Financial Information for Decision Making

GENERAL

Students are encouraged to commence this assignment as soon as practicable, noting that the analysis of financial statements using appropriate ratios is covered in week 6 & 7. This is a group assignment (maximum of four students) and is not to be undertaken independently.

 

REQUIREMENTS

  • You are required to undertake financial statement analysis on Myer Ltd and prepare a written report (3,000 word limit) – see recommended structure below.
  • Your report must incorporate financial statement analysis that examines the profitability, efficiency, liquidity, gearing and cash flows of Myer Ltd.
  • Use the data from Myer Ltd’s financial statements (annual reports) to undertake financial statement ratio analysis – see below.
  • Your report should cover a 3-year period for the years ending 30 June 2017 to 30 June 2019 and should be sufficiently broad in scope to demonstrate your understanding of findings following the analysis.
  • The Myer Ltd Annual Reports can be downloaded at the following link:

http://investor.myer.com.au/Reports/?page=Annual-Reports

 

REPORT STRUCTURE

  1. Title Page
    • Title of your report
    • Group name (i.e., Wed 7:30 John Group 1)
    • Student names and I.D.

 

  1. Declaration and Statement of Authorship (See Appendix A)

 

  1. Group Contribution Table (See Appendix B)

 

  1. Executive Summary
    • A brief discussion of the aim and scope of the report.
    • A brief discussion of the company.
    • A brief discussion of key findings and recommendations.

 

  1. Company and Industry Background
  • Brief company profile of Myer Ltd – include its history, financial highlights, and other relevant company information such as when and where it started operations; any major expansions and acquisitions from then to now; types of products/services it offers, significant business relationships.
  • Industry – includes identifying which industry it operates in, an understanding of the state of the industry and identifying major competitors.

 

  1. Ratio calculations

The minimum ratios to be calculated for each of the 3 years are:

  • Profitability
    • Return on Shareholders’ Equity
    • Return on Assets
    • Gross Profit Margin
    • Net Profit Margin
  • Efficiency
    • Days in Inventory
    • Days in Debtors/Accounts Receivable
    • Accounts Payable (Creditors) Settlement Period (Days)
    • Asset Turnover
  • Liquidity
    • Current Ratio
    • Quick Ratio
    • Cash Flows from Operations
  • Gearing/Solvency
    • Debt Ratio
    • Debt to Equity Ratio
    • Equity Ratio
    • Interest Coverage

 

  • The calculations of the above ratios involve detailed workings (show your steps in both the formulas and the figures) for all ratios calculated for each of the three years. All detail should appear in the appendices not in the body of the report.

 

6.1. Assumptions and other useful information for calculating ratios:

  • Provide 2 decimal points for your ratios.
  • Ratio formulas to be used as per week 6 and 7 of the lectures.
  • Terminology used in the Myer Ltd Financial Statements
    • The equivalent of Accounts Receivable is Trade Receivables
    • The equivalent of Accounts Payable is Trade Payables
  • Assume that 2% of sales are credit sales.
  • Assume 100% of Inventory (stock) purchases are on credit. As the purchases figure is not available you will need to calculate it. (HINT: Use your COGS formula to solve for purchases)

 

  1. Analysis and interpretation of financial ratios
  • Based on the financial reports and other information, undertake financial statement analysis and interpretation that covers the prior three financial years ending 30 June 2017, 2018 and 2019, concentrating on the following aspects:
  • Profitability
    • Efficiency
    • Liquidity
    • Gearing/Solvency
    • Please note that analysis does not mean just restating the ratios or their formulas you need to discuss the implications!
    • Your analysis should incorporate benchmarking such as comparison to competitors and industry averages.

 

  1. Analysis and Interpretation of Cash Flow Statements
  • Your analysis should also include a review of Myer Ltd’s operating, investing, and financing cash flows over the prior three years. Consider absolute figures, trends and any relevant ratios to assist your analysis.

 

 

  1. Assessment of other relevant information
  • An assessment of other information including non-financial that is relevant to the assessment of Myer Ltd. For example; global events, industry developments and issues, unusual or one-off events, structural changes to the company such as changes in board composition, mergers or acquisitions, economic factors and any other relevant issues which may potentially impact on the operations of the company.

 

  • Consider also its environmental and social performance.

 

  1. Summary and conclusion
  • Based on your analysis and findings, summarise Myer Ltd’s current financial situation, consider its potential outlook and make any recommendations.

 

  1. Appendices

 

  1. References

 

SUBMISSION CONSIDERATIONS

  • Word limit 3,000 words (excluding tables, graphs and appendices, title page, executive summary and bibliography).
  • This assignment (including the Group Assignment Contract) is worth 20% of your final assessment.
  • The report must be the work of the group and any material used from other sources (particularly reports from banks, investment analysts/brokers, etc.) must be acknowledged and appropriately referenced.
  • Where any student in the group has previously undertaken work in relation to the nominated company for assessment in another subject, this needs to be discussed with the Unit Convenor before any work commences.
  • The report format and structure, spelling, grammar and punctuation will all be considered.
  • All references should be appropriately acknowledged.
  • Other types of useful information may be available from the following sources:
    • DatAnalysis Premium – A Database accessible through Swinburne Library, useful for ASX Announcements, company history, annual reports, directors and management, etc.
  • Industry Context: Australian Bureau of Statistics (ABS), IBIS (Swinburne University Library has access to some but not all ABS and IBIS information);
  • Market: Australian Securities Exchange (ASX)  www.asx.com.au.
  • Newspapers: Australian Financial Review, other newspapers and business publications (such as BRW) (e.g. through the Factiva database available through the Swinburne University Library);
  • Newsletters issued by stockbrokers and fund managers.
  • Note: Students are not expected to purchase industry or company specific reports from commercial suppliers.  Only resources which are available through Swinburne University Library or on corporate or other websites (or other media such as Newspapers electronically available for example) and which are free of charge are expected to be used.
  • Only one submission per group is required. Submission instructions will be provided on Canvas.
  • No extensions will be considered for the assignment submission due date unless a written request is submitted to and agreed by the Unit Convenor. A penalty of 1 mark per day late will apply to late assignments

 

HELPFUL HINTS

Use of figures and tables in analytical reports

  • While we encourage the use of figures and tables to help embellish a report, it is important to bear in mind that they should not overshadow the substance of the report. Indeed, a report which consists predominantly of figures and tables with very little explanatory text would not have addressed the analysis component from an assessment perspective. Students should consider placing large items of data in the appendices and referring the reader to these sources of information when required.
  • Note however, that it is not sufficient to refer the reader to an appendix without citing the appropriate detail. Take for example, a report which has a large appendix (at the end of the report) showing all the ratios calculated for the company over a three-year period, and one ratio in particular; ROA has declined considerably during that period. It is not sufficient for the analyst to state that “the ROA has deteriorated significantly over the three-year period as shown in Appendix…..”. The detail of the movement must be stated, for instance, “ROA has deteriorated significantly from ……% in …. (Year), to …..% in ……. (Year)’.
  • Students can then either refer the reader to the appendix after each calculation or preferably make a reference to the appendix at the start of the analytical section. For example, at the start of the profitability analysis section, the following statement might be appropriate: “For detailed calculations relating to the following analysis, refer to appendix…….”.
  • Note also that if figures and tables are used in the body of the report, students must also cite the relevant data (numbers, ratios etc) in the body of the report and additionally make reference to the table. For example, “Table 1.3 shows that ROA has deteriorated significantly from ……% in ….(year), to …..% in …….(year)’.
  • Please refer to Canvas for a detailed marking rubric.