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Financial Ratio Anaysis

HARVARD REFERENCING

Ensure sourced information from books, websites, publications, interviews, and others include IN TEXT CITATIONS within the body of the report.

Ensure that corresponding references of the in-text citations are stated at the end of the report as the REFERENCE LIST in alphabetical order

Assignment Structure:

Standard Cover Page

  • Table of Contents/Tables & Figures/Abbreviations
  • 1.0   Introduction
  • 2.0 Background of the selected company
  • 3.0 Company’s market position in the industry
  • 4.0 Analysis of financial performance of the companies
  • 5.0 Identification of strategic and operational issues and

Recommendations: 

7.0 Limitation of analysis

  • References
  • Appendix

Marking Criteria:

 

  • Research-informed literature (10%):

 

Sourcing quality information and inserting your references for defining key terms/concepts/models. Number of credible literature, Range of sources, In-text referencing and Harvard referencing

  • Knowledge & Understanding of Subject (10%) 300 words:

 

  1. a) Background of the selected company
  2. b) Relative market position Analysis (50%) 2100 words a) Background to ratio analysis

b)Profitability analysis c)Liquidity analysis d)Efficiency analysis e)Solvency analysis f)Investors analysis

 

  • Practical Application & Deployment (20%) 600 words:

 

  1. A) Identification of strategic and operational issues
  2. B) Recommendation c) Limitations

 

  • Skills for Professional Practice (10%):

Structure of writing, flow in the analysis, creativity in presentation, grammar, spelling, spacing and alignment.

 

 

 

    Introduction

 

  • Purpose of writing
  • Scope of analysis
  • Objective

 

2.0 Background of the selected company (200 Words)

 

–    Nature of core business

–    Markets and products – Diversified?

–    Future outlook of the industry

–    Key challenges

 

 

Relative Position in the industry (100 words)

 

  • The market capitalization of the selected company and main competitors ( including company chosen for comparison)
  • Market share
  • Contribution to GDP
  • Number of employees
  • Analysis of financial performance of the companies ( 2100 words)
  • Background to ratio analysis
  • The rationale for selecting the company for comparison
  • Profitability analysis
  • Background
  • Table of profitability ratios (ROCE, GPM, NPM, AT)
  • Line graph
  • Interpretation – comparison of trends, possible reasons (refer to director’s report) and justify with reference to external environment challenges. Your insight on which company is performing better in terms of profitability, i.e., revenue, costs and expenses and usage of assets. Liquidity analysis
  • Background
  • Table of liquidity ratios ( current and quick)
  • Line graph
  • Interpretation – comparison of trends, possible reasons. Your insight on which company is performing better concerning liquidity. Any indication of liquidity problems or overcapitalization?

 

What is the industry norm?

  •  Efficiency analysis
  •  Background
  •  Table of efficiency ratios (inventory days, receivables days and payable days)
  •   Line graph

Interpretation – comparison of trends, possible reasons. Your insight on which company is performing better concerning managing inventory, receivables, and payables? What is the industry norm?

 

Solvency analysis

Background

Table of solvency ratios (gearing, debt to equity, interest cover)

Line graph

Interpretation – comparison of trends, possible reasons (refer to director’s report). Your insight on which company is performing better concerning financial risk management. Refer to the type of debt finance used.

Investor’s analysis

Background

Table of investor’s ratios (EPS, ROE, DPS, DY, PE)

 

 

Line graph

Interpretation – comparison of trends,

Possible reasons (refer to director’s report). Your insight on which company is performing better in terms of market performance.

 

 

Identification of strategic and operational

Issues and recommendations (500 words)

Analysis of revenue/sales growth (computer and draw chart) – is there cause for concern – no increase? Decline?

  • A steady pattern of no growth or decline could be a strategic issue. Individual insight into possible reasons ( refer to products/market strategy and external environment challenges)
  • one-off decline could be due to the operational problem ( marketing tactics, operational mishaps)

 

 

Problems in identifying real strategic issues

–    Limited information available?

–    Industry outlook analysis – reliable?

–    SWOT analysis – reliable?

–    Assumption and recommendation

–    Perform gap analysis and devise appropriate strategies (new product development, new market development, and divestment

 

Analysis of gearing (financing strategy) – is there a cause for concern – increase in gearing level?

A steady rise in gearing level or exceeding 50% could be a strategic issue.

–    Problems in identifying financial distress situation

–    Limited information available? E.g., debt covenants

–    Assumptions and recommendation

–    To issue shares

–    To revise dividend policy

 

Analysis of expenses – is there a cause for concern – increase in costs? (Compute and draw chart)

* A steady rise in a particular expenditure could be an operation issue

Problems in identifying reasons for the rising in prices

–    Limited information available?

–    blame game?

–    Assumptions and recommendations

–    relook at marketing expenses

–    control utility expenses

 

Analysis of efficiency – is there a cause of concern about inventory, receivables and payables management?

* A steady slow inventory turnover, slow receivables collection could be an operational issue

Problems in identifying reasons for inefficient management

Limited information available?

Assumptions and recommendation

Improving purchasing system

Upgrade collection period (discounts, etc.)

 

Analysis of share price movements (chart company share price and stock market index) – is there a cause for concern?

* A steady decline is a strategic issue

Problems in identifying reasons for the decline in share price

–    Influence of numerous factors

–    Factors not within company’s control

–    Assumptions and recommendations

–    identify needs of stakeholders

–    is there a strategic drift?

 

Limitations analysis (100 words)

Limitations of ratio analysis

 

Recommendation

 

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