OutlineI Introduction II Webjet limited business and its strategy for competitive advantage; III Forecast pro-forma financial statements IV Key historical financial ratiosV 5 questions to the CEO VI Valuation A). Valuation assumptions and valuation approachB). Discount rate for the equity C). Earnings Per share and Share priceD). Value under discounted free cash flow model VII Comparison of Intrinsic Value with the Current Share PriceVIII Recommendation to investorsReference ListAppendix Introduction The objective of this project is to apply the discounted cash flow to the firm model for the purpose of stock evaluation along more fundamental lines.
This is because markets generally in the longer term tend to adhere more to market fundamentals. We would utilize past information via the financial statements of the firm to come up with the cash flows to the firm under the discounted cash flow to the firm model. The company that chosen for the purpose of this evaluation is Webjet limited the listed on Australia stock exchange. Most investors don’t particularly see dividends as a positive factor under the Discounted Cash Flow to the Firm model at the same time a company that has been paying dividends regularly would imply greater fiscal management and financial health over a company that has never paid a single dividend or pays dividends only once in four years. The project would evaluate the share and we would look at its market value and intrinsic value and of particular explain difference between its intrinsic and market values.
We would function by a simple rule of thumb then whereby if the intrinsic value is greater than the market value of the firm then via market fundamentals it would be an ideal time to buy the stock as the stock is undervalued and thus ripe for purchase.
If the intrinsic and market values of the stock are the same then we might hold the stock for the moment and there would be no clear need to sell, lastly if we calculate the intrinsic value of the stock to be lower than the market value then it would be an ideal time to exit from the stock as the stock is now overpriced and may fall anytime thus and one must sell. Webjet limited business and its strategy for competitive advantage; The company was founded in Australia and offers travel and hotel bookings.
The company is one of large online booking company in Australia. The company as integrated all the assistance some as led into effective cost management. The integration of the systems as assisted in organizing work and the communication flow between various booking offices provide great value for money. The company has employed information technology in ensuring communication is successful in organization. The Webjet limited relies on resources such as advanced technology to maintain its competitiveness, although rival companies with sufficient financial capabilities can imitate them (Khalil, Lefebvre, & McSpadden, 2001, p. 460).
Much as Webjet limited’s strategic strengths enhance the company’s competitiveness, they are not rare, and hence cannot sustain this competitiveness for long (Porter, 1998, p. 36). On the other hand, Webjet limited is incurring high operating costs to support its strengths and sustain its competitive position, reducing its profits in the process. The desire to satisfy the ever-changing customer needs and sustain their loyalty to the company may force it to incur even more costs, and this may be unprofitable in the long-term.