Company Valuation: Financial Performance of Flight Centre Travel Group Limited

The report evaluates the financial performance of Flight Centre Travel Group Limited, including recent and overtime financial performance, current issues, macroeconomic and microeconomic factors, peer comparison, and Du Pont analysis. The report also includes stock price valuation using the dividend discount model and computation of Beta and required rate of return.

Running head: COMPANY VALUATION
Company Valuation
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1COMPANY VALUATION
Executive Summary:
The current report is prepared with the intent to evaluate the financial performance of a public
listed company in Australia. The organisation selected for meeting the purpose of this report is
Flight Centre Travel Group Limited (FLT). The airline industry of Australia has experienced a
steady growth over the past five years. However, the fuel prices have increased drastically over
the years after the global economic recession and as a result, the airfares have increased
considerably. By comparing with the major competitors of the organisation, it has been found out
that Helloworld Travel Limited is placed in a favourable position in the Australian aviation
industry followed by Webjet Limited and Flight Centre Travel Group Limited. The assessment
would also be showing valuation of the business for which computation of Beta and required rate
of return is also shown. The assessment also includes Dividend Discount Model analysis for the
purpose of computing the intrinsic value of the business and make comparison of the same with
the market value of the shares of Flight Centre Travel Group Limited (FLT).

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Table of Contents
Part 1................................................................................................................................................3
1.0 Introduction:..........................................................................................................................3
2.0 Recent Financial Performance:..............................................................................................4
3.0 Overtime Financial Performance:..........................................................................................5
4.0 Current Issues:.......................................................................................................................6
4.1 Macroeconomic Factors:.......................................................................................................6
4.2 Microeconomic Factors:........................................................................................................7
5.0 Peer Comparison:...................................................................................................................8
6.1 Du Pont Analysis:................................................................................................................11
Part 2..............................................................................................................................................16
Valuation Analysis of CAPM Approach...................................................................................16
Dividend Discount Model..........................................................................................................18
Difference Between Intrinsic Value and Market Value............................................................20
Appropriateness of Dividend Discount Model..........................................................................21
Sensitivity and Scenario Analysis.............................................................................................22
References:....................................................................................................................................24

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Part 1
1.0 Introduction:
The current report is prepared with the intent to evaluate the financial performance of a
public listed company in Australia. The organisation selected for meeting the purpose of this
report is Flight Centre Travel Group Limited (FLT), which is involved in providing retailing and
travel services for corporate, leisure and wholesale travel sectors in Australia, New Zealand,
Africa, USA, Asia and Europe (Flight Centre Travel Group, 2018). Therefore, for evaluating the
financial performance of the organisation, the analyses considered include share price analysis,
ratio analysis and stock price valuation using the dividend discount model.
2.0 Recent Financial Performance:
Figure 1: Share price performance of Flight Centre Travel Group Limited for the years
2014-2018
(Source: Finance.yahoo.com, 2018)

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From the above figure, it is evident that the share price of the organisation has started to
decline from 2014 until the first quarter of 2015 and fluctuating trend could be observed over the
years as well. From June to August in the year 2018, the insiders of the organisation have sold
more shares. The individual insiders own 29.84 million shares in the business, which constitute
of 29.52% of the overall number of outstanding shares (Howe, 2018). According to the earnings
expectations of the analysts, an increase of 30.67% is estimated over the next three years and
thus, this denotes a strong outlook for Flight Centre Travel Group Limited. However, this has not
been consistent with the signal that is sent by the company insiders with their net selling activity.
In case of line items, the organisation would experience restrained top-line growth level
over the upcoming year; however, a strong growth in earnings is expected to 10.88% as well.
This might due to sound cost minimisation initiatives that the organisation has undertaken for
driving greater earnings. However, this practice might not be feasible for the long-term and this
might prompt the insiders in reconsidering their shareholdings (Misund, Osmundsen &
Sikveland, 2015). In opposition, they might perceive that the stock has been overvalued by the
market in order to depict favourable selling environment. Moreover, it has been evaluated that
Flight Centre Travel Group Limited has acquired Unmapped, a technology-based organisation in
Canada, on 21st September 2018, due to which decline in stock price could be observed in the
third quarter of 2018.

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3.0 Overtime Financial Performance:
Figure 2: Overtime share price performance of Flight Centre Travel Group Limited
(Source: Finance.yahoo.com, 2018)
According to the above figure, it could be observed that the share price of the
organisation has increased from 2000 to 2001 after which a decline could be observed in the year
2002. The reason was that the organisation was going through a massive restructuring stage due
to which decline could be observed in the year. However, the stock price has started to increase
from 2005 to 2009 with significant decline observed in 2009. After 2009, the stock price has
increase until 2014 due to rise in profit level and liquidity. Finally, further increase could be
observed until 2018, as it has successfully acquired a number of organisations due to which its
goodwill has improved. As a result, it has positive impact on the overall share price of the
organisation.

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4.0 Current Issues:
4.1 Macroeconomic Factors:
There are certain macroeconomic factors that have direct impact on the financial
performance of Flight Centre Travel Group Limited and they are demonstrated briefly as
follows:
Individual income:
The social trends and conditions as inherent with respect to the airline sector have impact
on the performance of the organisation greatly. An evaluation of the Australian airline sector
indicates that the social trends have affected the same. This suggests that there has been greater
level of acceptance of low cost air travelling services within the customers (Brigham et al.,
2016). This is mainly due to the fact that there has been reduction in the purchasing power of the
consumers towards leisure services because of fall in income level. This has affected the airlines
like Flight Centre Travel Group Limited providing premium class air travelling services.
Growth of the industry:
The airline industry of Australia has experienced a steady growth over the past five years.
However, the fuel prices have increased drastically over the years after the global economic
recession and as a result, the airfares have increased considerably. The low income, increased
levels of unemployment and unavoidable disasters such as ash cloud have minimised the overall
air travel demand in Australia.
Government regulation:

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The Australian airline industry has been deregulated and this deregulation has eliminated
the barriers for the new organisations to tap into the airline market of the nation (Collewaert &
Manigart, 2016). This has direct effect on organisations like Flight Centre Travel Group Limited,
as they are old market players and they would be affected significantly by this regulation. The
preference of the travellers keeps on varying over the years from one airline to another; however,
with the value of money, the selection of individuals for travelling through air has risen.
4.2 Microeconomic Factors:
There are certain microeconomic factors those are deemed to impact the financial
performance of Flight Centre Travel Group and these are explained under:
Operation
The current business operations of Flight Centre Travel Group are focussed on
positioning itself as leader in air travel business through expanding its online presence through
rolling out flagship stores. The company’s Australian operations is observed to improve and
attain increased profits. Moreover, majority of its operations is carried out offline with physical
stores to attain 95% sales in the current year along with that its online operations will contribute
to 5% growth in its sales (Penman, 2015).
Level of Debt
The level of debt for Flight Centre Travel Group is observed to be 35.50 M for the year
2018. Moreover, the debt-to-equity ratio of the company is 6.89% for the year which indicates it
is likely to face low risk related with debt (Schmidlin, 2014). Moreover, the debt levels are
sustainable through measuring interest payments against earnings of the company.
Directions, Goals

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Flight Centre Travel Group is focussed on setting goals to bring in charge through
aggressively increasing its online presence. The company has set directions to maintain its
growth by developing plans to boost online along with call centre sales along with developing a
network of independent home-based contractor travel agents all through Australia (Rojo-
Ramírez, 2014).
Competition
The major competitors for the company are observed to be Hello world Travel Ltd,
Webjet Ltd and Corporate Travel Management Ltd. Flight Centre Travel Group is not able to
increase its ticket prices for the strong competition faced by it in the travel industry. Its
competitors are observed to offer cheap priced tickets in comparison to this airline company.
5.0 Peer Comparison:
Helloworld Travel Ltd
From analysing the share price trend of Helloworld Travel Ltd it has been observed that
the share prices of the company are observed to increase from the year 2014 to the year 2018.
Such increase in the company’s share price is because of its highly competitive rebranding
marketing initiatives that evidences its strong financial performance. The new branding was
successfully rolled out across the network all through its business locations. Moreover, an
increase in the company’s share price is observed because of its increase in cruise, corporate
along with air business along with improved contracting outcomes were important factors in
increasing its turnover result for the year. The acquisition decision of the company for Magellan
Travel Group has been successful in attaing 10.3% over the recent months (Helloworld Travel
Limited., 2018).

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Figure 3: Share Price Performance of Helloworld Travel Ltd
(Source: Finance.yahoo.com, 2018)
Webjet Ltd
The share price performance of Webjet Ltd is observed to increase for over five years due
its enhanced financial performance over the years. It has been observed that in case of Webjet
the company has attaining an exceptional profit that has materially eaten the market expectations
with its share price up to 12% (Webjet Limited., 2018). Moreover, the company has also attained
exceptional performance in its domestic along with international flight bookings growing more
than 6 times the Australian market rate. The company’s Australian operations is observed to
improve and attain increased profits. The company has also evidenced an increase in its final
dividend because of its strong improvement in its core business earnings.

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Figure 3: Share Price Performance of Webjet Ltd
(Source: Finance.yahoo.com, 2018)
Corporate Travel Management Ltd
From the figure below, it is observed that share prices for Corporate Travel Management
Ltd has increased over the five years duration. Such increase in the share prices of the company
has been evidenced because it has evidenced 10% increase in its profits as it has attained a
competitive advantage of offering innovative and cost-effective travel management solutions
within the corporate market. Strong organic growth underpins its EBITDA performance with
growth increase of 29% (Flight Centre Travel Group., 2018). CTM model developed by the
company continues to offer earnings that increases transactional volume growth that increased its
revenue margin. The company has also evidenced an increase in its final dividend because of its
strong improvement in its core business earnings. The growth in the share prices of the company
is observed to take place because of the reason that it has a highly profitable high growth model,

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long term sustainability along with earnings certainty, enhanced EBITDA margin along with
high compound earnings per share.
Figure 3: Share Price Performance of Corporate Travel Management Ltd
(Source: Finance.yahoo.com, 2018)
6.1 Du Pont Analysis:
In order to conduct Du Pont Analysis, the three ratios that have been considered include
net profit margin, total asset turnover and financial leverage. The detailed calculations of these
ratios for each of the three organisations are presented as follows:
Flight Centre Travel Group Limited:
Particulars 2018 2017 2016 2015 2014
Net Revenue A 2,949,95 2,769,70 2,641,77 2,396,989 2,244,569

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5 6 5
Net Profit B 264,213 230,773 244,556 256,553 206,918
Total Asset C
3,405,21
9
3,195,48
8
3,003,21
1 2,787,966 2,410,387
Total Equity D
1,554,44
2
1,428,75
5
1,345,94
5 1,270,121 1,097,798
Net Profit Margin E=B/A 8.96% 8.33% 9.26% 10.70% 9.22%
Total Asset Turnover F=A/C 0.866 0.867 0.880 0.860 0.931
Financial Leverage G=C/D 2.191 2.237 2.231 2.195 2.196
DuPont ROE
H=ExFx
G 17.00% 16.15% 18.17% 20.20% 18.85%
Table 1: Du Pont ROE of Flight Centre Travel Group Limited for the years 2014-2018
(Source: Flight Centre Travel Group, 2018)
With the help of net profit margin, it is possible to analyse whether the profitability of an
organisation is improving or declining (Damodaran, 2016). In case of Flight Centre, fluctuations
could be observed in the ratio over the years, as the revenue has not increased at a steady rate
throughout the years owing to the changing tastes and preferences of the travellers. Total asset
turnover ratio helps in measuring the efficiency of an organisation in generating sales and thus, a
greater figure is always favourable (Gitman, Juchau & Flanagan, 2015). The ratio is observed to

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decline from 0.931 in 2014 to 0.866 in 2018, which implies that the organisation is not utilising
its assets effectively in generating sales due to management problems.
Finally, financial leverage is a type of solvency ratio that determines the financial risk of
a business. In case of the concerned organisation, the ratio is well above 1, as it raises maximum
portion of its funds through debt. Due to this, there is risk associated with investing in the stocks
of Flight Centre Travel Group Limited.
Webjet:
Particulars 2018 2017 2016 2015 2014
Net Revenue A 762,614 238,197 155,333 120,287 99,531
Net Profit B 41,474 52,422 22,218 17,500 19,127
Total Asset C
1,083,58
7 492,819 377,867 202,821 129,218
Total Equity D 442,824 216,338 151,561 82,454 69,284
Net Profit Margin E=B/A 5.44% 22.01% 14.30% 14.55% 19.22%
Total Asset Turnover F=A/C 0.704 0.483 0.411 0.593 0.770
Financial Leverage G=C/D 2.447 2.278 2.493 2.460 1.865
DuPont ROE
H=ExFx
G 9.37% 24.23% 14.66% 21.22% 27.61%

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Table 2: Du Pont ROE of Webjet for the years 2014-2018
(Source: Webjet Limited, 2018)
In case of Webjet, significant decline in net profit margin could be observed over the
years, as the revenue has fallen massively owing to the degradation of service quality provided to
the travellers. Total asset turnover ratio assists the investors in obtaining an idea of the ways an
organisation is managed and ways of using its assets for producing sales and products (Gullett,
Kilgore & Geddie, 2018). The ratio is observed to decline from 0.931 in 2014 to 0.483 in 2018;
however, it has increased to 0.704 in 2018, which implies that the organisation has started
utilising its assets effectively in generating sales by leasing unused assets to small businesses.
On the other hand, financial leverage is a type of solvency ratio that determines the
financial risk of a business (Jami & Bahar, 2016). In case of the concerned organisation, the ratio
is well above 1 and it has increased considerably over the years. This is because it raises
maximum portion of its funds through debt. Due to this, there is risk associated with investing in
the stocks of Webjet Limited, as the shareholders might experience minimised return on
investment in future.
Helloworld Travel Limited:
Particulars 2018 2017 2016 2015 2014
Net Revenue A 326,874 326,833 297,923 279,223 291,671
Net Profit B 31,969 21,591 1,676 -201,111 -63,347
Total Asset C 698,268 638,943 645,598 471,096 683,239
Total Equity D 302,210 279,904 267,618 177,476 376,988

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Net Profit Margin E=B/A 9.78% 6.61% 0.56% -72.03% -21.72%
Total Asset Turnover F=A/C 0.468 0.512 0.461 0.593 0.427
Financial Leverage G=C/D 2.311 2.283 2.412 2.654 1.812
DuPont ROE
H=ExFx
G 10.58% 7.71% 0.63%
-
113.32
% -16.80%
Table 3: Du Pont ROE of Helloworld Travel Limited for the years 2014-2018
(Source: Helloworld Travel Limited, 2018)
In case of Helloworld Travel Limited, significant rise in net profit margin could be
observed over the years, as it has adopted competitive pricing strategy due to which it has
managed to generate increased revenues. Total asset turnover ratio helps the investors to gain an
understanding of the ways an organisation is managed and ways of using its assets for producing
sales and products (Jordan, 2014). The ratio is observed to be fluctuating over the years and no
steadiness could be found, which implies that the organisation has not been utilising its assets
effectively in generating sales owing to production issues.
On the other hand, financial leverage is a type of solvency ratio that assists the investors
the risks involved in investing in the shares of an organisation (Myšková & Hájek, 2017). In case
of the concerned organisation, the ratio is well above 1 and it has increased considerably over the
years. This is because it raises maximum portion of its funds through debt. Due to this, there is

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risk associated with investing in the stocks of Webjet Limited, as the shareholders might
experience minimised return on investment in future.
Based on the above evaluation, it could be stated that Helloworld Travel Limited is
placed in a favourable position in the Australian aviation industry followed by Webjet Limited
and Flight Centre Travel Group Limited. Therefore, the management of Flight Centre Travel
Group Limited needs to devise new strategies for increasing its revenue base as well as
minimising its operating costs and utilising its asset base in an effective fashion.
Part 2
Valuation Analysis of CAPM Approach
The valuation process is conducted for the purpose of computing Beta which can used
then for Capital Asset Pricing Model. The same is used for the computation of cost of equity of
the business. In order to compute the Beta (B) of the business, it is imperative to conduct
regression analysis with the help of the stock prices of Flight Center Travel Group and also of
ASX Price Index list. The beta of the business is computed considering regression analysis
which is shown in the table below:
Regression Analysis for Computing
Beta:
SUMMARY
OUTPUT
Regression Statistics
Multiple R
0.38272
3331
R Square
0.14647
7148
Adjusted R
Square
0.14582
2104

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Standard
Error
0.01761
3194
Observations 1305
ANOVA
df
SS MS F
Significa
nce F
Regression 1
0.069370
584
0.069
371
223.6
141
8.83596E
-47
Residual 1303
0.404222
637
0.000
31
Total 1304
0.473593
221
Coefficie
nts
Standard
Error t Stat
P-
value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept
0.00046
3976
0.000487
672
0.951
411
0.341
572
-
0.000492
73
0.0014
207
-
0.000492
732
0.00142
0684
X Variable
0.89459
83
0.059824
421
14.95
373
8.84E-
47
0.777235
587
1.0119
61
0.777235
587
1.01196
1043
Beta
Figure 1: (Table showing Regression Analysis for Computing Beta of the Business)
Source: (Created by the Author)
The above table shows the computation of Beta of the business which represent the
overall risks of the business. The estimate of Beta is shown to be 0.89 and the same will be used
for the purpose of computing costs of equity of the business.
The value of beta is used in the computation of required return of the business using
CAPM approach. Capital Asset Pricing Model (CAPM) can be defined as a method which
effectively establish the relationship between systematic risks of the business and expected return
which can be generated by the business. The method is mostly used for valuation of securities
which are of risky nature. The table which is presented below shows the computation of expected
rate of return which the business can anticipate judging from the current market situation
Cost of Equity under CAPM Technique:

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Particulars Amount
Risk Free Rate (10 yr. Govt. Yield Rate) A 4.83%
Expected Market Return B 9.826%
Company Beta C 0.894598315
CAPM Required Rate of Return
D=A+ [C x(B-
A)] 9.299%
Figure 2: (Table showing Computation of Required Rate of Return Under CAPM)
Source: (Created by the Author)
The above table shows that the computation of required rate of return of the business. The
computation considers risks free rate of return which is considered to 4.83%. The risk-free rate
of return is considered on the basis of yield rate of 10 years Government bonds. The expected
market rate of return is shown to be 9.826%. The required rate of return under CAPM is shown
to be 9.299% which is slightly lower than the market rate of return which is a positive sign.
Dividend Discount Model
Dividend Discount model is a method which is used by business to effectively value the
shares of the business and the valuation is based on the theory that the value of the business can
be measured on the basis of the present value of sum of all future dividends paid (Baresa,
Bogdan & Ivanovic, 2013). Dividend Discount model is also used by businesses for the purpose
of computing the intrinsic value of the share. In order to compute the intrinsic value of the
business, the growth rates in dividend needs to be computed and the same is shown below:
Computation of Average Growth Rate:
Particulars 2014 2015 2016 2017 2018
Net Profit 206,918 256,553 244,556 230,773 264,213
Dividend Paid 153,108 146,784 158,354 138,339 155,629

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Dividend Payout Ratio 73.99% 57.21% 64.75% 59.95% 58.90%
Return on Equity 18.85% 20.20% 18.17% 16.15% 17.00%
Growth Rate 13.95% 11.56% 11.77% 9.68% 10.01%
Average Growth Rate 11.39%
Figure 3: (Table showing Average Growth Rate)
Source: (Created by the Author)
Intrinsic Value of Shares under Discounted Dividend Model:
Actual Forecasted
Particulars 2018 2019 2020 2021 2022
2023
Onwards
1 2 3 4 5
Required Rate of Return 9.299% 9.299% 9.299% 9.299% 9.299%
Growth Rate 11.39% 12.39% 13.39% 9.39% 5.39%
Expected Dividend 155,629
173,35
9
194,84
3
220,93
8
241,68
9 254,723
Terminal Value
6,520,02
0
PV of Dividend Paid
158,60
9
163,09
8
169,20
6
169,35
0 163,297
Total PV of Expected Dividends 823,562
PV of Terminal Value
4,179,84
1
Fair Value of Firm
5,003,40
3
Nos. of Shares Outstanding (in
units) 101,073
Intrinsic Value per share (in $) 49.50
Figure 4: (Table showing Computation of Intrinsic Value per Share)
Source: (Created by the Author)
The table which is shown above reflect the intrinsic value of the shares of the business of
Flight Center Travel Group. The table shows computation for the same and considers the actual
results for 2018 and estimated results for year onwards. The required rate of return is shown to
be 9.299% which is computed using CAPM approach (Trugman, 2016). The increase in the

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growth rate of the business is considered by 1% on each year basis till 2021 and after that there is
sharp decline in the growth rate of the business Srinivasa (Reddy, Agrawal & Nangia, 2013). The
dividend of the business is also taken on estimation basis and the same is shown in the table
above.
The present value of the total dividend paid is shown to be $ 862,562 which is on an
anticipation basis. The fair value of the business which is computed on the basis of Dividend
Discount Model is shown to be $ 5,003,403. The intrinsic value of the shares of the business is
computed to be $ 49.50 per share on the basis of the value of the business is computed using
Dividend Discount Model (Imam, Chan & Shah, 2013). The intrinsic value of the business forms
an important part of the decision taken by the business regarding valuation.
Difference Between Intrinsic Value and Market Value
Intrinsic value of a business is computed by considering the present value of discounted
cash flows or future earnings. The intrinsic value of a business is not assessable easily and in
other words intrinsic value of a business identifies the worth or value of the business. The
intrinsic value of a business represents actual valuation for shares of the business. On the other
hand, market value of shares refers to the price at which the buyers and sellers trade in stock
market. The market value of shares represents the valuation of shares which is dependent on the
performance of the business along with other factors which can affect the activities of the
business. In many cases, the market valuation of shares of a business is considered to be a
yardstick for measuring the performance of the business in terms of its competitors in the market.
The market value of a share is very much different from the intrinsic value of the share. The
market value of shares does not reflect true and accurate view of the valuation of the business
whereas intrinsic value is considered to be an accurate indicator of correct view of the business.

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The market price of a share of a business reflect the effect of demand and supply in the market.
In addition to this, there are other factors which can be both internal and external which affect
the market valuation of shares of a business. In the case of intrinsic value of shares, the same is
not affected by demand and supply forces in market.
The market value of share is driven by opinion of public and also by their expectations
whereas in case of intrinsic value of a share, the same is affected by internal opinions and
business decisions. In case of a private company, intrinsic value of shares can be determined
easily as few people hold the shares of the business and most of these people are part of the
internal management of the business. It is for these reasons that the intrinsic value can
demonstrate better valuations in case of private business and not market value for shares.
In the case, the intrinsic value of Flight Center Travel Group is computed and the same is
shown to be $ 49.50 per share. The intrinsic value of the shares is shown to be different from the
market value of the shares of the business. The current market value of the shares is shown to be
$ 47.20 per share which is shown to be lower than the intrinsic value of the shares of the
business, This shows that the shares are actually undervalued slightly and the actual valuation for
the shares of the business would be slightly higher considering the analysis which is conducted
above.
Appropriateness of Dividend Discount Model
The dividend discount model is used by investors for appropriate valuation of the stocks
of a business. The method is considered to be similar to discounted cash flow method, the only
difference being that this method considers dividends as the relevant cash flows of a business
(Heinrichs et al., 2013). The dividends which will be offered by the business are estimated and
present value for the same is computed. As per the case which is provided in the situation, the

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valuation of shares of Flight Center Travel Group is to be undertaken using the method of
Dividend Discount Model and the same is appropriately used to compute intrinsic value of the
business (Rees & Valentincic, 2013). The company has a background for dividend history and
therefore the method is appropriate for the purpose of computing the intrinsic value of the
business. Another positive side of Dividend Discount Model is that the method considers growth
rate in the dividend of the business and therefore it reflects accurate estimates relating to
valuation of the business (Pinto, Robinson & Stowe, 2015).
Sensitivity and Scenario Analysis
Sensitivity and Scenario Analysis considers different situations which can affect the
valuation of shares of the business. The sensitivity analysis for Flight Center Travel Group is
conducted for the purpose of ensuring that different situations are considered before appropriate
decision is taken by the business (Verburg, Tabeau & Hatna, 2013). The sensitivity and scenario
analysis for the business of Flight Center Travel Group is shown below in table format:
Sensitivity Analysis:
Current
Values:
Lower
Growth Rate
Higher
Growth
Rate
Higher Required
Return
Lower
Required
Return
Growth Rate 11.39% 8.39% 13.39% 11.39% 11.39%
Required Rate of Return 9.30% 9.30% 9.30% 11.30% 7.30%
Intrinsic Value per share (in $) 49.50 27.88 101.16 32.70 101.57
Figure 5: (Table showing Sensitivity Analysis for the Business)
Source: (Created by the Author)

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Scenario Summary
Current
Values:
Lower Growth
Rate
Higher Growth
Rate
Higher Required
Return
Lower Required
Return
Changing
Cells:
$C$30
0.11392632
4 0.0839 0.1339 0.113926324 0.113926324
$C$29
0.09299413
2 0.092994132 0.092994132 0.11299 0.07299
Result Cells:
$B$38 49.50 27.88 101.16 32.70 101.57
Figure 6: (Table showing Scenario Analysis for the Business)
Source: (Created by the Author)
The above figures depict sensitivity and scenario analysis which is conducted by the
business considering the growth rate and required rate of return of the business. The variables
which can affect the valuation process for the business are growth rates which is considered and
the rate of return of the business (Borgonovo & Plischke, 2016). The above tables show that a
slight change in the variables can affect the valuation of the business and also affect the market
value of the shares.
Therefore, from the discussion which is shown above and the analysis which is conducted
it can be said that the investment project is looking appropriate. The business has positive cash
flows and the present value of the discounted cash flows which is shown in dividend discounted

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model is also shown to be appropriate. However, the only matter of concern for the business is
the risks which can be reduced further by effective policy setting and mitigation strategies.

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References:
Baresa, S., Bogdan, S., & Ivanovic, Z. (2013). Strategy of stock valuation by fundamental
analysis. UTMS Journal of Economics, 4(1), 45-51.
Borgonovo, E., & Plischke, E. (2016). Sensitivity analysis: a review of recent
advances. European Journal of Operational Research, 248(3), 869-887.
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27COMPANY VALUATION
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28COMPANY VALUATION
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