HI5002 Holmes Institute Finance for Business Sample Assignment
Unit Code: HI5002 Unit Name: Finance for Business Venue : HOLMES Institute
Students are required to study, undertake research, analyse and conduct academic work within the areas of business finance covered in learning materials 1 to 10 inclusive. The assignment should examine the main issues, including underlying theories, implement performance measures used and explain the firm financial performance. You are strongly advised to reference professional websites, journal articles and text books in this assignment (case study).
Obtain a copy of the last Financial Statements including Income Statements, Balance Sheets, Statement of Changes in Equity, Cash Flows Statements and Notes. You can downloaded these documents from the suggested web site using the firm’s code (example, BHP- for BHP Billiton Company, etc).
You are required to do the following tasks:
1. A description of the company
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.
2. Specify ownership-governance structure of the company:
- 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.
- Name the main people involved in the firm governance:
- The Chairman
- Board members
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.
Whether any of shareholders with more than 5% share capital are involved in firm governance.
3. Calculation of Performance Ratios
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):
- Return on Assets (ROA) = (NPAT / Total Assets)
Return on Equity (ROE) = (Net Profit After Tax / Ordinary Equity)
Debt Ratio = Total Liabilities / Total Assets
EBIT/TA * NPAT/EBIT * TA/OE = NPAT/ OE
Be sure that you have “proven” the above equation.
- 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.
- Explain why the ROE (EBIT) is significantly greater than or less than the ROA (EBIT).
4. Using the information from the ASX website: asx.com.au you must complete the following tasks:
- 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.
- 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?
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).
6. Calculation of ’ beta values and expected Rates of Return using the CAPM
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.
- What is their calculated beta (β) for your company?
- 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.
- Is the company you have chosen a “conservative” investment? Explain your answer.
7. Weighted Average Cost of Capital (WACC)
- 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.
- Explain the implications that a higher WACC has on management’s evaluation on prospective investment projects.
8. Consider the debt ratio for your company over the past two years:
- 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.
- 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?
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.
10. Letter Recommendation
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 his/her investment portfolio. Please refer to the ratio results calculated earlier and any other trends or factors that you believe to be important.
11. Formal structure and referencing.
When writing your assignments, a reference must be included every time you use someone else’s ideas or information. In-text referencing of ALL sources, whether academic books, journal articles, newspaper articles, material from the Internet etc., must be cited in the main text of the assignment itself. Harvard Style referencing is required for this assignment.
A reference must be included when you:
- Paraphrase (express someone else’s idea in your own words).
- Quote (express someone else’s idea in their exact words).
- Copy (financial statement, reproduce a diagram, graph or table from someone else’s work).
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