Accounting the Dubai Financial Market or Abu Dhabi Exchange based
Select a company listed on the Dubai Financial Market or Abu Dhabi Exchange based on the following criteria
• Mid-size with revenues of AED 500 mn to 1,500 mn
• Into manufacturing of a single product (if not single, at least a similar category of products)
• Having at least 3 years of profitable operations
Obtain 3 years of audited accounts from the stock exchange/company website. Answer the following questions using the details in the financial statements. Wherever required, use newspaper articles/ research reports for additional information.
1. Discuss the trend in sales, costs and profits in the last 3 years giving appropriate reasons for your suggested trends in terms of movements of costs vis-à-vis sales and the resultant impact on profits.
2. Give appropriate recommendations to the senior management on various actions that can be taken to improve the profitability.
3. Based on the information provided in the annual accounts and the notes to the accounts, classify each cost as either variable or fixed or semi variable. Please provide justifications for your listings.
4. Undertake a CVP analysis to determine the break-even point of the company. For this purpose, you need to know:
– The quantity of product sold. You might get this from the management’s discussions in the annual accounts. Alternatively, you can do some research with stock market disclosures/ news paper articles etc. to obtain the same.
– Based on the quantity, calculate the average selling price per unit and the variable cost per unit.
5. Calculate the dividend per share paid in the last 3 financial years. Assuming this growth rate to continue in future, use a dividend discount model to calculate the intrinsic value per share. To calculate the discount factor, use the CAPM to calculate the required rate of return on equity. For this purpose, assume the risk free rate to be 3% and expected return on market to be 12%. For calculation of Beta, please discuss the approach with the trainer.
6. Compare this intrinsic value with the latest market price per share. Comment on why would the market price be different from the intrinsic price calculated by you.
7. Calculate the proportion/weightage of equity and debt in the capital structure. If the company wants to raise AED 100 mn for a project using the same proportion, what would be the amount of debt and equity that it would have to be raised.
8. For raising the amount of equity calculated in 1 above and based on its current market price, calculate how many new shares will it have to issue.