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HI5002 Finance for Business Assignment - Holmes Institute, Australia
Assessment Title - Company Performance Analysis
Purpose of the assessment - Students are required to form a group from 2 to 5 members to study, undertake research, analyse and conduct academic work within the topics of financial management from week 1 to week 9 . The assignment should examine the main issues, including underlying theories, implement performance measures used and explain the firm financial performance. Your group is strongly advised to reference professional websites, journal articles and text books in this assignment.
ASSIGNMENT SPECIFICATIONS -
Assignment Tasks - This assignment task is a written report and analysis of the financial performance of one selected listed company on the ASX in order to provide financial and investment advice to a wealthy investor. This assignment requires your group to undertake a comprehensive examination of a firm's financial performance based on update financial statements of the selected company.
Background - You're a group of investment analysts who work for a large investment consulting firm based in Australia. There's one big institutional investor from overseas that is interested in investing in the Australian market. You've been asked to choose one listed company the industry you think will have the most promising future for investment in Australia, then evaluate the performance of that company. Finally make a recommendation through your Report to the investor whether and why they should or should not invest in the company.
Create your group's "business name" under which your group will be providing the financial advisory services. Choose one listed company that your group will investigate/analyse for the purposes of possible recommendation to your client. The group should obtain all information about the selected company from ASX web site.
Requirements - Obtain copies of Annual Reports including Income Statements, Balance Sheets, and Statement of Changes in Equity, Cash Flows Statements and Notes for three (3) financial year 2016-2017, 2017- 2018 and 2018-2019. Your group can download these documents from the suggested web site using the firm's code (example, BHP- for BHP Billiton Company, etc.). The assignment should cover the contents described in Part 1 to 7 bellows.
STAGES TO BE COMPLETED -
1. Description of one key product or service offered by the selected company.
2. Identify and conduct a trend analysis with two groups of financial ratios, including liquidity and capital structure of the selected company.
3. Perform a non-current asset analysis.
4. Perform a scenario analysis with data provided.
5. Identify and discuss any latest share or bond issuance by the selected company.
6. Calculate and discuss the PE ratios and share price movement of the selected company through 3 years.
7. Recommendation Letter.
Assignment Structure and Details of Assignment Tasks -
Assignment structure and assignment tasks should be as the following:
Abstract - (no more than 200 words)
I. Introduction
Briefly introduction of you work: the purpose of assignment, the selected company, your findings and structure of your assignment (not more than 300 words).
II. Financial Analysis of selected company
2.1. Description of one key product or service provided by the company
Prepare a brief description of one key product or area of service offered by the selected company.
Describe and comment on the importance of the product or service in maintaining the comparative advantages of the company.
2.2. Calculation and analysis of selected performance ratios
Using financial data obtained from current financial statements of your selected companies for the past 3 years. Annual reports are accessible via company websites or ASX website. Your client requests a comprehensive analysis of two groups of financial ratios, including liquidity and capital structure of the company. Choose the relevant financial ratios for your analysis to meet your client's requirement. Do a research to explain the trend of financial ratios of the selected company through 3 years to your client. You need to provide charts and/or tables for analysis and justification.
2.3. Perform a non-current asset analysis: Analyse the non-current assets of the company through 3 years. Identify the depreciation method applied by the company and discuss how depreciation is treated to identify operating cash flow of a project involving buying a long term asset. Tips: try to do a little research about depreciation and CAPEX to enrich your comments and analysis.
2.4. Perform a scenario analysis with data provided
Assume that your selected company is considering a potential project with a new product that is expected to sell for an average price of $25 per unit and the company expects it can sell 450 000 unit per year at this price for a period of 4 years. Launching this project will require purchase of a $2 500 000 equipment that has residual value in four years of $500 000 and adding $ 800 000 in working capital which is expected to be fully retrieved at the end of the project. Other information is available below:
Depreciation method: straight line
Variable cost per unit: $15
Cash fixed costs per year $450 000
Discount rate: 12%
Tax Rate: 30%
Do a scenario analysis with cash flows of the assumed project to determine the sensitivity of the project's NPV to different scenarios that are defined in terms of the estimated values for each of the project's value drivers. Please work on two scenarios corresponding to the worst- and best-case outcomes for the project. You need to provide your results in (a) relevant tables:
Worst case: Unit sales decrease by 20%; price per unit decreases by 20%; variable cost per unit increases by 20 %; cash fixed cost per year increases by $100 000.
Best case: Unit sales increase by 20%; price per unit increases by 20%; variable cost per unit decreases by 20%; cash fixed cost per year decreases by $100 000.
Based on the scenario analysis outcome, draw relevant conclusion about project NPV's sensitivity.
2.5. Identify and discuss any latest share or bond issuance by the selected company:
Do a research about the latest share or bond issuance taken by the company. The following questions should be addressed: when was the issuance, what was the amount of issuance, was it a private placement or public offering, who were the underwriter and trust bank for this issuance, what is the type of underwriting or selling arrangement, how much was the floating cost of the issuance, was it a successful issuance or not? Discuss on how the securities issuance affect the capital structure of the company.
2.6. Calculate and discuss the PE ratios and share price movement of the selected company through 3 years
Identify net profit and compute the PE ratio of the selected company through the 3 year time frame. Go to ASX website to find out the share price data of the company for the recent 3 years, construct a graph where you display the PE movement and share price movement in the same arena and time frame. Comment on any convergence and divergence between the trend of the company's profit and share price. Do further research to explain any case where there is a divergence between profitability and share price.
III. Recommendation letter
Based on your analysis above, write a letter of recommendation to your client, providing an explanation as why you would like to include one of selected the companies in his/her investment portfolio. Please refer to the ratio results calculated earlier and any other trends or factors that you believe to be important.
IV. Conclusion
Summarize the outcomes of your works (not more than 300 words).