Corporation Finance , Company Situation Analysis
● 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:
I. Part A: Company Overview (1 page)
II. Part B: Company financials (1-2 pages)
1. Business Performance Overview (Historical Trends)
2. Financial Health and Solvency
3. Operational Efficiency and Cost Structure
III. Part C: Bond Analysis (1-2 pages)
1. Credit Rating Overview
2. Proposed New Bonds Details
3. Bond Price Calculation
4. Financial Analysis and Credit Rating Impact
IV. Part D: Share Analysis (1-2 pages)
1. Share Price Analysis
2. Dividend Payment
V. Part E: Risk Analysis (1 page)
1. Beta Calculation
2. Factors Causing Diversification in Systematic Risk
3. Common Systematic Risks
VI. Part F: Payout policy (1-2 pages)
VII. Part G: Cost of Capital and Capital Structure (1 – 2 pages)
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. Risk
The degree of uncertainty and potential for financial loss associated with an investment. Relevant risk measures include systematic/market risk showing sensitivity to overall market movements.
4. 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.
5. 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.
6. 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.
7. Financial analysis
Evaluating various aspects of a company's financial statements to assess performance and make projections. Important metrics include ratios, growth rates, credit ratings, and risk measures.
8. Financial reporting
Presenting information on a company's financial position and operations through standard reports like the income statement, balance sheet, and statement of cash flows.
Based on your assigned company there are various of journal articles and reports to be explored. Below are some reliable sources for you to find relevant articles and reports to your chosen topics.
1. News database: Wall Street Journal, Bloomberg, Forbes, Financial Times.
2. Industry data and trends: Gartner, IDC, Forrester, Euromonitor, IBISWorld.
3. Scademic insights, search journals like Journal of Finance, Review of Financial Studies or Journal of Financial Economics
I. Part A: Company Overview (1 page)
- Provide company name, industry, core business/products/services
- List stock exchange, ticker symbol, credit rating
- Name major competitors
Example:
- Company Overview:
+ Name: Newcrest Mining Ltd (NCM)
+ Established: 1966
+ Industry: Mining (Gold and Copper)
+ Global Presence: Operations on three continents - Australia, Canada, and Papua New Guinea.
+ Objective: Discover and develop long-life mines with significant mineral deposits.
- Core Business Activities:
+ Activities: Exploration, assessment, infrastructure development, operation, and maintenance of mining assets.
- Products and Services:
+ Primary Product: Gold extracted from mining operations in various forms (doré bars, gold concentrates)
+ By Product: Copper.
- Share Exchange Listing and Ticker Symbol:
+ Listed on the Australian Securities Exchange (ASX).
+ Ticker Symbol: "NCM".
- Credit Rating:
+ Credit Rating: Baa-level according to Moody's Investors Service - Baa-level considered medium-grade with some speculative characteristics.
+ Reflects the company's creditworthiness.
- Major Competitors:
+ Notable Competitors: Barrick Gold Corporation, Newmont Corporation, AngloGold Ashanti Limited, Kinross Gold Corporation
+ Competition Factors: Discovery of new mineral deposits, operational efficiency, technological advancements, regulatory navigation.
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