Business Valuation of Polo Ralph Lauren Corporation - Mark Moore ...

This analysis is a good valuation of this company because it does not just focus onthe dividends or the cash flows, and takes into measure how the steady growth of Polo. Italso does not have a perpetuity, so it does not distort the future earnings or blow thefuture value of the firm up.The calculations that we used to valuate Polo Ralph Lauren Corp. were estimatedwith an annual growth of 3% per year, as well as a cost of equity of 5.44%. Polo justrecently here in 2003 began to start paying dividend, and we expect RL will continue thedistribution of earnings as the strengths of internet sales and overseas foreign marketscontinue to grow. Polo’s stock also is primarily purchased not for the quarterly dividendpayments but more for the increase in value of the stock and company. The cost of equitywas hard to calculate due to the poor accounting used by Polo in that they did not havetheir financial statements consolidated in a way to value the annual percentage rates ontheir bank borrowings, and other liabilities.The Market Value of Polo in April of 2005 was $38.39, so very closely valuatedFree Cash Flow Valuation ModelDerived Value on April 1 2005=$26.44The Free Cash Flow Valuation came out undervalued from what the market hasPolo at currently. So the stock is overvalued compared to the analysis of the cash flowstreams. In figuring out the Free Cash Flow valuation we had to calculate WACC, whichonce again was hard due to the un-detailed accounting practices used on the financialstatements by Polo RL. The valuation that we derived is between the book value andmarket value.This valuation for the company was a good valuation and could have even been alittle stronger with the added information of their specific debts and current rates they pay35