You are an investment adviser, working to build a foundation of wealth for your clients. One of your wealthiest clients already has a diversified portfolio, which includes managed funds, property, cash/fixed interest and a few direct share investments. They wish to expand their portfolio and are considering one of two companies’ shares to add to their portfolio. (They have an extra $1 million that they wish to invest into company shares.) The companies, which you will compare and examine, are those selected in your groups and must be reported to your lecturer in Class #3.
Part A: Written Report and analysis of the firms performance (including referencing)
75 marks
• By the end of week 10 you should provide:
 A hard (and soft) copy of your report to your lecturer and
 A hard (or soft) copy to the other group members.
• You have one week to study the other group’s report (company) in order to debate with them during the following week’s (week 11) oral presentation.
You are required to do the following:
1. A brief description of the companies
Prepare a brief description of the companies, outlining the core activities, the markets they operate within and any factors in the companies’ history which you consider help present a “picture” of your company.
3 marks
2. Ownership-governance structure
Specify ownership-governance structure of the company:
• Name the main substantial shareholders:
 With higher than 20.00% of shareholdings. Based on this argument you should classify a firm as a family or non-family company, and
 With higher than 5.00% of shareholdings.
3 marks
• Name the main people involved in the firm governance:
 A Chairman
 Board members
 CEO.
o Whether any of these people has the same surname as any of substantial shareholders (>20% share capital). If yes- you could use this as an argument for the presence of an owner or family member(s) in the firm’s governance.
o Whether any of shareholders with more than 5% share capital is involved in firm governance.
3 marks
3. Financial Rations
Calculate the following key ratios for BOTH of your selected companies for the past 4 years. Annual reports are accessible via company websites (show all working out):
i) Return on Assets (EBIT) = (NPAT / Total Assets)
Return on Owners Equity = (Net Profit After Tax / Owners Equity)
Gearing Ratio = Total Liabilities / Total Assets
EBIT x NPAT x TA = NPAT
TA EBIT OE OE

Be sure that you have “proven” the above equation.
15 marks
ii) Explain what phenomenon is being “captured” by the variable TA/OE, and how it is impacting on the relationship between Return on Assets and Return on Owners Equity.
3 marks
Be sure to explain why the ROE (EBIT) is significantly greater than or less than the ROA (EBIT).
4 marks

4. Research via the internet or financial/business publications
i) From research via the internet (using credible sources) or financial/business publications, note any significant announcements which may have influenced the share price of your company. These factors could include merger activities, divestitures, changes in management’s earnings forecasts, changes in analysts’ forecasts, unusual write-offs or abnormal items, macroeconomic factors, industry wide factors, significant management changes, changes in the focus of the company, impact of competitors or law suits etc. (Restrict the number of announcements to 5).
10 marks
5. Capital Asset Pricing Model
Go on-line to http://www.reuters.com/finance/stocks/ and type in the code for your company into the Search Stocks field and click on the magnifying glass button.

i) What is their calculated beta for your company?
2 marks
ii) If the risk free rate is 4% and the market Risk Premium is 6%, use the Capital Asset Pricing Model to calculate the required rate of return for the companies’ shares.
4 marks
iii) Is the company you and your partner have chosen a “conservative” investment? Explain your answer.
2 marks
6. Analysis of the gearing (leverage) ratio
Consider the gearing (leverage) ratios for your company over the past two years:
i) Does it appear to be working towards the maintenance of a preferred optimal capital structure? (i.e., does it appear to be “stable”?) Explain your answer.
3 marks
ii) What have they done to adjust / amend their gearing ratio? Increase or repay borrowings? Issue or buy back shares? Has the Director’s Report given any information as to why they have made any adjustments?
6 marks
7. Dividend policy
i) Discuss what the dividend policy of the management of the company appears to be. Explain fully.
3 marks
8. Letter of recommendation
Based on your analysis above, write a letter of recommendation to your client, providing an explanation as why you would like to include this company in their investment portfolio. Please refer to the ratio results calculated earlier and any other trends or factors that you believe to be important.
10 marks
9. Formal structure and referencing
4 marks


Part B: Oral Presentation (10min oral presentation and 5 min discussion)
(During class- Week 11).
25 marks
You are required to do the following:
• To make an oral power point presentation (in the SAME groups for the Written Report).
• Maximum ten slides (including introduction and conclusion slide).
• Assume you are in the stock market and you want to promote your company.
1. Provide a brief description of the company, outlining the core activities and any advantages which may help to convince the future investors to fund your firm.
 Explain if it is a family or non-family firm
6 marks
2. You should be prepared to argue against another group (thus, another company) in order to encourage market participants to buy securities of your company.
• Be confident during your speech
• Provide strong arguments for your company
• Use arguments from your analysis (report).
 Emphasise the strengths of your company
 Outline weaknesses of your competitor (the other company).
6 marks
3. Provide links between the theoretical concepts that we studied in this course and the practical issues that you can find out in the firm’s financial reports (information).
5 marks
4. Answer the questions of other market participants (audience) clearly.
4 marks
5. Provide a brief account of what you feel that you have learned from this analysis while undertaking this case study.
4 marks


GENERAL REQUIREMENTS
• The report must have an academic written structure including an introduction, body and conclusion.
• This assignment must be completed in groups of two students.
• Use numbers in the body of the essay (e.g. “4. Research via the internet”).
• Provide an explanation on each of these topics and explain how they confirm the underlying theory, particularly related to the financial measures.
• You are only required to submit one assignment to StudentWeb
• You are required to submit this assignment to Turnitin (one per group). Please ensure the similarity score is under 15%.

Presentation of written work
• Please submit your assignment on time.
• Please make sure that the names of all members (and student’s IDs), unit name and code are written on the cover sheet of the submitted assignment.
• You are required to use a Times New Roman font, size 12 point with 1.5 line spacing.
• Please insert page numbers into your assignment.
• Please use 3 cm margins.
• Submitted work should be your original work showing your creativity.
• Always keep an electronic copy until you have received the final grade for the Unit.
A high standard of work is always expected, so poorly presented work may be returned unmarked with a request to re-submit.
The rules apply for electronic and hardcopy submission. When you submit your assignment electronically, please save the file as ‘assessment task 3.doc’.

Referencing
When writing your assignments, a reference must be included every time you use someone else’s ideas or information. In-text referencing ALL sources, whether academic books, journal articles, newspaper articles, material from the Internet etc., must be cited in the main text of the assignment itself. Harvard Style referencing is required for this assignment.
A reference must be included when you:
• Paraphrase (express someone else’s idea in your own words).
• Quote (express someone else’s idea in their exact words).
• Copy (financial statement, reproduce a diagram, graph or table from someone else’s work).