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35Basically, it is theminimum rate of return a company should earn in order to create value forinvestors. From the investor’s perspective, it is the opportunity cost of their capital. Ifthe return offered by the company is less than its WACC, it is destroying value, so theinvestors may discontinue their investment in the company.Therefore, if Digi is considering a project which has similar risk to the company,weighted average cost of capital can be used to calculate Net Present Value (NPV) ofthe project. A company should only accept a project with a positive NPV whilerejecting those with negative NPV.Also in this case it can be seen that the cost of equity is noticeably larger than the costof debts indicating it has a higher risk level.That being said, it is rather unfortunatethat WACC is not considered accurate as the source data uses many hypotheticalassumptions that would inherently be calculated incorrectly.4.0 Financial Statement Analysis36The financial statement analysis is a set of data that analyses the company’sfinancial statements such as income statements, cash flows and balance sheet. Thisanalysis is to evaluate the financial situation of a company to ensure its effectivenessof operating, investment and financing decision. There are several ways to calculatefinancial ratios to measure the company’s performances for decision makingpurposes. For example, market value added, market-to-book ration, return on assets(ROA), return on equity (ROE) and return on invested capital (ROIC). Most firms usethese benchmarks to compare their business with other related companies.4.1 Market Value Added (MVA)35“Cost of Capital,” Corporate Finance Institute, accessed on May 3, 2019, 36 “Financial Statement Anlysis”. 2019. Accounting Tools.
37MVA indicates the benefits generated by the firm’s operations for its shareholders.Before investing in a business, investors will first examine the firm’s performances ontheir shareholders. 38MVA is used to measure the differences between the marketvalue of the firm’s share and the value of the capital invested in it. Companies withhigh MVA shows strong capabilities and effectiveness of its managements while thelower MVA shows that the operation has not been performing well.Market Value Added = Market Capitalization – Shareholder’s equity= 39RM 41 900 000 - 40RM 673 000 = RM 41 227 000.4.2 Market-to-Book ratioMarket-to-Book ratio =Market valueof EquityBookValue of Equity= RM41900000RM673000= 52.264.3 Return on Equity (ROE)41ROE is a measurement to indicate the effectiveness of a company with its assets toproduce profits. ROE is useful when comparing a firm’s profitability with other firmswithin the same industry because, firms with higher ROE shows that they are capableto operate their business without needing a high amount of capital. However, firms37 “Market Value Added (MVA). 2019. Investopedia. 38 GS, AchmadDaengs, Luqi Dian Ichromi and MochRizaldy Rahmansyah. 2017. “Implementation of