BUSN2036 – Company Analysis Report
|Assessment Weighting:||40% of total marks available for course|
|Due Date:||11am 14 May 2018 (composition of groups must be finalised|
|by 15 March 2018).|
|Submission Details||1) Place a hardcopy of your assignment (including appendices)|
|in the RSA Assignment Submissions Chute, at the window of|
|the RSA Student Administration Office Room 2037 Hanna|
|Neumann Building. Please attach a completed cover sheet|
|(available at: https://www.rsa.anu.edu.au/rsa/info-for-current-|
|2) Upload an electronic copy of the main body of your|
|assignment (no appendices necessary) to Wattle via the|
|‘Turnitin’ assignment link.|
|Word Limit:||There is no formal word limit, but there are no prizes for|
|writing the longest assignment. You must communicate|
|efficiently and effectively.|
NOTE: Further (clarifying) information regarding assignment requirements may be posted on Wattle. It is a requirement of this assignment that you check the Course Wattle Site during the week of April 23-27 to familiarise yourself with any additional information that may be provided.
CHOICE OF INDIVIDUAL OR GROUP ASSIGNMENT:
This assignment may be completed individually, or in a group of two students (maximum).
There are additional requirements that apply if you choose to complete the assignment in a
group (see details of each section of the assignment below). IF YOU CHOOSE TO COMPLETE THE ASSIGNMENT IN A GROUP YOU MUST EMAIL COURSE CONVENOR DETAILING THE COMPOSITION OF YOUR GROUP BY THURSDAY 15 MARCH.
Write a report examining the performance and financial position of a Wesfarmers, a large Australian listed company, for the purpose of advising a client who is considering purchasing shares in that company. Your report should include (at least) the following sections:
Business and Strategic Analysis, including:
an analysis of the impact of economy-wide and industry-wide factors upon the Wesfarmers’ current and expected future performance. You should also identify the company’s closest competitor(s) and analyse the extent of similarity between the competitor and your chosen company. It is not always possible to identify a competitor that is in the exact line of business as the company you are analysing.
Sometimes using the ‘segment reporting’ section of firm’s annual reports helps to identify parts of companies’ operations that are similar.
For INDIVIDUAL ASSISGNMENTS: You may focus your industry and competitor analysis on the retailing segment of Wesfarmers’ operations. You can’t ignore the rest of their business, but it is acceptable focus most of your efforts on a single industry / competitor.
For GROUP ASSIGNMENTS: You must analyse at least two industries in which Wesfarmers has significant operations. You must perform your competitor analysis on at least two companies (one from each industry).
an analysis of the impact of Wesfarmers’ competitive and corporate strategy upon its current and expected future performance
Chapter 2 of your textbook introduces many of the issues relevant to this section of your report.
Accounting Analysis, including:
an analysis of Wesfarmer’s accounting policies and discretionary accounting decisions relevant to the evaluation of current and expected future performance. Focus your analysis of policies that have the greatest potential to influence your assessment of the firm’s performance and position (e.g. inventory valuation policy is not likely to be very important when assessing a ‘service’ business).
a comparison of Wesfarmer’s accounting policies with those of the competing firm (2 firms if you are completing the assignment in a group) identified in your strategy analysis above.
Re-cast financial statements of the firm you are analysing and its competitor (2 competitors if completing assignment in a group), for each of the last 5 years, to improve comparability across these firms, and to facilitate the projection of future performance (required later in this assignment).
An adjusted set of financial statements for each firm, for each of the last 5 years, in which non-cancellable operating leases are brought ‘onto the balance sheet’ (see
Lectures 3 and 4). The adjusted financial statements should be of similar presentational form to the re-cast financial statements described in the point above.
Chapters 3 and 4 of your textbook introduce many of the issues relevant to this section of your report
Financial Analysis, including:
an estimation and analysis of ratios relevant to assessing the profitability, leverage, and asset management of Wesfamers, and at least one of its competitors (at least two competitors if you are completing the assignment in a group). Ratios used to analyse firms’ leverage should be presented in both ‘as reported’ and ‘lease-adjusted’ form (using data from the lease-adjusted financial statements produced in your ‘accounting analysis’ section).
a time-series analysis of these ratios for both Wesfarmers and its competitor (both
competitors if completing group assignment) over the past 5-years (or longer). Presenting graphs of the time-series behaviour of key ratios is very good idea.
a discussion of the Wesfarmers’ overall financial position and profitability.
Chapter 5 of your textbook introduces many of the issues relevant to this section of your report. You may find each company’s segment reports (see notes to accounts) useful when analysing companies’ relative performance.
Prospective Analysis, including:
Specific forecasts for all financial statement items (applying a level of detail similar to Table 6.2 in your textbook) extending to at least 5 years in the future and forecasts of the behaviour of these forecasting items after the end of the specific forecasting
period. Supporting calculations and assumptions must be clearly explained, and assumptions should be consistent with earlier parts of the assignment (particularly the ‘strategic analysis’ section).
a valuation of the firm’s equity, using at least one of the comprehensive valuation methods described in Chapters 7 and 8 of your textbook (i.e. valuation based on discounted free cash flows, valuation based on abnormal earnings, valuation based on abnormal ROE, NOT SIMPLE PRICE MULTIPLES). In addition to the earnings and cash flow measures forecast above, valuation will require the estimation of the firm’s cost of equity capital. It is acceptable (but not mandatory) to use the Capital Asset Pricing Model to estimate this. Company Betas are available on DatAnalysis Premium. Estimates of the Market Risk Premium currently applying in Australia are available from a number of internet-based sources. You should explain and justify the method chosen to estimate the cost of equity.
a sensitivity analysis, demonstrating the effect on your valuation(s) of varying the key assumptions underpinning your valuation. For example, the impact of variations in future sales growth, gross margins, other cost ratios and cost of equity should be investigated and analysed. The sensitivity analysis should be informed by sound economic logic and, where possible, uncertainties identified in your earlier analysis. For example, if you decide to test the impact of sales growth being a lot higher than your baseline forecast, you need to explain (or speculate upon) the economic circumstances that might cause this high growth to occur. Don’t just pick a number out of thin air and say ‘I wonder would happen if profit margins were 200%?’.
Drawing upon the analysis above, advise your client on the suitability of the company for equity investment. You should clearly explain the key assumptions that you have in your analysis, and the extent to which your recommendation relies on the validity of those assumptions. It may help to make assumptions regarding your client’s tolerance for risk and their likely investment horizon, and to state these assumptions clearly in your report. There is no ‘right’ or ‘wrong’ recommendation. What is important is that you present a sound justification for your recommendation, based on a logical discussion of the analysis presented in the earlier sections.
While there are several separate requirements of this assignment, and it is permissible to allocate specific tasks to particular group members, your final report should integrate the content of each of the above analyses such that the report reads cohesively. For example, the Strategic Analysis should inform the Prospective Analysis. Your Accounting Analysis may affects the identification / measurement of the key ratios that you choose to analyse in your Financial Analysis. Assignments attempted in groups should not read as though they were completed by individuals who never communicated with each other.
What to put in the main text and what to put in appendices?
In your main text, try to avoid ‘bogging down’ your report with lengthy detailed computations. Use the main text to identify the key information that is required to understand your analysis, and put details of your calculations in Appendices. Each Appendix should be clearly numbered, and it should be easy for the reader to find the appropriate Appendix should they need more detail on a calculation presented in the main text.
Within your Appendices you should detail the method by which all calculations are made, and assumptions underpinning calculations, the precise source of the data used in calculations. For example, if you present a ratio of debt to equity in your main text, your Appendices must clearly disclose:
the formulae applied,
the specific financial statement items used in the calculation, the values of those financial statement items, and
Please note that you are expected to calculate ratios yourself and not rely on ratios already computed on DatAnalysis Premium or any other website.
Your Appendices must be submitted with the ‘hard copy’ submission of your final assignment, but do not need to be uploaded to Wattle (Turnitin). However, you may be asked to supply an electronic copy of your Appendices later (see below).
It is a requirement of this assignment that you keep an electronic copy of all documents / spreadsheets used in your assignment. You may be required to submit these files directly to the Course Convenor if there is doubt regarding the originality of any part of your report, or
to try to better understand how you have made your calculations. Do not destroy the electronic copy of your assignment until the final results for this course have been confirmed.
ALLOCATION OF MARKS TO INDIVIDUAL STUDENTS (GROUP ASSIGNMENTS ONLY)
The first page of your assignment (following the cover page) should contain a brief statement, signed by all group members, outlining each member’s contribution to the assignments. For example, if group members each worked evenly on every section of the assignment, disclose this. By default, all group members will receive the same mark. However, if one section of the assignment is significantly better than the others, and if both group members agree (in writing) that an individual contributed more heavily to that section than the other, the convenor may allocate may allocate marks differently.
Your report must be original and properly referenced in accordance with the requirements of the University’s Academic Misconduct Rules:
Please use the Harvard (author-date) system
You must clearly identify whether material that you are referencing is a direct quote from the source (place in quotation marks) or a paraphrasing of the source
As you will frequently be referring to financial statement data in this assignment, it is acceptable to make a single initial acknowledgement (via footnote) of the source(s) of that data. However, any text drawn from or based on discussion in Wesfarmer’s annual reports should be properly referenced.
You cannot ‘re-cycle’ material that you have submitted for assessment in another assignment. Obviously, there will be some overlap in material between Assignments 1 and 2 for this course. A small overlap is ok, but you cannot simply cut and paste sentences from your first assignment into this assignment
If you have any doubt regarding referencing requirements contact the Course Convenor.
Further details are available at : http://www.anu.edu.au/students/learning-development/academic-integrity and https://www.legislation.gov.au/Details/F2015L02025