Accounting & Finance

Individual Assignment

Due Date: 5pm, 24 March 2011

Weighting: 20% of total assessment

FINANCIAL STATEMENT ANALYSIS

You have inherited $500,000 and are looking for an investment opportunity. You think the stocks in the con-sumer sector of the Australian Stock Exchange are undervalued because of recent reports on poor retail sales and uncertain economy. Your friend (the lecturer) has identified a stock as being a possible good investment opportunity. Your investment is to be of a medium-term nature (more than 12 months) and you prefer to invest in companies with strong financial fundamentals.

You have collected comparative financial statements and will use them to undertake a detailed financial analysis to help you decide if the company is a good investment opportunity. Part of the process is to ana-lyse the financial statements of the chosen company. Your decision will be to either (a) invest in the chosen company; (b) not invest in the chosen company, OR (c) refrain from investing in the consumer sector.

Instructions

Using Chapter 13 “Contemporary Accounting” (Bazley and Hancock) as a guide, your decision should in-clude an analysis of the company’s (year-to-year) last three years (2008 to 2010) financial performance. Definitions of ratios together with actual ratio calculations should be tabulated and attached to your report as an appendix.

(a) This analysis should include financial ratios. Financial ratios selected should consider the following issues:

i. Profitability

ii. Efficiency

iii. Solvency

iv. Market-based ratios

You should be selective in your choice of ratios as not all ratios are applicable to the business. While you are expected to discuss the above issues, greater coverage should be given to the components of each ratio. You should investigate to determine the significant or determining factors in any change to the ratio.

(b) A discussion of the financial ratios you have calculated, highlighting the...