BUS5IAF Introduction to Accounting and Finance

ASSESSMENT 2 – PART B (Financial Management Analysis) This assessment is designed to apply knowledge gained from workshops and readings. This assessment is to be completed individually. It will contribute to 25% of the total marks for this subject. Submission of Written Material TURNITIN will be used as a standard submission tool for this assignment. Extensions are not given except in circumstances that are onerous, unavoidable or unforeseen. Where permission for late submission has not been given, penalties in the form of deduction of marks will apply at the rate of 5% for each day submitted after the due date.

REQUIRED: You are required to present a consultant’s report containing your responses to the questions listed below in reference to the same Australian listed public company you have chosen in Part A of Assessment 2, focusing on the company’s financial strategies that create shareholder value. Use the general purpose financial statements in the annual report you submitted in PART A for your analysis. It is necessary you carry out additional secondary research to collect data (or proxy data) from different sources to help you answer the questions. The purpose of these questions is to require you to demonstrate your ability to conduct research into real companies, their operations and events affecting those companies. You should demonstrate your ability to interpret data, summarise your findings and to communicate your views in a report. The emphasis is on explaining the financial management of the company, as revealed in the accounting reports, and also to place those reports within the wider economic context. (I) Debt Valuation (20%) 1. What are the short-term and long-term debts used by your firm? 2. Is your company’s debt structure consistent with the industry? 3. How does the industry your company operates in influence the proportion of short-term to long-term debts of your company? 4. What is your company’s the cost of debt? (II) Share Valuation (30%) 1. What is your company’s cost of equity? 2. Evaluate and discuss your company’s revenue, earnings, EPS, dividends and growth expectations. Use the most recent reported earnings results from the annual report you submitted in PART A for your analysis. 2 3. Value your company’s stock using comparables approach (ie. P/E) and constant dividend growth rate model. What are the factors that influence your company’s stock price and how are they captured in these models? 4. Which of the values in question 3 appear most reasonable compared to the market price of your company’s stock? 5. What additional data and information would you prefer for valuing your company’s stocks? Explain your reason(s). (III) Cost of Capital (30%) 1. Calculate the weighted average cost of capital (WACC) of your company? 2. Explain the company’s tax rate in the calculation of WACC? 3. Why is there a difference in the cost of debt and the cost of equity? 4. Should current liabilities be included in the cost of capital calculation? What are the pros and cons? 5. What is the major value of the WACC calculation for your company and how is it applied in investment decision-making? 6. Provide examples of how your company might have recently used WACC in its investment decision-making with reference to two projects recently undertaken by your company. You may need to synthesize information from your readings (ie. Annual reports, GPFS etc.) to identify the projects. 7. Define and explain capital structure of your company. Discuss whether it is consistent with the industry and why or why not. 8. What is the optimal capital structure and what economic circumstances will likely cause a change in it? (IV) Market Analysis (20%) 1. Comment on your chosen company’s financial performance relative to its industry. You will have to investigate your company’s industry using sources such as Bureau of Statistics, industry journals/publications, analysis in financial press, IBISWorld etc. 2. Conduct a literature search on your company. Summarise and explain how your company is being viewed by financial analysts and others in the press (or has been viewed over recent years, as appropriate to your company). Do you agree with the comments? Why/why not? Explain. 3. Comment on any other item that is important or different about your company (that is relevant to the topics in this course). Resources: The data sources for your companies include historic published information, contemporary market data and prospective data as follows (but not limited to): La Trobe University Library data bases Financial newspapers Company websites Company annual reports and prospectus www.afr.com.au www.asx.com.au www.bloomberg.com.au http://www.google.com/finance https://au.finance.yahoo.com/ 3 Additional Guidelines for Assignments Assignments should be seen as learning exercises and not just as pieces of work for assessment purposes, and should follow the following guidelines: • All assignments must be of a professional and ‘post-graduate’ standard, ie, they should provide a critical analysis, incorporate theory and any relevant research evidence and they should provide up-to-date information. • It is expected that all students will make good use of the spelling and grammar checking facilities provided by the word processing software. • Whilst the form of this assignment is a consultant’s report, you are expected to use the appropriate concepts and models covered in the unit adapted to your particular context; • All sources of information should be acknowledged within your assignment using the Harvard or author-date referencing system or Academy of Management referencing; • The report should be well structured containing the title page, contents page, executive summary, above headings and supporting calculations (in the appendices); • The word count is 1600 words (+/- 10%) not including executive summary/abstract, tables, calculations, references etc.; • Assignments should be typed in 12 font size using 1.5 spacing between lines, fully justified paragraphs; • Relevant supporting evidence should be incorporated into clearly named, numbered and cited appendices to avoid exceeding the word limit; • This assignment will be evaluated in terms of the appropriateness of the facts, application of theory, relevant research evidence, critical analysis and consideration of alternative approaches and synthesis of ideas and concepts expected at a postgraduate level; and • It is expected that in preparing your assignment there will be evidence of wider reading material other than set out in your course outline.