International Accounting and Finance project

A 5,000 words report plus a 250 words executive summary. A report based on very detailed research into company accounts. Analyse company’s business activities – Use your own explanation of how company’s business model works (DO NOT COPY COMPANY’S STATEMENTS)
• Identify key drivers of business model and competitiveness

  • Use independent data on company’s markets
  • Assess future prospects for these markets
    • Compile financial ratios for performance, efficiency, liquidity and solvency for company and at least three competitors
  • Ratio analysis over the past five years
  • Comparing these ratios – draw your own conclusions, NOT just descriptions
    Structure of the Project

REPORT SUMMARY:

  • equity data, company fundamentals, prospects, valuation & recommendation
    • Show key data on share price & performance, valuation price & ratios and investor recommendation
    • Two to three statements which explain your forecasts for the company’s revenue, income and cash flow
    • Key economic and market forces driving company’s prospects
    • How this translates into valuation, target price & recommendation

1) INTRODUCTION:
• Summarise company’s activities and business model

  • What does it sell? Where? To whom? With what competitive advantage? • Main markets served by company – by region, product, customer type
    • Typical features which MIGHT affect your company:
  • Demographics, social trends, consumer behaviour, fashion, changes in global trading patterns, environmental issues
    • Avoid lengthy history and descriptions
    • Use short, sharp summary of what drives this business)
  • Company’s business model – which markets drive its revenue and profit?
    2) SECTOR REVIEW:
  • the market forces driving demand, supply, competition, prices, costs & margins in the sectors which contribute most of the company’s revenue and profits
    • Sector comments must be relevant to company’s operations
    • Identify two to four key market forces driving demand
    • Understand how competition works in sector
    • Reach clear conclusion on likely future directions
    • Reach clear conclusions about specific market forces
    • Support those conclusions with statistical evidence
    • Do NOT simply download economic and sector data without explaining how it affects sector prospects

3) COMPANY ASSESSMENT:

  • company’s competitive position in sector, past performance relative to peers (using financial ratio analysis), key drivers of future trading, conclusion on their likely direction and impact on financial forecasts
    • Assess historic performance and future prospects
    • Analyse 5-year trends in financial ratios:
  • Has it improved or deteriorated in recent years?
  • Have there been any volatile movements – what may have caused them?
  • Is the company reliable in delivering sustained earnings growth?
  • Or is it poised for recovery from a low point? Or unlikely to recover?
    • Compare company’s performance with sector peers
  • Has it performed better or worse than its peers?
  • Are its finances stronger or weaker than its peers?
  • Has it been operated more efficient than its peers?

4) FORECASTING:

  • translate trading assumptions into sales, costs, income & cash flow forecasts
    FORECASTS FOR:
    • Revenue from demand, price & competitor analysis
    • Expenses from assessment of supplier pressures and movement in operating overheads
    • Net income & earnings from tax, debt & interest rates
    • Dividend from earnings and payout ratios
    • Cash flow from working capital and depreciation accruals
    • Balance sheet from accruals, retained earnings and cash flow

5) VALUATION:

  • translate forecasts into DCF & DDM valuations relative to share price, and Price Multiples relative to peers
    Absolute Valuation Methods / Intrinsic Value
    • Convert dividend forecast into DDM
    • Convert free cash flow forecast into DCF
    Relative Valuation Methods / Price Multiples
    • First-year forecast of sales, earnings & book value of equity
    • Calculate ratios of:
  • P/E
  • P/Sales
  • P/Book
    • Compare with peer company ratios

6) RECOMENDATION AND CONCLUSION:
• If wide variations (>15%) between these valuations, check assumptions

  • does cash flow over/understate by using too high/low depreciation charge?
  • does dividends over/understate by using too high/low payout ratio?
    • If after re-examination values still widely divergent, explain why
    • Compare each valuation with current share price to identify Buy (valuation > share price) or a Sell
    (share price > valuation)

Criteria for marking the reports
USE OF DATA
• How well have you used data to compile an INDEPENDENT view of company prospects, accessing websites of:

  • Company & its competitors
  • Industry bodies
  • Government statistics and reports
  • Financial and economic reports
    LOGIC, ARGUMENT & FINANCIAL FORECASTS
    • Logical argument to support assessment of company prospects
    • Accuracy and clear exposition of company’s financial forecasts
    • Independent thinking to link research data to conclusion
    • Presentation of argument, financial forecasts and valuation

1-4 added materials is past 5 years statements of BT group
5-9 is reading list for this report