Aim

The assignment is designed to test your understanding of corporate finance and explores a number of areas within the module by applying your learning to a real company. There is no perfect answer and therefore you should state your assumptions clearly and make good use of appendices. Remember, this is not a strategy or marketing assignment!

Question

Company directors often believe that the stock market fails ‘correctly' to value the firms they manage, while investors are often alarmed by the volatility in share prices. This suggests that stock markets may not always be reliable indicators of company value.

Required

Select a company listed on an internationally recognised and well established Stock Exchange (see below for choice of company):

Discuss how successful the company has been at delivering value to its shareholders over the past 5 years.

Explain how and why the market value of equity has changed over the past 12 months.

Undertake a current valuation of the equity in this company, using the following methods:

- Net Asset Value

- Price/Earnings Ratio (or some other appropriate multiple)

- Discounted Cash Flow (60%)

Attempt to reconcile any differences in value that you obtain by using these different methods and state (with reasons) what value you think is correct for the company.

The weightings given above are indicative rather than absolute, and are given to guide you as to where to focus your efforts.

Choice of company

Choose a listed company on a recognised stock exchange (e.g. London, New York, Tokyo, Mumbai) for which you can access the share price data over the past 5 years. Large companies will provide financial data on the websites, often under a section titled ‘investors'.

Guidelines

The report should include:

a key point summary of conclusions

graphical illustration, where appropriate

a bibliography of sources of information used and references to texts or other material drawn upon.

Detailed tables, extracts or copies of financial information, which should include a copy of the relevant financial statements, should be placed in the appendices. You should refer to them in the body of the report.

Financial data available includes the FAME (Financial Analysis Made Easy) database maintained in the Bradford University School of Management library. You should request this information from the librarian or go to the ‘How To' resource selection and consult the ‘How To' library section for further information. Other special reports, for example, Company Focus, are available from the Financial Times Share Service, or brokers' circulars issued from time to time by the broking arm of numerous finance houses.