Halfords business analysis | Free essay | Management essays

Halfords c atomic number 18 analysis Free essay Management essaysIntroductionHalfords is the UKs leading retailer, on the basis of turnover, in each of the key product markets in which it operates, being, car of importtenance, car enhancement and leisure (including cycles and cycle accessories and roof boxes etc.Founded as a local hardware store in Birmingham in1892by F W Rushbrooke, Halfords has since grown to establish its position as the leading retailer of car parts, car enhancement, cycles and travel solutions in the UK.In this report the mensuration out of the company is evaluated on the basis of its current statutory accounts. In this report the alternative sources of finance available for the company are also discussed. The areas of corporate risk when raising finance, paying(a) particular attention to funds available to the company are also discussed.Business valuationA formal assessment of the value of a barter using pre-determined and generally agreed upon formulas. Theres a range of ways to value a personal line of credit. Valuations based on multiples of future earnings and the capitalisations of future cash bunks are the to the highest degree common. There are a number of common valuation methodsAsset based business valuation methods total up all the investments in the business. Asset-based business valuations can be done on a going concern or on a liquidation basis.Agoing concern asset-based approachdetermines the business net poise sheet value of its assets and subtracts the value of its liabilities.Aliquidation asset-based approachrepresents the net cash that would be received if all assets were sold and liabilities paid off.Earning value approachesEarning value business valuation methods are predicated on the idea that a businesss true value lies in its ability to produce wealth in the future. The most common earning value approach is slightly Capitalizing Past Earning.With this approach, a valuator determines an haveed level of ca sh flow for the company using a companys record of past earnings, normalizes them for unusual revenue or expenses, and multiplies the expected normalized cash flows by a capitalization factor. The capitalization factor is a reflection of what rate of return a reasonable purchaser would expect on the investment, as well as a measure of the risk that the expected earnings will not be achieved.Discounted Future Earningsis another earning value approach to business valuation where instead of an average of past earnings, an average of the trend of predicted future earnings is utilised and divided by the capitalization factor. commercialize value approachesMarket value approaches to business valuation attempt to establish the value of the business by comparing the business to similar businesses that have recently sold. Obviously, this method is only going to work well if there are a sufficient number of similar businesses to compare.Valuation of Halfords Using the Market foster approac h In the report the Halfords Company is going to be evaluated using the market value approach. Valuation Multiple A value, typically expressed as a factor, used to multiply a business economic benefit to arrive at the business value.Market-derived business valuation multiplesValuation multiplesderived from similar business sales are often used to estimate the likely selling price of a business. These multiples are calculated as ratios which relate some measure of business pecuniary performance to its potential selling price. The most popularmultiplesareCurrant finance structureexchequer insuranceThe conclaves Treasury Policy is structured to procure that adequate financial resources are available for the development of its business whilst managing its currency, interest rate and counterparty credit risks. The pigeonholings treasury strategy, policy and controls are approved by the Board. The main elements of treasury activity and associated risk are outlined belowFundingThe trea sury function arranges sufficient secure financial resources to enable the pigeonholing to put together its intermediate-term business objectives, whilst arranging facility maturities appropriate to its projected needs. The Group has a syndicated five-year term facility, maturing with a bullet repayment in July 2011, totalling 300m of committed bank facilities, comprising a non-amortising term loan of 180m and a revolving credit facility of 120m, which, together with cash surpluses, provide adequate financial support for the Groups operations.Counterparty credit riskThe Group actively manages its relationships with a panel of high quality financial institutions. Credit risk is controlled by the treasury function setting counterparty credit limits by reference to published paygrade agency credit ratings and the Corporate Default Swap market. All such counterparties, which constitute the syndicated bank group, held at least an A credit rating at the time of the facility agreement . The Treasury Policy recognises that an exposure to a counterparty arises in relation to investments, derivatives and financial instruments.The Groups treasury departments main responsibilities are toEnsure adequate funding and liquidity for the GroupManage the interest risk of the Groups debtInvest surplus cashManage the clearing bank operations of the Group andManage the extraneous shift risk on its non-sterling cash flows.The Groups debt management policy is to provide an appropriate level of funding to finance the Business Plan over the medium term at a competitive cost and ensure flexibility to meet the changing needs of the Group. The Group has a syndicated five-year term facility totalling 300m that provides the Group with committed bank facilities until July 2011.The key risks that the Group faces from a treasury perspective are as followsFinancial riskThe Business Plan and cash flow forecasts are subject to key assumptions such as interest rates and the significance of th ese risks is dependent upon the level of earnings before interest, tax, depreciation and amortisation and the expertness of the balance sheet.Interest rate riskThe Groups policy aims to manage the interest cost of the Group within the constraints of the Business Plan and its financial covenants. The Groups borrowings are soon subject to floating rate and the Group will continue to monitor movements in the swap market.Foreign currency riskThe Group has a significant performance exposure with increasing, direct source purchases of its supplies from the Far East, with most of the trade being in US dollars. The Groups policy is to manage the foreign exchange transaction exposures of the business to ensure the actual costs do not exceed the budget costs by 10% (excluding increases in the base cost of the product). The Group does not hedge either economic exposure or the translation exposure arising from the profits, assets and liabilities of non-sterling businesses whilst they remain immaterial.During the 53 weeks to 3 April 2009, the foreign exchange management policy was to hedge between 75% and 80% of the material foreign exchange transaction exposures on a rolling 15-18 month basis. Hedging is performed through the use of foreign currency bank accounts, spot rates and forward foreign exchange contracts.Credit riskThe Groups policy is to minimise the risk that foreign exchange and interest rate derivative counterparties, the holders of surplus cash and the providers of debt will be unable to fulfil their obligations and also, in the case of lenders, unwilling to extend the loan facilities when they expire. The Group ensured that such counterparties used for credit transactions held at least an A credit rating at the time of syndication (July 2006). Ancillary business, in the main, is directed to the eighter from Decatur banks within the syndicated group.The Treasurer is responsible for determining creditworthiness of each counterparty, based on the overall f inancial strength of the counterparty. The counterparty credit risk is reviewed in the Treasury report, which is forwarded to the Treasury Committee and the Treasurer reviews credit exposure on a daily basis.ConclusionDepending on the financial data provided by the Halfords Company the current financial stability of the company is successfully analyzed.ReferencesAnnual report Halfords PLChttp//www.halfordscompany.com/hal/ir/fininfo/reports/http//www.valuadder.com/glossary/valuation-multiplier.htmlhttp//financial-dictionary.thefreedictionary.comhttp//www.investopedia.com/terms/c/costofcapital.asphttp//www.lse.co.uk/shareprice.asp?shareprice=THTshare=thorntons_plc_ord_10p