Thursday, April 11, 2019
The Value of Hennes & Mauritz Essay Example for Free
The Value of Hennes Mauritz EssayIn the pull through year the world economic rec all overy has come a long way. The Swedish economy has been at the forefront of that recovery and has showed impressive GDP outgrowth. With still a lot of economic stress worldwide, broadly concerning national debt, it is still unclear if we incur seen all that the financial crises, culminated in the late 2008, has to offer. With this said, the last long time high volatility in the financial markets, will have an impact on this thesis. In well-nigh all forms of paygrade, some input will always be historical, why the past extreme old age will affect the valuation.The samples that ar being habitd are the Dividend Discount sticker and Free notes come down To Firm. Both of these valuation method has a couple of governing assumptions mainly the assumptions of no exercise apostrophize, perfect information and perfect competition. In reality n wizard of these assumptions is hundred percent a ccu enjoin. There make it transaction costs, everybody has not the same level of information, and there is evidence of not perfect competition. N superstartheless couchors use these models and assume that the assumptions hold good enough for their purposes.This is Hennes MauritzHM (Hennes Mauritz) is a Swedish clothing company headquartered in Stockholm, Sweden. The business idea is Fashion and Quality at the best Price. With 87 000 employers in forty countries and with revenues over 126 000 000 000 SEK it is the third largest chain store in the world. HM has over 2200 stores on four continents and their goal is to affix the number of stores with 10-15% annually and keep a high profitability and increase sales in comparable numbers. In 2010 HM opened 218 new stores and in 2011 250 new stores are planned to open1. HM is a family business founded in Vsters, Sweden, 1947 by Erling Persson2.Today Erling Perssons son, Stefan Persson, is chairman of the board and Stefan Perssons son , Karl-Johan Persson is headspring executive. As a token of the success of HM Stefan Persson is now the second richest man in Sweden and 13th richest in the world, with 159 000 000 000 SEK in wealth3. In 2008 Financial Times announced HM as the most of import brand in Europe4. In the upcoming years HM is planning to expand in Kina, regular army and Great Britain. Even though they are first and foremost a clothing company HM is also active in home equipment, shoes and cosmetics5 HM rents all their storage space or set up stores as franchise. In UK, Germany, Sweden, Norway, The Netherlands, Finland, Denmark and Austria online shopping is available. All expansion and growth is financed by rectitude6.The objectThe purpose of this thesis is to establish the cheer of Hennes Mauritz. The valuation will eventuate in the conclusion if the spud is under- or overvalued. To arrive at this conclusion we will use two valuation methods Dividend Discount Model and The Free Cash Flow to Fir m valuation method.2. Theoretical Framework2.1. The concepts of Value and Discounted Cash Flow valuation Before we are getting into the theoretical aspects of our two valuation models, we are pass to face a brief explanation virtually the concept of value for shareholders and discounted coin devolve valuation. The most raw material question one fuck ask about a valuation is What is Value? When talking about a companys performance there tends to be a focus on compensation and revenues. But must two companies that have the exact same earnings and revenues, over time, be worth(predicate) equally?The answer to this question is no and the causality is that the immediate payment flow may differ. Cash flow is the difference between earnings and invested capital. Even if earnings and revenues are the same, one of the companies may have to invest a lot to a greater extent capital to gain the same earnings and revenues. This leads to a difference in cash flows between the companies . Value for shareholders is created when the company generates cash flows at rates of return higher than the cost of capital. When this condition is fulfilled a faster growth rate will create even more value. If the return on capital equals the cost of capital it doesnt matter how fast the company grow, no value will be created. The conclusion is that managers main focus should be on improving cash flows because that is what creates value for shareholders.Any action that doesnt increase cash flows doesnt create value. 7 In this thesis we are going to use the Discounted Cash Flow (DCF) valuation in order to conduct the value of a company. DCF is built upon the concept that money has a time value. This means that the longer in the future one will receive a fixed amount of money the less it is worth. The reason is that if one receives the fixed amount immediately one can invest it and earn interest. In the DCF valuation the first step is to estimate all future cash flows. The second s tep is that the cash flows have to be adjusted for the time value. Since the purpose is to find out how much the company is worth today, one has to discount the cash flow to its present value. The discount rate will reflect the riskiness of the estimated cash flows. The riskier the estimation is the higher discount rate should be used.2.2 Discounted Dividend ModelThe first method we are going to examine is the Discounted Dividend Model (DDM). The DDM uses earnings per share, discounted by the Cost of Equity to arrive at a value per share. The general version of the DDM8 looks like thisWhereE(DPSt)= Estimated dividend per share at time tke = the Cost of Equityt = time in yearsTo this general composition there exist several extensions. Some of these extensions are going to be examined below.2.2.1 One-stage/ Gordon Growth ModelAn extension to the formula above is the Gordon Growth Model I J JIThe principle is to take the expected dividend for the next year and discount it with the cost of equity minus the growth rate in dividends. An obvious restriction for the model is that the growth rate can never exceed the cost of capital, since the stock price in that case becomes negative9. Due to the simplicity with a constant growth rate it is far from possible to apply this model on every firm. The model is best suited for firms growing at a rate equal to, or lowers than, the nominal growth in the economy and which have well established dividend payout policies that they intend to continue into the future10.Since this model only contains one single growth rate, it is called one-stage model. The assumption is that the firm continues to grow at the same rate to infinity. However, it is not believably that a firm can maintain a high growth forever. Sooner or ulterior the growth rate will decrease and a more stable and lower growth rate will emerge. This limitation takes us to the next model, the Two-Stage model, which is an extension to the One-stage model.
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