Dissertation Examples on Valuation of a Company

Total assets of the group were approximately £4285 million. As far as financing scheme that company employed that is combination of liability and shareholding funds. It becomes fundamental principle in financial sect; residual income ought to be distributed among investors. M&S has been employing highest liability possible as they are financing their asset with the ratio of 87.8% of liabilities, total liability standing at 3763m. Liability classification depends upon suitable factors such as money borrowed from creditors and taken from senior lenders. If we put deep look on liability factors, we would come to know that 43% of debt is payable after 5 years time period, it indicates the strength of length as well as financial stability. Its operations are not curbed here but it is also carrying numerous other long-term and short term debt instruments to finance its purchase of assets. Company’s top management is controlling financial mechanism with great vigilance as company also diversified the rik by using debt instruments dominated in wide ranged currencies. Company also employed swap option to get swap of its interest bearing debts along fixed rate interest dent. It basically strains to company for not to get worrier regarding fluctuation in interest cost due to varying interest rates.


M&S could use floating interest bearing debts with collars. Collars are used to fix the lower and upper interest rates. This allows M&S to limit the maximum interest costs that it will have to pay even if interest rates go to any level. It also allows the company to enjoy lower interest costs if interest rates fall than at the time of entering in to a debt agreement. The downside of this type of instrument is that if interest rates fall even lower than the lower limit of the collar, the company will still have to pay interest costs at the lower collar rate. (M&S (2010)). Companies some time start practicing stock pull back strategy to take off shares from market place. Organizations used to take several benefits such as relaxation in taxes amount, enhancement of power in decision making, and to rise earning per share. Vodafone designed better formula to grasp market attention. On ground reality, company will be nudged on right track afterwards.


M&S seems curious about the technique to finance its asset base. It is necessary to design optimal plan to get financing against your assets. Therefore, company is relying on commercial paper, bank borrowings, and trade creditor. Corresponding to this, company is also employing medium term loans and securitizations to finance assets. On other hand, company used to keep large portion of net income in order to usher its operations. However, it is the appropriate way to finance assets because in return you don’t have obligation to pay any interest or dividend to someone but it depends upon operational efficiency. Debt instruments used to offer flexibility to investor such as he can employ different techniques at same time. For instance, if cost of equity is 8% and company may get loan at 7% then company would definitely prefer to choose second option. Hence, management is supposed to evaluate conduction of loaning liberty in overall capital structure, company should seem more concerned about return than just popping up eyes on interest mechanism.


Exchange rate is one another bigger threat for M&S because company has to pay its obligations to foreign based supplier. There is no doubt about it that M&S has wide branch network all over the world, the time amid order placement and payment may result in distinctive value of the order in UK. M&S adopted a different methodology to cope it up by hedging eight to hundred percent of expected sales via forward currency contracts. M&S is nudged into risk situation as its actual sales come lesser than budgeted sales. If forward contract exceeds the amount of actual sale then Mother Company will have to pay extra holding charges as well. However, company would go into loss condition unless foreign currency exchange rates remain lesser than home country value. The other foreign currency risk is due to ownership of assets and liabilities in foreign currencies. M&S has wide range of assets in foreign currency as well as it has to pay some portion of its obligation in foreign currencies. On ground reality, exchange rate can ruin to prevailing practices


Calculation of interest discrete values is important in order to form optimal capital structure. Interest rate exposure of Mark and Spencer just as out of 2444.3 m of debt, only 55% is floating interest bearing, which is approximately 1357.6m. Payment for interest obligations have been diminished with the ratio of one relative to previous participative years. Management is supposed to obligator to take adapt decision for the welfare of organization; it is responsibility of finance team to steer company in right direction whether it should finance its asset through borrowing or it should employ more equity via share floatation.


Taxation laws are made to report in line of them. M&S has been listed in stock exchange. It therefore has to show stubborn to follow mandatory principles. In the result of adoption of accounting standards, and new tax imposition, you need to educate to your investors. It is general phenomena in major markets that large number of investors doesn’t come under the category of sophisticated investors. Post tax values can be obtained by putting the values into weight average cost of capital after tax


WACC = (1-td)*rd*D/A + re*E/A


The average post tax cost of funding M&S asset is 4.91%, and the net debts outstanding on 2002 were approximately 2099m. On other hand, our major concern is to watch out gearing ratio as well through it; company can easily estimate the value of debt to finance assets. Debt gearing ratio of M&S was 80.1% at that particular timeframe. Current ratio of M&S was 64.9%. It basically makes investor clear about the ratio of current liability and current liability. The purpose of following ratio is to calculate the percentage of knowing short term liabilities discharge off. For instance, if company used to carry larger portion of current assets then it is understood that it would sooner pay off their liabilities. Mark and Spencer has total current assets with the amount of £837.5 m and total current liabilities were £1289.3 m therefore its current ratio comes 64.9%. (M&S (2010)).


References 


John Maclian (2009) ‘strategic development and turnaround management: allied irish bank and marks and Spencer’ available on http://ivythesis.typepad.com/term_paper_topics/2009/02/allied-irish-bank-and-mark-spencer-strategic-development-and-turnaround-management.html [Accessed 21/05/2012]


Michael G. Pierce (2009) ‘The Asutin company to sell core operating assets to Kajima USA’ available on
http://www.thefreelibrary.com/The+Austin+Company+to+Sell+Core+Operating+Assets+to+Kajima+USA,+Inc.-a0140197703 [Accessed 21/05/2012]
Stock Market Investors (2010) ‘Relative strength indicators’ available on http://www.stock-market-investors.com/pick-a-stock-guides/relative-strength-indicator.html [Accessed 21/05/2012]


M&S (2010) ‘Marks and Spencer staff to share 80 m bonus pot’ available on http://www.guardian.co.uk/business/2010/apr/08/marks-and-spencer-staff-bonus[[Accessed 21/05/2012]
Adamodar (2010) ‘Price-sales multiples’ available on http://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/ps.html [Accessed 21/05/2012]
M&S (2010) ‘Reports from chairman of M&S’ available on http://www.ukessays.com/essays/finance/marks-and-spencer.php [Accessed 21/05/2012]