Introduction to Financial Statement Analysis (FNCE 2003 ) Case Study
The purpose of this assignment is to check on understanding of the concepts covered in the Introduction to Financial Statement Analysis (FNCE2003) unit. Please submit this assignment as group assignment. Check the unit outline for detailed instructions. This assignment represents 25% of the overall mark for this unit. Students should attempt all the questions. A hard-copy of your work should be submitted and an electronic copy should also be submitted via turnitin by the due date (check unit outline). In answering the questions, students must show the detailed calculations/justifications. I would also remind you of your obligations under the University rules on academic integrity; if you are unsure of your responsibilities then please check the relevant section of the Curtin website: http://academicintegrity.curtin.edu.au/
PART A: General Questions
As a part of credit analysis, you want to evaluate the financial statement of BGD Corporation Limited and Woolworths Limited for the year 2015. Before starting financial statement analysis, you need to go through the audit report of the companies. Based on your own reading and analysis of audit opinion, is it worthwhile to evaluate financial statements of the above companies? Justify your opinion. [2+2 = 4 marks] [Check Blackboard assessment folder for a copy of the annual reports].
Assume that Beta Inc. entered into an agreement to build a ship for $1,000 million and a reliable estimate of the projects total cost is $800 million. Project costs incurred by beta Inc. are as follows:
Year 2014 2015 2016 Total Cost incurred $400 million $300 million $100 million $800 million
Determine Betas net income from this project for each year using percentage-of- completion and completed contract methods. Also, show the yearly revenues and expenses. [3+2 = 5 marks]
Question 3 Following is the consolidated results as presented in the annual report of BHP Billiton (link: http://www.aspecthuntley.com.au.dbgw.lis.curtin.edu.au/asxdata/20160921/pdf/ .pdf).
(i) What is your assessment about the performance of the company over the years?
[1 mark] (ii) What more information you need to draw reasonable conclusion about the performance of the firm? [2 marks]
Question 4 Discuss how you might expect the financial statements reported by a high tech company to differ from that reported by a financial firm. You should make sure to carefully consider differences in assets and liabilities. [3 marks]
PART B: Company-specific Questions
The part of the project requires you to conduct financial statement analysis of a publicly listed company.
Your tutor will assign one of the following companies for your group. Please contact your
tutor (if you and your group members missed the tutorial).
Wesfarmers Limited (Stock Code: WES) Woolworths (Stock Code: WOW)
An important element of this project is the requirement of identifying and obtaining relevant, publicly available information. Therefore, you should ensure that you are able to access sufficient information for your selected company. I have uploaded the relevant annual reports (for the year 2017) in the Blackboard for your convenience.
- What is the name of the company that you/your group members were assigned to complete this project? What is the industry in which your company belongs to? What are
the three major assets and liabilities of this company? [0+1+1+1 = 3 Marks]
What is the view of the management of the company about the future outlook and performance of the company? [3 Marks]
Analyse your companys investing and financing activities for the most recent year as
identified in the statement of cash flows, specifically identifying the two largest investing
activities and the two largest financing activities. Evaluate the cash flow from operating
activities of the firm (specifically analyse whether the company is performing better over
the years, discuss whether cash flow from operating activities appears to be satisfactory
given the current business environment and firms stage in life cycle).
- Identify two (2) pieces of information not included in the principal financial statements that you think would be important to someone considering whether to invest in your
company. Discuss your reasons for believing that this information would be important in
making an investment decision. [2+2=4 Marks]
Assume that, as a credit analyst, you are evaluating the company. Use the appropriate ratios for the most recent year from the annual report and evaluate whether one should provide loan to this company. [4+2=6 Marks]
Assume that you want to buy stock of this company. Use the appropriate efficiency and profitability ratios for the last financial year from the annual report and use these data to decide whether to invest in this company. [3+3+2 = 8 Marks]
- Assume that you are also considering to invest in the stock of BHP Billiton. You have
limited fund to invest and therefore, you can invest in either of the company (BHP Billiton
or your allocated company). Compare your companys financial statements, and
performance, with those of the BHP Billiton. If you were making a decision to invest in
one of the two companies, which company would you choose? Discuss. [In evaluating and
comparing the companies, use appropriate ratios and other analysis. Provide clear
justification as to why you believe your approach to evaluation is appropriate for
investment decision purpose]. [ 6 marks]
Learning outcomes associated with assignment
Completion of this report will bring together the key concepts covered in this unit, and assess the following unit learning outcomes:
- Describe and apply the basic techniques of financial statement analysis.
- Identify and utilise value-relevant information from the financial statements.
- Apply established requirements for analysing financial statement information for forecasting, valuation and risk analysis purposes.