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Business Analysis and Valuation Assignment -

Unit Learning Outcomes addressed:

1) Understand the basic techniques of financial analysis and business valuation.

2) Explain the linkage between industry analysis, strategic business analysis, accounting analysis, financial analysis and prospective analysis.

3) Demonstrate inter-relationships between differing business disciplines: financial accounting, financial management and strategic management.

4) Demonstrate work-ready disciplinary knowledge with the application of all three major aspects of financial accounting, financial management and strategic management.

Assessment Task: The group (3-4 students) assignment is aimed at developing your practical skills in financial statement analysis and valuation. It is also designed to enhance teamwork, and develop your analytical and communication skills.

ASSESSMENT DESCRIPTION: Students are required to work in a group of 3-4 students in the performance of the written report. Students must register for their group with the lecturer during the first three weeks of the trimester and are not allowed to change group members afterward.

Topic for Group Written Report: Every group for this assignment is required to select the most current published annual report of a LISTED COMPANY in AUSTRALIA at Australian Securities Exchange website. Please avoid selecting any financial services organisations such as commercial banks, trust etc. as they do not fit with the aims of this assignment. You are required to write a report to evaluate company's performance as a business analyst, by using relevant resources (latest financial statements (annual reports), company's website and relevant research materials). The prescribed textbook of this unit should also be utilised.

Then, answer ALL the following questions in your written group report:

a) Company background and mission.

b) Common size & horizontal analysis of key financial statements. Various types of trend, bar & pie charts can be useful in the presentation of the analyzed results in your assessment submission. Students are expected to make very brief but pertinent comments regarding the findings. Comments could be related to the causes and significance of the increase or decrease of important variables such as PPE assets, intangibles, sales, EBIT, net income, capital structure. You should use at least 5-6 years of data to give a reasonable analysis.

c) Cash Flow analysis. You would need to provide some commentary around what trends are emerging in the part of the Cash Flow Statement called cash flow from operations as a lot of the good news and bad news of a company is revealed there. Investors often look at this section before they bother with an income statement.

a. You may want to take cash flow analysis further by including Free Cash flow to the Firm (FCFF) and Free Cash flow to Equity (FCFE) numbers. Have a look at Appendix A for more details.

b. If you look at page 248 of your textbook, you will see Palepu referring to FCFF as free cash flow to debt and equity claim holders. He articulates FCFE as free cash flow to equity claim holders. Please refer to Appendix A for further clarification regarding Free Cash Flow.

d) Liquidity Analysis. This would entail as a minimum a current ratio and a liquid ratio together with relevant commentary on receivables and payables and stock management, etc.

e) Income Analysis. This would include an EBIT margin analysis, a gross profit margin analysis (if applicable), net income analysis and EPS. You would also be advised to incorporate ROA analysis. ROA analysis can take many forms.

f) Capital Structure Analysis (and Solvency). This is all about ascertaining the level to which the company uses financial leverage to finance its operations and activities. The analysis should cover bonds, other forms of debt, hybrid instruments such as preference shares and convertible notes as well as finance (or capital) leases.

g) Coverage (and Solvency). These ratios examine the extent a company can cover its interest payments and other fixed financial commitments e.g. lease payments.

h) Growth and Risk analysis. It would be normal in this section to include business risk analysis. Business risk is the standard deviation of EBIT ROA (see Appendix B) and has nothing to do with the financial (or bankruptcy) risk of a company. Other pertinent analysis would include the company's sustainable growth rate.

i) Prospective analysis: Prospective analysis involves forecasting of future consolidated balance sheet and income statement. Some concluding commentary on the company and maybe its prospects for growth, prospects as a takeover target, high risk of failure or whatever you see. Do not be afraid to track the share price and see if you can use that to understand where the company has come from and where the market thinks it might be going. You may want to even come up with a first thought on whether an investor should consider buying the stock, selling or holding the stock - without getting very technical.

Attachment:- Business Analysis and Valuation Assignment File.rar