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日期：2023-04-14 08:07

BUSN7036 Financial Statement Analysis - Company

Analysis Report

Assessment Weighting: 50% of total marks available for course

Due Date: 11am Monday 15 May (Canberra Time)

Submission Details 1) Upload an electronic copy of the main body (including

appendices) of your assignment with appendices to Wattle via

the ‘Turnitin’ assignment link

AND

2) Email a copy of the spreadsheet models (i.e. the Excel files)

used in making your calculations to mark.wilson@anu.edu.au

Please attach the following cover sheet to your assignment.

http://rsa.dev-box.com.au/sites/default/files/2020-04/rsa-

assessment-cover-sheet-individual-docx.docx

Word Limit: There is no formal word limit, but there are no prizes for

writing the longest assignment. You must communicate

efficiently and effectively.

THIS IS AN INDIVIDUAL ASSIGNMENT:

This assignment must be completed individually. DO NOT SHARE YOUR MATERIAL

WITH OTHER STUDENTS REGARDLESS OF WHETHER THOSE STUDENTS ARE

PRESENTLY ENROLLED IN YOUR CLASS. DO NOT USE artificial intelligence engines

to help your complete this assignment. It is ok to discuss the assignment requirements with

other students, but this cannot include the sharing of text, spreadsheet models or other

materials submitted in your assignment. Email the convenor with any queries that you have

regarding the assignment requirements. He will attempt to answer such queries within 24

hours, and will periodically compile a list of FAQs with responses and upload the FAQ

document to Wattle.

THIS IS NOT AN ASSIGNMENT THAT YOU CAN HOPE TO SUCCESSFULLY

COMPLETE IF YOU LEAVE IT UNTIL THE LAST WEEK. EXTENSIONS WILL

NOT BE GRANTED ON THE BASIS OF COMPETING ASSESSMENT

DEADLINES.

REQUIREMENTS:

Write a report examining the performance and financial position of Downer EDI Ltd. (ASX

Ticker Code = ‘DOW’), a large Australian listed company, for the purpose of advising a

client who is considering purchasing shares in that company. Your report should include (at

least) the following sections:

Business and Strategic Analysis, including:

? an analysis of the impact of economy-wide and industry-wide factors upon Downer

EDI Ltd.’s current and expected future performance. You should also identify DOW’s

closest two competitors (whose financial reports are available on DatAnalysis) and

analyse the extent of similarity between the competitors and DOW. It is not always

possible to identify competitors that are in the exact line of business as the company

you are analysing. Sometimes using the ‘segment reporting’ section of firm’s annual

reports helps to identify parts of companies’ operations that are similar. The ‘segment

reports’ will also help you identify the different business areas in which Downer EDI

Ltd. operates.

an analysis of the impact of Downer EDI Ltd.’s competitive and corporate strategy

upon its current and expected future performance. When responding to these

requirements, be sure to define competitive strategy and corporate strategy as per

Topic 2 of this course.

Make sure that your discussion is clearly and directly applied to Downer EDI Ltd, and

to the state of the economy and relevant industries today. Do not simply describe

general nature of alternate approaches to strategy. Show your understanding of how

they apply to Downer EDI Ltd., using evidence from sources that is specific to this

firm and relevant to understanding their current and future operations, and current

evidence of economic and industry-wide conditions.

Accounting Analysis, including:? an analysis of Downer EDI Ltd.’s accounting policies and discretionary accounting

decisions relevant to the evaluation of current and expected future performance. Focus

your analysis of policies that have the greatest potential to influence your assessment

of the firm’s performance and position (e.g. policies that affect assets that comprise a

large proportion of DOW’s balance sheet are going to be more important than policies

that affect assets that DOW holds low balanced of). Simply transcribing DOW’s

stated policies is NOT analysis. You should also attempt to identify any ‘red flags’

that may suggest a greater than normal likelihood that accounts may be deliberately or

accidentally misstated.

a comparison of Downer EDI Ltd.’s key accounting policies with those of one of the

competing firms identified in your strategy analysis above. Again, focus on policies

that have a material impact on DOW’s performance and position.

Sets of re-cast financial statements for Downer EDI Ltd. and for your chosen

competitor firm, for each of the last 5 years. If complete annual reports for your

competitor firm are not available for the full 5 years, you should attempt to

supplement this data with that from alternate sources (e.g. segment reports of other

listed entities). These statements should improve comparability across these firms,

and facilitate the projection of future performance (required later in this assignment).

You should show the 2022 recast statements for DOWcor and your chosen competitor

in the main text of your report (formatted in a manner that makes it easy to read and

compare the firms). The full 5-year re-cast statements should be placed in appendix

attached to the end of the main text.

Sets of lease-adjusted re-cast financial statements for Downer EDI Ltd. and for your

chosen competitor firm for 2019 only. In these statements non-cancellable operating

leases should brought ‘onto the balance sheet’ and their impact on profit also

accounted for (see Lectures 3a and 4). Show the lease-adjusted re-cast statements for

2019 alongside the equivalent figures without lease-adjustment in the main text of

your assignment (the underpinning calculations should go in an appendix). Clearly

identify and discuss the impact of the accounting treatment of leases on EBITDA,

EBIT, Net Profit, cash flow measures and the Balance Sheet.

Financial Analysis, including:

an estimation and analysis of ratios relevant to assessing the profitability, liquidity,

leverage, and asset management of Downer EDI Ltd., and the competing firm

discussed in the Accounting Analysis section. When analysing leverage and asset

turnover ratios show the lease-adjusted ratios for 2019 as well, and discuss the impact

of accounting treatment of leases on these measures.

a time-series analysis of these ratios for both Downer EDI Ltd. and its competitor

over the past 5-years. Presenting graphs of the time-series behaviour of key ratios

would be a very good idea.

a discussion and analysis of Downer EDI Ltd.’s overall financial position and

profitability.

You may find each company’s segment reports (see notes to accounts) useful when

analysing companies’ relative performance.

DO NOT USE THE RATIOS THAT HAVE ALREADY BEEN CALCULATED

AND PUBLISHED ON DATANALYSIS (OR ELSEWHERE).

The majority of the marks earned in this section will be for your demonstrated ability

to use the information provided by the various ratios to understand Downer’s

operations and the factors that have impacted them in the past and present. If ratios

change over time, try to explain why, with reference to information specific to

Downer. Simply regurgitating comments that could be written about any firm will not

earn many marks. Don’t just say ‘This ratio shows that Downer is more profitable

than company X’. Discuss (with evidence where possible) why this may be the case?

Show that you have invested time and effort in understanding Downer’s operations,

strategy and accounting choices and how they have affected the financial ratios that

you have estimated.

Prospective Analysis, including:

Specific forecasts for all financial statement items (applying a level of detail similar to

that provided in Lecture 7) extending to at least 5 years in the future and forecasts of

the behaviour of these forecasting items after the end of the specific forecasting

period. Supporting calculations and assumptions must be clearly explained, and

assumptions should be consistent with earlier parts of the assignment (particularly the

‘strategic analysis’ and ‘financial analysis’ sections). This is very important and has

often been overlooked by students in past semesters. HINT: Historic information in

firms segment reports is often useful for refining your forecasts of firms’ overall

growth and profitability.

a valuation of the Downer EDI Ltd.’s equity, using EITHER: the discounted free cash

flow to equity method OR the abnormal earnings method described in Chapters 7 and

8 of your textbook (DO NOT USE MORE THAN ONE METHOD). In addition to

the earnings and cash flow measures forecast above, valuation will require the

estimation of the firm’s cost of equity capital. It is acceptable (but not mandatory) to

use the Capital Asset Pricing Model to estimate this. Company Betas are available on

DatAnalysis Premium. Estimates of the Market Risk Premium currently applying in

Australia are available from a number of internet-based sources. You should explain

and justify the method chosen to estimate the cost of equity.

a sensitivity and scenario analysis*, demonstrating the effect on your valuation(s) of

varying the key assumptions underpinning your valuation. For example, the impact of

variations in future sales growth, gross margins, other cost ratios and cost of equity

should be investigated and analysed. This analysis should be informed by sound

economic logic and, where possible, uncertainties identified in your earlier analysis.

For example, if you decide to test the impact of sales growth being a lot higher than

your baseline forecast, you need to explain (or speculate upon) the economic

circumstances that might cause this high growth to occur. Don’t just pick a number

out of thin air and say ‘I wonder would happen if profit margins were 200%?’

*Sensitivity analysis refers to examinations of the impact of varying individual

forecasting assumptions, whereas scenario analysis refers to attempts model

circumstances where multiple forecasting assumptions are affected.

Investment Recommendation

Drawing upon the analysis above, advise your client on the suitability of the company

for equity investment. You should clearly explain the key assumptions that you have

in your analysis, and the extent to which your recommendation relies on the validity

of those assumptions. It may help to make assumptions regarding your client’s

tolerance for risk and their likely investment horizon, and to state these assumptions

clearly in your report. There is no ‘right’ or ‘wrong’ recommendation. What is

important is that you present a sound justification for your recommendation, based on

a logical discussion of the analysis presented in the earlier sections.

What to put in the main text and what to put in appendices?

In your main text, try to avoid ‘bogging down’ your report with lengthy detailed

computations. Use the main text to identify the key information that is required to understand

your analysis (e.g. definitions of key ratios, tables/graphs summarising the computed ratios

over time), and put details of your calculations in Appendices. Each Appendix should be

clearly numbered, and it should be easy for the reader to find the appropriate Appendix

should they need more detail on a calculation presented in the main text.

Within your Appendices you should detail the method by which all calculations are made,

and assumptions underpinning calculations, the precise source of the data used in

calculations. For example, if you present a ratio of debt to equity in your main text, your

Appendices must clearly disclose:

the formulae applied,

the specific financial statement items used in the calculation,

the values of those financial statement items, and

Please note that you are expected to calculate ratios yourself and not rely on ratios already

computed on DatAnalysis Premium or any other website. It will be very obvious to the

marker if you have simply copied ratios from another source. Failure to follow this

instruction may significantly affect your grade for this assignment.

IMPORTANT

It is a requirement of this assignment that you keep an electronic copy of all documents /

spreadsheets used in your assignment including any supporting material not submitted with

your assignment. You may be required to submit these files directly to the Course Convenor

if there is doubt regarding the originality of any part of your report, or to try to better

understand how you have made your calculations. Do not destroy the electronic copy of your

assignment until the final grades for this course have been confirmed. You may be asked to

attend a 15 minute oral examination designed to test your understanding of your written

assessment submission.

REFERENCING

Your report must be original and properly referenced in accordance with the requirements of

the University’s Academic Misconduct Rules:

Please use the Harvard (author-date) system

You must clearly identify whether material that you are referencing is a direct quote

from the source (place in quotation marks) or a paraphrasing of the source

As you will frequently be referring to financial statement data in this assignment, it is

acceptable to make a single initial acknowledgement (via footnote) of the source(s) of

that data. However, any text drawn from or based on discussion in Downer EDI Ltd.’s

annual reports should be properly referenced.

You cannot use ANY MATERIAL prepared by any other current or former student,

or Artificial Intelligence engine.

You cannot ‘re-cycle’ material that you have submitted for assessment in another

assignment in any course.

You cannot simply copy and paste material from your own submission of Assignment

1 in this course. However, obviously some similarities between your submissions are

inevitable.