TFIN202 Corporate Finance: Evaluating Woolworths Share Price (2019)

This report provides a comprehensive analysis of Woolworths' share price valuation, conducted as a corporate finance assignment. It involves a detailed evaluation of Woolworths' financial performance, utilizing annual reports and other relevant variables to derive a theoretical share price. The methodology includes calculating the Weighted Average Cost of Capital (WACC) to discount future cash flows, determining the growth rate of dividends, and applying the Capital Asset Pricing Model (CAPM) to assess the cost of equity. The report compares the theoretical share price with the actual market price to determine whether Woolworths is overvalued or undervalued, concluding that the current share price is higher than the theoretical value, indicating a potential lack of investment opportunity. The analysis is supported by calculations and references to financial data, offering insights into the company's valuation and investment potential.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Authors Note:

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Executive Summary:
The overall assessment aims in evaluating the share price value of Woolworth by using the
annual reports and other variables. Relevant calculations have helped detecting the weighted
average cost of capital of the organization, which is used as a relevant cost, factor discount
the overall future cash flows. Thus, theoretical price is relatively lower than the actual share
price, which relevantly indicates that there is no investment opportunity within the shares of
Woolworths.

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Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................4
Conclusion:................................................................................................................................6
Recommendation:......................................................................................................................7
References and Bibliography:....................................................................................................8

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Introduction:
The overall assessment directly aims in evaluating the share price value of Woolworth
by using the annual reports and other variables. The main aim of the reports to derive and
compare the theoretical share price value of Woolworths with the current share price value to
determine whether the organizations current position is overvalued or undervalued. Relevant
calculation has directly help in calculating the weighted average cost of capital of the
organization, which is used as a relevant cost, factor discount the overall future cash flows.
This discounting factor has relatively helped in detecting the current valuation of Woolworths
in light of its overall dividends and financial performance. The report directly evaluates and
discusses about the relevant calculations that has been conducted to determine the share price
value of the organization. After which relevant recommendations are provided whether to
invest in the organization or to sell the stock.

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Discussion:
The Part 1 of the section has relatively provided adequate calculations in separate
steps, which actually help in determining future cash flows and the overall growth rate of
Woolworths. The data has been derived from the overall annual report adequate assumptions
regarding the tax rate are conducted in step 2. This evaluation is relatively help in
determining the growth rate and future cash flows of the organization. The detection of future
cash flows is essential as it helps in determining overall operating cash flow after taxes.
Moreover, final year operating cash flow is used to detect the terminal value of the stock.
Furthermore, the growth rate of the dividends is actually used for determining the average
growth rate that is used in relevant calculations (Woolworthsgroup.com.au 2019).
After detecting the growth rate overall terminal value has been generated for the
organization. The calculations in step 5 is relatively conducted with the help of Capital Asset
pricing model, which helps in determining the cost of equity of the stock, relevant data of
adequate risk free rate, market premium, and beta of a stock is used for detecting the expected
returns of the investors. In the similar process, the cost of debt is calculated by dividing the
interest paid with total debt of the company. This helps in determining the cost of equity and
cost of death of the stock, which is used for fueling further calculations.
In step 7 and step 8 overall calculations of the debt and equity weights has been
conducted, which is used for calculating the WACC of the organization. The calculation of
WACC mainly needs information such as cost of equity, cost of Debt, debt and equity
weights, which has been calculated in the above steps. The calculation of WBC is relatively
used for detecting the present value of the assets that that has been calculated in different
steps. The calculation is conducted to detect the present value of terminal value and after
taxes operating cash flow. After detecting the present value of assets the overall debt balance

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is detected, which helps in determining the equity value of the future cash flows. Lastly, the
equity value of the company derived from the theoretical calculations is relative divided by
the number of shares current issued by the organization. This directly helps in determining
the theoretical share price values of the company, which can be compared to the current share
price value, as it helps in determining whether it is undervalued or overvalued
(Woolworthsgroup.com.au 2019).
Particulars Value
Theoretical share
price 25.51
Actual share price 33.75
The above table directly provides information about the overall theoretical price and
actual price of Woolworths. This directly indicates that the organization is currently
overvalued where investments in the company would not be beneficial.

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Conclusion:
The assessment mainly depicts about the overall measure that has been taken into
consideration for detecting the calculation for deriving the theoretical price of Woolworths.
Hence, after deriving the theoretical prices the overall market price of the company is
compared to detect its valuation condition. Hence, it is detected that the share price of the
company is overvalued in comparison to the derived theoretical share price.

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Recommendation:
The theoretical price is relatively lower than the actual share price. Thus, it could be
understood that the company's current share valuation is higher than its book value, which
relatively indicate that there is no investment opportunity within the shares of Woolworths.

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References and Bibliography:
Au.finance.yahoo.com. 2019. Yahoo is now a part of Oath. [online] Available at:
https://au.finance.yahoo.com/quote/WOW.AX/ [Accessed 21 May 2019].
Woolworthsgroup.com.au. 2019. Annual Reports - Woolworths Group. [online] Available at:
https://www.woolworthsgroup.com.au/page/investors/our-performance/reports/Reports/
Annual_Reports [Accessed 21 May 2019].
Woolworthsgroup.com.au. 2019. [online] Available at:
https://www.woolworthsgroup.com.au/icms_docs/195396_annual-report-2018.pdf [Accessed
21 May 2019].
Woolworthsgroup.com.au. 2019. [online] Available at:
https://www.woolworthsgroup.com.au/icms_docs/185865_annual-report-2016.pdf [Accessed
21 May 2019].
Woolworthsgroup.com.au. 2019. [online] Available at:
https://www.woolworthsgroup.com.au/icms_docs/183565_Annual_Report_2015.pdf
[Accessed 21 May 2019].
Woolworthsgroup.com.au. 2019. Dividend Payments - Woolworths Group. [online] Available
at: https://www.woolworthsgroup.com.au/page/investors/shareholder-information/
payments/Dividend_Payments [Accessed 21 May 2019].
Reuters.com. 2019. ${Instrument_CompanyName} ${Instrument_Ric} Quote| Reuters.com.
[online] U.S. Available at: https://www.reuters.com/finance/stocks/overview/WOW.AX
[Accessed 21 May 2019].