Financial Analysis
Write this report with simple but appropriate vocabularies.
Given company: Morrisons Plc , 5 years financial statement can be found on this website.
Rival company that needs to be compared in the report: Sainsbury’s
The module will be assessed by means of an approximately 9000 word report analysing a listed UK company. The report should provide an analysis of the company’s strategic (use 5-forces, PESTEL, SWOT), financial statement and stock market performance over the last five years. All of analysis should be critical rather than describing. The report should be addressed to a potential investor in the company’s shares and should include your recommendation to that investor as to the desirability of investing (or not) in the short, medium or long term.
In order to satisfactorily complete the assessment, you will need to conduct in depth research into your allocated company, the industry in which it operates and its competitors.
The framework adopted for evaluating the performance of a company focuses on three interrelated aspects of a firm’s performance:
1. Its strategic direction
2. Its financial statement performance
3. Its stock market performance
The key elements of the analysis to be undertaken are summarized below:
Assessing strategic direction Financial statement analysis Stock market assessment
Company Identify and assess corporate and business unit strategies, management resource, product market positions, etc. Assessment of the current, past and future outcomes to company’s strategies – sales, profitability, cash flow, etc. Understand market assessment and rating of the company.
Industry Evaluate competitive forces and relative strengths and strategies of competitors. Review key industry drivers and likely future pattern of industry development Make comparisons with other companies operating in the same or similar product markets. Compare company’s rating to other companies in the same sector. Review performance of sector against overall market.
Broad context Assess key PEST (or PESTEL) change agents Assess the performance of companies in general and evaluate opportunities for fund raising (debt and equity), likely tax and interest rate changes, etc. Identify movements in overall stock market and likely future pattern of share prices.
Use all kind of useful ratios below to analyse financial statement:
1. Liquidiy ratios: Current/working capital ratio, Acid test/quick/liquidity ratio
2. Gearing ratios: capital gearing ratio, Debt/Equity ratio, Interest cover ratio
3. Activity ratios: inventories(stock) turnover period ratio, Collection period for receivables ratio(Debtor Days), payment period for payables ratio(creditor days)
4. Profitability ratios: e.g. ROCE, ROE/Return on shareholders’ funds ratio, net profit margin, Asset turnover, Gross profit margin
5. Shareholder (or investment ratios)
Brief Structure:
Introduction
– Who and what, company history
Strategic Analysis
– Broad environment – e.g. PEST
– Industry – industry environment and competitors
– Company – strategic operations
Financial Statement Analysis
– Raw data- Income statement, Balance sheet, Cash flow
– Ratio Analysis
Stock Market Analysis
– Share price performance
– Stock market indicators
Conclusion
– Future prospects
– Good/bad investment?
The report should contain reference to the following:
1. Brief company history(at least 250 words).
2. Review and analysis of company’s sector (past, present and future) and the company’s standing within that sector, identifying its main competitors.
3. Review and analysis of company strategy, with regard to, for example pricing policies, product range, market position, etc., in comparison with that of its competitors.
4. Comments on company management/board of directors; for example, relevant experience, mix of skills, age, etc.
5. Financial and stock market analysis of company over (for example) the last five years, including
a) Analysis of financial statements, making comparisons with competitors and/or sector averages.
b) Analysis of share price performance and evaluation of stock market indices (price-earnings ratios, dividend yield, etc.) in comparison with competitors, sector and market averages.
c) Identification of problems of comparison caused by particular accounting policies/treatments (for example, capitalisation of interest, etc.).
d) Identification of any new accounting policies/treatments which may impact on future profitability.
e) Evaluation of potential future performance.
6. A conclusion which should draw together your findings in order to make a recommendation to an investor’s as to where to buy, sell or hold the shares.
The report must be word processed or typed. Calculations (for example, ratios) should be contained in tables in the report and will not count towards the word limit. Appendices and footnotes will not count towards the approximately 9000 word limit. All sources of information should be identified in the report. A full bibliography containing all references (books, newspaper reports with dates, company reports, market research reports, etc.) must be included with the report and will not be included in the wordcount.
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