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mpetitors in the industry which it operates we observe that Coles has got better interest coverage ratio (cash flow basis) as compared to Woolworths & Metcash which means that Coles has better ability to service its debts than its counterparts. Coles also has a shortcoming in operating cash flow to dividend payment ratio, as it can be seen it has the lowest operating cash flow to dividend payment ratio. It can be attributable to the fact that it pays more dividends than it should pay. So it can be concluded that Coles needs to reduce dividend payment as it might lead Coles in to financial difficulties if some unexpected obligations turn up. In terms of operating cash flow to current liabilities we see that although it has fallen substantially for Coles in last 5 years but it is at par with its biggest competitor Woolworths & greater than Metcash.

3. Prospective analysis

Prospective analysis enables us to determine future performance of the firm based on historical performance of the company. Here will be determining the mean return for sales and earning before interest & taxes (EBIT) . Using those mean returns we will be making a sales forecast and EBIT forecast.

3.1 Sales and EBIT forecast

In determining the sales growth, I have considered the following assumptions-

Past trend of sales is going to continue in the following years.

Firm is not going to bring a major change in its pricing policy.

The foundation for sales & EBIT growth is historical sales & EBIT growth and I have used mean reverting model to determine the future sales growth, in which future sales & EBIT growth will be mean return of last 4 years sales growth. I have not taken the 5 year sales & EBIT growth because EBIT growth rate is to high in 2002 (73%) which could adversely effect the mean return considering present situation of Coles.

Using the mean reverting model we are able to find out a growth rate of sales for 7.64% & EBIT growth rate of 11.87%. Using these growth rates we will be able to make a sales forecast & EBIT forecast. This forecast will help in proper valuation of Coles on the basis of its predicted future performance.

Using the growth rates we can forecast the sales and EBIT for Coles which helps an analyst in a fair valuation of the company. The main reason we use the sales growth as a base for forecasting, is that the majority of firm income is derived from its supermarket business.

This forecast suffers from one serious shortcoming that EBIT growth has fallen from 34.31% in 2004 to 11.16% in 2005 and then to -17.07% in 2006 but we are still predicting a growth in EBIT of 11.87% in 2007 and thereafter.

4. Conclusion

I have gone through the multi-step process of ratio analysis, cash flow analysis and prospective analysis to present a report on financial analysis本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。