Crown Company: Economy and Industry - Research Paper Example

Economy-Industry-Company Analysis Economy – Industry – Company Analysis Executive Summery Crown Company is a well established company in Australia, with its stocks being traded on a stock exchange market. Vertical or top down analysis of the company financial performance are the requirement Johnnie wants to know, before deciding to make investment in this company. Introduction Johnnie is a potential investor, who has been working in Australia public life, and he has retired with considerable amount of superannuation. He want to invest in a ten year stock, therefore a top down analysis of the Crown Company is conducted for this purpose. Economic Analysis The economy of Australia is growing very first to reach more than two times the base that was set earlier, by the economist of the country. This growth has enabled the potential investors in bonds, stocks and other investing opportunities, to establish their investments tremendously in the country. The gross domestic price that was analyzed at the first quarter of the year shows that it has grown for about 1.3 percent. This is the best indication of the economic growth and I will advice Johnnie to do an investment in this country. Gross Domestic Products Gross domestic products, is a technique used to show the economic growth and stability of any given country. In Australia where the Crown head quarters is found, had a gross domestic product of approximately 918 billion united states dollars, with a growth rate of 2.3 percent, and the income per person or per capita income of40,800 in the fiscal year 2011. Interest Rates The standard rate of interest in Australia was previously indicated at 4.25 Percent, which was determined by the Australian reserve bank of panel. The graph shows that the rates of interest of the year 2010 and 2009 had a drastic fall. It has also increased gradually and encounters small decrease recently. This is a clear indication that the Economy of Australia, and the performance of the currency is in its stage of recovery. The estimate is that it has a moderate increase in the near future as it is indicated by the tendency of the graph. Increase in the interest rates means that the investors will benefit from the consequential increase in the amount of dividends that they will receive1. Given the fact that Jonnie is looking for an investment that will last for ten years, This is a favorable time to invest in a booming company in Australia. This is because during this period, there is an economic recovery and such will lead to better economic performance of all the factors discussed above. The ten year bond in Australia has also jumped to reach 3.02 percent increase. For a potential investor like Johnnie, I will advise him to invest his money specifically on the bonds. According to the report on index based on swaps, there will be a reduction in the interest rates in some days to come which will move down from 50% before the gross domestic product report was released. Exchange Rates The exchange rate of the Australia has decrease to around three percent against the United States of America dollar. This is a good indication of the countries’ economic development because it is a good indication that the country is doing well in terms of payment balance2. In general, there are a number of agencies of the government which regulate all the companies in Australia. An example of these agencies is the Commission on Trade Practices which plays a substantive role in the prevention of monopoly in the industry and also encouraging competition among the businesses. This Commission on Trade Practices plays major role in the anti competition agreements, various types of restricted dealings, the market power misuse, the maintenance of resale price, and the discrimination of the price in the industry3. The Analysis of the Industry Gaming and sporting activities forms the major parts of the Australian sectors that contribute greatly to the gross domestic product and national income. The recreational facilities have started to gain popularity in Australia and other parts of the world. This sector contributes to the significant amount to the economy because it also includes the foreign exchange. This industry receives various customers including the ones from overseas e.g. America Crown Analysis The Australian Crown operates and own two integrated resorts, which are leading in the country in terms of the services they offered and financial stability. These resorts are Burswood and Melbourne. These resorts attract a significant number of customers which includes the tourist from various parts of the world. These tourists originate specifically from Asian countries. The two resorts cater for a variety of gamming and sporting activities, which are considered to be the booming sector in Australia currently. These customers for example, the experienced players who look for high gaming activities and large market clients, who gamble lower experienced players and also looking for high level of entertainment, eventually brings the resources to the company. The visitors in these hotels also adventure all this properties for the extended shopping, dining and all forms of entertainment found in these hotels. In other parts of the world, for example the United Kingdom, the Crown Company fully operates and owns the club known as Aspinall, the only large a constituent casino in the entire London4. Crown has also invested in other related companies like the Mel co Crown, which owns about 33 percent of the total equity shares of the company. This shows that the company has diverse its finance, to various proactive areas to guarantee its financial stability, in case of an economic crash in Australia. Melco Company is undertaking its operations in a high class resort found in Macau, whose stocks are listed in two markets, the Hong Kong stock exchange and the NASDAQ stock market. Nevertheless, Crown Company has also diversified its investment to Cannery casino resort, Echo Entertainment Group Limited and the Aspers Holdings which is found in Jersey5 The Crown Company limited has a focus of intensifying its operations in Australia and other parts of the world. The company has budget a complex capital budget of approximately eight hundred million dollars, to be used in the development of the company for the three years to come. This is part of 2.3 billion dollars of the overall budget of the company which is in progress. According to the Australian financial research experts comprising of accounting and finance professionals, it shows that the games and the entertainment sector is currently doing well. To be more specifically, the crown company which deals with a variety of entertainment and gaming activities is among the top companies seen as per the SWOT analysis undertaken. It is among the top companies with the high revenues or income and the total belongings, i.e. assets6. Crown as Undervalued Stocks The following contents show the Crown Company limited financial performance in Australian dollars. Share price or the price per share 8.95 Earnings per share 0.44 Market capital (in millions) 6,795 Value of enterprise (in millions) 8,054 Outstanding shares (in millions) 785 The 0.44 earnings per share of this company show the amount of the company’s profits that are apportioned to the remaining shares of the accrued or remaining shares of the stock. This earning per share is used by the financial analyst, to show the performance of the company in terms o the profitability. Considering the earning per share, the company is ranked number five in the whole of Australia. Each share of the company may not yield much, but it will increase in future as the country slowly recovers from the economic crash7. On the other hand, the outstanding shares of 785 million show that the company is performing well, and that is why it attracts so many investors. Although the expenses of the company are too high, the consequential revenues are also high. , this indicates the future potentiality of the company to increase in its operations. The price earnings ratio of 8.95 shows the valuation of the company’s today’s share price as compared to its earnings per share. This ratio is calculated by taking the company’s profit after interest and taxes, then subtract any dividends associated with the preferred stocks, and then it is divided by the; remaining shares of the company. In relation to the predicted earnings per share for the irregular four years, the Crown Company has performed differently as expected, for the three out of the four predicted years. The mean surprise in the earning per share is a positive figure of approximately 6.96 percent. This is an implication that Crown Company has more than expected in the same length for the last three quarters unlike one quarter which the company performed as expected. This was analyzed as follows; For the first quarter, it was on twenty fifth April this year. The company reported its financial performance for the financial year 2012. The declared result matches with the predicted estimates of. The net profits were 50.3 million Australian dollars which represents 17 dollar cents per one share. The income for one year ago quarter was forty million dollars with 12 dollar cents; per one share. The reported disposable revenue in the same quarter was 551.7 million dollars, which was an increase of 10.6 percent compared to the last quarter. This revenue was much more compared to the estimated ones of 521 million dollars. This increase was based on the enhanced performance of segments for its rentals8. For the gross margin that was reported in the quarter, it was slightly above the predicted one. The margin was seventy two percent, compared to the predicted of 70.8 percent for the previous year quarter. Furthermore, the income from operation reported amounts to 202.2 million dollars compared to 166.4 million dollars for the previous year quarter. Dividend Growth Model In the side of dividends, there has been no significant growth in the dividend per share, unlike gearing per share which has grown to 57.57 percent excluding other items which are extra ordinary. Although there been a flat rate in the growth of dividends for the last five years, it has gone hand in hand with the averages of the industry in relation to its peers. If the company’s dividend growth rate is the same as the industry averages, it is recommended for one to invest to such a company stock. The worst happens if the growth rate is below the industry averages. The following data shows the share price, beta and risk free rates for the Crown Company for the year 2012. Price per share 57.57 Beta 0.40 Rate of risk free 5.5 A beta which is less than one shows a clear indication of the stability of the stock. It shows that the stock of Crown Company will not be negatively affected by the market uncertainties. As a potential investor, Johnnie can invest in this company. Furthermore, the net incomes, revenues and the gross profits have crowned gradually despite the fact that there was a world economic crises over the past few years9. The price earnings ratio and the dividend model can b used to show the value of the company’s stock whether it was overvalued or undervalued as compared to current, price per share of the stock. The earnings per share of the Crown Company for the last four years were as follows Year Earning per share 2008 1.4 2009 1.55 2010 1.66 2011 1.8 Intrinsic value is calculated by the company using the highest earning per share for the last ten years which was arrived at in using the mean growth rate and the highest earning per share. The average growth rate is arrived at using this formula A = p (1 + r) rose to n, where n is the number of years10. For instance, the following table shows the price earnings ratio of Crown Company the last eight years; Year 2005 2006 2007 2008 2009 2010 2011 2012 P/E ratio 24.0 28.6 31.9 20.0 19.0 17.1 14.5 15.10 When calculated, the share price of the company is far much below the industrial value of the shares. This means that Johnnie can invest in these shares as it has lower value compared to the industrial value.11. The dividends paid by the company for the last six years, showing the various changes are shown below Year Dividends 2007 0.58 2008 0.55 2009 0.64 2010 0.59 2011 0.67 2012 0.61 When the formula for growth model of dividend is used, the stock value calculated is; value = Do (1 + g) / k-g). The stock value was computed to be 60.67. CAPM Model For the Capital asset pricing model, this is a technique that help to demonstrate the relationship between the risk involved in making the investment decision, and the expected return rate of that particular investment. This model is therefore used in the pricing of such risk securities12. For the Crown Company, the capital asset pricing model computed shows that the company stock are not risk to invest in. Recommendation For Jonnie, one important recommendation is that he needs to consider investing more in stock. He will also consider to have ringed currency fluctuations by floating the other country’s reporting currency until the preferred rate is attained. When the company’s reporting currency either depreciates or appreciates beyond a given reference rate, the company will be paid in another foreign currency outside the reference rate. This reference rate is periodically set. Forwards market provides useful information for determining the anticipated change in exchange rates. When the foreign exchange market is working efficiently, the forward exchange rate will have to be the same as investor’s expected value of their returns in a period less than 3 months. Finally the combination of both business strategies and human resource management are very crucial for the success of Jonnie’s business, since it will improve the image within the public and at the same time improve the product name. Conclusion Jonnie should consider investing in this company by buying its stock. The goodness of investing in this company have been seen above including the earning per share of the company, price earnings ratio among other good qualities of the Crown Company. . References Smith, Julia A. 2007. Handbook of management accounting. Amsterdam: Cima Pub. Moyer, R. Charles, James R. McGuigan, and William J. Kretlow. 2006. Contemporary financial management. Mason, Ohio: Thomson/South-Western. Holland, John. 2011. Realms of atlantasia: the game masters bible. [S.l.]: Iuniverse Inc Borden, Arthur M., and Joel A. Yunis. 1982. Going private. New York, N.Y.: Law Journal Seminars-Press. Jin, Yong, Graham Earnshaw, and Rachel May. 2004. The book and the sword: a martial arts novel. New York [u.a.]: Oxford Univ. Press. Appendix 1: Gross Domestic Product Rates Year GDP Growth Rate Per capita Income 2011 918 2.3 40800 Appendix 2: Industrial Statistics Earnings per share 0.44 Market capital (in millions) 6,795 Value of enterprise (in millions) 8,054 Outstanding shares (in millions) 785 Appendix 3: Cost of equity Calculation Year Dividends 2007 0.58 2008 0.55 2009 0.64 2010 0.59 2011 0.67 2012 0.61 Do (1 + g) / k-g ). Appendix 4: Dividend Growth Year Dividends rate of return Calculations 2008 0.58 -0.05357 (0.53-0.58)/0.56 2009 0.55 0.169811 (0.62-0.55)/0.53 2010 0.64 -0.08065 (0.57-0.64)/0.62 2011 0.59 0.140351 (0.65-0.59)/0.57 2012 0.67 -0.09231 (0.59-0.67)/0.65 Average 0.018727583 Period 2005 2006 2007 2008 2009 2010 2011 2012 Price earnings ratio 24.00 28.60 31.90 20.00 19.00 17.10 14.50 15.10 Appendix 5 Time assortment: 9.54 - 9.65 Annual assortment: 7.79 - 9.70 Level: 315,199 Mean volume 3m: 1,544,980 Capital in market 7.05 Price earning 13.72 Earnings per share 0.70 Dividends yield _ Read More