Consumer Goods Report Analysis - Essay Example

Consumers Goods Report Based on the Annual Report of GKN (2005) the company is using the Option Pricing Model as its model in calculating the target price. First, it was reported that the Earnings per Share (EPS) was computed at 7.7 in 2005. The EPS is actually the net profit after tax divided by the outstanding shares of the company. On the other hand, adjustments made in the financial report showed substantial reports. The value of EPS was subsequently changed to 22.1 after the adjustments were made. This is good news for the investors because the each share earned an additional 14.4 Sterling Pounds. According to the report, the change was made because of the impact of the restructuring and impairment charges, profits on the sale of business, and charges in the fair value of derivative financial instruments. The nature of the business suggests that the Discounted Cash Flow Model is the best model to be used in determining target prices. Premier Foods PLC uses Discounted Cash Flow as the model for computing target prices. Basically, all forecasted values provided by the firm emanate from the aforementioned model. In 2005, the actual EPS of the company is valued at 34. This is further divided into continuing and discontinuing EPS. The former accumulated an EPS of 15 and the latter contributed 19 earnings for share. The figures, however, were changed because of IFRS rules. The EPS of the company was reduced to 33.7 with the continuing and discontinuing registering 14.9 and 18.8 EPS respectively. Based on the annual report (2005) the revisions in the IFRS have minimal impact on the revenues of the company. This is reflected in the unsubstantial reduction of the EPS after adopting IRFS regulations. The inclusion of IFRS will result in model changes and the Discounted Cash Flow Model appears to be a logical scheme. Reckitt Benckiser employs the Discounted Cash Flow as its model in ascertaining the price targets of the company. This is presented in the Annual Report (2005) of the firm that computed for specific items with relevant values. Initially, the EPS in 2005 was valued at 92. This means that each ordinary share will earn such amount. It has to be noted that the company has adopted the IFRS rules. Subsequently, the EPS of the company was reduced to 90. Several changes were observed in the manner in which non-operating activities were reported. The decrease was made since most non-operating activities were excluded from the computation of the items needed to value the EPS of the company. Other changes in the business because of the IFRS have impacted the valuation of several elements. Still, the model used by the company is effective because Discounted Cash Flow value considers the effect of inflation in the computation of the future values in the financial statement. Using the Option Pricing Model is prevalent among firms with diverse operations. The target prices computations of Scottish and Newcastle PLC suggest that the Option Pricing Model was used. The Annual Report (2005) of the company has underlined several changes after the IFRS rules were mandated. Specifically, the effects of the changed were observed in the inclusion of cash and cash equivalents. In the EPS, the use of IFRS as guide for accounting has produced significant changes. Before the approval of IFRS use, the EPS was only 40. Using the guidelines provided by IFRS, the EPS of the firm ballooned to 200. Although other adjustments not related to IFRS were made, the value added after the use of IFRS was immense. Indeed, there is a possibility that the values were overstated. Hence, using the Discounted Cash Flow Model will provide an accurate view of target prices in the future operations. The group Annual Report (2005) of British American Tobacco has pointed that the model used for valuation of target prices is the Historical Cost convention. This supports the claim of financial analysts of the effect of inflation rates in the values reflected in the financial statements. According to the report, the company recorded an EPS of 84.53 prior to the inception of IFRS guidelines. When the IFRS policies took effect, the EPS of the company was reduced to 83.85. The changes in the EPS was fuelled by the several modification made that include limitation of the group income statement to the Group's share of post-tax and minority results as one item before the Groups pre-tax profit and the inclusion of net finance cost in the operating income. Also, the IFRS has resulted to the changes in the interpretation of aspects considered as either gains or losses. The most preferable model to be used is the Discounted Cash Flow model, which measures the values with the inflation rate. Gallagher Group PLC showed only its financial performance during the first quarter of 2005. The Annual Report (2005) revealed that the model used by the company is the Discounted Cash Flow Model. This allows the analysts to determine the present values of price targets. The reported EPS before the IFRS guidelines took effect the company recorded an EPS of 20.35. Naturally, the implementation of IFRS policies will change the value of EPS. Indeed, the succeeding modifications undervalued the EPS to 19.26. Basically, the effects were of less magnitude compared with the expected outcomes. Still, such values are helpful as future accounting methods will be based on IFRS. Since the values of items in the financial statements will either increase of decrease, using the Discounted Cash Flow model helps in obtaining near precise figures. In addition, considering the value of inflation is advantageous for the firm. Like most of the companies previously discussed, Persimmons PLC uses the Discounted Cash Flow model in computing for the value of price targets. The model is employed to arrive at accurate results. Basically, precise values are critical in the decision-making process. As reported in the Annual Report (2005) of the company, the EPS was valued at 110.4. This was before the company has adopted the IFRS guidelines. Basically, the introduction of IFRS principles in the accounting methods of the firm has increased the EPS to 113.5. As discussed previously, the method in which profit is treated has been changed. Usually, changes in the profit directly affect the EPS. Based on the report, the Cost of Sales was decreased when the IFRS principles were used. This significantly affected the succeeding computations that resulted in the increased figure presented earlier. Still, the company has to continue to use the Discounted Cash Flow model because of its efficacy and accuracy. Interestingly, the information available for Taylor Woodrow PLC excluded the computation for the EPS. The data, however, is sufficient in determining the increase or decrease in the EPS. Technically, the company has been using the Discounted Cash Flow model as basis for calculating price targets. After the IFRS was made the official basis for accounting practises, substantial changes was seen in the profits of the company. The use of IFRS has increased the profit of the company from 264.8 to 280.3 after making the adjustments. It is established that the number of outstanding shares will remain the same because the calculations were made using the same year of operations. The increase in the net profit will also increase the EPS. Several additions to the income statement as a result of the IFRS policies adaptation were made. The model used the company has to be retained. It is important since accounting changes are prevalent. Historically, the UK GAAP has been the foundation of accounting practises used by Bovis Home Group PLC. The company through such principles have been computing important aspects based on fair market value. The fair value assessment determines the true value of price targets. As expected, the decision of the European Union to implement IFRS policies has changed the phase of accounting procedures. The Annual Report (2005) guided by the UK GAAP valued the EPS of the company at 87. Using the IFRS principles, the company's EPS was decreased to 86.8. Obviously, the Cost of Sales was directly affected by the use of IFRS guidelines. Like in the previous illustration, the decrease in the Cost of Sales increased the profit. The aspect the decreased the profit was the increase in expenses. This triggered the reduction in the value of EPS from the UK GAAP to the IFRS. Furthermore, it has been proposed that using the Discounted Cash Flow model is better. Wilson Bowden PLC presented its Annual Report using the Discounted Cash Flow model. Also, the company showed the figures in UK GAAP and IFRS. Admittedly, there are major differences that will show the substantial effect of the change to IFRS guidelines. From 187.7 EPS, the use of IFRS has reduced the IFRS to 186.5. Indeed, the decrease is significant because the operation of the firm is large-scale. In the income statement, the shift to IFRS policies has increased the Cost of Sales. Basically, the effect of the IFRS is directly inflicted to the determination of the Cost of Sales. In addition, some expenses increased. This shows that the change in the accounting methods is vital because stakeholders will decide based on accurate figures. To obtain those figures, the company has to continue using the Discounted Cash Flow model. Uncertainties in the future are accompanied with risks. Consumer Services Report Alliance UniChem has been using Historical Price convention as its method in determining the target price of the important firm components. In the Annual Report (2005) company it has explained the primary reasons for the changes in the net profit. Accordingly, the profit on disposal of subsidiaries and the amounts written off investments was insignificantly impacted by the adoption of the IFRS. The company considered the measurement of profit excluding the items used to indicate underlying performance. The decrease in profits because of the requirements to recognise a charge for the fair value of share based compensation awards was offset by the net credit arising to the movements in the deferred taxation liabilities recognised on the non-remitted income of associates, pharmacy licenses, and roll over capital gains. To further improve its accounting practises, the company has to consider the use of Discounted Cash Flow model in valuing price targets. Before the IFRS guidelines took effect, Arriva PLC was using the UK GAAP and value target prices using the Discounted Cash Flow model. Prior to the changes, the company posted a net profit of 72.4 million Sterling Pounds in based on the Annual Report (2005). Such figure resulted to and EPS of 36.2. The modifications caused by the IFRS directly affected some important aspects of the company. According to the notes that explained the figures in the income statement, the net profits increased by 10.9 million when the change was made. The increase was attributed to non-amortization of goodwill. Consequently, the EPS increased to 42.6 since the net income also went up. Using the arguments presented earlier, the use of Discounted Cash Flow model is efficient and leads to more precise outcomes. Informa has been using the Option Pricing model as basis for computing the items in relative to the business. Thus, the financial statements as reported in the annual report provided different figures when the IFRS policies were introduced. In 2005, the profit attributable to the equity holders is valued at 126. The value subsequently increased when the IFRS guidelines replaced the UK GAAP. From a measly figure, the new income attributed to equity owners was 69,862. The change in value was immense and increased the value of the company. For the investors, IFRS was a welcome development. It is no secret that implementing IFRS accounting policies changed the perspective of the firm in determining transactions with income potentials. Some items interpreted as unrealized income were now considered as revenue. To view the effects of the changed accurately, using the Discounted Cash Flow method provides better results and accurately quantifies significant price targets. The shift to IFRS accounting principles has required MFI to value its resources and transactions in 2005. Initially, the UK GAAP has enabled the company to use the Historical Cost convention as its method of valuation. The changes from UK GAAP to IFRS guidelines are critical in the presentation of the income results. As cited in previous discussions, some items normally included in the income statement under UK GAAP rules were scrapped after IFRS principles were followed. Principally, the considerations in items that contribute to the net profit were affected. Any change in the profit will also affect the EPS. For the investors, it is advantageous once the change in accounting system has increased the profits. Basically, it has been proposed that using the Discounted Cash Flow model allows the firm to include uncertainties in the computation of the different aspects of the financial report. For William Hill, making adjustments after a change in accounting methods used is never simple. In fact, several complications are entwined as IFRS was legitimised to be accounting basis among firms in the European Union. As the accounts were updated, substantial changes were observed in the figures presented. Initially, the company has been using the Fair Value model as basis for valuation. The financial statement under the UK GAAP reported lower net profit compared with the figures using IFRS guidelines. The notes to financial statement explained that the changes were observed in the revenue, cost of sales, and associate profit. The difference in net profit, however, was caused by the decrease in the tax incurred. The IFRS guidelines have also changed the interpretation on taxation. The increase in net profit will increase the EPS. Because of uncertainties such change in accounting methods, it is hard to accurate value the components of the business. Therefore, in this situation the idea of using the Discounted Cash Flow model is preferred. Among the companies affected by the change of accounting system by the European Union was the United Business Media. From an independent UK GAAP, the company was obliged to adhere to the new guidelines stated in the IFRS. The company has been using Option Pricing is valuating its business components. The changed in accounting standards will definitely necessitate from major modifications. To determine the impact of the new accounting regulations, it is imperative to compare the figures extracted using UK GAAP and IFRS. In particular, the EPS of the company reported in UK GAAP was 110.9. On the other hand, the value changed using the IFRS as the EPS increased to 235.4. This figure appears to be overvalued; thus, to determine its accuracy, using the Discounted Cash Flow System is a viable option. Specifically, Millennium Copthorne Hotels PLC uses the Option Pricing Model in its valuation of pricing targets. Based on the company's Annual Report (2005), the changed to IFRS will change the recognition of deferred tax in respect of all taxable temporary differences arising between the tax base and the accounting base of the balance sheet items. Also, the adoption of IFRS will change treatment of revenue in respect to non-hotel land development sales is recognised on transfer of legal titles instead of unconditional completion of sale. These two perceived impacts are important in the determination of the net profits. The EPS declined when the UK GAAP was changed to IFRS from 24.5 to 17.9. On the issue of quality valuation models, the Discounted Cash Flow is highly valuable. This an alternative that calculates for risks and uncertainties linked with changes in accounting methods The impact of the shift to IFRS as required by the European Union has produced different results for the company. Traditionally, National Express Group uses Option Pricing Model as the valuator to the price of targets. Changing from UK GAAP eventually affected some aspects in the financial statement that also impacted the EPS. The IRFS has changed the view of the company in the reclassification of revenue generated from discontinued operations. Also, the operating cost was decreased because of the discontinued operations. The figures in the Annual Report of the firm supported the earlier statements on the increase in income and decrease in cost. The changes resulted in an increase of the profit at the end of the year. Naturally, the increase in profits will also increase the earnings per share. To accurately forecast the long-term impact of IFRS in the firm, it is proposed to use the Discounted Cash Flow model in valuating items in the financial statements. Pearson also adopted the IFRS proposed by the European Union as a universal accounting guideline in the entire region. Usually, Pearson uses the Discounted Cash Flow model as the method for valuation. The company was basically affected by the changes in accounting methods used. Specifically, IFRS requires that deferred taxation also be provided on all temporary differences. Deferred tax is provided using liability method on the temporary difference arising from tax bases. Also, the IFRS has required the firm to report loss or income from discontinued operations in the income statement. This means that there is possibility that the net profit will be affected depending on the value of the loss of gain from discontinued operations. In addition, the treatment on some expenses has been changed because of the IFRS guidelines. The company has to continue using the model used in valuation because of its usefulness. Taylor Nelson Sofres values the historical valuation of items in the financial statement. It is the methods in which the values of different components of the firm are determined. With the change in the accounting method, it is expected that the company will make some modifications. In its EPS, for instance, using the UK GAAP resulted to an EPS of 20.2. On the other hand, the change to IFRS has more than doubled the EPS of the company to 43.6. This amount has benefited the shareholders because of the impending increase in dividends. The Annual Report of the company (2005) shows that the revenues have increased significantly. In addition, the operating income experienced a lift because of such circumstance. Subsequently, the value of the net profit also increased. Although the figures are well-valued, it is interesting to determine the results when the valuation model is changed. Definitely, using the Discounted Cash Flow method has several advantages. The situation of Aegis is similar to the other firms operating in UK. Like other companies, Aegis has to restate most of the entries in the financial statements to emphasise on the new accounting method. The most affected part of the financial report is the income statement because of the changes in revenue recognition. Using the accounting policies of IFRS has modified the shape in which financial information is reported. This is reflected in the operating expenses that declined after the IFRS policies were adopted. In effect, the profits before tax increased since the income in both accounting methods are the same. Such precedence clearly established the increase of the net profits. Normally this event will push the EPS of the company in higher levels. The impact of IFRS policies is evident and therefore some changes have to be made. Perhaps using the Discounted Cash Flow model will provide clearer results. ABN-AMRO recognised the need to make specific changes after the European Union agreed to use the IFRS in favour of the UK GAAP. In computing for values of firm components, the company has been using the Discounted Cash Flow model. The method was extensively used in predicting the value of the business as its operation commences. It was expected that the change in accounted methods will have an effect on the figures presented in the annual report. Based on the figures shown in the report, the initial profit of the company was valued at 57.9 million SP. After the adjustments were made, the value increased to 93.2 million SP. The company defined the process as normalizing the net profits. Obviously, the change in the accounting system contributed to the change in amount. Because of this, it is expected that the EPS will increase significantly. For ABN-AMRO the efficacy of the Discounted Cash Flow model has provided accurate outcomes. The change in accounting principles, from UK GAAP to IFRS guidelines embraced all industries operating within the jurisdictions of the European Union. Hence, ITV was never exempted from following its previous methods of accounting. It expected that major changes will be observed in the values presented in the Annual Report. Perhaps the company needs to change the Fair Value as its model of computing price targets. Using the figures in the reported financial statements, the EPS of the company is valued at 5.3 under normal circumstances. This means that the UK GAAP was still used to determine such number. The use of IFRS guidelines, however, changed the reported value of the EPS. After making the necessary adjustments, the EPS increased to 7. Although the increase is minimal, the impact of the changed in accounting principles and practises was clearly established. Such necessitates calculation of risks and the Discount Cash Flow model presents such capability. It is interesting to assess the manner in which accounting processes affect the overall performance of the firm. For years, companies in UK have using the UK GAAP to quantitatively evaluate their performance. Basically, the change in accounting systems will surely result to different interpretations. For Johnston Press, the need to recalculate the financial report appears to be imminent. Traditionally, the company has been using DCF Analysis in valuating target prices. According to the company's financial analyst, the nature of the firm's operations proposes for such model. The change in the accounting principles either increased or decreased the value of some notable components. Specifically, the EPS of the company increased as a result of such changes. This is good news to investors since it will translate to better dividends after the year. DCF analysis is efficient, but perhaps using the Discounted Cash Flow model will give better results. Read More