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Accenture: Module 7

Accenture: Module 7. Kevin Overholt 2/19/2014. Background. Accenture is a global leader in the information technology services industry. Spinoff of Arthur Andersen’s consulting branch. Three core businesses are technology consulting, software development, and outsourcing services.

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Accenture: Module 7

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  1. Accenture: Module 7 Kevin Overholt 2/19/2014

  2. Background • Accenture is a global leader in the information technology services industry. • Spinoff of Arthur Andersen’s consulting branch. • Three core businesses are technology consulting, software development, and outsourcing services. • Current share price is $78.08 with a market cap of $63.06 billion.

  3. Accenture’s Financial Statements • Balance Sheet • Relatively small Total Assets and Total Liabilities • Zero Long-Term Debt • Largest account balance is Cash • In reality, most valuable asset is people. Not on Balance Sheet. • Conclusion: Accenture has zero NEA. • Income Statement • 70% of revenues go directly to salary/service expense. • Steady growth in Net Income (roughly 10% annually) • 93-94% of income comes from services, 6-7% from non-enterprise activities

  4. Residual Enterprise Income (Traditional)

  5. Residual Enterprise Income (Accenture) • Only difference in NEA comes from change in Net Receivables. • Residual Income stems from the change in Net Receivables and the EPAT growth

  6. Accenture Forecast of Sales and EPAT • Sales Growth Rate 5.9% • Enterprise Profit Margin (EPM) 10.1%

  7. Cost of Enterprise Capital (rEnt)

  8. DCF Model

  9. Residual Income Model

  10. Issues • Negative denominator for the present value of continuing value/future cash flows, creating negative continuing value. • Accuracy of rEnt • Accuracy of sales projections

  11. Questions?

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