You are an investment analyst, and have recently reviewed the financial statements of your allocated company. You are helping your managers make a decision about whether to advise their clients to invest by buying shares in the company, and the level of risk that may be involved in doing so.
Prepare a report for your managers covering the following areas:
Provide a brief summary of the main operating activities of your allocated company and a brief description of the industry in which it operates.
b) Ratio Analysis
Calculate the following ratios for the two most recent years (2019 and 2018) and analyse what each ratio tells an investor about the business:
• Return on capital employed
• Gross profit margin
• Operating profit margin
• Current ratio
• Acid test ratio (quick ratio)
• Inventory days
• Interest cover
• Earnings per share
• Dividend yield
There are 2 marks for each set of ratios (20 marks total) and 40 marks in total for your analysis. Your answer should also include a brief discussion of the limitations of ratio analysis (10 Marks).
Note: For those investment ratios that require a market share price, you should use the closing share price for the first working day after the financial year end date (as shown on the balance sheet) for each year, as available using ‘Historical prices’ on Google Finance. These share prices are quoted in pence.
c) Needs of different user group
Explain which elements of your analysis would be most significant if the user group you were advising was lenders rather than investors. Why would these elements be significant to lenders? What additional ratios would you calculate for lenders and why?
d) Summary and Recommendation
Based on your analysis, advise your managers about whether they should advise their clients to invest in the shares of the company, and what risks they may face in doing so.
TOTAL 100 Marks
Note: No marks will be awarded for reproduction of extracts from the accounts without further analysis and explanation.
The limit for this assignment is 1,500 words. This limit excludes tables of figures or ratios, footnotes, references, bibliography and appendices. You should include a note of the word count on the cover of your assignment.
Your assignment should include a bibliography and all sources should be appropriately referenced using the Harvard referencing system. See the Skills@Library website at: https://library.leeds.ac.uk/skills-referencing
You should be aware that the University subscribes to an electronic plagiarism detection service which will be used.
Financial Statements Used
You should use the most recent consolidated (group) financial statements of your allocated company for this assignment – a link to these has been provided in the guidance about the allocated companies on Minerva, with some brief additional guidance about the figures you should use.
You may want to include specific extracts from the financial statements in the report itself to illustrate the points you have made. You can do this either as appendices or in the main body of the assignment using pdf extracts. No marks will be awarded for simply reproducing sections from the accounts; it must be used as evidence to support your analysis. Extracts will not count towards the word count of your assignment.
The examiner will be awarding marks for your ratio analysis based on the following:
Your ability to relate the ratios to the financial performance and position of the business.Your ability to study the financial statements and other sources to find the information you need.The ability to tailor your analysis to the needs of an investor.Your ability to identify the different needs of another user group (lenders) and explain these.Your ability to arrive at a clear conclusion. Make sure you base your conclusions on your previous analysis.
The post Topic: You are an investment analyst, and have recently reviewed the financial statements of your allocated company(Morrison).
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