Shareholder Value Analysis using SVA Model for Cranswick

This article discusses the calculation of SVA model over Cranswick using three different scenarios and evaluating the flaws in the model. It also includes reflections on the experience gained through the completion of the project. The subject is Financial Information System and the course code is not mentioned. The college/university is not mentioned.

Financial Information
System

TABLE OF CONTENTS
PART 1............................................................................................................................................1
a) Calculation of SVA model over Cranswick using three different scenario.......................1
b) Evaluating that SVA model is flawed in that there are too many steps in the model and too
many variables attached to these steps...................................................................................5
Part 2................................................................................................................................................6
Reflection 1............................................................................................................................6
Reflection 2............................................................................................................................7
Reflection 3............................................................................................................................7
REFERENCES................................................................................................................................9

PART 1
a) Calculation of SVA model over Cranswick using three different scenario
Pessimistic scenario
2,020 2,021 2,022 2,023 2,024 2,025
Year 2025 &
beyond
Sales 1,667 1,667 2,001 2,401 2,881 3,457 4,149
Growth 333 400 480 576 691 0
Total sales 1,667 2,001 2,401 2,881 3,457 4,149 4,149
Op Profit (PBT) 280 360 461 588 747 747
Tax on profit @ 30% 30% (84) (108) (138) (176) (224) (224)
After tax profit 196 252 323 411 523 523
IFAI @ (67) (72) (77) (81) (83) 0
IWCI @ (50) (56) (62) (69) (76) 0
After tax cash inflow (FCF) 79 124 183 262 364 523
Discount Factor at 10.10% 0.9083 0.8249 0.7493 0.6805 0.6181 6.12
PV 72 102 137 178 225
PV of perpetuity in Residual
Period 3,199
Total Value 3,914
Less Debt (124)
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Value of Equity 3,790
Number of shares 52,469
Price in £ 0.07
Optimistic scenario
2,020 2,021 2,022 2,023 2,024 2,025
Year 2025 &
beyond
Sales 1,667 1,667 2,334 3,501 5,602 8,683 13,458
Growth 667 1,167 2,101 3,081 4,776 0
Total sales 1,667 2,334 3,501 5,602 8,683 13,458 13,458
Op Profit
(PBT) 257 735 1,737 3,560 6,864 2,422
Tax on
profit @
30% 20% (51) (147) (347) (712) (1,373) (484)
After tax
profit 205 588 1,389 2,848 5,491 1,938
IFAI @ (133) (350) (840) (1,540) (2,865) 0
IWCI @ (100) (222) (483) (832) (1,480) 0
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After tax
cash inflow
(FCF) (28) 16 66 476 1,145 1,938
Discount
Factor at 11.58% 0.8962 0.8032 0.7198 0.6451 0.5782 4.99
PV (25) 13 47 307 662
PV of
perpetuity
in Residual
Period 9,676
Total Value 10,681
Less Debt (124)
Value of
Equity 10,557
Number of
shares 52,469
Price in £ 0.20
Most likely scenario
2,020 2,021 2,022 2,023 2,024 2,025
Year 2025 &
beyond
Sales 1,667 1,667 2,501 3,876 5,621 8,937 13,584
Growth 834 1,375 1,744 3,316 4,647 0
Total sales 1,667 2,501 3,876 5,621 8,937 13,584 13,584
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Op Profit (PBT) 275 601 1,124 2,189 3,939 2,445
Tax on profit @ 30% 20% (55) (120) (225) (438) (788) (489)
After tax profit 220 481 899 1,752 3,151 1,956
IFAI @ (167) (344) (523) (1,161) (1,859) 0
IWCI @ (125) (261) (401) (895) (1,441) 0
After tax cash inflow (FCF) (72) (125) (25) (304) (148) 1,956
Discount Factor at 10.98% 0.9011 0.8119 0.7316 0.6593 0.5940 5.41
PV (65) (101) (18) (201) (88)
PV of perpetuity in Residual
Period 10,585
Total Value 10,112
Less Debt (124)
Value of Equity 9,988
Number of shares 52,469
Price in £ 0.19
With the help of the above calculation it is clear that the pessimistic scenario provides very low that is 0.07 but in case of
optimistic scenario it is 0.20 and for most likely scenario it is 0.19. Hence, with this it is clear that the maximum shareholder value is
in case of optimistic scenario only and this is good for increasing performance of Cranswick. Moreover, the optimistic scenario is
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better because it includes all the positive change and also involves the use of growth and development. In this the sales growth rate is
also high and this is good for the development of the business and will improve the share prices of the company to a great extent.
b) Evaluating that SVA model is flawed in that there are too many steps in the model and too many variables attached to these steps
Shareholder Value analysis is one of the significant model that is related with having the information regarding share price
based on net value in the balance sheet (Saif-Alyousfi, 2019.). The particular model is helpful in capturing the market views as to the
future of the company to value its stock based on the perceived perspective. There are basic drivers of shareholder value which
involves revenue growth, inclining operating margin, inclining capital efficiency, incremental working capital investment, cost of
capital, etc. There are different types of steps that are involved in respect to get the ability to conduct the shareholder value analysis
involves calculating WACC, future sales, after tax cash inflow, incremental investment needs cumulative PV, residual, business value
and share price.
Each step in this method is found to be crucial as allows to provide the different type of the distinct important due to
requirement of total value of company which is divided by the share price. This is basically measure of operating profit produced in
excess of its funding expenditure and cost of capital. Calculating WACC helps in n gaining the information about the return expected
by the shareholders and investors opportunity cost of taking on risk of putting money into company (Teti and Tului, 2020). Computing
future sales are found to be essential to ensure that how effectively potential cash inflow can be obtained. After tax cash flow provides
assistance regarding the ability to estimate profit and its capability to meet its cash related obligations. This involves increasing
working capital, making cash investment in fixed assets, giving dividends, etc. It is considered to be an important indicator as helps in
evaluating that how effectively firm can borrow money or issue more stock.
In addition to this, the step of computing incremental investment needs in the SVA model highly contributes to get the insights
about change in net operating profit after tax in the current period by the change in invested capital in the previous duration. This
phase of the particular model provides assistance in ascertaining that specific project is good or not. Share holder valuation analysis
model as well give emphasis on estimating cumulative PV to get the data about the value of strip of company securities that can
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expect the cash flows over several future years. This aids in getting the effective information about the prevailing ability of getting
cash flows information as per the present value (Callahan, Palia and Talley, 2018.). The calculation regarding the residual value
provides the information about the cash flows arising after sold at the end of useful analysis. This is considered to be important
variable as allows to obtain the information about the value of price obtaining at the end of useful life. Computing the business value
aids in getting the data of financial value of organization by looking at the return it gives to its stockholder. Estimation of wealth of
organization through business value permits to get the major information so that taking decision regarding acquisition in effectual
manner can become possible. Share price is important step that is obtained by shareholder value analysis model that tend to provide
the ability to get accurate insights.
On the basis of this, it can be interpreted that there are various variables attached to the steps involved in the SVA model that
gives appropriate information to make sure that accurate shareholder value analysis by covering overall picture in turn relevant
decision can be made.
Part 2
Reflection 1
Gibbs model is one of the significant reflection theory that involves steps like description, feelings, evaluation, analysis,
conclusion and action plan (Gibbs' Reflective Cycle, 2022). Estimation of range of share price through the SVA model has given good
experience. I have felt that there are different benefits which has achieved by me that can allow grabbing good post graduate job. I
have evaluated that there are various skills that has been developed that involves effective research, collecting, analyzing and data
management. I have worked effectively in this project as working I cross culture team skill has allow coordinating effectively to
complete work on time.
I have analyzed that there are few lacking areas that involves ineffective time management and conflict resolution that has
impacted my performance in team. It can be concluded that the particular participation in the project has helped me allot to get the
effective ability to assess the distinct skills which can permit grabbing good job opportunity. The action plan which will help me to
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improve my time management involves prioritizing things so that appropriate completing to meet deadline can become possible. In
addition to this, conflict resolution can be done by understanding different perspective and having problems solving approach to get
effective performance for further conducting.
Reflection 2
Gibbs reflection model is helpful in expressing the experience gained through completion of this project. The particular project
is about assessing share price of Cranswick understanding the significance of steps involved in shareholder value analysis. From the
competition of this, I have felt that performing in this project is one of the good experience as allowed me to get the ability to obtain
effective performance. I have evaluated that there are various crucial steps that are conducted by me in respect to complete this project
in effective manner. In my opinion there are different strengthening areas which has assisted me to get the capability to accomplish
project in positive manner that comprises effective presentation, leadership, problem solving, communication, analysis, etc. These all
has helped me to ensure that proper depth of knowledge of SVA model can be given to meet assignment requirements.
From the analysis, I came to know that there are certain limitations that has hampered my ability to contribute effort in this
project which includes lack of patience and ability to concentrated on details. This has resulted in inability to focus on calculation
patiently (Franken and et.al., 2018). I can improve this by implementing the action plan such as having effective participation in case
study based management games so that patience to give focus on details can become possible.
Reflection 3
In my opinion Gibbs reflective cycle provides assistance in presenting experience of working this project. I have worked in
the group for competing the project that was distinct into two parts. I have majorly contributed in the calculation part as it is one of my
interest area that has helped to get practical knowledge. From the evaluation, it can be interpreted that the good working skills includes
having time management, analytical thinking, depth understanding of financial concepts, appropriate communication, etc. (Topping,
2018). I have analyzed that with availability of mentioned skills attaining my roles and responsibilities indicates that achieving good
postgraduate job can become possible.
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On the other side, with help of analysis step of particular reflection model I came to know that there is presence of few lacking
areas such as ineffective team coordination and absence of ability to adopt cross culture. It can be concluded that with availability of
these skills it has become possible to get effective completion of this project. For improving this area of lacking which can be
modified by having participation in team management activities like competition, prioritizing practices, etc. so that higher
coordination with changing culture can be maintained.
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REFERENCES
Books and Journals
Callahan, S., Palia, D. and Talley, E.L., 2018. Appraisal arbitrage and shareholder value. Journal of Law, Finance & Accounting,
Forthcoming.
Franken, B. and et.al., 2018. Dominant actor and reflection within learning paths. Journal of Workplace Learning.
Saif-Alyousfi, A.Y., 2019. Determinants of bank shareholder value: evidence from GCC countries. International Journal of
Managerial Finance.
Teti, E. and Tului, S., 2020. Do mergers and acquisitions create shareholder value in the infrastructure and utility sectors? Analysis of
market perceptions. Utilities Policy. 64. p.101053.
Topping, K.J., 2018. Using peer assessment to inspire reflection and learning. Routledge.
Online
Gibbs' Reflective Cycle. 2022. [online]. Available through: <https://www.ed.ac.uk/reflection/reflectors-toolkit/reflecting-on-
experience/gibbs-reflective-cycle>
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