Critically evaluating Free cash flow ITC 2024

Question 1

Revenue growth has to be in line with global
expectations

Answer 1

The revenue growth should be a combination of industry anticipated growth,
and the market share gains the company anticipates it can achieve

Question 2

Non-recurring application

Answer 2

forecast appears to be based off the year which was affected by non-recurring load shedding. which is not representative of future
revenue expectations.

Question 3

In order to use terminal value since its going to perpetuity

Answer 3

forecast period should be extended to include
all years until stability in cash flows is achieved,

Question 4

dividends from the exchange traded fund (ETF)

Answer 4

should be removed from the cash flows as they are exposed to different risks.
The ETF shares should be valued separately at and added to the
value of the enterprise.

Question 5

Finance costs

Answer 5

should not be included in the forecast as they would have been
included in the weighted average cost of capital (WACC).

Question 6

short–term loan relates to the interest-bearing borrowings?

Answer 6

is considered part of the financing, therefore should not be included as part of
the working capital base

Question 7

Consideration to working capital base?

Answer 7

excluding the short–term loan portion, tax payable and permanent cash surplus noted above), the forecast should however continue for each of these items, and the movement
should be used as the cash flow

Question 8

WACC ?

Answer 8

will not reflect the same risks as industry or other companies that’s why we need to relever or unlever the beta

Question 9

cost of equity (its derived beta-factor)

Answer 9

has not been adjusted appropriately for the specific risks that the company faces:
* The company only has one product, although there are others in
development, the rate should be increased for the dependency risk
associated with having a single product, and not having diversified revenue
streams.
* The company has unique skills and technologies / potential new products,
therefore revenue potential; rate should be decreased.

Question 10

Scrutinize Financial statements

Answer 10

Validate and see some significant changes and question or comment on them