Using annual reports perform a comparative financial statement analysis of the two companies over…

Context:

You are expected to prepare a Report based on the following case.

The Case Analysis requires students to apply their knowledge of key finance concepts such as

financial statement analysis, risk and return, capital structure and valuation of shares to an analysis

of two companies that are listed on the Australian Securities Exchange (ASX).

Your facilitator will allocate to you two companies from the same sector drawn from the ASX100 list

of 1 October 2019 (list of companies provided at the bottom). These are the top 100 Australian

companies by market capitalization as of that date.

Instructions:

(a) Using annual reports perform a comparative financial statement analysis of the two companies

over the period 1 January 2014 to 31 December 2018. You are expected to calculate the

Profitability, Liquidity and Investment ratios. (10 marks)

(b) Using information for each of the five years (2014 to 2019) examine the capital structure of the

two companies and comment on how the capital structure has changed over the period. (10

marks)

(c) Determine a historical weighted average cost of capital (WACC) for each of the years for each

company. (10 marks)

(d) Using qualitative and quantitative information, some from previous calculations, and any other

relevant information perform a valuation of the two companies’ shares using the following

techniques:

(i) Discounted cash flow approach – any one technique. (10 marks)

(ii) Relative valuation which is based on a market to book value ratio. (10 marks)

(e) Assuming you inherited $7 500 000 from your late aunt, which of these two companies’ shares

would you invest in? Justify your answer using information from above and also taking into

account the dividend policy followed by each of the companies. (10 marks)

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