Analysis of Debt Valuation and Cost of Capital

Running Head: Accounting
1
Project Report: Finance

Accounting
2
Contents
Introduction of report........................................................................................................3
GENETIC TECHNOLOGIES LTD.................................................................................3
Analysis of Debt Valuation..............................................................................................3
Analysis of Share valuation..............................................................................................4
Analysis of Cost of capital................................................................................................6
Market analysis.................................................................................................................7
Conclusion........................................................................................................................8
References.........................................................................................................................9
Appendix.........................................................................................................................11

Accounting
3
Introduction of report:
Every individual has some savings with his or her. They save some amount form their
income or other sources to keep the amount for urgency or for raising the worth of that
amount. In this report, the share market has been analyzed in which the individual could
invest the amount and get back the amount whenever needed. This report has been prepared
over the comapny, Genetic technologies limited. This company’s financial performance and
the positive have been analyzed to depict the individual that whether they must invest into the
comapny or not. While preparing this report, analyst and various financial website have been
taken into the knowledge to get a better result.
GENETIC TECHNOLOGIES LTD:
GENETIC TECHONOLOGY LIMITED is a diagnostic comapny. This comapny
provides assessment and testing tolls to assist the physicians in managing the women’s health
proactively. This comapny has its operations into Australian as well as various other markets.
The comapny has a market of around $ 600 million annually. The performance and the
market share of the comapny is enhancing gradually (Home, 2017). And according to the
analysis over the comapny, future market of the comapny would be better.
Analysis of Debt Valuation:
Analyzing the debts of a comapny depict the users about the performance of the
capital. Debt valuation study has been conducted. According to this study, the short term debt
and long term debt of the comapny has been raised through bank overdrafts, commercial bills
and creditors support whereas the long term debt is raising thorough the debt and equity of
the comapny. The debt structure of the comapny and its industry are as follows:
Genetic technology LIMITED
2017 2016 2015 2014 2013
Long term debt 0 0 2502384 0 0
Short term debt 0 0 0 0 17748
Industry debt level
2017 2016 2015 2014 2013
Long term debt 11591000 14805000 17740000 20416000 222864000
Short term debt 3214000 3071000 2676000 2448000 2235000

Accounting
4
According to this study, the level of long term debt as well as the level of short term
debt of the comapny is not equivalent. The comapny has neither raised the short term debt
nor long term debt from last 2 years. Comapny is managing the entire funds through the
equity only. According to this report, it has been analyzed that this comapny is required to
manage the debt level as well as to get an optimal capital structure (Gapenski, 2008).
The genetic technologies limited is managing the financial performance is a better
manner as whole but it is not taking any kind of risk and that is why the cost of the comapny
is enhancing. The comapny is requisite to analyze the industry’s debt level and make the
changes according to the debt level into the performance of the comapny. Currently, if the
comapny wants to raise the funds through the debts than the following cost would be
occurred:
Calculation of cost of debt
Outstanding debt 0
interest rate 6%
Tax rate 0.3
Kd 0.0420
According to the table, the cost of debt of the comapny is 4.20% which depict that the
comapny just have to bear 4.2% for each shareholder to raise the capital through the debts.
Analysis of Share valuation:
Analyzing the shares of a comapny depict the users about the performance of the
capital. Share valuation study has been conducted. According to this study, the total cost of
the equity of the comapny is 7.3032%. The table of cost of equity is as follows:
Dividend Discount Model
Dividend
expected
-
0.003262874
Growth rate 7%
Price per share 2.42
cost of equity 7.3032%