Specify the impact on a business of the economic and financial environment in which it operates

Specify the impact on a business of the economic and financial environment in which it operates

Intended learning outcomes:

• Specify the impact on a business of the economic and financial environment in which it operates
• Critically appraise the different options for sourcing capital and contrast the methods for selecting the most appropriate investments of a firm
• Specify the role of the accountancy profession and discuss why the work of the profession is so important
• Identify the objectives of businesses and the tasks that businesses perform in order to meet these objectives, and to use appropriate financial measurements to assess progress towards these objectives

b)     Aims of the paper:

• Select a freely chosen Small and Medium-sized Enterprise (SME) or corporation where a real life financial management situation can be observed.
• Analyse the financial management problem using the following techniques practiced during seminars:

a.      risk-and-return,

b.     time value of money,

c.      economic value added (EVA), 

d.     weighted-average cost of capital (WACC),

e.      capital asset pricing model (CAPM),

f.        net present value (NPV),

g.      internal rate of return (IRR),

• Conduct a discounted cash flow analysis (DCF) outlining the following items:

a.      free cash flows (FCF),

b.     net operating profit after tax (NOPAT),

c.      capital expenditures (CAPEX),

d.     net working capital (NWC),

e.      return on net assets (RONA),

f.        terminal value,

g.      Beta calculation.

• Conduct a relative valuation using book and market multiples

a.      earnings before interest and taxes (EBIT),

b.     earnings before interest and taxes (EBITDA),

c.      enterprise value (EV),

d.     transaction multiples, and

e.      potential liquidation value.

• Double check calculations with scenario and sensitivity analysis.

c)      Purposes of the paper: The purpose is to have a comprehensive picture about the company you have chosen including

a.       the financial management models and tools chosen,

b.      the real data and the inputs chosen,

c.       the financial management characteristics,

d.      the mechanics of the financial management evaluation

e.       the outcomes of the financial management evaluation

f.        scenarios and the sensitivities of the financial management evaluation

g.       triangulation with financial management ratios, industry benchmarks

h.      limitations of the financial information

i.         the role of the accountancy profession and the discussion why the work of the profession is so important

d)     The outcomes and goals:

a.       To acquire a thorough understanding of the role, key methods and techniques of financial management evaluation, and be aware of the subjectivity and limitations that underpin objective inputs to a subjective financial decision. If necessary please outline the “human factor” in a bounded rationality scenario, especially in an owner-manager decision.

b.      To critically analyze investment information contained in financial statements, take positions, form opinions and make financial decisions independently.

c.       Transferable skills include analytical skills, problem solving skills and IT skills, especially in the manipulation of financial data in the excel program.

e)     Task description:

• students should critically analyze financial terminology and techniques, a set of company accounts

o   profit and loss account,

o   cash flow statements, and

o   balance sheet,

o   financial management inputs, and

o   management accounting information.

• Students should audit published financial information, determine the limitations of such information and generate relevant recommendations as well.
• State financial management problems that the chosen company is facing and provide solutions through the use of financial management concepts within a business context.
• Finally, critically appraise the limitations of financial management figures, sensitivities for business decision-making by using various financial management and financial valuation techniques outlined above.

f)       Model contents: The papers should include the following sections at a minimum

a.       Title page including the student’s name and the word count of the main document.

b.      Contents outlining the major sections of the document.

c.       Introductory page outlining the aims of the paper

                                                               i.      Why the company and the specific problem have been chosen?

                                                             ii.      What the aims of the paper are?

                                                           iii.      What financial management and valuation tools will be used during the analysis?

d.      Analysis of the financial problem and situation

                                                               i.      The financial management models chosen,

                                                             ii.      The inputs and decisions chosen,

                                                           iii.      The financial management and valuation characteristics and tools,

                                                           iv.      The mechanics of the financial management evaluation.

e.       The outcome of the financial management evaluation

                                                               i.      Sensitivity of the financial management evaluation and decision,

                                                             ii.      Triangulation with ratios and other companies and industry values,

                                                           iii.      Limitations of the financial information.

f.        Conclusions and recommendations.

g.       References.

h.      Appendices.

g)     Choice of company: a freely chosen Small and Medium-sized Enterprise (SME) or corporation where a real life financial management situation can be observed.

h)     The length of the paper:  3,000 words plus/minus ten percent.

i)       Format of the paper: written assignment in the Word and the Excel program, uploaded to Moodle.

k)     Referencing of the paper: Harvard-style referencing should be used throughout the text.

l)       Plagiarism: all papers need go through the Turnitin program and papers with high plagiarism score will need to be resubmitted.

m)   Size limitations: There is a 1MB size limitation on the main document to be uploaded to Moodle. The Word and the Excel document should include all calculations and appendices.

n)     Rules concerning late submission: Papers below forty percent grade or with high plagiarism score need to be re-submitted