Investment Banking Assignment Sample for Future Plc Assignment Sample

Investment Banking Assignment Sample for Future Plc

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Introduction - Investment Banking Strategies for Future Plc: Equity Valuation, Dividend Growth, and Cash Flow Projections

Investment Summary

In this project, the researcher is going to analyze the Future Plcs’ future financial position. Future Plc is following the investment strategies to build a financial structure in the company. The report analyzed the equity valuation, which indicated comparative evaluation, dividend growth model, cash flow to equity analysis, projection of the cash flow for the next few years, termination cash flow of the company as well discounting cash flow technique. Future Plc has followed the technical analysis, which includes the major impacts of the company and minimizes the negative threats from the company. The company has followed some strategic ideas to expand the revenue structure of the company. Financial performance indicates the companies’ several financial structures in the global market. It has been summarized that the company Future Plc has invested 55000 to 100000.

Introduction

The study is about the role of investment banking in the company FUTURE PLC; it will discuss the role of investment bankers and investment banking in the financial market of the UK. The banking sector plays a crucial role in the development of the economy and further growth of the company. In the economic outlook, it will analyze the growth of the UK economy and global, and discuss the last 6 months' performance of the UK stock market. Further, it will discuss the financial performance and Equity performance and technical analysis of the selected company Future Plc. in financial projection, it will discuss the company’s 5 years financial projection based on the previous 3 years financial performance.

Economic outlook

In the discussion of global economy or world economy, it has been identified that the expected growth of global is approx 6 % in the financial year of 2021 and can be 4.9 percent in 2022. Almost all countries have faced the covid 19 pandemic issue and in 2022 the war situation can be a reason for the low growth of the global. It has been estimated that the global growth in 2022 and 2023 is 3.6 percent. The global growth rate is decreased to 3.3 percent over the medium term (Saif-Alyousfi et al. 2018).

The economy of the UK considering a highly developed and market oriented economy. The economy of the UK considered as the sixth largest economy by GDP, and it is measured as the most globalized economy. As per the report the GDP of the UK in the financial year of 2022 is approx $ 3.320 trillion and the growth rate in the financial year of 2018 was 1.3 %, 1.4 % in 2019 -9.8 % in 2020 and happened due to the pandemic issue. It has been analyzed that the growth rate in 20222 is 4.2 %, and GDP per capita income is $ 49761 in the financial year of 2022. In the fiscal policy of the UK government, it has been identified that the government has reduced the rate of income taxes from 20 % to 19 % from 2024 April (Eisenberg 2018). It has been analyzed that the annual cost will be £ 5.3 billion in the financial year of 2024 and 2025, and it will be i9ncrease to approx £ 6 billion in the financial year of 2026 and 2027. The government has announced a temporary cut in fuel duty of 5p per liter for the financial year of 2022 and 2023. On the other hand, to support the fund the government has increased the household budget by £ 500 million for the financial year of 2022 and 2023 (Ademmer and Jannsen 2018).

Financial performance

Financial Performance

The financial performance of the Future Plc company is going well as it seems the company’s revenue structure is strong enough. The revenue of the company has increased by 48% and the organic growth of the company has increased by 4%..

Profitability Ratio:

Year	Gross Profit Ratio (Future Plc )	Formula	Amount	Ratio
2020	Gross Profit	(Gross Profit/Sales)*100	(176600/339600)*100	£ 52.00
Sales	£ -
Year	Gross Profit Ratio (Gannett )	Formula	Amount	Ratio
2020	Gross Profit	(Gross Profit/Sales)*100	(1371398/3,405,670)	40.27%
Sales	£ -
Year	Net Profit Ratio (Future Plc )	Formula	Amount	Ratio
2021	Net Profit	(Net Profit/Sales)*100	(44300/339600)*100	1304.48%
Sales	£ -
Year	Net Profit Ratio (Gannett )	Formula	Amount	Ratio
2021	Net Profit	(Net Profit/Sales)*100	(670479/3405670)*100	1968.71%
Sales	£ -

Table 1: Profitability Ratio

With the help of the financial ratio it will analyze that the liquidity ratio of the company indicates the liquid amount of the company, the company gaining a positive liquid amount. On the other hand the debt ratio of the company indicates that the company has not much more liability or debt in their company that they can reinvest in the business.

Liquidity Ratio:

Year	Current Ratio (Future Plc )	Formula	Amount	Ratio
2016	Current Assets	(Current Assets/ Current Liabilities)	95700/130000	0.74
Current Liabilities	£ -
Year	Current Ratio (Gannett )	Formula	Amount	Ratio
2016	Current Assets	(Current Assets/ Current Liabilities)	636686/741300	0.86
Current Liabilities	£ -

Table 2: Liquidity Ratio

Debt Ratio:

Year	Debt to Equity Ratio (Future Plc )	Formula	Amount	Ratio
2016	Debt	(Debt/Equity)	10600/381300	0.03
Equity	£ -
Year	Debt to Equity Ratio (Zip Ltd )	Formula	Amount	Ratio
2016	Debt	(Debt/Equity)	1,874,633/364,109	5.15
Equity	£ -

Table 3: Debt Ratio

Performance of UK media industry and Future Plc:

UK media industry and Future Plc performance
Particulars	Future Plc	UK media industry
Net profit ratio	2021	2020	2020	2021
Formula: Net profit/sales
Net profit	66.1	44.3	63.3	77.9
Sales	606.8	339.6	404.3	133.5
Ratio	11%	13%	16%	58%

Table 4: Performance of UK media industry and Future Plc

The pandemic situation of covid19 has late to a drastic impact on the financial performance of the Future Plc and on its industry on a hugew basis. It has been integrated from the financial data of the company that it has faced a certain fluctuation in making its sales and profitability position within the international market. Due to civier effect of covid19 issues regarding selling of product services has been seen with a major impact on the operational performance of the firm.

Calculation of BETA for the selected company

Calculation of BETA for the company future Plc
Formula	Covariance / Variance
Covariance	313725
Variance	316714
BETA	1.0

Table 5: calculation of BETA

Beta refers to the volatile price of stock in comparison to the overall stock market. It is a core of CAPM, which helps to calculate the cost of equity, which is an important input for the stock valuation. If The value of Beta is more than 1 then it indicates the price of share can swing widely. In the calculator of Beat for the company, it has been unidentified that the value is 1.

Equity valuation

Comparative valuation

Comparative valuation of Future plc and its competitors
Particulars	Future plc	Carnyx Group Ltd	Gannett Co. inc
Investors Ratios	2021	2020	2021	2020	2021	2020
Share price (average share price)	£ 176.87	£ 168.55	£ 95.70	£ 81.55	£ 125.74	£ 115.85
Net income	£ 606,800.00	£ 339,600.00	£ 458,700.00	£ 354,850.00	£ 125,840.00	£ 115,847.00
Basic weighted average number of shares	£ 19,676.79	£ 18,751.19	£ 7,485.00	£ 4,580.00	£ 5,985.00	£ 4,480.00
Earnings per share (£p)	£ 3,083.84	£ 1,811.09	£ 6,128.26	£ 7,747.82	£ 2,102.59	£ 2,585.87
Price-earnings ratio (P/E ratio)	0.06	0.09	0.02	0.01	0.06	0.04
Price to book value	2021	2020	2021	2020	2021	2020
Market capitalization	£ 3,454,260.05	£ 3,291,770.97	£ 1,313,991.75	£ 804,019.00	£ 1,050,666.75	£ 786,464.00
Book value of Equity	£ 862,300.00	£ 381,300.00	£ 435,765.00	£ 337,107.50	£ 119,548.00	£ 110,054.65
Price to book value	4.01	8.63	3.02	2.39	8.79	7.15

Table 6: Comparative valuation of Future plc and its competitors

The value of the terminal cash flows for the year 2023 is estimated as £57500 which can be invested within the business for gaining a stipulated volume of profit.

Valuation based on using dividend growth model

Valuation using Dividend Growth Model
Particulars	2021	2020	2019
Dividend per share to be paid for the next 12 months period	£ 3,826.92	£ 1,735.03	£ 1,223.03
Reasonable dividend growth rate	6%	3%	3%
Rate of return of the investors	7.50%	6.50%	5.10%
Value of shares	£ 191,346.00	£ 49,572.29	£ 50,959.58

Table 7: Valuation using Dividend Growth Model

Valuation associated with cash flow to equity analysis

Evaluation of the cash flows for the last three years - Several investment strategies such as value investing strategies, contrarian investment strategies and passive strategies played an effective role in making financial decisions within the business (Soboleva et al. 2018). 

Cash flow projection of for the next five years

Future plc
Cash Flow Projection for 5 years
Particulars	2023	2024	2025	2026	2027	Total
Sales	£ 125,000.00	£ 140,625.00	£ 158,203.13	£ 177,978.52	£ 200,225.83	£ 802,032.47
Other Income	£ 25,500.00	£ 27,285.00	£ 29,194.95	£ 31,238.60	£ 33,425.30	£ 35,765.07
Total Cash Inflow	£ 150,500.00	£ 167,910.00	£ 187,398.08	£ 209,217.11	£ 233,651.13	£ 837,797.54
Capital Expenditure	£ 1,505.00	£ 1,679.10	£ 1,873.98	£ 2,092.17	£ 2,336.51	£ 9,486.76
Direct costs - materials	£ 3,010.00	£ 3,358.20	£ 3,747.96	£ 4,184.34	£ 4,673.02	£ 18,973.53
Wages and salaries	£ 2,257.50	£ 2,518.65	£ 2,810.97	£ 3,138.26	£ 3,504.77	£ 14,230.14
Rent and rates	£ 6,020.00	£ 6,716.40	£ 7,495.92	£ 8,368.68	£ 9,346.05	£ 37,947.05
Insurance	£ 7,525.00	£ 8,395.50	£ 9,369.90	£ 10,460.86	£ 11,682.56	£ 47,433.82
Bank Charges	£ 1,505.00	£ 1,679.10	£ 1,873.98	£ 2,092.17	£ 2,336.51	£ 9,486.76
Light, Heat & Power	£ 2,257.50	£ 2,518.65	£ 2,810.97	£ 3,138.26	£ 3,504.77	£ 14,230.14
Telephone	£ 3,010.00	£ 3,358.20	£ 3,747.96	£ 4,184.34	£ 4,673.02	£ 18,973.53
Advertising	£ 15,050.00	£ 16,791.00	£ 18,739.81	£ 20,921.71	£ 23,365.11	£ 94,867.63
Print, Post, Stationery	£ 4,515.00	£ 5,037.30	£ 5,621.94	£ 6,276.51	£ 7,009.53	£ 28,460.29
Motor & Travel	£ 752.50	£ 839.55	£ 936.99	£ 1,046.09	£ 1,168.26	£ 4,743.38
Professional Fees	£ 2,257.50	£ 2,518.65	£ 2,810.97	£ 3,138.26	£ 3,504.77	£ 14,230.14
Miscellaneous	£ 22,575.00	£ 25,186.50	£ 28,109.71	£ 31,382.57	£ 35,047.67	£ 142,301.45
loan repayment	£ 1,505.00	£ 1,679.10	£ 1,873.98	£ 2,092.17	£ 2,336.51	£ 9,486.76
Loan interest	£ 16,555.00	£ 18,470.10	£ 20,613.79	£ 23,013.88	£ 25,701.62	£ 104,354.39
VAT	£ 4,515.00	£ 5,037.30	£ 5,621.94	£ 6,276.51	£ 7,009.53	£ 28,460.29
Corp Tax
Total Cash Outflow	£ 94,815.00	£ 105,783.30	£ 118,060.79	£ 5,256.00	£ 147,200.21	£ 471,115.30
Net Cash Flow	£ 55,685.00	£ 62,126.70	£ 69,337.29	£ 203,961.11	£ 86,450.92	£ 366,682.24
Opening Bank Balance	£ 50,000.00	£ 105,685.00	£ 167,811.70	£ 237,148.99	£ 441,110.10	£ 50,000.00
Closing Balance	£ 105,685.00	£ 167,811.70	£ 237,148.99	£ 441,110.10	£ 527,561.02	£ 416,682.24

Table 8: Cash flow projection of for the next five years

The main purpose behind the cash flow projection for the upcoming five years is that it helped in making the analysis effective and helped in accumulating the financial results (Harris and Roark, 2019).

Determination of the terminal cash flow of the company

Future plc
Terminal cash flow projection for the next 5 years
Particulars	2023	2024	2025	2026	2027	Total
Actual proceeds received from the disposal	£ 575,000.00	£ 646,875.00	£ 727,734.38	£ 818,701.17	£ 921,038.82	£ 3,689,349.37
The identification of the book value of the disposal	£ 431,250.00	£ 323,437.50	£ 242,578.13	£ 181,933.59	£ 136,450.20	£ 146,001.71
Evaluation of the tax rate into the disposal	30%	30%	30%	35%	35%	30%
Total tax derived on disposal	£ 43,125.00	£ 97,031.25	£ 145,546.88	£ 191,030.27	£ 235,376.59	£ 712,109.99
After tax proceeds received from the disposal	£ 100,625.00	£ 226,406.25	£ 339,609.38	£ 445,737.30	£ 549,212.04	£ 1,661,589.97
The evaluation of the relative changes in disposal	£ 474,375.00	£ 420,468.75	£ 388,125.00	£ 372,963.87	£ 371,826.78	£ 2,027,759.40
Terminal cash flows	£ 57,500.00	£ 129,375.00	£ 194,062.50	£ 254,707.03	£ 313,835.45	£ 949,479.98

Table 9: Terminal cash flow projection for the next 5 years

The terminal cash flow of the company has been determined to help in evaluating the financial volume and the relative managerial strengths of the business (Afiezan et al. 2020).

Value per share based on discounting cash flow technique

Discount Rates
Year	10%
0	1.00
1	0.91
2	0.83
3	0.75
4	0.68
5	0.62

Period	Year 1	Year 2	Year 3	Year 4	Year 5
Cash flows	£ 125,000.00	£ 140,625.00	£ 158,203.13	£ 177,978.52	£ 200,225.83
Discounting factor	0.91	0.83	0.75	0.68	0.62
Present value of shares	£ 113,636.36	£ 116,718.75	£ 118,652.34	£ 121,025.39	£ 124,140.01
Sum of the value of shares	£ 594,172.86

Table 10: Discounted cash flow technique

The discounted cash flow technique has been used to determine the present value of shares of the Future plc (Future plc annual report, 2021). Appropriate discounting factors and the sustainable financial volume of the business has been used that helped in determining the financial activities of the business (Future plc annual report, 2021). Based on using the several student managed investment fund theories and prospects, it helped in determining how much should need to be invested with the shares of the organization (Gülec and Bektas, 2019).

Technical Analysis

Technical analysis is the method of forecasting to identify the strategic directions of the business of ‘Future Plc’. Specific analysis identifies investment opportunities with the help of a systematic pattern. Technical analysis sometimes described the trading discipline to evaluate more opportunities for the business. Understanding technical analysis efficiently scrutinized the supply chain management as well as changes in price volume. Conjunctions with the other form of research ‘Future Plc’ has focused on the technical analysis to improve price charts and major limitations. Technical analysis helps individual investors and traders to identify as well as navigate the gap in the market. As per the opinion of Wójcik et al. (2018), the difference between a range of contraction and expansion is clearly described by the technical collaboration. In order to, the maintenance of the secretarial reports, technical analysis involves reasonable assurance to monitor financial records or activities.

The recent technological development of future Plc is product offering with the help of digital way. The fastest technological assumption is the efficient way and that can be maintained by the ‘Future Plc’. Identify the technological impact s necessary to minimize unwanted threats to the company. Targeting net-zero GHG emission is the scope 1 conducted by the company to identify business objectives (Annualreports.com, 2022). The rate of technological diffusion is necessary and most consumers identify the necessary services due to technological assumptions (Knight et al. 2018). The impacts of the cost structure, as well as value chain structure, are improving by the technological opportunities. The technological analysis identifies the basic impact of the global platform by using a responsible technological strategy. In order to, ‘Future Plc’ rebuilds the way of representation through the diversity and involves more opportunities among the colleagues. A unique opportunity has been considered by the ‘Future Plc’ and that efficiently controls technological disruptions in the business process.

Financial Projection

On the basis of the next 5 year financial performance of the Future PLc it has been analyzed that the Future Plc will increase their performance. On the other hand, the dividend growth model of the company indicates that the company has a large amount of revenue in their firm. By which the company Future Plc can reinvest in the business and expand the net income.

Recommendation 

The valuation of the market price of ‘Future Plc’ has efficiently been compared to the company's share price. An appropriate action plan needs to involve in the company to manage technological disruptions of the entire business. ‘Future Plc’ always focuses on the technical analysis and that need to improve to more accurately manage major business risk. In order to, highlight the major risk technological knowledge is necessary and that can be involved in valuations methods to identify the threats (Pažitka et al. 2021). The market prices of the business company are measured by the technical analysis. Based on the technical evaluation, the management believes plant and equipment over their estimated value are compared by the straight-line methods. The residual value, as well as depreciation methods, is focusing on the financial reports to identify and rebuild the economical aspects of the business industry.

The acquisition of the business is considered the fair value and formally identifies company’s liability. The assets and liabilities of the business are assumed by the fair value, and certain lease arrangement methods are recoverable by the fair value. Fundamental analysis is the method of measuring the stock value of the company and computing the real worth of the company. The absolute valuation models are used by the ‘Future Plc’ and that can be computed by the annual reports. Individual financial managers need to be conscious to compares the transaction methods of the entire organization. In order to, identify the company's share price is necessary to compute companies P/E ratio. Sell: analysis recommends that sell anytime companies stock decreases in value in the near term (Morrison and Wilhelm Jr, 2019). The valuation of the company is based on the technical analysis that needs to be prepared by the company's financial analysis methods.

The quantitative process helps to determine the fair value of the company’s assets and compares the assets of similar companies. However, the analyst traditionally classifies the important methods to take appropriate action to “Buy, hold or sell”. Buy also is known as a purchase of specific security on the other hand sell is representing the sell a security if liquidating the assets (Jurayevich and Bulturbayevich, 2020). The analyst recommendations for buying, holding, or selling the assets are crucial moments that can be monitored by the technical analysis methods. The potential risk of ‘Future Plc’ is assuming companies shrinking and that shrinkage can be involved competitive markets in the business. In order to, acquire add value identifying the extra risk is necessary that can be minimizing the debt and limitations. The potential risk factors of the business are measured by the technical analysis and that minimizes the major business difficulties. 

The fully possible transitions of the management are involved by the MBO by enhancing sales volume and accurately developing customer services. The total earnings of the employees are depends on the management systems that can efficiently achieve the organizational targets (Khan et al. 2020). Define individual employees' objectives and performance evaluation as well as continuously monitor performance progress by providing efficient feedback involved by the MBO. The targets of the MBO need to develop to identify the achievable targets of the company. MBO is generally used by the management to enhance the motivational levels through strategic planning. The abilities of the performance management are needed to develop by MBO to achieve future succession plans of the business. Throughout the management decisions ‘Future Plc’ is needed to achieve objectives by using a strategic management model.

Conclusion

Based on the above context it can be finalized that an investment summary is necessary for the business and that can identify the major economical threats. In order to compare financial performance most, the business organizations are focusing on the MBO to achieve business objectives. The three separate methods are P/E ratio, and P/B ratio is useful to identify the comparative advantages of the ‘Future Plc’. The reasonable assumptions are measured by the company to identify the major threats to the business. The cash flow of the company's discounted rates is necessary to identify and analyze the basic limitations. The absolute valuation models are used by the ‘Future Plc’ and that can be computed by the annual reports.

Reference list

Journals

Ademmer, M. and Jannsen, N., 2018. Post-crisis business investment in the euro area and the role of monetary policy. Applied Economics, 50(34-35), pp.3787-3797.

Afiezan, A., Wijaya, G. and Claudia, C., 2020. The Effect of Free Cash Flow, Company Size, Profitability and Liquidity on Debt Policy for Manufacturing Companies Listed on IDX in 2016-2019 Periods. Budapest International Research and Critics Institute-Journal (BIRCI-Journal) Vol, 3(4), pp.4005-4018.

Akiyoshi, F., 2019. Effects of separating commercial and investment banking: Evidence from the dissolution of a joint venture investment bank. Journal of Financial Economics, 134(3), pp.703-714.

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Harris, C. and Roark, S., 2019. Cash flow risk and capital structure decisions. Finance Research Letters, 29, pp.393-397.

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Morrison, A.D. and Wilhelm Jr, W.J., 2019. Two Modes of Investment Banking: Technocrats, Relationship Managers, and Conflict. Journal of Applied Corporate Finance, 31(4), pp.105-117.

Pažitka, V., Urban, M. and Wójcik, D., 2021. Connectivity and growth: Financial centres in investment banking networks. Environment and Planning A: Economy and Space, 53(7), pp.1789-1809.

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Soboleva, Y.P., Matveev, V.V., Ilminskaya, S.A., Efimenko, I.S., Rezvyakova, I.V. and Mazur, L.V., 2018. Monitoring of businesses operations with cash flow analysis. International Journal of Civil Engineering and Technology, 9(11), p.2034.

Wójcik, D., Knight, E. and Pažitka, V., 2018. What turns cities into international financial centres? Analysis of cross-border investment banking 2000–2014. Journal of Economic Geography, 18(1), pp.1-33.

Wójcik, D., Knight, E. and Pažitka, V., 2018. What turns cities into international financial centres? Analysis of cross-border investment banking 2000–2014. Journal of Economic Geography, 18(1), pp.1-33.

Wójcik, D., Knight, E., O’Neill, P. and Pažitka, V., 2018. Economic geography of investment banking since 2008: The geography of shrinkage and shift. Economic Geography, 94(4), pp.376-399.