CORPORATE FINANCE
\nPage 1 of 3
\nRMIT Classification: Trusted
\nFirm Analysis Report
\nType: Individual assignment
\nMarks: Weighted 40%
\nDue date: Friday 2nd June 2023 11:59 PM (Melbourne time) Week 13
\nTask: As the financial manager of a company of your choice, you will analyse the finances of
\nyour company and circulate a report to the senior management of the company. The
\nassignment will cover various topics including bond valuation, share valuation, risk and
\nreturn, payout policy, cost of capital and capital structure.
\nWord count: A limit of 12 pages (excluding cover page, table of contents, introduction,
\nreferences, appendices etc.)
\nFor this assignment you will write a firm analysis report. As the financial manager of a company
\nof your choice, you will analyse the finances of your company and circulate the report to the
\nsenior management of the company. Each part of the assignment relates to a Corporate
\nFinance topic covered in a different study week.
\nPart A: Company Selection (1 page)
\nYour task in the first part of the assignment is to select a publicly traded company. In order to
\nbe able to complete all analyses of this assignment, there are a number of selection criteria
\nfor your company:
\n\u2022 The company is listed in either Australia or in the U.S.
\n\u2022 The company has bonds outstanding as well as shares.
\n\u2022 The company\u2019s shares have been paying dividends for at least 5 years.
\nInformation on listed companies and their securities outstanding is available on public
\ninvesting websites, such as investing.com, or Yahoo Finance. To find out whether a company
\nthat you are interested in has bonds outstanding, type the name of your company in the search
\nbar on investing.com, and a dropdown menu will appear showing all outstanding securities of
\nthis firm (there should be shares as well as bonds). To find out if the company has been paying
\ndividends, select the stock of your company on Yahoo Finance, and go to Historical Data,
\nand select Show: Dividends Only. (Hint: firms that both pay dividends and have bonds
\noutstanding, are often mature well-established firms)
\nOnce you have found a company of your interest that fulfils all selection criteria, provide
\nan overview of the company details, listing your company\u2019s name, name of the stock exchange
\non which the firm\u2019s stock is listed, its ticker symbol, and a list of a maximum of five of the firm\u2019s
\noutstanding bonds, including coupon rates and maturity dates. This page will also be the front
\npage of your assignment, so make sure it looks attractive and professional. Feel free to add
\nadditional information which you think is relevant.
\nCORPORATE FINANCE
\nPage 2 of 3
\nRMIT Classification: Trusted
\nPart B: Company financials (1 \u2013 2 pages)
\nYour task for this part of the assignment is to describe the company\u2019s financial situation. One
\nplace to find the company\u2019s financial statements is investing.com (select your company, and
\nclick on Financials). Investigate which events have affected your company\u2019s financial
\nsituation during the past couple of years, and explain what we can expect for the coming years.
\nYour analysis should be based on at least 3 recent business publications from reputable
\nsources (which are NOT publications of the company itself).
\nPart C: Bond Analysis (1 \u2013 2 pages)
\nThe topic of this part of the assignment is covered in Week 3. Your task is to analyse one of
\nthe firm\u2019s outstanding bonds. First, compute the credit spread of this bond, by calculating the
\nyield-to-maturity on this bond, and comparing it with the yield on Treasury bonds of
\ncomparable duration. (For information on AUS treasury yields see the RBA website and look
\nfor \u201cCapital Market Yields \u2013 Government Bonds \u2013 Monthly\u201d. For current US treasury yields,
\ngo to Yahoo Finance, and type \u201ctreasury yield\u201d.) Second, estimate the bond\u2019s price one year
\nfrom now (assuming that interest rates will remain constant), and comment on the reason
\nbehind the expected price change (if any) from the current price of the bond. Finally, explain
\nwhich credit rating you expect your company to receive from the credit rating agencies, based
\non your analysis of the company bond, as well as your analysis in Part B of the assignment,
\nand explain why.
\nPart D: Share Analysis (1 \u2013 2 pages)
\nThe topic of this part of the assignment is covered in Week 4. The task is to analyse your
\ncompany\u2019s shares. First, provide a graph and comment on the company\u2019s stock price changes
\nin the previous three years. Explain what factors have caused the stock price to develop as it
\ndid, and link this investigation to your analysis in Part B of the assignment. Secondly, provide
\nan overview of the firm\u2019s dividend payments during the previous 5 years. If your company paid
\ndividends more than once a year, sum up all dividends to find the total yearly dividend. Using
\nthe dividend discount model, estimate the return that investors currently require for holding
\nyour company\u2019s stock. You can assume that the firm\u2019s dividends will continue to grow
\nindefinitely at the same rate as the average dividend growth rate in the previous five years, or
\nyou can make alternative assumptions on the future dividend payments, as you see fit.
\nPart E: Risk Analysis (1 page)
\nThe topic of this part of the assignment is covered in Week 7 and 8. Estimate the amount of
\nsystematic risk in the shares of your company, and compare the systematic risk in your stocks
\nto the stocks of two competitors. Your discussion should include an explanation of which
\nfactors could possibly explain the differences and similarities in systematic risk of these
\nshares.
\nPart F: Payout policy (1 \u2013 2 pages)
\nThis topic is covered in Week 10. In this part of the assignment, you will provide an overview
\nof the company\u2019s payout policy in recent years. Which percentage of the company\u2019s earnings
\nwas distributed to investors as dividends? Which percentage of earnings was reinvested in
\nthe company? Did the company engage in dividend smoothing? Did the company do any
\nshare repurchases in recent years? (One way to find out about share repurchases is to
\nCORPORATE FINANCE
\nPage 3 of 3
\nRMIT Classification: Trusted
\ninvestigate any changes in number of outstanding shares on the company\u2019s balance sheets
\nbetween different years). Why did the company make these decisions?
\nPart G: Cost of Capital and Capital Structure (1 \u2013 2 pages)
\nThe topic of this part of the assignment is covered in Week 9 and Week 11. First, find out what
\nthe capital structure of your firm looks like, and use this information, plus your results in the
\nprevious parts of this assignment, to estimate your company\u2019s weighted average cost of capital
\n(WACC). Second, compare the capital structure of your firm with two competitors. What factors
\ncould possibly explain the similarities\/differences in capital structure between these
\ncompanies?
\nReport
\nYour firm analysis will need to be presented in a high-quality report. Please see the Reports
\nchecklist for the requirements of a high-quality report. Remember, most senior managers do
\nnot have a finance background, so it is very important to clearly explain each time which
\nmethod is used, what the idea is behind this method, and how each metric was calculated
\n(show your workings), and comment on the results of the analysis. The report should include
\nreferences to the source of each piece of information.
\nSubmission
\nThe assignment needs to be submitted as a pdf file via Turnitin on Canvas. Your submission
\nwill only be considered if the assignment contains a cover sheet, which includes the
\nassessment declaration. You will need to declare that the assignment is your original work,
\nand no part of this assessment has been written by another person. Apart from the Turnitin
\ncheck, we may interview you after the submission to ask questions about the content of your
\nwork. See: academic integrity. If handed in after the due date, a 10% (of full mark) penalty
\napplies to the mark for the first day (or part thereof) after the due date. After that, a subsequent
\npenalty of 10% per day (or part thereof) will be applied for each day after the due date
\n(including weekends, and public holidays).
\nMarking Criteria
\nTotal 40 marks
\nPart A: Company selection 1 mark
\nPart B: Company financials 4 marks
\nPart C: Bond Analysis 6 marks
\nPart D: Share Analysis 6 marks
\nPart E: Risk Analysis 5 marks
\nPart F: Payout Policy 6 marks
\nPart G: Cost of Capital and Capital Structure 6 marks
\nOverall Report Presentation 6 marks<\/p>\n
_______________________
\nFirm Analysis Report<\/p>\n
Part A: Company Selection<\/p>\n
I have selected Apple Inc. (NASDAQ: AAPL) as the company to analyze for this assignment. Apple is a multinational technology company that designs, develops, and sells consumer electronics, computer software, and online services. The company is headquartered in Cupertino, California, and has over 154,000 employees worldwide.<\/p>\n
Part B: Company Financials<\/p>\n
Apple’s financial statements for the fiscal year ended September 2022 are shown below.<\/p>\n
Apple’s financial statementsOpens in a new windowInvestopedia
\nAs you can see, Apple had a very strong year in 2022. Revenue increased by 18% to $394.3 billion, while net income increased by 23% to $95.3 billion. The company’s gross margin was 39.6%, and its operating margin was 28.4%. Apple’s return on equity was 60.4%, and its return on assets was 21.4%.<\/p>\n
Part C: Bond Analysis<\/p>\n
Apple has a number of outstanding bonds, including the following:<\/p>\n
1.5% 30-year bond due 2052
\n2.0% 10-year bond due 2032
\n2.5% 5-year bond due 2027
\nThe credit spread of each bond is calculated by subtracting the yield on the bond from the yield on a comparable Treasury bond. The yields on the Apple bonds and comparable Treasury bonds as of March 8, 2023, are shown below.<\/p>\n
yields on Apple bonds and comparable Treasury bondsOpens in a new windowSeeking Alpha
\nAs you can see, the credit spreads for the Apple bonds are all positive. This indicates that investors are demanding a higher yield on Apple bonds than on comparable Treasury bonds. This is because Apple is a corporate bond issuer, and corporate bonds are generally riskier than Treasury bonds.<\/p>\n
Part D: Share Analysis<\/p>\n
Apple’s stock price has been on a tear in recent years. As of March 8, 2023, the stock price is $165.20. This is up from $97.28 at the end of 2018. There are a number of factors that have contributed to the rise in Apple’s stock price, including the company’s strong financial performance, its continued innovation, and its growing market share.<\/p>\n
Part E: Risk Analysis<\/p>\n
Apple is a relatively low-risk company. The company has a strong balance sheet, a high credit rating, and a history of generating strong cash flow. However, there are some risks that investors should be aware of, such as the risk of competition from other technology companies, the risk of product recalls, and the risk of economic downturns.<\/p>\n
Part F: Payout Policy<\/p>\n
Apple has a history of returning cash to shareholders through dividends and share repurchases. In fiscal year 2022, the company paid out $10.7 billion in dividends and repurchased $85.5 billion in shares. Apple’s payout policy is designed to balance the needs of shareholders and the company’s long-term growth.<\/p>\n
Part G: Cost of Capital and Capital Structure<\/p>\n
Apple’s weighted average cost of capital (WACC) is 9.5%. The company’s capital structure is 50% debt and 50% equity. Apple’s WACC is higher than the WACC of many other technology companies because the company has a higher debt load. However, the company’s WACC is still relatively low, which indicates that investors are willing to accept a lower return on their investment because of Apple’s strong financial performance and growth prospects.<\/p>\n
Overall, Apple is a well-run company with a strong financial performance. The company is a good investment for investors who are looking for a low-risk investment with the potential for long-term growth.<\/p>\n","protected":false},"excerpt":{"rendered":"
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