VALUE OF THE FIRM USING DISCOUNTED CASH FLOW ANALYSIS (DCF)
Using Discounted Cash Flow analysis, the Firm Value for Tottenham Hotspurs Plc is calculated at £161 million (with Present value of Operating assets being £135 million and NPV of projected cash flows being £69.9 million). The positive NPV suggest that the decision to keep the current operation will be welcomed by shareholders.
Assumptions to the Cash flow projections
For estimation of Cash flow projections, the following assumptions have been made:
• Net Capital Expenditure is calculated as net of Maintenance capital expenditure less the depreciation related to Capital expenditure.
• The Working Capital is calculated as the difference between Current Asset (excluding Cash and Marketable securities) less current liabilities.
• It is assumed that Working Capital increases in proportion to growth in Revenue of 9% till 2019 and 4% for 2020.
• Interest is not in calculation of Cash flows since we have considered its effect while calculating WACC.
On analyzing the revenue streams of the Company, we see that it generates roughly 40% of its income from Broadcasting rights, followed by Attendance (23%), Sponsorship (21%) and Merchandise (7%). Whereas on the expenses side, payroll accounts for 74% of the Operational costs while only 24% is spent for the stadium operations. With the current high operating cost (Operating costs: Revenue = 0.93) it is not a surprise that the EBIT is only 3.7% of total Revenues while Net income account only for 0.5%.
We also did ratio analysis of Tottenham Hotspurs to further analyze its financial performance.
• The Company has a Current Ratio of 0.75 and Acid Test Ratio of 0.73. Both these ratios are quite high implying that the company may have difficulties in meeting future obligations given that they have higher Current liabilities (£64.40 million) when compared to Current Assets (£48.07 million).
• The Operating profit margin of 6.75%, that is for every £1...