Abdill Career College Company Analysis Report

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Abdill Career College

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Follow the instruction to write 1800words finance reportPlease go through all information very carefully

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Turnitin report is required

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AFIN 102 | S2 2019 | Individual Assignment Instructions AFIN 102 | Finance 1B | Individual Assignment Instructions Session 2, 2019 Due date and time: 11:59pm Sunday 20th October, 2019 (Week 10) Word Limit 1800 words Case Study Note: This is a fictitious event and business created exclusively for use in this assignment. As a new junior analyst for a large brokerage firm, your first task is to analyse the shares of FuzzyFruit, a beverage manufacturer in Australia. Your manager recommends determining prices based on both the discounted free cash flow valuation method and the comparable P/E ratio method. You are a little concerned about this recommendation because your finance lecturer has told you these two valuation methods can result in widely differing estimates when applied to real data as the result is very sensitive to your assumptions. He stressed on several occasions that it is essential to provide very strong justification for these assumptions. It is also very important to be self-critical. It would come as no surprise if this turns out to be a major marking criterion for assignments. You did some research online and you have discovered the following financial information: FuzzyFruit Statement of Profit and Loss For the year ended 30th June 20XX Sales Cost of goods sold Gross operating profit Selling, general and administrative expenses EBITDA Depreciation and Amortisation EBIT Income taxes Net Income Shares outstanding Earnings per share 2018 $ 250,000 125,000 125,000 2017 $ 200,000 110,000 90,000 2016 $ 150,000 90,000 60,000 50,000 30,000 25,000 75,000 10,500 64,500 19,000 45,500 5,000 $9.10 60,000 8,500 51,500 15,500 36,000 45,000 6,000 39,000 11,100 27,900 28/8/2019 Page 1 of 5 AFIN 102 | S2 2019 | Individual Assignment Instructions FuzzyFruit Statement of Financial Position For the year ended 30th June 20XX Current Assets Cash and equivalents Receivables Inventories Other current assets Total current assets Non-Current Assets Property, plant and equipment Less: Accumulated depreciation Investments Other non-current assets Total non-current assets Total assets Current liabilities Accounts payable Short-term debt Other current liabilities Total current liabilities Non-current liabilities Long-term debt Total non-current liabilities Total liabilities Shareholders’ equity Common equity Retained earnings Total equity Total liabilities and equity 2018 $ 2017 $ 2016 $ 20,000 40,000 29,000 23,000 112,000 15,000 32,000 20,000 23,000 90,000 12,500 30,000 18,000 20,000 80,500 145,000 (43,000) 70,000 36,000 208,000 320,000 160,000 (38,000) 50,000 36,000 208,000 298,000 155,000 (32,000) 45,000 30,000 198,000 278,500 41,000 12,000 17,000 70,000 30,000 10,000 15,000 55,000 25,000 8,000 14,000 47,000 100,000 100,000 170,000 100,000 100,000 155,000 100,000 100,000 147,000 40,000 110,000 150,000 320,000 40,000 103,000 143,000 298,000 40,000 91,500 131,500 278,500 Key Financial Information • 5-year Government bond rate: 3.0% • Market Risk Premium: 5% • Beta for FuzzyFruit: 1.5 • Yield on the company’s long-term debt: 6%. 28/8/2019 Page 2 of 5 AFIN 102 | S2 2019 | Individual Assignment Instructions As you are a new employee, you are unsure where to start. Therefore, your manager has given you some guidance and a framework to begin with. Section 1: Executive Summary The executive summary should state what this report is about, what methods you have used and your recommendations. Section 2: Macroeconomic and Industry analysis FuzzyFruit, a beverage manufacturer in Australia, competes with similar companies that are currently listed on the Australian Stock Exchange. Required: 1. Select at least 2 similar companies from the same industry as FuzzyFruit. Justify your choice carefully. 2. Discuss the following in your own words. Use references where appropriate: a. Performance of the industry over the past 3 years b. Short-term (up to 5 years) outlook for the industry, including identification of two (2) major risk factors and an explanation of how these affect the performance of the industry c. Forecast the short-term growth rate for the industry based on the above information d. Discuss the long-term (beyond 5 years) macroeconomic outlook and use relevant information to forecast the long-term growth rate for the industry Section 3: DCF Analysis Use excel to determine the share value based on the discounted free cash flow method: 1. Use the historic data from the financial statements above to compute the three-year average of each of the following ratios: a) EBIT/sales; b) tax rate (income tax expense/income before tax); c) property, plant and equipment/sales; d) depreciation/property, plant and equipment; e) net working capital/sales. 2. Create an empty timeline for the next five years; 3. Forecast future sales based on the short-term growth rate discussed in section 2, part 2(c) of this assignment 4. Use the average ratios computed in part (3.1) to forecast EBIT, property, plant and equipment, depreciation and net working capital for the next five years; 5. Forecast the free cash flows for the next five years using Eq. 10.2; 6. Determine the horizon enterprise value for year 5 using Eq. 10.6 and a long-run growth rate that has been determined in section 2, part 2(d) of this assignment 7. Determine the enterprise value of the firm as the present value of the free cash flows; 8. Determine the share price using Eq. 10.4, with reference to the cash, debt and number of shares outstanding provided in the financial statements in this case. 9. Provide a summary of these results in your report. 28/8/2019 Page 3 of 5 AFIN 102 | S2 2019 | Individual Assignment Instructions Section 4: Ratio Analysis 1. Calculate an estimate of the share price for FuzzyFruit based on a comparable P/E ratio, (multiply the average of the P/E ratios of your comparable companies by the EPS of FuzzyFruit). 2. Use a similar method to estimate the value of the shares of FuzzyFruit based upon the following ratios: a. P/E to Growth b. Price to Sales c. Enterprise Value/EBITDA d. Price/EBITDA 3. Discuss the differences between the share price forecasts you have made in parts 1 and 2 above. Which one do you believe would be a more accurate measure for FuzzyFruit’s share price? Explain your choice. Section 5: Discussion Explain to your manager why the estimates from the two valuation methods differ and which one you believe is most reliable. Your explanation should specifically address the following factors: • the assumptions implicit in the models themselves, and • the assumptions you made in preparing your analysis. Submission Requirements: • • • You must submit both your written report and the Excel file supporting your report to Turnitin. Your written report should contain the key information from your excel file that you used to supports your conclusions. Links for submission will be provided on iLearn Name your files as follows: Report: Excel File: V1_SID_report V1_SID_excel Example: Student Number: 43215678 à Submit as: Report: V1_43215678_report Excel File: V1_43215678_excel IMPORTANT: Incorrectly named files will lead to a 10% penalty • • External sources of information must be referenced using APA style. A word limit of 1800 words applies to the word document only and excludes any tables or references. 28/8/2019 Page 4 of 5 AFIN 102 | S2 2019 | Individual Assignment Instructions CONDITIONS: Late submission You are responsible for submitting the assignment on time via Turnitin. There will be a deduction of 10% of the total available marks made from the total awarded mark for each 24 hour period or part thereof that the submission is late (for example, 25 hours late in submission – 20% penalty). This penalty does not apply for cases in which an application for special consideration is made and approved. No submission will be accepted after solutions have been posted. Plagiarism: Plagiarism is presenting someone else work as your own and is a serious offence with serious consequences. Student must be aware of your responsibility of maintaining academic integrity as outlined in the Academic Integrity Policy, where: Schedule 1, (10) Students are responsible for: a. when engaging with an academic exercise, acting in accordance with this policy and the standards set out in Schedule 2: Definitions of Academic Activities; b. notifying suspected breaches of academic integrity in accordance with the relevant disciplinary process. In particular, students must refrain from engaging in unacceptable academic activities outlined below: PART B: UNACCEPTABLE ACADEMIC ACTIVITIES Participating in an unacceptable academic activity may amount to an allegation of misconduct or academic misconduct in accordance with the relevant disciplinary processes. Failure to act in accordance with commonly held acceptable academic activities will be considered unacceptable. Unacceptable activities include, but are not limited to, the following academic (including learning and teaching and research) activities: Cheating: is any attempt to dishonestly give or obtain assistance from another person, material, or device in an academic exercise Contract-cheating: is having another person or entity conceive, research or write material for an assignment and submitting the work as one’s own, irrespective of whether the other person or entity was paid for the material. Collusion: is unauthorised collaboration in producing an academic exercise that is designated as an individual task. Deception: is providing false or misleading information to the University. Fabrication: is to forge or falsify any information or citation in an academic exercise or report false or misleading results or conclusions of any research. Impersonation: is pretending or assuming another person’s identity or using a substitute person for the purposes of providing an advantage. Obstruction: is intentionally impeding or interfering with another person’s academic activity. Plagiarism: is adopting or reproducing the work or ideas of another person, whether intentionally or not, and presenting this as one’s own without clearly acknowledging the source of the work or ideas. Sabotage: is acting to prevent or hinder another person from completing an academic exercise to the best of their abilities including by making information or material unavailable to others or disrupting or interfering with an academic exercise, experiments, research or other academic activity of any other person. Self-plagiarism: is unacknowledged use of material you have previously published or submitted. 28/8/2019 Page 5 of 5 AFIN 102 | S2 2019 | Individual Assignment Student Number: AFIN 102 Individual Assignment Report Executive Summary Assigned Company Name Sector 10/9/2019 Page 1 of 8 AFIN 102 | S2 2019 | Individual Assignment Student Number: Macroeconomic and Industry Analysis 10/9/2019 Page 2 of 8 AFIN 102 | S2 2019 | Individual Assignment Student Number: DCF Analysis 1. Key ratio for DCF analysis 2016 2017 2018 Average EBIT/Sales Tax Rate PPE/Sales Depr’n/PPE NWC/Sales Forecast growth for next 5 years Enter the forecasted growth rate for 2019 – 2023, it should match with your explanation under Questions 2(b) and (c) from Section 2 of your own assignment. Forecasted Growth Rate for next 5 years (2019 – 2023) Forecasted key financials 2018 2019 2020 2021 2022 2023 Sales EBIT PPE Depreciation NWC 10/9/2019 Page 3 of 8 AFIN 102 | S2 2019 | Individual Assignment Student Number: Forecasted FCF 2019 2020 2021 2022 2023 EBIT Tax Earnings Add Depreciation Changes in NWC FCF Horizon Enterprise Value Enter the forecasted long-term growth rate beyond 2023, it should match with your explanation under Question 2(d) from Section 2 of your own assignment. Long Term Growth Rate Cost of Capital Data Risk-free rate Beta Market Risk Premium CAPM Cost of Capital Cost of debt WACC 10/9/2019 Page 4 of 8 AFIN 102 | S2 2019 | Individual Assignment Student Number: Compute the horizon enterprise value (HEV2023) using Eq. 10.6, ensure you included the calculation steps in this assignment: Horizon Enterprise Value (HEV 2023) Enterprise Value Analysis 2019 2020 2021 2022 2023 HEV 2023 FCF Determine the enterprise value of the firm as the present value of the free cash flows: Enterprise Value (EV0) Cash available in the company Debt outstanding for the company No. of shares outstanding Estimated share price 10/9/2019 Page 5 of 8 AFIN 102 | S2 2019 | Individual Assignment Student Number: Section 4 – Multiple Analysis 1. Companies listed on ASX that is comparable to your allocated company, with explanations and references: Estimation of the share price for your allocated company based on a comparable P/E ratio(s): (Please list the steps required for calculation) 2. Other estimates for your allocated company: Multiples Estimated Share Price (List all steps) P/E to Growth Price to Sales Ratio Enterprise Value/EBITDA Share Price/EBITDA 3. Discuss your results above 10/9/2019 Page 6 of 8 AFIN 102 | S2 2019 | Individual Assignment Student Number: Section 5: Discussion Question 10/9/2019 Page 7 of 8 AFIN 102 | S2 2019 | Individual Assignment Student Number: Reference List 10/9/2019 Page 8 of 8
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