No Doubt the evaluation of firms is a complex topic. In our research it was necessary to include an intense literature review in order to figure out the optimal measurement values for comparing media cap to its peers on the polish market. Firstly, it was significant to figure out basic values for comparing media cap. To begin the analysis, it is necessary to look at the profitability. 1. The gross margin can be defined as the difference between revenue and cost of goods sold (COGS) divided by revenue. Gross margin is usually given in percentage.
(Farris 2010: 239 pp.) 2. Net profit margin can be seen as the ratio of net profits to revenues for a firm. It is typically expressed as a percentage. It shows how much of each dollar collected by a company as revenue translates into profit. (Bauer 2003: 13) Moreover the safety threshold lays between 2,5 % and 10%. 3.
The operating profitability or also named EBIT can be defined as the he profitability of the firms, before considering interest and taxes. In order to calculate the operating profit, operating expenses are withdrawn from gross profit. (Lazaridis 2006: 5 pp.) 4. Due to the financial times lexicon the net profitability can be explained as the profit of an entity after subtracting all operating expenses and all other charges including taxes, interest and depreciation. It is also called net earnings or net income.
Secondly it was significant to analyse the liquidity ratios, in order to compare Media Cap to its competitors. As it was done with the profitability ratios, the literature review will define the terms of the ratios. 1. The debt ratio or indebtness ratio of a firm can be calculated by dividing the Total debt and liabilities by the total assets and shows the risk that company has acquired.
The safety threshold is 0,6. (Welch 2003: 2pp.) 2.
The second liquidity ratio is the current ratio, which measures if a firm has enough resources to meet its short-term obligations. It divides the firm’s current assets by its current liabilities. Nevertheless a high the ratio is superior for the firm. (FSA Formulas: 2) 3. The third liquidity ratio is the quick ratio, shows the ability of a business to pay its short-term liabilities by assets that can be easily can converted into cash.. However the higher the value the better it is. The value is calculated by d current asset minus the inventory, minus the shortterm pre-paid expenses and dived by the short term liabilities.
(Parea 2010: 19) 4. Last but not least the cash ratio, is another significant liquidity ratio. It expresses the ability to pay its short-term liquidity.
It is calculated by dividing cash by the short term liabilities. However, there is no exact safety threshold, the higher the value, the more liquid is the firm. (Gabler) Nevertheless, these ratios do not measure the exact value of the firm, they are just indicators how the firm is developing and acting in regard to their financials. Moreover, the risk can be measured by those values. To measure the firms value, the valuation multiples can be used.
In our report, we took 3 valuations multiples Firstly, we started with the most common one, the P/E ratio, which is an earnings based ratio. The price-earnings ratio (P/E ratio)—price divided by earnings. The price is the market price of the stock , whereas the earnings per share, usually annual net income divided by number of outstanding shares. It is significant to mention, that the price-earnings ratio is higher for firms with more future earnings and more future stable earnings growth. (Gottwald 2012: 21 pp.) Secondly there is one particular balance sheet number that looks very attractive for ratio analysis at first glance: the book value of equity (BV of equity, or BVE).
It can be defined as the ratio of the market value of equity to the book value of equity. Therefore, it measures the shareholders’ equity in the balance sheet.(Cheng 2000: 350 ppt.) L Last but not least, we figured out another valuation multiple. The multiple is computed by dividing the company’s market capitalization by the revenue the per-share stock price by the per-share revenue.
However, the smaller the ratio is, the better the firm is evaluated. Nevertheless, the whole picture cannot be evaluated with this valuation multiple, hence the company could be also unprofitable, due to the usage of just revenues. (Fernandez 2001: 2ppt.)