Business Valuation and Financial Analysis - Essay Example

ATO is an indicator of the efficiency of utilization of assets to generate earnings for the company, and a forecast of this indicator ATO is provided in table no. 2. The value forecasted is considered to be stable over the next five years. Furthermore, it was necessary to forecast the net dividend payout and taking into consideration that it is usually a stable indicator over the years, it was considered to be 35%. The small percentage considered has the intuition that the company will reinvest the other part of the profit in investments, which can provide growth to the company (Fabozzi and Drake, 2009).

The forecast for this indicator is provided in table no. 4. The last indicator forecasted was the after-tax cost of debt, which is important considering also the level of leverage of the company (depicted in figure no. 2). The value for this indicator is considered to be stable and is provided in table no. 5. The forecasted leverage is decreasing for the period 2011-2013, and after that is considered an increase in the amount of borrowed resources. A higher leverage ratio can be attractive for the company because debt is deductible, and can be more beneficiary for the company.

In order asses the company’s performance for past years and opportunities for the future years, it were analyzed some financial ratios because (Elliot and Elliot, 2011). These financial ratios were computed by using information from the balance sheet and income statement. According to Needles and Powers (2010), the liquidity ratios (e.g. current, quick ratios) measure the company’s ability to meet its short-term obligations. An overview of the most important financial ratios is provided in table no. 6. In order to reach the forecasted sales growth ratios the company will need to invest more in marketing for its products, and probably a more