Strategic Financial Analysis - Diageo Whiskey Company

2487 words 10 pages
Diageo Whiskey Company Analysis

Diageo holds a title of being the globe’s largest producer of whisky, connected to some 29 distilleries and warehouses storing seven million casks of maturing spirits. Their products are sold in more than 180 countries and the company holds offices in 80 countries. Diageo’s best-selling brand (Johnnie Walker) has been sold in the fiscal year of 2011 in an astonishing amount of 17.8 million “nine-liter cases”, which were mainly traded overseas.
The demand for whisky globally is rising since the 1990s at that time the market was deemed “flat”, while according to the Scotch whisky association exports of scotch were valued at £3 billion in the first nine months of the year 2011, which is a
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This value doesn’t give any predictive power nor does it include the brand’s value and other aspects that can’t be suited into a balance sheet. 2) P/E ratio P/E ratio is used to define a fair value of a company by comparing its performance to financial results of peer companies. Peer companies are the ones operating in similar industry, have similar size and capacity to make as much profits as a targeted company in long-term. P/E ratio allows understanding if the current stock value is undervalued, overvalued or properly valued. This method assumes that since companies are similar, they are on equal footing to generate return on investor’s money.

Based on the information provided on web-site in the category of ‘beverages – Distillers/Wineries’ there are fourteen largest players, the largest being Takara Holdings Inc. with relevance to its market capitalization and Diageo follows it up with second place on that list. (Reuters; 2012) (Reuters; 2012) Diageo’s P/E Ratio (TTM) is 22.76, whereas 18.98 is the P/E value for peer companies. By multiplying P/E for peer companies by Diageo’s most recent earnings figure, we will receive the value of Diageo’s stock. Annual EPS Est. (Jun-12) = 90.59 Value of Diageo’s stock = 18.95 * 90.59 = 1716.20 GBP On March 26, 2012 stock closed at 1510.03 GBP. Judging based on our calculations, Diageo is currently undervalued.(Reuters; 2012) To