Calculating Enterprise Value, Equity Value, And Multiples For XYZ Ltd And Gemini Group

XYZ Ltd is a family-owned company that operates in the consumer staples industry in Australia. The company’s management plans to expand its operations by raising capital through an initial public offering in future. Being an unlisted firm, XYZ doesn’t have its current market price. The management of XYZ is seeking your advice on calculating XYZ’s relative value and recommends four related firms to be used for calculation purposes:

1.Use annual reports 2019 of following firms to extract required financial information:

a.Tabcorp Holding (TAH)

b.Domino’s Pizza (DMP)

c.Harvey Norman(HVN)

d.JB HI-FI (JBH)

2.Access the annual reports under Assignment-2 folder on Blackboard.

3.Use three industry multiples in the analysis:

a.Price to book value

b.Price to sales

c.Price to earnings

4.Closing share prices:

a.Tabcorp Holding (TAH) – $4.408

b.Domino’s Pizza (DMP) -$37.64

c.Harvey Norman(HVN)-$3.914

d.JB HI-FI (JBH) -$25.850

5. XYZ ltd had opening net book value of $1,265,487 and number of shares of 550,678 (both values in thousand), respectively. Also, XYZ reported $2,300,600 sales and $175,000 net earnings.

Using the above information, you are required to:

a)Calculate multiples as above

b)Calculate enterprise value of XYZ based on each multiple

c)Calculate overall enterprise value of XYZ-average value

d)Assume XYZ’s shares being traded at $9.30 per share currently, would

you recommend to buy this share, justify your choice?

e)Discuss the limitations of the analysis

You are a Junior Equity Analysts at HighReturns Investment and assigned to perform cash flow-based valuation for Gemini Group. Cash flow from operation and cash investment figures for 2021; $951 and $425 (in millions) respectively, have already been forecasted. In addition, you are provided with the following information:

All Ordinaries Index return

3-Months Treasury bill rate

Beta of Gemini Group

Cost of capital

ROE

Dividend payout ratio

*Operating cash flow growth 2022-2026

Cash investment growth 2022-2026

Firm growth beyond 2026

Number of shares (in millions)

*Operating cash flow growth is assumed to be equal to ‘sustainable growth rate’ of the firm. Gemini Group is a family-owned business and has no debt currently. Also, it is assumed above market-based data remains fairly stable and be applicable for calculation purposes during the period.

You are required to calculate following for Gemini Group:

a)Forecast free cash flow from 2022-2026

b)The enterprise value.

c)Equity value.

d)Equity value per share.

6.You have been hired as an analyst for Bank of WA and your team is working on an independent assessment of FandB Inc. (F&B), which is a firm that specializes in the production and distribution of food and beverage products in Australia. Your assistant has provided you with the following data about the company and its industry. You analysis should include intra-company, inter-company, and industry benchmark comparison.

Ratio	2018	2017	2016	2018
				Competitor	Industry Average
Long-term debt	0.45	0.40	0.35	0.52	0.35
Inventory Turnover	62.65	42.42	32.25	46.30	65.75
Days’ sales in receivables	113	98	94	121	100.25
Debt to Equity	0.75	0.85	0.90	0.85	0.88
Profit Margin	0.082	0.07	0.06	0.075	0.12
Total Asset Turnover	0.60	0.65	0.70	0.80	0.55
Quick Ratio	1.028	1.03	1.029	1.10	1.16
Current Ratio	1.33	1.21	1.15	1.20	1.25
Interest coverage Ratio	0.9	4.375	4.45	4.20	4.65

a)What can you say about the firm’s overall management in terms of the following? (Be as complete as possible given the above information, but do not use any irrelevant information).

i.Liquidity

ii.Efficiency (operational efficiency)

iii.Performance (profitability, margins)

iv.Leverage

b)If current liabilities of the company was 3.28 million in 2018 and daily cash expenditure was 0.021million, using the data provided in the table, calculate the defensive interval ratio.

PQR Ltd is a US-based retailer and it uses LIFO method for valuation of inventory. Following information is obtained from its inventory records for 2019:

Inventory	Units	Unit price $
Opening balance	5000	10
January purchases	5000	12
April purchases	5000	14
June purchases	5000	16
Sold during 2019	19000

You are require to answer the following (no calculations are necessary):

a)In light of US-GAAP, what are your key observations regarding cost of inventory balance and units sold?

b)What are the potential consequences of current inventory management on profitability and availability of inventory?

Printers WA is a private company and it has purchased a printing machine in 2019. The company management would like to consult someone who is sufficiently knowledgeable on depreciation methods before choosing an appropriate method for depreciating the machine. They approached you for an advice and are required to outline the impact of double declining method compared with straight line method of depreciation on financial statement analysis.

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