MG5556 - Financial Analysis and Valuation of Companies - Brunel University London

Assignment Task

Objective

The main objective of this assignment is to test the students` ability to analyze and interpret the financial statements of companies. Furthermore, the assignment examines the students` understanding of capital budgeting decisions and share valuation.

Description

This assignment is divided into three parts.

1. The first part requires a report on a company listed on the London Stock Exchange (LSE) from a specified sector, analyzing its financials over the past FIVE years (detailed below under part one).

2. The second part involves a discussion on capital budgeting decisions made by businesses (detailed below under part two).

3. The third part focuses on the methods used to value company shares (detailed below under part three).

Part One: Financial Analysis

As an analyst at a consultancy firm, you are to evaluate and analyze the financial ratios of a company over a FIVE-year period. Choose a company from the specified sector (see details below). Utilize industry/competitor data and various sources to support your analysis. Recommend to a prospective investor whether investing in this company is a good decision. Your report should include the following ratios:

• Profitability Ratios (gross profit margin, operating profit margin, net profit margin)
• Financing Management Ratios (debt to equity, interest cover, liquidity ratios)
• Efficiency Ratios (inventory turnover, trade receivable turnover, trade payable turnover)
• Overall Profitability (ROA, ROE, EPS)
• Shareholders’ Investment Ratios (dividend cover, dividend yield, P/E ratio)

Select a company from the FTSE 350 in one of the following sectors:

(a) Electricity, gas, steam, and air conditioning supply (see section D on SIC code for more information) (b) Transportation and storage (see section H on SIC code for more information) (c) Accommodation and food service activities (see section I on SIC code for more information)

Part Two: Capital Budgeting

Block et al. state in their book:

"The net present value and internal rate of return are generally the preferred methods of capital budgeting analysis’’ (p. 380).

Discuss this statement with examples and references to academic literature.

Part Three: Valuation of Shares

Discuss the primary methods used to value company shares, providing relevant examples.