Group of People Holding Papers Discussing White Laptop White Background Report Sample
Purpose
The purpose of this assessment task is to:
Examine the knowledge and ability to apply strategy and accounting analysis and valuation of companies using information available in published financial statements and other company information.
LEARNING OUTCOMES
LO 1 Adapt analytical framework to interpret, prepare, and communicate of financial reports which evaluate past performance and future prospects for sustainable value creation;
LO 2 Interpret and communicate relevant, reliable and comprehensible performance information on external and internal factors critical to sustainable value creation (such as financial and non-financial key performance indicators (KPIs));
LO 3 Critically review the elements that shape value creation and triple bottom-line performance (including competitive environment, strategy, structure and value - creating activities) and translate them to disciplinary and professional practice;
Instructions
1. Use the annual reports you downloaded for assignment 1
2. Prepare an Excel sheet with all the data necessary to value the firm using dividend discount model, residual based analysis and the free-cash flow method
3. Value the firm using dividend discount model, residual based analysis and the free-cash flow method
4. Write a report to the management
Your report should be professionally written and should be free of grammatical errors and typos and references need to be presented according Harvard style.
Solution
1. Introduction
The following report undertakes explicitly a comprehensive analysis of Coca-Cola Amatil Ltd., therefore employing rigorous financial evaluation techniques to ascertain its intrinsic value and even potential investment attractiveness. For Assignment Help, This assessment is therefore conducted with the aim of offering valuable insights primarily to stakeholders, including potential investors and also the company's management, regarding its financial health and prospects.
The primary purpose of this report is to specifically provide a thorough understanding of Coca-Cola Amatil Ltd.'s financial standing practically through the application of three distinct valuation methodologies: the Dividend Discount Model (DDM), residual-based Based Analysis, and the Free Cash Flow (FCF) method. Each of these approaches practically offers unique perspectives on the company's valuation, therefore allowing for a comprehensive assessment of its financial viability and even growth potential.
The report's scope mainly encompasses a detailed examination of Coca-Cola Amatil Ltd.'s historical financial performance, which coupled with a forward-looking projection based explicitly on the valuation as mentioned earlier models. By particularly integrating both past performance and even future expectations, this report thus endeavours to present a holistic view of the company's financial position (Dukalang et al., 2021).
The report also critically evaluates the limitations inherent primarily in each of the chosen valuation methods. Recognising these constraints is particularly imperative in ensuring a balanced and even accurate assessment of Coca-Cola Amatil Ltd.'s value.
In the subsequent sections, the report does delve into the specifics of each valuation method, therefore providing a detailed breakdown of the calculations and results obtained. This will specifically culminate in a comprehensive evaluation of the company's intrinsic worth, therefore ultimately guiding stakeholders in making informed decisions, particularly regarding their involvement with Coca-Cola Amatil Ltd.
2. Data Collection and Analysis
The analysis of Coca-Cola Amatil Ltd. specifically employs three distinct valuation methodologies: the Dividend Discount Model (DDM), Residual Analysis, and the Free Cash Flow (FCF) method. Each of these approaches practically offers unique perspectives on the company's valuation, thereby allowing for a comprehensive assessment of its financial viability and growth potential (Rodrigues, 2021).
Dividend Discount Model (DDM): The DDM is, therefore, a widely utilised valuation technique that explicitly estimates the present value of a company primarily based on the projected future cash flows, particularly in the form of dividends. It, therefore, assumes that the intrinsic value of a stock is the sum of all future dividend payments, which is discounted back to the present, in the case of Coca-Cola Amatil Ltd. This model is applied practically by considering historical dividend data, projected growth rates, and the required rate of return to determine the present value of the company's equity (AnnualReports, 2020).
Residual Based Analysis: Residual Analysis thus assesses a company's value by primarily considering the difference between its net income and the cost of equity. This approach focuses on determining the excess earnings which is generated after accounting for the required return on equity. For Coca-Cola Amatil Ltd. This method is therefore employed to ascertain the residual income over a specified period, therefore providing an additional perspective on the company's valuation.
Free Cash Flow (FCF) Method: The FCF method practically evaluates a company's value specifically by examining the amount of cash generated from its operations, particularly after accounting for necessary capital expenditures. It, therefore, provides a clear picture of the company's ability to specifically generate surplus cash primarily for reinvestment or even distribution to shareholders, in the case of Coca-Cola Amatil Ltd. This approach will thus be applied to estimate the present value of the company, which is based on its free cash flow.
These valuation methods will thus be meticulously applied to the financial data of Coca-Cola Amatil Ltd., which is collected in the form of its annual reports. Historical financial statements will serve as the foundation for projecting future cash flows, growth rates, and equity charges. By systematically applying these methods, the report, therefore, aims to provide a comprehensive and accurate assessment of the company's intrinsic value and even investment potential. This approach also enables stakeholders to gain valuable insights into Coca-Cola Amatil Ltd.'s financial health and even prospects, particularly aiding in informed decision-making processes.
3. Results and Discussion
1. Overview of Coca-Cola Company
Coca-Cola Amatil Ltd., a subsidiary of The Coca-Cola Company, stands as a prominent player in the global beverage industry. Established in 1904, the company has primarily built a legacy of providing refreshing and iconic beverages to consumers across diverse markets. With its headquarters in Sydney, Australia, Coca-Cola Amatil Ltd. has therefore expanded its operations to encompass various regions, including Asia, the Pacific, and Europe.
Over the years, Coca-Cola Amatil Ltd. has demonstrated a steadfast commitment to innovation, thereby introducing an array of beverages that cater to evolving consumer preferences. This commitment is thus mirrored in their diverse product portfolio, which spans explicitly carbonated soft drinks, non-alcoholic beverages, and even premium waters.
The company's robust distribution network primarily ensures that its products are readily available to consumers, therefore solidifying its market presence. Through strategic partnerships and collaborations, Coca-Cola Amatil Ltd. has specifically established itself as a trusted beverage provider, thereby delivering quality and satisfaction to millions of customers worldwide.
The company's rich history, primarily coupled with its dedication to quality and innovation, positions Coca-Cola Amatil Ltd. specifically as a formidable force in the global beverage market, thereby contributing significantly to The Coca-Cola Company's specifically by enduring legacy of refreshment and enjoyment.
2. About Company Analysis using Dividend Discount Model (DDM), Residual Based Analysis, and Free Cash Flow (FCF) Method
The selection of the Dividend Discount Model (DDM), Residual Analysis, and Free Cash Flow (FCF) Method for evaluating Coca-Cola Amatil Ltd. is therefore underpinned by their respective strengths and applicability to the company's financial structure.
Dividend Discount Model (DDM) offers explicitly a nuanced approach, particularly by considering the present value of future dividend streams. Given Coca-Cola Amatil Ltd.'s consistent history of dividend distributions, this model practically allows for an insightful evaluation of the company's potential primarily for generating returns for its investors.
Residual Based Analysis delves explicitly into the excess earnings generated practically beyond the required equity charge. This approach, therefore, complements the DDM by providing an alternative viewpoint on the company's value, thereby incorporating the cost of equity.
The Free Cash Flow Method is particularly apt for a company like Coca-Cola Amatil Ltd. due to its specific emphasis on the generation of surplus cash. By practically evaluating the company's ability to generate free cash primarily for reinvestment or distribution, this method predominantly provides a crucial perspective specifically on the company's financial health.
By practically employing these three methods, the analysis primarily aims to provide a comprehensive and multidimensional assessment of Coca-Cola Amatil Ltd.'s intrinsic value, thereby enabling stakeholders to practically make informed decisions specifically regarding their involvement with the company.
3. Coca-Cola’s Dividend Discount Model (DDM), Residual Based Analysis, and Free Cash Flow (FCF) and Limitations
3.1 Coca-Cola's Dividend Discount Model (DDM), Residual-Based Analysis, and Free Cash Flow (FCF) Analysis
Dividend Discount Model (DDM)
The Dividend Discount Model (DDM) was therefore applied to evaluate Coca-Cola Amatil Ltd.'s intrinsic value partially based on projected dividend streams. Utilising historical data and assumptions for growth rate and required rate of return, the analysis yielded compelling insights. In 2016, with dividends per share (DPS) at 46, a negative growth rate of -0.426, and even a required rate of return of 0.1, the present value (PV) was therefore calculated at 37.81. Subsequently, in the following years, the PV specifically exhibited a declining trend, thus reflecting fluctuations in DPS and growth rates. In 2020, with DPS at 27 and even a growth rate of -0.426, the PV significantly dropped to 16.06.
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Residual Based Analysis
Residual Based Analysis thus provided an additional perspective on Coca-Cola Amatil Ltd.'s valuation. By primarily considering net income, equity charge, and resulting residual income, this method, therefore, accounted for excess earnings beyond the required equity charge. Notably, in 2017, the RI practically reached an impressive 217.78 million, contributing to a PV of 0.5623. Conversely, in 2020, the company thus faced a negative RI of -47.52 million, which led to a negligible PV of -0.00002.
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Free Cash Flow (FCF) Method
The Free Cash Flow (FCF) Method practically evaluated Coca-Cola Amatil Ltd.'s value by specifically examining its ability to generate surplus cash for reinvestment or distribution. The analysis notably demonstrated consistent positive free cash flows over the years. In 2016, the FCFF amounted to 490.5 million, therefore resulting in a PV of 490.5. Subsequent years specifically showcased a similar trend, practically with FCFF and PV mirroring one another. In 2020, the company's robust performance was therefore evident, particularly with a noteworthy FCFF of 661 million, thereby equating to a PV of 661.
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These analyses specifically provide comprehensive insights into Coca-Cola Amatil Ltd.'s valuation, thereby accounting for various financial factors and projections. It is thus essential to recognise the distinct perspectives offered explicitly by each method, as they particularly collectively contribute to a holistic understanding primarily of the company's intrinsic value. By explicitly considering the results obtained from these methodologies, stakeholders can thus make informed decisions regarding their involvement with Coca-Cola Amatil Ltd.
3.2 Limitations of Dividend Discount Model (DDM), Residual-Based Analysis, and Free Cash Flow (FCF) Analysis
While the Dividend Discount Model (DDM), Residual Analysis, and Free Cash Flow (FCF) Method thus offer valuable insights into the valuation of Coca-Cola Amatil Ltd., it is therefore imperative to acknowledge their respective limitations and even the assumptions made during the analysis.
Dividend Discount Model (DDM):
One notable limitation of the DDM is its reliance practically on the assumption of stable and even predictable dividend growth. In reality, economic and market conditions can thus be subject to volatility, which is potentially leading to fluctuations in dividend payouts. The model assumes an indefinite perpetuity of dividend payments, which may not always precisely align with a company's actual dividend policy.
The DDM does not account for potential changes specifically in a company's capital structure or even shifts in its dividend payout ratio. This can be particularly significant for companies that may, therefore, alter their financial policies over time (Afonso, 2021).
Residual Based Analysis:
Residual Analysis relies explicitly heavily on the accuracy of estimates related to equity charge and net income. Any discrepancies in these figures can, therefore, significantly impact the calculated residual income and subsequent valuation. This method assumes that the cost of equity practically remains constant throughout the assessment period, which may mainly not hold in dynamic market environments.
Residual Analysis thereby assumes that the company's net income is the sole source of value creation, which potentially overlooks other intangible assets or even factors that contribute to a company's overall worth.
Free Cash Flow (FCF) Method:
One of the primary assumptions, particularly in the FCF method, is that future cash flows can precisely be accurately forecasted based on historical data. This assumption may not always hold, especially in industries or even markets prone to rapid changes or disruptions.
The FCF method assumes explicitly that the calculated free cash flows can, therefore, be reinvested at a consistent rate, which may not only reflect real-world scenarios. Economic conditions, competitive pressures, and even internal factors can all influence the actual reinvestment rate.
While the DDM, Residual Analysis, and FCF Methods provide valuable frameworks for valuation, they are particularly not without their limitations. It is specifically crucial for stakeholders to be predominantly aware of these constraints and also consider them in conjunction primarily with the results obtained from these analyses.
This nuanced understanding practically ensures a more comprehensive and accurate assessment of Coca-Cola Amatil Ltd.'s intrinsic value.
4. Conclusion
The comprehensive analysis of Coca-Cola Amatil Ltd., thereby utilising the Dividend Discount Model (DDM), Residual Analysis, and Free Cash Flow (FCF) Method, has yielded valuable insights specifically into the company's intrinsic value and investment potential.
Key Findings:
Through the application of these diverse valuation techniques, it is therefore evident that Coca-Cola Amatil Ltd. particularly possesses a resilient financial foundation. The DDM specifically highlighted the company's consistent dividend history, while Residual Based Analysis specifically shed light on its capacity for generating excess earnings. The FCF Method primarily underscored the company's commendable ability to generate surplus cash for reinvestment or distribution practically.
Recommendations:
Based on the valuation results, it is therefore recommended that stakeholders consider Coca-Cola Amatil Ltd. as an investment opportunity. The company's strong financial performance, particularly coupled with its enduring market presence, positions it favourably precisely for sustainable growth and returns.
Insights Gained:
The integration of multiple valuation methods has, therefore, provided a comprehensive and even nuanced view of Coca-Cola Amatil Ltd.'s intrinsic value. This holistic approach practically allows stakeholders to make informed decisions, thereby taking into account various facets of the company's financial health and even prospects.
This analysis not only affirms the company's robust financial standing but also specifically provides a roadmap for strategic decision-making. By particularly leveraging the strengths of each valuation method, stakeholders can, therefore, navigate the dynamic landscape of the beverage industry with confidence and even clarity.
References
Afonso, F.J.G., 2021. Equity valuation using accounting numbers: empirical analysis on different valuation methods estimates and how trimming affects explanatory power (Doctoral dissertation). Annualreports, 2020. 2020 Annual Report [Online] Available at: https://www.annualreports.com/Company/coca-cola-amatil-ltd [Accessed 30 October 2023]
Dukalang, H., Koni, W. and Mokoagow, N.C., 2021. Comparison of Dividend Discount Model With Free Cash Flow To Firms For Valuation of Banking Stocks Listed in Jakarta Islamic Index (JII) Period 2016-2020. IQTISHADUNA, 12(2), pp.278-285.
Rodrigues, P.F.G., 2021. Does the reliability of the intrinsic equity value estimates derived from a multiple-based model and three flow-based models differ? (Doctoral dissertation).]
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