Evaluate financial performance of a business

Reference no: EM132292009

Assessment - Case Analysis

Learning Outcomes

b) Analyse financial information and evaluate financial performance of a business.

c) Apply time value of money to the valuation of a variety of cash flows, securities and projects leading to sound investment and financing decisions.

d) Analyse risk and return associated with investments.

e) Apply various capital budgeting techniques to investment decision making.

f) Analyse the cost of capital and explore its link to the capital structure of an organisation.

g) Analyse working capital and payout policies and their impact on the liquidity position of a business.

Context:

The Case Analysis assesses students' understanding of capital raising by Australian companies through an initial public offering (IPO) and its impact on firm's performance. The focus is on the four puzzles identified in academic literature concerning IPOs:

Instructions:

1) Costs of IPOs are very high.
2) On average, IPOs appear to be underpriced.
3) The number of IPOs are cyclical.
4) The medium to long run performance of a new public company (3 - 5 years from the date of issue) is poor.

(a) You are required to identify any three Initial Public Offerings (IPOs) on the Australian Securities Exchange (ASX) of an amount of at least $100m that occurred during the 8-year period from 2007 to 2013. They should be from different industries. Using information from annual reports and other sources such as analysts' reports, evaluate whether the funds raised from the IPO were used to finance viable investment projects. If some of the funds raised contributed to working capital needs, you should highlight that.

(b) Using academic literature and evidence from Australian IPOs in general and the three IPOs chosen in (a) above, critically evaluate the statement: "IPOs are a costly way of raising long term finance for corporations". In your answer you should discuss how the equity raised from the IPO changed the cost of equity of the firms.

(c) With reference to your selected IPOs, empirically verify the extent of underpricing by comparing issue prices and closing share prices at the end of the first day of trading on the ASX. Provide a well-reasoned argument on whether the extent of underpricing is different from industry to industry.

(d) Empirical evidence has stated that the level of IPO activity in any economy is cyclical and is a function of market conditions. By analysing IPO activity on the ASX for the period beginning 2007 and ending 2017, explain if any, the pattern of IPO activity during that period. Provide reasons for any changes in IPO activity over the period, relate this to Australia's economic growth pattern.

(e) Companies use IPOs for different reasons such as converting a private company to a public company, spinning off a business of an existing listed company or privatization of a public company. Despite these different objectives, the underlying motivation would be to increase shareholder value. It has however been argued that IPOs seem not to add value given that on average the share price performance of companies in 3-5 years after the IPOs is poor. Evaluate the argument using data gathered about your chosen organisations. Critically evaluate and comment on their shares performance.

(f) Does your conclusion in (e) change when you consider as additional return the dividend yield shareholders may have received during the same period.

In addition to the above you will also be assessed on the following: (see Learning Rubric at the end for more description of expectation).
(g) Content, Audience and Purpose

(h) Critical reasoning, presentation and defence of an argument and/or position

(i) Analysis and Application with synthesis of new knowledge

(j) Use of academic conventions and sources of evidence

(k) Effective communication

Reference no: EM132292009

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Reviews

len2292009

4/24/2019 1:33:30 AM

Effective communication The aim is to communicate well – to be understood in arguments presented and to address all the questions in the assessment 5 Expertly presented; the presentation is logical, persuasive, and well supported by evidence, demonstrating a clear flow of ideas and arguments. Engages and sustains audience’s interest in the topic, demonstrates high levels of cultural sensitivity. 4.25-5

len2292009

4/24/2019 1:33:20 AM

Use of academic and discipline conventions and sources of evidence Proper academic writing expected Expertly written and adheres to the academic genre. Demonstrates expert use of high-quality, credible and relevant research sources to support and develop

len2292009

4/24/2019 1:33:08 AM

Analysis and application with synthesis of new knowledge (Examining whether the student has applied finance knowledge of IPOs to real companies which listed on the Australian Securities Exchange (ASX). 15 Highly sophisticated and creative analysis, synthesis of new with existing knowledge. Strong application by way of pretested models and / or independently developed models. Recommendations are clearly justified based on the analysis/synthesis. Applying knowledge to new situations/other cases. 12.75-15

len2292009

4/24/2019 1:32:59 AM

Critical reasoning, presentation and defence of an argument and/or position. It is important to be able to justify position taken. Backing up with academic literature and other authentic references is important. It is not about expressing personal opinions. 10 Specific position (perspective or argument) is presented expertly, authoritatively and imaginatively, accurately taking into account the complexities of the issue(s) and scope of the assignment. Limits of position are acknowledged. Justifies any conclusions reached with sophisticated arguments. 8.5-10

len2292009

4/24/2019 1:32:49 AM

Knowledge and understanding (Students should display an understanding of initial public offerings (IPOs), their purpose and IPO puzzles identified in academic literature. They are expected to link capital raising to investment decisions and be able to evaluate value created from such decisions. 60 A sophisticated understanding of the field or discipline/s. Systematically and critically discriminates between assertion of personal opinion and information substantiated by robust evidence from the research/course materials and extended reading. Mastery of concepts and application to new situations/further learning. 51-60

len2292009

4/24/2019 1:32:41 AM

Content, Audience and Purpose (Students should show an understanding of the essence of the assignment, the central idea(s) to be addressed and pitch the report accordingly) 5 Exceeds minimum standard and exhibits high levels of independence Consistently demonstrates a systematic and critical understanding of context and purpose of the assignment. 4.25-5

len2292009

4/24/2019 1:32:28 AM

Assessment Attributes Grade Description (Grading Scheme) Students expected to produce a well- structured report showing knowledge, critical reasoning and professionalism expected of postgraduate students High Distinction (Exceptional) Evidence of an exceptional level of achievement of learning objectives across the entire content of the course demonstrated in such areas as interpretation and critical analysis, logical argument, creativity, originality, use of methodology and communication skills.

len2292009

4/24/2019 1:32:17 AM

This assignment must adhere to the following: 1. This assignment must be prepared and submitted individually. 2. The assessment should be written in a Business Report Format. (Word or PDF format acceptable). 3. Naming convention of the file: FINA6000_Assessment3_Name. Surname.docx Example: FINA6000_Assessment3_Adam.Smith.docx 4. The assessment has to be properly referenced using the APA referencing style.

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