Business Valuation Report: Analysis of Free Cash Flow and Valuation

This report presents a business valuation analysis of the Star Entertainment Group, focusing on the estimation of free cash flow. The analysis utilizes EBIT, D&A, CAPEX, and changes in net working capital to project future cash flows. The report incorporates analyst estimates for sales and EBIT growth over a three-year period, considering market competition and depreciation. Assumptions are based on company guidance and analyst views, with estimations using long-term growth rates. The report includes detailed calculations and references, providing a comprehensive financial assessment of the company's valuation. This report provides insights into financial modeling and valuation techniques, offering a practical application of financial analysis principles. The data has been taken from the analyst estimates and all the estimations have been done on the basis of the long term growth rates, the lower end, higher end and the median for which is mentioned in the above table.

BUSINESS VALUATION ASSIGNMENT

1
By student name
Professor
University
Date: 25 October 2017.
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Contents
Estimation of the free cash flow of company....……..……………………………………….3
Refrences.....………………………………………………………………......................................5
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Estimation of Free cash flow for the company
The formula for estimation of free cash flow for the company Star Entertainment group is given
by
After-tax EBIT+D&A-Capex-△NWC, EBIT means earning before interest and tax, D&A means
depreciation and amortization expenditure, △NWC means change in the net working capital.
Here, the report which has been prepared and the numbers which have been taken are on the
basis of the analyst estimates and are on the basis of percentage of the sales (Goldmann, 2016).
All the numbers have been taken as per the IFRS standards estimates and in arriving at the
estimates, high, median and low considerations have been taken alongwith the use of the
standard deviation over the past 5 years data. The growth in sales over the nest 3 years has
been assumed to be 6.93%, 6.53% and 5.20% respectively over 2018, 2019 and 2020 and the
growth in EBIT has been considered to be 11.11%, 8.85% and 7.01%. The continuous decrease is
basically on grounds of stagnancy and huge competition in the market.
Further, depreciation has been considered on actual basis for 2017 and on estimated basis
considering the decision to invest more in 2018 and on an average basis in 2019 and 2020
(Alexander, 2016). The change in the working capital has been om positive side and therefore
the same has been shown as a positive figure. Further, it is expected to be the same in the
coming years.
The detailed calculations have been shown in the below table:
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Particulars 2017 2018 2019 2020
Actual Estimate Estimate Estimate
Sales 2,344.00 2,506.49 2,670.10 2,809.05
Sales growrth rate 6.93% 6.53% 5.20%
D&A 164.50 185.18 197.30 203.83
% of Sales 7.02% 7.39% 7.39% 7.26%
Capex (407.60) (439.92) (268.80) (260.16)
% of Sales -17.39% -17.55% -10.07% -9.26%
Change in NWC (112.80) (258.49) (132.60) (155.87)
% of Sales -4.81% -10.31% -4.97% -5.55%
Particulars 2017 2018 2019 2020
Actual Estimate Estimate Estimate
After-tax EBIT 350.60 389.54 424.01 453.75
Growth rate 11.11% 8.85% 7.01%
Plus: D&A 164.50 185.18 197.30 203.83
Less: Capex (407.60) (439.92) (268.80) (260.16)
Less: Inc. in NWC (112.80) (258.49) (132.60) (155.87)
Free Cash Flow (5.30) (123.69) 219.90 241.55
The Star Entertainment Group Limited (ASX:SGR) > Estimates
Further Assumptions
ASX:SGR (AUD) Mean Median High/Low
Target Price 5.9 6 6.65/4.30
LT Growth 13.12% 12.52% 16.70%/10.13%
All the assumptions have been taken as per the guidance given by the company and on the
basis of the analysts view of the company (source: capitaliq.com. Further, all the estimations
have been done on the basis of the long term growth rates, the lower end, higher end and the
median for which is mentioned in the above table.
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References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-
431.
Goldmann, K. (2016). Financial Liquidity and Profitability Management in Practice of Polish Business.
Financial Environment and Business Development, 4, 103-112.
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