Project Report: Comprehensive Financial Analysis of WPP AUNZ LTD

This project report offers a comprehensive financial analysis of WPP AUNZ LTD, a British advertising company operating in the Australian market. The analysis includes debt valuation, examining both short-term and long-term debt positions and comparing them to industry standards, with a focus on the company's cost of debt. Equity valuation is performed using the Dividend Discount Model and PE Multiple Model to assess share prices, revealing that the stock price is currently overvalued. The report also calculates the company's Weighted Average Cost of Capital (WACC), considering both debt and equity, and analyzes the market performance relative to industry trends. The conclusion suggests that the company is performing well, with recommendations for investors to consider both short-term and long-term investments. References to various financial sources like AFR, Bloomberg, Google Finance, Yahoo Finance, and Morningstar are included to support the analysis.

Running Head: Finance
1
Project Report: Finance

Finance
2
Contents
Introduction.......................................................................................................................3
WPP AUNZ LTD.............................................................................................................3
Valuation of Debt.............................................................................................................3
Valuation of shares...........................................................................................................5
Cost of capital...................................................................................................................6
Analysis of Market...........................................................................................................8
Conclusion........................................................................................................................9
References.......................................................................................................................10

Finance
3
Introduction:
A person always wants to enhance the worth of his or her savings. They always look
for various ways through which their invested amount could be enhanced and they could get
return and the profit from the market. Mainly, a person looks for the share market and the
capital market to enhance the worth of their savings. In this report, as a consultant’s report,
WPP AUNZ LIMITED has been taken into the context. This study has been performed over
this comapny to evaluate the performance of the comapny and the industry and Australian
market as well. According to this report, an analyst and the investor always have various
manner to identify and evaluate the performance of the company. For preparing this report,
some of the methods have been taken into the context.
WPP AUNZ LTD:
WPP AUNZ LTD is a British company which has its operations in various companies
including the Australian market. This company is an advertising company. Head office is in
London of this company. Currently this comapny has registered its stock into the ASX to
trade the shares1. Turnover of the comapny is rapidly enhancing (Home, 2017). Currently
205000 people are working with this comapny. The performance of the company depict about
positive changes.
Valuation of Debt:
Debt valuation study has been performed over the WPP ANZ LTD to analyze the debt
position of the company. Firstly it has been identified that this comapny raises the short term
funds through bank loan and t bills whereas the long term funds are raised by the comapny
through equity and bank loans. The position of long term and short term debt are as follows:
WPP AUNZ LIMITED
2017 2016 2015 2014 2013
Long term
debt 353649000 157100000 107075000 172150000 133009000
1 Home, WPP AUNZ LTD, Retrieved from https://www.wppaunz.com/ available on 13th Oct
2017, 2017.

Finance
4
Short term
debt 0 70000000 100000000 215000 3208000
For analyzing the debt position of the company with the industry data, competitive
company of the firm, Regional express limited has been taken into the context. Following is
the position of the industry:
Regional Express Limited
2017 2016 2015 2014 2013
Long term debt 11591000 14805000 17740000 20416000 222864000
Short term debt 3214000 3071000 2676000 2448000 2235000
2
According to both the tables of long term ans short term debt of the comapny as well
as the industry, it has been found that the long term debt position of the comapny is constant
but currently, WPP AUNZ LTD is ignoring the short term debts.
According to the evaluation, the short term debt of the comapny is not according to
the industry standards and further, the performance of the long term debt is quite similar with
the performance of the industry standard. Currently, comapny is using the long term debts
only to manage the performance and the position.
The cost of debt of the comapny is as follows:
Calculation of cost of debt
Outstanding
debt 353649000
interest rate 4%
Tax rate 0.3
Kd 0.0280
2 Morningstar, RGIONAL EXPRESS LIMITED, Retrieved from
http://financials.morningstar.com/cash-flow/cf.html?t=REL&region=aus&culture=en-US
available on 13th Oct 2017, 2017.

Finance
5
This study of debt valuation depict that the comapny is not required to make the
changes into the long term debt but comapny could raise the funds of short term debt.
Valuation of shares:
In addition, study has been performed over the shares to analyze the performance and
position of the WPP AUNZ LTD. Firstly, the total cost of equity of the comapny is as
follows;
Dividend Discount Model
Dividend
expected 0.014211368
Growth rate 11%
Price per share 1.69
cost of equity 11.4918%
This depict that the total cost of equity of the comapny is 11.49%. further, various
figures of the comapny from annual report, 2017 has been evaluated to analyze the
performance of the comapny.
2016-12 2015-12 2014-12 2013-12 2012-12
Revenue 902644000 474066000 451902000 393455000 345665000
Cost of revenue 137412000 78310000 47642000
Earnings 0.07 -0.13 0.11 0.12 0.12
The growth rate of the comapny is 5% and the dividends are announced by the
comapny after every 6 months. Currently, the dividend is $ 0.02 which is expected by the
shareholders of the comapny3.
Value of the shares has been analyzed through applying various methods and
techniques. The stock price of the comapny must be as follows:
Dividend Discount Model
3 Morningstar, WPP AUNZ LIMITED, Retrieved from
http://financials.morningstar.com/cash-flow/cf.html?t=WPP&region=aus&culture=en-US
available on 13th Oct 2017, 2017.

Finance
6
Dividend expected 0.0142114
Growth rate 11%
Discount rate 59.17%
Intrisic Value 0.029289
Share Price 1.69
Overvalued
PE Multiple Model
Industry PE ratio 9.76
EPS 0.07
Intrisic Value 0.68
Share Price 1.69
Overvalued
According to both the methods, it has been found that the stock price of the comapny
is overvalued. The performance of the comapny is bad while it has been presented in a better
manner to manage the share price of the comapny. For computing, the value of the stock,
various internal and external factors has been evaluated4.
According to this theory, I have found that the constant dividend growth model is
more reasonable. This takes into consideration all the related factors and depicts a better
result accordingly.
According to the understanding and various articles, it has been found that the current
methods of identifying the stock price of the comapny are not reliable as they are based on
many assumptions, these models must depict the reliable knowledge by taking various other
factors into the consideration such as market changes, new deals, diversification, new market,
economical changes etc. these factors would offer a better result.
Cost of capital:
4 Google finance, WPP AUNZ LIMITED, Retrieved from http://finance.google.com/finance?
q=ASX:WPP available on 13th Oct 2017, 2017.

Finance
7
Further, study has been performed over the cost of capital to analyze the performance
and position of the WPP AUNZ LTD. Firstly, the total cost of capital of the comapny has
been analyzed which is is as follows;
Calculation of WACC
Price Cost Weight WACC
Debt 353649000 0.028 0.29742 0.00833
Equity 835418000 0.11492 0.70258 0.08074
1189067000 Kd 0.08907
According to this, the comapny has raised the funds through equity and debt both, the
ratio of debt and equity is pretty fine. According to the table, the total cost of the capital of
the comapny is 0.089075.
Further, according to the tax policy of the Australian government, the tax rate is 30%.
So the debt valuation study and cost of debt of the comapny has been evaluated according to
30%. Additionally, it has been analyzed that the difference exists among the cost of capital
and the cost of equity due to the various other factors. The cost of debt and equity has been
different due to various internal and external factors.
Further, it has been analyzed that the current liabilities of a comapny should not be
included into the calculations of cost of capital due to the fact that there are various other
ways to calculate the short term cost of the comapny. The main pros of including are simplify
the process and the main cons is diluted result.
From the calculations, it has been found that the total cost of capital of the comapny is
0.08907 which depict that comapny has to pay at least 0.08907 to the investors and debt
holders for the funds. This cost is analyzed according to the total equity weight and debt
weight of the comapny.
5 Morningstar, WPP AUNZ LIMITED, Retrieved from
http://financials.morningstar.com/cash-flow/cf.html?t=WPP&region=aus&culture=en-US
available on 13th Oct 2017, 2017.

Finance
8
Currently, comapny has analyzed 2 new projects and made investment into them after
analyzing the risk and return through the capital budgeting techniques. And the decision of
raising the funds has been taken by conducting the study of WACC. Through this, comapny
has identified that whether the raising funds from debt and equity would be risk free and the
cost would also be less6.
The current capital structure of the comapny has been set according to the standards.
Through the current capitals structure of the comapny, it has been analyzed that the cost of
equity and the cost of debt of the comapny is 0.11492 and 0.028 whereas the weight is 0.29
and 0.70 which depict that the comapny could reduce the level of equity a bit to manage the
cost as well as the risk of the comapny.
The optimal capital structure of the comapny depends over the various factors such as
risk, return, economy, comapny, stakeholders etc. the optimal capital structure is the stage
where the debt and equity has been raised in such a proportion that the cost and the risk
related to the funds are in the control of a comapny.
Analysis of Market:
Further, the market analyze study has been conducted. The financial performance has
been analyzed to the industry’s performance. Through the study, it has been found that the
financial performance of the comapny is bit better than the industry’s performance due to the
strategies and policies of the comapny.
Yahoo finance (2017) depict that the performance of the comapny is becoming better
day by day7. AFR (2017) depict that the stock and dividend performance of the comapny is
6 Morningstar, RGIONAL EXPRESS LIMITED, Retrieved from
http://financials.morningstar.com/cash-flow/cf.html?t=REL&region=aus&culture=en-US
available on 13th Oct 2017, 2017.
7 Yahoo finance, WPP AUNZ LTD, Retrieved from
https://au.finance.yahoo.com/quote/WPP.AX/history?
period1=1372530600&period2=1464633000&interval=1mo&filter=history&frequency=1mo

Finance
9
becoming better8. Further, the study over Morningstar, 2017 depict that the company is
required to make some changes into its capitals structure to reduce the level of the cost and
make the comapny more profitable. 9
Conclusion:
According to this report, comapny is performing well at every phase. The policies of
the comapny are competitive and the comapny is grabbing the market continuously. Through
this report, it is depicted to the investor to invest into the comapny for long term as well as
short term to manage the savings and get the high return.
available on 3rd Oct 2017, 2017.
8 AFR, WPP AUNZ LIMITED, Retrieved from
http://www.afr.com/research-tools/WPP/company-profile/operational-history available on
13th Oct 2017, 2017.
9 Morningstar, WPP AUNZ LIMITED, Retrieved from
http://financials.morningstar.com/cash-flow/cf.html?t=WPP&region=aus&culture=en-US
available on 13th Oct 2017, 2017.

Finance
10
References:
AFR, WPP AUNZ LIMITED, Retrieved from
http://www.afr.com/research-tools/WPP/company-profile/operational-history available on
13th Oct 2017, 2017.
Bloomberg, WPP AUNZ LIMITED, Retrieved from
https://www.bloomberg.com/quote/WPP:AU available on 13th Oct 2017, 2017.
Google finance, WPP AUNZ LIMITED, Retrieved from http://finance.google.com/finance?
q=ASX:WPP available on 13th Oct 2017, 2017.
Home, WPP AUNZ LTD, Retrieved from https://www.wppaunz.com/ available on 13th Oct
2017, 2017.
Morningstar, RGIONAL EXPRESS LIMITED, Retrieved from
http://financials.morningstar.com/cash-flow/cf.html?t=REL&region=aus&culture=en-US
available on 13th Oct 2017, 2017.
Morningstar, WPP AUNZ LIMITED, Retrieved from http://financials.morningstar.com/cash-
flow/cf.html?t=WPP&region=aus&culture=en-US available on 13th Oct 2017, 2017.
Yahoo finance, WPP AUNZ LTD, Retrieved from
https://au.finance.yahoo.com/quote/WPP.AX/history?
period1=1372530600&period2=1464633000&interval=1mo&filter=history&frequency=1mo
available on 3rd Oct 2017, 2017.