Tamawood
Executive Summary
The purpose of the report is to ascertain an accurate value for Tamawood Limited for the benefit of potential acquirers. Firm value was obtained by conducting a thorough analysis of its commercial activities and financial statements, including a business strategy analysis, accounting analysis, financial analysis, equity analysis, a forecast and firm valuation
Tamawood Limited is a small firm in the residential construction industry with operations predominantly in Queensland and New South Wales. The initial analysis reveals that Tamawood’s main objectives are to maximise net income and shareholder wealth due to the impending retirement of the managing director. Despite a diversification strategy, growth for the last few years has been a low priority as evidenced by large dividend payouts.
The earnings quality of Tamawood is quite poor, which points towards manipulation by management to achieve a desired outcome. Although they have in place suggested corporate governance measures, there are still inadequacies that make it possible for earnings management to occur.
Tamawood appears to be quite profitable because its return on equity is relatively high. However, with net income considerably higher than its cash flows from operations, the sustainability of these earnings is questionable. One of the healthy aspects of Tamawood’s financial position is a debt-free financing policy, making the firm quite resilient during financial downturns.
The forecast for Tamawood was based on the preceding analysis, current trends, economic/industry forecasts and interim figures. It is forecasted that Tamawood’s negative growth over the last few years will continue for another year and then slowly increase to around 5.5% in 2015 and beyond.
The two valuation methods performed were the free cash flow to equity model and the three-stage dividend discount model, with the firm valued at $92 million and $107 million respectively, and the share price valued
The purpose of the report is to ascertain an accurate value for Tamawood Limited for the benefit of potential acquirers. Firm value was obtained by conducting a thorough analysis of its commercial activities and financial statements, including a business strategy analysis, accounting analysis, financial analysis, equity analysis, a forecast and firm valuation
Tamawood Limited is a small firm in the residential construction industry with operations predominantly in Queensland and New South Wales. The initial analysis reveals that Tamawood’s main objectives are to maximise net income and shareholder wealth due to the impending retirement of the managing director. Despite a diversification strategy, growth for the last few years has been a low priority as evidenced by large dividend payouts.
The earnings quality of Tamawood is quite poor, which points towards manipulation by management to achieve a desired outcome. Although they have in place suggested corporate governance measures, there are still inadequacies that make it possible for earnings management to occur.
Tamawood appears to be quite profitable because its return on equity is relatively high. However, with net income considerably higher than its cash flows from operations, the sustainability of these earnings is questionable. One of the healthy aspects of Tamawood’s financial position is a debt-free financing policy, making the firm quite resilient during financial downturns.
The forecast for Tamawood was based on the preceding analysis, current trends, economic/industry forecasts and interim figures. It is forecasted that Tamawood’s negative growth over the last few years will continue for another year and then slowly increase to around 5.5% in 2015 and beyond.
The two valuation methods performed were the free cash flow to equity model and the three-stage dividend discount model, with the firm valued at $92 million and $107 million respectively, and the share price valued
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