Topic: Performance evaluation:Analyse the historical (for the last 5 years) performance of a listed company and present your findings in the form of a report, which will cover both qualitative and quantitative performance elements in a logical cohesive format.
Financial literacy helps you to become a better manager. Understanding the financial side of the business will make you more effective on the job and will make your work life more meaningful. The two core activities of Financial Management are to manage profitability and manage liquidity. If either of these two activities are neglected, it can lead to the demise of an organisation. Hence, these two aspects guide the decision making for any manager. Issuing bonds (debt) and/or issuing stocks (equity), enables the corporation to manage the money it needs to finance the assets of the business. Therefore, being able to value these financial securities is also an important skill to have.
Your task is to perform the following:
1. Performance evaluation:Analyse the historical (for the last 5 years) performance of a listed company and present your findings in the form of a report, which will cover both qualitative and quantitative performance elements in a logical cohesive format.
Please note: If you are working for a company listed on the stock exchange, use this opportunity to complete the exercise on that company. Otherwise, feel free to value a competitor or a company that interests you. However, note that the company you select must be listed on a stock exchange and have a history of paying dividends.
The qualitative component of your discussion should include BRIEF background information on the company including how they are placed within the industry, and a BRIEF overview of the recent stock price movements for the company. The quantitative component should include an initial analysis of trends in the items contained in the profit and loss statements and balance sheets, followed by an analysis of important ratios measuring different aspects of the company performance:
Net Profit Margin ratio
Return on Total Assets
Inventory Turnover (wherever relevant).
Your analysis should highlight the important changes within these ratios over this period and identify the reasons for these changes. Your analysis should include the strengths and weaknesses of the company (i.e. benchmark your chosen firm against industry averages). Taking into account the quantitative and qualitative analysis you are then required to make a recommendation on whether it will fall into one of the following two categories:
Invest in the company
Do not invest in the company.
2. Stock (Equity) Valuation exercise: You are required to calculate the value of a share of the listed company used in the performance evaluation part above, using the dividend discount model. Assume the company chosen from above has a 5% dividend growth rate and the required rate of return is 10%. Go to www.asx.com.au and find the latest share price. Compare that stock value with the current stock market price. Are there any differences? You are required to explain these differences.
Please note: In order to start this assignment you will need to extract the financial statements (comprising five years information) of your chosen publicly listed company.
We recommend you familiarise yourself with the IBIS world market research database available under the ‘Research’ drop-down menu in the header on the student learning portal. This tool provides the financials and other company information plus industry averages.
Analyse the ratios and the other data (as requested to be calculated above) from the financial statements to evaluate the company’s operations and performance. The quality of this analysis is very important – much more important than the calculation. You should focus on analysis and the implications of the analysis on the decision.
Place the ratio calculations in an appropriate appendix so that the body of the report only states the result of the calculation with interpretation (e.g. ‘…argument is supported by a debtor’s collection period of 26 days’) and not the process of calculating it. Pay attention to the presentation of this appendix so that it is user friendly and it is easy to locate any ratio.
Include referencing so that you clearly acknowledge your sources of information. Your sources should include journals, books and may include articles from the financial press, financial commentators, and internet resources that you may have used to strengthen your analysis.
Remember to submit a hyperlink to the annual reports within the reference list in your assignment.
Important Assignment Instructions
The required word length for this assignment is 2500 words (plus or minus 10%).
In terms of structure, presentation and style you are normally required to use:
– AIB standard report format; and
– AIB preferred Microsoft Word settings; and
– Harvard style referencing (which includes in-text citations plus a reference list).
These requirements are detailed in the AIB Style Guide.
Reference lists for AIB assignments / projects normally contain the following number of relevant references from different sources: 6-12 (for MBA assignments).
All references must be from credible sources such as books, industry related journals, magazines, company documents and recent academic articles.
Your grade will be adversely affected if your assignment contains no/poor citations and/or reference list and also if your assignment word length is beyond the allowed tolerance level (see Assessment Policy available on AIB website).