AC7073- Advanced Financial Management, Individual Coursework

Instructions to candidates:

The coursework represents 70% of the overall mark for this module. The coursework consists in writing 1,500-word report (maximum of 1,700 words), answering the following questions.

Question 1 (70%) 

(a) Use ratio analysis technique to evaluate the financial performance of a selected organization. Identify one closest competitor and draws a comparative evaluation. You need to access the annual financial statements of the last three years and use graphs and tables to present your analysis (approx.1,300-1,400 words). [Reserve detailed discussions on cash flows for question 2]

-> Students will select their own organisation and one competitor. It would be good to see a presentation of these companies and the criteria used to select the competitor.
->  A comprehensive ratio analysis should cover 5 areas: liquidity ratios, profitability ratios, leverage ratios, working capital ratios, and valuation ratios to evaluate the overall financial performance. It can happen that not all ratios can be calculated, and the report should explain this.

-> Use the Dupont identity for part (b).

(b) The Dupont formula defines the net return on shareholders’ equity as a function of the following components:

•  Operating margin
• Asset turnover
• Interest burden
•  Financial leverage
• Tax burden
• Using your selected/calculated ratios of the five components listed above, calculate the return on equity (ROE) for the three-year period using all the five components for both firms.
•  Briefly discuss the impact of the changes in asset turnover and financial leverage on the change in ROE for the three-year period for both firms.
•  The use of tables and graphs to present the analysis is recommended.
•  It is not required to report the calculations done, but it is a good point if it is reported (for example as Appendix or table or another way).

Question 2 (20%) –

For the two selected organizations/firms, and as part of your discussions, answer the following questions about the firms’ cash flows activities (approx. 200-300 words, including the “overall conclusion”).

-> Did the firms have positive or negative cash flows from operations?
-> Did the firms invest in or sell off long-term investments?
-> What were the major sources of financing for the firm?
-> What were the net change in cash?
-> Also, include in your discussions, how liquid are the firms and how well are the firms’ using their assets and how effectively are they using their leverage?