The TJX Companies is a Fortune 200 company with 3,860 stores worldwide under half a dozen retail brand names, including clothing stores such as TJ Maxx and Marshall’s. The TJX Companies have fiscal year (FY) that ends in January of each year. The following are TJX’s historical (A) and estimated (E) earnings per share (EPS) and dividend per share (DPS). The book value per share of TJX at the beginning of FY 2018 was $3.50.

	FY 2018A	FY 2019A	FY 2020E	FY 2021E	FY 2022E
EPS	2.07	2.43	2.61	2.82	3.04
DPS	0.59	0.73	0.88	1.02	1.18

Assume that TJX has an equity cost of capital of 10 percent per annum and there are no additional shareholder equity transactions.
A. Calculate the ending book value per share for FY 2018 - FY 2022.
B. Calculate the return on common equity percentage (ROCE) plus the residual earnings (RE) per share for FY 2018 – FY 2022.
C. Calculate the year over year (YOY) forecasted growth rates in TJX’s residual earnings (RE) growth rates for the period FY 2018 – FY 2022.
D. Based on your answer in C above, in a residual income valuation model would you expect the continuing value to be Case 1, Case 2 or Case 3? Explain briefly.
Investors use a variety of metrics to help explain value creation within a firm

The metrics, among others, include ROCE, free cash flow, EV/EBITDA, dividend yield, P/E multiples and book value

From a residual income perspective, identify the two primary drivers of value creation for the TJX Companies

Explain how each driver creates value for TJX’s shareholders?

Answer rating: 100% (QA)

Book Value Book Value at start plus eps minus dps FY 2018A FY 2019A FY ... View the full answer