ASSIGNMENT DETAILS
Some of the main financial activities that a company’s managers undertake are financial analysis, investment decision and arranging finances to fund the investment decisions. These functions are interlinked as a manager conducts financial analysis to evaluate feasibility of an investment decision and then evaluates that investment on its financial merits. Once the manager decides on the investment decision, then the manager has to arrange financing to fund the investment.
With the above background in mind, you are required to choose two direct competitors (a good example of direct competitors is PepsiCo and Coca Cola Inc. as they are similar in size, products and geographical operations) who are included in FTSE 250 index. If you are a non-UK student, then you can either choose FTSE 250 company or you can choose two direct competitors in 100 largest companies (by market capitalisation) on your local stock exchange.
Once you have chosen the companies, you are required to perform the following tasks;
- Provide introduction to your chosen companies and discuss why you think they are direct competitors.
- Perform financial analysis (specifically ratio, horizontal and vertical analyses) on your two chosen companies. For each metric of ratio analysis (profitability, liquidity, risk, management) calculate at least three ratios and show for each metric which of the competitors is doing better and why? Note: You can calculate the ratios yourself or you can use published ratios (providing source) and put them in an appendix. This will not count towards the word count of the report. For horizontal analysis you should choose data for last 5 years. The emphasis of this task is on critical analysis of the financials rather than just calculation of ratios. You are expected to discuss why each ratio is at its current level and its implications for the company. So for example, if gross margin is declining, then saying it is due to rising costs is not enough. You need to evaluate the actual factors like increase in energy prices and reducing customer demand for the products are resulting in higher costs and lower sales which in turn are causing gross margin to decline.
- Assume that one of your chosen companies wants to increase its sales by 2% per year for the next 5 years. To achieve this target, they have decided to acquire a company that they feel is a suitable fit. The value of the target company is £1.2 billion and the cost of capital for the company is 12%. Using the latest financials of the acquiring company, calculate the payback period, NPV and IRR of this acquisition. Advise the company based on your analysis whether the company should go ahead with the acquisition or not.
- Suppose your chosen company decided to proceed with the acquisition. What are various ways in which it could raise the required £1.2 billion? What will be the implications of various sources of funds used. You can choose to advise a combination of sources rather than a single source if you deem appropriate. The report is to be handed in by the submission date including all academic references used in the report. References will be provided in alphabetical order using the Harvard system. Each student is expected to demonstrate both their understanding of financial information from a managerial/financial analyst perspective, and their competency using concepts and relationships in their analysis of a real company in its up to date environmental conditions.
Learning outcomes:
1. Critically discuss and evaluate the requirements of contemporary managers in relation to decision making and financial management in modern business context,
2. Critically discuss and apply quantitative and qualitative analytical skills in financial decision-making.
3. Apply modern financial decision-making skills in evaluating performance of an organisation
