MN50440 - Financial Statement Analysis and Company Valuation Assignment

Assignment Task

You have been approached by a brokerage house and you have been asked to prepare an investment research report on a non-financial company listed in the UK. You will need to obtain annual reports of your chosen company (you should analyze the reports corresponding to at least four accounting periods).

The report should contain between words, excluding appendices, tables, graphs and references.

The report should be original. However, to support your arguments, you are allowed to quote reports on your company prepared by professional analysts or other parties.

The unit outline indicates potentially helpful resources (websites and databases). More suggestions on each of the steps of the analysis will be provided during the lectures.

The completed essay must be submitted via the Assignment Tool on Moodle in Word format by.

Required

The report on your chosen company should include:

a) Business strategy analysis. Perform industry analysis (using Porter’s five forces model), competitive strategy analysis and, if relevant, corporate strategy analysis.

b) Accounting analysis. Identify principal accounting policies; assess accounting flexibility; evaluate accounting strategy; evaluate the quality of disclosure. You are not required to: identify red flags; standardise the financial statements or undo accounting distortions.

c) Financial analysis. Evaluate overall profitability. Evaluate operating management, investment management, financing strategy and dividend policy. To appropriately interpret the ratios you should compare them to those of the industry or of selected peers. You are not required to perform cash flow analysis.

d) Prospective analysis:

i. Forecasting. Use reasonable simplifying assumptions on the value driver of the model used. It is advisable to consider different scenarios.

ii. Valuation. Use the following two models: Discounted Cash Flow Model and the Abnormal Earnings Model. In addition, comment on the multiples. What is your buy/hold/sell recommendation? You should disclose your assumptions and workings.

Questions

1. Does the word count include tables?

2. What should we write in the executive summary and in the company background?

3. Should we closely follow the approach in the document ‘Example of well-executed assignment’?

4. Should we report the financial statements in the appendix?

5. Where can we find a copy of the financial statements in Excel format?

6. How to find the industry average of the ratios?

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