Strategic Financial Analysis (SFA)
"Describe, critically assess and evaluate the principal methods of analyzing company accounts as an outsider to the company.
Indicate the major shortcomings that are inherent in such processes and propose contemporary analysis methods that will limit these shortcomings.
Illustrate your answer with worked examples of dynamic analysis by comparing the two listed companies below for the past 3 years: (3 years of annual report attached for both company)
1. Tate& Lyle; (Main Company)
2. Rexam; (Competitor)
This assignment is essentially a critical analysis/evaluation of methods of analyzing corporate financial statements. Traditional approaches, such as ratios, trend/horizontal, and vertical comparisons should be briefly described and techniques applied to the financial statements.
This should lead to preliminary conclusions on the financial performance and strength of the companies. However, in additional to demonstrating knowledge and application of these techniques, a critical analysis/evaluation of the technique is also required and this will significantly increase the marks earned for this section. The evaluation is supported by reference to relevant academic sources and other research findings. A brief summary of this section would be useful.
The assignment continues with brief descriptions of "contemporary" analysis methods. The likely starting point is the use of "Economic value added", but it is then for the writer to decide the breadth and depth of methods described. Again, where appropriate, methods are applied to the companies selected above, but it is the critical analysis that earns most of the marks.
(From previous guidance, "The intent of the word "dynamic" is that the student should feel free to pursue analysis that they think relevant, of interest, or of particular research interest in the pursuit of explaining and analysing performance and financial position.)
The marking grid shows there are 30 marks awarded for coherence of argument and therefore analysis that compares and contrasts findings from traditional and contemporary methods will score heavily, as will clear linkage how contemporary methods might address identified shortcomings of traditional analysis. This should lead to a well-structured and supported set of conclusions.
A clear challenge is keep within the word count, which is relatively short. Two pieces of advice - use an appendix if necessary (not included in word count) and then "write a little about a lot" - better to make many short, concise points, rather than spend paragraphs going into detail on one point
In analysis and evaluation part should be covered these areas:
Background
Objectives of the study
1. Interpretation of financial information
- Company profile (set up, branches, employee, sales mix Product range, size of the order book, and the strategic plans of the business etc.)
- Ratio analysis (Liquidity, Capital structure, Coverage ratio, Operating efficiency, Profitability etc. )
- Budget figure
- Industry averages
- Figures for a similar business
- Figures over a period of time
- Market share
- Vertical Analysis
- Horizontal Analysis
- PPE Calculations
- Mergers and Acquisitions
- Competitors analysis
- Recent issues and challenges ( Financial, Market, Strategic, HR, Operation, Environmental etc)
- Business model comparison
- CSR Vs Sustainability
- Mergers and Acquisition
- Credibility
- Any reporting error previously
- Differences in accounting methods
- Differences in accounting standards
- Non- recurring gain and losses
- Environmental analysis
- Strategic management analysis
2. Capital Investment Techniques
- Payback period
- Discounted cash flow ( NPV)
- Internal rate of return (IRR)
3. Working Capital Control
- The purpose of current assets
- Control of current liabilities
- Accounts payables and Accounts receivables management
- cash conversion cycle
- inventory control methods
4. Cost analysis
- Fixed cost , variable cost verification
- Break-even point , margin of safety and contribution analysis
- CVP and sensitivity analysis
- R& D expenses, Training and Development expenses of the employee
5. ROI to the shareholders
- Earnings per share
- Return on shareholder's fund
- P/E ratio
- Goodwill valuation
- ROI, ROE, DU-Pont
6. Cash flow (What if)
- Cash flow statement analysis
- Cash flow projection
- Scenario Analysis
7. Mortgage payment (What if analysis)
- Goal seek ( Variable one , variable two , original)
8. Risk Factors
- Operating risk ( cost behaviour and price sensitivity)
- Financial risk ( Income measure)
9. Financial Market Analysis
- Market hypothesis
- Managing risk including capital asset pricing model ( CAPM)
- WACC model
10. Assets Valuations and Depreciation policies
11. Balance scorecard
12. Findings
13. Recommendations
14. Conclusions
References
ASSIGNMENT 3000 WORDS
Ball Corporation Annual Report 2013, 2014, 2015
https://www.dropbox.com/s/rtf6oplw3tj2o77/Rexam%20annual%20report.zip?dl=0