Avis Budget Group: a Financial Analysis
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Minnesota State University Moorhead RED: a Repository of Digital Collections Dissertations, Theses, and Projects Graduate Studies Spring 5-11-2018 Avis Budget Group: A Financial Analysis Tralonie Perkins [email protected] Follow this and additional works at: https://red.mnstate.edu/thesis Part of the Accounting Commons, Business Administration, Management, and Operations Commons, Business Analytics Commons, Corporate Finance Commons, and the Finance and Financial Management Commons Recommended Citation Perkins, Tralonie, "Avis Budget Group: A Financial Analysis" (2018). Dissertations, Theses, and Projects. 38. https://red.mnstate.edu/thesis/38 This Project (696 or 796 registration) is brought to you for free and open access by the Graduate Studies at RED: a Repository of Digital Collections. It has been accepted for inclusion in Dissertations, Theses, and Projects by an authorized administrator of RED: a Repository of Digital Collections. For more information, please contact [email protected]. Avis Budget Group: A Financial Analysis A Project Presented to the Graduate Faculty of Minnesota State University Moorhead By Tralonie Levelle Perkins In Partial Fulfillment of the Requirements for the Degree of Master of Science in Accounting and Finance May 2018 Moorhead, Minnesota EXECUTIVE SUMMARY Avis Budget Group, Inc. (CAR) is a leading global provider of vehicle rental and car sharing services, operating three of the most recognized brands in the industry: Avis, Budget and Zipcar. The company markets additional regional brands such as Payless in the U.S., Maggiore in Italy, France Cars in France, and Apex in both Australia and New Zealand. Headquartered in Parsippany, NJ, the company has exhibited annual organic sales growth of 2% under Chief Executive Officer (CEO) Larry D. De Shon. Within a competitive industry, innovation, strategic positioning, brand recognition, and providing differentiated value propositions tailored to each brand play a critical role in the success of the company. Utilizing both qualitative and quantitative analysis, this report encompasses comprehensive data regarding the industry in which CAR competes, the company’s recent financial results, and forecasts of its future growth with five-year pro forma financial statements used to build a valuation model. The estimated stock value as of April 19, 2018, is $51.01. This figure shows that CAR’s market price of $48.21 was fairly valued. Taking into account all parts of this analysis, I would initiate a buy recommendation for the common stock of CAR. ii TABLE OF CONTENTS EXECUTIVE SUMMARY ............................................................................................................ ii INTRODUCTION ...........................................................................................................................1 FIRM CHARACTERISTICS ..........................................................................................................1 GENERAL INFORMATION ..........................................................................................................1 FIRM HISTORY .................................................................................................................3 HISTORY OF ACQUISITIONS .........................................................................................3 GENERAL OPERATIONS .................................................................................................5 KEY EXECUTIVES ............................................................................................................6 MAIN COMPETITORS ......................................................................................................7 STRATEGY .........................................................................................................................9 MARKET CHARACTERISTICS .....................................................................................10 INDUSTRY CHARACTERISTICS ..............................................................................................11 RISK FACTORS RELATED TO AVIS BUDGET GROUP ............................................11 PORTER’S FIVE FORCES ...............................................................................................13 Threat of New Entrants: Low .................................................................................14 Threat of Competition: High ..................................................................................14 Threat of Substitutes: Moderate.............................................................................14 Bargaining Power of Suppliers: Low ....................................................................15 Bargaining Power of Buyers: Moderate ................................................................16 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES .....................................................16 GOODWILL AND OTHER INTANGIBLE ASSETS .....................................................16 PROPERTY, PLANT, AND EQUIPMENT .....................................................................17 iii VEHICLES ........................................................................................................................18 IMPAIRMENTS ................................................................................................................19 TAXES ...............................................................................................................................20 FOREIGN TRANSACTIONS AND EXCHANGE ..........................................................21 REVENUE RECOGNITION.............................................................................................22 QUALITY OF EARNINGS ..........................................................................................................23 FINANCIAL PERFORMANCE, ANALYSIS, AND RATIOS ...................................................25 PROFITABILITY, REVENUE, AND PROFIT MARGIN GROWTH ............................25 COST CONTROL .................................................................................................25 LIQUIDITY ...........................................................................................................26 SOLVENCY ..........................................................................................................26 TURNOVER ..........................................................................................................27 LEVERAGE AND CAPITAL STRUCTURE.......................................................27 CASH MANAGEMENT .......................................................................................28 VALUATION AND RECOMMENDATION ...............................................................................28 SENSITIVITY ANALYSIS ..........................................................................................................29 CONCLUSION ..............................................................................................................................30 APPENDIX A: AVIS BUDGET GROUP .....................................................................................31 INCOME STATEMENT .......................................................................................32 BALANCE SHEET ...............................................................................................35 CASH FLOW STATEMENT ................................................................................37 VERTICAL ANALYSIS .......................................................................................39 HORIZONTAL ANALYSIS .................................................................................42 iv CAR RATIO ANALYSIS .....................................................................................45 CURRENT BOARD OF DIRECTORS ................................................................47 FCF BUILDUP ......................................................................................................48 VALUATION ........................................................................................................49 WACC....................................................................................................................49 PRO-FORMA FINANCIAL STATEMENTS .......................................................50 APPENDIX B: HERTZ .................................................................................................................52 INCOME STATEMENT ...................................................................................................53 BALANCE SHEET ...........................................................................................................55 VERTICAL ANALYSIS ...................................................................................................57 HORIZONTAL ANALYSIS .............................................................................................61 HERTZ RATIO ANALYSIS .............................................................................................66 APPENDIX C ................................................................................................................................69 QUESTION ANSWERS ...................................................................................................70 REFERENCES ..................................................................................................................72 v TABLE OF CHARTS FIGURE 1. GLOBAL SALES PERCENTAGE BY REGION ...........................................2