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Introduction to the Corporate Finance

   

Added on  2020-06-06

15 Pages2381 Words46 Views
Corporate Finance

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................4Part 1................................................................................................................................................4Ratio analysis that aid in the decision making of shareholders...................................................4Total shareholder analysis...........................................................................................................5Share price performance and dividend paid over time period.....................................................6EVA analysis and Gordon growth model....................................................................................7Part 2................................................................................................................................................7Share price development of firms and comparison with index...................................................7Part 3................................................................................................................................................8Valuation methods.......................................................................................................................8Assets that need to be revalued on basis of statement of 2011 and 2012....................................9Presenting the equity valuation of Sainsbury..............................................................................9Discounted free cash flow model or analysis..............................................................................9PE ratio valuation......................................................................................................................13Reasons for difference in price..................................................................................................13CONCLUSION..............................................................................................................................13REFERENCES..............................................................................................................................14APPENDIX....................................................................................................................................15

INTRODUCTION Corporate finance deals with the sources of funding and capital structure of thecorporation. Such field of finance provides high level of assistance to the manager in takingactions that enhance the value of firm to shareholders significantly. The present report is basedon Sainsbury, which is one of the leading retail business organizations of UK. In this, it willdiscuss the extent to which company has delivered high value to the shareholders. Further, it willshed light on the different types of equity valuation methods that aid in the aspect of decision-making. Part 1Ratio analysis that aid in the decision making of shareholdersSainsbury Particulars 20132014201520162017 Earnings pershare (inGBP).32.36-0.08.23.17Dividend pershare (inGBP)0.160.170.170.120.1220132014201520162017-0.2-0.100.10.20.30.4Earnings per share (in GBP)Dividend per share (in GBP)Morrison’s

Particulars 20132014201520162017 Earnings pershare (inGBP).27-0.10-0.33.09.13Dividend pershare (inGBP)0.140.130.110.0520132014201520162017-0.4-0.3-0.2-0.100.10.20.30.4Earnings per share (in GBP)Dividend per share (in GBP)Interpretation or analysis: From assessment, it has been identified that earning per shareof Sainsbury declined from 0.32 to 0.17 GBP. On the other hand, EPS of Morrison’s also showsdecreasing trend which is not a good indicator. Moreover, at the end of 2017, EPS of theMorrison’s account for 0.13 GBP respectively. Thus, company needs to make focus on offeringhigh earnings to shareholders by developing sound framework. Further, dividend which isoffered by Sainsbury on per share declined from 0.17 to 0.12 GBP. On the other side, DPS ofMorrison’s account for 0.05 GBP pertaining to the financial year ended on 0.05 respectively.Thus, it can be said that as compared to the rival firm Sainsbury is offering higher return to theinvestors. However, to build and maintain trust of the shareholders Sainsbury is required to offergreater return to the shareholders. Total shareholder analysisROCE value for Sainsbury is 4% and same for Morrison is 5% followed by same forTesco is 0%. ROE for Sainsbury is 5% followed by Morrison 8% and Tesco 4% return of equitygenerated for shareholders. It can be said that over past five years value of Sainsbury declined by-28%. This reflects that firm failed to generate relevant return for its shareholders. Less return on

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