Study On Corporate Finance Of Supercheap Auto Finance Essay

Supercheap Auto was founded by Reg and Hazel in 1972. Supercheap Auto Group comprises of 3 concerns that are Super Cheap Auto, Boating Camping Fishing and Gold Cross Cycles. Supercheap Auto group is the largest retail merchants and leaders in Australia and New Zealand with over 300 shops across Australia and New Zealand. Supercheap indicated that the annualized gross revenues in surplus of $ 800 million. In add-on, Super Cheap Auto Group listed on the Australian Stock Exchange in July 2004, investors truly like the IPO and company ‘s portions. It is one of the fastest turning companies in Auto nomadic Industry. Currently, SUL is merchandising about $ 5 to $ 6 monetary value scope.

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Supercheap Auto was founded by Reg and Hazel in 1972. Supercheap Auto Group comprises of 3 concerns that are Super Cheap Auto, Boating Camping Fishing and Gold Cross Cycles. Supercheap Auto group is the largest retail merchants and leaders in Australia and New Zealand with over 300 shops across Australia and New Zealand. Supercheap indicated that the annualized gross revenues in surplus of $ 800 million.

Supercheap had a turnover more than $ 1 million and opened the first shop in Brisbane.

There were 7 shops in 1993. Besides, the company had a new Director of Retail Operations who is Bob Thorn. The figure of shops increased to 14 within 1 twelvemonth. By 1997, Mr. Thorn become a Managing Director and retired at the terminal of 2006. While Mr. Thorn served the company, the shops increased dramatically to more than 200 shops across Australia and New Zealand.

In May 2003, there was an acquisition the Perth based Marlows concern. Marlows was a elephantine and biggest independent retail merchant of automotive parts and accoutrements in Western Australia and South Australia. However, after an acquisiton Marlows and Rocca rebranded as Superchap Auto shops.

There were 7 shops opened in New Zealand in November 2003. Then, Super Cheap Auto Group listed on the Australian Stock Exchange in July 2004, investors good supported the IPO and company ‘s portions. It is one of the popular stock in the Automotive Industry.

Describe the current concern activities of the company ( 5 % )

Super Cheap Auto Group has 3 chief concerns:

Super Cheap Auto

Boating Camping Fishing

Gold Cross Cycles

Super Cheap Auto

Supercheap Auto is the largest and a leader in automotive spare parts industry. Supercheap Auto sells auto spare parts, manus tools, power tools, auto attention, electrical outdoor merchandises etc. Harmonizing to Supercheap Auto, there are more than 260 shop location across Australia and New Zealand. Supercheap car employees are around 3800 people.

Keies to success of Supercheap Auto are team members, shops and varied merchandise scopes and advices from staffs.

Each shop comprises more than 10000 different points and includes everything from automotive parts and accoutrements, tools, minibike merchandises, equipment to basic Marine and ready to hand points. The points are the followerss.In-car pilotage system, in-car stereo equipment, batteries, auto attention, exterior accoutrements, manus tools and power tools, illuming and electrical, oils, filters & A ; additives out-of-door equipment & A ; accoutrements, pigment and panel, public presentation, place screens and interior accoutrements, trim parts

Boating Camping Fishing

BCF is boating shop that has over 20kms of rope in stock and large scope of forte points such as chromium steel and steel wire. Besides, shop has the electronic appliances and latest GPS system every bit good as Marine electrics and different sort of batteries.

Gold Cross Cycles

This is a forte bike shops that has everything. Gold Cross Cycles is the largest retail merchant shops in Melbourne. Currently, Gold Cross Cycles is spread outing across Australia and New Zealand. The shops sell everything that associates with bikes like parts, accoutrements and vesture. Gold Cross Cycles shops sell all sorts of bikes such as childs, bmx, urban and mountain.

Describe the company ‘s capital construction. This should include a treatment of the recent fiscal history and the designation and description of any alterations in the capital construction that have occurred, or which are planned, sooner associating these to the treatment in parts 1 and 2 above. ( 5 % )

Entire Debt to Equity ratio of 2009 amalgamate statement is 281,417/156,354 = 1.80 times which is acceptable as the automotive industry normally has debt to equity about 2. In add-on, it implied that Supercheap Auto financed stock lists through trade and other payables which is great due to Supercheap Auto does n’t hold to pay involvement for trade and other payables.As a consequence of this, it enhances an operating hard currency flow.

There was in increased in the trade and other payables from 91,205 in 2008 to 116,623 in 2009. However, the adoption under current liabilities decreased from 56,692 to 39496 in 2009.

The capital construction of Supercheap Auto consolidated statement comprises of term long liabilities, common stock, and retained net incomes.

Long Term Debt

Long-run trade and other payables rose to 12,300 in2009 from 10,469 in 2008. A long term borrowing went from 71,061 in 2008 to 92,000 in 2009. While, there was a decreased in proviso by 2,402 in 2009.

Equity

The contributed equity is 84,627 where as the militias is 42 in 2009 from subtraction 3,344 in 2008 due to there is a dramatic addition in retain net incomes by 20,593 from54,478 in 2008 to 71,658 in 2009. The entire stockholders ‘ equity in 2009 is 156,354

What were the major debt and equity instruments that the company had outstanding as at 30/6/08 and 30/6/09? Describe their cardinal footings of issues. ( 5 % )

What considers as major debt is a debt with cost of borrowing like involvement. Therefore, overdraft and long term liabilities are considered to be major debt whereas trade and other payables is non considered to be a major debt as it has no involvement payment.It is considered to be a on the job capital.

Debt

As of 30/6/09

Major debt is short term borrowing about 39,496. The long term adoption is 92,000.

As of 30/6/08

Major debt is short term borrowing about 56,692. The long term adoption is 71,016.

Equity

Contributed Equity as of 30/6/08-09 is 84,627 remains unchanged.

There is a important alteration in the militias in 2009 which rose up by 3,386 from subtraction 3,344 in2008 to positive in 42 in 2009. Harmonizing to pes notes figure 26, this is due to fudging reserve around 1,120 in 2008, while there was no fudging modesty in 2009. Therefore, militias became positive in 2009.

Analyse the past and present dividend policy of the company since its public listing. ( 5 % )

Super Cheap Auto Group ( 2004 ) stated that dividends will be franked to the greatest extent possible. The dividend is to the full franked. Furthermore, dividends are franked at 30 % . However, it depends on Directors ‘ discretion as good. The payout ratio is around 35-45 % of Net Net income After Tax followings the prognosis period.

Although, the potency of dividends payments besides depend on other factors such as net incomes, fiscal position, revenue enhancement rate, capital demand, and hazard factors.

There is an interim payment. Therefore, Super Cheap Auto Group pays dividends twice per twelvemonth.

Use the Capital Asset Pricing Model ( CAPM ) to gauge the cost of ordinary equity for the company. Explain any premises you make and place the beginning ( s ) of any other information used in your computations. ( 5 % )

Tony Head ( 2008 ) reports “ The output on short-run Government debt, which is used as a replacement for the riskless rate of return, is non fixed but alterations on a day-to-day footing harmonizing to economic fortunes. A short-run mean value can be used in order to smooth out this volatility. ” As the article suggests, the riskless rate return can be slightly volatile, therefore the last 6 months mean value of 10-year Government bond has been used to capture the current hazard free rate.

As for the expected return on the market, the Tony Head ( 2008 ) besides states that “ in the short term, a stock market can supply a negative instead than a positive return if the consequence of falling portion monetary values outweighs the dividend output. It is hence usual to utilize a long-run mean value. ” Therefore the recent 5 old ages of market index return informations has been used to cipher the norm expected return on the market.

Calculate the company ‘s Leaden Average Cost of Capital. Explain any premises you make and place the beginning ( s ) of any other information used in your computations. ( 10 % )

Long term debt is used to cipher WACC because it has an involvement duties and after revenue enhancement cost of debt is used to deliberate cost of debt as involvement payment is used to subtract revenue enhancement payment. Hence, after revenue enhancement cost of debt reflects the existent cost of debt. Cost of Equity is calculated by CAPM. Then, long term debt and equity are weighted to happen the proportion of each history. Then, each proportion multiplies by after revenue enhancement cost of debt and cost of equity. Finally, sum up 1.97 % with 7.37 % and acquire WACC 9.33 %

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