To get a good grasp of financial ratio analysis, this assignment asks you to identify a company whose capital structure ratios (e.g. debt ratio and interest coverage ratio) and profitability ratios (e.g. return on assets and return on equity) are either readily availabl

  • Part A: Written report. ( Must be at least minimum 1150 words – or 1650 words)

Background: identify a company whose capital structure ratios

Financial managers are, arguably, vital to the survival of any corporation. They generally have a say on decisions that directly impact the performance and value of businesses. These decisions are, invariably, related to which projects to pursue (capital budgeting), how to raise funds (capital structure), and how to safeguard the business’ daily operations (working capital management).

In this context, knowing how to interpret financial statements has the same importance to a manager as the ability to understand medical results has to a physician. One of the most important tools in this regard is the financial ratio analysis, whereby information is combined in a way that portrays the status of the company in terms of important aspects (e.g., liquidity, profitability, efficiency, etc.).

Assignment question

To get a good grasp of financial ratio analysis, this assignment asks you to identify a company whose capital structure ratios (e.g. debt ratio and interest coverage ratio) and profitability ratios (e.g. return on assets and return on equity) are either readily available (i.e., through IBISWorld or Marketline) or, else, can be calculated through its financial statements. Then, upon collecting observations from the last 5 years and industry aggregates, answer the following:

  1. Based on a trend analysis, elaborate on whether the company you have chosen is improving or deteriorating in terms of its capital structure and profitability ratios, highlighting any areas (and appropriate actions) for improvement.

    1. How does the company compare to its peers, i.e., are its ratios similar to the industry- average financial ratios (or else, to those from its main competitor)? Would there be any issues of concern and, if so, how to address them?

    1. Is it possible to identify any relationship between capital structure and profitability ratios? (Hint: frame your discussion in terms of risk vs return).

    1. The cash conversion cycle (CCC) is the most relied upon measure to determine how effectively a company is converting resources to cash and managing its working capital. Calculate the CCC for your selected company (if possible or choose another suitable company) over the last 5 years. Evaluate whether CCC changed during this period. What drove this change? Whether this change is in favour or against the interest of the chosen company and why?

    1. Assume your selected company is considering raising funds for expansion from the securities market. The company has the following two alternatives:


      1. Issuing bonds having 14% annual coupon rate. Interest will be paid semi-annually. The bonds will have a face value of $1,000 and will mature in 10 years from now. Current yield to maturity is 12%. Rumours have started circulating that Moody’s will soon downgrade the credit rating of your selected company’s bonds, which will result in a 3% p.a. increase in the yield to maturity, from 12% to 15% per annum.

      1. Issuing additional ordinary shares. Assume they just paid a cash dividend of $1.20 per ordinary share. Security analysts agree with top management in projecting steady growth of 8% in dividends over the foreseeable future. The required rate of return for shares of this type is 15%. 

Determine the price of the bond before and after the rumour and explain the expected change in the price of the bonds. Also, calculate the value of the ordinary share. What relationship exists between the coupon interest rate and yield to maturity and the market value of a bond? In your opinion, which security should be issued by your example company on the basis of their current capital structure and why?

  • Assessment requirements
    • The required word length for this assessment is 1150 words (plus or minus 10%).

    • Your report will be marked according to the criteria outlined in the assessment grading criteria outlined in the Subject Outline (Appendix 1).

    • In terms of structure, presentation, and style you are required to use:
      • author-date style referencing (which includes in-text citations plus a reference list).
        These requirements are detailed in the AIB Style Guide.

    • Acknowledge the sources of facts appropriately. Use a minimum of five academic references.
    • All references must be from credible sources such as books, industry-related journals, magazines, company documents, and recent academic articles.
    • Your grade will be adversely affected if your report contains no/poor citations and/or reference list and if the word length is beyond the allowed tolerance level (see Assessment Policy available on AIB website).

 

Part B: Reflective Practice ( Must be at least minimum 225 words ,  or 550 words)

Reading

In preparation for Part B, read the following article:

Robb, CA 2014, ‘The personal financial knowledge conundrum’, Journal of Financial Service Professionals, vol. 68, no. 4, pp. 69–72.

Background

Robb (2014) emphasises the importance of financial literacy and the understanding of financial concepts for all individuals. Indeed, it is important for helping us to make day-to-day decisions that are more effective in managing, saving and investing our finances to reach the financial goals we have set. It is beneficial not only for individuals or households but also for anyone responsible for managing areas of a business.

Question

In this task, we ask you to reflect on any one of the financial decisions you have made in the past, either in your personal or professional life. In particular, address the following:

  1. What was the task and which principle of finance did you use in making the decision? Describe your experience and the outcome.

    1. Would you consider using a financial advisor for the same task in the future? Do you agree with Robb (2014) that individuals who use planners should be more involved and will ultimately make better decisions when they themselves have a fundamental knowledge of financial concepts?

·         Reflective Practice Requirements

  • The required word length for this assessment is 550 words (plus or minus 10%).

    • Your report will be marked according to the criteria outlined in the assessment grading criteria outlined in the Subject Outline (Appendix 2).

    • Given the length of this assessment, you are not required to follow the standard report format, however, you must follow the AIB preferred Microsoft Word settings.

GUIDE TO REFLECTIVE PRACTICE

  • This guide will develop your capacity to reflect upon your own learning while undertaking study at AIB. You can use the same skills in the work setting to reflect upon your own professional development or issues at work.
  • What is ‘reflective practice’?
  • To reflect means to consider carefully, weigh up, or think purposefully about something. The ability to reflect upon your work and on the work of others working with you is considered a key skill of a professional. Similarly, reflecting upon your learning while undertaking study is an important skill: it helps to highlight areas particularly relevant to you and helps to deepen the learning.
  • ‘Hmm. I’m not really the reflective type’
  • Not everyone sees themselves as a reflective person but everyone does reflect in their daily lives (even if they don’t call it ‘reflection’). After all, we all need to make sense of our experiences. We are especially likely to reflect on new situations, or when something is surprising, or does not go according to plan. In those situations we reflect, reorganise our thinking or feelings, come to new insights about the situation and identify future action.
  • To reflect involves genuine engagement on your part.
  • It is not vague or passive; it does not just happen on its own. You can learn how to reflect and how to benefit from reflection. It is really valuable to get into the habit of reflecting critically – not only during your study but also in life generally. Critical reflection is a key generic skill that enables you to develop as a professional long after you have successfully completed your studies.
  • Incorporating reflection into your study
  • Reflection is a useful tool in the workplace, in one’s personal life and also for study.
  • In order to get the most out of your subjects it is important to build some reflection into your timetable each week.
  • Reflection can help you see the wood from the trees, can help you focus on the things that matter, and can help you identify the issues that are important to you. You can choose to reflect on the process of study and how it fits into your life. More important, from a learning point of view, would be for you to reflect on a weekly basis on the subject you are studying, the main topics covered and how the new learning aligns with your professional goals and your workplace.
  • Build some time for reflection into your study week and start a reflective practice diary!
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