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Managerial Finance

Managerial Finance

Executive Summary

The report contains an analysis of financial and stock performance of the Coles Group. It also gives a detailed analysis regarding the capital structure of the company. The company earned a net profit of $951 dollars. They even witnessed an increased growth in the third quarter of the Covid- 19 pandemic. Coles donated more than $115 millions in the year 2019.The employees of Coles Group are quite satisfied and motivated with the current remuneration system. The PE ratio of the company is 23.49. Coles average volume for three months is 3.43M. From the ROI of Coles it can be known that the company is very efficient. As per the discounted cash flow method the terminal value of the firm is $27 billion. Coles group paid 61% of its total profit as dividend. In the capital structure of Coles the percent of debt is 79%. There is a growth rate of 3% in dividend payments of the company. Overall performance of the company is quite satisfactory and good in all terms.

Introduction

The report contains an analysis of financial and stock performance of the Coles Group. It also gives a detailed analysis regarding the capital structure of the company. Coles is an ASX listed company. It focuses on the dividend paying policy of the company. The study includes an overall report of the past functioning and financial position of the company. The process by which valuation is done in the company can also be very well understood. Coles group is one of the leading Australian super market chains. It has more than 2500 all over the country. Its aim is to deliver quality and make life easier. It believes in shared vision, value and proposition. They want to become the most trusted retailer in the country. They even want to develop a long term value for the share holders. They believe in providing feeds of good quality to all the customers and they give priority to health of the customers. Coles focuses on developing with changing time. Coles is customer obsessed, has its own brand value, and focuses on health and quality. Coles was first a retail shop and it has evolved to the first ever super market of Australia. The first retail shop was opened on 1914. And from that they Coles never looked back and are growing rapidly.

1. Stake holder’s value

Stake holder’s value is very difficult to analyse. There is no such particular method which can be used to measure the stake holder’s value which makes this concept more complex. There is no such one measure to identify stakeholder’s value. In total four factors have been taken into consideration to measure how the company is maximising its share holders value. The four factors taken into consideration are as follows.

Payment of dividends- payments of dividend is considered very important for maximising shareholders wealth. Coles has paid final dividend of 27.5 cents per share on September 2020 and an interim dividend of 30 cents per share. It also had paid a final dividend of 24 cents per share on September 2109 and paid an interim dividend of 11.5 cents per share on September 2019. The dividend payment of the company is quite good. (Source: Coles Group)

Net profit and cash flow - net profit plays a very important role in deciding the share value of a company. It also plays a significant role for maximising stake holder’s value. The more profit the firm will earn, the more it will give to the share holders. Coles has witnessed a growth of 5.7% in the profit rate as compared to the previous year. The company earned a net profit of $951 dollars. They even witnessed an increased growth in the third quarter of the Covid- 19 pandemic. The cash position of the company has been good too. There has been a high increase in the investing activities of the business.

Contribution towards the society – Coles group does a lot of community and charity services. They consider it a way to have healthier relationship with the partners and customers. Coles donated more than $115 millions in the year 2019. It even contributed and donated for various disasters. The various disaster relief funds included donation for floods, earth quakes, cyclones. They have raised a donation of $3 million for the Red Cross disaster relief fund. They have also donated 3 million dollars in the form of gift cards. They aim to support the local suppliers. Coles has tied knot with many local and small retailers. The company has done various works for benefitting the society. Any company’s contribution towards society is an important factor to maximise the wealth of the share holders.

Remuneration of the employees – even the employees are stake holders of the company. Company’s policy of paying remuneration is very important in deciding the way firm is maximisation stake holder value. Remuneration is the most important factor to measure employees’ happiness. It is the most important factor to motivate employees. The remuneration system shows the satisfaction level of the employees. The employees of Coles Group are quite satisfied and motivated with the current remuneration system. The remuneration policy of the company is also good.

2. Share price history

Coles group limited is currently trading at 17.22 dollars. The average volume for the company is 3,426,347. The fifty two week range has been 17.03 to 17.30. The market capital is 22.97 B. The PE ratio of the company is 23.49. There is an up and down in the prices of the shares for one year. Generally, the prices do not remain constant for any company. So, this change in the prices of the shares is also very common for Coles. The 12 month graph of the share price history has been attached below. According to the graph it can be concluded that the position of the firm is quite good in terms of share price.

(Source: Finance Yahoo.2020)

Valuation measures

Market cap (intra-day) 5

22.97B

Enterprise value 3

32.31B

Trailing P/E

23.49

Forward P/E 1

N/A

PEG ratio (5-yr expected) 1

N/A

Price/sales 

0.61

Price/book 

8.79

Enterprise value/revenue 3

0.86

Enterprise value/EBITDA 6

14.67

Stock price history

Beta (5Y monthly)

N/A

52-week change 3

14.30%

S&P500 52-week change 3

12.59%

52-week high 3

19.26

52-week low 3

14.01

50-day moving average 3

18.19

Share statistics

Avg vol (3-month) 3

3.43M

Avg vol (10-day) 3

3.85M

Shares outstanding 5

1.33B

Float

1.26B

% held by insiders 1

5.07%

% held by institutions 1

24.11%

Shares short 4

N/A

Short ratio 4

N/A

Short % of float 4

N/A

Short % of shares outstanding 4

N/A

Shares short (prior month ) 4

N/A

The market capital for intraday is 22.97 B and the enterprise value is 32.32 B. Coles average volume for three months is 3.43M and average volume for 10 days is 3.85 M. the shares outstanding of the company is 1.33B and 5.07% of shares is hold by the insiders of the organisation. 24.11% of the shares are held by the insiders. (Source: Coles Croup.com)

3. Return for investing

Return on investment is a very crucial factor to determine the financial position of the company. It is used to measure the amount of return that is earned on investment by the company. It is used by the investors to calculate their rate of return form investments. The return for investing is quite good for Coles. It stands at 15%. It means the company can invest more money as they are earning a huge amount of return. Moreover, it will attract other investors to invest money because of its high rate of return on investing.  Return on investing is an important tool to measure the efficiency of the company and to know how nicely the firms are managing their own capital. From the ROI of Coles it can be known that the company is very efficient. (Source: Coles Group). The main reason for volatility in short term and long term investments is the increase in cost of capital due to the economic factors of the country. An increase in the cost of capital reduces the return for investing for both the company as well as the investors.

4. Current valuation of equity for Coles

The intrinsic value of Coles group limited can be taken by cash flows and discounting factors. The valuation of the company can be done by discounting the cash flows using the discounted cash flow method. This model takes two stages of growth into consideration. The first stage considers the higher growth rate period and the second stage considers the steady growth rate period. As per the discounted cash flow method the terminal value of the firm is $27 billion. And the present value of the firms’ cash flow is $16 billion. Valuation of a company is important. Discounted cash flow method is a good tool for valuation of equity of the company. As per the calculations a prospective buyer should sell the securities because the company is facing certain risk factors. The share of the company is stable for the last three months. And the equity of the company is overvalued as compared to the fair value. So it will be good option to sell the shares. (Source: Yahoo Finance.2020)

5. Dividend Policy

A good dividend policy is very important to keep the investors attracted. Payments of dividend are considered very important for maximising shareholders wealth. Coles has paid final dividend of 27.5 cents per share on September 2020 and an interim dividend of 30 cents per share. It also had paid a final dividend of 24 cents per share on September 2109 and paid an interim dividend of 11.5 cents per share on September 2019. The dividend payment of the company is quite good. Dividends are the payments which are made out of profit and earnings. If a company is paying more dividends that means it is earning more. Coles group paid 61% of its total profit as dividend. The amount is quite large and will undoubtedly attract a large number of investors. Another important factor that is to be checked is the amount of free cash flow generated. The company generated a good amount of free cash flow and paid 40% of it as dividend. The dividend covered by both cash flows and profits are very satisfactory for Coles group. The growth rate of dividend payments of the company has been increasing. There is a growth rate of 3% in dividend payments of the company. Stability of earnings, liquidity of the firm, needs of the company is some of the factors that affect the dividend policy of a firm. The company’s growing dividend policy will lead to more share capital in the capital structure and the share price will also increase. As a good dividend payment policy attracts a lot of investors.

6. Capital Structure

The capital structure of a company plays an important role to attract the investors. It shows the ability of the firm to generate firms to meet its requirement. The capital structure of Coles consist a high proportion of debt in it. A high proportion of debt in capital structure is not a good signal for any company. In the capital structure of Coles the percent of debt is 79%. The amount of debt that constitutes the capital structure of the company is $ 9,552,000. Te proportion of equity in the capital structure is 21%. The amount of equity that constitutes the capital structure is $2,615,000. The potential investors should view the company as favourable investment choice. The reason behind this is that the company has a good amount of equity in its capital structure.

Conclusion

We concluded that factors are favourable for the investors to invest in the company. Coles has paid final dividend of 27.5 cents per share on September 2020 and an interim dividend of 30 cents per share. Coles has witnessed a growth of 5.7% in the profit rate as compared to the previous year. The company earned a net profit of $951 dollars. Coles group does a lot of community and charity services. They consider it a way to have healthier relationship with the partners and customers. Coles group limited is currently trading at 17.22 dollars. The average volume for the company is 3,426,347. From the ROI of Coles it can be known that the company is very efficient. The return for investing is quite good for Coles. It stands at 15%. As per the discounted cash flow method the terminal value of the firm is $27 billion. And the present value of the firms’ cash flow is $16 billion. Valuation of a company is important. The share of the company is stable for the last three months. And the equity of the company is overvalued as compared to the fair value. There is a growth rate of 3% in dividend payments of the company. Overall performance of the company is quite satisfactory and good in all terms.

References

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