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Your task is to compare and contrast the historical (for the last 2 years) and expected future performance of a listed company and a competitor in a similar line of business, and present your findings in the form of a report which will cover both qualitative and quantitative performance elements in a logical cohesive format.
The qualitative component of your discussion should include (but is not constrained to):
A BRIEF background on each company including how they are placed within the industry.
A BRIEF overview of the recent stock price movements for both companies.
The impact of general local and global economic conditions on the companies (if any).
Industry trends and an assessment of each company’s ability to cope with these. The quantitative component should include:
An initial analysis of trends in the items contained in the profit and loss statements, balance sheets and statements of cash flows; appropriate relevant ratios ( do not use multiple ratios which measure the same thing) measuring profitability, liquidity, working capital management, leverage/gearing and financial risk (market-based ratios).
A highlighting of the most important changes within these ratios and an identification of the reasons for these changes.
A comparison of the quantitative analysis for the two companies and an identification of the reasons for any differences.
Taking into account the quantitative and qualitative analysis you are then required to make a recommendation which will fall into one of the following three categories:
1. Invest in the company
2. Invest in the competitor
3. Invest in neither.
You should include a conclusion in which you comment on the strengths and weaknesses of your overall analysis encompassing what your analysis has accomplished and what are its limitations.
NOTE: In order to start this assignment you will need to locate and extract the financial statements of the latest Annual Report and Financial Statements (comprising two years information) of your chosen publicly listed company that is listed on a stock exchange such as the Australian Stock Exchange (www.asx.com.au).
It is recommended that you locate the Annual Report and Financial Statements soon after commencing the subject. Refer to the financial statements of your chosen company while studying topics in the subject so that you become familiar with the company and its operations.
Calculate the various ratios based on the data in the financial statements. Do not calculate every ratio listed in the textbook. You should be selective and only go beyond the major ratios, which are discussed in the textbook, if you have decided that further detailed analysis of an aspect of the statements will better enable the development or justification of a recommendation to management.
Analyse the ratios and the data from the financial statements to evaluate the company’s operations and performance. The quality of this analysis is very important – much more important than the quantity of ratios or the calculation of ratios. Ratio calculation is expected to be accurate, but the majority of marks will be earned by demonstrating your understanding of ratio analysis and its uses. Hence, you should focus on analysis: on the implications of the ratios you present and on the explanation of the interaction between ratios.
Place the ratio calculations in an appropriate appendix so that the body of the report only states the result of the calculation (e.g. ‘…argument is supported by a debtors collection period of 26 days’) and not the process of calculating it. Pay attention to the presentation of this appendix so that it is user friendly and it is easy to locate any ratio. Include referencing so that you clearly acknowledge your sources of information. Your sources may include articles from the financial press, financial commentators and internet resources that you may have used to strengthen your analysis. Remember to submit a hyperlink to the annual reports within the reference list in your assignment.
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