Essay: Debt And Share Valuations Analysis - Genetic Technologies Limited Case Study.

Introduction of Report

Every individual has some savings with his or her. They save some amount form their income or other sources to keep the amount for urgency or for raising the worth of that amount. In this report, the share market has been analyzed in which the individual could invest the amount and get back the amount whenever needed. This report has been prepared over the comapny, Genetic technologies limited. This company’s financial performance and the positive have been analyzed to depict the individual that whether they must invest into the comapny or not. While preparing this report, analyst and various financial website have been taken into the knowledge to get a better result.

GENETIC TECHONOLOGY LIMITED is a diagnostic comapny. This comapny provides assessment and testing tolls to assist the physicians in managing the women’s health proactively. This comapny has its operations into Australian as well as various other markets. The comapny has a market of around $ 600 million annually. The performance and the market share of the comapny is enhancing gradually (Home, 2017). And according to the analysis over the comapny, future market of the comapny would be better.

Analyzing the debts of a comapny depict the users about the performance of the capital. Debt valuation study has been conducted. According to this study, the short term debt and long term debt of the comapny has been raised through bank overdrafts, commercial bills and creditors support whereas the long term debt is raising thorough the debt and equity of the comapny. The debt structure of the comapny and its industry are as follows:

According to this study, the level of long term debt as well as the level of short term debt of the comapny is not equivalent. The comapny has neither raised the short term debt nor long term debt from last 2 years. Comapny is managing the entire funds through the equity only. According to this report, it has been analyzed that this comapny is required to manage the debt level as well as to get an optimal capital structure (Gapenski, 2008).

The genetic technologies limited is managing the financial performance is a better manner as whole but it is not taking any kind of risk and that is why the cost of the comapny is enhancing. The comapny is requisite to analyze the industry’s debt level and make the changes according to the debt level into the performance of the comapny. Currently, if the comapny wants to raise the funds through the debts than the following cost would be occurred:

Genetic Technologies Ltd

According to the table, the cost of debt of the comapny is 4.20% which depict that the comapny just have to bear 4.2% for each shareholder to raise the capital through the debts.

Analyzing the shares of a comapny depict the users about the performance of the capital. Share valuation study has been conducted. According to this study, the total cost of the equity of the comapny is 7.3032%. The table of cost of equity is as follows:

The revenue, earnings, dividend, growth, EPS etc of the company has been evaluated. The EPS of the GENETIC TECHNOLOGIES LIMITED is -0.73. The growth rate of the comapny is 7% (Morningstar,, 2017). The dividend expected from the comapny by the shareholders is -0.00326. The earnings and the revenues of the comapny from last 5 years are as follows:

According to this report, the revenue of the comapny and the earnings of the comapny are getting down and depict that the company is losing its market due to various factors.

The stock price of the comapny has been evaluated to analyze that whether the market stock price of the comapny is according to the factors and activities of the comapny or to has been undervalued or overvalued by the comapny (yahoo finance, 2017). The tables are as follows:

The stock prices of the comapny according to the PE multiple models and the dividend discount model is -8.40 and -0.009629 whereas the share price of the comapny is $ 2.42. According to both the evaluation model, it has been resulted that the share price of the comapny has been overvalued and the analyst are required to consider this factor. The P/E model is mainly influenced by the PE ratio and the EPS of the comapny whereas the dividend discount model get influenced through the expected dividend, discount rate, growth arte etc. (Bloomberg, 2017)

According to this study, it has been found that the DDM model is more approachable as this factor considers the marketing factor more than the internal factor of the comapny and thus the result of DDM factor could be more reliable. So the intrinsic value of the shares is -0.009629.

Additionally, various other aspects are also available in the economy which affects the share price of a comapny directly, according to this study, it has been found that the analyst must look over the turnover, members, projects industry market etc to analyze the intrinsic value of the shares as these factors are much more important for the comapny then the PE ratio and the expected dividend (Glajnaric, 2016).

Analysis of Debt Valuation

Analyzing the cost of capital of a comapny depict the users about the performance of the capital. WACC valuation study has been conducted. According to this study, the total cost of the capital of the comapny is 7.3032%. The table of cost of capital is as follows:

(Yahoo finance, 2017)

The Australian slab rate and tax rate depict about 30% tax rate for the comapny. 30% tax rate has been used while calculating the data of the comapny. According to the WACC table, the cost of debt and the cost of equity of GENETIC TECHONOLOGIES LIMITED is 0.042 and the 0.07303. The cost of both the sources is different due to the different nature. Cost of equity does not consider the tax factor whereas the cost of debt considers the tax factor. This is the main reason behind differences.

Current liabilities of the comapny occurs the short term cost of the comapny whereas the WACC is calculated to analyze the long term cost of the comapny. Thus this must not be included into the WACC calculations. The pros of not including is the better result and if it is included than it becomes easy for the management to analyze the total long term and short term cost of the comapny (Google finance, 2017).

According to the calculations, the total cost of the comapny is 0.07303 which totally occurred through the equity of the comapny as comapny did not enhance the level of the debt for the funds. This calculation helps the comapny to maintain a better level of capital structure.

Currently, this comapny has researched over a new medicine for the health of the comapny and adopt various new technologies to get a better result. For both of these projects, comapny required to enhance the level of the sources. And for both the projects, comapny enhanced the level of equity rather than the debt for not taking any kind of risk related to the market and other factors (Dixon and Monk, 2009).

The current capital structure of the comapny depict that comapny do not have a single penny of debts to manage the level of capital of the comapny. According to this study, it has been found that the entire funds of the comapny are through the equity funds only whereas the industry’s data depict that the debt and equity both must be raised up for the company’s funds. Following are the level of the capital structure of the comapny and the industry:

Analysis of Share Valuation

Capital structure of comapny

(AFR, 2017)

According to this evaluation, the capital structure of the comapny is not at all equivalent with the comapny and the company is required to make the changes into it.

The optimal capital structure is a level of the debt and the equity of an organization where the comapny become more profitable in context of the risk as well as the cost. The optimal capital structure must be set by the comapny according to the market and economical condition (Hillier, Grinblatt  and Titman, 2011). The capital structure of the comapny is not good and the comapny is required to raise the level of the debt.

Market analysis study has been performed over the GENTIC TECHONOLOGIES LIMITED to analyze that whether the performance of the comapny is according to the market condition or not (Jiashu, 2009). The financial performance of the comapny is decreasing by a great level and the comapny is required to maintain and enhance it.

Various financial analyst studies have been read over the comapny and it has been analyzed that the performance of the comapny is not at all good. Comapny is required to make various changes into its performance to manage the level of the revenue as well as the capital structure (Voelkl and Fritz, 2017). The capital structure of the comapny is not optimal and the managers are suggested to enhance the level of the debt so that the risk could be average and the cost of capital could be reduced (Morningstar, 2017). Comapny is required to make the changes into its financial policies to maintain the market (Yahoo finnce, 2017). The health factors are increasing and comapny must use this opportunity to enhance and grab the market share (Google finance, 2017).

Conclusion

To conclude, the comapny has failed to manage the activities and opportunities in a better manner. Company is required to reduce the level of the equity and enhance the level of debt to make an optimal structure of the capital and comapny must grab the opportunity and enhance the level of the market share.   

References:

AFR. 2017. GENETIC TECHONOLOGY LTD. Retrieved from https://www.afr.com/research-tools/GNEE/company-profile/operational-history available on 14th Oct 2017.

Bloomberg. 2017. GENETIC TECHONOLOGY LTD. Retrieved from https://www.bloomberg.com/quote/GENE:AU available on 14^th Oct 2017.

Dixon, A.D. and Monk, A.H., 2009. The power of finance: accounting harmonization's effect on pension provision. Journal of Economic Geography, 9(5), pp.619-639.

Gapenski, L.C., 2008. Healthcare finance: an introduction to accounting and financial management. Health Administration Press.

Glajnaric, M., 2016. The importance of dividend paying stocks. Equity, 30(2), p.6.

Google finance. 2017. GENETIC TECHONOLOGY LTD. Retrieved from https://finance.google.com/finance?q=ASX:GENE available on 14^th Oct 2017.

Hillier, D., Grinblatt, M. and Titman, S., 2011. Financial markets and corporate strategy. McGraw Hill.

Home. 2017. GENETIC TECHONOLOGY LTD. Retrieved from https://gtgcorporate.com/ available on 14^th Oct 2017.

Jiashu, G., 2009. Study on Fair Value Accounting——on the essential characteristics of financial accounting [J]. Accounting Research, 5, p.003.

Morningstar. 2017. GENETIC TECHONOLOGY LTD. Reterived from https://financials.morningstar.com/company-profile/c.action?t=GENE&region=usa&culture=en-US available on 14^th Oct 2017.

Voelkl, B. and Fritz, J., 2017. Relation between travel strategy and social organization of migrating birds with special consideration of formation flight in the northern bald ibis. Phil. Trans. R. Soc. B, 372(1727), p.20160235.

Yahoo finance. 2017. GENETIC TECHNOLOGY LIMITED. Retrieved from https://finance.yahoo.com/quote/gene.ax?ltr=1 available on 3^rd Oct 2017.