MARKING GUIDE FOR FINA6000 ASSESSMENT 3 – CASE ANALYSIS NAME OF STUDENT and ID: PART Marks to Award Feedback to Student Part (a) (10 marks) Profitability Ratios (4 marks) Investment Ratios (6 marks)...

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MARKING GUIDE FOR FINA6000 ASSESSMENT 3 – CASE ANALYSIS NAME OF STUDENT and ID:
    PART
    Marks to Award
    Feedback to Student
    Part (a)
(10 marks)
    Profitability Ratios (4
marks)

Investment Ratios (6 marks)


    
    Mark Awarded
    
    
    Part (b)
(10 marks)
    Components of capital structure should be obtained from the
Balance Sheets of the two companies.

Students expected to determine the proportions of each component of capital e.g. ordinary shares, preference shares if any, and debt.

(4 marks for co
ect items
of capital)

(4 marks for co
ect
proportions of capital)

(2 marks for explaining how the capital structure
has changed)
    
    Mark Awarded
    
    
    Part (c)
(5 marks)
    Explanation of differences in capital structures of same sectors but on different stock exchanges (support with arguments from academic literature)
    
    Mark Awarded
    
    
    Part (d)
(10 marks)
    (6 marks for cost equity)

(4 marks for other cost of capital such as debt and preference shares)
    
    Mark Awarded
    
    
    Part (e)
(5 marks)
    WACC for company on ASX (2.5 marks)
WACC of company of Singapore Exchange
(2.5 marks)
    
    Part (f)
(10 marks)
    DISCOUNTED CASH FLOW
TECHNIQUE

Estimation of dividend growth rate (Australian company) (3 marks)
Estimation of dividend growth rate (Singapore company) (3 marks)
Valuation of Australian company (2 marks)
Valuation of Singapore company (2 marks)
    
    Mark Awarded
    
    
    Part (g)
(4 marks)
    Critical evaluation of the appropriateness of using the Constant Growth Dividend Valuation Model
    
    Mark Awarded
    
    
    Part (h)
(6 marks)
    Making the Investment Decision:
Quantitative information (4 marks)
Qualitative Information
(2 marks)
    
    Mark Awarded
    
    
    Part (i)
(5 marks)
    Check how well the report has been introduced – introduction must tell the reader the focus of the report.
    
    Mark Awarded
    
    
    Part (j)
(10 marks)
    Must make an overall assessment of the amount of critical thinking displayed.
    
    Mark Awarded
    
    
    Part (k)
(15 marks)
    An overall analysis of how well the student is analysing and applying the knowledge of financial statement analysis, capital structure, risk & return and valuation of shares.
    
    Mark Awarded
    
    
    Part (l)
(5 marks)

    Evaluation of academic writing, Report layout and Grammar, sentence construction and expressions. Students should demonstrate expert use of high quality, credible and relevant research sources.
    
    Mark Awarded
    
    
    Part (m)
Effective
Communication
(5 marks)
    Is the report expertly presented, logical, arguments presented well supported by evidence. There must be a clear flow of ideas and arguments.
    
    Mark Awarded
    
    
    TOTAL = 100%
    
    

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FINA6000 Assessment Brief 3 Brief Case Analysis XXXXXXXXXXPage 1 of 9

ASSESSMENT BRIEF
Subject Code and Name FINA6000: Managing Finance
Assessment Assessment 3 - Case Analysis
Individual/Group Individual
Length (1500 words (+/- 10%)
Learning Outcomes b) Analyse financial information and evaluate financial
performance of a business.

c) Apply time value of money to the valuation of a variety of
cash flows, securities and projects leading to sound
investment and financing decisions.
d) Analyse risk and return associated with investments.
e) Apply various capital budgeting techniques to investment
decision making. Apply various capital budgeting methods in
investment decision making within a business
f) Analyse the cost of capital and explore its link to the capital
structure of an organisation.
g) Analyse working capital and payout policies and their
impact on the liquidity position of a business.
Submission By 11:55pm AEST/AEDT Sunday of Module 5.2 (Week 10)
Weighting 25%
Total Marks 100 marks
Context:
The ability to analyse financial performance of companies, calculating costs of capital and valuing
stocks (shares) is fundamental to investors and investment advisors. Financial managers are also
interested in knowing the value of their companies’ stocks as the primary goal of a firm is the
maximisation of shareholder value. Given the background of the advent of the COVID-19 pandemic
and the reaction of the stock markets globally, it is pertinent to involve students in an exercise that
allows them to ca
y out fundamental analysis of stocks using the corporate finance knowledge.

This assessment focuses on two economies, Australia and Singapore, small open industriliased
economies and it concentrates on the top 30 companies by market capitalisation that are listed on
the countries’ securities exchanges.

 Testing the students’ ability to perform financial statement analysis in order to evaluate
historical financial performance of companies.
FINA6000 Assessment Brief 3 Brief Case Analysis XXXXXXXXXXPage 2 of 9

 Determining the capital structures of companies in similar sectors but in two different
countries and explaining why they could be differences in capital structure.

 Calculating the cost of capital and the weighted average cost of capital (WACC) of
companies.

 Performing valuation of equities and using quantitative and qualitative factors to make a
sound investment decision.

 Assessing students’s ability to prepare a professionally prepared report.

Instructions:
To complete this assessment task you must consider the following:
You are expected to prepare a report based on the following case.
The Case Analysis requires students to apply their knowledge of key finance concepts such as
financial statement analysis, risk and return, capital structure, valuation of shares and dividend
policy to an analysis of two companies in the same sector but one is listed on the Australian
Securities Exchange (ASX) and another is listed on the Singapore Securities Exchange (SGX).
Your facilitator will allocate to you two companies drawn from top 30 companies by market
capitalisation that are in the ASX100 index as of 1 December 2019 and top 30 companies by market
capitalisation that are in the Straits Times Index of the same date. (The table with the list of
companies is at the bottom).
You need to answer the following questions:
(a) Using five latest annual reports up to 31 December 2019 perform a comparative financial
statement analysis of the two allocated companies. You are expected to calculate the
Profitability and Investment ratios. XXXXXXXXXX10 Marks)
(b) Using information from the latest five annual Balance Sheets, examine the capital structure
of the two companies and comment on how the capital structure has changed over the 5
years. XXXXXXXXXX10 Marks)
(c) Provide a well reasoned argument why there could be differences in the capital structures of
the two companies and yet they belong to the same sector. Support this with academic
literature. XXXXXXXXXX5 Marks)
(d) For the period 30 April 2019 to 31 May 2020, collect daily closing stock prices of the two
companies you allocated. Using this data and any other relevant data determine,
(i) the cost of equity of the two companies. XXXXXXXXXX6 Marks)
(ii) determine the cost of capital of other sources of capital of the companies, making
eference to the lastest annual report. XXXXXXXXXX4 Marks)
(e) Determine the weighted average cost of capital (WACC) of the two companies using the
latest capital structure and the costs of capital determined above. XXXXXXXXXX5 Marks)
(f) Peform a valuation of the two companies’shares using the Constant Growth Dividend
Discount Valuation model.
Answered Same DayAug 06, 2021FINA6000Torrens University Australia

Solution

Tanmoy answered on Aug 09 2021
48 Votes
Financial Analysis of Dexus & Capitacom
(a) Ratio Analysis of Dexus & Capitacom using profitability and investment ratios
    Profitability Ratio
    Dexus FP Unit Stapled Securities
    Capitacom Trust
     
    2017
    2018
    2019
    2016
    2017
    2018
    2019
    Operating ratio
    0.54
    0.59
    0.59
    0.71
    0.73
    0.74
    0.72
     
     
     
     
     
     
     
     
    Gross profit ratio
    0.65
    0.72
    0.74
    0.77
    0.79
    0.80
    0.78
     
     
     
     
     
     
     
     
    Net profit ratio
    1.43
    2.06
    1.61
    0.87
    1.72
    1.33
    1.05
     
     
     
     
     
     
     
     
    Return on equity
    14.3%
    17.2%
    10.9%
    4.9%
    9.0%
    7.6%
    6.0%
     
     
     
     
     
     
     
     
    Investment Ratio
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
    Price Earnings ratio
    7.63
    5.71
    11.11
    29.68
    15.79
    17.98
    22.94
     
     
     
     
     
     
     
     
    Earnings per share
    1.24
    1.70
    1.17
    0.09
    0.16
    0.14
    0.11
We have consider past three years figures for calculation of the ratio of Dexus and past four years for Capitacom as the past figures are not available in consolidated format in their respective financial statements.
Based on the above analysis it can be stated that the operating ratio of Dexus is growing on a yearly basis. On the other hand the operating ratio of Capitacom has declined in 2019 compared to 2018. It signifies the profitability of the company generated from the operations and is also called performance ratio. It simply means the amount generated by the company on a dollar of sales after payment of wages and raw materials which are the variable costs.
The gross profit ratio of Dexus has also increased considerably in 2019. But there has been a declined observed in the gross profit ratio of Capitacom in 2019. This is a scale to measure the company’s cost of production in relation to sales.
The net profit ratio of Dexus has declined in 2019 compared to 2018 by -22%. Similarly, the net profit for Capitacom has also declined by 21%. This is due to the global slowdown. It reveals the remaining profits after all the selling, administrative and finance costs have been deducted from the amount of sales and the final recognized income generated.
The return on equity has also declined for Dexus in 2019 compared its previous year. Similarly, for Capitacom is has been low for the cu
ent year 2019 compared to the previous years. It is a measure of the profitability of the business in comparison to the equity or the net assets of the company.
The price earnings ratio of Dexus is at 11.11 in 2019 compared to 5.71 in 2018. It means the investors of Dexus have to pay more for each share today for expected growth in the future. Similarly, for Capitacom the P/E ratio is high in 2019 compared to the previous years.
Earnings per share measure the profitability of the company and are an important parameter to measure the company’s financial performance. The EPS of both Dexus and Capitacom have declined in 2019 compared to 2018.
(b) Capital Structure of Dexus and Capitacom
    Capital Structure
    Dexus FP Unit Stapled Securities
    Capitacom Trust
     
    2017
    2018
    2019
    2016
    2017
    2018
    2019
    Debt
    2846800
    3359600
    4066600
    2630632
    2720208
    2613982
    2810510
    Equity
    8824500
    10047400
    11743300
    5278542
    6416923
    6892018
    7185098
    Total Value of Firm
    11671300
    13407000
    15809900
    7909174
    9137131
    9506000
    9995608
    Debt Equity Ratio
    0.32
    0.33
    0.35
    0.50
    0.42
    0.38
    0.39
The capital structure of Dexus and Capitacom consists more of Equity than Debt. For Dexus the debt has increased along with the increase in the equity in 2019. For Capitacom it is similar to Dexus’s capital structure. The value of the firm is the sum total of Debt and Equity.
(c) With the calculation of debt equity ratio, it can be illustrated that for Dexus the D/E ratio in 2019 although grew but the rate of growth was much less than Capitacom. Hence, it can be said that Capitacom is getting more dependent on debt than Dexus. Also, the rate at which the equity is increasing for Dexus, it is not same for Capitacom. Also, the dependent on debt by...
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