Assignment Task: Students will be allocated a company currently trading in on the ASX. The first task will be to collect the last 10 years data relating to income statement, balance sheet, cash flow statement and ratios and collate in excel. You can get the data through Data Analysis Premium.
Company Name: IRESS Limited
Download the annual report and prepare the data set
a) Company background and mission
b) Business strategy Analysis
c) Accounting analysis
d) Financial Analysis
- Common Size and Horizontal analysis
- Cash Flow analysis
- Liquidity analysis
- Income analysis
- Solvency Analysis #1: Capital Structure analysis, including an analysis of Debt Ratios.
- Solvency analysis #2: Compilation of key coverage ratios.
- Growth and Risk Analysis
Further detail on the above elements is presented below
(b) Business Strategy Analysis: Business strategy analysis involves analysing a firm's industry (Porter's five factor model) and its strategies (cost leadership vs. differentiation) to create a sustainable competitive advantage.
(c) Accounting analysis: Evaluate accounting quality by assessing accounting policies and estimates.
(d) Financial Analysis
- Common size & horizontal analysis of key financial statements. Various types of trend, bar & pie charts can be useful in the presentation of the analyzed results in your assessment submission. Students are expected to make very brief but pertinent comments regarding the findings. Comments could be related to the causes and significance of the increase or decrease of important variables such as PPE assets, intangibles, sales, EBIT, net income, debt, equity and cost of goods sold.
- Cash Flow analysis. You would need to provide some commentary around what trends are emerging in the part of the Cash Flow Statement called c ash flow from operations as a lot of the good news and bad news of a company is revealed there. Investors often look at this section before they bother with an income statement.
o You may want to take cash flow analysis further by including FCFF and CFFE. Have a look at the appendix to this document and chapter
You will not be marked down if you leave FCFF and FCFE calculations/exploration out of this assignment though.
- Liquidity Analysis. This would entail as a minimum a current ratio and a liquid ratio together with relevant commentary on receivables and payables and stock management, etc.
- Income Analysis. This would include an EBIT margin analysis, a gross profit margin analysis, net income analysis and EPS. Please pay close attention to the volatility of EBIT margin, and tax and financing considerations. You would also be advised to incorporate ROA analysis and EBIT ROA, also called BEP - Basic Earnings Power). ROA is NI/TA. EBIT ROA is EBIT/TA. TA is total assets.
- Please note that ROCE and ROIC would be the more appropriate analysis than ROE for firms in capital intensive industry.
- Capital Structure Analysis. This is all about ascertaining the level to which the company uses financial leverage to finance its operations and activities. The analysis should cover bonds, other forms of debt, hybrid instruments such as preference shares and convertible notes as well as financial leases.
- Coverage. These ratios examine the extent a company can cover its interest payments and other fixed financial commitments e.g. lease payments.
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Attachment:- Financial Statement Analysis.rar