Financial Statement Analysis And Security Valuation Of Domino’s Pizza Enterprises Ltd

Company Description

Discuss About The Statement And Security Valuation Financial?

This report has been prepared to evaluate the financial performance, cash flow position, financial position, profitability, stock price etc of the company. Mainly this report would offer a detail about the cash flow situation of the company and it would also provide details about the betterment of cash flow position of the company. And it would also brief the organization about the investment opportunity of the company.

For preparing this recommendation report about investment opportunity and cash flow analysis of the company, financial statement of the company has been analyzed firstly. Then, the study has been done on dividends of the company, operating system of the company etc to evaluate the current market position and internal position of the company. In addition, the study has been done on stock price of the company to evaluate the changes into the market worth of the company and lastly, through evaluating the cash flow analysis of the company, recommendation has been given.

Domino’s Pizza Enterprises Ltd is one of the biggest pizza chains in the Australian market in terms of largest franchise, network sales, network store numbers etc. the company is working under food retail industry. It has been founded in 1983 at Springwood, Queensland, Australia. The revenue of the company is Australian dollar 790.866 million in 2016-17. Currently, the company is operating its business in various countries such as France, New Zealand, Australia, Japan, principality of Monaco[1]. Currently, 1900 stores are owned by the company and 26000 people are employed by the company. According to a report, in May, 2005, Domino’s Pizza Enterprises Ltd was the first pizza company who has listed in the Australian stock exchange[2].

Financial statements are prepared by the companies to offer the information about operations reult, cash flow osition and financial position of the company. The information of the financial statement is used to make decision about the position and the reallocation of the resources of the company. Financial statement analysis is the procedure to evaluate and analyze the financial statement of an organization[3].

The main purpose of financial statement analysis is to evaluate the current and past financial data of the company so that the financial position, cash flow position and profitability level of the company could be evaluated easily and the potential risk of the company could be estimated[4]. Further, the financial statement analysis could yield the valuable information about relationship and trends, strength and weakness of financial position, company’s earnings, quality of the company etc.

Purpose of Financial Statement Analysis

Mainly this process starts with establishing and managing the objectives of financial analysis. Such as, is this analysis is conducted to evaluate the cash position and investment opportunity of the company? After establishing the objectives, data of the financial statement is accumulated from the annual reports or any other source. Further, the results of the financial analysis is summarized, analyzed and interrupted. And thus, the conclusions could be made by the financial analyst[5].

In this report, the process of financial statement analysis is undertaken to evaluate about the relationship and trends, supplies and demands, strength and weakness of financial position, company’s earnings, dividends of the company, stock price of the company etc so that a recommendation report could be prepared about the investment opportunity and cash flow position of the company.

The income statement, cash flow statement and the balance sheet are the main statement of the company which explains about the financial performance and the position of the company. The income statement of the company explains that the current net profit of the company is $ 12,61,47,000 whereas the net profit of the company was $ 91,29,000 in 2006-07. It explains that the total net profit of the company has been enhanced by 1281.83% which explains that the company has achieved a great growth in last 11 years. The total revenue of the company has also been enhanced by 368.15%. It explains that the profitability level of the company is bit higher[6].

Further, the balance sheet of the company has been evaluated. Balance sheet is a Performa which explains about all the assets and liabilities of the company whether they are current or noncurrent. The balance sheet of Domino’s Pizza Enterprises Ltd has been evaluated and it has been found that the current assets of the company has been enhanced by 316.27 from 2006-07 to 2016-17. It explains that the company has achieved great increment. Further. It has been found that the total assets of the company has been enhanced by 760.89% from 2006-07 to 2016-17. On the other hand, it has been found that the total liabilities and total stockholder’s equity of the company has been enhanced by 1013.97% and 518.08% from 2006-07 to 2016-17. The above evaluation explains about the great performance and the position of the company[7]. Further, it explains that the business and the operations of the company have been enhanced and due to it, the company has enhanced the level of the resources.

Firm’s Current Operating System

In addition, the cash flow statement of the company has been evaluated. Cash flow statement is a Performa which explains about all the cash inflows and cash outflows of the company whether they are operating cash flow, investing cash flow or financing cash flow. The cash flow statement of Domino’s Pizza Enterprises Ltd has been evaluated and it has been found that the cash flow from operating activities of the company has been enhanced by 1804.66% from 2006-07 to 2016-17[8]. It explains that cash level of the company has been increased a lot. Further, it has been found that the total cash flow from investing activities of the company has been enhanced by 283.62% from 2006-07 to 2016-17. On the other hand, it has been found that the total cash flow from financing activities and total cash flow of the company has been enhanced by 1113.77% and 541.75% from 2006-07 to 2016-17. The above evaluation explains about the great performance and the position of the company. Further, it explains that the business and the operations of the company have been enhanced and due to it, the company has enhanced the level of the cash to manage the activities and position of the company.

Lastly, the demand and supply of the company has been evaluated to identify the performance of the company. It has been evaluated that the demand of the company has been enhanced and the company has tried to meet all the demand of the customers. The report explains that the pizza demand has been increased on greater basis and Dominos has grabbed this opportunity and thus the profit of the company has been enhanced[9]. Further, it has been found that the price elasticity demand of the company is elastic as the sales of the company have been enhanced by 45% but the price has been decreased only by 18%[10].

Dividend valuation is an important step to evaluate the performance and the position of the company. For evaluating the dividend of the company, discounted dividend valuation model has been used. This model takes the concern of dividend, growth, required rate of return etc and assists the company to make a better decision about the performance of the company. The dividend valuation model of the company briefs that the financial position and the market position of the company is quite strong[11]. It is performing well in the market and the current situation of the company explains that the value of the stock of the company should be $ 71.49%. Following is the calculations of DDM of the company:

Dividend Valuation

It explains that the current stock price of the company should be $ 79.16 which explains that the performance of the company is good.

Further, the changes into the stock price of the company has been evaluated on the basis of stock price of AORD and it has been found that the position of the company is quite different and stable than the stock price of AORD. Further, it has been found that the position of the company and market capital of the company has not been fluctuated more in last 4 years. The correlation of the stock of both the companies is also lower and explains that the stock price of DMP is not driven by the AORD.

According to the above analysis on dividend, stock price and changes into the cash flow of the company, it has been found that the cash flow position of the company has been way better. The performance and the ratio analysis on cash flow statement explains that the cash flow from operating activities of the company has been enhanced by 1804.66% from 2006-07 to 2016-17. It explains that cash level of the company has been increased a lot[14]. Further, it has been found that the total cash flow from investing activities of the company has been enhanced by 283.62% from 2006-07 to 2016-17. On the other hand, it has been found that the total cash flow from financing activities and total cash flow of the company has been enhanced by 1113.77% and 541.75% from 2006-07 to 2016-17. The above evaluation explains about the great performance and the position of the company. Further, it explains that the business and the operations of the company have been enhanced and due to it, the company has enhanced the level of the cash to manage the activities and position of the company[15].

Thus the above evaluation explains that the current position of the company is way good in the industry. The financial performance, position, stock price, share valuation, dividend valuation etc explains that the stock price of the company has been better. Further, it explains that the company should invest its amount into diversification strategies so that the more market and opportunities could be grabbed by the market and the financial performance of the company could be better[16].

More, it explains that the company should evaluate the investment in the market and must invest into these companies on the basis of its WACC. The current WACC of the company is 4.85% which explains that the IRR of the project should be more than 4.85%.

Lastly, the recommendation has been given to the shareholders of the company to maximize the performance and the wealth. Through the analysis on the company, it is recommended to the stockholder of the company that they would make an investment into the current situation of the company. Currently, the stock of the company is undervalued and if the investment is done right now than it would offer long term as well as short term profits to the investors of the company.

References:

AFMA, 2018. AFMA Policy. viewed Feb 05, 2018, https://afma.com.au/

AFR, 2018, DOMINO’S PIZZA GROUP PLC. viewed Feb 05, 2018, https://www.afr.com/markets/australian-fund-managers-reveal-best-long-and-short-ideas-for-2018-20180104-h0dl94

APRA, 2018. Australian Prudential Regulation Authority. management Feb 05, 2018, https://www.apra.gov.au/Pages/default.aspx

ASIC, 2018. Australian securities and investment commission. viewed Feb 05, 2018, https://www.asic.gov.au/

ATO, 2018. Australian taxation office. viewed Feb 05, 2018, https://www.ato.go.au/  

G., Brown, R., Easton, S., Howard, P., and S. Pinder. 2012. Business Finance, 12 th edition. Mc-GrawHill, Australia.

Home, 2018, DOMINO’S PIZZA GROUP PLC. viewed Feb 05, 2018, https://www.dominos.com.au/

Home, 2018. Australian Stock Exchange. viewed Feb 05, 2018, https://www.asx.com/

Index, 2018. NYSE. viewed Feb 05, 2018, https://www.nyse.com/index

London stock exchange, 2018. DOMINO’S PIZZA GROUP PLC. viewed Feb 05, 2018, https://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/GB00BYN59130GBGBXSTMM.html?lang=en

Penman, S.H., 2010. Financial Statement and Security Valuation. Fourth Edition, McGraw-Hill. Peirson,

Pike, R. And B. Neale, 2009, Corporate Finance and Investment: Decisions and Strategies, 6th edition, Financial Times Prentice Hall, Limited.

Viney, C., 2009. McGrath’s Financial Institutions, Instruments and Markets, 6th edition, McGrawHill, Australia.

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