Financial Statement Valuation Assignment Of LVMH

 

BUZ-5200 – F1 – 2016                               Name:

Financial Statement Valuation Assignment

 

  1. Name of company in full: LVMH Moët Hennessy Louis Vuitton SE
  2. Year of report: December 2015
  3. Stock exchange listed on and trading symbol : (OTCMKTS:LVMUY)

Book  Value

  1. What is the Book Value (BV) of the company? According to http://markets.ft.com, the book value of the company is $25,391,440,000
  2. Is the Book Value a reasonable valuation method? Yes, Book value is a reasonable valuation method because it considers many factors.
  3. What important factors does the Book Value ignore (ie – what factors are not part of the BV)? Give at least 3 items
The factors that are ignored by book value are the present value of the anticipated future cash flows of the firm, the arm’s length transactions that involve the transfer of equity or stock interests and the control discounts or premiums.

 

 

 

 

Market  Capitalisation  Value

  1. How many common shares have been issued and are currently circulating on the stock market or in the hands of investors ?

The total outstanding shares in 2015 was 502,395,491

 

  1. Find the recent trading price of the shares : 05EUR
  2. What is the market capitalisation of your company.: EUR 79.05B

 

  1. In 20 words, what does the “market cap” mean? Market cap is defined as the total dollar or market value of the outstanding shares of the company and is arrived at by finding the product between the company’s stock price and the total number of shares outstanding.

EPS  and  P/E  Ratios

  1. What is the E.P.S. of your company? EUR 7.11
  2. Is the EPS stated anywhere in the report and where? Yes, EPS is stated in the report in page 124.
  3. What is the trend in EPS over the last 5 of years? (give the value for each year)

2015: 7.11

2014: 11.27

2013: 6.87

2012: 7.08

2011: 6.83

It is a fluctuating trend.

  1. XEROX has an EPS of $6.50.

Is your company’s EPS (a) better (b) worse or (c) not comparable?

Explain

Compared to the XEROX EPS, the company’s EPS is better because despite the fluctuations, the EPS are greater than 6.50. This implies that it has higher earnings than XEROX.

  1. Using the current market price for the shares in 8 above and the financial statement EPS, what is your company’s actual P/E ratio?

P/E ratio = Price per share/EPS

= 157.05/7.11 = 22.09

 

 

  1. What is the value of your company if you wanted to buy it?  (you will need the number of shares)

the value of the company is 502,395,491*22.09 = EUR 11,097,916,396

 

  1. Is this a high, low or average P/E ?  Explain

This is an average P/E because the average market P/E ratio lies between 20-25 times earnings.

  1. Is this a good or bad P/E? Explain and justify your answer.

OTHER  RATIOS  &  INFO

  1. What is the current ratio for the last 2 years: (1) 2015: 1.492 (2) 2014: 1.487
  2. Did the current ratio improve or worsen? It is clear that the current ratio improved though with a small margin.
  3. What is the debt ratio for the last 2 years: (1) 2015: 0.577                                                    (2) 2014: 0.592
  4. Did the debt ratio improve or worsen? It is clear that the debt ratio improved and hence the company has less business risk due to the reduction in the use of debts.
  5. Did the company report a positive or negative cash flow (give amounts of latest year)

(a) From operations: The company reported a positive cash flow from operations (EUR5, 634 M) (pg. 128).

(b) Total cash flow: The company reported a negative cash flow from total cash flow (EUR 393M) (pg. 128).

  1. What kind of audit opinion did the auditor give on the financial statements?

The auditor gives an unqualified opinion on the financial statements because they determine that every financial record given by the company is free from any misrepresentations. This is because they are according to GAAP.

  1. Would you invest in this company? Give 3 reasons why or why not.

Yes, I would invest in the company because of the following three reasons:

  • It is very liquid and can meet its short term obligations.
  • It has a higher P/E ratio implying it has a higher future or current financial performance.
  • It is highly profitable and is able to meet its financial obligations with ease and still have some form of revenue to be used in the growth of the company.

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED CASH FLOW STATEMENT

(EUR millions)

2015                      2014                   2013

  1. OPERATING ACTIVITIES AND OPERATING INVESTMENTS

Operating profit                                                                                                                                   6,384                           5,431                           5,898

Income / (loss) and dividends from joint ventures and associates                                                     27                                26                                49

Net increase in depreciation, amortization and provisions                                                                 2,081                           1,895                           1,435

Other computed expenses                                                                                                                 (456)                            (188)                           (29)

Other adjustments                                                                                                                              (91)                              (84)                              (76)

Cash from operations before changes in working capital                                                                  7,945                           7,080                           7,277

Cost of net financial debt: interest paid                                                                                              (75)                              (116)                            (111)

Income taxes paid                                                                                                                              (1,807)                         (1,639)                         (1,832)

Net cash from operating activities before changes in working capital                                               6,063                           5,325                           5,334

Change in working capital                                                                                                                  (429)                            (718)                            (620)

Net cash from operating activities                                                                                                      5,634                           4,607                           4,714

Operating investments                                                                                                                        (1,955)                         (1,775)                         (1,657)

Net cash from operating activities and operating investments (free cash flow)                                3,679                           2,832                           3,057

  1. FINANCIAL INVESTMENTS

Purchase of non-current available for sale financial assets                                                   (78)                              (57)                                     (197)

Proceeds from sale of non-current available for sale financial assets                                              68                                160                              38

Dividends received                                                                                                                             84                                69                                71

Income taxes paid related to financial investments                                                                           (265)                            (237)                            (11)

Impact of purchase and sale of consolidated investments                                                                (240)                            (167)                            (2,161)

Net cash from (used in) financial investments                                                                                   (511)                            (232)                            (2,260)

III. TRANSACTIONS RELATING TO EQUITY

Capital increases of LVMH SE                                                                                                           135                              59                                66

Capital increases of subsidiaries subscribed by minority interests                                                    17                                81                                37

Acquisition and disposals of treasury shares

and LVMH share-settled derivatives                                                                                      1                                  1                                     (113)

Interim and final dividends paid by LVMH SE                                                                                    (1,671)                         (1,619)                         (1,501)

Income taxes paid related to interim and final dividends paid                                                            (304)                            (79)                              (137)

Interim and final dividends paid to minority interests

in consolidated subsidiaries                                                                                                                (228)                            (336)                            (220)

Purchase and proceeds from sale of minority interests                                                                     (4)                                10                                (150)

Net cash from (used in) transactions relating to equity                                                                      (2,090)                         (1,961)                         (2,048)

Change in cash before financing activities                                                                                         1,078                           639                              (1,251)

  1. FINANCING ACTIVITIES

Proceeds from borrowings                                                                                                                 1,008                           2,407                           3,095

Repayment of borrowings

(2,443) (2,100) (1,057)

Purchase and proceeds from sale of current available for sale financial assets                               (3)                                (106)                            101

Net cash from (used in) financing activities                                                                                       (1,438)                         201                              2,139

  1. EFFECT OF EXCHANGE RATE CHANGES (33)             27                                47

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (I+II+III+IV+V)                (393)                            867                              935

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                3,783                           2,916                           1,981

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                                         3,390                           3,783                           2,916

TOTAL INCOME TAXES PAID                                                                                                         (2,376)                         (1,955)                         (1,980)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEET

ASSETS

2015                              2014                  2013

(EUR millions)

Brands and other intangible assets                                                                 13,572                         13,031                         12,596

Goodwill                                                                                                          10,122                         8,810                           9,058

Property, plant and equipment                                                                       11,157                         10,387                         9,621

Investments in joint ventures and associates                                                 729                              519                              480

Non-current available for sale financial assets                                               574                              580                              7,080

Other non-current assets                                                                                552                              489                              457

Deferred tax                                                                                                    1,945                           1,436                           913

Non-current assets                                                                                         38,651                         35,252                         40,205

Inventories and work in progress                                                                    10,096                         9,475                           8,492

Trade accounts receivable                                                                             2,521                           2,274                           2,174

Income taxes                                                                                                  384                              354                              223

Other current assets                                                                                       2,355                           1,916                           1,856

Cash and cash equivalents                                                                             3,594                           4,091                           3,226

Current assets                                                                                                 18,950                         18,110                         15,971

Total assets                                                                                                     57,601                         53,362                         56,176

 

LIABILITIES AND EQUITY

Share capital                                                                                                   152                              152                              152

Share premium account                                                                                 2,579                           2,655                           3,849

Treasury shares and LVMH share-settled derivatives                                   (240)                            (374)                            (451)

Cumulative translation adjustment                                                                 1,137                           492                              (8)

Revaluation reserves                                                                          949                              1,019                           3,900

Other reserves                                                                                                16,189                         12,171                         16,001

Net profit, Group share                                                                                   3,573                           5,648                           3,436

Equity, Group share                                                                                        24,339                         21,763                         26,879

Minority interests                                                                                             1,460                           1,240                           1,028

Total equity                                                                                                     25,799                         23,003                         27,907

Long-term borrowings                                                                                     4,511                           5,054                           4,149

Non-current provisions                                                                                   1,950                           2,291                           1,797

Deferred tax                                                                                                    4,685                           4,392                           4,280

Other non-current liabilities                                                                             7,957                           6,447                           6,404

Non-current liabilities                                                                                      19,103                         18,184                         16,630

Short-term borrowings                                                                                    3,769                           4,189                           4,674

Trade accounts payable                                                                                 3,960                           3,606                           3,297

Income taxes                                                                                                  640                              549                              357

Current provisions                                                                                           421                              332                              324

Other current liabilities                                                                                    3,909                           3,499                           2,987

Current liabilities                                                                                              12,699                         12,175                         11,639

Total liabilities and equity                                                                                57,601                         53,362                         56,176

 

 

 

 

 

 

CONSOLIDATED INCOME STATEMENT

(EUR millions, except for earnings per share)

2015                     2014                            2013

Revenue                                                                                                                                 35,664                         30,638                         29,016

Cost of sales                                                                                                                           (12,553)                       (10,801)                       (9,997)

Gross margin                                                                                                                          23,111                         19,837                         19,019

Marketing and selling expenses                                                                                             (13,830)                       (11,744)                       (10,767)

General and administrative expenses                                                                                    (2,663)                         (2,373)                         (2,212)

Income (loss) from joint ventures and associates                                                                  (13)                              (5)                                     (23)

Profit from recurring operations                                                                                             6,605                           5,715                           6,017

Other operating income and expenses                                                                                  (221)                            (284)                            (119)

Operating profit                                                                                                                       6,384                           5,431                           5,898

Cost of net financial debt                                                                                                        (78)                              (115)                            (101)

Other financial income and expenses                                                                                    (336)                            3,062                           (97)

Net financial income (expense)                                                                                              (414)                            2,947                           (198)

Income taxes                                                                                                                          (1,969)                         (2,273)                         (1,753)

Net profit before minority interests                                                                                         4,001                           6,105                           3,947

Minority interests                                                                                                                     (428)                            (457)                            (511)

Net profit, Group share                                                                                                           3,573                          5,648                           3,436

Basic Group share of net earnings per share                                                                         7.11                             11.27                           6.87

Number of shares on which the calculation is based                                                              502,395,491               501,309,369                500,283,414

Diluted Group share of net earnings per share(EUR)                                                  7.08                             11.21                           6.83

Number of shares on which the calculation is based                                                             504,894,946                503,861,733                503,217,497

 

 

Auditor’s report on financial statements

  1. Opinion on the consolidated financial statements

We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the Group as at December 31, 2015, and of the results of its operations for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

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