Valuation of David Jones

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|BUSINESS ANALYSIS AND VALUATION | | | |DAVID JONES LTD | | | | | |BY SENIOR FINANCIAL ANALYSTS | |FROM | | | |[pic] | | | | | | | |[pic] | | | | |

TABLE OF CONTENT

EXECUTIVE SUMMARY3
DAVID JONES AND THE RETAIL INDUSTRY5
RETAIL INDUSTRY5
PROSPECT OF THE INDUSTRY6
DAVID JONES7
CORPORATE STRATEGY ANALYSIS7
PROSPECT OF THE COMPANY8
ACCOUNTING ANALYSIS9
EARNINGS MANIPULATION9
EVIDENCE OF EARNINGS MANAGEMENT9
FINANCIAL ANALYSIS10
TIME SERIES ANALYSIS11
Evaluating Operating Management14
Evaluating Investment Management15
Evaluating Financial Management16
CROSS SECTIONAL ANALYSIS18
Probability18
Investment Managment19
Financial Management20
FORECASTS AND VALUATIONS21
FORECAST21
SALES GROWTH22
NOPAT MARGIN23
WORKING CAPITAL TO SALES23
NET LONGTERM ASSETS TO SALES24
CAPITAL STRUCTURE25
VALUATION26
COST OF EQUITY27
COST OF DEBT27
SENSITIVITY ANALYSIS29
RECOMMENDATION30
REFERENCE LIST31
APPENDIXES33

EXECUTIVE SUMMARY

David Jones is one of the leading department chain-stores in Australia, consisting of more than 30 stores nationwide. Moreover, David Jones is the oldest department store in the world that is still trading under its original name. Throughout our efforts, we would like to find out whether the company can operate well and be prosperous in this new century, confronting with current and emerging challenges and difficulties.

David Jones takes differentiation competitive strategy by selling many exclusive brands and products to customers with high purchasing power. The company has recently launched a new David Jones Master Card with the expectation of high earnings growth. Besides, four-year store expansion and store refurbishment plan indicates that David Jones confidence in its business outlook. However, David Jones has to face weak sales due to economic recession, while its major competitor Myer is taking greater market share by targeting the lower income customers.

Based on accounting analysis and financial analysis have been performed in the report, we found no distinct evidence about earnings manipulation despite some areas of suspicion.

David Jones has been outperforming the retail industry over years. Sales kept increasing while cost of doing business kept declining over time. The company has been efficient in keeping most of the turnover ratios high. The only concern would be the increasing debt level that may affect company’s capital structure. High debt level may affect its credit rating and raise doubts about the company’s ability to repay debt as well.

Over the years, David Jones has been outperforming its close...
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