35 Basically it is the minimum rate of return a company should earn in order to

35 basically it is the minimum rate of return a

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35 Basically, it is the minimum rate of return a company should earn in order to create value for investors. From the investor’s perspective, it is the opportunity cost of their capital. If the return offered by the company is less than its WACC, it is destroying value, so the investors 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) of the project. A company should only accept a project with a positive NPV while rejecting those with negative NPV. Also in this case it can be seen that the cost of equity is noticeably larger than the cost of debts indicating it has a higher risk level. That being said, it is rather unfortunate that WACC is not considered accurate as the source data uses many hypothetical assumptions that would inherently be calculated incorrectly. 4.0 Financial Statement Analysis 36 The financial statement analysis is a set of data that analyses the company’s financial statements such as income statements, cash flows and balance sheet. This analysis is to evaluate the financial situation of a company to ensure its effectiveness of operating, investment and financing decision. There are several ways to calculate financial ratios to measure the company’s performances for decision making purposes. 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 use these 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.
37 MVA 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 on their shareholders. 38 MVA is used to measure the differences between the market value of the firm’s share and the value of the capital invested in it. Companies with high MVA shows strong capabilities and effectiveness of its managements while the lower MVA shows that the operation has not been performing well. Market Value Added = Market Capitalization – Shareholder’s equity = 39 RM 41 900 000 - 40 RM 673 000 = RM 41 227 000. 4.2 Market-to-Book ratio Market-to-Book ratio = Market valueof Equity BookValue of Equity = RM 41900000 RM 673000 = 52.26 4.3 Return on Equity (ROE) 41 ROE is a measurement to indicate the effectiveness of a company with its assets to produce profits. ROE is useful when comparing a firm’s profitability with other firms within the same industry because, firms with higher ROE shows that they are capable to operate their business without needing a high amount of capital. However, firms 37 “Market Value Added (MVA). 2019. Investopedia. 38 GS, AchmadDaengs, Luqi Dian Ichromi and MochRizaldy Rahmansyah. 2017. “Implementation of

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