1 / 11

Accenture: Valuation Using Cash Flows

Accenture: Valuation Using Cash Flows. Kevin Overholt 2/5/2014. Background. Accenture is a global leader in the information technology services industry. Spinoff of Arthur Andersen’s consulting branch.

misty
Download Presentation

Accenture: Valuation Using Cash Flows

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Accenture: Valuation Using Cash Flows Kevin Overholt 2/5/2014

  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. Free Cash Flows FCF = EPAT – ΔNEA

  5. Free Cash Flows FCF = EPAT – Δ Net Receivables

  6. Forecast of FCF Growth Rate of FCF: 10.1%

  7. Forecast Beyond 2017 • Accenture is a technology consulting firm, inherently difficult to value in the long-term future. There are many extraneous variables including but not limited to: • Future demand for technology consulting • Explosive growth of complicated technology systems • Ability for Accenture to grow in developed markets • Ability for Accenture to grow in developing markets • Additional sources of revenue for Accenture • Threat of competitors/new entrants to market • Estimated growth rate beyond 2017: 8% • Estimate of enterprise cost of capital: 10%

  8. Forecast Beyond 2017 • Estimated Growth beyond 2017: 8% • Estimate of Enterprise Cost of Capital: 10%

  9. DCF Model Accenture Current Market Cap: $63.06 billion

  10. Limitations of DCF Model • Unknown Enterprise Cost of Capital (As of Module 5) • Large assumptions made about future growth • Future margins and EPAT are also assumptions • Cyclical nature of consulting firms is unaccounted for • Increased uncertainty in independence regulation of Big 4 Consulting branches.

More Related