Reference no: EM132656198 , Length: word count:4000
22743 Business Valuation and Financial Analysis - University of Technology Sydney
Company: Harvey Norman
Learning objective 1: Compare and evaluate multiple techniques which can be used for financial analysis and business valuation
Learning objective 2: Discuss and integrate the links between industry analysis, strategic business analysis, accounting analysis, financial analysis and prospective analysis
Learning objective 3: Research and collect information needed to estimate firm value through the application of different valuation models
Critically analyse, question and evaluate implications of alternative accounting models and strategies for relevant business situations.
Apply high-level technical skills necessary to operate effectively in professional accounting practice.
Execute a substantial research-based or professionally focused project
Assessment task 1
This assignment should be completed in groups of up to five people. Each group is required to select an Australian listed company from a company list provided on Canvas. It is required that groups should be finalized by the end of week 1 and a company is chosen by the end of week 2.
Perform analysis and produce a professional group report as though you were a prospective management consultant. The analysis should be informed by various sources of publically available information such as the official website of the company and industry reports, and should be supported by ABS data or other statistical information. The report has a total mark of 20 and should cover:
Macroeconomic Analysis
Describe the company's economic environment and evaluate how this has impacted historic firm performance and is likely relevant to future performance.
What has been going on in the global economy and the individual economies that affect your company over the last 5 years? What is predicted to happen? How is it related your company? Identify and analyse at least five relevant economics factors that have significantly influenced your company's performance. These five economic factors may include GDP, inflation, interest rates, oil prices, population growth, consumer demands.
Industry Analysis
Evaluate the level of competition in the industry or industries that your company operates in using Porter's Five Forces framework.
Form a conclusion for each force and for the industry overall. That is, the level of competition is high, moderate or low.
Business Strategy Analysis
Identify and discuss the key success factors and the key risks of the company's strategy. Also evaluate the sustainability of profits generated by the strategy in the future.
Accounting Analysis
Use the six-step accounting analysis framework to assess the degree to which the firm's accounting reflects the underlying business reality. Identify any accounting distortions if there is any and evaluate their impact on profits and the sustainability of profits.
Reformatting
Present detailed past five years' reformatted financial statements as an appendix in the report.
Ratio analysis
Calculate and discuss key ratios such as ROE, RNOA, PM, ATO, FLEV and NBC.
Break down and analyse PM and ATO ratios in further details. Identify and discuss three significant expense items that have caused major changes in profit margin. Identify and discuss three major assets or liabilities whose turnover ratios have contributed to the overall change in assets efficiency.
Briefly describe the ratios trend. The analysis should elaborate on the economic, industry and business factors that drive the changes in ratios. The discussion should consistently reflect the same firm fundamentals identified in the group report.
Cash flow analysis
Calculate liquidity, solvency and cash flow ratios.
Analyse financial risk and cash flow management of the company based on ratios.
Overall Report Quality
The report should be readily comprehensible, condensed and within the word limit. Information should be collected from various reliable sources to inform analysis and references are properly cited.
Tables and graphs should be used to effectively present information.
If the company operates in several economic regions, industries or has several business segments, only include material business operations in the analysis. It is material if it generates or will generate more than 10% of thecompany's total sales revenue.
Assessment task 2:
Task: Based on the group assignment the group needs to present the findings and analysis in the group assignment. Each group member will be assessed individually. The presentation will be assessed based on the following criteria :
Verbal Presentation
Clear and strong voice projection that can be clearly heard at the back of the room. Speaking pace is easy to follow throughout presentation.
Non-Verbal Presentation
Constant eye contact with the entire class along with a stance facing the audience. Upright posture, use of hand gestures and movement, which engage the audience.
Quality of the explanation
Demonstrates a clear understanding of WHY the answer is the answer.
The language and terminology used reflect an advanced understanding of the content. The response is well thought out, logical and organised in a manner that flows.
Ability to answer the follow up question
Demonstrate the ability to answer follow up questions in a comprehensive capacity, demonstrating an advanced understanding
80 % of the marks will be based on the quality of the explanation and the ability to answer the follow up questions.
Pat B ProspectiveAnalysis and Application
Task: Based on the same company chosen for the group and first individual assignment, produce an individual professional report on the prospective analysis of the company. Forecast the future financial performance of your company for the next five years and beyond. Use four valuation models,
i.e. Dividend Discount Model, Residual Income Model, Residual Operating Income Model and Free Cash Flow Model, to produce an estimate of the firm's share value, and compare to its current stock price. Perform sensitivity analysis on key forecasting assumptions using only Residual Operating Income Model and discuss the results. Based on sensitivity analysis and as a potential management consultant to your chosen firm, provide a discussion as to the possible opportunities for improvement, and potential challenges for the firm. Provide specific and reasonable remedies for these concerns. The report should cover:
Forecasting:
Prepare your forecasts in an excel spreadsheet following a 10-step forecasting template. The forecasting table should include your specific forecasts for the next five years and should be included as an appendix in the report.
Explain the reasons for your initial forecast assumptions, i.e. assumptions for sales growth, ATO, PM, net dividend payout ratio, cost of debt and cost of equity.
Valuation
Provide the calculation and results of four valuation models in a table and include it as an appendix in the report.
Compare and discuss the estimates obtained from the four models. Compare the estimates with the actual share price to see whether the firm is currently overvalued or undervalued.
Sensitivity Analysis
Adjust your initial forecast assumptions to reflect your optimistic and pessimistic outcomes for sales growth, ATO, PM, and recalculate the estimated share value from the residual operating income model.
Provide the sensitivity analysis results in a table.
Provide explanations of how the optimistic and pessimistic outcomes for forecasting assumptions are chosen.
Identify and discuss the key assumptions that the valuation is most sensitive to.
Management Consulting Advice:
Based on sensitivity analysis and the key factors that have significant impact on valuation, discuss potential opportunities and challenges for the firm to maintain or improve current profitability.
Provide creative advice on what business strategies and measures specific to your firm that can be adopted to improve value.
Overall Report Quality: The report should be readily comprehensible, condensed and within the word limit. Information should be collected from various reliable sources to inform analysis and
references are properly cited. Tables and graphs should be used to effectively present information.
Length: 4000 words (exclusive of references and appendices).
Attachment:- Business Valuation and Financial Analysis.rar