ADDITIONAL ASSIGNMENT GUIDANCE

Before embarking on the assignment, carefully read the requirements supplied in the subject outline.

We have also provided some past examples and extra guidance here to provide students with greater
clarity on our expectations.

This is a capstone subject. By now, students should be able to write in a clear and succinct fashion,
ensuring all the valuable material is captured within the report within the word limit. Presentation should
be very polished. Do not hand in the report until you have assessed whether its presentation meets the
standard of a management consultant. The other key factor at play here is to write the reports in your
own words. You are analysing the company and industry etc so cannot just lift material from the annual
report as this is written by company management to put a positive spin on their performance. Imagine
you are being paid as a management consultant, therefore all written material must be original. Thorough
research is required and you should keep up to date with any news releases either made by company on
ASX website or in the press during the semester as new developments may come to light. Remember,
only original work will be well graded.

The cover page for all assignments should clearly list student name and ID, the name of the chosen
company and word count.

Ensure the font style and size is maintained throughout the report.

All graphs and tables should read from left to right, be clearly sequenced (i.e. table 1 should be the first
table referred to in your report) and specifically referred to within the report, not simply attached to the
end of the report or placed within the report. If tables/graphs are not referred to explicitly in the report,
they do not add any value. The source of the material used in graphs/tables must be clearly evident.

Graphs and tables must be of a consistent size and the font size must be clearly legible. If you have multiple
elements, then ensure it is clear which line relates to which factor. Do not crowd the graph with data so
that it is not legible. Make sure all axes are labelled.

The reference page should always be in alphabetical order. Be careful to ensure that you have the family
name and then the initial of their first name the correct way.

Document must be uploaded as ASX code_student ID_student ID for GROUP AND INDIVIDUAL
ASSIGNMENTS TO EASE PROCESS OF MARKING. Do NOT use your name as the identifier – use the
company ASX code ONLY!!!! E.g. QAN_12345678_98765432.
Group Assignment

Macro Analysis: The subject outline clearly states what is required. What company are you analysing?
What countries is it primarily involved in? Then select some key economic figures. Students can present
them in a table for the reader to absorb before they embark on reading your analysis. The table should
show 5 years’ worth of historical data for each of your chosen economic factors. For every country that
represents 10% or more of the company’s revenue, you will need to provide economic indicators for
those locations too. Not all companies will be impacted by the same indicators so don’t just adopt the
same factors as other groups – look at the suggestions provided in subject outline and ask yourself what
are the most relevant to your company.

Clearly link these factors to the performance of your company over this 5-year period. This will require
you to read the company’s previous annual reports, being aware that management tend to report
outcomes in as positive a manner as possible. Remember, the purpose of macro analysis is to better
understand the external environment in which your company operates.

Finally, what do economists predict will happen to those economic factors in the future and what is the
likely impact on your company given what has happened in the past?

Review of sample average assignment: No introduction and does not mention Blackmores until midway
through page 2. Figures 2 and 3 would be helpful up front to set the scene. Most of the information is a
simple quote exercise from a number of reliable sources and the students have not been able to digest
this and relay it in their own words. The report reads as though it is a shopping list of facts and figures.
The report only provides one sentence per paragraph regarding Blackmore’s which is insufficient. The
figures are incorrectly stated – presumably should be in $000. No comment on figures 2-3 provided in
report. (given 2.5/4 marks)

Industry Analysis: Students should not undertake this section until they have thoroughly reviewed the
relevant chapters in the textbook by Palepu which provides a detailed step-by-step guide to the process.
It is an invaluable help in the process.

State up front what industry your company operates within. Try and stylise the Porter’s diagram for your
company showing level of competition for each factor as being high/medium/low. Clearly evaluate the
industry giving specific details to illustrate your thorough understanding of this particular industry.

Sample assignment: Largely repeats Allday’s findings and Palepu’s text, does not define the industry and
they should have placed their Porter’s diagram at front of section. (3.5/5)

Business strategy: What is the company’s strategy? What are the key success and risk factors? Are they
going to be able to continue using the same strategy or is it under threat? What impact will that have on
future profitability?

Sample assignment: Whilst the example has addressed a number of key success and risk factors, it is very
disappointing to see that this has largely been quoted from Blackmore’s annual report. The role of the
analyst is to independently review a company, not simply restate company marketing material which, to
a large extent, an annual report reflects. (3.5/5)

Accounting analysis: Review Palepu before commencing this section as it provides an easy guide and
questions to ask, particularly in terms of their strategy and disclosure.

Follow the six-step accounting analysis framework. In step 1-3, students need to identify key accounting
policies adopted by the company (step 1), what different accounting methods/assumptions are allowed
under the corresponding accounting standards (step 2) and evaluate whether policy chosen by your
company is appropriate (step 3). These policies should reflect the company’s key business operations.
For example, airplanes are key assets for an airline company like Qantas. One important accounting policy
is how to account for the assets, leased or purchased? And what depreciation method is used? The
relevant accounting standards are AASB 116 Property, Plant and Equipment and AASB 117 Leases. How
other airlines account for airplane assets and depreciation? Does Qantas adopt similar or different
accounting policies, and what could be the reasons?

In step 4, students should evaluate the disclosure quality. There is quite a range in transparency by
companies, some are willing only to disclose what they must, others providing far greater detail. As an
example, some companies will provide a full breakdown of the maturity structure of their loans and
interest rates associated with each loan; others will simply declare their level of debt. Some give employee
numbers, most don’t. Some will provide fairly specific detail on their sales and expenses breakdown,
others try to provide the bare minimum. All of this disclosure is helpful to analysts. Do you feel you found
all the information about the company you would have liked or is it frustratingly opaque? Has anything
changed over the 5 years making it harder to trace performance? Does the company try and focus
attention on their underlying profit rather than statutory profit as it makes performance appear stronger?

In step 5, identify any potential earnings management and explain the incentives of management to
engage in manipulating accounting numbers. If students identify any manipulations in step 5, undo the
accounting distortions or explain the potential impact on accounting figures due to the distortions, e.g.
overstate earnings, underestimate expenses. Read the audit report but don’t just state that the auditors
found no issues.

Sample assignment: The disclosure section was largely ignored. Whilst the first 2 steps were better
addressed, they would have benefited from a more coherent structure rather than all running through
together from the annual report. Again, it highlights the need to take stock of the information available
and then address it clearly and rationally in the report. (2/4)
Individual Written Report – Financial Analysis

Reformatting:

If you are not confident with using Excel please advise your tutor early in the semester so that he/she can
show you. Excel takes much of the hard work out of the exercise by using formulas which will link to later
work in ratios, forecasting and the models so take the time to familiarise yourself with how it works. . I
would suggest you either use the QANTAS reformatted tab supplied online and simply type your numbers
in but DO NOT wipe out the formulas which calculate the totals etc, OR create your own using the
reformatted QANTAS example without all the ancillary pages (your tutor will explain). The reformatted
statements should be attached as an appendix. Students should ensure that the font is of sufficient size
so that all data is legible and that nothing is cut off in the margins.

You MUST provide the following correctly to score strong marks:

A full breakdown of revenues and expenses, and balance sheet items as per QANTAS example (i.e. it is
NOT sufficient just to say revenue, operating expenses, net operating assets, net financial obligations).
Doing so makes it impossible for you to undertake a proper analysis and forecast so you must get it right
here.
• Tax allocation to operating and financing activities are clearly shown in reformatted income
statement.
• After reformatting, the calculated net income, comprehensive income, and equity figures MUST
agree with the financial statements.
• Equity balance checks must clearly be shown. That is, opening balance of common shareholders’
equity (CSE) is reconciled with closing balance.
• Both FCF checks must clearly be shown.

Ratio and CF analysis:

Ideally the ratios will be presented in a clear table within the report so the reader can digest them before
reading your analysis. You MUST provide all 6 ratios over the 5-year period. Do not undertake a lengthy
explanation of how to calculate the ratios.

The ratios should be analysed in the following order ROE, RNOA, PM, ATO, FLEV then NBC as this is a
natural breakdown of ROE as per lecture and tutorial material. You must then clearly identify and discuss
significant expenses which have impacted profit performance over past 5 years. Then clearly identify
significant assets or liabilities which have impacted ATO for past 5 years. Again, this will vary depending
on the company and industry in which the company is operating so don’t just adopt the same ideas as
your peers as it may not be relevant to your company.

CF analysis should cover the aspects of liquidity, solvency and CF management. Students should provide
the 5-year ratios (in a table or graphs), analyse them, then state the level of financial risk and strength or
otherwise of their CF management.

Students should understand what makes up the numerator and the denominator of each ratio and
therefore what has caused the increase or decrease. Wide reading about the company from its annual
report and the press will help with this. Do not simply repeat what the company has said in their report
as this may just be spin. Analyse it yourself.

The real value of this section is providing an insight into the trend of the ratios and the factors behind
these trends. Weaker responses will simply track the movement over the 5 years which adds very little to
the report as the reader can determine that from the table themselves. Stronger students will understand
what is at play behind these movements in terms of company performance, economic factors, new
markets, changes within industry, legislation, cost factors etc.

Sample assignment: Presentation of graphs at back of report is not ideal and would be better placed
alongside its respective comment. Table 2.6 overlaps 2.5. Graphs should be numbered in order according
to how they are addressed in report but this report starts with ROE but has numbered that graph 2.4.
Graph of PM is too small and numbers are indistinct. There is very little detail provided as to why PM has
changed over the past 5 years. Figures in inventory section must be in $000 or $million, not as stated.
Most of the analysis rests on stating what the ratios are at a given date but gives little comment on what
caused those changes and whether this is of concern or acceptable. There is insufficient evidence of
peeling back the layers of the company to understand what has caused any of these changes over the past
5 years. (Reformatting 1/2, ratio 1.5/5, CF 1/2)

Individual Written Report – Prospective Analysis

Forecast: Students can use either the QANTAS sample or the simplified sample we used in lectures and
tutorials. The forecast should be attached as an appendix. Students should ensure that the font is of
sufficient size so that all data is legible, is consistent throughout and that nothing is cut off in the
margins.

Explain your reasons for forecast assumptions. Clearly explain your reasoning for your forecast items –
Sales, ATO, PM, dividend payout ratio, cost of debt and cost of equity.

Weaker responses will simply state that the average of past 2-3 years is representative of the future and
make very little attempt to justify their assumptions or display understanding of the business, the
economic environment in which they operate and the sustainability of their recent performance. Students
who have read the annual report, followed the company in the press and analysed more deeply will
illustrate this in their answers.

Sample assignment: shows some considerable understanding of Blackmore’s recent performance but
recognises that some of these growth figures are unsustainable and justifies their answers with strong
evidence. Another strength of this report is the wide use of graphs referred to throughout the report and
clearly tied in to their arguments. (forecast justification 6.5/10)

Valuation: The models have been well covered in lectures and tutorials. The calculations and outcome of
the 4 models should be clearly provided in a table format so that the marker can track how the share price
was derived. Use the QANTAS samples provided. Students MUST clearly show the calculation of the WACC
and CAPM. The font must be clear and legible and no data should be cut off

The information presented should also clearly state the actual share price (year-end or more recent
specified date) and a clear statement provided comparing the outcome of the models compared to this
share price. Students are asked to determine whether the share price is under, over or correctly valued
by comparison to the models and state why some models may not project the most reliable share price
outcome.

Sample assignment: clearly and concisely addresses the question although it would be neater if the tables
could be illustrated on the dialogue pages. (3.5/4)

Sensitivity Analysis:

Provide a table showing the share price outcome of your original forecast using the Residual Operating
Income Model, now adjusted for pessimistic and optimistic outcomes. To do this, change each of Sales,
ATO, PM, dividend payout ratio, cost of debt and cost of equity (only change 1 factor at a time and hold
all others constant) and determine the impact on the share price and how that compares to the original
forecast share price. The tables should be very clear in illustrating the base case versus the sensitivity
analysis, highlighting which factor causes biggest impact. The font and information should be legible.

Clearly explain how you derived the optimistic and pessimistic factors for your sensitivity testing. Clearly
identify which factors the model is most sensitive to. Be careful to recognise that a reduction in cost of
debt and equity is a positive event.

Weaker responses simply state that the various factors of sales growth and PM etc are
increased/decreased by a certain % without any justification of their assumptions based on the historical
performance of the company and the economic factors at play.

In this section, students should be able to identify several areas of potential opportunities or challenges
facing the company. The more detail that a student is able to provide, the greater the level of analysis
and understanding of your client is evidenced. Students should be able to draw on their knowledge
gleaned in the group assignment in terms of economic factors and the Porter’s analysis to determine the
challenges and strengths for their company. Look at the sensitivity analysis to determine what has biggest
impact on your particular company.

Sample assignment illustrates both the base case outcome and the impact of the sensitivity analysis well.
Greater detail on the choice of assumptions is warranted. (5/6)