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ACC207 Corporate Accounting and Financial Statement Analysis

Assignment 2 – Group-based Assignment

Question 1 CASE NOTES

Assume that you are the Investment Manager of your company. You have selected two listed companies for analysis in order to determine where your company should invest.

You are asked to perform a financial analysis of the financial statements of two companies that you have identified by calculating and interpreting the appropriate ratios for two years (current and preceding year), compare the company performance and make appropriate recommendations to your Board of Directors.

The two companies must be in the same industry for selection and comparison. Examples: consumer electronics industry, medical care, aerospace industry, hospitality industry, banking industry, Education industry, semi-conductor industry, or computer peripherals industry etc.

Required:

a. Executive Summary

Provide an executive summary of your report based on your analytical work, finding and recommendation. (5 marks)

b. Companies Information

Select any TWO companies from any Stock Exchange of your choice. Please ensure that each selected company complies with the following:

  • Availability of the Annual Report on the Stock Exchange’s website.
  • Operate and registered in the same country.

Briefly describe the general industry outlook, principal activities and the core competencies of the two companies that you have selected. Useful sources of information include (though are not limited to):

  • Annual reports ( to be attached as appendix)
  • Newspapers, trade journals, etc.
  • Bloomberg, Reuters, etc. (10 marks)

c. Financial Analysis

  • Compute 10 financial ratios per company for the past two financial years (current and preceding year) and present the ratios in a summarised table format given below. (Use Group or Consolidated figures in the annual reports to compute and show clearly the calculation of financial ratios.)

Company 1

Company 2

2011

2012

2011

2012

Profitability ratios (in

%)

Gross profit % (ROS)

Net profit %

Efficiency ratios (in times)

Inventory turnover

Asset turnover (ROA)

Liquidity ratios (in times)

Current ratio

Quick ratio

Leverage ratios

Debt ratio %

Interest cover (in times)

Investment ratios

Earning per share (EPS)

Return on equity (ROE)

(20 marks)

  • Analyse, interpret and compare the financial performance of the two companies based on the ratios computed above. (25 marks)
  • Briefly analyze the cash flow statements of both companies over the two-year period. (10 marks)
  • Draw conclusions about the overall relative financial strength of the two companies. Based on your analysis, state your recommendation as to which company you should invest in. You should support your recommendations with qualitative factors of the companies, any developments in the industry affecting their businesses and the performance of the economy, etc. You should also highlight any limitations of your analysis. (5 marks)
  • Enclosure of appendices. (5 marks)

Question 2

The use of ratios is included because of the growing importance of investment in SHARIAH COMPLIANT COMPANIES. Islamic banking is gaining popularity all over the world with a forecast that investment worth $100 billion USD will be made globally in this system by 2010.

There are many major multinationals companies (MNEs / MNCs) included in SHARIAHINDICES including companies such as Google Inc, Exxon Mobil Corp., GlaxoSmithKline plc, Siemens AG, Samsung Electronics, International Business Machines Corp., Nestle SA, and Coca-Cola.

A number of indices have been created which only include companies that are shariah compliant such as the MSCI Global Islamic Indices and the Dow Jones Islamic Index.

Required:

Do a Research or literature review on the any ONE of the TWO above listed Islamic Index and report your findings. (20 marks)

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