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Sainsburys valuation analysis using the models of dividend growth and cash flow - Essay Example

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Sainsburys valuation analysis using the models of dividend growth and cash flow

from the financial statement of the company) Dividend       2011 2010 Amounts recognized as distributions to equity holders in the year: 10.2 9.6 Final dividend of prior financial year 4.3 4 Interim dividend of current financial year 14.5 13.6 After the balance sheet date, a final dividend of 10.80 pence per share (2010: 10.20 pence per share) was proposed by the Directors in respect of the 52 weeks to 19 March 2011, resulting in a total final proposed dividend of ?201 million (2010: ?189 million). The proposed final dividend has not been included as a liability at 19 March. Return to shareholders underpinning performance in the year was a 2.3 per cent rise in like-for-like sales (including VAT and excluding fuel). This is the sixth consecutive year of growth which has enabled the Company to maintain a good level of shareholder returns. The recommended full year dividend of 15.1p is 6.3 per cent higher than the previous year. http://annualreport2011.j-sainsbury.co.uk/downloads/pdf/sainsburys_ar11_note_10_dividend.pdf The business needs the following: Accurate and timely dividend information enhanced by option market prices A dividend staff steeped in option experience Empirical studies of the forecasting effectiveness The dividend-price ratio changes over time due to deviation in expected returns and in forecasts of dividend growth. The company needs to change the dividend-price ratio to cut off the fluctuations that are due to variation in expected returns from those of varying forecasts of dividend growth. The company has to propose a simple process for expected returns and an even simpler, yet reasonable, for investor forecasts of dividend growth rates. Once again, it has been a challenging but successful year for Sainsbury’s. Among a tough consumer...
This paper purports to evaluate Sainsbury grocery retailers using two valuation models. First valuation model is forecast dividend growth using financial statement information to arrive at the forecast or to adjust and validate a forecast based on historical trend data. A dividend is a payment of part of the company’s profit to shareholders. The Board of directors have agreed to pay its shareholders a final dividend of 10.8 percent per share, which was paid on 15 July 2011 to shareholders on the Register of Members at the close of business. The dividend is covered by the underlying earnings. Dividend will increase only if the shares are high. Sainsbury’s has increased its market share in a crucial economic environment. The grocery has concentrated more on the supermarket sale. Net profit is increasing which means there is higher sale through good sales forecaste without increasing the cost. Second valuation model is forecast free cash flow. Cash flows record the movement of cash into and out of the business. This is a valid method to understand the value of money and it helps to record the cash most efficiently. For this, both operating and investing activity are involved. A cash flow forecast, in order to be useful as a management and control tool, must be based on real data and actual commitment. Historical data on which to support a cash flow forecast will be useful, but must be considered in combination with information from your business strategy and your budget in order to project a reasonable picture of what to expect in terms of future cash flows as you move further. ...Show more
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The purposes of this report are to evaluate Sainsbury’s analysis using the models of dividend growth and cash flow and compare the valuations with the actual market value of the company. This information is taken from the annual report of the Sainsbury grocery retailer. …
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