Individual Assignment Further Instructions
What is the planning or the forecast period?
This is the next five years taking into account the last year of the published accounts used. Example 2019-2023.
How to compute growth rate in sales?
You need to use the sales (turnover) figure for let say the past five years and then compute the growth rate based on these figures either manually or using the nth root formula.
Example:
Manually: [Sales (2015) – Sales (2014)] / Sales (2014) x 100% = g1
[Sales (2016) – Sales (2015)] / Sales (2015) x 100% = g2
[Sales (2017) – Sales (2016)] / Sales (2016) x 100% = g3
[Sales (2018) – Sales (2017)] / Sales (2017) x 100% = g4
Average growth rate is = g1 + g2 + g3 + g4 / 4
Using nth root formula:
Average growth rate = – 1
How to compute operating profit margin?
Operating profit margin = operating profit / sales
You do need to compute the average operating profit margin for let say the past five years which is the operating profit margin for each year divided by five.
How to compute incremental fixed investment percentage?
You first need to know your total fixed assets or non-current assets which can be found in the balance sheet or statement of financial position of your chosen company.
Then use the figures to compute the percentage change in the fixed assets (FA) or non-current assets (NCA) values as shown below:
Manually: [FA (2015) – FA (2014)] / FA (2014) X 100% = r1
[FA (2016) – FA (2015)] / FA (2015) X 100% = r2
[FA (2017) – FA (2016)] / FA (2016) X 100% = r3
[FA (2018) – FA (2017)] / FA (2017) X 100% = r4
Average growth rate is = r1 + r2 + r3 + r4 / 4
Using nth root formula:
Incremental fixed investment percentage rate = – 1
How to compute working capital investment percentage rate?
First you need to compute the working capital which is total current assets less total current liabilities. If working capital figures are given for your chosen company then do use them as given.
Then use the figures to compute the percentage change in the working capital (WC) values as shown below:
Manually: [WC (2015) – WC (2014)] / WC (2014) X 100% = r1
[WC (2016) – WC (2015)] / WC (2015) X 100% = r2
[WC (2017) – WC (2016)] / WC (2016) X 100% = r3
[WC (2018) – WC (2017)] / WC (2017) X 100% = r4
Average growth rate is = r1 + r2 + r3 + r4 / 4
Using nth root formula:
Incremental working capital investment percentage rate = – 1
How I compute tax rate?
Tax rate = Tax / Profit before tax.
Values for tax and profit before tax to be obtained from the income statement or profit and loss account.
Use the average tax rate for the last five years which equals to tax rate for each year of the last five years divided by five.
How I should compute the weighting or percentage of debt and equity?
First obtain the figures for total non-current liabilities (debt) and shareholders equity (equity). This can be obtained from the balance sheet or statement of financial position of your chosen company.
Total capital = debt + equity
% debt = debt / total capital
% equity = equity / total capital
What is the value of debt?
This is the total value of non-current liabilities which can be found in the balance sheet or statement of financial position of your chosen company.
Where do I find the beta of my company?
Do use Bloomberg, Thomson Reuters, yahoo finance, google finance, datastream, FAME and sometimes the annual reports of the company to find the recent beta of your chosen company.
What do I need to do in question 1?
You need to create the SVA model, covering all the steps, for your chosen company and explain each step of the model. Refer to lecture / workshop and seminar of week 4 in which SVA model is fully explained and applied to hypothetical mini case study.
Please remember that you do need to know all the key values before starting the SVA model. Refer to the table given in the mini case study of seminar 4 for guidance.
What do I need to do in question 2?
You need to comment and analyse the value drivers used for your chosen company and how these affect shareholder value? Refer to the current financial and investment status of the company and key factors driving its shareholder value (e.g. increase in sales, decrease in costs, high debt, raise in investments etc).
Good luck.
