Discussion of KMD scenario

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School

Queensland University of Technology *

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107

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Economics

Date

May 23, 2024

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docx

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Uploaded by PrivateBatMaster1132

Discussion of KMD scenario • Discuss probability assignment KMD brands was assigned a 15% probability in relation to their best-case scenario, this was chosen due to identified trends and predicted market growth. Rather a 70% probability was assigned to the base-case of a 5% growth rate. This was because Rip Curl’s successful and profitable expansion into international markets such as Hawaii and the west coast of France are only just starting out and will require further funding and commitment to start seeing massive profit. With increased sales domestically and both Kathmandu and Rip Curl expanding their business internationally the probability that this expansion creates a growth rate of above 5% within the early stages is very unlikely. The worst case, which is at a 15% probability, shows a 5% decrease in growth rate which is due to their international expansion not paying off and their domestic sales tanking. • Discuss growth rate assignment KMD brands was allocated a 5% growth rate as the most likely scenario, this was done due to a multitude of reasons. The first relating to how over the past 5 years the industries in which they occupy have seen a rise of 4.9% in annual earnings growth while the market has seen an 8.5% increase. Through these growth values we can see that the industry in which KMD occupy has been steadily increasing in their annual earnings. Additionally, the return on equity is forecasted to be around 8.4% in 3 years. Through this we can see that both the industry and their company seem to be steadily increasing their growth rate while also being very healthy financially. • Discuss implications of cash flow Cash flow is an integral part of any business and their ability to maintain liquidity while also providing the company the ability invests and expand. In KMD brands case their debt is well covered by their operating cash flow sitting at around 140.3%. In addition, their free cash flow has risen from $45.63 to $104.46 million in just the past year. Through this large increase they can reinvest that money into, as mentioned previously, further expansion into international markets. • Discuss value drivers/red flags which may be relevant to this scenario KMD Brands has begun to shift to more online platforms in line with the growing popularity of online purchasing with consumers. Through this shift they will be able to grow both their reach and revenue with consumers having easier access to their products. Further, this shift will aid in their expansion into international markets as with a strong online footing they can promote and introduce their products without a large risk. Through analysis of the probability and growth rates Include a sentence on the Intrinsic Value compared to the stock price. Discuss how its high Talk about times cash flow

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