University of Auckland FIN351 Assignment One: Data Cases Analysis

This assignment analyzes the valuation of WHS shares using Discounted Cash Flow (DCF) and comparable company valuation methods. The analysis involves calculating the intrinsic value of a WHS share using DCF, identifying key assumptions, and assessing sensitivity to changes in those assumptions. It also employs the comparable company valuation method, utilizing ratios like P/E, price-to-sales, and enterprise value to earnings. The project compares the results of both methods, evaluates the reliability of different valuation multiples, and justifies the use of DCF as a more accurate approach. Furthermore, the assignment includes financial data analysis, income statement analysis, and the formulation of recommendations regarding the share's valuation and potential sale.

Running head: NURSING 1
NURSING

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Date:[ 12/04/2019] To: [ ]
Subject: [ ]
Recommendation:
In my opinion it is recommended that the WHS share is overvalued therefore the company
must sell the share. At this stage the share value is higher and the company will earn at least
10% of the share price. When the share price is going to move high accordingly the return
will be higher. Further the fluctuation in the share price depends upon the market forces and
the other factors. The company is performing well and it has enough fee cash flows to pay
back the liabilities. The growth of the company is also dependent upon the discounted factor
of the cash flows. Therefore it is recommended to the company that the shares must be sold
on the partly basis and the rest of the shares can be sold later as the company is growing
effectively as it cash be seen from the amount of the free cash flows.
DCF results
Suggested steps:
1. The intrinsic value of a WHS share from a DCF analysis is 4.80.
2. As shown in the DCF valuation model, the share value is most sensitive to 0.5% and 1%
assumptions.
3. The base case assumption for [sales growth] is [ 2% ] in 2023.
4. The based case assumption for [gross profit] is [31.5% ] in 2023.
5. Both assumptions are obtained from sensitivity analsyis.
Comparable company valuation results
Suggested steps:
1. Motivate why using the comp method
The comparable method is different form the DCF model as it uses the ratios of the
similar companies, industry or the peer groups to value the equity. The general ratios that
are used are P/E ratio, price to sales ratio and enterprise value to earnings before interest,
tax and depreciation which are also known as the multiples. The golden rule followed in
this method is the law of the one price where all the assets are should sell at the same
price. This method also provided the observable value of the business, based on the
current market value.
There shall be high motivation to use this method as first it is very easy to calculate in
response to the DCF model. The model is easy to imply, there are no heavy list of
assumptions which is to be followed as compared to the DCF model. The best and the
core feature of this model is that it captures the price of the market and the trading mood
with 99.99% accuracy.
Henceforth the comparable method is said to be adopted and advised by the experts.

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2. Describe the valuation results from the comp method using three different multiples
The valuation results using the three different multiples are
P/E RATIO: 4.75
PRICE TO SALES RATIO: 9.60
ENTERPRISE TO VALUE EARNINGS RATIO: -1.79
3. Assess which of the three comp valuation results is more reliable.
a. When applying EV/Sales multiples, we assume that sales are taken on the basis of
the average growth arte at 1%.
b. When applying EV/EBITDA multiple, we assume, that the enterprise value will
improve form negative to the positive front.
c. When applying P/E multiple, the assumption is that the earning per share of the
company is 1.01.
Explain why DCF is more likely to give a more accurate result.
Discounted cash flow model is the model that is used to determine the present value of the
company or the asset which is based on the future money. The genera assumptions taken by
the company are that the assets will be generating enough cash in this scenario. In the
simpler terms the present value is more worthy than the future value. The DCF model
presents the accurate results because this model provides the detailed information, and
includes all the major assumptions of the business. it is considered as one of the most reliable
analytical tool, when it is utilised for the valuation of the equity. The best estimate of the
stock intrinsic value can be provided by the DCF model. There are few inputs which are
required by the DCF model such as future cash flows any growth rate of the cash flows and
the required rate of return. The DCF model is that kind of model that does not merely relies
on the accounting figures; rather it relies on the amount of the free cash flow. There are two
variations of the models and both accounts for the different rates.