Corporate Finance Assignment
"Applying what you are Learning as you Learn"
The purpose of this assignment is to encourage you to think about how a company's financial structure (in the broadest sense) is related to, and affected by, its "real world" (as opposed to "financial world") operations - its strategies, its products, its approach to risk, etc.
Read all of the assignment requirements and tips carefully!
1. Pick two publicly traded companies in the same industry whose operating strategies, approach to risk and tactics are different to one another, for instance, British Airways and Ryanair. Ensure that you pick companies to whose financial information you have good access. Good access to extensive financial information is critical to the success of this assignment. [See below #8]
2. Describe and critically analyse how these companies are different in their strategies, approach to risk and tactics.
3. Analyse the financial structures of the companies within the frameworks that you are discovering in this module and explain (on a comparative basis) the differences in financial structure by reference to the differences in strategy, approach to risk and tactics, as identified in #2 above. Feel free to identify other reasons why their financial structures are dissimilar or indeed, similar when you would expect them to be dissimilar.
4. The financial areas you might expect to consider would include the following:
- cost of capital
- capital structure
- liquidity
- dividend policy
5. You should start in this project fairly soon. However, you will not have learned enough to complete the project until a little later in the module but now is the time to:
- pick your companies
- assemble and read the information available to you
- assess the scale and depth of the information available to you in terms of suitability for the project and project requirements. [The better the information available to you, the more likely you are to produce a good project.]. Do this before you are over-committed to any particular companies.
- assess both companies in terms of their operating strategies, approach to risk and tactics. This does not require any knowledge that you will acquire in the Corporate Finance module.
- Do not necessarily confine yourself to the published financial statements of the companies - the website of the SEC in Washington is a good source for detailed company filings.
6. As you move through the module, you will start to appreciate some of the financial issues and choices faced by the companies and you will be able to think about applying the ideas which you are learning.
7. The key words in the project are analyse and explain (#3 above). This means not only describing the strategies of your chosen companies but also asking
- Why are the finances and financial policies structured in the particular way described, given the companies' operating strategies, etc?
- Are the finances and financial policies structured in a way that is compatible with the nature of the business of the companies and with their strategies?
- If not, how would you do it?
8. Some Tips:
- Remember, in the Corporate Finance module, we learn about large, publicly traded companies with many and diverse shareholders. This is because the research evidence is derived from these types of companies.
- Try to pick a companies which conforms to these characteristics. Sometimes, in assignments of this nature, students wish to undertake a study of their own company in comparison with other companies in the industry even if it does not conform to these guidelines. Occasionally this is at the request of management. Almost invariably these assignments do not produce good results in grade terms. However, I won't stand in your way if you wish to make this trade-off but please consult with me before finalizing.
- Even though they may strictly conform to the requirements in #1 above, the following types of companies tend not to work well for the purposes of this assignment:
- Companies trading in small regional financial markets - this is because the information disclosure requirements are normally not as extensive as in the big markets such as NY and London. Also the markets themselves may have liquidity issues.
- Avoid companies which are controlled by families, individuals or other companies (even if only partly owned). This is because their financial policies may be dictated by the controlling shareholder in their own interests and not those of the other, majority shareholders.
- If you wish to choose two banks as your companies, make sure that their strategies are different enough to provide a basis for analysis and that you have a good command of the relevant elements of bank regulation.
- Try to pick companies where you have a basic understanding of the industry, maybe as a consumer - cosmetics, airlines - or because you work or have worked in the industry.