You are required to do the following tasks: 1. Prepare a brief description of the company, outlining the core activities, the market(s) in which it operates within and any factors in the companies’ history which you consider help present a “picture” of your company. 4 marks
2. Specify ownership-governance structure of the company: i) Name the main substantial shareholders: With higher than 20.00% of shareholdings. Based on this argument you should classify a firm as a family or non-family company, and With higher than 5.00% of shareholdings. 3 marks ii) Name the main people involved in the firm governance: The Chairman Board members CEO. o Whether any of these people have the same surname as any of substantial shareholders (>20% share capital). If yes- you could use this as an argument for the presence of an owner or family member(s) in the firm’s governance. o Whether any of shareholders with more than 5% share capital are involved in firm governance. 3 marks
3. Calculate the following key ratios for your selected company for the past 4 years. Annual reports are accessible via company websites (show all working out): i) Return on Assets (ROA) = (NPAT / Total Assets) Return on Equity (ROE) = (Net Profit After Tax / Ordinary Equity) Debt Ratio = Total Liabilities / Total Assets EBIT x NPAT x TA = NPAT TA EBIT OE OE Be sure that you have “proven” the above equation. 12 marks ii) Explain what phenomenon is being “captured” by the variable TA/OE, and how it is impacting on the relationship between Return on Assets and Return on Owners Equity. 4 marks iii) Explain why the ROE (EBIT) is significantly greater than or less than the ROA (EBIT). 4 marks
4. Using the information from the ASX website: www.asx.com.au you must complete the following tasks: HI5002: Finance for Business, Assignment, Trim 3, 2017 4 i) Prepare a
graph / chart
for movements in the monthly share price over the last two years for the company that you are investigating. Plot them against movements in the All Ordinaries Index. 6 marks ii) Write a report which compares movements in the companies’ share price index to the All Ords Index. For instance, how closely correlated is the line with the All Ords Index. Above or below? More or less volatile? 6 marks
5. Research via the internet or financial/business publications: From research via the internet (using credible sources) or financial/business publications, note any significant announcements which may have influenced the share price of your company. These factors could include merger activities, divestitures, changes in management’s earnings forecasts, changes in analysts’ forecasts, unusual write-offs or abnormal items, macroeconomic factors,
industry wide
factors, significant management changes, changes in the focus of the company, impact of competitors or
law suits
etc. (Restrict the number of announcements to 5). 10 marks
6. Go online to http://www.reuters.com/finance/stocks/ and type in the code for your company into the Search Stocks field and click on the magnifying glass button. i) What is their calculated beta (β) for your company? 2 marks ii) If the
risk free
rate is 4% and the market risk premium is 6%, use the Capital Asset Pricing Model (CAPM) to calculate the required rate of return for the companies’ shares. 4 marks iii) Is the company you have chosen a “conservative” investment? Explain your answer. 2 marks
7. Weighted Average Cost of Capital (WACC) i) Using information from the latest company report for the company (i.e. interest rate on their major source of long-term loans) and the estimated cost of equity capital calculated (in part 6ii above), calculate the WACC for your company. 6 marks ii) Explain the implications that a higher WACC has on management’s evaluation on prospective investment projects. 4 marks
8. Consider the debt ratio for your company over the past two years: i) Does it appear to be working towards the maintenance of a preferred optimal capital structure? (i.e., does it appear to be “stable”?). Explain your answer. 4 marks HI5002: Finance for Business, Assignment, Trim 3, 2017 5 ii) What have they done to adjust/amend their gearing ratio? Increase or repay borrowings? Issue or buy back shares? Has the Director’s Report given any information as to why they have made any adjustments? 4 marks
9. Dividend policy Discuss what dividend policy of the management of the company appears to be implemented. Explain any reason related to that particular dividend policy. 7 marks
10. Based on your analysis above, write a letter of recommendation to your client, providing an explanation
as
why you would like to include this company in their investment portfolio. Please refer to the ratio results calculated earlier and any other trends or factors that you believe to be important.