Reference no: EM132303281

Instructions:

Please form a group of 3 members from your tutorial group. You may also have group member/s from another tutorial session. Each group needs to choose a non-financial firm currently trading on the ASX. The first task will be to collect the last 10 years data relating to income statement, balance sheet, cash flow statement and ratios and collate in excel. You can get the data through Data Analysis Premium.

Steps to be followed:

1. Go to latrobe website → Click Library → Click Database → Click on D

2. Click Data Analysis Premium→Click "I Agree"

3. Provide your student ID and password and you will be taken to a new website.

4. Put the name of the company in the box

5. You can search a company name such as Telstra. In ASX Telstra is coded as ‘TLS'.

6. If you search TLS you will be taken to the following page. Click on ‘Financial Data'. You can download all the information in spreadsheet format.

7. You can also click annual report. Then you can see the annual reports in PDF format.

8. Download the annual report to have a cross check. Sometimes the data downloaded in spreadsheet might be different and if so, take the value in the Annual Report as the correct value. Sometimes, the values of a particular variable may be missing in the downloaded data. If that is the case you can look for it in the annual report e.g. in the notes to the financial report.

9. Download the annual report and prepare the data set.

Students should prepare the data in panel format in Excel (see below) e.g.

SUBMISSION DETAILS

Items to be submitted: In addition to the Excel file from 9 above, you are to submit a succinct 6000 word (equivalent to 2,000 words per student) operating and financial health check of your firm that covers:

a) Company background and mission
b) Business strategy analysis
c) Accounting analysis
d) Financial Analysis
• Common size and horizontal analysis
• Cash flow analysis
• Liquidity analysis
• Income analysis
• Solvency analysis #1: Capital structure analysis, including an analysis of debt ratios.
• Solvency analysis #2: Compilation of key coverage ratios.
• Growth and risk analysis

e) Prospective analysis

Further detail on the above elements is presented below

(b) Business Strategy Analysis: Business strategy analysis involves analysing a firm's industry (e.g. Porter's five factor model) and its strategy (e.g. cost leadership vs. differentiation) to create a sustainable competitive advantage.

(c) Accounting analysis: Evaluate accounting quality by assessing accounting policies and estimates.

(d) Financial Analysis

• Common size & horizontal analysis of key financial statements. Various types of trend, bar & pie charts can be useful in the presentation of the analyzed results in your assessment submission. Students are expected to make very brief but pertinent comments regarding the findings. Comments could be related to the causes and significance of the increase or decrease of important variables such as PPE assets, intangibles, sales, EBIT, net income, debt, equity and cost of goods sold.

• Cash Flow analysis. You would need to provide some commentary around what trends are emerging in the part of the Cash Flow Statement called cash flow from operations as a lot of the good news and bad news of a company is revealed there. Investors often look at this section before they bother with an income statement.

o You may want to take cash flow analysis further by including Free Cash flow to the Firm (FCFF) and Free Cash flow to Equity (FCFE) numbers. Have a look at the appendix to this document. You will not be marked down if you leave FCFF and FCFE calculations/exploration out of this assignment as we do not explore these concepts until week 12 and will only talk of them briefly. Those concepts are explored in depth in FIN5EQS.

• Liquidity Analysis. This would entail as a minimum a current ratio and a liquid ratio together with relevant commentary on receivables and payables and stock management, etc.

• Income Analysis. This would include an EBIT margin analysis, a gross profit margin analysis (if applicable), net income analysis and EPS. Please pay close attention to the volatility of the EBIT margin, as well as "tax take" and financing impacts on Net Income. You would also be advised to incorporate ROA analysis. ROA analysis can take many forms. For example refer to page 3 of large reference document on LMS called Financial Ratios and Earnings per Share. You may choose to look at ROA, Operating ROA (sometimes called ROIC), Accounting ROA and ROTC (sometimes called ROCE)

• Capital Structure Analysis (and Solvency). This is all about ascertaining the level to which the company uses financial leverage to finance its operations and activities. The analysis should cover bonds, other forms of debt, hybrid instruments such as preference shares and convertible notes as well as financial leases.

• Coverage (and Solvency). These ratios examine the extent a company can cover its interest payments and other fixed financial commitments e.g. lease payments.

• Growth and Risk analysis. Refer to Lecture 5. For an analysis of business risk you may want to refer to the appendix in Lecture 1. You are also encouraged (not required) to perform a default risk analysis using naïve distance to default and naïve probability of default model as suggested by Bharath and Shumway (2008). Note that, this measure uses both balance sheet and market-based data (find the reference of this paper at the appendix).

(e) Prospective analysis: Refer to Lecture 10. Prospective analysis involves forecasting of future balance sheet and income statement. Some concluding commentary on the company and maybe its prospects for growth, prospects as a takeover target, high risk of failure or whatever you see. Do not be afraid to track the share price and see if you can use that to understand where the company has come from and where the market thinks it might be going. You may want to even come up with a first thought on whether an investor should consider buying the stock, selling or holding the stock - without getting very technical.

Attachment:- Financial Statement Analysis.rar