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ACCG3050 Evaluation of Annual Report: Australian Company on ASX assessment answer

ACCG3050 | Group and Individual Report Instruction, S1 2020

Group Report

This is a group assignment of three or four students. You are required to evaluate and report on the most recent (FY2019) annual report of an Australian company listed on ASX, Treasury Wine Estates (TWE), as if you were investment analysts making a recommendation on whether your clients should invest in it.

The group report includes the following sections:

1. Introduction, including a clear statement of objectives and an outline of the structure of the report.

2. Environment and Industry Analysis, including:

  • Discussion of the environment: 1) identify the economic or other relevant factors, 2) discuss how these factors affect the company’s operating environment, and 3) explain how the trends in these factors affect the company in the future.
  • Discussion of competitive forces within an industry using the five forces framework.

3. Strategy Analysis, including:

  • Discussion of the company’s competitive and corporate strategy.
  • Conclusion of the company’s prospects for profitability and growth based on your analyses on the environment, industry and strategy.

4. Accounting Analysis, need to:

  • Identify the company’s ONE key accounting policy.
  • Discuss how this accounting policy relates to the company’s business operations and strategies. In other words, why it is considered as “key” based on your knowledge of the company.
  • Identify areas that require the use of management judgment, and provide explanations. Conclude the level of accounting flexibility.
  • Compare this accounting policy with a competitor’s, discuss the difference and what factors may cause the difference, and evaluate the quality of disclosure for both companies.
  1. Financial Analysis, including the following:
  • Presentation and interpretation of relevant ratios for the company over the past three years, including analysis of the underlying drivers of the change in the company’s ROE by decomposing ROE.
  • Discussion of the company’s operating management. Provide common-sized income statement to decompose Net Profit Margin to evaluate operating management. Provide explanations of the possible cause of sales growth, change in margins and expense ratios. The explanations should be related to the company’s environment, business operation  and strategy.
  • Discussion of the company’s asset management. Provide explanations of the possible cause of change in operating working capital and long-term operating asset turnover ratios. The explanations should be related to the company’s environment, business operation and strategy.
  • Discussion of the company’s financial management. Provide explanations of the possible cause of change in liquidity and solvency ratios. The explanations should be related to  the company’s environment, business operation and strategy.

Conclusion Section is optional for the group report as the individual report requires a conclusion section (See the requirement for an individual report on page 3).

The group report should be word-processed and professionally presented. It is to be approximately 15 – 20 single line or 1.5-lines spacing pages in length, excluding references  and appendices. Page limit rather than word limit is imposed for the group report.

All assumptions should be clearly stated and supported if possible. Both in-text references and bibliography should be provided. Commercial data services may be used to source annual reports and other information. Any commercial data sources used should be acknowledged and referenced in the written report. Note that plagiarism from professional analysts’ reports can be easily identified and will result in a mark of zero for the report.

Late submissions will have 10% of the group report mark deducted per day.

If in any group, there are complaints that a group member has not contributed approximately equally then the complaint will need to be reported in writing to the Unit Convenor. Following such a report the Unit Convenor will discuss the issue with the group, and the Unit Convenor may re-allocate marks appropriately.

Students should consult with the Unit Convenor if further clarification is needed.

Individual Report

This report is completed by an individual student based on the information gathered from the group report in which the student participates. It is to include the following sections:

  1. Prospective Analysis, including:

Forecasting income statement

  • Forecast key elements of income statements for the company for the next THREE

financial years.

  • Present the key ratios (in a table format) used to forecast key income statement items in the report.
  • Present these income statements (key elements only, in a table format) in the report.
  • Provide justifications of forecast assumptions for each key forecast item. The justifications should be the company’s environment, business operation and strategy discussed in your group report.

Forecasting balance sheet

  • Forecast key elements of balance sheets for the company for the next THREE financial years.
  • Present the key ratios (in a table format) used to forecast key balance sheet items in the report.
  • Present these balance sheets (key elements only, in a table format) in the report.
  • Provide justifications of forecast assumptions for each key forecast item. The justifications should be the company’s environment, business operation and strategy discussed in your group report.

Valuations

  • Value the company using two different methods. The discounted cash flow model must be used together with an alternative valuation model of your choice.
  • Discuss how to estimate the parameters used in the valuation models. For example, justify your choice of terminal growth rate. Why is the rate appropriate for the company?
  • Present sensitivity analysis for different economic scenarios. Discuss these economic scenarios in which a downside or upside growth rate is applied.
  • Calculate estimated value per share.
  1. Recommendation for the clients, drawing on the whole analysis of the company included in the group and individual reports, and including:
  • Compare the estimated value per share with the market value, and make an investment recommendation based on this.
  • Justify the investment recommendation by providing supportive arguments from environment, strategy, accounting, or financial analyses of the group report.

The individual report should be word-processed and professionally presented. It is to be approximately 5 – 10 single line or 1.5-lines spacing pages in length, excluding references and appendices. Page limit rather than word limit is imposed for the individual report.

You are required to submit your individual report under the “Part 1 Individual Report” tab and excel spreadsheet containing forecast template under the “Part 2 Excel File” tab separately on iLearn. Tutor will review both individual report and excel spreadsheet.

Ensure that you present forecast tables and valuation calculations clearly in the individual report. The presentation of individual report accounts for 10 marks.

All assumptions should be clearly stated and supported if possible. Both in-text references and bibliography should be provided. Commercial data services may be used to source annual reports and other information. Any commercial data sources used should be acknowledged and referenced in the written report. Note that plagiarism from professional analysts’ reports can be easily identified and will result in a mark of zero for the report.

Late submissions will have 10% of the individual report mark deducted per day.

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