Security valuation of APN news and media ltd

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This report discusses the security valuation of a media and publishing company called APN News and Media ltd. The research follows the three step valuation process and top down approach which starts by analysis of the economy and moves further for analyzing the industry and filters down to the company analysis and valuation of the stock. The First part of the report presents an in depth analysis of financial ratios for APN News and Media ltd and its two competitors Fairfax Media ltd and West Australian Newspapers Holding ltd.

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The financial analysis includes internal liquidity ratios, operating performance ratios, and risk and growth analysis. The Second part of the report discusses the calculation of weighted average cost of Capital and assumptions made for risk premium and risk free rate. It also discusses the weight and cost of debt for APN and expected rate of return by investors of APN and the cost of capital. The Third part of the report discusses the first two steps in the valuation process; Economic and Industry analysis and economic influences on the company. The analysis is based on influence of economic indicators on the stock. The final part of the report discusses the valuation of APN by employing various methods like Dividend Discount model, Free cash flow to Equity and Free cash flow of the firm. : Part i

Internal Liquidity Analysis

Figure 1: Current Ratio The Figure 1 above shows the current ratios for the three firms APN, Fairfax and West Australian Newspapers. Current Ratio is best known liquidity measure which examines the relationship between current assets and liabilities. Current ratio of APN has almost followed a sinusoidal format maintaining an average of 1.5 and has lost the track during global recession in 2008 reaching its lowest of 0.91 and has also recovered by gaining the average of 1.5 in 2009. Current Ratio for Fairfax has also followed sinusoidal format with an average of 0.75 which grew significantly from 2006 but later dipped down due to recession and though it has still maintained the average after recession but it has not seen any movement further up from past three years. The ratios for West Australian newspapers has higher average compared to other two and also shows clear signs of recovery after the recession. Figure 2: Quick Ratio Quick ratio analyzes the liquidity of the company to better accuracy and is more reliable as it only uses Cash and recievables for calculation of ratios and neglects inventories and other current asset. The quick ratio for all three companies has followed exactly the same path as current ratio but with lower averages. Figure 3: Cash Ratio Cash ratio is the most conservative liquidity ratio which analyzes the relationshio between cash and marketable securities to Current liabilities.

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