FIN80002 - Business and Entity Valuation: Fairfax Media Analysis

This case study presents a business and entity valuation of Fairfax Media Limited, an ASX-listed firm, utilizing Porter's Five Forces framework. The analysis includes an examination of the threat of new entrants, bargaining power of suppliers and buyers, the threat of substitute products/services, and rivalry among existing competitors within the media industry. The study assesses the implications of these forces on Fairfax Media's profitability and strategic positioning. Assumptions are made regarding the firm's growth, including innovation, economies of scale, resource development, and customer base expansion. The analysis concludes whether the firm is in a stable growth phase and provides references to support the valuation process and strategic analysis.

Running head: BUSINESS AND ENTITY VALUATION
Business and Entity Valuation
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BUSINESS AND ENTITY VALUATION
Fairfax Media Limited
Step 1:
Conduction of business strategy analysis of Fairfax Media Limited using five forces
model
Five forces analysis can help in shaping business strategy of the firm Fairfax Media Limited
utilizing five forces. Porters’ Five Forces include the following:
-Threat of New Entrants
-Bargaining Power of Suppliers
-Bargaining Power of Purchasers
-Threat from Substitutes Products (Reilly and Schweihs 2016)
-Rivalry among subsisting products
Figure: Porter’s Five Forces Framework
(Source: Reilly and Schweihs 2016)

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BUSINESS AND ENTITY VALUATION
Analysis of Fairfax Media limited using Five Forces
Threats of New Entrants:
The new entrants in particularly media industry bring innovation and new ways of
undertaking things and exert pressure on Fairfax Media Industry. This is carried out by means
of low pricing strategy, decreasing costs, and delivering new value propositions to the
consumers. Essentially, Fair fax media limited has the need to handle these challenges as well
as develop effective barriers to shield competitive edge of the corporation. Fairfax Media
Industry can design various new products as well as services and bring new customers to
purchase Fairfax Media Limited. Management of the firm can build economies of scale to
decrease fixed cost for every unit and develop capacities by allocating funds on research as
well as development (Reilly and Schweihs 2016). New rivals are less probable to enter a
vibrant industry where the established players namely Fairfax Media Limited namely
illustrating the standards on a regular basis. The impact of the new entrants is said to be low.
Bargaining Power of Suppliers:
Majority of the corporations in the media industry purchase their raw material from various
suppliers. Suppliers in different dominant position can decrease overall margins that the firm
Fairfax Media Limited can earn in this specific market. Fundamentally, powerful suppliers
present in the media segment utilize their negotiating power in order to extract superior prices
from the corporations operating in the media segment (Reilly and Schweihs 2016). The
impact of the bargaining power of suppliers is said to be moderate.
Bargaining Power of Buyers:
Buyers intend to purchase offerings that are available by particularly disbursing the minimum
price as achievable (Reilly and Schweihs 2016). As such, this exerts pressure on profitability

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of the firm Fairfax Media Limited in long term period. The smaller as well as more powerful
the base of customers is that of Fairfax Media Limited, the greater is bargaining power of the
firm’s customers and capability to seek augmenting discounts as well as offers. The impact of
the bargaining power of buyers is said to be moderate.
Threats of particularly substitute products/services
At the time when products else wise services satisfy needs of customers in diverse ways,
overall profitability of the entire industry suffers. For instance, services such as Dropbox as
well as Google Drive are necessarily substitutes to various storage hardware drives.
Essentially, the threat presented by substitute products/services is high in case if it presents a
value proposition that is exclusively different. The impact of the threat of substitute
products/services is said to be high.
Rivalry among subsisting competitors
In case if the competition among the subsisting players in a specific industry is concentrated
then it will drive down prices and decline overall profitability of the entire industry
(Reitmaier and Schultze 2017). Fairfax Media Limited functions in a competitive sector. This
competition takes charge on the long term profitability of the corporation on the whole. The
impact of the rivalry among substitute competitors is said to be moderate.
Implications of Porter’s Five Forces on Fairfax Media
By evaluating all the five competitive forces, the company Fairfax Media Limited strategists
can outline a complete picture of what influences profitability of the corporation in the media
sector. Strategists can make out altering trends beforehand and can quickly change act in
response to different emerging opportunity (Botosan and Huffman 2015). By evaluating
Porter Five Forces, management of the firm can design the forces in their own favour.

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Make suppositions about the growth of the firm
Management of the firm has a holistic strategy structure that can help in developing a
strategic position in the media strategy. The suppositions include
-Innovating new products
-Developing economies of scale (Botosan and Huffman 2015)
-Developing resources/capacities and spending money
-Developing suppliers whose business relies on the corporation
-Building large customer base and reducing detection of existing customers
-Increasing costs of switching (Trugman 2016)
-Developing a sustainable differentiation and developing scale so that it can perform
comparatively better and collaborating with rivals to augment size of the market.
Is the firm in a stable growth phase?
The firm is said to be in a stable growth phase as it intends to respond to emerging
opportunities.

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References
Trugman, 2016. Understanding business valuation: A practical guide to valuing small to
medium sized businesses. John Wiley & Sons.
Botosan, C.A. and Huffman, A.A., 2015. Decision-useful asset measurement from a business
valuation perspective. Accounting Horizons, 29(4), pp.757-776.
Reitmaier, C. and Schultze, W., 2017. Enhanced business reporting: value relevance and
determinants of valuation-related disclosures. Journal of Intellectual Capital, 18(4), pp.832-
867.
Reilly, R.F. and Schweihs, R.P., 2016. Guide to intangible asset valuation. John Wiley &
Sons.