Valuation of Kia Motors

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Düsseldorf Business School at the Heinrich-Heine-University 5b
Value Management & Cost Management
Prof. Dr. Klaus-Peter Franz

Valuation of a company
KIA MOTORS

By: Youngsook Kwon,
Date: Jan 30, 2013

Table of Contents

1.Introduction1
2. Valuation Methodology2
2.1. Discounted Cash Flow2
2.2. Terminal Value3
2.3. Weighted Average Cost of Capital3
2.3.1 Cost of Equity4
2.3.2 Cost of Debt4
2.4. Free Cash Flow4
3. Calculation of WACC for Kia motors5
4. Calculation of Free Cash Flow for Kia motors5
5. Estimation of the value for Kia motors at the end of 20116
6. Conclusion6
References7
Appendix -18
Financial Highlight8
Appendix -29
Consolidated Statements of Financial Position9
Appendix - 310
Consolidated Statements of Cash Flows10

1. Introduction

Kia motors is one of top 10 carmakers in the world. As this Korean automobil company is showing an impressive performance in such a highly competitive global market, even by newly included into the Best Global Brands 2012 Top 100, valuating this company will be an interesting subject. Kia is a new addition to Best Global Brands Top 100 along with facebook, Prada, Ralph Lauren and Pampers. For the past few years, Kia has been one of fastest-moving global automotive brands. One of only three auto brands to increase US sales each of the past three years, sales are on the rise, even in a difficult market like Europe. Although the lineup is attractive to many cost-conscious consumers, the brand has built a particularly strong connection with Millennials and Gen Y audiences. A more aggressive front end design with the brand’s trademark tiger nose grille helps give Kia an edge that attracts younger drivers and also differentiates it from sister brand, Hyundai. When it comes to valuating companies for a going concern company like Kia motors, DCF method will be suitable. However, Due to the complexity of projecting future cash flow, Terminal Value method will be used to estimate the value of Kia motors based on its 2011 annual report. In Terminal Value technique, cost of debt and cost of equity is required as the basis for assessing the value of those cash flows (Discount rate). Therefore finding out cost of equity, which is derived from riskfree returen rate plus market risk premium multiplied by beta factor, is the key research subject which is crucial to conclude Weighted Average Cost of Capital(WACC) which determines the scale of the value of our target company. Key informations such as dept to equity ratio, the amount of total debt, tax rate, interest rate for borrowings, free cash flows(Net Cash Provided by Operating Activities minus Net Cash Used in Investing Activities), share price and the number of issued shares can be found from the annual report 2011. 2. Valuation Methodology

To introduce Terminal Value method, Discounted cash flow (DCF) method is necessary to discuss in the report. 2.1. Discounted Cash Flow

Discounted cash flow (DCF) analysis is a method of valuing the intrinsic value of a company. In simple terms, discounted cash flow tries to work out the value today, based on projections of all of the cash that it could make available to investors in the future. It is described as "discounted" cash flow because of the principle of "time value of money" (i.e. cash in the future is worth less than cash today).   The advantage of DCF analysis is that it produces the closest thing to an intrinsic stock value - relative valuation metrics such as price-earnings (P/E) or EV/EBITDA ratios aren't very useful if an entire sector or market is overvalued. In addition, the DCF method is forward-looking and depends more on future expectations than historical results. The method is also based on free cash flow (FCF), which is less subject to manipulate than some other figures and ratios calculated out of the income statement...
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