Company Performance Analysis
Assessment task: This assessment task requires students to: • Analyse and interpret the annual reports and financial statements of one of the three prescribed companies listed below • Analyse and interpret the statement of cash flows of the selected company. • Undertake a comparative analysis with another company within the same industry using ratio and trend analysis. The assignment is based on the actual results for selected Australian companies listed on the Australian Stock exchange. Students should use the annual reports for the year 2014, 2013 and 2012 that have the relevant financial statements and notes accompanying the financial statements. It is strongly recommended that students review commentaries written by industry analysts that provide critical analysis on various aspects of the selected company’s operating performance, financial position, cash flow, plans and strategies. Students can choose ONLY ONE of the following three companies for this assignment: 1. AGL Energy Limited (AGK) 2. Insurance Australia Group Limited (IAG) 3. CSL Limited (CSL) PART 1. Answer ANY 5 questions. Each question is worth 4 marks (20 Marks in total) Discuss ANY 5 of the 7 issues listed (a) to (g) below that are relevant to your selected company. Discussions should be based on an analysis of the annual report, financial statements including the relevant notes and analysts reports. You may wish to refer to media reports and the financial press to support your discussion. (a) Uses of Accounting Information for Decision-Making i. Name five stakeholder groups that are relevant for your selected company. ii. Briefly explain how specific accounting information could be used by each above named stakeholder group to evaluate the performance of the selected business for purposes of decision-making. Be very specific, for example you could explain how and what specific information could be used by an investor in deciding on whether to invest in your selected company? iii. For three stakeholder groups mentioned in (i) above, discuss one limitation of using the accounting information you identified in (ii) for evaluating the performance or for decision-making related to the selected company. Be very specific. For example, for an investor, what is the limitation of using P/E ratios in assessing whether to invest in the selected company? Generic answers that focus on financial statements in general will be marked down. (b) Corporate Governance and Ethics i. Discuss the role and effect of corporate governance in publicly listed companies. ii. Analyse corporate governance issues and or practices (either good or bad) that have been identified and or recently reported in the business press about the company you have selected. iii. Based on your own independent research rather than the claims made by management in the company’s annual report, how do you rate the corporate governance practices in your selected company using the ASX principles of good corporate governance as a benchmark? (c) Analysis of operating profit (loss) before tax: i. How did your selected company’s operating profit/(loss) before tax (EBIT) compare with its forecast for 2014, and what factors explain any difference between the expected and actual results. ii. Analyse factors that explain significant changes in the operating profit before tax (EBIT) for your selected company from 2012 to 2014. Your analysis should include a review of factors related to (a) revenue and (b) expenses and may include issues both internal and external to the company. (d) Analysis of financial position: i. Analyse the statement of financial position of your selected company for 2014 and comment on whether the company has a weak or strong balance sheet. Provide strong justification for your views. ii. What are the most significant changes in the composition of the selected company’s assets and liabilities from 2012 to 2014, and what are the reasons that account for these changes? iii. Which specific (individual) assets and liabilities pose the most significant challenges and/or risks for your selected company and why? iv. How does the company propose to manage the risks identified in (iii)? (e) Funding analysis: i. Briefly analyse the advantages / disadvantages for a business for funding its operations from (a) operating profit, (b) debt and (c) equity. ii. Based on your answer above in (i), how do you assess the appropriateness of the current funding mix used by your selected company? (Hint – you need to review the cash flow statement) iii. Has this funding mix changed from 2012 to 2014 and if so explain how and why the mix has changed over that period? iv. Would you recommend any changes in the current funding mix in 2015 and subsequent years, and if so what specifically would you change in the mix and why? (f) Share price and market capitalization analysis: i. What is the current share price (cite your date of reference) and what was the share price on the last day of two of the years you are analysing? ii. What factors explain the changes in the share price from 2012 to 2014? iii. How does the market capitalisation compare with the book value of the company? iv. Why might there be a difference between book value and market capitalisation of this company? (g) Accounting information and corporate strategy: i. Identify any two issues that have been reported in the business media by market analysts as matters that could adversely affect your selected company’s ability to compete in its industry? ii. Discuss how the identified factors are likely to affect your firm’s short- term profitability and its ability to remain financially viable in the long term. iii. Explain whether these issues have been identified in the company’s annual report, and if so what the company is doing to address these issues. PART 2. Answer All Questions. (Answer all 6 questions in Part 2, each is worth 3 marks – 18 Marks in total) Select a company in the same industry as the company selected in Part 1. Obtain the financial statements from the selected company’s website Using ratio analysis and/ or trend analysis, compare the performance of both companies for 2012, 2013 and 2014 Your comparison should include an analysis of all of the following performance dimensions for 2014, as well as an analysis of changes that have occurred from 2012 to 2014. A) Operating profit (loss) EBIT B) Financial position C) Changes in composition of equity (Equity mix rather than Total equity). D) Cash flow E) Share price F) Market capitalisation Your analysis should identify the differences in performance between the two companies, and more importantly, what factors explain the identified differences over the three years from the year ended 30/06/12 to 30/06/14. As financial ratios and comparative analysis may not fully explain the results, it is recommended that students explore strategy and other non-financial factors that may explain the observed differences between the two companies. These “other” factors are likely to be identified from your reading of the annual reports (especially the notes to the financial statements), industry analyst’s commentary on the results, and general business publications. Assessment 1 Detailed Formatting and Presentation Instructions. The word count for this assignment is a minimum of 2500 words and an absolute maximum of 3000 words excluding tables, graphs and bibliography. All tables and graphs are to be included in Appendices at the back of your report, and referred to in relevant sections in your analysis. This will allow you to focus more clearly on the key issues and meet the strict word limit. Please note that referring the reader to tables and or graphs copied from another source will not give you any marks. You need to identify and analyse the key issues that each table or graph highlights. As a general rule, it is better to focus on few tables or graphs that are well explained and linked to the key issues rather than produce lots of tables/graphs that are not well explained. Use font 12, regular (not bold), 1.5 line spacing, 2.54cm margins Font type: Arial or Times. Although the assignment uses a report format, introduction or conclusions may be included but are not really required. Please answer each question separately, use clear headings and subheadings, and clearly label each question to facilitate linking your answers to specific requirements in the assignment. For example, if you are answering the first question on corporate governance, you could use the following: Part A: (b) i) Role of Corporate Governance in Publicly Listed Companies. Do not simply start writing about corporate governance in an essay format – as your answer to all the three sub questions i, ii, and iii will be marked separately. Vague answers that present a general discussion of financial performance or financial position that is not directly related to the issues in your selected business will be marked down. Students need to explain clearly the implications of any calculations done. For example simply calculating a financial ratio without explaining what the ratio says about how the business is performing will earn you very low marks.