Assessment task 2: Assignment (Individual)
Intent: This assignment evaluates the students' understanding of the concepts of business valuation and their ability to consider the practical applications.
Objective(s): This addresses subject learning objective(s):
2 and 3
This addresses program learning objectives(s):
2.1, 5.1 and 5.2
Task: Part A Reformatted Financial Statements and Financial Analysis (10 %) Due: Week starting April 30
Based on the same company chosen in the group assignment, reformat the company’s financial statements for the past five years in an excel spreadsheet. Produce an individual professional report where ratio and cash flow analysis is performed to evaluate the current and past performance of the company and its sustainability in the future. The report should discuss in details what happened and why the ratios/cash flows changed. Specifically, the report should include the following discussions:
Reformatting: (allocated 2 marks)
Present detailed past five years’ reformatted financial statements as an appendix in the report.
Ratio analysis: (allocated 5 marks)
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: (allocated 2 marks)
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.
(allocated 1 mark)
Length: 2000 words (exclusive of references and appendices). +/- 10% is acceptable. Appendices are limited to a maximum of 5 pages. Please use a font size of 11, 2.5 cm page margins and a line spacing of 1.5.
Submission
1. A PDF file of the individual report should be submitted through TurnitIn on UTS Online. Studentsshould name both the assignment submission and individual reports in the format
-{companyticker}_{studentID}-. For example, -QAN_12345678-. Assignments that are not correctly named will not be marked.
2. All individual reports should have a cover page which includes the chosen company name, studentname and ID and a word count. All reports should have an introduction and a conclusion. Table of content and executive summary are optional. Harvard referencing style should be used.
3. Students may submit their individual reports to TurninIn as many times as they like prior to thesubmission deadline. Students are able to submit late assignments to TurnitIn only once after the submission deadline. For each day that the assignment is late, the assignment will lose 10% of the raw assignment mark. Special considerations are approved only if they are applied before the submission deadline for serious medical or personal reasons with supporting documents.
4. TurnitIn checks % similarity to materials from other assignments, websites and journal articleswithin the Business School and from world-wide institutions. Students are warned that copying materials from their own assignments submitted for other subjects or in previous semesters is also an academic offence.
Pat B ProspectiveAnalysis and Application (30 %)
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:(allocated 10 marks)
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:(allocated 4 marks)
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:(allocated 6 marks)
Adjust your initial forecast assumptions to reflect your optimistic and pessimistic outcomes for sales growth, ATO, PM, net dividend payout ratio, cost of debt and cost of equity 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: (allocated 8 marks)
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. (allocated 2 marks)
Length: 5000 words (exclusive of references and appendices). +/- 10% is acceptable. Appendices are limited to a maximum of 10 pages. Please use a font size of 11, 2.5 cm page margins and a line spacing of 1.5.
Submission
1. A PDF file of the individual report should be submitted through TurnitIn on UTS Online. Studentsshould name both the assignment submission and individual reports in the format
-{companyticker}_{studentID}-. For example, -QAN_12345678-. Assignments that are not correctly named will not be marked.
2. All individual reports should have a cover page which includes the chosen company name, studentname and ID and a word count. All reports should have an introduction and a conclusion. Table of content and executive summary are optional. Harvard referencing style should be used.
3. Students may submit their individual reports to TurninIn as many times as they like prior to thesubmission deadline. Students are able to submit late assignments to TurnitIn only once after the submission deadline. For each day that the assignment is late, the assignment will lose 10% of the raw assignment mark. Special considerations are approved only if they are applied before the submission deadline for serious medical or personal reasons with supporting documents.
4. TurnitIn checks % similarity to materials from other assignments, websites and journal articleswithin the Business School and from world-wide institutions. Students are warned that copying materials from their own assignments submitted for other subjects or in previous semesters is also an academic offence.