Company Valuation project - as part of a project, I am required to provide a financial Valuation of a Company using the valuation methods below. This is an Australian Company "Hills Industries" full details can be found at http://www.hills.com.au
I require assistance and help with these valuations, to allow me to write up a report on the company and to learn from the method used:
I need help with the following:
? The working out for each valuation method below and answers with calculations behind each valuation method. (if possible in a excel file so that I can review the method used) Plus a brief explanation of each method and results (so that I can them review the method and understand then and to expand and write a full report)
The only information given is the excel file attached hills.xls and suggested viewing of the annual reports for 2004 and/or 2003... also attached.
Any questions can be asked to me, via email at email@example.com
Company Valuation - methods
Using fundamental analytical techniques
1. Dividend Discount Model + justifications (approx 1 page Double spaced)
a. Constant Growth model + explanation (300 words approx)
b. Differential Growth model + explanation (300 words approx)
Note a: How to apply Constant Growth Dividend Discount Model?
Step 1: Compute the beta of the stock
a) using regression
b) using spread sheet (Excel) - see illustration spreadsheet
Step 2: Look for a risk-free rate. Go to the website of Monetary Authority, such as RBA, to look for the yield of Treasury Bills (3-month) or Government Bonds
Step 3: Calculate the return of local stock market - by computing the average return of the Stock Index, such as AOI or ASX200 over a 48 or 60-month period
Step 4: Apply the CAPM formula to compute the r (Discount rate)
r = risk free rate + beta (return of AOI - risk free rate)
Step 5: Estimate the growth rate
a) using historical growth rate of Earnings per share
b) using the self sustainable growth rate = Retention ratio x ROE
c) using the industry growth rate
d) using the competitor's growth rate
Step 6: Apply the Constant growth DDM, where
Price = Current dividend (1 + growth rate) / (discount rate - growth rate)
Step 7: compare this estimated price with the current stock price. If the estimated price is higher than the current stock price, the stock is considered 'undervalue', you should make a 'buy' recommendation.
Note b: to apply a two-stage growth Dividend Discount Model?
The key points here are:
You have to estimate how long the high growth period will last.
Hint: You may simply assume 3 years or 4 years
You have to estimate a constant growth rate after the high growth period.
Hint: You may use the same constant growth rate mentioned earlier
Critically evaluate: Historic cost or alternative measurement base
Historic cost should be replaced by an alternative measurement base in order to make financial statement more useful.
Critically discuss this statement, concluding with whether or not you agree with it.
Consider the following:
Critically discuss the role and relevance of financial accounting information to the principal stakeholders in the business.
Appraise the limitation of financial accounting as a system of reporting business performance
Communicate financial information and concept.
Some description and explanation is needed but you need to develop arguments and discussion.
You are expected to take a critical perspective, for example recognize the limitations of certain measurement bases.
Referred to: Information for Better Markets: Measurement in Financial Reporting (Institute of Chartered Accountants in England and Wales) icaew.com/bettermarketsView Full Posting Details