Make a 2,500 word long analysis of a freely chosen company from STOXX All Europe 100. It is required from you to include in your paper financial valuation analysis based on
- the Dividend Discount Model (DDM), or
- the Free Cash flow to Equity Model (FCFE), or
- the Free Cash flow to Firm (FCFF) Model,
Acquire a thorough understanding of the role, key methods and techniques of valuation, and be aware of the subjectivity and limitations that underpin objective inputs to a financial decision
- Critically analyse investment information contained in financial statements, take positions, form opinions and make financial decisions independently
- Relative valuation, specifically:
- Price / Earnings Per Share (P/E) valuation,
- Enterprise Value / Earnings Before Interests, Taxes, Depreciation and Amortization (EV/EBITDA) valuation,
- Price / Book Values (P/BV) valuation,
- Enterprise Value / Sales (EV/S) valuation, and
- Other industry-specific valuation metrics.
- Purposes of the paper: The purpose is to have a comprehensive picture about the company you have chosen including
- the model chosen,
- the inputs chosen,
- the valuation characteristics,
- the mechanics of the valuation
- the outcome of valuation
- sensitivity of the valuation
- triangulation with ratios
- limitations of the financial information
- Task description: students should critically analyze financial terminology and techniques, a set of company accounts, valuation inputs and management accounting information. Students should audit published financial information, determine the limitations of such information and generate relevant recommendations as well. State valuation problems that the chosen company is facing and provide solutions through the use of valuation concepts within a business context. Finally, critically appraise the limitations of valuation figures, sensitivities for business decision-making by using relative valuation techniques outlined above.
The description of the company and the real financial management situation shall be no longer than 25 percent of the paper, 625 words. Students here have to introduce the chosen STOXX All Europe 100 company from a financial management perspective outlining the industry, the company and the main Financial Reports findings. Tools may include the Five Forces analysis for the industry, SWOT analysis for the company and vertical or horizontal analysis for the Financial Reports. The bottom line is the financial analysis preparing the financial measures and the Discounted Cash Flow analysis (DCF).
The complex set of financial measures shall be no longer than 25 percent of the paper, 625 words. Students should first of all comment on the risk profile of the company outlining its bond rating and debt financing costs, evaluating the overall riskiness of the industry and the specific company position within the industry. Following the cost of debt, the cost of equity has to be calculated within the CAPM framework. The resulting weighted average cost of equity (WACC) should be triangulated with other industry players also reflecting the company’s financial structure and risk level. Where applicable, project NPVs and IRRs need to be calculated additionally to evaluate project investment, capital budgeting and other separate investment decisions.
The introduction of the discounted cash flow analysis techniques shall be no longer than 50 percent of the paper, 1250 words. Students need to choose either the Free Cash Flow to Equity (FCFE) or the Free Cash Flow to Firm (FCFF) or the Dividend Discount Model (DDM) valuation models. The analysis of the Financial Statements is essential to be able to use the percentage-of-sales financial forecasting technique, as practiced during the seminars. The forecasting of the line items such as NOPAT, CAPEX and NWC resulting in the Free Cash Flow should be discounted to current state with the previously calculated WACC. Students are also required to calculate the Beta with regressing stock and market returns for at least one year. For the Terminal Value (TV) calculation it is essential to double check calculations with scenario and sensitivity analysis and relative valuation methods. The comparison to other industry players using Enterprise Value (EV), Earnings Before Interest and Taxes (EBIT), Earnings Before Interest and Taxes, Depreciation and Amortisation (EBITDA) and Price / Earnings (P/E) ratios is essential to outline the current valuation of the firm.
- Model contents: The papers should include the following sections at a minimum
- Title page including the student’s name and the word count of the main document.
- Contents outlining the major sections of the document.
- Introductory page outlining
- Why the company has been chosen?
- What the aims of the paper are?
- What tools will be used during the analysis?
- Analysis of the financial valuation
- The model chosen,
- The inputs chosen,
- The valuation characteristics,
- The mechanics of the valuation.
- The outcome of valuation
- Sensitivity of the valuation,
- Triangulation with ratios and other companies and industry values,
- Limitations of the financial information.
- Conclusions and recommendations.
- Choice of company: The students can freely choose a company from the STOXX All Europe 100, to be chosen in the Moodle.
- The length of the paper: 2,500 words plus/minus ten percent.
- Format of the paper: written assignment in the Word program, uploaded to Moodle. Calculations should be conducted in the Excel program and uploaded as well.
- Referencing of the paper: Harvard-style referencing should be used throughout the text.
- Plagiarism: all papers need go through the Turnitin program and papers with high plagiarism score will need to be resubmitted.
- Size limitations: There is a 5MB size limitation on the main document to be uploaded to Moodle. The Word and the Excel document should include all calculations and appendices.
- Rules concerning late submission: Papers below fifty percent grade or with a high plagiarism score need to be re-submitted.
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