Assessment 2 Individual Report – Written Report (30%)
Task: Based on the same company chosen (Blackmores) in the group report, analyse the financial performance of the company, and perform prospective analysis as if you were a business analyst. Specifically, reformat the company’s financial statements for the past five years; analyse key financial ratios and data to evaluate current and past performance of the company; forecast future financial performance of the company for the next three years and beyond; apply valuation models to estimate the company’s intrinsic value; perform sensitivity analysis on key forecasting assumptions, and discuss potential opportunities and challenges for the company to improve value.
The report should be readily comprehensible, condensed and within the word limit. Information should be collected from various reliable sources to inform analysis and references are properly cited.
Tables and graphs should be used to effectively present information. Detailed requirements are as follows:
Reformatting (3 marks):
- Prepare detailed past five years’ reformatted financial statements in an excel spreadsheet and attach as an appendix in the report.
Financial analysis (7 marks):
- Perform DuPont analysis. Calculate and discuss key ratios such as ROE, RNOA, PM, ATO, FLEV and NBC.
- Break down and analyse PM and ATO ratios in further details. Identify and discuss significant expense items that have caused major changes in profit margin. Identify and discuss major assets or liabilities whose turnover ratios have contributed to the overall change in assets efficiency.
- Briefly describe the ratios trend. The analysis should elaborate on the economic, industry and business factors that drive the changes in ratios. The discussion should consistently reflect the same firm fundamentals identified in the group report.
Forecasting (7 marks):
- Prepare your forecasts in an excel spreadsheet following a 10-step forecasting template. The forecasting table should include your specific forecasts for the next three years as well as the long-term forecast beyond the three-year forecast horizon. The forecasting table should be included as an appendix in the report.
- Explain the reasons for your initial forecast assumptions, i.e. assumptions for sales growth, ATO, PM, net dividend payout ratio, cost of debt and cost of equity. Your forecasts should be informed by both financial and non-financial analysis of the company.
Valuation (4 marks):
- Apply three valuation models, i.e. residual income model, residual operating income model and free cash flow model, to estimate the intrinsic value of the company. Provide calculations and results of the valuation models in a table and include it as an appendix in the report.
- Compare and discuss the estimates obtained from the three models. Compare the estimates with the actual share price observed in the stock market when valuation is performed and conclude whether the firm is currently overvalued or undervalued.
Sensitivity Analysis (4 marks):
- Adjust your initial forecast assumptions to reflect your optimistic and pessimistic forecasts for sales growth, ATO, PM, net dividend payout ratio, cost of debt and cost of equity. Recalculate the estimated share value from residual operating income model only. Provide the sensitivity analysis results in a table.
- Explain how optimistic and pessimistic forecasts for the various assumptions are chosen.
- Identify and discuss the key assumptions that valuation is most sensitive to.
- Based on sensitivity analysis and the key factors that have significant impact on valuation, briefly discuss potential opportunities and challenges for the company to maintain or improve value.
Length – Individual Assignment – Written Report: maximum 4000 words (exclusive of references and appendices). Appendices are limited to a maximum of 10 pages. Please use a font size of 11, 2.5cm page margins and a line spacing of 1.5.
DueDate: Individual Assignment – Written Report is due on Tuesday 17th January
Criteria:
Students will be assessed based on the following criteria:
- accuracy in calculating financial ratios
- identification and analysis of key drivers of major changes in profit margin and asset efficiency
- critical evaluation of the financial risk and cash flow management
- understanding of the importance of non-financial information in evaluating a business’s performance
- evidence-based justification for the forecasts of a business’s future performance
- accuracy in calculating business value using various valuation models
- critical evaluation of business value’s sensitivity to forecast assumptions
- critical analysis of the potential opportunities and challenges for a business
- clarity, coherence and professionalism of communication in the report
Submission Requirements:
- A Word file of the individual report should be submitted through TurnitIn on Canvas. Students should name both the assignment submission and individual reports in the format “{companyticker}_{studentID}“. For example, “QAN_12345678”. Assignments that are not correctly named willnotbe marked.
- All individual reports should have a cover page which includes the chosen company name, student name and ID and a word count. All reports should have an introduction and a conclusion. Table of content and executive summary are optional. Harvard referencing style should be used.
- Students may submit their individual reports to TurninIn as many times as they like prior to the submission deadline. If an assignment has already been submitted before the deadline, resubmissions after the deadline are notallowed.
- Students are able to submit late assignments to TurnitIn onlyonceafter the submission deadline. For each day that the assignment is late, the assignment will lose 10% of the raw assignment mark. Special considerations are approved only if they are applied before the submission deadline for serious medical or personal reasons with supporting documents.
- TurnitIn checks % similarity to materials from other assignments, websites and journal articles within the Business School and from world-wide institutions. Students are warned that copyingmaterials from their own assignments submitted for other subjects or in previous semesters isalsoanacademicoffence.
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