FINANCIAL MANAGEMENT ANALYSIS

Analysis the following question for AACo company (Australian agriculture company Limited)
The purpose of these questions is to require you to demonstrate your ability to conduct research
into real companies, their operations and events affecting those companies. You should
demonstrate your ability to interpret data, summarise your findings and to communicate your
views in a report. The emphasis is on explaining the financial management of the company, as
revealed in the accounting reports, and also to place those reports within the wider economic
context.
(I) Debt Valuation (20%)
1. What are the short-term and long-term debts used by your firm?
2. Is your company’s debt structure consistent with the industry?
3. How does the industry your company operates in influence the proportion of short-term
to long-term debts of your company?
4. What is your company’s the cost of debt?
(II) Share Valuation (30%)
1. What is your company’s cost of equity?
2. Evaluate and discuss your company’s revenue, earnings, EPS, dividends and growth
expectations. Use the most recent reported earnings results from the annual report you
submitted in PART A for your analysis.
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3. Value your company’s stock using comparables approach (ie. P/E) and constant
dividend growth rate model. What are the factors that influence your company’s stock
price and how are they captured in these models?
4. Which of the values in question 3 appear most reasonable compared to the market price
of your company’s stock?
5. What additional data and information would you prefer for valuing your company’s
stocks? Explain your reason(s).
(III) Cost of Capital (30%)
1. Calculate the weighted average cost of capital (WACC) of your company?
2. Explain the company’s tax rate in the calculation of WACC?
3. Why is there a difference in the cost of debt and the cost of equity?
4. Should current liabilities be included in the cost of capital calculation? What are the pros
and cons?
5. What is the major value of the WACC calculation for your company and how is it
applied in investment decision-making?
6. Provide examples of how your company might have recently used WACC in its
investment decision-making with reference to two projects recently undertaken by your
company. You may need to synthesize information from your readings (ie. Annual
reports, GPFS etc.) to identify the projects.
7. Define and explain capital structure of your company. Discuss whether it is consistent
with the industry and why or why not.
8. What is the optimal capital structure and what economic circumstances will likely cause
a change in it?
(IV) Market Analysis (20%)
1. Comment on your chosen company’s financial performance relative to its industry. You
will have to investigate your company’s industry using sources such as Bureau of
Statistics, industry journals/publications, analysis in financial press, IBISWorld etc.
2. Conduct a literature search on your company. Summarise and explain how your company
is being viewed by financial analysts and others in the press (or has been viewed over
recent years, as appropriate to your company). Do you agree with the comments?
Why/why not? Explain.
3. Comment on any other item that is important or different about your company (that is
relevant to the topics in this course).
Resources:
The data sources for your companies include historic published information, contemporary
market data and prospective data as follows (but not limited
Financial newspapers
Company websites
Company annual reports and prospectus
www.afr.com.au
www.asx.com.au
www.bloomberg.com.au
https://www.google.com/finance
https://au.finance.yahoo.com/

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