Part (c) With reference to the preliminary valuation performed: (ii) discuss the appropriateness of using an earnings-based valuation method to value C2C in its current circumstances. Provide alternative valuation methodologies that you may consider to be more appropriate to support your discussion.
ANSWER
Earnings-Based Valuation vs. Other Methods
An earnings-based valuation, like the one the financial manager tried, is not suitable for C2C. The company's profits are too unstable and influenced by one-time events, such as the pandemic and the business turnaround plan. It would not give a reliable or accurate value.
Alternative Methods
Better ways to value C2C would be:
Discounted Cash Flow (DCF): This method estimates the company's value based on its expected future cash. It's a better fit because it can account for C2C's future recovery plans and unique risks.
Asset-Based Valuation: This method values the company by totaling the value of its assets, like its fleet of buses. It's a good approach for C2C because its assets are its main source of value, and it provides a more stable valuation than its volatile earnings.
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