1. ASSIGNMENT RECAP

• Write a 3500-word (12-page) report analyzing the finances of an assigned company for senior management covering topics like bond valuation, share valuation, risk, payout policy, cost of capital, and capital structure.

• Demonstrate understanding of financial concepts and ability to research and analyze the assigned company.

Structure:

1. Part A: Company Overview (1 page) 

2. Part B: Company financials (1-2 pages) 

3. Part C: Bond Analysis (1-2 pages) 

4. Part D: Share Analysis (1-2 pages) 

5. Part E: Risk Analysis (1 page) 

6. Part F: Payout policy (1-2 pages) 

7. Part G: Cost of Capital and Capital Structure (1 – 2 pages)

B. KEYWORD EXPLANATIONS

1. Bond Valuation

The process of determining the fair price of a bond involves calculations of the bond's present value based on its coupon rate, maturity, and market interest rates.

2. Share Valuation

Estimating the intrinsic value of a company's stock using valuation models like the dividend discount model, which calculates price based on expected future dividend payments.

3. Payout policy

A company's strategy for distributing profits to shareholders, including decisions on dividend payments and share repurchases. Factors like sustainability, signaling, and taxes influence policy.

4. Cost of capital 

The minimum required rate of return needed to justify investment in a project or asset, often calculated as a weighted average cost across debt, equity, and other funding sources.

5. Capital structure 

The mix of long-term debt, equity, and other financing used by a firm, which impacts its risk profile and cost of capital. Optimal capital structure minimizes cost while maintaining financial flexibility.

C. DETAILED OUTLINE 

1. Part A: Company Overview (1 page)

• Provide company name, industry, core business/products/services

• List stock exchange, ticker symbol, credit rating

• Name major competitors

2. Part B: Company Financials 

1. Business Performance Overview (Historical Trends):

• Production Metrics: Key production figures (e.g., units, output) over the past 3-5 years.

• Financial Metrics: 

• Historical financial performance, including revenue, EBITDA, and net income.

• Identify peak performance years and key drivers.

2. Financial Health and Solvency:

• Debt and Liquidity:

• Analysis of debt levels and recent financing activities.

• Assessment of liquidity position and any recent changes.

• Financial Ratios:

• Key financial ratios from Bloomberg, Yahoo Finance,etc 

E.g: + debt-to-equity - to understand how much a company relies on debt to finance its assets.

   + current ratio - to assess whether a company has enough resources     to pay off its short-term debts.

   + quick ratio - Particularly relevant in industries where inventory is less liquid or more subject to value fluctuations.

• Choosing the Right Ratio: Nature of Industry, Purpose of Analysis, Comparative Analysis

• EBITDA to interest coverage and net debt to EBITDA ratio.

3. Operational Efficiency and Cost Structure

• Cost Efficiency:

• Evaluation of cost structure efficiency.

• Identify any cost reduction or optimization strategies.

• Operating Margin Analysis:

• Historical trends in operating margins.

• Factors influencing changes in operating costs.

Example: 

• Trend: Decreasing trend from $1164Mn (2021) to $778Mn (2023).

• Contributing Factors: Higher operating costs due to inflationary pressures post-COVID-19 and global geopolitical tensions.

• Operating Cost Increase: Nearly 30% from 2020-2023, impacted by inflation in input costs (oil, gas, steel, labor) and shipping challenges.