Solve a Financial Statement Analysis Question
Budget: £20 – £250 GBP
Brief & How to answer the Question
Deadline: Tuesday 24th January 2022, 7am Indonesia Time
Instructions
You are required to obtain the latest annual report of a public limited company. This may be a company you have worked for previously or would like to work. Please note, do not choose a bank as banks work on very different ratios. You want to find out as much information about the financial management decision making style of the company from these reports.
You can obtain annual reports by going to the website of the company and looking under ‘investor relations. Alternatively, you can use the Financial Times annual reports service by going to https://www.orderannualreports.com/060/UI/GP/home.aspx?cp_2=P498 .
You only need to print off the three main accounts contained within the annual report. These accounts are The Income Statement, Statement of Financial Position (or Balance Sheet) and Statement of Cash Flow. Using the information contained within these accounts for the last two years, and with reference to relevant theories that are within topics that have been documented here - https://tinyurl.com/yckryk24 , you are required to do the following:
1.Discuss the different long-term sources of finance available to companies and theories that discuss their risk/return characteristics and optimum capital structure. With reference to the accounts then discuss the long term capital structure of the chosen company and what this may indicate about the company’s attitude to risk. You may need to refer to the specific note in the notes to the accounts to get detailed information on this. Part of your answer to this question should include calculation of a suitable gearing ratio.
2.Discuss relevant working capital management theories. Then calculate suitable working capital ratios and discuss how efficiently the company is managing its short-term sources of finance.
3.Discuss the range of dividend policies available to companies, why certain companies may choose certain policies and what sort of dividend policy the directors of the company seem to be following and possible reasons for this.
4.Assess the profitability and risk of the company and how attractive it appears to be to potential investors, in doing so make use of market structure analysis internal to the industry. Your answer should include some evaluation of the type of external economic environment of the company and the business models used.
A sample report and full brief have been included here for your convenience - https://tinyurl.com/yckryk24
You may want to look at information contained on the FAME/OSIRIS database for longer term information. Please note the ratios calculated on FAME/OSIRIS can often be different to those you will be calculating from the accounts for a number of reasons.
Your mark will reflect i) the extent to which your essay demonstrates an understanding of underlying financial and economic theories introduced in the module; and ii) the degree to which you are able to apply such theories in a real-world context.
Please note: You are not being asked to undertake a financial analysis of the company. The expected outcome of this work is a discussion of the different possible theories and their application to the case study in order to identify the risk/return characteristics of the company and the industry.
You are expected to be able to demonstrate that you have read and are able to synthesize academic literature.
Any corporate finance textbook will be helpful for background reading. However, you may find the following textbooks particularly helpful.
Corporate Financial Management by Glen Arnold
Fundamentals of Corporate Finance by Richard Brealey
Corporate Finance and Investment by Richard Pike and Bill Neale
Corporate Finance: Principles and Practice by Denzil Watson and Antony Head
Deadline: Tuesday 24th January 2022, 7am Indonesia Time
Instructions
You are required to obtain the latest annual report of a public limited company. This may be a company you have worked for previously or would like to work. Please note, do not choose a bank as banks work on very different ratios. You want to find out as much information about the financial management decision making style of the company from these reports.
You can obtain annual reports by going to the website of the company and looking under ‘investor relations. Alternatively, you can use the Financial Times annual reports service by going to https://www.orderannualreports.com/060/UI/GP/home.aspx?cp_2=P498 .
You only need to print off the three main accounts contained within the annual report. These accounts are The Income Statement, Statement of Financial Position (or Balance Sheet) and Statement of Cash Flow. Using the information contained within these accounts for the last two years, and with reference to relevant theories that are within topics that have been documented here - https://tinyurl.com/yckryk24 , you are required to do the following:
1.Discuss the different long-term sources of finance available to companies and theories that discuss their risk/return characteristics and optimum capital structure. With reference to the accounts then discuss the long term capital structure of the chosen company and what this may indicate about the company’s attitude to risk. You may need to refer to the specific note in the notes to the accounts to get detailed information on this. Part of your answer to this question should include calculation of a suitable gearing ratio.
2.Discuss relevant working capital management theories. Then calculate suitable working capital ratios and discuss how efficiently the company is managing its short-term sources of finance.
3.Discuss the range of dividend policies available to companies, why certain companies may choose certain policies and what sort of dividend policy the directors of the company seem to be following and possible reasons for this.
4.Assess the profitability and risk of the company and how attractive it appears to be to potential investors, in doing so make use of market structure analysis internal to the industry. Your answer should include some evaluation of the type of external economic environment of the company and the business models used.
A sample report and full brief have been included here for your convenience - https://tinyurl.com/yckryk24
You may want to look at information contained on the FAME/OSIRIS database for longer term information. Please note the ratios calculated on FAME/OSIRIS can often be different to those you will be calculating from the accounts for a number of reasons.
Your mark will reflect i) the extent to which your essay demonstrates an understanding of underlying financial and economic theories introduced in the module; and ii) the degree to which you are able to apply such theories in a real-world context.
Please note: You are not being asked to undertake a financial analysis of the company. The expected outcome of this work is a discussion of the different possible theories and their application to the case study in order to identify the risk/return characteristics of the company and the industry.
You are expected to be able to demonstrate that you have read and are able to synthesize academic literature.
Any corporate finance textbook will be helpful for background reading. However, you may find the following textbooks particularly helpful.
Corporate Financial Management by Glen Arnold
Fundamentals of Corporate Finance by Richard Brealey
Corporate Finance and Investment by Richard Pike and Bill Neale
Corporate Finance: Principles and Practice by Denzil Watson and Antony Head