Capital Valuation Paper
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Capital Valuation Paper
A business valuation of a company, especially one the size of Target, is a mystery but is often an integral part of planning, decision-making, strategic assessment, and maybe an equitable resolution to a touchy concern. Knowing what a business is worth and placing a value on it builds confidence so undervalue or overvalue of the business does not happen.
Team C will perform a capital valuation of the retail merchandising chain Target. To obtain the answers needed for the valuation, Team C will justify the current market of Target’s debt and equity by using various capital models of valuation. Team C will provide in-depth
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The variables in the free cash flow valuation model are value of the whole business, free cash flow anticipated at the end of a specified year, and the business’s average weighted cost of capital (Gitman, 2006).
Rate of Return Calculations
In general, ROI can be calculated once the following is known:
1. The starting investment value (C0)
2. The ending investment value (C1)
The general formula is:
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ROI gives a speedy assessment of investment performance, and it assists that ROI can be computed mentally. Rate of Return is a more complicated return measure and is widely used in the finance world for valuations. Internal Rate of Return is the annualized complex rate, which can be earned on invested money, also known as the yield. Internal Rate of Return consists of investment growth but unlike ROI it also accounts for the timing of the cash flows.
Team C has calculated the Target, selected financial data through the source based on data from Target. Annual Reports. Target’s Return on Investment has worsened from 2008 to 2009 but has gotten better slightly from 2009 to 2010.
|Selected Financial Data |30-Jan-10 |31-Jan-09 |
|Revenues |65,357 |64,948 |
|Stockholders ' Equity Attributable to
Valuations depend on forecasts. The reliability of the forecasts will then depend heavily on complete analysis of the industry, in addition to the evolving changes in the economy. It also requires understanding of the business and financial characteristic of the industry.
Target Corporation (NYSE:TGT) is the leading large-format general merchandise and discount retailer in the U.S., challenging Wal-Mart in electronics, toys and apparel while also seeking to differentiate with higher-end fashions and products for an upscale audience. As of the close of their latest fiscal year (FY2011), Target operated approximately 1,760 stores encompassing 233,000 square feet in 49 states and the District of Columbia. The company is divided into the retail and credit card divisions and moves the majority of its products through a highly integrated network of 37 different distribution centers, which include four food distribution centers. Target is one of the most well-entrenched large format retailers in the U.S., has the ability to manage their pricing strategies at a level of accuracy and precision that is comparable to Wal-Mart (Henderson, 2001). Unlike Wal-Mart, Target concentrates on a value-based message that concentrates on quality and price differentiation to sustain their gross margins while Wal-Mart concentrates on supply chain efficiency and a continual reduction of supplier and transaction costs (Krishnamurthi, 2001).
The proposed LBO deal of Comark Building Systems is an attractive investment for Brazos because it fits into Brazos’ “sweet spot”- a reasonable priced company with solid cash flow and good management. We can project cash flow at $6.8 million in 2002 and $12.3 million in 2006. In terms of the purchase price at $40 million, it is very attractive because we can get very good Total Post Money Valuation at $194 million. We can also confirm that the Market Value/EBITDA (1.38) of CoMark is lower than its competitor’s (3.42) when we compare multiple ratios, which means CoMark is undervalued. However, there are two major concerns; gaining competitive advantage and determining comparable valuations.
The aim of this paper is to highlight the strategic position of the company with an overview of its internal and external environment. The study of its strategy, design and other forces, one can easily gauge why and how target has managed to become the retail giant it is today.
At the time of this case Target’s main strategic goal was to stay in line with domestically opening 100 new stores per year. The acceptance of new projects were considered on the basis of this underlying goal. NPV and IRR were key measures in the financial analysis of each project. Adherence to the capital budget was another main goal of CEC. If projects exceeded the initial budgeted outlay then the firm would have to borrow money. This could be a concern to shareholders in that it adds debt and questions the competencies of managements budgeting forecasts.
Internal Rate of Return is a discount rate in which the net present value of an investment becomes zero. The investment should be accepted if the IRR is not less than the cost of capital. The IRR measures risk, by showing what the discounted rate would have to reach to lose all present value. Futronics Inc. investment would have an IRR of 14.79%. The investment should be accepted since it is greater than the 8% cost of capital. The 14.79% IRR shows the growth expected from the
The purpose of this paper is to advise analyze the financial statements of Dillard’s, Inc. in order to recommend whether or not my client should invest $1 million in the large retail company. I will compare the financial statements of Dillard’s, Inc. its competitor, Kohl’s Corporation. Investing in retail can be risky because a retail company’s performance is very heavily influenced by factors that have nothing to do with the actual company such as the overall performance of the economy or the weather during the holiday shopping season. There is, however, potential for profitability within the retail sector. Based on my analysis, I recommend that the client should not invest in Dillard’s, Inc. for the following reasons. First, Dillard’s has experience a decline in net income in the last three years. Second, liquidity ratios indicate that they could face possible liquidity constraints in the future. Third, long-term debt paying ability ratios indicate that the company could have trouble paying off the principal of its current debt obligations. Fourth, the profitability ratios are well below industry averages, suggesting that there are more profitable companies to invest in within the industry. And finally, Investor analysis ratios provide mixed opinion of the future performance of the company. I conclude that retail can be a profitable industry to invest in if an investor has the risk tolerance and risk capacity to withstand the uncertainty, but neither Dillard’s
The purpose of this memo is to provide Target Corp. senior management with an evaluation of the company’s weighted average cost of capital (WACC). Since the 2010 financial information is not yet to be finalized, the analysis will use the most currently published financial data to evaluate each component of the WACC, including the company financial structure, cost of debt, and cost of equity.
Several internal factors can influence the valuation of a company, however, in the subsequent are some factors that will assist management in protecting its shareholders. The first reason is the desire to generate profits for the company, as a profitable firm will attract investors. Secondly, the need to improve the management of a company can lead to valuation as the information can be used to spur growth. Valuation will assist in understanding some of the factors affecting the value of the company such as client relationships, financials, image, technology employees, and marketing. Proper management is implemented after identifying the issues affecting the organization’s value. Thirdly, communicating to the public accurate and current information is essential in attracting investors and maintaining transparency, which builds the company image.
It is important to know the proper technique and method of valuing a company because different people may have different ways of assessing the value; it is also important in understanding the bank’s method of appraising and valuing a company or business
This report will be based on the Target Corporation, and will consist of two sections: 1) long-term financing policy and capital structure, and 2) an acquisition analysis. The first section will include: Target's most recent long-term financing decision; an analysis of the economic, business, and competitive background in which the financing occurred; Target's book value and market value; possible changes that would occur to Target's finance policy and capital structure if it was forced to consider re-organization and bankruptcy strategies; and finally discuss Target's international investment and financing
Target Inc. comes with the chain of stores offering branded cloths and other merchandise. It also has an eCommerce portal to sell these merchandise online. In today’s business climate, eCommerce and / or retail chain industry is highly competitive in nature. Thus, any company has to reach for them to hold and consolidate their market share. It is only possible when cost efficiency is achieved and the price advantage is always maintained over the competitors with due consideration given to quality. Target
In order to calculate the shareholder value the values of marketable security along with other investment have to be added together but the value of debt has to be subtracted from the valuation of the business. Free cash flow gives an idea about the cash flows from the operation of a business for a particular period under consideration. However, this free cash flow will not take into account, financing related cash flows which include cash flows from issues of shares or issue of debt, dividend and interest payment etc (www.cimaglobal.com, 2004).
This paper will give a summary of Target corporation versus Wal-Mart stores, Incorporated. In the following weeks it will compare the financial performances of these two companies, by evaluating circumstances such as the times interest earned, return on equity, return on assets and other factors. This paper will present an overview of the exchanges on which both company’s stock is traded. It will also present characteristics of that particular exchange which may have led the company to be listed there versus another exchange. This summary will also explain the types of securities both Wal-Mart and Target have outstanding, such as the bonds, preferred stock or the common stock and thus
The purpose of this paper is to perform an analysis on Target and K-Mart. By doing this analysis we will find out what each company does well, where the failures are and what they can do to keep the company alive and profitable. We will begin by looking at Target as a whole and then identify a successful business strategy and show how that strategy has moved Target into one of the leaders of the industry. We will then look at K-Mart as a company and then move on to identifying a failed business strategy and show how that strategy is holding K-Mart back within the industry. We will than