It is necessary for every person, individual and investor to analyze the market and put the amount into the market on the basis of the market fluctuations, company’s internal and external position, financial performance of the comapny, stability of the company, micro factors of the comapny, macro factors of the industry etc. For analyzing the above given elements, an individual could take the help of the financial analyst or various available website. As a consultant, USCOM has been analyzed to depict the user about the performance of the comapny and the investment opportunity in the company. This report defines the result through various studies such as valuation of the debt, valuation of the securities, market analysis, cost of capital etc. This report has been prepared to explain the investment opportunity in USCOM LTD to the investors.
USCOM Limited:
USCOM LTD operates its business in the market of Australia. The main operation of the company is related to clinic care and various outcomes from the patient. The main office of the comapny is itself in the Australia. Currently, company has acquired another company to raise and grab the profits and market share of the comapny. Total profit and revenue of the comapny is enhancing continuously (Home, 2017). Various research and development programmes are conducted by the comapny to analyze the patient situation. This comapny has expanded and diversified its business into many other countries to manage the performance of the comapny.
Debt valuation:
The comapny has used various debts to maintain the performance and the capitals structure of the company. This comapny has raised the long term debts by issuing the debentures into the market. Short term debts have not been raised by the comapny. Following is the position of the short term and long term debt of the comapny:
|
USCOM LIMITED |
|||||
|
2017 |
2016 |
2015 |
2014 |
2013 |
|
|
Long term debt |
25552 |
17954 |
33097 |
21572 |
22617 |
(Morning star, 2017)
In addition, it is required to analyze that whether the debt structure of the comapny is perfect. This analysis could be done through analyzing the debt level of the industry. Following is the given structure:
|
Industry’s debt structure |
|||||
|
2017 |
2016 |
2015 |
2014 |
2013 |
|
|
Long term debt |
63000 |
58000 |
28000 |
27000 |
33000 |
|
Short term debt |
0 |
0 |
0 |
1 |
2 |
(Morningstar, 2017)
The analysis over both the debt structure clearly depict that the comapny is required to raise some funds through the short term debts to manage the short term obligation of the company.
Through analyzing the position over the debt structure of the company and the industry, it has been found that the industry’s debt structure is different form the company’s debt structure on a huge level. According to the industry’s debt structure, the short term and long term, both the debt funds are required for the comapny to manage the long term and short term funds but the comapny has raised the short term debts only. Comapny is required to make some changes into its debt structure to become consistent with the industry’s structure.
Lastly, a study has been conducted to analyze the total cost of debt which depicts that how much amount is required to pay by the comapny to a single debt holder to raise the funds through the debt of the company, following is the detail of the cost of equity of the company:
|
Calculation of cost of debt |
|
|
Outstanding debt |
25552 |
|
interest rate |
9% |
|
Tax rate |
0.3 |
|
Kd |
0.0630 |
(Bloomberg, 2017)
The above calculation of cost of debt of the company depict that the comapny is required to pay 6.30% to the single debt holder to raise the funds through the debt of the company. This % becomes the same at every level of the same % debenture of the comapny.
Share valuation:
Further, for analyzing the investment opportunity in the comapny, cost of equity of the comapny has been analyzed. Following are the details of the cost of equity of the comapny:
|
Calculation of cost of equity |
|
|
Dividend expected |
0.012450413 |
|
Growth rate |
8% |
|
Price per share |
0.185 |
|
cost of equity |
14.2975% |
The above calculation of cost of equity of the company depict that the comapny is required to pay 14.29% to the single equity holder to raise the funds through the equity of the company. This % becomes the same at every level.
Following are the details of the revenue, earnings, dividend, growth and the EPS of the company:
|
Revenue |
2723359 |
|
Earnings |
-1800849 |
|
Dividend |
0.012450413 |
|
Growth |
8% |
|
EPS |
-0.02 |
This depict that the company has faced the situation of loss in current year.
The intrinsic value of the comapny has been analyzed further to investigate the investment opportunity in the comapny. Following are the details of 2 methods which have been used to analyze the value of the stock of the comapny:
|
Dividend Discount Model |
|
|
Dividend expected |
0.01 |
|
Growth rate |
8% |
|
Discount rate |
5.00% |
|
Intrinsic Value |
(0.48) |
|
Share Price |
0.185 |
|
Overvalued |
|
|
PE Multiple Model |
|
|
Industry PE ratio |
9.76 |
|
EPS |
(0.02) |
|
Intrinsic Value |
(0.20) |
|
Share Price |
0.185 |
|
Overvalued |
Basically, various factors have affected the calculations of the intrinsic value of the stock such as the discount rate and the growth rate, PE ratio of the industry etc. there impact over both the models could be captured through the above given tables.
According to both the analysis, PE model look more realistic. Due to the approach that it considers the industry’s ups and downs as well. The reasonable share price of the company is $ (.20). further, it has been investigated that the intrinsic value of the share is not only related to the financial figures of the industry and the company, various other aspects such as the economical fluctuations, new competition, new projects etc also affect the share price of a comapny. And these must also be considered while calculating the stock price of the USCOM.
Cost of capital:
Further, for analyzing the investment opportunity in the comapny, cost of capital of the comapny has been analyzed. Following are the details of the cost of capital of the comapny:
|
Calculation of WACC |
||||
|
Price |
Cost |
Weight |
WACC |
|
|
Debt |
25552 |
0.063 |
0.00672 |
0.00042 |
|
Equity |
3778012 |
0.14298 |
0.99328 |
0.14201 |
|
3803564 |
Kd |
0.14244 |
The above calculation of cost of capital of the company depict that the comapny is required to pay 14.24% to the each investor to raise the funds through the equity and debt of the company (Yahoo finance, 2017).
The tax rate of the australia is 30% and the same has been consuderd to calcualte the cost of debt of teh USCOM Limited. The cost of equity and cost of debt of the comapny is as follows:
|
Price |
Cost |
|
|
Debt |
25552 |
0.063 |
|
Equity |
3778012 |
0.14298 |
The difference occured among both the cost is due to the various factors such as tax rate and internal affect. Current liabilities are short term liabilities which must not be included into the calcualtion of the WACC due to less manipualted reslut and some comapnies add this to simplify the calcualtions.
The major value of the WACC is 14.24% in which 6.3% is of debt and 14.29% is of equity. Coampny makes the decision on the basis of the capita structure the cost of debt and equity.
Currenlty coampny has statred two new projects relateed to the ersearch for the 15 years and 10 years. For both teh projects, comapny required the long term dents and after analyzing the market and the cost of the debt and equity, coampy has agrred to raise the funds 60% from the debt and 40% from th equity (morningstar, 2017).
The capiatl structure of the comapny and the industry are as follows:
|
Capital structure of Industry |
|
|
Debt |
20000 |
|
Equity |
395000 |
|
Price |
|
|
Debt |
25552 |
|
Equity |
3778012 |
This depict that the level of teh capitals tructure of both teh comabues and insurry are almost similar. It is consistent due to the simialr debt and equity ratio.
Optimal capitslstructure of the comapny would be at the elevl when the debt and equity ratio of teh comapny would be of 2:3.
Market analysis:
The financial performance of the comapny is bit better than the performance 0f the industry. Industry has faced many issues in recent year in the market, the comapny is trying the come back again in the market with double efficiency.
The Morningstar (2017) depict that the financial performance of the company is enhancing in a positive manner. Yahoo finance (2017) depict that the comapny is required to have a look over the stock price and try to enhance the level of it. AFR (2017) depict that the comapny is required to have a look over the debt position of the comapny. Bloomberg (2017) depict that the company is required to manage the optimal capital structure to maintain the level of the risk and the cost in an efficient manner (Google finance, 2017). The position of the comapny could be better through changing the capital structure of the comapny. It has also been said about the company that the financial crisis has impacted the operations and the activities of the comapny.
According to the report, it has been analyzed that the comapny is required to make some changes into its current policies to make the financial performance bit better. The investors could invest in the comapny for the long term as according to the prediction, the performance of the comapny would be better in near future.
References:
AFR. 2017. USCOM LTD. Retrieved from https://www.afr.com/research-tools/UCM/company-profile/operational-history available on 17th Oct 2017.
Bloomberg. 2017. USCOM LTD. Retrieved from https://www.bloomberg.com/quote/UCM:AU available on 17th Oct 2017.
Google finance. 2017. USCOM LTD. Retrieved from https://finance.google.com/finance?q=ASX:UCM available on 17th Oct 2017.
Home. 2017. USCOM LTD. Retrieved from https://www.uscom.com/ available on 17th Oct 2017.
Morningstar. 2017. USCOM LTD. Reterived from https://financials.morningstar.com/company-profile/c.action?t=UCM®ion=usa&culture=en-US available on 17th Oct 2017.
Yahoo finance. 2017. USCOM LTD. Retrieved from https://finance.yahoo.com/quote/ucm.ax?ltr=1 available on 17th Oct 2017.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download