Background Financial managers are vital to the survival of any corporation. They generally have input on decisions that directly impact the performance and value of businesses. These decisions are, invariably, related to which projects to pursue (capital budgeting), how to raise funds (capital structure), and how to safeguard the business’ daily operations (working capital management). In this context, knowing how to interpret financial statements has the same importance to a manager as the ability to understand medical results has to a physician. One of the most important tools in this regard is the financial ratio analysis, whereby information is combined in a way that portrays the status of the company in terms of important aspects (e.g., liquidity, profitability, efficiency etc.). The purpose of this assignment is to provide you with the opportunity to retrieve the real-time financial data from websites of available databases and analyse the financial health of the selected companies using Financial ratio analysis, Trend analysis, DuPont Analysis and peer comparative analysis. Task The report will focus on how a company performs as compared to its competitors in the industry. The company’s weak and/or strong areas of performance must be identified and recommendations for improvement should be presented. To get a good grasp of financial ratio analysis, this assignment asks you to identify a listed company AND its major competitor firm whose financial ratios are either readily available (i.e., through Marketline) or, else, can be calculated through its financial statements (the annual reports are often available in company websites). Obtain (or calculate if not available) the following financial ratios for the selected company from the most recent 5 years: 1. Liquidity Ratio – Current ratio 2. Capital structure ratio – Debt ratio 3. Efficiency ratio – Total asset turnover ratio 4. Profitability ratio – Net profit margin Then, upon collecting observations, conduct the following analyses: 1. Peer-firm comparison & Trend analysis: Based on the five-year data, compare, and elaborate on how the company AND the competitor were performing in terms of their liquidity, capital structure, efficiency, and profitability ratios. Discuss the potential reasons (firm-specific, industry-specific, or macroeconomic reasons) behind their difference as well as any explanation for the recent trends. Then provide suggestions for improvement where possible. 2. DuPont method: Return on equity (ROE) is a good indicator of a firm’s overall performance. How the ROE changed over the past five years for your chosen company and the competitor? Decompose ROEs into profitability, efficiency, and leverage for the five-year period. Which element had the most influence on the ROE? Why? Provide relevant suggestions for improvement. 3. Market ratios: Calculate or retrieve the current Price-earnings ratio (P/E) of your selected company and the competitor from Yahoo!Finance. Compare and interpret their P/E ratios in light of your findings above, what do you find? If the P/E ratio of the firm is not available, why is it the case? 4. Conclude & discuss the limitations of the above analysis. What are the current strengths/weaknesses of your chosen company if compared with the competitor? Why? Highlight any areas (and appropriate suggestions) for improvement for your chosen company. Note: It is highly recommended that you use Microsoft Excel to create the tables and charts for ease of calculation and better presentation. If you are new to Excel, these LinkedIn videos should help you obtain some useful skills for the purpose of this assessment. A few hints on calculations, data retrieval, and report structure are available in the linked FMGT first assessment hints spreadsheet. A more detailed video explanation will be released in the announcement two weeks before the due date. Format • The answers to the above questions should be presented in a report format following AIB Style Guide (i.e., cover page including your name and a student id, title and word count of the report, executive summary, body, list of references, and appendix). Please use the AIB Report Template document to format your report, or use the AIB-preferred Microsoft Word settings (see page 34 of the AIB Style Guide). • Please refer to linked FMGT Assessment Exemplar about how to structure your presentation and arguments in this assessment. In each section of your report, please define the financial concepts and/or critical theories before calculations/analyses. Requirements • The required word length for this report is 2,000 words (plus 10% tolerance, excluding tables and reference list). Please focus on interpreting the results, addressing implications, and providing suggestions/recommendations where possible. • To support your arguments, you are required to use at least five (5) references for this report (in addition to the references for your data sources). These can include sources such as academic journal articles, books, industry-related journals, magazines, and company documents. • For the appropriate author-date style referencing (which includes in-text citations and a reference list), check the AIB style guide. Academic writing To provide you with additional support for your academic writing, AIB has partnered with Studiosity, a specialist tutoring service. It is not a proof-reading service. After submitting assessments to Studiosity, you will receive guidelines (not corrections) and suggestions on the actions you need to take to develop your writing. For more information on Studiosity refer to the Assessment guidelines. We have provided a PDF Formula Sheet of all relevant formulas from the textbook. Grading criteria Your assessment will be marked according to the following grading criteria: • Criterion 1: Understanding of principles, concepts, and theoretical framework in financial ratio analysis, DuPont analysis, and market ratios – 30% • Criterion 2: Description and comparison of the financial results and trends of the selected company and its competitor – 20% • Criterion 3: Analysis, evaluation, and synthesis of the financial results – 40% • Criterion 4: Communication, presentation, structure, and language – 5% • Criterion 5: In-text citations and referencing – 5%
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