BAFI1008 BUSINESS FINANCE Firm Analysis Report
Type: Individual assignment
Marks: Weighted 40%
Task: This assignment will require you to analyse a firm of your choice from various
perspectives. The assignment will cover the topics bond valuation, share valuation, cost of
capital, market efficiency, and more.
Word count: A limit of 12 pages (excluding cover page, table of contents, introduction,
references, appendices etc.)
For this assignment you will write a firm analysis report. You will analyse a firm of your choice
from various perspectives. Each part of the assignment relates to a Business Finance topic
covered in a different study week. In order to write a high-quality report, you will need to work
on this assignment throughout the semester, and focus on each of the different parts of the
assignment during the relevant teaching week.
Part A: Company Selection (1 Page)
Your task in the first part of the assignment is to select a publicly traded company, listed in
either Australia or in the U.S. You will perform various analyses on this company during this
semester. In order to be able to complete these analyses, there is a number of selection criteria
for your company:
The company has outstanding bonds as well as shares.
The company’s shares have been paying dividends for at least 5 years.
Information on listed companies and their outstanding securities is available on public
investing websites, such as investing.com, or Yahoo Finance. To find out whether a company
that you are interested in has bonds outstanding, type the name of your company in the search
bar on investing.com, and a dropdown menu will appear showing all outstanding securities of
this firm (there should be shares as well as bonds). To find out whether a company you are
interested in has been paying dividends, select the stock of your company on Yahoo Finance,
and go to Historical Data, and select Show: Dividends Only. (Hint: firms that both pay
dividends and have bonds outstanding are often mature, well-established firms)
Once you have found a company of your interest that fulfils all selection criteria, provide
an overview of the company details, listing your company’s name, name of the stock exchange
on which the firm’s stock is listed, its ticker symbol, and a list of a maximum of five of the firm’s
outstanding bonds, including coupon rates and maturity dates. This page will also be the front
page of your assignment, so make sure it looks attractive and professional. Feel free to add
additional information which you think is relevant for investors in the company’s shares and
bonds.
Part B: Company financials (1 – 2 pages)
Write a brief report describing the company’s financial situation, and the major opportunities
and challenges in the coming years. Your analysis should be based on at least 3 reputable
business publications (which are NOT publications of the company itself). One place to find
the company’s financial statements is investing.com (select your company, and click on
Financials).
Part C: Bond Analysis (1 – 2 pages)
The topic of this part of the assignment is covered in Week 3. In this part of the assignment
you will analyse one of the firm’s outstanding bonds. Firstly, compute the credit spread of this
bond, by comparing the yield-to-maturity on this bond with the yield on Treasury Bonds of
comparable duration. (For information on current US treasury yields, go to Yahoo Finance,
and type “treasury yield”. For AUS yields see the RBA website and look for “Capital Market
Yields – Government Bonds – Monthly”). Secondly, estimate the bond’s price one year from
now (assuming that interest rates remain constant), and comment on the reason behind the
expected price change (if any) from the current price of the bond. Finally, provide a credit
rating for the firm’s bonds, based on your analysis of the company bond, as well as your
analysis in Part B of the assignment, and explain why you have given this rating.
Part D: Share Analysis (1 – 2 pages)
The topic of this part of the assignment is covered in Week 4. In this part of the assignment
you will analyse your company’s shares. Firstly, provide a graph and comment on the
company’s stock price changes in the previous three years. Explain what factors have caused
the stock price to develop as it did, and link this investigation to your analysis in Part B of the
assignment. Secondly, provide an overview of the firm’s dividend payments during the
previous 5 years. If your company paid dividends more than once a year, sum up all dividends
to find the total yearly dividend. Using the dividend discount model, estimate the return that
investors currently require for holding your company’s stock. You can assume that the firm’s
dividends will continue to grow indefinitely at the same rate as the average dividend growth
rate in the previous five years, or you can make alternative assumptions on the future dividend
payments, as you see fit.
Part E: Market efficiency (1 – 2 pages)
The topic of this part of the assignment is covered in Week 9. In this part of the assignment
you will investigate the efficiency of the market in which your company is listed. You will do an
event study, and investigate your company’s stock price around a recent earnings
announcement of the company. Firstly, you will have to identify a date on which your company
has done an earnings announcement. Go to Yahoo Finance, and type “earnings calendar”,
and then type your company’s ticker code in the separate search bar. The announcement date
is termed day 0. Next, download the daily stock prices of your company during the period
around the earnings announcement date, and plot a graph of the stock price from trading day
-5 to trading day 5. Trading days are all days during which the stock exchange is open. In
event studies we ignore weekends, which means, for example, that if the announcement day
(day 0) is a Monday, then (day -1) is going to be the previous Friday. Write a short essay to
address the following questions. What is the efficient market hypothesis? If the market is
efficient, what is the expected stock price reaction to an earnings announcement before day
0, on day 0 and after day 0? Look at the stock price of your company, is the market efficient?
Part F: Cost of Capital (1 Page)
The topic of this part of the assignment is covered in Week 10. In this part of the assignment
you will have to estimate your company’s weighted average cost of capital (WACC).
Report
Your firm analysis will need to be presented in a high-quality report. Please see the Reports
checklist for the requirements of a high-quality report. It is very important to make sure that
each part of the assignment clearly explains which methods are used, shows calculations,
includes references to the source of each piece of information, and comments on the results
of the analyses.