Assignment Problem: As you will recall at the beginning of the course, we discussed the important role that the capital market plays in matching investors with companies. Investors are attracted to companies that are able to generate healthy returns that are commensurate with the risks that the investment entails. Recently, we have witnessed much coverage relating to a much loved brand of the UK high street, Thomas Cook. After a prolific trading career of over 170 years, Thomas Cook finally went into administration in September 2019.
In the attached file you can see what the trajectory of their share-prices looked like.
The fortunes of Thomas Cook have been suffering for some time now but there had been signs of recovery but these signs were short-lived and did not gain the momentum that was required to turn around this ailing company.
Your task will be to take a closer look at this company and see if the ultimate demise could have been predicted.
Assignment Task One:
Using the Annual Report and Accounts of Thomas Cook for the period 2015, 2016, 2017 and 2018, you are required to evaluate the performance of the company.
You are required to:
(a) Evaluate the performance of Thomas Cook in the following areas, using ratio analysis:
- Profitability
- Liquidity/Solvency
- Working capital efficiency
- Long term financial structure
- Investors' perspective
In addition you could also consider the performance of Thomas Cook in comparison with its peer group of competitors - for example, other travel agents in the industry.
You should summarize your findings and make particular reference to the interests of the different stakeholders of the company.
When undertaking any calculations use the 'Total' figures from the financial statements.
Note: Any accounting ratios for Thomas Cook must be calculated (and workings shown) and not extracted from external databases.
When completing Part (a) take the following into account:
1. 4 years of analysis would be worthwhile.
2. Benchmarking to one competitor
3. Make sure that you explain why the ratios are changing and what the implications or conclusions of this are and tying this to..... (Point 4 below)
4. Don't forget to comment on the views of specific stakeholders.
5. Contemplate your presentation. This work lends itself to the use of graphs, charts, tables and so on.
Assignment Task Two:
Considering your response to Task One and any further reading, you are required to provide advice; accompanied by a rationale, as to what you think could have been done - using appropriate ratios to support your answer, in order to save the company.
Assignment Task Three:
Your third task is to consider the business model that was employed by Thomas Cook. What was the philosophy and why do you think that it failed? Your arguments can also be supportive of some of the practices that they deployed if you think that they were worthy of merit but you must also consider the fundamental question of why the company did not survive. Where possible, utilize the academic literature to support your arguments.
Learning Outcomes specifically assessed:
Subject Specific Knowledge and Skills -
1. Identify and critically appraise the different components of a financial report, and assess the adequacy of current international financial reporting requirements for a greater understanding of company performance
2. Analyze and interpret financial data and information, evaluate their relevance and validity, and synthesize a range of information in the context of business situations
3. Demonstrate the ability to use conventional management accounting and financial management techniques to produce appropriate information for management to aid planning, control and decision making
4. Evaluate the usefulness of contemporary management accounting techniques in measuring business performance
5. Critically appraise management accounting techniques with respect to their effectiveness and identify any weaknesses inherent in their use
Non Subject Specific and Cognitive Skills:
1. Manage own learning, using the available range of resources, and ability to conduct research into business and management issues.
2. Ability to collect relevant information relating to a given situation, analyze that information and synthesize it into an appropriate form in order to evaluate decision alternatives.
3. Demonstrate a practical and integrative approach to a problem area or issue.
4. Demonstrate rigor of academic arguments as well as the application of theory.
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