Corporate Finance

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Table of Content

Executive Summary3
1. Introduction4
1.1 Overview of Harvey Norman Holding Limited4
1.2 Major Competitor5
1.2.1 JB Hi-Fi5
1.2.2 Woolworth5
2. Capital Structures6
2.1 Types of Funding6
2.2 Recent Trends of Leverage7
2.3 Comparison of capital structure with similar companies9 2.4 Capital expenditures and its financing10
2.5 Important factors influencing the use of debt financing10 2.5.1 Tax Advantage10
2.5.2 Corporate Tax Rate11
2.5.3 Credit rating11
2.5.4 Interest rate11
2.5.5 Company’s Industry12
2.5.6 Company’s growth rate12
2.5.7 Some other arguments about Harvey Norman12
2.6 Evidence of financial distress13
2.7 Optimal Capital Structure14
3. Dividend Policy15
3.1 HVN’s Dividend history15
3.2 Competitors Dividend Analysis16
3.2.1 David Jones Limited (DJS)16
3.2.2 JB HI-FI Limited (JBH)17
3.2.3 Comparison17
3.3 Alternatives of Paying Dividends18
3.4 Company’s Characteristics19
3.5 Optimal Dividend Policy19
4. Valuation20
4.1 Methodology of valuation20
4.2 Operating revenue estimation and Future free cash-flow20 4.2.1 Performance of HVN:20
4.2.2 Future prospects:22
4.2.3 Operating Revenue Forecasting:22
4.2.4 Free cash flow:25
4.3 Weighted Average Cost of Capital (WACC)25
4.3.1 Value of Debt and cost of debt:25
4.3.2 Value of equity and cost of equity:26
4.3.3 Weighted Average Cost of Capital (WACC):27
4.4 Value of Harvey Norman Holding Ltd and estimated share price:28 4.5 Sensitivity Analysis:28
4.5.1 Operating revenue and share price:29
4.5.2 Share price as a function of terminal FCF growth and WACC:30 4.6 Share price assessment and investment decision:30
Conclusion32
Bibliography34
Appendix36
Appendix: 4.1: Regression Statistics, Beta of the market36 Appendix 4.2: Regression line AOI and HVN chart:36

Executive Summary

This report aims to analyze the financial position of Harvey Norman Holding Limited (HVN). In particular, HVN’s capital structure, dividend policy and valuation share price of the Company. We also make investment decision base on the outcome of our analysis. The examination of HVN’s business and industry found that the company has a strong market position and has some advantage in compare with other companies in the same industry. By examining the Capital Structure, our result proves that HVN was constantly successful with its financing policy, obtaining the best possible debt-equity structure. Overall, the present capital structure allows Harvey Norman Holding Limited to finance its assets and growth opportunities with a mix of equity and debt financing that best balances risk and reward to shareholders. The company’s leverage level appears to be in line with the company’s effort to ensure sufficient financial flexibility to pursue future growth through greater blending opportunities and operational synergies. The distinctive feature of HVN’s dividend policy is that the Company does not have a dividend reinvestment plan (DRP) in procedure. Dividend per share (DPS) was continuous growth over the last decade, it also constantly distribute 100% fully franked dividend which make a further worth of share rather than a face value and decreasing a significant impact on a cash flow of the company. Therefore, it is able to assume that the shareholders likely to satisfied with the dividend payment in each year over the last 5 years. While the corporation has been expanding over the years the company’s optimal dividend policy is also developed. Thus HVN is an extremely rapid growth company with the enormous prospects. In valuation part, we made judgment upon our understanding about the performance of the company and use some forecast technique to predict the...
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