Assessment 2: Financial Reporting analysis
The aim of this assignment is to provide you with the opportunity to apply quantitative and qualitative analysis to financial information to assist with decision making. You will also develop your analytical, problem solving and report writing skills.
CO2. Analyse and interpret information about financial position and performance
CO3. Apply management accounting and financial management principles to basic business transactions and business decision making
CO5. Use financial accounting data to analyse a simple investment decision
|Component||Course Objectives||Weighting||Due date||Individual or pairs||Details||Submission process|
|Business Report||2;3;5||30%||12October 2017, 2:00pm||Individual||1500 words||Online
This task requires you to assume you are a financial analyst in an investment company and prepare a report on your analysis and findings. You will research information from the websites and annual reports of two companies and perform the calculations as described in Part A below. You will then use these calculations to inform your discussion and recommendations about an investment decision for your company. You are guided to complete this section of the report in Part B below.
Part A – Calculations (35 marks)
Research the following two companies by consulting their websites and annual reports.
Access the annual reports:
- ERM Energy Limited’s Annual Report 2016, and
- Pacific Energy Limited’s Annual Report 2016
- Prepare a horizontal analysis of the consolidated income statements and consolidated balance sheets of both companies for the year ended 30 June 2016(4 marks)
- Prepare a vertical analysis of the consolidated income statements and consolidated balance sheets of both companies for the year ended 30 June 2016(4 marks)
- Calculate the following ratios for both companies using their income statements, balance sheets and statements of cash flows for the year ended 30 June 2016.
- Profitability ratios (4ratios)(8 marks)
- Asset efficiency ratios (3 ratios) (6marks)
- Liquidity ratios (3 ratios) (6 marks)
- Capital structure ratios (5 ratios) (7marks)
These calculations provide information which you will analyse in the body of the report and should be attached to your final report as an appendix.
Within the body of the report answer the threequestions included below in Part B:
Part B – Financial analysis and interpretation for decision making(65 marks)
- Based on your calculations in Part A,make decisions based on evidence and justify each answerwith reference to relevant sources.
- Evaluate the profitabilityof both companies. Do you think each company is generating healthy returns? (8marks)
- Evaluate the asset efficiency ratios of both companies. Which company is more efficient in managing its assets/resources? (9 marks)
- Appraise the liquidity ratios of both companies. Can both companies meet their short-term debts and stay in operation in the short term? (8 marks)
- Critically discuss the capital structure ratios of both companies. Can these companies successfully pay off their long-term debts and stay in operation in the long-term, i.e. their long-term financial stability? (10marks)
- Assume you are a financial analyst in an investment company which intends to invest either in ERM Energy Limited or Pacific Energy Limited. Based on your analytical research and findings after studying their financial statements, make your recommendation to invest in one of the companies.
- Explain three main shortcomings of your investment decision based on financial statement analysis. Do you think that CSR dimensions are very important for business sustainability, competitiveness and decision making? What is your assessment about the social and environmental performance (non-financial performance) of both companies? Which company is performing better in CSR?
- The report format and presentation:
- Executive Summary, and Introduction
- Quality of presentation – Title page, tables of contents, headings, grammar, style and professionalism, clarity and logical flow, engagement of research, appendix and references
(4+3+3 = 10 marks)
The Organisation of your Report
The ‘Business Report’ should be no longer than 1500words and contain the following sections:
- A cover page;
- Executive summary of the report (or synopsis)
- Table of contents
- Financial ratio analysis and interpretation
- Limitations of financial ratio analysis and non-financial information of an entity
- Reference List (Please include a minimum of 5 references)
Birt J, Chalmers K, Maloney S, Brooks A & Oliver J 2016, Accounting: business reporting for decision making, 6th Edn, Wiley, Milton, Queensland.
- Please refer to Chapter 8:
- 322-326 for Horizontal Analysis
- 328-329 for Vertical Analysis
- 330-353 & Appendix 8 A, pp. 380-381 for Ratio Analysis
Part A is NOT included in the word count and should be attached as an appendix to the report.
Penalties apply for violating the word limit (10% deduction per 250 words over limit).
The presentation of your assignment is extremely important. The assignment must be carefully typed and professionally presented.Marks will be deducted for poor presentation.