Part A: Ratio analysis and securities valuation
Financial literacy helps you to become a better manager. Understanding the financial side of the business will make you more effective on the job and will make your work life more meaningful. Issuing bonds (debt) and/or issuing stocks (shares), enables the corporation to manage the money it needs to finance long-term assets of the business. Therefore, being able to evaluate financial performance of the firm and value financial securities are important skill to have as a manager.
Choose a public listed non-financial company that you would like to analyse and obtain its latest financial statements from the IBISWorld database (available via the library link in the student portal). Now select another company from the same industry and obtain its financial data from the same database. Perform a complete ratio analysis on each company. Break your analysis into an evaluation of the firm’s liquidity, profitability, capital structure and market ratios.
Choose following ratio from each category for analysis.
• Liquidity – Current ratio
• Profitability – Return on Equity ratio
• Capital Structure Ratio – Debt (Gearing) ratio
• Market Ratio – Price-Earnings ratio
(Please note that calculations of ratios are not required as ratios are available on IBISWorld.)
Your task in this assignment is to analyse and interpret the selected ratios and the other data with reference to the theoretical concepts introduced in this subject to evaluate the company’s operations and performance. How well does your selected company compare with its industry peer? Which component of your company’s ROE is superior, and which are inferior?
Suppose your selected company just paid a dividend of $2.20 per share. The dividends are expected to grow at a constant rate of 4% per year, indefinitely. If investors require an annual return of 11%, how much will they pay for the company’s shares today? Find out the actual closing price of your selected company’s share on the balance sheet date. Why actual share price is different from the calculated share price? Explain.
Part B: Reflective practice
This assignment is designed to assess the student’s ability to demonstrate knowledge of one or more of the main principles of the Financial Management subject. The capacity to reflect is an important element of professional life. It enhances the capacity to evaluate current knowledge and to understand and accept personal weaknesses and strengths. This assignment will allow you to develop critical reflection skills and recognise its value in professional life.
Description of the assignment
In the beginning of this subject, some of you might be thinking ‘Why do I need to study finance? I am not working in the finance department’.
An understanding of finance is very important for a manager in carrying out their responsibilities effectively. In your current role as a manager, it is likely that you are often involved in setting targets and/or the preparation of budgets for your department.
Your task is to identify any one concept of finance which you have used in your current position as manager in your organisation recently. Provide a practical example to demonstrate the use of the concept. What challenges you faced in dealing with the situation and how you handled the situation. What have you learnt from this experience?
For further details please refer to the resources and support on a guide to reflective practice.
Important Written Assessment Instructions
The required word length for Part A is 1500 (plus or minus 10%) and 500 words (plus or minus 10%) for Part B.
• Part A will be marked according to the criteria outlined in the assessment grading criteria (see Appendix 1) and for Part B please refer to the resources and support on a guide to reflective practice and Appendix 2.
• In terms of structure, presentation and style you are normally required to use:
o AIB standard report format
o AIB preferred Microsoft Word settings
o author-date style referencing (which includes in-text citations plus a reference list).
These requirements are detailed in the AIB Style Guide.
• 4–6 credible academic references are required for Part A and 1–2 credible academic references are required for Part B.
• All references must be from credible sources such as books, industry related journals, magazines, company documents and recent academic articles.
• Your grade will be adversely affected if your assignment contains no/poor citations and/or reference list and if your assignment word length is beyond the allowed tolerance level (see Assessment Policy available on AIB website).
• Useful resources when working on your assignments include:
o AIB Assignment Guide
o AIB Style Guide
o AIB Online Library.
• All assignments must be submitted via the learning portal.
• This assessment is an individual assessment (ie this is not a group assessment). Please ensure you avoid collusion and other practices which compromise individual assessment work. (Refer to the Academic Integrity Policy available on AIB website)
Written Assessment Submission
• All assessments must be submitted via the student learning portal.
• No penalty will be applied to assessment items that fall below the word count range; students should note that such submissions are unlikely to enable demonstration of pass grade performance. A penalty of 25% off the assessed mark will be applied to assessment items above the word count range (AIB’s Assessment Policy and Procedures 1.3).
• For late submission where no extension has been granted, a penalty of 10% of the allocated total mark per day will be applied. The submission portal closes 72 hours after the submission due date, and no submissions will be accepted for marking or feedback after this time (AIB’s Assessment Policy and Procedures 1.7).