ASSESSMENT 2 – PART B (Financial Management Analysis)
This assessment is designed to apply knowledge gained from workshops and readings.
This assessment is to be completed individually and is due FRIDAY October 20, 2017 at
11.55 PM. It will contribute to 25% of the total marks for this subject.
Submission of Written Material
TURNITIN will be used as a standard submission tool for this assignment.
Extensions are not given except in circumstances that are onerous, unavoidable or unforeseen.
Where permission for late submission has not been given, penalties in the form of
deduction of marks will apply at the rate of 5% for each day submitted after the due date.
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
(I) Debt Valuation (20%)
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 (30%)
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 (30%)
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
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).
The data sources for your companies include historic published information, contemporary
market data and prospective data as follows (but not limited to):
La Trobe University Library data bases
Company annual reports and prospectus
Additional Guidelines for Assignments
Assignments should be seen as learning exercises and not just as pieces of work for assessment
purposes, and should follow the following guidelines:
• All assignments must be of a professional and ‘post-graduate’ standard, ie, they should
provide a critical analysis, incorporate theory and any relevant research evidence and they
should provide up-to-date information.
• It is expected that all students will make good use of the spelling and grammar checking
facilities provided by the word processing software.
• Whilst the form of this assignment is a consultant’s report, you are expected to use the
appropriate concepts and models covered in the unit adapted to your particular context;
• All sources of information should be acknowledged within your assignment using the
Harvard or author-date referencing system or Academy of Management referencing;
• The report should be well structured containing the title page, contents page, executive
summary, above headings and supporting calculations (in the appendices);
• The word count is 1600 words (+/- 10%) not including executive summary/abstract, tables,
calculations, references etc.;
• Assignments should be typed in 12 font size using 1.5 spacing between lines, fully justified
• Relevant supporting evidence should be incorporated into clearly named, numbered and cited
appendices to avoid exceeding the word limit;
• This assignment will be evaluated in terms of the appropriateness of the facts, application of
theory, relevant research evidence, critical analysis and consideration of alternative
approaches and synthesis of ideas and concepts expected at a postgraduate level; and
• It is expected that in preparing your assignment there will be evidence of wider reading
material other than set out in your course outline.
ASSESSMENT 2 – PART B (Financial Management Analysis)