Financial Management Analysis

REQUIRED:

You are required to present a consultant's report containing your responses to the questions listed below in reference to the same Australian listed public company you have chosen in Part A of Assessment 2, focusing on the company's financial strategies that create shareholder value. Use the general purpose financial statements in the annual report you submitted in PART A for your analysis. It is necessary you carry out additional secondary research to collect data (or proxy data) from different sources to help you answer the questions.

The purpose of these questions is to require you to demonstrate your ability to conduct research into real companies, their operations and events affecting those companies. You should demonstrate your ability to interpret data, summarise your findings and to communicate your views in a report. The emphasis is on explaining the financial management of the company, as revealed in the accounting reports, and also to place those reports within the wider economic context.

(I) Debt Valuation
1. What are the short-term and long-term debts used by your firm?
2. Is your company's debt structure consistent with the industry?
3. How does the industry your company operates in influence the proportion of short-term to long-term debts of your company?
4. What is your company's the cost of debt?

(II) Share Valuation
1. What is your company's cost of equity?
2. Evaluate and discuss your company's revenue, earnings, EPS, dividends and growth expectations. Use the most recent reported earnings results from the annual report you submitted in PART A for your analysis.

3. Value your company's stock using comparables approach (ie. P/E) and constant dividend growth rate model. What are the factors that influence your company's stock price and how are they captured in these models?
4. Which of the values in question 3 appear most reasonable compared to the market price of your company's stock?
5. What additional data and information would you prefer for valuing your company's stocks? Explain your reason(s).

(III) Cost of Capital

1. Calculate the weighted average cost of capital (WACC) of your company?

2. Explain the company's tax rate in the calculation of WACC?

3. Why is there a difference in the cost of debt and the cost of equity?

4. Should current liabilities be included in the cost of capital calculation? What are the pros and cons?

5. What is the major value of the WACC calculation for your company and how is it applied in investment decision-making?

6. Provide examples of how your company might have recently used WACC in its investment decision-making with reference to two projects recently undertaken by your company. You may need to synthesize information from your readings (ie. Annual reports, GPFS etc.) to identify the projects.

7. Define and explain capital structure of your company. Discuss whether it is consistent with the industry and why or why not.

8. What is the optimal capital structure and what economic circumstances will likely cause a change in it?

(IV) Market Analysis (20%)

1. Comment on your chosen company's financial performance relative to its industry. You will have to investigate your company's industry using sources such as Bureau of Statistics, industry journals/publications, analysis in financial press, IBISWorld etc.

2. Conduct a literature search on your company. Summarise and explain how your company is being viewed by financial analysts and others in the press (or has been viewed over recent years, as appropriate to your company). Do you agree with the comments? Why/why not? Explain.

3. Comment on any other item that is important or different about your company (that is relevant to the topics in this course).