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Financial Management



Company valuation

Table of Contents1.0.Company profile of DBS group31.1.Organisation operational area31.2.DBS group holding limited net interest income position42.0.SWOT analysis53.0.Porters Five Forces analysis of DBS64.0.Ratio analysis75.0.Du Pont analysis126.0.Valuation156.1.Assumption156.2.CAPM model176.3.Risk-free rate176.4.Market Risk premium176.6.Dividend discount Model186.7. Free cash flow to equity model216.8. Price earnings ratio model236.9. Price book value ratio method256.10. Net tangible asset backing method287.0. Valuation Discussions297.8. Conclusion31REFERENCES32

1.0 Company profile of DBS group: DBS group holding limited is incorporated in republic of Singapore in 1968. The organisation is an investing holding company which operates through the main subsidiary of DBS bank limited. DBS is enlisted in Singapore Stock Exchange. Primary activity of DBS is to invest in its fully owned subsidiary like small and medium size enterprise, corporate and investing banking services etc. In spite of investing in fully owned subsidiary the group has also so many associates and joint ventures. It has prepared its financial report through group accounting system.Organisation operational area:The organisations financial business is segmented in the four parts customer or private banking, institutional banking, treasury and others. Customer or private banking serves the individual customers a range of products and financial services. Institutional banking serves the institutional clients including the bank and non-bank financial institution, large corporate, government linked companies and small and medium sized business. Treasury provides the treasury service to the institutions and private shareholders, corporations and to other market participants. Other is encompassed a range of activities from corporate decisions. The customer of the DBS holding company spreads in other countries: Hongkong, Singapore, India, China, Indonesia, and Malaysia and other countries. The organisation provides different services: currents and savings account, loan and home finance, credit card, fixed deposits and investment products. Enterprise banking segment provides the credit facilities like; over draft, account receivable purchase, trade services and financing, hire purchase and govt. financing etc. Corporate and investing banking segment provides the modified financial solution to the corporate and institutional clients. The DBS Holding organisation provides the equity services through DBS Vickers securities. The financial statement of the DBS is prepared in accordance with the FRS and promulgated by the ASC. The organisations income statement is not included in the financial statement. In the recent year the groups again adopt new revised INT FRS. DBS groups subsidiaries have the power to govern the financial and operating policies. The subsidiaries company has 50% voting rights (Robinson, 2008). DBS group follows the acquisition method to account the total business performance. The acquisition is measured as the date fair values of the asset transferred, the liabilities incurred and the equity interest issued. Acquisition related cost is expensed as incurred. Identifiable assets are acquired and liabilities or contingent liabilities are assumed as initially at the fair value on the date of acquisition. Joint venture of the DBS group are jointly controlled the group together through the contractual arrangements.1.1. DBS group holding limited net interest income position:Revenue($ millions) 2009 20102011

Net interest income 611456996555

The organisation net interest income in 2009 is $ 6114 million. That is decreased in 2010 at the rate of 6.79%. The reason behind this change is the new adopted FRS which is applied in the current financial year. In 2011, the net interest income of the group has also increased ($ 6555 millions). That is 15.02%. That affects the total income of the organisation in a large extent (7.40%). The organisations group performance is quite good in the recent years. Total income of the DBS has increased in this year (7.98%). Expense of the organisation has reduced in great extent (17.18%). In this year DBS did not provide any goodwill charges but in 2010 organisation provided the good will charges ($ 1018 million). So automatically the expense of the DBS group increase.

Share of profit associates with the organisations profit i.e. 24.5%. It also increases the DBS profit in the year 2011. Profit before tax of the organisation increases in this year at 61 percentages. It indicates that the organisation performance in the recent year is very good. DBS net profit for the year is $3290 million which increases in this year 76.88 percentages. It extends the organisations operational work to more efficient way (Sorensen & Willamson, 2007).

2.0. SWOT analysis:2.1. Strengths: The stronghold of DBS is its market share in Singapore and Hong Kong. The products and service offerings of DBS are diversified in nature and will help them in occupying more customers and generating bigger revenues (Krschner, 2008). Global Finance awarded DBS Best Bank in Singapore and Safest bank in Asia. These awards will take the brand image of the company at a higher level earning more customer loyalty. They have expanded their business in 15 countries serving around 4 million customers. In comparison to the other players in the industry the dividend yield provided by DBS is much better. The work force of DBS also contributes to the success of the company. They have around 20000 experienced and skilled professionals working for them in all their branches (Elton et al. 2009).2.2. Weakness: The main weakness of DBS is their low operations in the European and US market. Another main problem being faced by DBS is that the major portion of the revenues is coming from the banking and treasury sector. The other offerings are not being capable to generate the expected revenues (Brealey et al. 2008). 2.3. Opportunity: DBS has a good reputation and brand image in the banking industry. The asset management industry is also growing and the market entry barriers are very low (Bodie et al. 2008). Growth in the rate of retail savings and investments in the Asia pacific region provides a scope for taking their market share to a higher level. Developing neighboring countries like India offer opportunities of expansion and growth to the company.2.4. Threats: The effects of the global economic meltdown are still being faced by many industrial sections lowering the rate of investments (Levy, 2011). Moreover ambiguity in the Asian market and the global financial market will also affect the operations of DBS. The competition in the banking sector is increasing with more European banks entering Asian market and the market space is getting compressed. Liquidity regulations also affect the global banking sector (DeAngelo et al. 2007). 3.0. Porters Five Forces analysis of DBS:3.1. Threats of new entrants (Moderate): Banking sector is growing rapidly and though new banks are not coming up as a threat; other multinational banks are entering the Asian market. Banks like Standard Chartered, Deutsche Bank are growing their business in countries like India, Sri Lanka, Japan, etc. These countries are potential customers for DBS and can help them in growing their business and revenues.3.2. Power of Suppliers (Less): The power of suppliers majorly relies on the government grants and other supports. The power of supplier is negligible in the banking sector and does not influence the operations of DBS on a larger extent. However, the threat of losing employees may be high as other banks offering more remuneration may tempt skilled employees to switch.3.3. Power of Buyers (High): The buyers in the banking sector mainly refer to the consumers and other banks interacting with DBS. The products offered by the banks must be capable of attracting customers. As there are number of competitors available in the market, the buyers have many options to choose from. However, the brand image of DBS will help it in negotiating the power of the consumers (Woelfel, 2009).

3.4. Availability of Substitutes (High):The competition in the banking industry is very high. Apart from the local and regional banks, European multinational banks are also affecting the market of DBS. The products offered and the benefits provided by the competitors should be analyzed by DBS. Banks like Standard Chartered, Deutsche Bank are conquering the market of DBS.

3.5. Competitive Rivalry (High): The banking sector is extremely competitive. DBS should launch new and better products for their customers so that competitors dont think about switching their bank (Wahlen & Brown, 2010). The competition will tend to increase with the growth of the market, DBS cannot control the growth but they can formulate ways to minimize the competition by taking themselves to a higher level. 4.0. Ratio analysis: Ratio analysis is a tool which primarily uses for the measurement of the organisations financial performance. It is actually a quantitative analysis process. In this part author compares the three years financial position of DBS group holding limited.4.1. Net profit ratio in 3 years of the DBS group:PARTICULARS200920102011

NET PROFIT RATIO30.9126.32343.114

4.1.1. Analysis:Net profit ratio of the DBS group holding limited exposes the height of the profitability. The above table says that in 2009 the organisations profit is 30.91% which percentage is decreased in 2010 (4.587%). In 2009, DBSs profit percentage has increased at the rate of 25%. DBS is in well position to capture the opportunities for Asia resurgence. In 2010, it is slightly downward. That is 26.32%. After 2010 the net profit of the organisation is become high (43.14%). Foreign exchange differences is the another reason to increas


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