Foreign Direct Investment Impact Analysis

This assignment delves into the relationship between Foreign Direct Investment (FDI) and its influence on environmental quality. It requires students to analyze various case studies, research empirical evidence, and critically evaluate the economic and environmental implications of FDI. The analysis should encompass both positive and negative impacts, considering factors such as resource depletion, pollution, and technological advancements. Students are expected to synthesize their findings into a well-structured report that presents a comprehensive understanding of this complex issue.

Investment Analysis

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
ABOUT THE COMPANY..............................................................................................................2
Gross Revenue:............................................................................................................................2
Operating profit: ..........................................................................................................................2
Individual sector revenue:............................................................................................................3
Corporate Strategy: .....................................................................................................................3
Shareholder's value generating initiatives: .................................................................................4
Porter Five Forces: .....................................................................................................................4
Investments Recommendation for shares of Seek Limited..............................................................9
Investment Thesis and outcome.......................................................................................................9
Financial data of Seek Limited and its key important ratios:....................................................12
Dupont Analysis:.......................................................................................................................15
Industry Trends / Economic Environment.....................................................................................16
Equity Valuation:.......................................................................................................................21
Stability of performance............................................................................................................26
Competitive Positioning.............................................................................................................27
Investment Risks: ......................................................................................................................27
Conclusion.....................................................................................................................................28
REFERENCES................................................................................................................................1
Appendix:.........................................................................................................................................3

EXECUTIVE SUMMARY
This reports exhibits investments Recommendation for shares of Seek Limited along with
a sharp analysis by using various analysis such as SWOT analysis, porter's five forces model etc.
Seek Ltd.'s performance is compared with its top competitors in terms of gross revenue,
Individual sector revenue, Corporate Strategy, Management structure, Shareholder's value
generating initiatives, Financial data of Seek Limited and its key important ratio, Dupont
Analysis, Equity Valuation, Stability of performance, Competitive Positioning and Investment.
This comparison shows that Seek Ltd has negative growth in current year which is temporary
due some major acquisitions. Risks related with Seek Ltd' s securities. Financial data of Seek
Limited are interpreted with the help valuation of share of Seek Ltd by various model. This
report enable investors to take decision about buy, sell or hold securities of Seek Ltd.
1

ABOUT THE COMPANY
SEEK Limited is a public company which was founded in November 1997 by Paul
Bassat, Matt Rockman and Andrew Bassat and its website was launched on March 1998. With
market capitalisation of $587 million, Seek was listed on the Australia Securities Exchange on
18 April 2005. Seek Limited is focusing on employment opportunities between job seekers and
companies which are in search of employees. It ranked at 322 out of top 2000 companies of the
Australia and majority of income is generated by Seek Limited from the Internet Publishing and
Broadcasting in the industry of Australia. In 2018, Seek Limited had generated a total revenue of
$ 1328400000 which include sales and other revenue (Annual Report of Seek Ltd., 2018). Chief
Executive officer of the company is Mr. Andrew Bassat and Non Executive Chairman of the
company is Mr. Neil Chatfield. Seek Limited provide online employment advertisement services
through its website and also provide online vocational training and education training courses in
Australia, New Zealand, China, India, Brazil, Mexico, Indonesia, Nigeria, Bangladesh,
Philippines, Vietnam, Thailand, South Africa, Kenya, Malaysia, Hong Kong and Singapore.
Gross Revenue:
Gross revenue or gross income, is the aggregate sum of all revenues or incomes before
any expenses during a particular period. Gross revenue includes all monetary income or revenue
made from the sale of goods and services, income from interest, sale of shares, exchange rates
and sales of fixed assets. Company's income statement shows gross revenue for a particular
period. Net revenues calculated by subtracting cost of goods sold from gross revenue. Seek Ltd.
has AUD 1295 million gross revenue in 2018 and achieved a growth of 25% in gross revenue
(Bessler, 2015).
Operating profit:
Operating profit is income that remains after deducting all the costs related to the
business. It includes cost of goods sold such as fixed-cost expenses like rent and insurance,
variable-cost expenses like shipping and freight, payroll and utilities, as well as amortization and
depreciation of assets (Bierman, 2012). All the expenses related to business should be included
in operating profit,
2

Operating Profit = Gross Revenue - COGS - Operating Expenses - Depreciation and
Amortization. Seek Ltd. Has AUD 318 million operating profit in 2018 and achieved a growth of
approx. 24.7% in operating profit.
Individual sector revenue:
An organisation dealing in different-different fields, divides its revenue from all fields
sector wise. The Group recognises revenue when the amount of revenue can be reliably
measured, it is probable that future economic benefits will flow to the entity and specific criteria
have been met. Seek Ltd. Divides its revenue in following sectors:
Sector Income($ m )
SEEK ANZ 393.4
SEEK Asia 141.6
Brazil Online 76.4
OCC 29.2
SEEK Learning (Old) 30
ESVs 31.2
Zhaopin 433
Online Education Services 107.2
THINK 31.4
Other Businesses 21.6
Corporate Strategy:
The term corporate strategy to outline decisions a company should make to achieve its
goals and create policies to achieve them. Corporate strategy is the guideline an organization
uses with the objective of achieving business success in long term. A flexible strategy should be
adopted an organisation in a dynamic business environment. A corporate strategy is developed
while considering the purpose and scope of the organization's activities and the nature of the
business, the environment in which it operates, position in the marketplace, and the competition
it faces. Seek ltd uses vertical integration by focusing on greater control over an operatins
3

process by integrating a key segment. However, sometimes uses horizontal integration by taking
the existing services and acquires new business operations.
Management structure:
A management structure is way by which a company organizes its management chain.
Management structures is a systematic chain of authority, communications, rights and duties of
an organization (Blomstrom, 2014). Management structure defines roles, power and
responsibilities are assigned to different levels of management. It depends on the organization's
goals and culture. Seek ltd has a put under one control structure, the top level of business
managers has most of the decision making power and has tight control over departments and
divisions. In a gave self-government structure, the decision making power is made distribution
and the departments and divisions may have different degrees of self -direction. In this context,
in Seek Ltd has very few levels of management between the president or CEO, and the lower-
level employees, Which enable Seek Ltd for rapid decision making due to only a few levels of
management.
Shareholder's value generating initiatives:
Seek Ltd always gives top priority to enhance shareholder's value. Company not only
focusing on earning on short term basis but also towards shareholder's wealth creation. Seek ltd
takes initiatives in order to maximise the shareholder's value such as making acquisitions that
maximize value, even at the expense of lowering near-term earnings, tries to carry only those
assets that maximize value, by returning cash to shareholders when there are no credible value-
creating opportunities to invest in the business, by rewarding CEOs and other senior executives
for delivering superior long-term returns, by Reward operating segment executives for adding
superior value and by requiring senior executives to bear the risks of ownership just as
shareholders do.
Porter Five Forces:
It is a comprehensive strategy model used in strategic decision making activities by
analysing the present competition. In the context of Seek Ltd, Porter Five Forces focuses on -
how Seek Limited can build a sustainable competitive advantage in Commercial & Professional
Services industry (Zhuo-hua, 2015). Managers at Seek Limited can not only use Porter Five
4

Forces to develop a strategic position with in Commercial & Professional Services industry but
also can explore profitable opportunities in whole Commercial & Professional Services sector.
Michael Porter's five forces model identifies key factors that have significant impact on a firm's
profitability in the industry it operates in. following are the Porter's Five Forces -
 Threat of New Entrants
 Bargaining Power of Suppliers
 Bargaining Power of Buyers
 Threat from Substitute Products
 Rivalry among the existing players.
Seek Limited Porter Five Forces Analysis:
Threats of New EntrantsThreats of New Entrants:: Bargaining Power of SuppliersBargaining Power of Suppliers::
New entrants brings new thing, new ways of
doing things and put efforts on reducing price
while providing new services. Seek Ltd can
handle this threat by developing new
products and services. New services not only
brings new customers to the fold but also
give old customer a reason to choose Seek
Limited ‘s services.
Companies in the Commercial &Companies in the Commercial &
Professional Services industry areProfessional Services industry are
outsourcing some services from third parties.outsourcing some services from third parties.
Such third parties are deemed as suppliers inSuch third parties are deemed as suppliers in
Commercial & Professional ServicesCommercial & Professional Services
industry. These third parties use theirindustry. These third parties use their
bargaining power to extract higher pricesbargaining power to extract higher prices
from the companies (Briston, 2017). Thefrom the companies (Briston, 2017). The
overall effect of higher supplier arriving at anoverall effect of higher supplier arriving at an
agreed price or set of terms for an exchangeagreed price or set of terms for an exchange
power is that it lowers the overall a money-power is that it lowers the overall a money-
making state of Commercial & Professionalmaking state of Commercial & Professional
Services. Seek ltd can handle this threat byServices. Seek ltd can handle this threat by
building efficient supply chain with multiplebuilding efficient supply chain with multiple
suppliers.suppliers.
Bargaining Power of BuyersBargaining Power of Buyers:: Threats of SubstituteThreats of Substitute::
Service receiver want quality services byService receiver want quality services by This threat occurs when a new product orThis threat occurs when a new product or
5

paying the minimum price as possible thatpaying the minimum price as possible that
affects Seek Limited profitability in the longaffects Seek Limited profitability in the long
run. Seek Ltd can handle this threat byrun. Seek Ltd can handle this threat by
building a large base of customers that helpsbuilding a large base of customers that helps
to reduce the bargaining power of the serviceto reduce the bargaining power of the service
receivers and provides an opportunity to thereceivers and provides an opportunity to the
firm to optimise its costs.firm to optimise its costs.
service meets a similar customer needs inservice meets a similar customer needs in
different ways. Seek Ltd can handle thisdifferent ways. Seek Ltd can handle this
threat by increasing expense towards researchthreat by increasing expense towards research
on providing new or unique services whileon providing new or unique services while
understanding the core need of the customer.understanding the core need of the customer.
Rivalry among the Existing Competitors:Rivalry among the Existing Competitors:
Rivalry among the existing players in an industry affects prices and decrease the overallRivalry among the existing players in an industry affects prices and decrease the overall
profit margin of the industry. Seek Limited operates in a very competitive Commercial &profit margin of the industry. Seek Limited operates in a very competitive Commercial &
Professional Services industry, that affects its overall long term profitability of theProfessional Services industry, that affects its overall long term profitability of the
organization (Broomhead, 2012). Seek Ltd can handle this threat by building scale so that itorganization (Broomhead, 2012). Seek Ltd can handle this threat by building scale so that it
can compete better or by collaborating with competitors to increase the market size rathercan compete better or by collaborating with competitors to increase the market size rather
than just competing for small market.than just competing for small market.
SWOT analysis
The SWOT Analysis tool used by an organization to identify the internal strategic factors
such as -strengths and weaknesses, & external strategic factors such as - opportunities and
threats. In SWOT analysis a matrix is created which helps the managers to analyse four types of
strategies:
 SO (strengths-opportunities) Strategies
 WO (weaknesses-opportunities) Strategies
 ST (strengths-threats) Strategies
 WT (weaknesses-threats) Strategies
Seek Limited SWOT Analysis: The main purpose of SWOT matrix is to identify the strategies
that a firm can use to explore external opportunities, threats, strengths and weaknesses.
6

Strengths: Weakness:
Seek Limited has many strengths that assist
to maintain market share. These strengths not
only assist in retaining the market share in
existing markets but also help in developing
new markets. Seek Ltd has strengths like
favourable returns on capital investments,
Large distribution network, Great Brand
Portfolio, Good Free Cash Flow condition,
controlled execution over Automation of
activities, High level of customer satisfaction
etc.
Weakness are fields in which improvement is
required. This analysis helps to identify the weak
areas where a company can improve and build on
its competitive advantage (Chandra, 2017). Seek
Ltd has weakness such as Seek ltd. has not being
able to handle the challenges created by the new
entrants in the segment and has lost small market
share in the niche segment, Profitability ratio and
net Contribution percentage of Seek Limited are
below the industry average.
Opportunities: Threats:
Opportunities refers to external factors that
creates favourable conditions for an
organisation. In present situation there are
many opportunities for Seek Ltd. In industry
such as latest trends in the consumer taste
and preferences can develop a new market
for the Seek Limited, proposed
environmental policies, Government's recent
flexible opens an opportunity for
Threats refers to external factors that creates
unfavourable conditions for an organisation. In
present situation there are many threats for Seek
Ltd. in industry such as development of new
technologies, Changing consumer buying
behaviour, Growing strengths of local distributors
etc.
7

procurement of Seek Limited services or
products, Recent development of new
markets due to government policies, lower
inflation rate etc.
.
Investments Recommendation for shares of Seek Limited
Investment recommendation means advising or indicating an investment approach in
relation to one particular security or particular industry, while considering financial data or other
relevant information, and opinion based on present or future price of security. Investment
recommendation mainly includes advises such as - whether to buy, sell or hold securities. As per
present scenario investors should hold the securities of Seek Ltd. In order to gain more returns in
near future. From the previous records, it can be seen that previous performance of company
shows favourable growth, however in 2018 there is negative growth in share prices, revenues,
net margin as compared to competitors (Arrow, 2013). This negative growth is temporary
because Seek Ltd is able to re achieve positive growth due to its other subsidiaries and acquired
companies. In this context present valuation of Seek Ltd by different-different methods shows
unstable picture due to negative net margin, negative working capital and negative overall
growth, so investors should hold their securities.
Investment Thesis and outcome
Investment thesis aims to evaluate investment ideas and guide the investor whether to
purchase or sell or hold the stock. Investor will purchase a securities based on the investment
thesis that security is undervalued (Baker, 2014). It also states the investor plans to hold the
security for several years, during which an investor expects that its price of stock will rise and
true worth of stock will reflect.
Why Buy or Sell or Hold
If a value of stock is less than the value it expected to be, then investors will buy that
security since the current value of stock is undervalued and the price of security is expected to
rise in future, so in order to gain profit investors sell their securities (Berghout, 2013). Similarly,
if value of stock is more than the value it expected to be, then that means value of that stock is
overvalued and it is expected that its value will be decrease in future, so the stock will be sold at
8

present in order to avoid future loss. And if the value of stock is same as it expected to be then
the stock will be hold for future.
Industry Outlook
While making investment, it is very important to study the industry outlook that is
forecasting about future trends of a particular company, stock market exchange, economic
segments and community. The market outlooks are based upon the various factors like past
performance of the company, economic factors prevailing in the industry and the demand and
opinion of the consumer. The new investor will always study the industry outlook before making
investments in a company of any industry and then take any decision to buy the stock or not.
Major competitors of Seek Ltd.
Seek Ltd. Is operating in Commercial & Professional Services industry, in which
competition helps to make company's products, services and marketing be distinct. It enables
company to fix prices of product competitively and help to respond to rival marketing
movements with your own actions (Damodaran, 2016). Competitor could be a new business
offering a substitute or similar product that could be harmful for organisation. These following
are the major competitors of Seek Ltd.:
Indeed: Indeed is Seek Ltd's top competitor with approx 2200 employees and revenue of
$973.8M. Indeed, is a Private company that was founded in 2004 in Austin, Texas. Indeed is in
the Internet Software industry. Compared to SEEK, Indeed has 1,371 more employees.
Freelancer.com : This is the world's largest freelancing and crowdsourcing marketplace
by number of users and projects. Freelancer connects over 31,396,904 employers and freelancers
globally from over 247 countries, regions and territories and through company's marketplace,
employers can hire freelancers to do work in areas such as software development, writing, data
entry and design right through to engineering, the sciences, sales and marketing, accounting and
legal services (Mihályi, 2012).
Performance of Seek Ltd.
2014 2015 2016 2017 2018
Revenue %
Year over Year 15.01 20.34 10.72 9.05 24.9
9

Performance of Seek Ltd.
3-Year Average 27.64 24.74 15.29 13.26 14.68
5-Year Average 27.91 25.05 22.61 18.57 15.85
Net Income %
Year over Year -34.82 43.76 26.99 -4.73 -84.36
3-Year Average 26.04 28.78 5.97 20.26 -42.59
5-Year Average 28.74 25.72 29.6 20.9 -29.25
EPS %
Year over Year -35.67 40.67 27.28 -5.01 -85.4
3-Year Average 25.26 27.12 4.82 19.36 -43.91
5-Year Average 24.88 24.7 28.61 19.95 -30.71
Performance of Indeed
2014 2015 2016 2017 2018
Revenue %
Year over Year — 9.09 22.21 15.82 18.12
3-Year Average — — — 15.58 18.69
5-Year Average — — — — —
Net Income %
Year over Year — 6.54 -7.41 32.37 77.55
3-Year Average — — — 9.3 29.58
5-Year Average — — — — —
EPS %
Year over Year — 0.82 -10.62 33.43 78.5
10

Performance of Indeed
3-Year Average — — — 6.33 28.64
5-Year Average — — — — —
Performance of Freelancer
2013 2014 2015 2016 2017
Revenue %
Year over Year -10.34 -1.87 -14.78 18.12 250.19
3-Year Average -0.09 -4.35 -9.15 -0.41 52.19
5-Year Average — 0.12 -3.56 -2.51 25.41
Operating Income %
Year over Year -16.97 75.56 — — 547.28
3-Year Average -30.17 — — 90.98 195.04
5-Year Average — 46.06 — — 106.38
Net Income %
Year over Year — — — — 639.53
EPS %
Year over Year — — — — 400
Financial data of Seek Limited and its key important ratios:
Financial data is sum of information related to the financial health of a business. The set
of data are used by internal management to analyse business performance and determine whether
strategies requires alternations (Garg, 2014). External parties and factors of a business also use
financial data reported by the business to take decision about credit worthiness, decide whether
to invest in the business, and determine whether the business is complying with government
policies. For understanding the financial data and in making financial analysis of Seek Limited, it
is necessary to calculate and analyse various ratios like profitability ratios, investment ratios and
11

liquidity ratios. After carefully understanding the above ratios, financial statements of Seek
Limited can be understandable. Calculations of various key ratios of Seek limited are as follows:
Liquidity Ratios
2014 2015 2016 2017 2018
Current
Current Assets
Current Liabilities
1.57 1.07 1.28 1.53 0.82
Quick
Cash + Accts. Rec.
Current Liabilities
1.5 1 1.23 1.47 0.75
Debt Equity Ratio
Total Liabilities
Net Worth
0.42 0.68 0.55 0.63 0.91
1. Current ratio: Industry average of current ratio of employment sector is 2:1. In case
company has a high ratio above standard then they are capable of paying their short-term
obligations. The higher the ratio, the more capable the company. A current ratio that is
lower than the industry average may indicate a higher risk of default. This shows
decreasing trends in Seek Ltd in 2018.
2. Quick ratio: Industry average of Quick ratio of employment sector is 1:1. (Guerard,
2013). A quick ratio lower than 1:1 may indicate that the company relies too much on
inventory or other assets to pay its short-term liabilities, in Seek Ltd. In 2018 ratio is
lower than standards.
3. The Debt-to-Equity ratio (D/E): Industry average of Debt-to-Equity ratio of employment
sector is 2:1. It shows the proportion of the company's assets that are being financed
through debt. Debt-to-equity ratio measure of a company's ability to repay its obligations.
Seek Ltd has high debt/equity ratio in 2018 as compared to previous years means that a
company has been aggressive in financing its growth with debt.
Efficiency Ratio
2014 2015 2016 2017 2018
Days Sales Outstanding 27.46 23.68 23.02 22.86 22.19
12

Sales
Accounts Receivable
Payables Period
Cost of Goods Sold
Accounts Payable
946.27 1227.5 1092.21 881 284.95
Receivables Turnover
Sales
Accounts Receivable
13.29 15.41 15.85 15.97 16.45
Fixed Assets Turnover
Sales
Fixed Assets
27.31 35.18 33.82 36.24 37.74
Sales-to-Assets
Sales
Total Assets
0.32 0.31 0.29 0.3 0.35
1. Days Sales Outstanding: Industry average period of sales day outstanding in employment
sector is assumed as 30 days. Such period is part of the cash conversion cycle, and is
often referred to as days receivables or average collection period. In Seek Ltd from 2014
to 2018 it shows a favourable trend.
2. Payables Period: The accounts payable days exhibits the number of days that a company
takes to pay its suppliers. Industry average payable period in employment sector is
assumed as 180 days. In 2018, Seek Ltd has an unfavourable payback period but slowly
impoverishing it .
3. Receivables Turnover: Accounts receivable turnover is the number of times in a year that
a business receive cash from its average accounts receivable. In employment sector
average customer takes 31 days to pay his or her bills. This ratio helps to evaluate the
ability of a company to efficiently issue credit to its customers and collect funds from
them. In Seek Ltd receivable turnover is favourable as compared to industry average and
there is slight increase in 2018.
4. Fixed Assets Turnover: The fixed-asset turnover ratio used to evaluate operating
performance of an organisation. There is no standard asset turnover ratio, since the Seek
Ltd. Have a higher fixed-asset turnover ratio shows that a company has more effectively
utilizing its investment in fixed assets to generate revenue.
13

5. Sales-to-Assets: This ratio shows company's efficiency in management of assets in
relation to the sales. Since on standard ratio, higher the sale to asset ratio, better the
performance of the company. In Seek Ltd. higher sales to assets ratio shows that less
investment required to achieve sales, therefore shows higher the profitability of the
company.
Profitability Ratios 2014 2015 2016 2017 2018
Gross Margin
Gross Profit
Sales
95.91 96.6 95.86 93.8 89.93
Net Margin
Net Profit Before Tax
Sales
27.42 32.76 37.57 32.83 4.11
1. Gross Margin : Gross margin ratio is a profitability ratio which shows gross margin of a
business to net sales (Huisman, 2013). This ratio calculates profitability of company in
relation to the sales of inventory. In Seek Ltd there is decrease in 2018, which indicate
that the operating expense are increased and operating incomes are reduced.
2. Net Margin: The net margin shows net income of company after deducting all relevant
expenses from sales. A higher net profit margin shows that a company is more efficient.
The net margin of Seek Ltd is very low percentage in 2018 as compared to previous years
which clearly indicate that company performance is very poor as compare to last years.
Dupont Analysis:
DuPont Analysis is a systematic tool for calculating Return on Equity (ROE) of a
company along with a sharp analyses of Net Profit Margin, Asset Turnover, and Financial
Leverage. This analysis was developed by the DuPont Corporation. DuPont Analysis provides a
broader view of the Return on Equity of the company and exhibits organisation’s strengths and
key area where consideration is required (Wen-nan, 2015). In case of Seek ltd if shareholders
show negative attribute with lower ROE, Company by using DuPont Analysis formula can
evaluate whether the lower ROE is due to low-profit margin, low asset turnover or poor leverage.
14

Depending on the level of detail and desired results, this analysis is divided in three-step and
five-step DuPont analysis.
Three-step DuPont analysis: This analysis breaks down ROE into three related steps:
the product of profit margin, asset turnover and financial leverage. In this context Seek Ltd.'s
three-step DuPont analysis done in following manner:
Financial Statement Data Year -2018
Sales 1295
Net Profit 53
Total Assets 3786
Equity 1340
Three-Step DuPont Model:
Net Profit Margin (Net Profit ÷ Sales) 4.1
Asset Turnover (Sales ÷ Average Assets) 0.35
Return on Equity 3.80%
Five-step method of DuPont analysis: Five-step method of DuPont analysis is an
extension of the three-step method. It further dissolve ROE into two additional components or
steps, that provide more detailed analysis (Leete, 2013). Continuing from the three-step method,
in step four, profit margin is broken into earnings before tax / sales multiplied by 1 minus the tax
rate. From there, step five breaks out the effects of interest by taking earnings before interest and
tax / sales and then subtracting the ratio of interest / sales from asset turnover.
Five-step DuPont Analysis
1. Operating Profit Margin
Gross Revenue
(-) Fixed
Expense
(-) Variable
Expense
(=) Net Operating Income
$1,295 $846 $130 $319
Net Operating Income (+) Other
Income
(-) Interest
Expense
(=) Net Income
15

$319 ($100) $43 $176
Net Income (+) Interest
Expense
(÷) Gross
Revenue
(=) Operating Profit Margin
Earns
$176 $43 $1,295 $0.169
2. Asset Turnover Ratio
Gross Revenue (÷) Total Assets (=) Turnover Ratio
$1,295 $3,786 0.34
3. Return on Assets (ROA)
Oper. Profit Margin (x) Turnover
Ratio
(=) Return on Assets
0.17 0.34 5.78%
4. Return on Equity (ROE)
Total Liabilities (÷) Total Equity (=) Debt/Equity Ratio
Leverage Ratio
$2,446 $1,340 1.83
Interest Expense (÷) Total
Liabilities
(=) Average Interest Rate
AIR
$43 $2,446 1.76%
Return on Assets (+) Return on
Assets
(-) Average
Interest Rate
(x) Debt/
Equity
Ratio
(=) 5.Return on
Equity
5.78% 5.78% 1.76% 1.83 13.13%
Industry Trends / Economic Environment
Industry trends are used to make predictions. It means studying the things which are
going in the industry and accordingly compare the company performance with the performance
of the industry by taking it as basis for comparison. Economic environment means those external
factors of environment which influence the business. Economic environment affects the business
by two ways:
 Microeconomic Environment Macroeconomic Environment
 Microeconomic Environment; It is the study of business entity's behaviour in making
decisions and resource allocation. It focuses on supply and demand and other factors that
are used in determining the price level of the economy (Di Leo, 2013). For example, In
present scenario would look at how Seek Limited could increase and maximise its
16

production capacity. There are six microeconomic factors that affect business and
industry are as follows:
- Customers: They have the direct impact of microeconomic on business. After attracting target
customers, a company can operate for a profit. Knowledge about company's ideal customer types
and development and presentation of effective campaign are used to build a customer base and
generation of a revenue streams.
- Employee: The qualified and motivated employees is very vital for business for economic
success. In the operations of high technical business like the business of Seek Limited, company
should required to hire qualified employees as per the job work allotted to them at a high salary.
- Distribution Channels and Suppliers: For production and distribution of inventory, goods are
needed and therefore good and effective distribution channels and suppliers are needed.
Manufacturers are rely on material supplied to it and whereas resale company are rely on
manufacturers or wholesalers to transport goods. Therefore it is necessary to get good value on
products and supplies and in return they offer good v,alue of goods to the customer with
accessible solutions.
-Competitors: The economic livelihood is affected by the level of competition. More competition
means division of market share between all the companies operating in the same industry
(Mauleón, 2017). More competitors in a industry usually means a huge demand of particular
products or services.
-Investors: The shareholders and the investors are used to help in arranging fund for the company
at start up and as well as for expansion. A business can't be operate without funds to build and
expand. Seek Limited had also arranged funds with the help of issuing shares to the shareholders.
Company can also take loans but it has to repay by the company with interest. By issuing shares,
risk and gain of the company is split and divided among shareholders.
-Media and the general public: Ongoing business image is also affected by local community and
media. Companies are supported by the communities that provide jobs, payment of taxes and
operate with environmental and social responsibility. If a company don't do these things then it
will make negative image of the company in the mind of public.
 Macroeconomic Environment: Macroeconomic factors are the those uncontrollable
factors that is influencing an decision making of an organisation and affecting its
17

performance and strategies. They affect the entire economy of a environment where a
company operate. Microeconomic factors that affect business and industry are as follows:
-Demographic forces: Different market segments of the Seek Limited are typically impacted by
common demographic forces, including age, country or region, ethnicity, level of education,
household's lifestyle, cultural movements and characteristics and these factors are also affect the
whole industry.
-Economic factors: These factors have a great impact on both production process of the
organisation and decision making process of consumer in the industry. Seek limited will change
their working process accordingly.
-Natural/ Physical forces: There are natural resources of the earth which are renewal in nature
such as forests, marine products, agricultural products etc. must be taken into accounts while
running business of any industry. There are also non renewal natural resources such as oil, coal,
minerals etc. that may impact the production of the organisation and the employment
opportunities will also arise in Seek limited and the industry.
-Technological factors: For the smooth running of the business, impact of skill and knowledge
applied to the production, and the technology and materials needed for production of products
and rendering of services are to be considered in the industry.
-Political and legal force: For running business smoothly it is very important to understand
political policies applicable to the business and legal framework and its compliances which are
affecting business operations and its market industry.
-Social and cultural forces: Products and services provided by the organisation in the market
must affect the society (Mihályi, 2013). Recruitment services provided by Seek Limited will
affect the market image of the organisation positively if it works on that terms and conditions
that are public friendly. Any part or procedure of the organisation in providing product and
service which are harmful for the industry should be eliminated in order to take social
responsibilities.
Current Economic Environment:
Now-a-days, for getting success it is very important for the organisation to evaluate the
current economic environment and then frame the business plans. Unemployment, inflation,
interest rate, tax rates, scarcity of resources, political and economic conditions, living standards
etc. are the most important domestic and global factors of the current economic environment
18

which helps the organisation to achieve its goals. Both micro and macro factors of the economic
environment have to considered by the organisation to achieve its goal. Some of the global and
domestic factors are:
Domestic factors:
 Political factor
 Government policies
 Inflation Taxation
Global factors:
 Recessions, economic crises, depressions, market bubbles etc.
 Movement of global markets
 Terrorism
 Foreign relations
Investment Summary
An investment summary is that document which is prepared professionally to meet the
needs of the company and the prospective investors. It can answer all the concerns of an investor.
Investment summary can be understand through following aspects:
 Investment drivers: It means those factors that affect the investment decisions of the
investors. After studying these factors, an investor takes decision of investments. Some of
them are as follows:
-Stability of financial statements
-Constant growth of the company
-Adaptation of new technologies
-Competitive ranking and level of competition
-Market share Strategic mix of business: It means the strategies made by the organisation regarding its
various product and services(Najeeb, 2015). Strategies for existing product or services in
existing and of new market will be different and whereas strategies for new product or
service in existing and new market will be different, it will be taken into mind before
making investments.
19

 Stable financial performance: It is very important to understand whether the financial
performance of the organisation is stable or not before making the investment. For this
last five year financial statements of the organisation are compared with the help of ratio
analysis and audit report. In order to invest in Seek Ltd investors should gain
understanding of its financial performance with the help of audit report, financial
statements, ratios and making understanding about its share price fluctuations. Share
price of Seek Limited for last five years are as follows:
(Currency in AUD million)
Year ended date 30/06/18 30/06/17 30/06/16 30/06/15 30/06/14
Price of share
(AUD)
21.15 16.51 15.69 13.79 14.85
Share price of the company Seek limited is increasing every year except in year 2014-15, since
company's price on 30/06/2014 was 14.85 AUD which decline to 13.79 AUD on 30/06/2015, at
this point of time prospective investor will always avoid to invest in Seek Limited and the
present investor was also want to sell out its stock of Seek Limited. After the year ended
30/06/2018, the share price of the Seek Limited is increasing continuously with a constant
margin till the year ended 30/06/2017.In financial year 2017-18, share price of the company
increase with huge percentage of 28.10 as compare to year 2016-17. The average price of the
Seek Limited which a prospective and present investor should calculate before taking decision of
buy or sell or hold will be (21.15 + 16.51 + 15.69 + 13.79 + 14.85) / 5 = 16.40 AUD. Strong Cash flow: Investor will always invest in an company which have strong cash
inflow and consistency of these cash flows in past. In case of fluctuating cash flows,
investor would always wants to avoid this situation and don't want to invest because it
would be very risky for the investor who wants to save its investment in any case and
who is not risk taker. Seek Limited have stable cash flows to the investor will always
want to invest in it for long term.
 Market Exposure: It is a financial term which are used to measures the proportion of
money invested in terms of investment types, region and industry:
-Market exposure by investment type: Exposure in investments are defined in terms of type of
investment. For example- investor's market exposure to stock is 80%
20

-Market exposure by region: An exposure in a portfolio which is examined by the investor about
its holdings by location. For example- portfolio have 50% domestic companies and 50% foreign
companies and foreign holding is divided further to 30% in Asia market and 20% in European
market.
-Market exposure by industry: Portfolio whose exposure is divided into various industries. For
example- 80% stock is of health care sector and 20% stock is of telecommunication sector.
Equity Valuation:
The complete work system of statement of being company owner markets is based upon
the idea of Equity valuation. The amount of goods markets has a wide range of stocks on offer,
whose sensed market value changed every minute because of the change in knowledge that the
market gets on a true time base (O'Donnell, 2013). Equity valuation therefore is the backbone of
the of-the-day get money for system. It enables companies with sound business models to need a
reward in the market. On the other hand, it makes certain that companies whose deep are not
strong Witness 1 a drop in their valuation. The art and science of Equity valuation therefore
enables the of-the-day of money and goods system to with small amount of support put on one
side unreasoning fear money resources among different market ones taking part. Following are
the major methods of equity valuation discussed below in the context of Seek Ltd.:
Dividend Discount Model (Three Stage Dividend Model): The dividend discount
model (DDM) is a systematic method used for forecasting the price of a company's stock based
on the assumption that its present day price is worth the aggregate of future dividend payments,
when discounted back to their present value (Umoh, 2012). It calculates fair value of a stock
irrespective of the current market conditions, and takes into consideration the dividend payout
factors.. in case if the value obtained from the DDM is higher than the current trading price of
shares, then the stock is undervalued and qualifies for a buy, and vice versa.
Current Earnings per share = $0.28 (in currency)
Current Payout Ratio = 175.00% (in percent)
Beta of the stock = 1.75
Expected Growth Rate = 8% (Assumed)
Cost of Equity
21

CAPM Analysis: In CAPM analysis a standard formula is used which shows relationship
between risk and expected return. This analysis is helpful for pricing of high risk securities. As
per CAPM theory, required rate of return of a security is sum of the rate of a risk-free security
plus a risk premium. The cost of equity or discount rate is computed using the Capital Asset
Pricing Model
Risk free rate = 3.50% (Assumed)
Market premium = 4.50% (Assumed)
Beta of the stock = 1.75 (Assumed)
Discount Rate [Re = Rf + Beta* (Rm – Rf)]
= 11.38% (calculated from above data)
The expected growth rate for a stable firm cannot be significantly higher than the nominal
growth rate in the economy in which the firm operates. It can be lower.
Length of growth stage = 5
High growth rate = 8.00%
Length of transitional growth stage = 5
Stable growth rate = 6.00%
High Growth Phase
Year 1 2 3 4 5
Growth Rate 8.00% 8.00% 8.00% 8.00% 8.00%
EPS $0.30 $0.33 $0.35 $0.38 $0.41
Payout Ratio 175.00% 175.00% 175.00% 175.00% 175.00%
Dividends/Share $0.53 $0.57 $0.62 $0.67 $0.72
Present Value $0.48 $0.46 $0.45 $0.43 $0.42
Transitional Growth Phase
Year 6 7 8 9 10
22

Growth Rate 7.60% 7.20% 6.80% 6.40% 6.00%
EPS $0.44 $0.47 $0.51 $0.54 $0.57
Payout Ratio 175.00% 175.00% 175.00% 175.00% 175.00%
Dividends/Share $0.77 $0.83 $0.89 $0.94 $1.00
Present Value $0.41 $0.39 $0.37 $0.36 $0.34
Price at the end of high growth stage = $19.73
Present value of dividends in high growth phase = $2.24
Present value of dividends in transitional growth phase = $1.87
Present value of terminal phase = $6.72
Intrinsic Value = $10.82
Three-stage FCFE discount model: Free cash flow to equity (FCFE) is used by management to
determine the value of a company (Phillips, 2012). This method of valuation is alternative of the
dividend discount model (DDM), mostly in case where company does not pay a dividend.
Amount calculated in FCFE shows amount available to shareholders, it does not necessarily
equate to the amount paid out to shareholders.
Initial High Growth Phase
Cost of Equity = 11.38%
Current Earnings per share = $0.30
(Capital Spending - Depreciation)*(1-DR) = $0.11
Change in Working Capital * (1-DR) = ($1.04)
Current FCFE = $1.23
Working Capital as percent of revenues = -10.74%
Current Earnings per share = $0.30
Current Dividends per share = $0.49
Current Capital Spending/share = $0.32
Current Depreciation / share = $0.19
Current Revenues/ share = $3.67
Working Capital/ share = ($0.39)
23

Chg. Working Capital/share = ($1.22)
The dividends for the high growth phase are shown below
Year 1 2 3 4 5
Earnings $0.30 $0.30 $0.30 $0.30 $0.30
(CapEx-Depreciation)*(1-DR) $0.11 $0.11 $0.11 $0.11 $0.11
Chg. Working Capital *(1-DR) $0.00 $0.00 $0.00 $0.00 $0.00
FCFE $0.19 $0.19 $0.19 $0.19 $0.19
Present Value $0.17 $0.15 $0.14 $0.12 $0.11
Transition period
Year 6 7 8 9 10
Growth Rate 2.00% 4.00% 6.00% 8.00% 10.00%
Cumulated Growth 2.00% 6.08% 12.44% 21.44% 33.58%
Earnings $0.31 $0.32 $0.34 $0.36 $0.40
(CapEx-Depreciation)*(1-DR) $0.11 $0.12 $0.12 $0.13 $0.15
Chg. Working Capital *(1-DR) ($0.01) ($0.01) ($0.02) ($0.03) ($0.04)
FCFE $0.20 $0.22 $0.24 $0.26 $0.30
Beta 1.62 1.49 1.36 1.23 1.1
Cost of Equity 10.79% 10.21% 9.62% 9.04% 8.45%
Present Value $0.11 $0.10 $0.10 $0.10 $0.11
Stable Growth Phase
Growth Rate in Stable Phase = 10.00%
FCFE in terminal year = $0.43
Cost of Equity in Stable Phase = 8.45%
Price at the end of growth phase = ($27.47)
Present Value of FCFE in high growth phase = $0.70
24

Present Value of FCFE in transition phase = $0.53
Present Value of Terminal Price = ($10.13)
Value of the stock = ($8.90)
Relative Valuation Models: In this we will compare price earning ratio, price per book ratio,
price per sales ratio and price per cash flow ratio of Seek Limited with its competitor Freelancer
Limited. Comparative statement is as follows:
Particulars Seek Limited Freelancers.com
Price Earning Ratio 118.6 36
Price / Book 4.4 2.7
Price / Sales 4.9 0.4
Price / Cash flow 16.1 4
Intrinsic value 13.4 3.2
From the above, it is clearly understandable that Seek Limited have better worth and
valuation as compare to its competitor Freelances.com Therefore from the above valuation
model, relative valuation model will be considered for our decision making because in this
method various ratios are calculated.
Domestic and global challenges: While making investments, various domestic and global
challenges are to be kept in mind like risks and returns in the complex, compound and dynamic
global business environment worldwide, measurement of financial indexes and designing
reporting protocol prepared by different teams worldwide based on various accounting standards
and different systems, legal jurisdictions and local compliances requirements, different
transaction cost in different countries, different rate of tax of capital gain or loss or dividend etc
(Ward, 2012).
Global Challenges: Focus on sustainability and the environment: In order to mitigate global warming,
manufacturing industries, small or medium businesses worldwide are focusing
sustainability by encouraging practices that are environmental friendly. Advances in technology: It means updated with the current global informations.
Information technology is a force that strongly enhance the continue communications in
25

all sectors. Companies are wise to take the advantages of marketing platforms driven by
the internet.
 Emerging markets: International commerce increased due to the globalisation. Markets of
world are merged and it had create a powerful force without borders. Due to globalisation
Seek Limited which is established in Australia is now operation in New Zealand, China,
India, Brazil, Mexico, Indonesia, Nigeria, Bangladesh, Philippines, Vietnam, Thailand,
South Africa, Kenya, Malaysia, Hong Kong and Singapore. Cultural and religious ideologies: It is that force which is concerned with conduct of the
business affairs. People's attention, time and resources makes the ideologies complete
(Sullivan, 2017). Some products or services may be increased or decreased due to
religious reasons in different countries.
Domestic Challenges: Competition: Level of competition in the domestic market and position of the
organisation in that industry would help in developing market brand. If there is strong
competition in any sector, then an organisation will try to increase its market share by
improving the price or the performance of the product or service. Media: The media infrastructure of the domestic market is help in selection of options for
communications with customers. Selection of media like magazines, newspapers,
television, radio station etc. for the organisation is depends upon the the type of product
and target audience with lowest cost (Spertino, 2013). Logistics: A well developed logistics infrastructure is needed to reach domestic
customers. A strong retailers and distributors network is required for marketing the
product through indirect channels.
 Demand drivers: These are help in forecasting for capacity and size. When the data is
generated in the planning environment, Seek Limited will try to create the demand
drivers that are not defined yet. In grouping of the forecasting process for collection and
calculation of data, demand drivers are used.
Stability of performance
Investment will always be preferable in the company whose performance is stable over the
period of time. If the performance of the company is fluctuated, then the investor will not invest
in the security of that company if investor wants to invest in less risky stock. More fluctuation in
26

the stock means some time company perform more than the expectation of the investor and
sometimes company perform poorly and there is wide fluctuation in the stock value of that
company. So investor will always prefer that company's stock for investment which have stable
performance and value of its stock. Share price of the company Seek limited is increasing every
year except in year 2014-15. After the year ended 30/06/2018, the share price of the Seek
Limited is increasing continuously with a constant margin till the year ended 30/06/2017. In
financial year 2017-18, share price of the company increase with the 28.10% as compare to year
2016-17. The average price of the Seek Limited is 16.40 AUD which means performance of the
company is stable.
Competitive Positioning
While making investment it is very important for the investor to study and analyse the
competitive market of that industry. Whether the competition is neck to neck or the company in
which investment is to be made is enjoying higher market share as compare to other in the
industry (Portney, 2013). Trend analysis of past market share of the company is to be done by
taking prospective entrance in the industry in mind. Before making investment in the stock of the
company, rank will be allotted to the company and its other competitive on the basis of the
market share.
Investment Risks:
It means the risk which can be defined as a probability or chances of losses which is
relative to the return which is expected on any particular investment. In simple words investment
risk means level of uncertainty in achieving returns of the investment (Seker, 2015). There are
various investment risks which are to be kept in mind while making investment in stock of any
particular company, these risks are as follows:
(a) Business and operational risks: Business risks are those risk that results the decision of the
company about the products and services offered by it. It include changes in the cost of raw
materials or shipping and managing the technological developments that are affecting sales and
manufacturing. Whereas operational risks are the risks that summarize the risks undertaken by
the company when it operate within a given field or industry. This risk arise due to breakdown in
people, system and internal procedures because operational risk is not inherent in systematic or
financial or market wide risk. Some of the examples of business and operational risks areas
follows:
27

- Limited potential for expansion
- Entrance or expansion of foreign competition
- Execution risks for new projects
- Employees error
- Systems failures
- Any event that disrupts business processes
(b) Market Risks: It means the risk which arise due to possibilities of losses faced by the investor
due to the factors which are affecting the overall performance of the financial markets in which it
is involved. In investment market, market risks means 'systematic risk' which can't be eliminated
through diversification. Use of derivatives along with portfolio can helps to reduce the impact of
market or systematic risk. There are different risk factors that constitute market risk like currency
risk, equity risk, inflation risk, commodity risk and interest rate risk. Some of the examples of the
market risks are as follows:
 Effect of world market
 Terrorism
Risks causes for investors concern:
As an investor, both risk and reward should be taken into account before making
investment (Willcocks, 2013). Risk associated with the stock can be mitigate by investor by
understanding the following risks of that stock: Systematic Risk: It is a risk which arise due to external factors like political policies,
technological changes, customer preferences etc. An investor can eliminate this risk
through use of derivative along with diversified portfolio.
 Unsystematic Risk: It is a risk that arise due to internal factors of the organisation like
employee strike, lack of efficiency of production process etc. An investor can not
eliminate this risk because inside information of company is not available to the investor,
however, an investor can reduce the impact of unsystematic risk through carefully
selection of securities in the portfolio.
Conclusion
From the above valuation report, it is concluded that Seek Limited is providing online
employment advertisement services through its website and also provide online vocational
training and education training courses. Financial information of Seek Limited are analysed with
28

the help financial statements and the ratios and comparing it with competitors. Valuation of the
equity shares of Seek Limited is also done by using dividend discontinuing model, free cash flow
of equity and relative valuation model. Performance of the company is measured by considering
various internal and external factors in mind and past five year price is used to ascertain
historical price of Seek Limited.
29

REFERENCES
Books and Journals
Anderson, R. C., Duru, A. and Reeb, D. M., 2012. Investment policy in family controlled firms.
Journal of Banking & Finance. 36(6). pp.1744-1758.
Arrow, K. J. and Kruz, M., 2013. Public investment, the rate of return, and optimal fiscal policy.
RFF Press.
Baker, P. L., 2014. An analysis of double taxation treaties and their effect on foreign direct
investment. International Journal of the Economics of Business. 21(3). pp.341-377.
Berbel, J. and Mateos, L., 2014. Does investment in irrigation technology necessarily generate
rebound effects? A simulation analysis based on an agro-economic model. Agricultural
Systems. 128. pp.25-34.
Berghout, E. and Tan, C. W., 2013. Understanding the impact of business cases on IT investment
decisions: An analysis of municipal e-government projects. Information & management.
50(7). pp.489-506.
Bessler, W. and Wolff, D., 2015. Do commodities add value in multi-asset portfolios? An out-of-
sample analysis for different investment strategies. Journal of Banking & Finance. 60.
pp.1-20.
Bierman Jr, H. and Smidt, S., 2012. The capital budgeting decision: economic analysis of
investment projects. Routledge.
Blomstrom, M., 2014. Foreign Investment and Spillovers (Routledge Revivals). Routledge.
Briston, R. J., 2017. The stock exchange and investment analysis. Routledge.
Broomhead, S. and Mars, M., 2012. Retrospective return on investment analysis of an electronic
treatment adherence device piloted in the Northern Cape Province. Telemedicine and e-
Health. 18(1). pp.24-31.
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate
finance (Vol. 324). John Wiley & Sons.
Garg, R. and Dua, P., 2014. Foreign portfolio investment flows to India: determinants and
analysis. World Development. 59. pp.16-28.
Guerard, J. B., Rachev, S. T. and Shao, B. P., 2013. Efficient global portfolios: Big data and
investment universes. IBM Journal of Research and Development. 57(5). pp.11-1.
Huisman, K. J., 2013. Technology investment: A game theoretic real options approach (Vol. 28).
Springer Science & Business Media.
Leete, S., Xu, J. and Wheeler, D., 2013. Investment barriers and incentives for marine renewable
energy in the UK: An analysis of investor preferences. Energy Policy. 60. pp.866-875.
Mauleón, I. and Hamoudi, H., 2017. Photovoltaic and wind cost decrease estimation:
Implications for investment analysis. Energy. 137. pp.1054-1065.
Mihályi, P., 2012. Socialist investment cycles: analysis in retrospect (Vol. 27). Springer Science
& Business Media.
Najeeb, S. F., Bacha, O. and Masih, M., 2015. Does heterogeneity in investment horizons affect
portfolio diversification? Some insights using M-GARCH-DCC and wavelet correlation
analysis. Emerging Markets Finance and Trade. 51(1). pp.188-208.

O'Donnell, L., Kramar, R. and Dyball, M., 2013. Complementing a positivist approach to
investment analysis with critical realism: challenges and a way forward. Qualitative
Research in Financial Markets. 5(1). pp.6-25.
Phillips, J. J., 2012. Handbook of training evaluation and measurement methods. Routledge.
Portney, P. R. and Weyant, J. P., 2013. Discounting and intergenerational equity. Routledge.
Seker, F., Ertugrul, H. M. and Cetin, M., 2015. The impact of foreign direct investment on
environmental quality: a bounds testing and causality analysis for Turkey. Renewable
and Sustainable Energy Reviews. 52. pp.347-356.
Spertino, F., Di Leo, P. and Cocina, V., 2013. Economic analysis of investment in the rooftop
photovoltaic systems: A long-term research in the two main markets. Renewable and
Sustainable Energy Reviews. 28. pp.531-540.
Sullivan, R. and Mackenzie, C. eds., 2017. Responsible investment. Routledge.
Umoh, O. J., Jacob, A. O. and Chuku, C. A., 2012. Foreign direct investment and economic
growth in Nigeria: An analysis of the endogenous effects. Current Research Journal of
Economic Theory. 4(3). pp.53-66.
Ward, K., 2012. Strategic management accounting. Routledge.
Wei, Z. and et.al., 2012. Energy-use analysis and evaluation of distillation systems through
avoidable exergy destruction and investment costs. Energy. 42(1). pp.424-433.
Westner, G. and Madlener, R., 2012. Investment in new power generation under uncertainty:
Benefits of CHP vs. condensing plants in a copula-based analysis. Energy
Economics.34(1). pp.31-44.
Willcocks, L., 2013. Information management: the evaluation of information systems
investments. Springer.
Zhang, C. and Zhou, X., 2016. Does foreign direct investment lead to lower CO2 emissions?
Evidence from a regional analysis in China. Renewable and Sustainable Energy
Reviews. 58, pp.943-951.
Zhuo-hua, Z. H. O. U., Wen-nan, C. H. E. N. and Zong-yi, Z. H. A. N. G., 2015. Application of
cluster analysis in stock investment.
Online reference
Annual Report of Seek Ltd. 2018.[Online]. Available through:
<http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_SEK_2017.pdf>

Appendix:

]