Coursework is receipted on the understanding that it is the student's own work and that it has not, in whole or part, been presented elsewhere for assessment. Where material has been used from other sources it has been properly acknowledged in accordance with the University's Regulations regarding Cheating and Plagiarism. The Excel model using for forecasting shareholder value are considered as a helpful application in financial analysis now. The prediction shareholder value was replied on Alfred Rappaport's seven value drivers which are known as the crucially factors to affect the firm value.
This report practiced the Excel model of Thortons Plc, which is engaged in manufacturing, selling and others activities, brings out the fundamental factors for retailing, commercial trading and manufacturing operations. This report also analyzed how the changing of value drivers influent to the operations of the firm. The value drivers are considered as the crucial factors affecting to the shareholder value including of sales growth, operating profit margin, tax rate, incremental fixed capital investment, incremental working capital investment, require rate of return, debt, market capitalization and number of prediction years.
Beacause Thorntons Plc has fundamental operation in retail and manufacture, so the sales growth and profit margin are known as crucial factors impact on shareholder value. The forecasting ratios will base on the historical figures during the five years from June 2006 to June 2010 and interim results ended January 2011 by the trend analysis. The operating profit margin is determined being 3% per year though the trend analysis during five years from June 2006 to June 2010 and interim results ended January 2011.
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In the fact, the operating profit margin intends to increase in the next period by the real situation like Easter day and Mother's day. The analysis of forecasting sales growth indicated that sales growth is an important factor to influent the shareholder value, also it has been positively correlated with shareholder value. The increase of sales growth predicted lead to the increase of shareholder value, although the percentage of increasing shareholder value is not large.
Apart from sales growth and profit margin, the others value drivers affecting Thorntons Plc shareholder have to mention being incremental fixed capital investment and incremental working capital investment. Though the analysis relationship between incremental fixed capital investment and incremental working capital investment and shareholder value indicated that shareholder value is large when incremental fixed capital investment and incremental working capital investment are small. The analysis of free cash flow by using Excel model has the advantages and disadvantages as well.
Seven value drivers have the big effect on shareholder value, however the consideration of these factors are different in different sectors or industries. Moreover the analysis of value drivers is based on forecasting ratios by historical figures, so the exact of prediction doesn't ensure due to the market is always change and ensuring of impact real situation in the world. For example, Thorntons Plc is a company which engaged the retailing and manufacturing the sweet food, so its sales will significant increase in Eater holiday or Mother's day soon.
If its sales raised leading to change others ratios and the prediction will go wrong. The analysis of value driver of Thorntons Plc indicated the important role of sales growth and profit margin to shareholder value. Although the excel model using for analysis has the drawback but it is helpful for investors and firm in the valuation of shareholder value. The consideration of value drivers will help the firm in enhance of management and having the more effective decision business.
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