Financial Analysis

On the basis of official company sources and external literature, evaluate and report on the most recent annual report of a company (a non-financial ASX listed company of your choice), as if you were security analysts making a recommendation on whether or not your clients should invest in it.

Your report should include the following:

1. Business and Strategic Analysis
Your report should include:
• an analysis of the economy (macroeconomic factors), the industry (e.g. Porter’s five forces), and the company’s place in the industry;
• the company’s competitive and corporate strategy;
• the company’s and the industry’s growth potential;
• and the implications of all of these for future profitability of the industry and your company

Excel: n/a

2. Accounting Analysis
Your report should include:
• analysis of key accounting elements in the financial statements that are likely to be affected as a result of industry (3 items) and your company’s business strategy (one way of doing this would be a comparison with a competitor)
• 3 areas of possible accounting distortions

• import financial statements for your company and the competitor
• recast financial statements for your company and competitor. Since you have only two companies, it is easier to recast financial reports between them, rather than recast both reports to the universal format.

3. Financial Analysis
Your report should include:
• Cross-sectional analysis: analysis of ratios for operating management, investment management, and financial leverage ratios for the company and the competitor (not from the list of companies below). You will need to justify your choice of ratios for your company based on your analysis of key accounting elements identified in section 2.
• Time series analysis of the same ratios for both companies over the past three years

Note that this task is not intended as a mere exercise in ratio calculation. Your analysis should attempt to explain and interpret significant trends or changes that you uncover through your calculations. The emphasis of your analysis should not be on fluctuations in ratios (just presentation of figures is not enough), but on identification of trends/patterns and linking them to macroeconomic factors, industry and business strategy

• This section should conclude with an analysis of the company’s overall financial position.

• Cross-sectional analysis: 4 ratios per each area (operating management, investment management, and financial leverage)
• a time series analysis of these for both companies over the past three years,

4. Prospective Analysis
Your report should include:
• Discussion of major items in your forecast and their justification (effect of macroeconomic factors, industry factors, business strategy)
• Analysis of your forecast
• Analysis of your valuation and comparison of the results of two valuation methods


• forecasts for all financial statements (excluding the cash flow statement) for the company for one financial year (the next year for which the company has not published an annual report),
• and valuation of the company using the market multiple approach and the present value method.

Your statements should, where possible, incorporate the latest information about the company, its industry, and general economic conditions and should not be the result of naïve extrapolation of past trends.

5. Recommendation for the clients, drawing on the whole analysis of the company/company reporting.
Your report should include:
• Analysis of the comparison of the “ideal” share price and actual share price
• Recommendation for your clients as to sell/buy decision

“ideal” share price and actual share price


Woolworths Ltd WOW Food & Staples Retailing
Iress Limited IRE Software & Services
iiNET Limited IIN Telecommunication Services
Fairfax Media Ltd FXJ Media Ltd CRZ Software & Services
Billabong Intl Ltd BBG Consumer Durables & Apparel
David Jones Ltd DJS Retailing
BHP Billiton Ltd BHP Materials
Breville Group Ltd BRG Retailing
Crown Limited CWN Consumer Services
Ten Network Hldgs TEN Media Holdings WTF Retailing
Sonic Healthcare Ltd SHL Health Care Equipment & Services
Origin Energy Ltd ORG Energy

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