Background
Being able to analyse and articulate company financial statements is an invaluable skill that ensures managers have a strong grasp on all facets of the business. Specifically, financial literacy ensures managers, particularly the Chief Financial Officer (CFO) and Treasurer are equipped with relevant up-to-date knowledge to make crucial decisions in order to maximise the wealth of the organisation-a fundamental principle of financial management. Furthermore, financial managers must have a deep understanding of domestic and international capital markets for issuing capital instruments such as bonds (debt) and/or shares (stocks). This ensures a corporation can effectively raise long-term capital to acquire profitable assets to maximise wealth for its shareholders.
Ratio analysis and securities valuation
1. Choose two publicly listed non-financial companies from the same industry and obtain their latest financial statements from the IBISWorld or Marketline database (available via the library link in the student portal). Perform a complete ratio analysis on each company. Break your analysis into an Assessment of the firm’s liquidity, profitability, capital structure and market ratios.
Select the following ratio from each category for your analysis.
• Liquidity – Current ratio
• Profitability – Return on Equity ratio
• Capital Structure Ratio – Debt (Gearing) ratio
• Market Ratio – Price-Earnings ratio
(Please note that calculations of ratios are not required as calculated ratios are available on IBISWorld and Marketline.)
In addition to this, you are required to analyse and interpret the ratios along with any other relevant 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 with the industry peer? Which component of your company’s ROE is superior, and which are inferior?
2. Suppose your selected company (choose one of the two) just paid a dividend of $2.20 per share. The dividends are expected to grow at a constant rate of 4% per year, indefinitely. You employ the Capital Asset Pricing Model (CAPM) to calculate the share’s expected return. You observe that the risk-free rate of return on US treasuries is 2% p.a; the market risk premium is 7% and the company’s equity has a current beta of 1.285.What is the market value of the company’s shares? Compare the actual closing price of your selected company’s share on the balance sheet date. Why might the actual share price differ from the calculated price? Explain.
3. Assume a mining company PHP LTD. is assigned a AA credit rating by Standard and Poors. The company is looking to expand its operations into an already discovered iron ore deposit 600 km’s north of Adelaide in outback South Australia. PHP is looking to finance the $20 billion expansion with multiple sources of capital including raising $5 billion in $AUD senior debt into the US private placement bond market (reg 144a). PHP’s lead capital funding managers (underwriters) will offer a 10-year; fixed semi-annual coupon of 5.75% p.a. with a face value of AUD $1,000. The all-up market yield will be benchmarked at 230 basis points above the current Australian Government Bond 10-year of 2.35% p.a.. Calculate the price at which the bonds will trade at in the market?
FINANCIAL ANALYSIS
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Executive summary
Being able to analyse the financial statements and various ration in the company is a crucial skill for both the financial managers and the treasurers of a given company. This is due to the fact that the financial statements enable the managers to be able to make important decisions concerning the overall progress of the company and to also know the kind of assets to invest in.
The project looks into the financial aspects of both Microsoft, Inc. and Apple, Inc. The two companies have played a crucial role in the field of information in the world today. They have been able to play a crucial role in the software, data and operating systems industries today. They both make the giants of both operating systems, phone devices, music devices and computer devices.
The project enables the performance of ratio analysis with regard to the latest financial statements of the two companies with the ratios on the liquidity of the companies, profitability, capital structure ratio and the market ratio.
The ratios involved in the financial analysis will provide guidance in making the investment decisions as the financial manager in terms of making key decisions on capital markets and in terms of valuing various aspects of the capital markets such as bonds and the stocks.
Table of contents
1. Introduction 3
2. Ratio Performance
2.1 Liquidity Ratio 3
2.2 Profitability Ratio 3
2.3. [… Capital Structure Ratio 3
2.4 Market Ratio 3
3.1 Expecd Return on Shares 3
3.2 Bond Calculation
Conclusion (or Recommendations and Conclusions) 3
Reference list 3
Appendix 1 – [… Title of Appendix 1…] 3
Appendix 2 – [… Title of Appendix 2 …] 3
1. Introduction
Apple, Inc. is a multinational company that mainly deals in the manufacture, designing and the marketing of mobile communication and media devices, personal computers (PCs), and portable digital music players and also deals in the direct selling of the mentioned devices. The product portfolio for Apple, Inc. includes products such as iPhone, IPAD, Mac, iPod, Apple Watch, Apple TV. Software and application products include IOS, MACOS, WATCHOS and TVOS operating systems, ICLOUD, Apple Pay and a variety of accessory, service and various support and system applications and offerings on private basis.
On the other hand Microsoft, Inc. as a company deals in the production and the manufacture of systems, software and applications for both computers and mobile handsets and devices such as Microsoft operating systems and Microsoft phones. Also it is goes without mentioning the fact that Microsoft as cooperation deals in the licensing, support for information products and devices, desktop and server management tools, databases for company solutions, games, training and the various certifications of both consumer system developers and software developers for various operating system and especially Microsoft.
2.1 Ratio Performance
In coming up with the given ratios for both Microsoft, Inc. and Apple, Inc. The latest financial statements for the two companies were considered and the various values used to calculate the given ratios are directly extracted from the financial statements. The values given would directly be of great significance to the financial managers of the given companies in performing the different ratios required for valuations in the company.
2.2. Current Ratio.
The values used in the calculation of the Current ratios are as of December 30 of 2017
Current Ratio = Current Assets / Current Liabilities
Apple Current Ratio = 143 810/ 115 788
= 1.24
Microsoft Current Ratio = 139694 / 59357
=2.35
Generally speaking, the liquidity of Apple, Inc. is generally weak since the ratio is below 1.5. Om the other hand, the efficiency for Microsoft, Inc. is generally efficient and its liquidity is above 1.5.
2.2.1 Return on Equity Ratio
Return on equity ratio = Net Income / Shareholder equity
Apple ROE= 20065/
Table 1: [… Title of table …]
Source: [… explain where the data originally comes from; e.g. provide citation of Annual Report …]
Figure 1: [… Title of figure …]
Source: [… explain where the data originally comes from; e.g. provide citation of Annual Report …]
3. [… Heading ….]
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3.1 […. Sub-heading…]
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3.2 [… Sub-heading…]
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4. […Heading ….]
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And so on
Conclusion (or Recommendations and Conclusions)
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Reference list
[… type references here, in alphabetical order…]
Appendix 1 – [… Title of Appendix 1…]
Appendix 2 – [… Title of Appendix 2 …]
