Order Description
Analyze the last two years performance of the selected company and present your findings in the form of a report, which will introduce the company to start with and cover financial performance analysis in a logical cohesive format. Your report should include the following analysis using ratios:
• Comment on the liquidity of the company using Current Ratio and Quick Ratio. What can they say about the liquidity of the company?
• Calculate the firm’s net profit margin, Return on Assets (ROA) and Return on Equity (ROE) and comment on the profitability. Which components of your company’s ROE are superior, and which are inferior (use DuPont analysis)?
• In addition, you are told that your selected company has requested a loan. On the basis of the Capital Structure ratios for the chosen company along with the industry averages and company’s recent financial statements, evaluate and recommend appropriate action on the loan request.
• Comment on any long term and short-term sources of finance that your example company has used in last two years. Was there any change?
Calculate, analyse and interpret the 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 to its industry peer? Your analysis should highlight the important changes within these ratios over this period and identify the reasons if any for significant changes. Discuss limitations of this analysis.
B. Suppose the chosen company and its competitor decided to expand their operations by issuing bonds. You are required to value bonds issued by two companies selected in part A) above. Both bonds mature in five years and both have a face value of $100 and both pay a coupon rate of 8%. Assume your selected company’s bond (rated as A+ by rating agencies) pays annual coupons while its competitor (rated as B+ by rating agencies) pays semi-annual coupons.
The yield to maturity (required return) on Australian corporate bonds of different ratings and different maturity periods provided in the following table:
Should these two bonds sell at identical prices or would one be worth more than the other? What prices do you obtain for these bonds? Explain the difference in the value of the bonds.
What are the three main international bond-rating agencies? Why might companies try to maintain a given target rating on their outstanding debt?
Place the ratio calculations in an appropriate appendix so that the body of the report only states the result of the calculation and not the process of calculating it. Please remember to submit a copy of the Annual Reports with your assignment and include a hyperlink to the annual reports within the reference list in your assignment.
