Reference no: EM133709562 , Length: word count:3500

Business Decision Making

Firm Analysis Report

Task: As the financial manager of the specific company assigned to you, you will analyse the finances of your company and circulate a report to the senior management of the company. The assignment will cover various topics including bond valuation, share valuation, risk and return, payout policy, cost of capital and capital structure.

Word count: A limit of 12 pages with a maximum word count of 3,500 words (excluding cover page, table of contents, introduction, references, appendices etc.)

For this assignment, you will be assigned a specific company and tasked with writing a comprehensive firm analysis report. As the financial manager of the designated company, you will analyse the finances of your company and circulate the report to the senior management of the company. Each part of the assignment relates to a Corporate Finance topic covered in a different study week.

Part A: Company Overview
Provide an overview of the company details, including the company's name, the industry it operates in, the company's core business activities, and products or services it offers. Additionally, include information about the stock exchange on which the firm's stock is listed, its ticker symbol, credit rating, and major competitors. This page will serve as the front page of your assignment, so make sure it looks appealing and professional. Feel free to add any additional information you deem necessary.

Part B: Company Financials (1 - 2 pages)
Your task for this part of the assignment is to describe the company's financial situation. One place to find the company's financial statements is investing.com (select your company, and click on Financials). Investigate which events have affected your company's financial situation during the past couple of years, and explain what we can expect for the coming years. Your analysis should be based on at least 3 recent business publications from reputable sources (which are NOT publications of the company itself).

Part C: Bond Analysis (1 - 2 pages)
The topic of this part of the assignment is covered in Week 3. The company is planning to raise $50 million by issuing new bonds. The proposed new bonds will carry a 5% semi-annual coupon rate and have a maturity of 10 years. Your task is to determine the number of bonds

the company must sell to raise the required amount. To proceed with this task, you must first determine the company's current credit rating by researching various sources, including credit rating agencies, company website, financial reports, and other relevant data.

Secondly, conduct research on the average yields of Australian corporate bonds. You can find relevant information on the Reserve Bank of Australia (RBA) website under "Aggregate Measures of Australian Corporate Bond Yields."

Assuming the company maintains the same credit rating as its current rating, estimate the yield investors would demand on your company's new bond issue, the credit spread of this bond, and the number of bonds your company must issue. To do this, you will also need information on the current Australian government bond yields, which can be obtained via the RBA website under "Capital Market Yields - Government Bonds - Monthly".

Finally, explain with reasoning if you anticipate any changes in the company's credit rating based on your analysis in Part B of the assignment. Additionally, assess how higher or lower credit ratings may influence the bond's attractiveness to investors and its pricing, which ultimately affects the total proceeds generated from the bond issuance.

Part D: Share Analysis (1 - 2 pages)

The topic of this part of the assignment is covered in Week 4. The task is to analyse your company's shares. First, provide a graph and comment on the company's stock price changes in the previous three years. Explain what factors have caused the stock price to develop as it did, and link this investigation to your analysis in Part B of the assignment. Secondly, provide an overview of the firm's dividend payments during the previous 5 years. If your company paid dividends more than once a year, sum up all dividends to find the total yearly dividend. Using the dividend discount model, estimate the return that investors currently require for holding your company's stock. You can assume that the firm's dividends will continue to grow indefinitely at the same rate as the average dividend growth rate in the previous five years, or you can make alternative assumptions on the future dividend payments, as you see fit.

Part E: Risk Analysis (1 page)
The topic of this part of the assignment is covered in Week 7 and 8. Estimate the amount of systematic risk in the shares of your company and compare the systematic risk in your stocks to the stocks of two competitors. Your discussion should include an explanation of which factors could possibly explain the differences and similarities in the systematic risk of these shares.

Part F: Payout Policy (1 - 2 pages)
This topic is covered in Week 10. In this part of the assignment, you will provide an overview of the company's payout policy in recent years. Which percentage of the company's earnings was distributed to investors as dividends? Which percentage of earnings was reinvested in the company? Did the company engage in dividend smoothing? Did the company do any share repurchases in recent years? (One way to find out about share repurchases is to

investigate any changes in number of outstanding shares on the company's balance sheets between different years). Why did the company make these decisions?
You can obtain the dividend history of your company from Yahoo Finance, search for the company's stock, then go to Historical Data, and select Show: Dividends Only.

Part G: Cost of Capital and Capital Structure (1 - 2 pages)
The topic of this part of the assignment is covered in Week 9 and Week 11. First, find out what the capital structure of your firm looks like, and use this information, plus your results in the previous parts of this assignment, to estimate your company's weighted average cost of capital (WACC). You can assume that all of the company's debt has a comparable market value (price) to the bond mentioned in Part C. Secondly, compare the capital structure of your firm with two competitors. What factors could possibly explain the similarities/differences in capital structure between these companies?

Report
Your firm analysis will need to be presented in a high-quality report. Please see the Reports checklist for the requirements of a high-quality report. Remember, most senior managers do not have a finance background, so it is very important to clearly explain each time which method is used, what the idea is behind this method, and how each metric was calculated (show your workings), and comment on the results of the analysis. The report should include references to the source of each piece of information.