Evaluating the Stock of IGM Financial Inc

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The change in the conditions making the economy in the year two thousand and nine to a certain bit of two thousand and ten have negatively affected IGM Financial Inc. This has been due to high unemployment rate that has let too low demand for the goods and services provided by the firm. This was also due top other factors that are beyond the companies management. They entail but not limited to, foreign exchange rates, the international relations, global equity, we have funding risks and interest rates on borrowed funds among other factors. However the funds raised from various ventures including the issuance of debentures worthy $ 375 million, and the giving out of the preferred stocks in two thousand and nine was a clear indicator of the availability of funds for carrying out its investment activities. The redemption of the preference shares also indicated that there would be a reduction in the interest expenses to be paid out. The net income generally decreased from $730.8 to $113.9 million at the year end as the gross revenue generally decreased from $2.31 billion to $2.67 billion as was reported by ( IGM financial Inc. reports for 2009 earnings); given the positive information. But given the general growth in most of the factors in 2010 as compared to 2009 I i.e. Gross revenues, Net income, Earnings per share, I predict a positive growth rate of 5% that shall be used in the evaluation model.

There are the forecasted financial statements on the next page

The numbers have continued to grow from year to another due to the following assumptions

I.            All the factors affecting the industry shall remain constant hence the rate of growth shall remain at 5%. The justification is that they are only the new changes that will impact on the growth rate either negatively or positively.

II.            The rate of growth shall always remain constant. For this reason the figures shall increase at the stated rate of 5%.

Below is a the forecasted financial statements

Income statement

 

Fee and net investment  income              
Management       $1,646,636

1728967.80

1815416

1906187

2001496

 
Administration      

346,020

363321.00

381487.1

400561.4

420589.5

 
Distribution      

257,427

270298.40

283813.3

298004

312904.2

 
Net investment income and other  

62,297

65411.90

68682.5

72116.62

75722.45

 
Total Fee and net investment income  

2,312,290

2427904.50

2549300

2676765

2810603

 
                     
Operational expenses                
Commission expense    

808,482

848906.10

891351.4

935919

982714.9

 
Non-commission expense    

614,222

644933.10

677179.8

711038.7

746590.7

 
Interest expense      

109,864

115357.20

121125.1

127181.3

133540.4

 
Total operating expenses    

1,532,568

1609196.40

1689656

1774139

1862846

 
                     
Income before income tax    

779,722

818708.10

859643.5

902625.7

947757

 
Income taxes      

220,630

231661.50

243244.6

255406.8

268177.1

 
                     
Net income      

559,092

587046.60

616398.9

647218.9

679579.8

 
                     
                     

 

 

 

 

 

 

A balance sheet

       

2009

2010

2011

2012

2013

 
 

Assets

                   
Cash and cash equivalents   $945081

992335.1

1041952

1094049

1148752

   
Securities    

1246259

1308572

1041952

1094049

1148752

   
Loans      

671556

705133.8

740390.5

777410

816280.5

   
Investment in affiliates  

598221

628132.1

659538.7

692515.6

727141.4

   
Differed selling commissions  

850082

892586.1

937215.4

984076.2

1033280

   
Other assets    

592908

622553.4

653681.1

686365.1

720683.4

   
Intangible assets    

1128280

1184694

1243929

1306125

1371431

   
Good will      

2613532

2744209

2881419

3025490

3176764

   
       

8645919

9078215

9532126

1050363

1102881

   
Liabilities                  
Deposits and certificates  

907343

952710.2

1000346

1050363

1102881

   
Repurchasing agreements  

629817

661307.9

694373.2

729091.9

765546.5

   
Other liabilities    

780329

819345.5

860312.7

380415.3

399436

   
Future income taxes  

328617

345047.9

362300.2

380415.3

399436

   
Long term debt    

1575000

1653750

1736438

1823259

1914422

   
                     
Shareholders equity                
Share capital                  
  Perpetual preferred shares

150000

157500

165375

173643.8

182325.9

   
  Common shares  

1562925

1641071

1723125

1809281

1899745

   
Contributed surplus  

32702

34337.1

36053.96

37856.65

39749.49

   
Retained earnings    

2737785

2874674

3018408

3169328

3327795

   
Accumulated other comprehensive loss

-58599

-61529

-64605.4

-67835.7

-71227.5

   
       

4424813

4646054

4878356

5122274

5378388

   
       

8645919

9078215

9532126

10008732

10509169

   
                     
                     
                     
                     
                     

 

 

 

 

 

Below is the statement of forecasted the cash flow for five years from 2009 to 2013

      A cash flow forecast statement assuming a 5%growth rate for ING Financial inc.
                     
                     
        Cash Flow statement        
                     
         

2009

2010

2011

2012

2013

 
                     
Operating activities                  
  Net earnings    

$445,881

468175.1

491583.8

516163

541971.1

 
  Adjustments to determine              
  net cash from operating              
  activities                  
  Future taxes    

-19864

-20857.2

-21900.1

-22995.1

-24144.8

 
  Commission amortization  

25591

26500.95

27826

29217.3

30678.16

 
  Amortization of capital  

25239

26500.95

27826

29217.3

30678.16

 
  and intangible assets    

10760

11298

11862.9

12456.05

13078.85

 
  Changes in operating              
  assets and liabilities and other  

687106

721461.3

757534.4

795411.1

835181.6

 
                     
  Commission paid    

-156202

-164012

-172213

-180823

-189865

 
                     
Financing activities                  
  Net increase in deposits and  

-5995

-6294.75

-6609.49

-6939.96

-7286.96

 
  certificates    

-286615

-300946

-315993

-331793

-348382

 
  Repayment of bankers acceptances            
  Net increase in obligations related to            
  assets sold under repurchase agreement

631258

662820.9

695961.9

730760

767298

 
  Issue of debentures    

375000

393750

413437.5

434109.4

455814.8

 
  Issue of common shares  

24580

25809

27099.45

28454.42

29877.14

 
  Common shares purchased for              
   cancellation    

16200

17010

17860.5

18753.53

19691.2

 
  Perpetual preferred share dividends paid            
  Common share dividends paid  

404300

424515

445740.8

468027.8

491429.2

 
         

317728

333614.4

350295.1

367809.9

386200.4

 
Investing activities                  
  Purchasing of securities  

-1167087

-1225441

-1286713

-1286713

-1351049

 
  Proceeds from the sale of securities

477611

501491.6

526566.1

552894.4

580539.2

 
  Net increase in loans    

1147325

1204691

1264926

1328172

1394581

 
  Proceeds from securitizations  

1071734

1125321

1181587

1240666

1394581

 
  Net addition to capital assets  

-5581

-5860.05

-6153.05

-6460.71

-6783.74

 
  Net addition to intangible assets  

-4385

-4604.25

-4834.46

-5076.19

-5329.99

 
  Acquisition of non-controlling interest

-1048

-1100.4

-1155.42

-1213.19

-1273.85

 
         

-776081

-814885

-855629

-898411

-943331

 
  Increase in cash and cash equivalents

72551

76178.55

79987.48

83986.85

88186.19

 
  Cash and cash equivalent              
  beginning of period    

1232171

1293780

1358469

1426392

1497712

 
  Cash and cash equivalent              
  at end of period    

1304722

1369958

1438456

1510379

1585898

 
                     
                     

 

Sensitivity analysis

This analysis looks at two scenarios. Here we have the situation where the status remain as it is for now i.e. neutral scenario and secondly if they take a conservative state.

Should the status quo remain then we shall be having a 5% growth rate but if they decide to take a conservative state then it means they won’t be pursuing any new ventures to enhance growth. I recommend that they keep up a status quo scenario so as to continue growing at the rate of 5%. Stock Report. (April 2010). NYS Symbol.

Finding the terminal value

We make an assumption that there will be a constant growth beyond twenty ten. Considering that revenue and capital shall be stable over the same period, we do it as shown below;

Terminal value= FCF (1+g)/ (WACC-g): Where

  • FCF is the firm’s cash flow.
  • g is the growth rate.
  • WACC the firms weighted average cost of capital.

 

Enterprise value should be found by discounting the firm’s current value and adding it up to the firm’s discounted terminal value.

WE ACCEPT