Financial Performance Rational Analysis - Finance Assignment Help

Assignment Task :

Part A

Don't waste time looking for a good company. Just analyze what you choose. If you analyze correctly you don't lose mark. Choosing a firm of your choice proceed with a complete valuation and recommendation report in which you are expected to analyze the scope and performance of the business model of the firm. If you suggest its a good company and its correct based on analysis its ok. or if you say to your boss it is a crappy company, don't invest because... it also will be ok. Just show correct analysis. 

Based on the analysis, you are expected to conclude with your estimation of the fair value of the firm and the suggestion of whether the firm may be a profitable choice for investment or not. It can be a Ukrainian company or some International company, any company. The task is to do analysis and show if you understand corporate financial analysis. A complete report is expected to include at least the issues of: 

(a) A brief description of the company (i.e. activities, where it is operating, structure, corporate governance, etc.) Your boss knows nothing about this company. You need to introduce it. 2 pages 

(b) Financial performance rational analysis, view about the future, forecast a bit the trends (history analysis at least 3- 5 years). Summarize performance. It should be analyzed 1 ratio per category, profitability, utilization, leverage, market ratios, etc. If you want to use 2 ratios per category feel free. Compare the trend year by year, compare the trend by industry. You can find 5 years of the history, do copy and comment. Provide interpretation. The best analysis is to show if the trend goes on its better or worse for the company. If you find the source where the data in, make a link and comment it. In this case, you don't need to calculate everything. I don't care too much how you calculate the data, but I care how you interpret them. 

(c) Risk profile (i.e. sources of risk and action taken by the company to mitigate risks). What the company exposed to these types of risk? Find of answer what the main risk? What the company does to mitigate the risk? Customer risk. Provide critical view, volatile analysis of share prices of the company etc. The best answer to show the measures of company uses, what the company does to mitigate the risks and show point of view if company does mistake to mitigate the risk or doing right. Hedging, derivative etc. The second part of the risk if the company listed the stock market we can also calculate the market measures of risks, put in your analysis what a market sees about the company. 

(d) Optimality of capital structure choices (i.e. optimum debt/equity ratio). You can calculate the leverage WACC for the company or took from the report. You can get an assumption about what happens if WACC goes up by 1% or do down by 1% to describe what happens if WACC changes. Theoretically, the optimum capital structure if company minimize this WACC. What does it mean? We can calculate the WACC of the firm using the info we found on the internet and from the company statement and then run a couple of scenarios what happens if we increase the debt of the company or decrease it? How is my WACC can be affected? 

(e) Dividend policy. Monitor if your company pay dividend. What % of your profit paid as a dividend. If you agree with your dividend policy. Try to find inconsistency, provide critical view if the company provides the right policy. (borrow money from the Bank to growth or...) 

(f) Prospects and fair valuation of the firm using a valuation model (i.e. a dividend or a cash flow discount model). fly to come up with a fair firm value, how much money you should pay to buy the firm etc. You can compare your price per share with the price per share on the market. What will be your suggestion? 

Part B 

Assume that Tires Inc., a fictional subsidiary of the aforementioned firm, is considering proceeding with a new investment. That is to produce and market a new type of tire called SuperTyre. 

As a financial analyst, you have been asked by your CFO to evaluate the SuperTyre project and provide a recommendation on whether to go ahead with the investment. Except for the initial investment that will occur immediately (at year 0), assume all cash flows will occur at year-end. 

Tires Inc. must initially invest € 300 million in production equipment to make the SuperTyre. This equipment would be sold for €50 million at the end of four years. Tires Inc. intends to sell the SuperTyre to two distinct markets: 

1. The original equipment manufacturer (OEM) market: The OEM market consists primarily of the large automobile companies (like General Motors) that buy tires for new cars. In the OEM market, the SuperTyre is expected to sell for €35 per tire. The variable cost to produce each tire is €15. 

2. The replacement market: The replacement market consists of all tires purchased after the automobile has left the factory. This market allows higher margins; Tires Inc. expects to sell the SuperTyre for €40 per tire there. Variable costs are the same as in the OEM market. 

Tires Inc. intends to raise prices at 4% per year; variable costs will also increase at 4% per year. In addition, the SuperTyre project will incur €30 million in marketing and general administration costs the first year. This cost is expected to increase at 3% in the subsequent years. Tires Inc.'s corporate tax rate is 40%. The company uses a 12% discount rate to evaluate new product decisions. 

Automotive industry analysts expect automobile manufacturers to produce 6 million new cars this year and production to grow at 1.5% per year thereafter. Each new car needs four tires (the spare tires are undersized and are in a different category). Tires Inc. expects the SuperTyre to capture 25% of the OEM market. Industry analysts estimate that the replacement tire markets will be 10 million tires this year and that it will grow at 2% annually. Tires Inc. expects the SuperTyre to capture a 15% market share. The appropriate depreciation schedule for the equipment is a straight line and the investment will be fully depreciated during the four years period. You are required to estimate the payback period, NPV and IRR on this project and decide whether to make the investment or not. 

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