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Accenture: Simple Analysis and Parsimonious Forecasting

Accenture: Simple Analysis and Parsimonious Forecasting. Kevin Overholt 2/3/2014. Background. Accenture is a global leader in the information technology services industry. Spinoff of Arthur Andersen’s consulting branch.

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Accenture: Simple Analysis and Parsimonious Forecasting

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  1. Accenture: Simple Analysis and Parsimonious Forecasting

    Kevin Overholt 2/3/2014
  2. Background Accenture is a global leader in the information technology services industry. Spinoff of Arthur Andersen’s consulting branch. Three core businesses are technology consulting, software development, and outsourcing services. Current share price is $79.88 with a market cap of $64.52 billion.
  3. Accenture’s Financial Statements Balance Sheet Relatively small Total Assets and Total Liabilities Zero Long-Term Debt Largest account balance is Cash In reality, most valuable asset is people. Not on Balance Sheet. Conclusion: Accenture has zero NEA. Income Statement 70% of revenues go directly to salary/service expense. Steady growth in Net Income (roughly 10% annually) 93-94% of income comes from services, 6-7% from non-enterprise activities
  4. Return on Enterprise Operations
  5. Key Assumptions Accenture has zero Net Enterprise Assets (NEA) Therefore, there are no Return on Net Enterprise Assets (RNEA) or Enterprise Asset Turnover (EATO) figures. Accenture is not comparable to the other firms in industry. HP focuses on hardware, software, and services. Microsoft mainly focuses on hardware and software. IBM focuses on information technology. Accenture focuses on consulting. Therefore, when analyzing future growth, we will only use data from Accenture’s financials to determine the rates used in our forecasts.
  6. Enterprise Profit Margin Two main components of EPM: Sales Revenue Salary Expense
  7. Forecasting - Sales Assume: 5.9% Annual Sales Growth Reasoning: Average of three ‘normal’ sales growth figures. Steady downward decline forces us to eliminate the 18.4% growth rate from consideration. Upward swinging economy creates more demand for consulting services.
  8. Forecasting – EPM (from Sales) Assume: 10.1% Annual EPM from Sales Reasoning: No outstanding figure to throw off data EPM is unlikely to change in the near future, as the margin of revenues over salary paid is only key variable.
  9. Parsimonious Assumptions Sales Growth Rate 5.9% Enterprise Profit Margin (EPM) 10.1% Enterprise Asset Turnover (EATO) N/A
  10. Limits to Assumptions This model is unable to be compared to the industry. Accenture has zero NEA, in theory. Accenture does not have similar business models with the selected industry, making it incomparable. Future growth of technology firms, generally, has proven extremely difficult to measure. Moving forward, more closely aligned firms are needed to give a true valuation figure for Accenture.
  11. Questions?
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