Business Finance 2 Contents Introduction.......................................................................................................................3 Company description........................................................................................................3 Purpose of Financial statement analysis...........................................................................3 Firm’s current operating system.......................................................................................4 Dividend valuation............................................................................................................6 Changes into share prices.................................................................................................8 Cash flow analysis............................................................................................................9 Investment and financial strategy for cash flow position.................................................9 Recommendation............................................................................................................11 References.......................................................................................................................12 Appendix.........................................................................................................................13
Business Finance 3 Introduction: Financial statement analysis is a procedure to evaluate and analyze the announced and audited financial statement of an organization. This process is used by the internal stakeholders and external stakeholders of the company to generate the economic decision and the investment decision about the company. Financial statement includes income statement, balance sheet and cash flow statement of an organization. Financial statement analysis process contains various methods and the processes to evaluate the performance, risk, financial health and future prospect of the company (Viney, 2009). This report takes the concern of Domino’s Pizza Enterprises Ltd. It evaluated the financial stamen of the company to recognize the performance and position of the company. It evaluates the shareholder worth of the organization and explains that the whether the financial policies, financial strategies and the investment position of the company is good or not. For evaluating the financial performance of the company, cash flow position, profitability, stock price, financial position etc of the company. Mainly this report evaluates the cash flow position, stock price, dividend valuation etc. to reach over a conclusion about the financial position of the company. Company description: Domino’s Pizza Enterprises Ltd is an Australian company which is largest pizza chains in the home country in context with the network sales, largest franchise, network store numbers etc. Operations of the company are handling under the Australian retail food industry. Company has been established at Springwood, Queensland in Australia in 1983. According to the London stock exchange (2017), total revenue of the company is AUD 790.87 million. In current scenario, the company is running its activities and the operations in numerous companies. For instance, some of the companies are France, Japan, New Zealand, Australia, principality of Monaco etc (Home, 2018). 1900 stores are managed and owned by the Domino’s Pizza Enterprises Ltd and company has employed 26,000 people to run the activities smoothly and efficiently. ASX (2018) report explains that the company, Domino’s Pizza Enterprises Ltd was the very first company which has been listed in the ASX. Purpose of Financial statement analysis:
Business Finance 4 Financial statement includes the income statement, balance sheet, cash flow statement and changes in equity of the organization. The main aim behind preparing the final financial statement of an organization is to evaluate the financial performance, transactions and the financial level of the company. It informs the cash flows of the company as well. the financial statement of an organization are used by the internal as well as external parties of the organization to manage the resources, cash position, profitability level and reallocation of the available resources to manage the performance and the financial position of the company. Financial statement of an organization could be evaluated through a process, financial statement analysis (AFR, 2018). Financial statement analysis is a procedure to evaluate and analyze the announced and audited financial statement of an organization. This process is used by the internal stakeholders and external stakeholders of the company to generate the economic decision and the investment decision about the company. The financial statement analysis takes the concern of historical data and the current data of the company to recognize and compare the performance and the position of the company. The financial statement analysis evaluates the valuable information about trends, relations, strength of financial position, weakness of financial position, quality, company’s earnings etc. to make a conclusion about the performance of the company. The financial process initiates with the management and establishment of financial analysis objectives. For instance, it evaluates that whether the investment opportunity of the company is better or not? How the performance of the company is? Whether any changes have occurred into the financial performance, financial position and cash flow position of the company in last few years? The entire result of financial statement are summarized and interpreted to reach over a conclusion (Brown, 2012). In this report, financial statement analysis process has been conducted to identify the trends in the performance of the company and the relationship among the financial statement of the company, strength and weakness of financial position, supplies and demands, earnings of the company, dividends, stock price etc so that a better conclusion could be made about the financial performance of the company. Firm’s current operating system:
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Business Finance 5 The final financial statement of Domino’s which income statement are, cash flow statement and the balance sheet has been evaluated and recognized to identify the performance of the company and the current position of the company. The income statement analysis explains the net profit which is $ 12, 61,47,000 in 2017 though in 2006-07, the net profit of the company was $ 91,29,000. It briefs the company’s total net profit has improved from last 10 years and the increment rate is 1281.83% that leads to a conclusion that the financial position of the company is quite better. Further, the turnover of the company has also been improved by 368.15% in last 10 years. This evaluation explains that the financial performance of the company is competitive (AFMA, 2018). Moreover, the balance sheet analysis explains the financial performance of the company has also been changed by a great level in last 10 years. Total current assets of the company was $ 18,78,25,000 in 2017 though in 2006-07, the current assets of the company was $ 4,05,88,000. It briefs the company’s total current assets has improved from last 10 years and the increment rate is 316.57%. Further, the non-current assets and total assets of the company have been evaluated and it has been recognized that the non-current assets has been improved by 992.5% and the total assets have been improved by 760.89% in total. This analysis leads to a conclusion that the financial position of the company is quite better. Further, the total liabilities and the stockholder’s equity of the company have also been improved by 1013.97% and 518.08% in last 10 years (APRA, 2018). This evaluation explains that the financial performance of the company is competitive. And the changes have assisted the company to make better position. Further, the cash flow statement of the company has been evaluated. This analysis explains the cash flow position of the company has also been changed by a great level in last 10 years. Total cash flow from operating activities of the company was $ 13,28,69,000 in 2017 though in 2006-07, the cash flow from operating activities of the company was $ 69,76,000. It briefs the company’s total cash flow from operating activities has improved from last 10 years and the increment rate is 1804.66%. Further, the cash flow from investing activities of the company has been evaluated and it has been recognized that the cash flow from investing activities has been improved by 283.62%. Lastly, the study has been done on cash flow from financing activities. It has been found through the analysis that the -1113.77% has taken place which explains about the negative cash flows of the company.
Business Finance 6 On the basis of free cash flow of the company, it has been found that in total the cash flows of the company have been enhanced by 541.75%. It leads to a conclusion that the cash flow position of the company has been better at a huge level. This evaluation explains that the financial performance of the company is competitive. And the changes have assisted the company to make better position. Lastly, the company’s demand and supply has been identified to analyze the market performance of the organization. It has been analyzed on the basis of market performance and the market changes that the demand has been enhanced in the market of the company’s products. And the company also made changes into the process to meet the demand of the customers. The evaluation explains that the demand of main product of the company, PIZZA, has been enhanced on greater basis (ATO, 2018). Company launches the new varieties in Pizza regularly to enhance the demand in the market and make the customers loyal. On the basis of the study, it has been found that the performance of the company has been increased and the demand and supply of the company is also competitive. Further, the price elasticity demand has been evaluated and it has been found that the price elasticity of the company is elastic as the total increment in the sales of the company is 45% but the increment in the price of the company is 18%. It leads to a decision that the demand and the supply factors of the company are in the favour of the company and explains that the performance of the company has been better. Dividend valuation: Dividend valuation is a process which is conducted by the financial manages and the professionals to identify the dividend position of the company. It leads to the company to make a decision about the investment position of an organization. It is an important way to identify the investment position of the company and the total return from the investment. For analyzing the dividend position of Domino’s, capital assets pricing model (DDM) has been calculated. Capital assets pricing model is a technique to evaluate the stock price and the dividend of an organization. It predicts the dividends of an organization on the basis of present value and offers a base to the investors to make a conclusion about the performance of the company (AFR, 2018). Capital assets pricing model (CAPM) takes the risk free rate, market premium and beta to evaluate the dividend amount of the company. On the basis of
Business Finance 7 Capital assets pricing method, it has been recognized that the performance and the position of the company is quite strong. The company is performing great in the market. And the current situation of the company explains that the value of the dividend of the company should be 13.55%. Following is the calculations of CAPM of the company: Currenc y Franked % Dividend Ex Date Books Close Date Pay DateNot e Growth rate AUD50.0021/08/201722/08/201706/09/20 17 --15.72% AUD50.0021/02/201722/02/201709/03/20 17 -- AUD70.0022/08/201623/08/201607/09/20 16 --42.65% AUD70.0025/02/201629/02/201615/03/20 16 -- AUD100.0021/08/201525/08/201511/09/20 15 --43.16% AUD100.0019/02/201523/02/201510/03/20 15 -- AUD100.0022/08/201426/08/201412/09/20 14 --23.38% AUD100.0018/02/201424/02/201411/03/20 14 -- AUD100.0021/08/201327/08/201313/09/20 13 ---0.65% AUD0.0003/06/201307/06/201321/06/20 13 -- AUD100.0019/02/201325/02/201312/03/20 13 --9.93% AUD0.0003/12/201207/12/201221/12/20 12 -- AUD100.0022/08/201228/08/201214/09/20 12 --22.61% AUD100.0021/02/201227/02/201212/03/20 12 -- AUD100.0024/08/201130/08/201115/09/20 11 ---2.54% AUD100.0022/02/201128/02/201114/03/20 11 -- AUD100.0024/08/201030/08/201015/09/20 10 --47.50% AUD100.0023/02/201001/03/201015/03/20 10 -- AUD100.0001/09/200907/09/200921/09/20 09 --17.65%
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Business Finance 8 AUD100.0024/02/200902/03/200920/03/20 09 -- AUD100.0002/09/200808/09/200826/09/20 08 --0.00% AUD100.0026/02/200803/03/200828/03/20 08 -- AUD100.0004/09/200710/09/200728/09/20 07 --0.00% AUD100.0027/02/200705/03/200723/03/20 07 -- AUD100.0005/09/200611/09/200629/09/20 06 --871.43% Calculation of cost of equity (CAPM) RF4.00% RM6.00% Beta0.928 Required rate of return5.86% It explains that the dividend of the company should be 5.86% which explains that the financial position and the performance of the company are great. Changes into share prices: After evaluating the expected dividend amount from the company, the volatility in the stock price of the company has been evaluated. the changes into the stock price explains about the risk position of the company as well as it briefs that how much the stock of the company is volatile n context with the stock price of the company. The stock price of last 4 years has been evaluated on monthly basis and it has been compared with the stock price of AORD of last 4 years. On the basis of volatility in the stock price and the volatility in the security of AORD, it has been found that the beta of the company is -0.48. It explains that the volatility in the Domino’s stock price is lower than the volatility in the stock price of AORD. Though, it has been evaluated on the basis of final financial statement of the company that the performance of the company has not been changed much in last 4 years (Home, 2018). The study of correlation has also been done to measure the relation among both the stock and it has been generated that the covariance of the company are in negative and explains that the stock price of AORD is not driven by the stock price of Domino’s.
Business Finance 9 Figure1: stock price (Index, 2018) Cash flow analysis: The study on the final financial statement of the company and other evaluation tools explains that the various positive changes have occurred into the cash flow position of the company in last few years. Total cash flow from operating activities of the company was $ 13,28,69,000 in 2017 though in 2006-07, the cash flow from operating activities of the company was $ 69,76,000. It briefs the company’s total cash flow from operating activities has improved from last 11 years and the increment rate is 1804.66%. Further, the cash flow from investing activities of the company has been evaluated and it has been recognized that the cash flow from investing activities has been improved by 283.62%. Lastly, the study has been done on cash flow from financing activities (Pike And Neale, 2009). It has been found through the analysis that the -1113.77% has taken place which explains about the negative cash flows of the company. On the basis of free cash flow of the company, it has been found that in total the cash flows of the company have been enhanced by 541.75%. It leads to a conclusion that the cash flow position of the company has been better at a huge level. The company is not required to make any changes in the current cash management position of the company. These policies would lead to the company to a better phase. Investment and financial strategy for cash flow position:
Business Finance 10 The financial evaluation and the analysis study on the company briefs that the financial position of the company has been better and the investment position of the company has also been enhanced. The study on financial statement of the company explains about the various positive changes and leads to a conclusion that the shareholder of the company would enjoy great earnings per share. Further, the CAPM method also explains that the changes into the company are competitive and the company would offer 5.86% to the investors of the company. moreover, the stock price and the cash flow position of the company also explain about the better performance of the company (ASIC, 2018). On the basis of the above evaluation, it has been recognized that the investment position of the company is quite competitive. The financial position and the performance of the company attract investors to invest into the company and thus the company is not required to make any changes into the existing policies (Penman, 2010). Moreover, the investment strategies of the company explains that the company should only invest into the projects which would offer more than 4.85% return to the company as the current cost of capital of the company is 4.85%. And the lesser return than 4.85% would lead to the company towards the losses. Calculation of WACC PriceCostWeightWACC Debt31,13,30,0003.50%0.4280.015000881 Equity41,50,64,0005.86%0.5710.033461383 72,63,94,000Kd4.85%1 Calculation of cost of debt Outstanding debt31,13,30,000 interest rate5.00% Tax rate30.0%2 Kd3.50% 1Pike, R. And B. Neale, 2009, Corporate Finance and Investment: Decisions and Strategies, 6th edition, Financial Times Prentice Hall, Limited. 2AFMA, 2018.AFMA Policy. viewed Feb 05, 2018,https://afma.com.au/
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Business Finance 11 Calculation of cost of equity (CAPM) RF4.00% RM6.00% Beta0.928 Required rate of return5.86% Recommendation: To recommend, the company’s current position is quite strong. No changes are required to be done by the comapny to manage the shareholder’s wealth and the performance of the company. However, it has been evaluated that the stock price of the company is not according to the intrinsic value, it is undervalued. So, if the investors invest into the company right now, it would offer huge return to the investors of the company.
Business Finance 12 References: AFMA, 2018.AFMA Policy. viewed Feb 05, 2018,https://afma.com.au/ AFR, 2018,DOMINO'S PIZZA GROUP PLC. viewed Feb 05, 2018, http://www.afr.com/markets/australian-fund-managers-reveal-best-long-and-short-ideas-for- 2018-20180104-h0dl94 APRA, 2018.Australian Prudential Regulation Authority. viewed Feb 05, 2018, http://www.apra.gov.au/Pages/default.aspx ASIC, 2018.Australian securities and investment commission. viewed Feb 05, 2018, http://www.asic.gov.au/ ATO, 2018.Australian taxation office. viewed Feb 05, 2018,http://www.ato.go.au/ G., Brown, R., Easton, S., Howard, P., and S. Pinder. 2012. Business Finance, 12 th edition. Mc-GrawHill, Australia. Home, 2018,DOMINO'S PIZZA GROUP PLC. viewed Feb 05, 2018, https://www.dominos.com.au/ Home, 2018.Australian Stock Exchange. viewed Feb 05, 2018,http://www.asx.com/ Index, 2018.NYSE. viewed Feb 05, 2018,https://www.nyse.com/index London stock exchange, 2018.DOMINO'S PIZZA GROUP PLC. viewed Feb 05, 2018, http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/ company-summary/GB00BYN59130GBGBXSTMM.html?lang=en Penman, S.H., 2010. Financial Statement and Security Valuation. Fourth Edition, McGraw- Hill. Peirson, Pike, R. And B. Neale, 2009, Corporate Finance and Investment: Decisions and Strategies, 6th edition, Financial Times Prentice Hall, Limited. Viney, C., 2009. McGrath’s Financial Institutions, Instruments and Markets, 6th edition, McGrawHill, Australia.
Business Finance 13 Appendix: A S X C o d e Compan y Name Item06/ 07 06/ 08 06/ 09 06/ 10 06/ 11 06/ 12 06/ 13 06/ 14 06/ 15 06/ 16 06/ 17 D M P Domino' s Pizza Enterpri ses Limited Operatin g Revenue 17, 52, 59, 000 .00 16, 97, 78, 000 .00 16, 93, 01, 000 .00 15, 82, 80, 000 .00 17, 55, 84, 000 .00 18, 62, 59, 000 .00 24, 47, 30, 000 .00 48, 10, 91, 000 .00 57, 38, 12, 000 .00 75, 19, 81, 000 .00 79,0 8,61 ,000 .00 D M P Domino' s Pizza Enterpri ses Limited Other Revenue 5,7 5,5 2,0 00. 00 6,0 5,0 1,0 00. 00 6,9 7,0 5,0 00. 00 7,8 5,4 6,0 00. 00 7,0 8,5 4,0 00. 00 8,0 0,0 4,0 00. 00 5,2 6,2 2,0 00. 00 11, 06, 52, 000 .00 13, 43, 07, 000 .00 18, 65, 05, 000 .00 29,9 0,43 ,000 .00 D M P Domino' s Pizza Enterpri ses Limited Total Revenue Excludin g Interest 23, 28, 11, 000 .00 23, 02, 79, 000 .00 23, 90, 06, 000 .00 23, 68, 26, 000 .00 24, 64, 38, 000 .00 26, 62, 63, 000 .00 29, 73, 52, 000 .00 59, 17, 43, 000 .00 70, 81, 19, 000 .00 93, 84, 86, 000 .00 1,08 ,99, 04,0 00.0 0 D M P Domino' s Pizza Enterpri ses Limited Operatin g Expenses - 21, 13, 92, 000 .00 - 20, 58, 67, 000 .00 - 21, 23, 82, 000 .00 - 20, 57, 17, 000 .00 - 20, 87, 07, 000 .00 - 21, 99, 24, 000 .00 - 24, 24, 92, 000 .00 - 49, 73, 53, 000 .00 - 58, 11, 10, 000 .00 - 75, 99, 96, 000 .00 - 86,0 0,95 ,000 .00 D M P Domino' s Pizza Enterpri ses Limited EBITDA2,1 4,1 9,0 00. 00 2,4 4,1 2,0 00. 00 2,6 6,2 4,0 00. 00 3,1 1,0 9,0 00. 00 3,7 7,3 1,0 00. 00 4,6 3,3 9,0 00. 00 5,4 8,6 0,0 00. 00 9,4 3,9 0,0 00. 00 12, 70, 09, 000 .00 17, 84, 90, 000 .00 22,9 8,09 ,000 .00 D M P Domino' s Pizza Enterpri ses Limited Deprecia tion - 67, 91, 000 .00 - 59, 15, 000 .00 - 57, 20, 000 .00 - 65, 07, 000 .00 - 66, 14, 000 .00 - 69, 38, 000 .00 - 78, 68, 000 .00 - 1,4 1,7 1,0 00. 00 - 1,8 1,4 4,0 00. 00 - 2,5 4,1 4,0 00. 00 - 3,22 ,13, 000. 00 D M P Domino' s Pizza Enterpri ses Limited Amortisa tion 0.0 0 - 2,8 3,0 00. 00 - 7,2 9,0 00. 00 - 14, 97, 000 .00 - 20, 84, 000 .00 - 30, 91, 000 .00 - 49, 24, 000 .00 - 75, 41, 000 .00 - 93, 36, 000 .00 - 1,2 7,1 5,0 00. 00 - 1,41 ,82, 000. 00 D M Domino' s Pizza Deprecia tion and - 67, - 61, - 64, - 80, - 86, - 1,0 - 1,2 - 2,1 - 2,7 - 3,8 - 4,63
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