GROUP PROJECT
Financial Analysis
The recent and ongoing global financial and economic crisis has highlighted the importance of effective and informed financial analysis for investors, management and other market participants. The short-term performance and long-term viability of a business entity could often be measured by the use of ratios. To ensure the quality of derived information for decision making purpose, ratios need to be carefully selected. The choice of ratios is by and large determined by the objective and perspective of the user of the information. Required: Obtain the full financial statements of a listed (non-banking or financial sector) company for 2015 and 2016, and carry out detailed and critical evaluation of its financial performance and position. Your analysis should be aimed at providing useful information to the management of the company and a potential investor.
Hints: a. Analysis on a listed (non-banking or financial sector) company is preferred. You may discuss with me if you would like to carry out your analysis on an unlisted company. b. It is advisable to choose a company that you are familiar with its operations, as this knowledge may be useful in your discussion of the results of the analysis. c. Marks will be awarded for your own personal opinions and, in particular, recommendations. It is important that you provide academic support for your critical evaluation and recommendation, as marks will be awarded for this.
Additional Information: This project involves an in-depth trend analysis of the results of a publicly traded company. The project should be done as a team, and depending on the class size, the professor will determine the size and the composition of each team.
Your professor will agree your choice of a listed UAE company with each group. Your group must obtain necessary copies of that company’s latest and one previous year’s Annual Reports.
The project would have two parts covering the following areas: (a) understanding of the company and the business and economic environment in which it operates; and(b) the analysis of financial statements.
Based on experience, the following procedures will help you maximize your performance in the project: Each group member should independently work on the assignments required and generate a progress report before meeting with other members of the group. The group meetings should review all of the individual work, investigate and resolve disagreements, and work together to prepare written reports After the draft of each report is completed, each person in the group should review the draft to ensure that the writing is concise and clear, and that the spelling and grammar are appropriate, before turning in the final draft to the Professor.
This project is also intended to help develop your communication skills, including the ability to communicate clearly and concisely. Your final report must be typewritten (word-processed) and double-spaced. To ensure consistency, you must use a 12point font and a 1″ margin throughout (left, right, top and bottom). In addition to the report, each group is required to make a presentation in class, using appropriate tools such as PowerPoint slides. The quality of the project will be judged on the basis of a collective, not on individual, efforts. Experiencing the challenges and the rewards of working as a group in a business setting is an integral part of the learning process in this course.
Part 1: Understanding the Company
The following specific issues could be addressed in this part:
1. Identify the stock exchange(s) where your company stock trades.
2. Read the auditor’s report included in the annual report of the company and point out qualified statement, if any.
3. Briefly explain the major operations of your company. What products does it sell and/or services does it render? Identify the major competitors of the company.
4. Identify two recent events of significance (e.g., share price movement, layoffs, reorganizations, etc.) that have affected the company. [Hint: You can obtain this information using the company’s website. Alternatively, you may use other financial news services available in print or on the internet, such as AME Info, Yahoo Finance, Fortune, Forbes, Gulf News, Khaleej Times, and the Wall Street Journal]. Note: You need not include a copy of the Press Releases or the articles with your report.
5. Is the demand for the products and services provided by this industry increasing, decreasing, or staying stable? Briefly explain the factors that are influencing the demand for products and services in this industry.
6. Identify and briefly explain significant events (technological breakthroughs, regulatory changes) that may have affected the industry recently.
Part 2: Financial Statements Analysis and Understanding the Financial Statements
The objective of this part is for you to use the tools of financial statements analysis and, based on the results and understanding of other information contained in the annual report, formulate an opinion of the following aspects of the company:
1. Liquidity.
2. Activity.
3. Profitability.
4. Solvency (leverage).
For this part, the following ratios may be useful:
a. Net Profit Margin
b. Turnover Ratio
c. Return on Investment (ROI)
d. Return on Assets (ROA)
e. Earnings per Share (EPS)
f. Price/Earnings Ratio (P/E Ratio)
g. Current Ratio
h. Quick Ratio or ‘Acid-Test’
i. Inventory Turnover Ratio
j. Receivables Turnover Ratio
k. Debt Ratio
l. Debt/Equity Ratio
m. Times Interest Earned Ratio
Based on the results obtained from the ratio analysis and application of other tools as required (e.g., trend analysis), prepare a well-written, concise report that cover those issues that you consider to be important from the management of the company’s and a potential investor’s perspective
