AIM Managing Financial Resources
Assignment 1 Structure
A checklist – note page recommendations are flexible. Ratios do all 5 categories, min 2 each. Use MKT performance from entity’s financial statements. Analyse your results. Recommend improvements.
1. Exec Summary (1/2 pg)
a. What is this report
b. Brief history
c. Place in industry
d. Report – what did you use, what docs/data/ratios
e. Findings
2. Table of Contents as per webinar format
3. Introduction – place in industry activities (no more than one page in total)
a.. Market overview
i. External drivers – sales/ clients
ii. Internal drivers – own use/ associates
Major competitors- major companies in the industry and comparative share
COVID Impact
d. Long-Term Outlook
4. Financial Analysis Overview (1/2 pg)
Basic performance analysis tools (first ½ of ch 8)
– horizontal analysis (year by year) [very basic, dealing only with dollars
Vertical analysis [year by year within financials – useful to work out % of profit within various parts of the biz, expenses, assets and liabilities; helps analyse company profitability]
Index 100 chart (fig 8.4 and 8.5 – min 3 years required – divides by the figure from the base year at 100)
Main points: summarise why this is important? What’s it show?
Profitability components
Sales
COGS
Gross Profit
NPAT
cash flow from operations
assets and liabilities
Put all of the same graph to get a visual of important aspects of performance
Comparison – Industry and/or major competitor comparison
NPAT
Use this to analyse GP/ COGS/ Elements of expenses which impact + or – on profit
impairments ?
Conclusion?
5. Ratio Analysis ( introduction 1-2 paragraph)
What do we use ratio analysis for? List of ratios- pg 312
Why is it important? What do we expect to find? (no more than a page for each set of ratios)
6. Profitability
Overview – Ability of entity to generate profits and ROIs
ROE profit earned for $ invested by owners
ROA- profit earned for $ of total assets, assets used to earn revenue
PM or GPM Revenue – Expenses
Cash flow to sales (ability to use sales to generate cash flow for the entity)
Interpret the ratios and comment on adequacy. Can use benchmarks for industry or benchmarks stated by BOD
7. Asset Efficiency Ratios
Show the entity’s ability to generate returns on $ of investment, or their ability to manage inventory or collect their accounts. VIP aspects of business management.
Choose from:
ATR
Days Inventory or Times Inventory turnover
Days Debtors or Times debtors turnover.
If company does NOT have inventory, no need to try to calculate this.
Debtors means Accounts Receivable (also called Trade Receivables in many statements)
8. Liquidity
Overview – what does it show?
Current ratio – compare with benchmark? Company may decide they have a set current ratio – eg 1.5 or 2? (current assets / current liabilities) , or
Quick ratio – Need 1 as a min ((current assets – inventories) / current liabilities) +
Cash Flow (Need +ve result for NCFOps) net cash flow from operations
Needs to remain positive over time to be sustainable
Chapter 7 – operations, investing, & financing – read this.
9. Capital Structural Ratios
Overview – what does it show?
Total debt/Total EQT
Long Term Liabs/Total EQT
Expect <1; closer to 0 is better
A measure of stability
Ability to collect debt
Ability to turn over inventory
Collectability (not too many upaid accounts)
Looking at the longer term debt of the company. Looking at the viability of the company. Want to have debts that we can repay.
Balance sheet items
% of assets, liabilities and equity
All of the ratios compare one or all of those factors with another one
Eg. Liability / assets or equity / assets, or debt to equity ratios, liability / equity
All of the above are measures of stability
Too much equity (mainly funded from shareholders investments) it can restrict the company by major shareholders
Too much equity? (mainly funded from shareholders investments) it can restrict the company by major shareholders
10. Market Performance
These ratios are usually provided by the company itself in its annual reports. They explain how the market assesses the company; they represent performance or value of ordinary shareholders and how attractive the company is to investors at a given point in time.
Choose 2 of:-
EPS
DPS
PER
Net tangible asset backing/share
OCF/S
The value that investors place on the company thru:
a. EPS (earnings per share)
b. Dividends /DPS
c. dividend ratio
d. price earnings
NB: should be in the company statement – unlikely that you will need to calculate these directly.
What does it show?
These are usually calculated in your financial reports.
An indication of attractiveness for investors
11. Conclusions and Recommendations
Sum up areas of strength, health, positive outlook
List possible remedies for areas where company is not as effective as others in the
industry
Conclusions (1/2 pg)
General health?
Advantages/Competitive advantages?
Weaknesses? What to do about them?
recommendations (1/2pg)
What to do about conclusions/findings?
Move in the market? Expected changes? Changes in Company strategies?
Any recommendations for improvement in future?
13.. Reference List
Review reference guide
Text book
IBIS World
Company statements & financial reports – should be several (reference year by year and separately)
A couple of journal references (search for ratios Emerald & Proquest (db for research will be references), in the library tab AIM Library databases; do Industry and Company search in IBIS World.
