Assess the Financial Health of Apollo using Financial Statement Analysis?
From Exhibit 1 & 2 below, the financial health of Apollo can be evaluated, in which, it can be assessed that the company had increased its annual sales turnover generated from its sales in the market from the years 2007 to 2012. Its sales had increased in 2008 by 10 % from its prior year and had shown another increase in the subsequent year by 4%. Similarly, it had a increase in its sales percentage in the coming subsequent years till 2012. Which could be attributed to its increased number of units sold in the market. Furthermore, the excise duty imposed on its sales had increased from 490 in 2007 to 549 in 2008, showing a 12% increase and it had decreased by 13% and 19% in the subsequent two years. However, its excise duty had increased in 2011 by 31% and in 2012 by 47%, which had attributed towards decreasing its net sales in those years. The raw material cost of the companyincreased from 2007 to 2008 by 4%and it had maintained this increasing trend till the year 2012, inflating its raw material costfrom 2,882 in 2007 to 8,293 in 2012. This can be attributed to the increased number of units produced to meet the increasing demand. Similar trend had been seen after evaluating the Exhibit-2, where some expenses had shown some variations. Moreover, it can be assessed that, the net profit margins of the company for the year 2008 amounts to 5%, which had been reduced to 3% in the subsequent year. However, its net profits margin had increased to 8% in 2010 and again reduced to 5% and 3% in the subsequent two years. Additionally, a similar trend can be assessed in the gross profit margins of the company. Therefore, it can be assessed that, Apollo had shown significant growth in sales but its profit margins had shown variation, which could be attributed to the rising raw material costs or employee salaries. Other than that, the financial health of the company is appropriate to continue with the investment option.
Assess the worth of Apollo Stocks as of march 31, 2012, using the discounted cash valuation model?
Using discounted cash flow valuation model to estimate the enterprise value, certain assumptions were made, in which the capital expenditure was assumed to be 2.5% of annual sales revenues and the weighted average cost of capital was assumed at 6.29%. Which would be used to discount the cash flows on annual basis. Furthermore, the tax rate was estimated at 30% by evaluating the tax rates present in the income statement, an average was taken of the annual percent of tax calculated by dividing the provision for taxes by the profits before taxes. Additionally, after analyzing the sales growth of the company, a 3% growth rate was assumed depending upon its profitability and expenditures.
In addition to this, the EBITDA was taken, while subtracting the tax amount at 30% on profits, then the depreciation for the year was added in which the capital expenditure was subtracted from the amount, calculated by multiplying the capital expenditure rate at 2.5% by the sales revenues to determine the free cash flows of the company……………………
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