You are to select a publicly listed dividend paying company from the country of your study location (Australia for the Bentley campus) and conduct a detailed analysis on it.

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ASSESSMENT BOOKLET

FNCE3000 Corporate Finance Semester 2, 2022

Assignment details
You are to select a publicly listed dividend paying company from the country of your study location (Australia for the Bentley campus) and conduct a detailed analysis on it.

The purpose of this assignment is to use your acquired knowledge from this unit to investigate the financial strength of a public listed company. Your research should cover the following 4 parts:

* Shareholder analysis (15%) – Who are the owners of the company and the implication to the choice of methods used to calculate the cost of return.

* Risk-return analysis (15%) – Analyse the return received over the market for the apparent risks identified in the company.

* Cost of capital (40%) – Calculate the cost of capital using various methods and analyse your findings.

* Financial statement analysis (30%) – Determine the future of the company by analysing the performance of the company

Task

Participants

Value (%)

Date due

Group Assignment

Full Assignment submission: 40%

Friday 16th September 11.59 pm

Individual Presentation and Interview: 10%

3^rd October – 23^rd October (During Tutorial)

Online Time Restricted Assignment

Individual

Exam week

Overview Assessment Schedule

The aim of these assessments is to assist you to:

gain a deeper understanding of corporate finance concepts;
appreciate current issues discussed/faced in the industry; and
apply your knowledge to investigate real companies.

Through these exercises, you will gain a better understanding of how corporate finance concepts can be applied in the real world. This is an excellent opportunity for those who wish to pursue a career as a finance officer / manager.

For those who are taking this unit as an elective, it provides the foundation and tools needed to investigate the financial health of a company and assist in the decision to purchase its shares for investment.

Communication

If you have any queries, please try to approach your tutors first, lecturers second and unit coordinator last;

Written communication is preferred;

When sending emails to the unit coordinator, please use this format in your subject field: CF,

<last name>, <first name>, <student ID>,<location>.E.g. CF3000, Smith, John, 123456A, Bentley. The purpose of the email is written on the first line in the main body of the email. You may not receive a prompt reply if you do not follow this format. Assignment (50%)

FNCE3000 Corporate Finance Semester 2, 2022

This submission must be made via Turnitin, Only one submission

There are 2 parts of this assignment:

Part 1 is the full / Complete assignment submission and it is due on Friday 16th September. It must be submitted via Turnitin. It must be professionally typed; no handwritten submissions. Your work must be assessable through Turnitin. Scanned graphics will not be marked. Only your final submission will be marked. Subsequent email attachments will not be accepted. The process described in unit outline is applicable for all assessment extension request. The assignment will be marked as a complete document irrespective of who did which part. Ideally the assignment should be completed at least 2-3 days before the submission date and both the group members should read the full document and modify where needed. The whole group will be penalized for mismatch in between the sections of the assignment. Students are required to sign and attach the cover page (available on blackboard) allocating the contribution of the group members.

Part 2 is the presentation and interview, and it will be conducted during tutorial of the last 3 teaching weeks. You must attend and present in the tutorial you are enrolled in. Online students must turn their web cam on during presentation and interview. Tutorial wise presentation dates will be allocated in the alphabetical order of your surname and will be available in blackboard by the end of week 10. Each group will be allocated 4 mins (Maximum 2 min per student) for presenting the summary and findings on their analysed company. After the presentation, each student will be asked 3 questions related to the analysed company as well as various theories covered in this unit. A set of sample interview questions will be available in your Bb under the assessments tab. The purpose of this part of the assessment is to make sure each and every group member have a thorough understanding of all the 4 sections of the assignment. Moreover, as the final assessment is online and non-invigilated, basic understanding of the topics covered in the unit will be assessed.

You have to commence work towards your final submission from the end of week 4 and make considerable progress every week.

The presentation of the assignment should be in 1.5 lines spacing and 12pt font. It should not be more than 6,000 in words. The word count excludes tables, diagrams, charts, and AGLC references.

4. Assignment details

You are to select a publicly listed dividend paying company from the country of your study location (e.g. Australia for the Bentley campus) and conduct a detailed analysis on it.

Please go through the checklist at the bottom of this page before you commence your assignment.

Australia based students must NOT select Domino’s Pizza (DMP), BHP Group Ltd (BHP), Fortescue Metals Group Limited (FMG), Wesfarmers (WES), Telstra (TLS), JBHiFi (JBH), Woolworths (WOW), banks, insurance companies, REITs and investment companies. If you are unsure, please check with your tutor/lecturer during tutorial / lecture / consultation hours.

The purpose of this assignment is to use your acquired knowledge from this unit to investigate the financial strength of a public listed company. Your research should cover the following 4 parts:

Shareholder analysis (15%) – Who are the owners of the company and the implication to the choice of methods used to calculate the cost of return.
Risk-return analysis (15%) – Analyse the return received over the market for the apparent risks identified in the company.
Cost of capital (40%) – Calculate the cost of capital using various methods and analyse your findings.
Financial statement analysis (30%) – Determine the future of the company by analysing the performance of the company.

In each of these parts, you are to report your findings using the format provided below. If the information is not from the company’s annual report, you will have to provide details on

where you sourced the information; and
comment on how you have verified its reliability.

If the information is from the annual report, you do not need to reference, but you have to include the page number of the annual report from which the information has been taken from, for example: (pg XX).

The assignment must be written completely by you and your group members. You are not to purchase or reproduce commercial stock reports.

5. Refinitiv (Thomson Reuters) Workspace

All students will have their own log in details of Refinitiv (Thomson Reuters) Workspace (by week 3). This is a web-based database that are extensively used in the industry and will add value if you could develop some expertise in using it. The UC will make a recorded workshop available in the iLecture tab by week 4. You are also welcomed to email UC if you need more assistance in using the database.

6. Assignment Requirement

Before you start: Do not choose the company unless it satisfies the following, otherwise you will get a 30% penalty.

FNCE3000 Corporate Finance Semester 2, 2022

1	Dividend paying: Check if the company has been paying dividends for the last 2 years and has been listed for more than 5 years
2	Annual report: Check what is the latest available annual report. You must use the latest report that has been released before 25th July 2022.
3	Reporting currency: Check that the company reports in local currency (AUD for ASX listed company). Look at the financial statements to verify.
4	Borrowings: Your company must have long term (non- current) borrowings for CAPEX. These are usually loans, bonds, notes or leases. Ignore accounts or trade payables, deferred tax or claim liabilities, provisions and employer entitlements and derivatives.

Earnings per share: Make sure that your company does not have a negative earnings per share.

Referencing:

Use referencing sparingly. More reference means less critical assessment. You are not awarded marks for putting forth opinions of others.
AGLC (Footnote) referencing is required.
Referencing must be consistent (5% penalty).
Do not reference material from textbooks and lecture slides.
Do not include definitions or theory.
If the information is from the annual report, do not reference; instead include the page number of the annual report from which the information has been taken from.
Do not quote from the annual report, journal articles, textbook and lecture slide or provide formulas and definitions to equations; just show your workings.
Appendices without intext page number reference will not be looked at.
Do not reference from stockbroking or investment companies/website/articles; including but not limited to Simply Wall Street, Intelligent investor, Investsmart, Motley Fool, investing.com, Investopedia, etc.

Assignment format template. The headings below are the headings of your assignment.

1. Shareholder analysis guide:

1.1	Summary of the business Short description of the main operations of the business and the services or products that they offer Describe what is the business’ main profit source If they have multiple revenue sources, investigate, and summarise them Summarise in table or diagrams DO NOT reproduce material from website or annual reports
1.2	Chairman/Director’s message Assessing the tone of the message, determine the potential target audience Compare chairman’s message with 3 other companies (not in the same industry or sector)
1.3	Profile of an investor of the company Describe who would be a typical investor of your chosen company in terms of income vs capital growth long vs short term informed vs uninformed In your assessment, make comparisons to 3 companies (in other sectors) to substantiate your reasoning. For example, if you think the investor is looking for dividend income, the company must be paying substantially more than other companies. Use graphs and charts to illustrate.
1.4	Identify non-marginal investors To assess a company, we need to consider the future cash flow of the business; its sustainability and profitability. This is an important element of the analysis work. However, future cash flows must be discounted using the appropriate rate. CAPM is often used as an approximation for the rate. However, when there is a significantly high percentage of non-marginal investors, other methods must be employed. In this assignment, we are only going to compare CAPM with DGM.

Your investigation into the type of investors of your company will assist in determining whether CAPM should be relied upon.

Focus your attention on identifying non-marginal investors; founders, insiders, directors, related companies like suppliers. Provide evidence of your research. Individual names, family trusts, private companies (mostly), share plans and DRPs are all non-marginals. When there is a high percentage of non-marginal investors, other calculation methods (such as DGM) must be considered on top of CAPM. No marks are awarded for identifying marginal investors.

Nominees, custodians, banks and investment companies are all marginal investors; ignore them.

Make sure you create a table listing the percentage of marginal vs non-marginal and then discuss.

	% of Marginal	% of Non-marginal
Top 20 shareholders
Remaining shareholders

State clearly your assumptions of investors outside the top 20.

2. Risk-return analysis guide - FNCE3000 Corporate Finance Semester 2, 2022

2.1

Review and Evidence of listed risks

In this section, you need to review the risks listed in the annual report. Avoid making up your own risks. We are after external risks. Investment decisions, financing decisions, credit, health and safety, compliance and human resource management are all internal risks; ignore them.

Competition is not a risk, it is the reason the company is in business.

Climate change is not a risk, unless the company’s product and service are directly and significantly influenced by the climate change.

Do not discuss Covid as a risk as there other factors that must be considered, such as government assistance and support, reduction of competitors, difference in state border restrictions, etc.

Identifying the risk is only part of the story. You have to now show evidence of the risk and explain why your company is more susceptible to that risk than other companies. The evidence that you provide are for the risks identified in the previous section. You must have evidence and explanation for each of the risks identified. No marks are awarded for risks that are identified without clearly showing evidence that they have impacted the company.

This can be done in a few ways; relevant newspaper articles, correlation with identified variables, trend analysis, and comparison with competitors, etc.

Share price decrease can be visual way to show the impact of the risk in the past.

Discuss at least 3 external risks pertaining to the normal running of the business.

Do not address the steps taken by the company to address or reduce the risks. Please take time to investigate and document your findings.

2.2

Review of shareholder vs market returns

The total return to the shareholder is the capital growth plus the dividend received.

Use the ending share price for each of the reporting period as stated in the annual report. If they are not presented there, only then you will source them from Morningstar DatAnalysis (via Curtin library). Use closing unadjusted prices. Calculate the one-year change in share price of the stock.

Use the dividend paid for the reporting period as stated in the annual report. If the share is franked, you will have to gross it up to account for franking credits and include special dividends. Look at the payment date of the dividends. As dividends stated on the annual report are often the declaration date, you may have to refer to the previous year’s annual report.

Use All Ordinaries (AORD) as your index. Follow the same period as your annual report.

Calculating the total returns for the shareholder must be done paying particular attention to the following:

Time frames must match your annual report and index returns
You have to include both the interim and final dividend and any special dividends paid for the period.
Look at payment date
You have to gross the dividends up to include the franking credits. Franking credits are only applicable for this section. Do not include them in your cost of capital section

Use the following formulas:

Note: in this equation, Dividend = total dividend paid for the period. If the franking proportion is different for interim, final or special dividend, you will need to do it separately and then add them up to get grossed up dividend.

Video of an example will be available in your iLecture tab.

2.3

Review of capital projects

Finally, you have to review the capital projects that the company is undertaking. Detail and present in a table format the:

Description
Amount and
Duration of the projects.

Risk return discussions must always be done in relation to future capital projects. How are the risks identified affect the profitability of the future projects?

Companies can also be rolling out projects previously announced. You will need to look back at previous annual reports (include year and page number). Do not reference commentaries, stock reports or news articles.

If the shareholders deemed that the risk are too high, they would demand a higher return, and this will often result in the lower share price upon the project announcement.

Capital projects are not cost savings, such as staff cuts, efficiencies, reduced cost of inputs, etc. You should look for announcements of investments into projects like acquiring a business, machinery, new premises, etc.

Formulate a concluding paragraph to link your understanding of the risk return trade-off, discussing in particular all the risks that you have identified previously. FNCE3000 Corporate Finance Semester 2, 2022

3. Cost of capital guide

3.1 CAPM calculations

You will have to either calculate or source for the beta of the company.
You have to investigate betas from various sources (at least 3), compare the time period and variables of their calculations, and justify your selection. You can use Morningstar DatAnalysis (via Curtin library), Reuters, Yahoo Finance, etc.
Use the yield of a 10-years government bond for the risk-free rate.

Calculate market return (Rm) using cumulative price return of ASX All Ordinary index (the period should match exactly with your reporting period). If it is less than 5%, you have to use an adjusted Rm. Perform the following steps in sequence and show your findings:

Use the financial year instead of reporting period, if they are different for your company
Use a total return market index instead of price return index matching the time period.
As a last resort use the average cumulative total returns of longer period (say 4-5 years)

(see lecture 2 for details

Include a table to show clearly the time frames of the variables used to calculate CAPM

	Variable	Rate (%)	Sourced at (date)	Period of (date to date)
	Rf
	Rm
	Beta		eg.14/07/2021	eg.14/07/2019 -13/07/2021

3.2	DGM calculations All information needed to calculate Rd using the DGM can be found in the annual report; income statement and balance sheet section. Use the following formulas: D1 is the sum of the dividends (payment date) for the reporting period. Do not include any special dividends as it is a one-off occurrence. Do not include franking credits. Dividend in the formula of ‘g’ is D1. P0 is the beginning price of the share of the reporting period. Use profit after tax for net income. Include the page number of the annual report where you have obtained the figures Always use numbers from the main Income Statement and Statement of Financial Position. Use statutory not underlying, and do not use adjusted figures. If your company has many divisions/operations, you have to use the numbers of the main group You may use the calculated basic EPS from the annual report, but check if they have used adjusted figures and note in your report what they have adjusted for. Your EPS cannot be negative. If your g is negative, you will have to take averages for the variables used in the formula. The choice of which variable to apply an average will depend on the company’s history. Make a note in your report that as the payments are 6 months apart, the numbers do not fit the DGM formula well.
3.3	Selection of Re calculation Identify if there had been major events that occurred that may have caused a huge fluctuation in volatility: this will affect Re through CAPM. Investigate if there had been a change in the dividend payout policy: this will affect Re through DGM.

Investigate and discuss the appropriateness of the growth rate (g) assumed in the DGM calculations

CAPM or DGM: which one do you feel is more accurate/appropriate and why? Use this to calculate the WACC.

3.4

Calculation of Rd

Identify all long-term borrowings used for CAPEX purposes. These are usually loans, bonds, notes or leases.

You will need to use the publicly available information as an estimation for the rate and add appropriate margin. This added margin is to account for the terms or risks included in the loan contract.

To decide on the suitable margin, you need to identify investigate the maturity, security and variability of the loan instrument.

Maturity - you will need to identify all the ones 1 year or less. These are to be ignored. We are only identifying the long-term debts. Typically, these would be in the borrowings section. You will have to read the notes to the items. Longer term loans would attract a lower margin.

Security – you need to identify if the borrowings are secured or not. The stronger the security, the lower the margin.

Variability – you need to identify if the various instruments are fixed or variable loans. Variable loans are riskier and therefore would attract a higher margin.

Rate - you cannot use the interest repayments to ‘reverse’ engineer the rate. You are to follow the steps below to calculate your weighted average cost of debt:

a) Establish your base rate - Investigate the current bank bill swap rate (BBSW)

+ credit rating (follow lecture 4 recording)

b) Apply a suitable margin to each loan instrument:

Rank all your loan instruments in order of risk
Apply a margin for each loan instrument
Research publicly available loan rates to ensure that your margins are reasonable

Review the annual report to verify if there are any mandates or restrictions to the amount to debt. Significantly high levels of debt would attract a higher margin.

You still have to go through the above steps and include a margin on each instrument even if a rate is provided in the annual report. However, you can use that rate to justify your margin applied.

3.5

Calculating WACC FNCE3000 Corporate Finance Semester 2, 2022

Use market values. However, where market values for debt is not available, you may use the book value.

How does the calculated cost of capital confirm your observation of the market’s reaction to the capital projects when announced by the company?

What is your assessment of the cost of capital on the company’s current capital projects?

4. Financial statement analysis guide

4.1

Calculations

FSA is NOT about calculating ratios. It is about establishing a method for comparing the health of the company against its past and peers. Please do not spend most of your time doing the calculations; they do not carry a lot of marks. You should instead focus more on the interpretation and analysis of the ratios.

You only need to calculate the ratios for 1 year and compare them with Morningstar DatAnalysis (via Curtin library). Use tables to show your comparison.

Select 2 from the following ratios to discuss:

EBIT Margin
Inventory Turnover
Working Cap Turnover
Gross Gearing (D/E)
Current ratio
Quick ratio
EV/EBIT
P/E ratio

For Dupont ratios, you have to calculate all of the following:

ROA
Asset turnover
Operating profit margin
ROE
Net profit margin
Asset turnover
Equity multiplier

Ensure that you show all calculations and footnote the page number of the annual report where you obtained the figures.

4.2

Time series analysis

You need to do a time series analysis, looking back at least 3 years. Present your ratios in tables and diagrams.

If your calculated ratios within 10% of the ones calculated in Morningstar DatAnalysis database, you may use all the figures from the database (for time series and cross-section).

If your figures are significantly different, you will have to calculate all the figures and show all workings.

FNCE3000 Corporate Finance Semester 2, 2022

Do not provide definitions for the ratios. Go straight into the discussion.

Explain the changes in the ratios with reference to company’s history or events. Do not merely state that the figures are improving or deteriorating.

4.3

Cross-sectional analysis

For cross-sectional analysis, it is unlikely that you will find a perfect match. You will have to look at all the 4 categories of:

Size,
Age,
Sector and
Scope of operations

You will need to compare with 2 – 4 competitors. Present your ratios in tables and diagrams. Justify your selection and explain why the selected companies fulfil the 4 categories.

Do not merely state that the company is performing better or worse than its peers. State specific events, actions or decisions of the company that contributed the better or worse performance.

Calculations of ratios without analysis and comment will receive a null grade for this section

4.4

Du Pont analysis

You must do a time series and cross-sectional Du Pont analysis.

In your discussion, you have to identify specific events, actions or decisions of the company that resulted in the changes in the ratios.

Based on your understanding of the company, what are the challenges or areas that the company should work on?

7. Online Time Restricted Assignment (50%)

Format of the assignment:

All the chapters covered in the unit will be assessed.
This is an open book assessment. The assessment will be conducted in ‘MyFinanceLab’ / MyLab platform. The registration details to the platform is available in your MyLab Finance tab in Bb.
The format of the assignment will be 25 questions in total: 15 MCQs carrying 30% marks (Theor)

& Calculation) and 10 Structured (calculations) questions carrying 70% marks; How to prepare:

Read the textbook;
Review the learning outcomes for each chapter;
Attempt the tutorial questions and questions at the back of each chapter of the textbook;
Practice the questions through ‘MyLab Finance’.

This assessment will be due during the exam week. Date and time will be announced in Blackboard at a closer date. The online time restricted assignment will be open for 24 hours, and you will have 2 hours to complete. It will be made available in MyLab.

8. Plagiarism (including self-plagiarism) is a serious offence.

All work above 20% similarity index will be referred to the student disciplinary panel for investigation. The investigation may take up to two month to finalise. If it is not finalised prior to the release of the results, you will receive a F-IN grade. If your work is submitted to the student disciplinary panel, you will be notified directly by the student advisers via your official Curtin Oasis account. You will be given an opportunity to provide an explanation to the disciplinary panel. Your unit coordinator will not be involved in the process and will not be able to provide you with any assistance in this matter. Interfering with the process will delay the outcome of the investigation. Please refer to Curtin’s plagiarism guide and utilize the checklist provided below:

FNCE3000 Corporate Finance Semester 2, 2022

http://academicintegrity.curtin.edu.au/local/docs/StudentPlagiarismGuide.pdf http://academicintegrity.curtin.edu.au/local/docs/StudentChecklist.pdf

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