ASSIGNMENT ON FINANCIAL STATEMENT ANALYSIS
You have $50,000 and are looking for investment opportunities. You think there are stocks in the Australian Stock Exchange that are undervalued because of the recent spate of bad news from the US, Europe and the local economy. You are to identify 2 possible good investment opportunities from the list of ASX listed stocks from different sectors within the ASX listing. Your investment is to be of a medium-term nature (more than 12 months) and you prefer to invest in companies with strong financial fundamentals.
You need to (1) select 2 listed companies for potential investment; (2) analyse the companies using financial ratio analysis that you have learned from this course and (3) provide evidences justifying your recommendation. You have to collect comparative financial statements and use them to undertake a detailed financial analysis to help you decide if the companies are good investment opportunities.
Based on your analysis of the chosen companies, your final recommendation may be to BUY the stock or DEFER your decision.
Students with problems understanding the assignment should seek help from the Lecturer as soon as possible. You are advised to start preparation as soon as you have received the assignment question. The following companies from the 7 main sectors within the ASX listing are to be used for your assignment:
Company Name ASX Code
Sims Metal Management SGM
Macquarie Atlas Roads International MQA
Qantas Airways QAN
BHP Billiton BHP
Jupiter Mines JMS
Origin Energy ORG
Energy Developments ENE
Ramsay Health Care RHC
The list above comprises 2 companies from 7 different sectors and you are required to select 2 companies, 1 each from a different sector/subsector, for your investment strategy. (Note: BHP, Jupiter Mines, Origin Energy and Energy Developments are from 2 subsectors within the ?Resources? Sector and you may select 1 company from each subsector for your assignment if you so desire.)http://www.asx.com.au/research/industry-sectors.htm
GUIDELINES TO ASSIGNMENT
Using Chapter 13 ?Contemporary Accounting? (Bazley and Hancock) as a guide, your decision should include an analysis of the companies? last three years (2009 to 2011) financial performance. Definitions of ratios together with actual ratio calculations should be tabulated and attached to your report as appendices.
(a) This analysis should include financial ratios. Financial ratios selected should consider the following issues:
iv. Market-based ratios
You should be selective in your choice of ratios as not all ratios are applicable to the business you have chosen. For example, ratios on inventory will usually not be applicable for a business providing services. While you are expected to discuss the above issues, greater coverage should be given to the components of each ratio. You should investigate to determine the significant or determining factors in any change to the ratio.
(b) A discussion of the financial ratios you have calculated, highlighting the financialstrengths and weaknesses for each of the companies as revealed by your ratio analysisis important. For example, dividend yield and its sustainability can be a deciding factor because of your intention to invest for the medium term.
(c) A trend analysis over the last three years? financial ratios and year-to-year comparisons, sometimes call horizontal analysis. This analysis should seek to identify significant trends e.g. significant differences in revenue growth rates between the years. Other techniques such as index numbers may be used in this part of your analysis.
(d) Some elementary vertical analysis (e.g. profit margins) to identify items in the financial statements which have showed the most significant changes over the last three years. Try to identify reasons for those changes e.g. global economy, interest rates, exchange rates or competition from e-commerce.
(e) Summarise your analysis and use them as justifications for your recommendation.