British Sky Broadcasting Limited
BskyB Residual operating income valuation and analysis:
The share price calculated for BskyB using the residual income valuation model is £ 3.72, which is £ 5.64 below the market share price of around £ 9.36. Reason for such depleted share price is that the profits reported by BskyB are not showing the impact of the equity capital and hence valuing the BskyB stock on the basis of reported profit for the period doesn’t show the true and fair view of BskyB share price. The price calculate by using the residual income valuation model is showing that how the cost of equity capital has affected the profits of BskyB and thus reporting a decreased value of the company and for the share price as well. Operating income predicted on the basis of the growth rate is showing a constant increase in the operating income in the future period. It is very important for BskyB to achieve a higher rate of growth in revenues which will ultimately gives rise to the need of investing in BskyB’s operating assets and thus both variables will end up with the increased value of company per share for the next period forecast. As the value of company is equal to the net present value of future cash flows discounted at appropriate rate of return to the investor. So the company should try focusing growth in its revenue rather than expending its business in the UK and around the globe. Return on net operating assets of BskyB is also decreasing in the next three years period. The decrease is miner but this is a sign that BskyB could be in more depressed financial conditions if attention is not paid to the growth rate of revenue. As in the above graph the return on net operating assets has been dropped from 49.00% to 48.99%. As the investors are much interested in the future prospects of the company rather than the historical performance of company. At first instance the investor will forecast the value of its investment and if the investment is generating some additional amount on their
The share price calculated for BskyB using the residual income valuation model is £ 3.72, which is £ 5.64 below the market share price of around £ 9.36. Reason for such depleted share price is that the profits reported by BskyB are not showing the impact of the equity capital and hence valuing the BskyB stock on the basis of reported profit for the period doesn’t show the true and fair view of BskyB share price. The price calculate by using the residual income valuation model is showing that how the cost of equity capital has affected the profits of BskyB and thus reporting a decreased value of the company and for the share price as well. Operating income predicted on the basis of the growth rate is showing a constant increase in the operating income in the future period. It is very important for BskyB to achieve a higher rate of growth in revenues which will ultimately gives rise to the need of investing in BskyB’s operating assets and thus both variables will end up with the increased value of company per share for the next period forecast. As the value of company is equal to the net present value of future cash flows discounted at appropriate rate of return to the investor. So the company should try focusing growth in its revenue rather than expending its business in the UK and around the globe. Return on net operating assets of BskyB is also decreasing in the next three years period. The decrease is miner but this is a sign that BskyB could be in more depressed financial conditions if attention is not paid to the growth rate of revenue. As in the above graph the return on net operating assets has been dropped from 49.00% to 48.99%. As the investors are much interested in the future prospects of the company rather than the historical performance of company. At first instance the investor will forecast the value of its investment and if the investment is generating some additional amount on their
References: Thomson, A. 2014. Vodafone Said to Discuss Sharing Broadband With BSkyB in U.K. [online] 20 January. Available at: http://www.bloomberg.com/news/2014-01-20/vodafone-said-to-discuss-sharing-broadband-with-bskyb-in-u-k-.html [Accessed: 31 March]. PLUNKETT, S. 2014. Vodafone, BSkyB in talks to curb BT 's broadband reach - report. [online] 19 January. Available at: http://uk.reuters.com/article/2014/01/19/uk-vodafone-bskyb-idUKBREA0I09C20140119 [Accessed: 31 March 2014]. British Sky To Invest $8 Mln In Luminari Capital - Quick Facts. 2013. [online] 15 November. Available at: http://www.rttnews.com/2224924/british-sky-to-invest-8-mln-in-luminari-capital-quick-facts.aspx [Accessed: 31 March]. Macnab, G. 2014. UK panel urges broadcasters to invest. [online] 23 January. Available at: http://www.screendaily.com/news/uk-panel-urges-broadcasters-to-invest/5065719.article [Accessed: 31 March].