FINANCIAL ANALYSIS REPORT
As an investment analyst, you have a client who has asked for advice on whether or not to invest $9 million in shares in an import/export company (Company X) operating in the Pacific Rim region. Company X changed ownership in July 2009, and it is claimed by the new owners that the company has since been modernised. It is also claimed that after an initial development period results have improved dramatically. Your client’s investment funds, equivalent to 9 million $1 ordinary shares, would provide additional working capital for the business.
On the following pages are profit and loss statements and balance sheets for the company for the three most recent years of its operation. These financial statements relate to financial years ending on 30 June. The objective of the assignment is to undertake an analysis of the financial results of the company and then to prepare a business report setting out the results of the analysis. The purpose of the analysis is to make a decision as to whether or not the company would be attractive as a share investment.
Steps in the assignment are as follows:
Step 1: Using the financial statements provided, calculate the ratios listed in the table headed ‘Relevant Financial Ratios’. The ratios to be calculated are then to be displayed in the blank cells in the table for financial years ending 30 June 2009, 2010 and 2011. Also to be displayed are the formulas used to calculate each ratio (as an Appendix).
Step 2: Under each of the four headings of ‘Performance’, ‘Efficiency’, ‘Financial stability’ and ‘Market price ratios’, note which ratios are trending favourable or unfavourable over the three year period. Comment on any ratios that give cause for concern from an investment perspective, including reasons why the ratio is a concern.
Step 3: Formulate a conclusion as to whether or not the company would be an attractive investment, with reasons for this decision.
Step 4: Prepare a business report of 5-8 A4 pages setting out the results of the financial analysis and conclusion. The report structure is to comprise the following sections:
1. Purpose of the report.
2. Completed table of relevant financial ratios.
3. Analysis of the ratios over the three years, focusing in particular on the performance and financial stability of the company.
4. Ratios of concern from an investment perspective.
5. Conclusion and recommendation as to whether or not the company would be attractive as a share investment.
6. An appendix showing all the formulas used to calculate the financial ratios analysed in the report.
Rest in the attachment PDF.
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