ROLLS ROYCE

Evaluation of Shareholder Value and Market Evaluation of Equity for Rolls Royce Holdings Plc



Table of Contents

1.Introduction3

2.Executive Summary3

3.Company Profile3

4.Financial Position5

Future Forecast of Rolls Royce Holdings Plc9

5.Shareholder Value Analysis (SVA)10

Total Shareholder Return (TSR)11

Dividend Policy14

Market Value Added (MVA)16

Economic Value Added (EVA)17

6.Efficient Market Hypothesis (EMH)18

Share Price Movements of Rolls Royce: For 12 months19

7.Equity Valuation of Rolls Royce plc20

Net Asset Value (NAV)20

Price/Earnings value (P/E)21

Discounted Cash Flow23

Terminal Value26

Sensitivity Analysis26

Evaluation of Shareholder Value and Market Evaluation of Equity for Rolls Royce Holdings Plc

Introduction

The value of assets is of mere significance as stakeholders of the firm can accordingly take big decisions regarding the firm, which may result in efficient growth (Brealey and Myers, 1996). Various valuation techniques are used to determine the true value, which in turn enables the investors to make an estimate and decide if the investment in that firm is going to pay them off.

Executive Summary

This paper explains the financial evaluation of Rolls Royce Plc till date Jan 31, 2012. The shareholder value analysis of Rolls Royce Plc is made using the EVA, MVA and TSR approaches to find out the value added by Rolls Royce Plc in 2011 to its shareholders. The values obtained are compared with its major competitor; BAE systems, which is listed on LSE under aerospace and defense sector. A study on the stock price movement of Rolls Royce Plc on LSE for a one year period is carried out to understand movement of stock prices and its causes and effects. The method of valuation is applied by the use of Net Asset Value, Price to Earning and Discounted Cash flow and it is compared with competitor's analysis.

Company Profile

Rolls-Royce Holdings plc, formerly Rolls-Royce Group plc is a provider of power systems and services for use on land, at sea and in the air. The Company operates in four segments: civil aerospace, defense aerospace, marine and energy. The civil aerospace is engaged in development, manufacture, marketing and sales of commercial aero engines and aftermarket services. The defense aerospace is engaged in development, manufacture, marketing and sales of military aero engines and aftermarket services. The marine segment is engaged in development, manufacture, marketing and sales of marine propulsion systems and aftermarket services. During the year ended December 31, 2010, it acquired ODIM ASA. In June 2011, Daimler AG and Rolls-Royce Holdings PLC had secured around 94% interest in Tognum AG-DJ. In September 2011, the Company acquired R Brooks Associates. In September 2011, the Company acquired R Brooks Associates.



Financial Position

Rolls Royce Holdings Plc has been growing tremendously and it has performed well in the past year 2011. Rolls Royce Plc has been able to set high targets and achieve them with extreme hard work and dedication. Rolls Royce Holdings Plc recorded £11.124million sales in 2011, while the net income was increased to £850 million, recording 21 percent growth. Further, as far as shareholders are concerned, Rolls Royce holdings Plc proposed to pay 10.6 pence for each share and the complete payment of ...