CHAPTER 1

INTRODUCTION

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1.1 Background of the Report:
FCFF is used in DCF valuation to calculate enterprise value or the total intrinsic value of the
firm. FCFE is used in DCF valuation to compute equity value or the intrinsic value of firm
available to common equity shareholders.. This report is the result is the result of valuation of
Samsung three years by FCFF and FCFE valuation. It is prepared as a requirement for the
completion of financial analysis and control of the BBA program of eastern University.

1.2 Objectives of the report:

Broad Objective:
 To find the value of Samsung company for three years using FCFF and FCFE method.

Specific Objective:

 To analysis the financial statement of Samsung.

 To find the FCFF, FCFE and CFO from those financial statements.
 To find out the value of the firm by analysis above statements.

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1.3 Limitations of the study:
To prepare this report we faced little difficulties through we have also got some

Limitation which are:

 The first limitation is that Time constraint. We have faced time limitation to complete
this report.
 The second limitation is the lack of intellectual thought and analytical ability to make in
a perfect one.
 Sufficient records & publications as well as up to date information are not readily
available.
 Another limitation of this report is that the company’s policy of not to disclose some data
& information for obvious reason, which could be much more useful.

1.4 Scope of the Study:

The report commences with the analysis of the Mobile phone industry, company in focus,
Finance related issues are discussed in detail along with their results and possibilities. In this
report valuation of a firm has been disclosed properly. So to invest in one, he or she can analysis
and find the intrinsic value of the firm before investing.

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 Chapter 2
Literature Review

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2.1Company Profile
Samsung, South Korean company that is one of the world’s largest producers of electronic
devices. Samsung specializes in the production of a wide variety of consumer and industry
electronics, including appliances, digital media devices, semiconductors, memory chips, and
integrated systems. It has become one of the most-recognizable names in technology and
produces about a fifth of South Korea’s total exports.

Samsung was founded as a grocery trading store on March 1, 1938, by Lee Byung-Chull. He
started his business in Taegu, Korea, trading noodles and other goods produced in and around the
city and exporting them to China and its provinces. After the Korean War, Lee expanded his
business into textiles and opened the largest woolen mill in Korea. He focused heavily on
industrialization with the goal of helping his country redevelop itself after the war. During that
period his business benefited from the new protectionist policies adopted by the Korean
government, whose aim was to help large domestic conglomerates (chaebol) by shielding them
from competition and providing them easy financing.

During the 1970s the company expanded its textile-manufacturing processes to cover the full line
of production—from raw materials all the way to the end product—to better compete in the
textile industry. New subsidiaries such as Samsung Heavy Industries, Samsung Shipbuilding,
and Samsung Precision Company (Samsung Techwin) were established. Also, during the same
period, the company started to invest in the heavy, chemical, and petrochemical industries,
providing the company a promising growth path.

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 Chapter 3
Methodology

3.1 Description & Collection of Data:

Secondary data have been used to complete the report.

 Official website Samsung.

 Annual reports, income statement balance sheet of has collected from investing.com.

3.2 Sample Size:

This sample selection is Non random sampling. We have selected two companies Apex and Bata
footwear limited because they are competitor.

3.3 Analysis Techniques and Tools:

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We have used excel, Time series analysis, , Forecasting, FCFF,FCFF METHOD.

3.4 Report Writing Structure:

1. Introduction
2. Literature Review
3. Methodology
4. Results Findings and analysis
5. Conclusions and recommendations

Chapter 4
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Results Findings and analysis

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Chapter 4.1

WACC
Weights:
a) weight of equity = 300236.010 / (300236.010 + 15220.5348685) = 0.9518
b) weight of debt = 15220.5348685 / (300236.010} + 15220.5348685) = 0.0482

Cost of Equity:

Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market -
Risk-Free Rate of Return)
The current risk-free rate is 1.50600000%. Please go to Economic Indicators page for more
information.
Beta is the sensitivity of the expected excess asset returns to the expected excess market returns.
Samsung Electronics Coo’s beta is 0.18.
(Expected Return of the Market - Risk-Free Rate of Return) is also called market premium.
Market premium to be 6%.
Cost of Equity = 1.50600000% + 0.18 * 6% = 2.586%

Cost of Debt:

As of Dec. 2018, Samsung Electronics Co's interest expense (positive number) was
$601.035579768 Mil. Its total Book Value of Debt (D) is $15220.5348685 Mil.
Cost of Debt = 601.035579768 / 15220.5348685 = 3.9488%.

SO,

WACC= We*Ke+Wd*Kd = (0.9518*0.02586)+(0.0482*0.039488)=0.0265 or 2.65%

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Chapter 4.2

FCFF from NI
NB: All the data used in the following maths are taken from financial statements which will
be given in Appendix

Computing FCFF From net

  income    
Years 2016 2017 2018
Net income available to common share
holders 22415655 41344569 43890877
Plus: Net non-cash charges 1001816 1336620 1447690
Plus: Interest expense *(1-TAX rate) 2184288.48 940369.21 1531567
less: Investment in fixed capital 3379824 34025006 9890194
less: Investment in working capital 6894303 4505955 28532984
FCFF 15327632.48 5090597.2 8446956

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Chapter 4.3

FCFF from CFO

  CFO      
Years 2015 2016 2017 2018
4434485
NI 19060144 22726092 42186747 7
(+)DEP 970591 1001816 1336620 1447690
(-) Increase in AR   -888815 3416784 6171738
(-) increase in inventory   -458291 6629852 4001349
(+) Increase in AP   297748 2598868 -603991
3501546
CFO   25372762 36075599 9

Computing FCFF
  From CFO    
Years 2016 2017 2018
CFO 25372762 36075599 35015469
(+)Interest expense *(1-tax
rate) 2184288.48 940369.21 1531567
(-) Investment in fixed capital 3379824 34025006 9890194
FCFF 24177226.48 2990962.2 26656842

Chapter 4.4

FCFE from FCFF

Computing
    FCFE    
Years 2015 2016 2017 2018
FCFF   24177226.5 2990962 26656842.01
(-)Interest   2184288.48 940369.2 1531567.01
(+) Net borrowings   1237653 2710269 996935
FCFE   23230591 4760862 26122210

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Chapter 4.4

FCFE from NI

  FCFE from NI    
years 2016 2017 2018
Net income aa 22726092 42186747 44344857
(+) Net non-cash charge 1001816 1336620 1447690
(-)Investment in FC 3379824 34025006 9890194
(_) Investment in WC 6894303 4505955 28532984
 FCFE 13453781 4992406 7369369

Chapter 4.4

Firm value

  Firm Value    
Years 2016 2017 2018
FCFF from NI 13453781 4992406 7369369
WACC 0.0265 0.0265 0.0265
Vale of firm (FCFF/(1+WACC) 13106459.81 4863523 7179122

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Chapter 4.4

Equity Value

  Equity Value    
Years 2016 2017 2018
Vale of firm (FCFF/(1+WACC) 13106459.81 4863523 7179122
(-) Debt 1528238.6 1881405 1466710
Equity 11578221.21 2982118 5712412

Intrinsic price
 
  Price    
Years 2016 2017 2018
Equity 11578221.21 2982118.1 5712412
No. of common stock 6134.88 6810.94 6792.67
Price (Equity/no.of common stock) 1887.277537 437.84238 840.9671

 
 

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Appendix:
1. https://www.investing.com/equities/samsung-electronics-co-ltd-financial-summary
2. https://www.gurufocus.com/term/wacc/SSNLF/WACC/Samsung%2BElectronics
%2BCo%2BLtd
3. https://www.britannica.com/topic/Samsung-Electronics
4. Excel calculations

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