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BAO5734 Financial Analysis

tag 0 Download 19 Pages / 4,747 Words tag 17-12-2020


Analysis of the economy:

  • discuss briefly (2-3 paragraphs) which macroeconomic factors (political, economic, social and/or technological factors – PEST analysis) may affect the industry that your company belongs to and your company performance.

Industry analysis:

  • Identify the industry that you company belongs to and the company’s place in the industry (e.g. top performer, middle range, bottom; market share, etc.).
  • Identify a competitor company that belongs to the same industry and occupies similar position in the industry. You will use this company further in your analysis.
  • Conduct Porter’s five forces analysis, conclude with assessment of industry’s current profitability
  • Discuss the industry’s growth potential. You must include this section and refer to it in your prospective analysis (further)

Company’s competitive and corporate strategy:

  • Discuss company’s competitive strategy, key success factors (core competencies) and risk drivers. Identify the company’s growth potential.
  • Discuss the company corporate strategy: not all companies have a well-defined corporate strategy.


  • Download a copy of the company’s annual report for current year and last 3 years.
  • Download a copy of the competitor’s annual report for current year and last 3 years.
  • Convert financial statements for your company (Balance Sheet, Income Statement, Statement of Cash Flows) into Excel. It is not recommended to download the data from the available databases as databases use their own format for financial statements that is very abridged.
  1. Accounting Analysis (5-10%% of your word count)

Your report should include:

  • Using financial statements for your company and their competitor and your previous analysis (industry analysis and competitive/corporate strategy analysis) and identify 3 key accounts in their balance sheet/income statement. You must show a link to your previous discussion of the industry analysis and competitive/corporate strategy analysis.
  • Evaluate the quality of the disclosure of your company (accounting analysis step 4). You can use comparison to the competitor.
  • Identify 3 potential red flags for your company: use your company’s financial statements and notes. Red flags are potential source of earnings management for your company’s management 

NOTE: Do not refer to account balances in this analysis ($). Importance of accounts is identified based on importance of items that they proxy for key competencies (success factors)/ weaknesses (risk drivers), growth and current/future profitability of the industry/company 

  1. Financial Analysis (20%-30% of your word count)

HINT: Complete the practical part first and then write up your analysis

Your report should include:

  • ROE and its decomposition (DuPont analysis): you need to identify components that are strong and weak for your company. This is done using the time-series analysis and comparison with a competitor.
  • Use your previous analysis to identify and calculate 4 ratios per each area of financial analysis, i.e. operating management, investment management, and financial leverage ratios for your company and their competitor. These ratios are used further in the cross-sectional and time-series analysis.

You MUST justify why you use these particular ratios, not others. The choice should be based on your previous analysis (industry, competitive/corporate strategy analysis, accounting analysis).

Cross-sectional analysis

  • Use the ratios you calculated in your Excel file and provide cross-sectional analysis of your company’s performance across each area of financial analysis: discuss major trends and relate them to changes in the macroeconomic factors, industry/business strategy, accounting analysis. 

Time series analysis

  • Use the ratios you calculated in your Excel file to conduct time series analysis of company’s performance over last years. Use your competitor’s figures to uncover major trends. Discuss major trends and relate them to changes in the macroeconomic factors/industry/business strategy

You can combine cross-sectional and time series analysis, but you need to cover both in your discussion. 

This section is NOT intended as a mere exercise in ratio calculation.  If you just calculate ratios and discuss changes in the ratios, you will not be able to get marks for this part. The marks are awarded for your ANALYSIS: how you use ratios to relate them to macroeconomic changes, industry, competitive/corporate strategy and accounting analysis. 

The emphasis of your analysis should NOT be on fluctuations in ratios (just presentation of figures is NOT enough). 

Your analysis should identify significant trends and explain them by linking your findings to macroeconomic factors, industry analysis and/or competitive/corporate strategy analysis (if there is an uptrend/downtrend, you need to explain what factors/decisions caused it).

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Total 19 pages

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[Accessed 29 September 2022].

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