Assignment -
BACKGROUND - You're a group of investment analysts who work for a large investment consulting firm based in Australia. There's one big institutional investor from overseas that is interested in investing in the Australian market. You've been asked to choose two large companies operating under the same industry in Australia (the industry you think will have the most promising future for investment) then evaluate and compare them. Finally make a recommendation through your Report to the investor which one is more superior fundamentally.
Create your group's "business name" under which your group will be providing the financial advisory services. Choose two listed companies that your group will investigate/analyse for the purposes of possible recommendation to your client. The group should obtain all information about the selected companies from Australian Securities Exchange website.
Required - Obtain copies of Financial Statements including Income Statements, Balance Sheets, and Statement of Changes in Equity, Cash Flows Statements and Notes for three (3) financial year 2014-2015, 2015-2016 and 2016-2017. Your group can download these documents from the suggested web site using the firm's code (example, BHP- for BHP Billiton Company, etc.). The assignment should cover the contents described in Part 1 to 7 bellows.
Stages to be completed -
1. Description of operation and comparative advantages of the two chosen companies.
2. Calculation and comparison of performance ratios of the two companies.
3. Analysis of monthly share prices movements of the two companies within 3 years.
4. Identify any significant factors which may have influenced the share price of your chosen companies during the time frame.
5. Calculation of Beta values and expected Rates of Return using the CAPM of the two chosen companies.
6. Identify and compare dividend policy of the two chosen companies.
7. Letter Recommendation.
Details of financial analysis tasks -
1. Description of operation and comparative advantages of the two chosen companies: Prepare a brief description of the chosen companies, outlining the core activities, the market(s) in which they operate within and any factors in the companies' history which you consider help present the pictures of your companies. Identify and compare their comparative advantages.
2. Calculation and comparison of performance ratios: using financial data obtained from current financial statements of your selected companies for the past 3 years. Annual reports are accessible via company websites or ASX website. Your client is strongly interested in the three groups of ratios:
- Liquidity ratios;
- Profitability ratios
- Capital structure (leverage) ratios
You need to provide charts and/or tables for analysis and justification.
3. Analysis of monthly share prices movements: Using the information from the ASX website, complete the following tasks:
Prepare graphs for movements in the monthly share price over the last three years for the companies that you are investigating. Plot them against movements in the All Ordinaries Index.
Write a report which compares movements in the two selected companies' share prices to each other and to the All Ords Index. For instance, how are the prices of the two selected moving? In the same trend or diverse trends? How closely are they correlated with the All Ords Index. Above or below? More or less volatile?
4. Significant factors which may have influenced the share price: Research via the Internet or financial/business publications:
From research via the Internet (using credible sources) or financial/business publications, identify at least 2 significant announcements which may have influenced the share price of your selected companies within 3 years. These factors could include merger or acquisitions, positive or negative earnings forecasts, unusual write-offs or abnormal items, macroeconomic factors, industry wide factors, significant management changes, changes in the focus of the companies, impact of competitors or law suits etc.
5. Calculation of beta values and expected Rates of Return using the CAPM: Go online to REUTERS website and type in the code for your companies into the Search Stocks field and click on the magnifying glass button.
What is their calculated beta (Ii) for your companies?
If the risk free rate is 5% 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.
6. Dividend policies: Discuss what dividend policies appear to be implemented by the companies' management boards. Explain any reason related to that particular dividend policies.
7. Recommendation letter: Based on your analysis above, write a letter of recommendation to your client, providing an explanation as why you would like to include one of selected the companies 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.