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FINA6000 Managing Finance - Laureate International Universities

Assessment - Case Analysis

Learning Outcome 1: Analyse financial information and evaluate financial performance of a business.

Learning Outcome 2: Apply time value of money to the valuation of a variety of cash flows, securities and projects leading to sound investment and financing decisions.

Learning Outcome 3: Analyse risk and return associated with investments.

Learning Outcome 4: Apply various capital budgeting techniques to investment decision making. Apply various capital budgeting methods in investment decision making within a business

Learning Outcome 5: Analyse the cost of capital and explore its link to the capital structure of an organisation.

Learning Outcome 6: Analyse working capital and payout policies and their impact on the liquidity position of a business.

Context:

The ability to analyse financial performance of companies, calculating costs of capital and valuing stocks (shares) is fundamental to investors and investment advisors. Financial managers are also interested in knowing the value of their companies' stocks as the primary goal of a firm is the maximisation of shareholder value. Given the background of the advent of the COVID-19 pandemic and the reaction of the stock markets globally, it is pertinent to involve students in an exercise that allows them to carry out fundamental analysis of stocks using the corporate finance knowledge.

This assessment focuses on two economies, Australia and Singapore, small open industriliased economies and it concentrates on the top 30 companies by market capitalisation that are listed on the countries' securities exchanges.

• Testing the students' ability to perform financial statement analysis in order to evaluate historical financial performance of companies.
• Determining the capital structures of companies in similar sectors but in two different countries and explaining why they could be differences in capital structure.

• Calculating the cost of capital and the weighted average cost of capital (WACC) of companies.

• Performing valuation of equities and using quantitative and qualitative factors to make a sound investment decision.

• Assessing students's ability to prepare a professionally prepared report.

Instructions:
To complete this assessment task you must consider the following:

You are expected to prepare a report based on the following case.

The Case Analysis requires students to apply their knowledge of key finance concepts such as financial statement analysis, risk and return, capital structure, valuation of shares and dividend policy to an analysis of two companies in the same sector but one is listed on the Australian Securities Exchange (ASX) and another is listed on the Singapore Securities Exchange (SGX).

Your facilitator will allocate to you two companies drawn from top 30 companies by market capitalisation that are in the ASX100 index as of 1 December 2019 and top 30 companies by market capitalisation that are in the Straits Times Index of the same date. (The table with the list of companies is at the bottom).

You need to answer the following questions:

(a) Using five latest annual reports up to 31 December 2019 perform a comparative financial statement analysis of the two allocated companies. You are expected to calculate the Profitability and Investment ratios.

(b) Using information from the latest five annual Balance Sheets, examine the capital structure of the two companies and comment on how the capital structure has changed over the 5 years.

(c) Provide a well reasoned argument why there could be differences in the capital structures of the two companies and yet they belong to the same sector. Support this with academic literature.

(d) For the period 30 April 2019 to 31 May 2020, collect daily closing stock prices of the two companies you allocated. Using this data and any other relevant data determine,

(i) the cost of equity of the two companies.

(ii) determine the cost of capital of other sources of capital of the companies, making reference to the lastest annual report.

(e) Determine the weighted average cost of capital (WACC) of the two companies using the latest capital structure and the costs of capital determined above.

(f) Peform a valuation of the two companies'shares using the Constant Growth Dividend Discount Valuation model.

(g) Discuss the appropriateness of using this model to value the two companies' shares. If not suitable, could you propose an alternative method and explain how it would be executed.

(h) On the basis of the valuations you have done, other calculations you have performed prior to that, and any other quantitative and qualitative information which includes dividend policy, make a recommenadtion as to which one of the two companies' shares would you invest your money if you made an unexpected Lotto win of $15 million.

Consider the following as you work on this assignment:

• Data sources are annual reports, yahoo finance (au.finance.yahoo.com) for Australian companies, yahoo finance (sg.finance.yahoo.com) for Singaporean companies.
• Balance Sheets provide data that allows calculation of financial ratios, determination of capital structure and the cost of debt.
• You are expected to do calculations on an Excel Spreadsheet but the Assessment will be presented in a report format in a Word document. (See instructions below of how to embed an EXCEL file into a WORD document).
• Remember to cite the sources of information used. Put the list references at the bottom of the report.
• You will be assessed on how well you address the key questions in the assesments and how well you write the report.

Attachment:- Assessment - Case Study Brief.rar