8
0.3
5 63.66
ENERGY
BHP Billiton 50.3
CALTEX AUSTRALIA LIMITED 30.5 1.4 21.79
WORLEYPARSONS LIMITED
17.4
4 1.3 13.42
APAC COAL LIMITED 2.43 0 #DIV/0!
FINANACIALS
COMMON WEALTH BANK OF AUSTRALIA
70.9
4 2.2 32.25
National Australian Bank 28.4 1.5 18.93
SUNCORP GROUP LIMITED
13.9
3
0.5
7 24.44

Financial Analysis of the Companies 10
(Yahoo finance, 2018).
Rank the ten investments in order of desirability
Rank the ten investments in order of desirability
Particular
P
E
ra
ti
o
Market
Price of
the
shares KE
Bet
a
CO-
EFFIC
IENT
OF
VARI
ANCE
RANK (IN
TERMS OF
BETA/ COST
OF EQUITY)
RANK (IN
TERMS OF
BETA/ COST
OF EQUITY)
Information
technologies
30
.8
2 1023.99
7
% 1.04 15.6 8 3
COMPUTERS
HARE
LIMITED
23
.2
5 22.73
1
2
% 2.39 20.5 10 1
WISETECH
GLOBAL
63
.6
6 33.37
6
% 0.82 14.1 5 6
Altium
0.
00
ENERGY 20.88
9
%
1.29
15 14.2 6 5

Financial Analysis of the Companies 11
BHP Billiton
21
.7
9 6.46
7
% 0.91 12.6 3 8
CALTEX
AUSTRALIA
LIMITED
13
.4
2 198.02
1
1
% 1.69 15.3 7 4
WORLEYPA
RSONS
LIMITED
2
6
% 4.82 18.3 9 2
APAC COAL
LIMITED
FINANACIA
LS
COMMON
WEALTH
BANK OF
AUSTRALIA
32
.2
5
24070.5
5
8
% 1.01 12.2 2 9
National
Australian
Bank
18
.9
3 3871.58
9
% 1.18 12.9 4 7
SUNCORP
GROUP
LIMITED
24
.4
4 2229.93
8
% 0.89 11.7 1 10

Financial Analysis of the Companies 12
Notes –
Beta- (Yahoo finance, 2018).
Market risk factor- (Yahoo finance, 2018)
RF-(Bloomberg, 2018)

Financial Analysis of the Companies 13
Which investment of the ten would you select
The best investment option in this case would be Sun Crop Group Limited due to its high
return and less risk associated with it.
Why the investment option selected
After evaluating the PE ratio, it could be inferred that the PE ratio of Sun Crop is
higher as compared to other companies. If investors want to create value on investment by
having less risk then Sun Corporation is the best company for the investment purpose. Sun
Crop has been ranked as 1 ranking company on the basis of its risk per unit of return is
0.1357. It is least risk as compared to other business organizations.
Task-2
Research and summarise some interesting facts about Warren Buffet
It is evaluated that Warren Buffet has been following market based theory in which he
analyses the company and its performance. He analyses the share price, beta of Company,
Market premium and sustainability of company. The Warren Buffet has been appointed as
CEO of the Berkshire Hathway. He uses several investment valuation methods to identify
the corporate financial performance of company.
It is analyzed that Warren Buffet uses the profitability, earning per share and
estimation of the risk associated with the invested amount. He reveals that only changes in
the share price are not the only indicator to determine the future growth of the company.
Investors should evaluate profitability, earning per share and estimation of the risk associated
company before investing their capital in their business. The intrinsic value estimates the
precise figure which could be used to evaluate the share price of company and its future
growth in the near future.

Financial Analysis of the Companies 14
There are several details which Warren Buffet Would makes on the performance of
these companies.
In case of information technologies company.
Information technologies
COMPUTERSHARE LIMITED
WISETECH GLOBAL
Altium
The share price of Computer Share limited $ 17.57 which reflects that share price of company
is overvalued. The profitability of company is also lower which reveals the negative market
condition. In case of Wisetech Global Company, profitability of company is higher and
showing the less amount of financial leverage. The share price of company is lower as
compared to its intrinsic value. In context with the Altium Company, Warren Buffet has
shown that company has high loss which might result to destruction of its business in very
short time.
In case of Energy Sector companies, following companies have been selected.
ENERGY

Financial Analysis of the Companies 15
BHP Billiton
CALTEX AUSTRALIA LIMITED
WORLEYPARSONS LIMITED
APAC COAL LIMITED
It is evaluated that share price of BHP is $ 50.7 which is higher and will be grown with the
very less rate. The high profitability and increased business turnover increase the potentially
of the return on capital employed. . AS per the Warren Buffet, Company has been performing
well and would create value on the investment (Jordan, 2014).
In case of CALTEX AUSTRALIA LIMITED, the net profit of company has increased by
22% since last five year. The financial leverage and capital structure is also optimum which
shows positive outcomes toe the investors. Warren Buffet reveals that company will grow in
the future with good amount of return (Yahoo finance, 2018). In case of
WORLEYPARSONS LIMITED, Warren Buffet has divulged that company has maintained
stable business practice and will grow with the average rate. Investor who wants to have
higher return should not invest more capital in this company. APAC COAL LIMITED has
also been facing high loss in its business which will provide good return to investors only in
long run. In short run it will destruct the value of the investment of the investor (White,
Sondh, and Fried, 2015).
In finance sectors, Warren Buffer will be given following consideration on the following
companies.
 Common Wealth Bank of Australia
 National Australian Bank
 Sun Crop Company

Financial Analysis of the Companies 16
As per the perception of the Warren Buffett, the share price of Common wealth will
create value after 3 years. The dividend rate of this company is also very low which will
restrict investors for yearly return (Yahoo finance, 2018).
The National Australian Banks has increased its turnover by 25% since last five years.
The ordinary dividend offered by company is also fully franked and issued to shareholders. It
will give good return on capital employed to shareholders.
In case of Sun Corp Corporation, Warren Buffet has given view that it will have strong
growth rate. The shares of the company may be overvalued in market but in near future, it
will have increased its overall profitability and turnover. It will give good amount of return to
shareholders (Weygandt, Kimmel, and Kieso, 2015).
Task 3
Compare Warren Buffet’s approach to share valuation and the share valuation
methodology
It is analyzed that as per the views of the Warren Buffet, the share price of the
company should be valued on the basis of intricacies of the demand and supply factors
prevailing in the market. The profitability, return on capital employed and share price
valuation should be used to value the share of company (Tseng, and Chiang, 2016).
Warren Buffet consider the following points while undertaking stocks in his portfolio
In terms of the Return on equity
Investors should evaluate the EPS and return on equity available on their investment
Financial leverage of company
It shows the financial risk and sustainability of the business. Company having low
financial leverage must be selected for the investment purpose (Yahoo finance, 2018).
Profitability of the business
The profitability of company is determined on the basis of net income and profit
earned capacity of company (Delen, Kuzey, and Uyar, 2013).

Financial Analysis of the Companies 17
Nature of the organization and legal compliance
Warren Buffet evaluates the nature of the business market compliance and other
factors before investing in the particular company.
Share valuation Methodology
Warren Buffet uses two-column Valuation Methodology to evaluate the market price and
intrinsic value of the company.
This model is used to evaluate the share price of company (Mwangi, and Murigu, 2015).
 Relative Valuation
P/E ratio is calculated to give the ranking to stocks or determining the undervalued and
overvalued shares.
 Dividend Discount Model (Mwangi, and Murigu, 2015).
This discount model is used to evaluate the forecasted share price of company based
on the price and return on capital employed.
Discounted Cash Flow Model
Ideally, this discount cash flow model is used to determine the value of the shares
when the irregular dividends or no dividends are given to shareholders (Yahoo finance,
2018).
Therefore, after considering these both valuation models, it could be inferred that
Warren Buffet Dividend discount model is the best model to value the share price of the
company.
Conclusion
There are several factors which might impact the share price value of company. IT is
observed that if investor wants to create value on his investment then he must use proper
methods and valuation method to create value on the investment. Now in the end, it could be
inferred that Warren Buffet should method should be used to invest capital in particular
securities.

Financial Analysis of the Companies 18
References
ASX. (2018, may 09). ASX. Retrieved from ASX LIMITED:
https://www.asx.com.au/prices/company-information.htm
Bloomberg, 2018, Treasury Government bonds rates, retrieved on 12th May, 2018, from
https://www.google.co.in/search?
q=Bloomberg+govermentn+bond+rate&oq=Bloomberg+govermentn+bond+rate&aqs
=chrome..69i57j0l5.5915j0j9&sourceid=chrome&ie=UTF-8
Jordan, B., 2014. Fundamentals of investments. McGraw-Hill Higher Education
Mwangi, M. and Murigu, J.W., 2015. The determinants of financial performance in general
insurance companies in Kenya. European Scientific Journal, ESJ, 11(1).
Owens, D. (2018). Simply Wall ST. Retrieved from https://simplywall.st/stocks/au/banks/asx-
ben/bendigo-and-adelaide-bank-shares/news/what-makes-bendigo-and-adelaide-bank-
limited-asxben-a-great-dividend-stock/
Tseng, F.M. and Chiang, L.L.L., 2016. Why does customer co-creation improve new travel
product performance?. Journal of Business Research, 69(6), pp.2309-2317.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting.
John Wiley & Sons.
White, G.L., Sondh, A.C. and Fried, D., 2015. Analysis of Financial Statement. Analysis.
Yahoo finance, 2018, Altium, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, APAC COAL LIMITED, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, BHP Billiton, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, CALTEX AUSTRALIA LIMITED, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/

Financial Analysis of the Companies 19
Yahoo finance, 2018, COMMON WEALTH BANK OF AUSTRALIA, retrieved on 12th
May, 2018, from https://in.finance.yahoo.com/
Yahoo finance, 2018, COMPUTERSHARE LIMITED, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, National Australian Bank, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, SUNCORP GROUP LIMITED, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, WISETECH GLOBAL, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/
Yahoo finance, 2018, WORLEYPARSONS LIMITED, retrieved on 12th May, 2018, from
https://in.finance.yahoo.com/

Financial Analysis of the Companies 20
Appendix