Go to the ‘Ratios’ tab in your firm’s spreadsheet. In this worksheet is a list of ratios. Please calculate these ratios for your firm. Calculate these ratios for the last four (4) years for your firm. Do this by linking back to the numbers in your firm’s financial statements (in your ‘Financial Statements’ worksheet) or to the numbers in your firm’s restated financial statements (in your ‘Restated Financial Statements’ worksheet). If you are unsure about how to link cells between worksheets in Excel, see this short video about how to link cells between worksheets: Linking Data from Different Excel Sheets and Workbooks You can also discuss with others in the course about how to do this; everyone will be facing the same issue. Once you have calculated these ratios for your firm sit back and have a look at them. What do these ratios actually tell you (or not tell you) about your firm? How do you make sense of them? Discuss your ratios with other students in the course. How do your firm’s ratios differ to the ratios of firms of other students in the course? What do your firm’s ratios tell you about how well your firm is performing? Include in your blog your reflections on your firm’s ratios: what they tell you (or do not tell you) about the performance of your firm, how they compare to the ratios of other firms and what new questions the ratios might raise in your mind about your firm. Economic profit Calculate economic profit for your firm for the past four (4) years. Use 10% as your firm’s cost of capital when calculating your firm’s economic profit (unless you have reasons to use a different number; if so, clearly state those reasons). The key drivers of your firm’s past economic profit are Return on Net Operating Assets (RNOA), cost of capital and Net Operating Assets (NOA). The two key accounting drivers of RNOA are Profit Margin (PM) and Asset Turnover (ATO). (See Study Guide Chap 4, Section 4.4).
Comment on what is driving or causing your firm’s economic profit over the past four years to be at the levels it is. If your firm’s economic profit is negative (or positive), what is causing it to be negative (or positive)? If it is a large number, what is causing it to be so large? If it is a small number, what is causing it to be so small? If it changed a lot over the past three or four years, why did it? If it stayed much the same over the past three or four years, why was this? Discuss your thoughts on what is driving your firm’s economic profit with other students. What similarities or differences are there between the economic profit of your different firms? Why is this? What is causing these similarities or differences? What insights have you gained by ‘breaking into bits’ your firm’s financial statements? What insights have you not gained? Include in your blog your reflections about your firm’s economic profit. Include in your assignment your firm’s spreadsheet, including your firm’s ratios and economic profit that you have calculated, as well as a Word file setting out your commentary on your firm’s ratios and what is driving your firm’s economic profit. Please allow about 9 – 10 hours to complete Step 1.
Step 2: (5 marks) Step 2 involves you developing a capital investment decision for your firm and completing a simple analysis of this decision using Payback Period, NPV and IRR Develop a capital investment decision for your firm. This decision should involve a choice between two options and involve you discounting cash flows for between 5 and 10 years. Please use a required cost of capital of 10% (Tip: This is the discount rate to use). Calculate the payback period, net present value (NPV) and internal rate of return (IRR) for each of the two options for your firm that you developed and advise your company which option it should invest capital in. Please go to the ‘NPV & IRR’ worksheet and calculate the NPV and IRR for each of the two capital investment options for your firm in this worksheet, using the NPV and IRR functions in Excel. See this short video for guidance about how to calculate NPV and IRR using Excel (control + click on this link): Calculating IRR (Internal Rate of Return) and NPV (Net Present Value) using Excel Briefly discuss your thought processes in coming to your recommendation. Also briefly discuss the strengths and weaknesses of your analysis. For example, I have developed a capital investment decision for Ryman Healthcare. This is shown in the Appendix to this assignment. This is by way of example only. Please do not use this example in your answer to Step 2. You need to develop your own capital investment decision for your firm. Please allow about 2 – 2 ½ hours to complete Step 2.
Step 3: (3 marks) Step 3 involves you providing (and receiving) feedback to three other students in our course on their draft ASS#3. If you wish, these can be the same students you provided feedback to in your previous assignments. The main benefit of Step 3 is in giving quality and thoughtful feedback to others in our course. The process of thinking about the feedback you give to others in our course will help you greatly with your own assignment as you think about what the assignment requires and how others have addressed these requirements for their own companies. Prior to 5.00pm Friday 27 May (Week 11), please: • post draft work of your ASS#3 on your blog; and • provide a link to your blog on the Draft ASS#3 Feedback forum (which you should already have done as part of your ASS#1) and post in the Draft ASS#3 Feedback forum a comment that your draft ASS#3 is ready for student feedback and, if you wish, specific areas where you would particularly value feedback for your ASS#3. Prior to 5.00pm Thursday 3 June (Week 12), please ensure you have provided quality feedback to at least three other students, using the Peer Feedback Sheets for ASS#3 (see below). Include the feedback you have given to at least three other students in the course in your ASS#3. If you wish, you can include and/or comment on feedback others may have given you on your draft ASS#3. Also, comment in your ASS#3 whether or not you found feedback from other students useful and why this was the case. You can include in your discussion both how useful (or not) you found feedback you received from the other three students asked to provide you with feedback and also any feedback you may have received from other students in the subject through your interactions with them f2f, on discussion forums, Facebook and through other means. Please