Reference no: EM132309541

Financial Statement Analysis Assignment -

Unit Learning Outcomes Addressed:

a. Appreciate the role of financial statements for analysis.

b. Understand the importance of the time value of money when evaluating economic decisions.

c. Communicate financial statement information in a variety of business decision making contexts.

d. Acquire conceptual knowledge through theory and problem solving, and evaluate the effectiveness of various financial statements through their analysis.

e. Apply financial knowledge to real problems in business and in personal financial decision-making.

Assignment Description - Students are required to study, undertake an investigation, analyse and conduct analytic work to the given instructions in the areas of business finance covered in learning materials from week 1 to week 10 inclusive. The assignment should identify the main issues, including underlying theories, and explain financial performance measures used in your task. You are strongly advised to reference professional websites, journal articles and text books in this assignment.

You are an investment adviser, working to build a foundation of wealth for your clients. One of your wealthiest clients already has a diversified portfolio, which includes managed funds, property, cash/fixed interest and a few direct share investments. They wish to expand their portfolio and are considering one of two companies' shares to add to their portfolio. (They have an extra $1 million that they wish to invest into company shares.) The companies, which you will compare and examine are those selected in your group.

Written Report and analysis of the firms performance (including referencing) and By the end of week 10 you should provide:

• A hard (and soft) copy of your report to your lecturer
• A hard (or soft) copy to the other group members.

You have one week to study the other group's report (company) in order to debate with them during the following week's (week 11) discussion.

You are required to do the following:

1. Prepare a brief description of the companies, outlining the core activities, the markets they operate within and any factors in the companies' history which you consider help present a "picture" of your company. The choice of your company should be approved by your lecturer.

2. Specify ownership-governance structure of the company:

Name the main substantial shareholders:

• With higher than 20.00% of shareholdings. Based on this argument you should classify a firm as a family or non-family company, and
• With higher than 5.00% of shareholdings.

Name the main people involved in the firm governance:

• A Chairman
• Board members
• CEO.

Whether any of these people has the same surname as any of substantial shareholders (>20% share capital). If yes- you could use this as an argument for the presence of an owner or family member(s) in the firm's governance.

Whether any of shareholders with more than 5% share capital is involved in firm governance.

3. Calculate the following key ratios for BOTH of your selected companies for the past 4 years. Annual reports are accessible via company websites (show all working out):

i) Return on Assets (EBIT) = (NPAT / Total Assets)

Return on Owners Equity = (Net Profit After Tax / Owners Equity)

Gearing Ratio = Total Liabilities / Total Assets

EBIT/TA x NPAT/EBIT x TA/OE = NPAT/OE

Be sure that you have "proven" the above equation.

ii) Explain what phenomenon is being "captured" by the variable TA/OE, and how it is impacting on the relationship between Return on Assets and Return on Owners Equity.

Be sure to explain why the ROE (EBIT) is significantly greater than or less than the ROA (EBIT).

4. Research via the internet or financial/business publications

i) From research via the internet (using credible sources) or financial/business publications, note any significant announcements which may have influenced the share price of your company. These factors could include merger activities, divestitures, changes in management's earnings forecasts, changes in analysts' forecasts, unusual write-offs or abnormal items, macroeconomic factors, industry wide factors, significant management changes, changes in the focus of the company, impact of competitors or law suits etc. (Restrict the number of announcements to 5).

5. Go on-line to REUTERS website and type in the code for your company into the Search Stocks field and click on the magnifying glass button.

i) What is their calculated beta for your company?

ii) If the risk free rate is 4% and the market Risk Premium is 6%, use the Capital Asset Pricing Model to calculate the required rate of return for the companies' shares.

iii) Is the company you and your partner have chosen a "conservative" investment? Explain your answer.

6. Are the share prices of your companies overvalues or undervalues?

i) Find the dividends of your companies in the last two years and calculate the average growth rate.

ii) Using the constant dividend growth model and the expected rate of return calculated in task 5 calculate the expected share price.

iii) Compare the calculated expected share prices with the current share prices. Are the current share prices overvalues or undervalued? Critically justify your answers.

7. Consider the gearing ratios for your company over the past two years:

i) Does it appear to be working towards the maintenance of a preferred optimal capital structure? (i.e., does it appear to be "stable"?) Explain your answer.

ii) What have they done to adjust / amend their gearing ratio? Increase or repay borrowings? Issue or buy back shares? Has the Director's Report given any information as to why they have made any adjustments?

8. Based on your analysis above, write a business report to your client, providing an explanation as why you would like to include this company in their investment portfolio. Please refer to the ratio results calculated earlier and any other trends or factors that you believe to be important.

This assignment must be written/structured in the form of a 'business report'. That is, it must have a/an

(a) Executive summary (between 100 to 150 words),

(b) Introduction that; Succinctly summarizes this assignment's topic and its key issues, controversies, etc. (no more than 200 words), and

(c) Body that addresses all the requirements - see above 1-6 (no more 2000 words),

(d) Conclusion that sums up the mains issues of this assignment (no more than 200 words), and

(e) Reference list containing all cited works.

(f) Proper English Grammar, appearance, format, etc.

At least 4 recognized journal article should be cited.

Attachment:- Assignment File.rar