Shareholder Value Creation Essay
Added on 2020-07-23
13 Pages3897 Words64 Views
Shareholder Value Creation
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1A) Discount rates and Capital structure..................................................................................11. Calculation of WACC, Cost of equity and Cost of debt....................................................12. Assessing capital structure of Burberry Group Plc............................................................2B) Dividend policy.................................................................................................................41. Dividends paid out in five years.........................................................................................42. Assessing pay-outs utilising variety of measures...............................................................53. Consistency of dividends....................................................................................................5C) Valuation...........................................................................................................................61. Valuing through static valuation multiples.........................................................................62. Absolute valuation technique.............................................................................................7D) Corporate Life Cycle.........................................................................................................7Revenue and growth, Financing, Free Cash flow and Dividend payout ratio........................8E) Shareholder value performance for Burberry Group Plc...................................................9CONCLUSION................................................................................................................................9REFERENCES..............................................................................................................................11
INTRODUCTIONShareholder value creation is required to be accomplished so that firm may have moreinvestment for financing activities. Present report deals with Burberry Group Plc engaged inluxury fashion house situated in UK. In the report, calculation of cost of equity, of debt andWACC is done. Furthermore, dividends provided by the organisation in past years have alsobeen analysed. Moreover, valuation of equity shares are made along with shareholder valuecreation. Financial ratios have been calculated for assessing financial performance of thecompany. A) Discount rates and Capital structure1. Calculation of WACC, Cost of equity and Cost of debtParticulars20132014201520162017(in millions)Marketcapitalisation (E)8917.1610323.511394.248727.2310254.77Stock Beta0.560.570.950.930.94Risk Free Rate1.51.51.51.51.5(return on 10 yeargovernmentbonds)Market RiskPremium6Cost of equity4.86%4.92%7.20%7.08%7.14%1
Cost of debtInterest expense4.962.662.693.132.098Book value of debt195.78237.5497.4673.3657.85375Cost of debt2.53%1.12%2.76%4.27%3.63%Tax rate25.71%25.71%25.71%25.71%25.71%Weights of debtApplying formulaD / (E + D)0.02148373630.02249210310.00848090360.00833580480.0056Weights of equityE / (E + D)0.97851626370.97750789690.99151909640.99166419520.9944WACC(We*Ke +Wd*Kd*1-Taxrate)4.49%4.55%6.88%6.76%8.61%2. Assessing capital structure of Burberry Group PlcParticularsFormula20132014201520162017Solvency ratios FinancialleverageAverage total assets /Average total equity1.721.691.551.481.432
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