ACCT7101 Accounting – Assignment

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ACCT7101 Accounting – Assignment
Financial Report Analysis and Business Decision Making
Due Date for Submission: 1:00pm Friday 17 May 2025
(Weight: 25% of Final Grade)

Aims of this assignment

This assignment aims to develop your
a) ability to understand and analyse financial reports,
b) skills and knowledge to compare financial information of two companies, and
c) capacity to evaluate financial information and synthesise financial and non-financial information to make business decisions.

This assignment is to be completed on an individual basis.

Your submitted assignment must be entirely your own work. You may seek guidance from lecturers, tutors or fellow students to clarify concepts or the application of concepts to the financial statements in general. In addition, please look at the information in the "Assessment

- Assignment: Financial Report Analysis and Decision Making" folder (hereafter, the assignment folder) on Blackboard, which may have the clarifications you need. Advice that is clearly associated with the assignment tasks cannot be sought or provided.

Plagiarism is the submission of work or ideas which are not your own but for which academic credit is claimed. It is important that you review the University’s policy on plagiarism. The originality of your assignment will be assessed by the Turn-it-in system. Information from the course profile relating to plagiarism is reproduced below. Please note that it is strictly prohibited to use the AI technologies to develop your answers.

Plagiarism

The University has adopted the following definition of plagiarism:

Plagiarism is the act of misrepresenting as one's own original work the ideas, interpretations, words or creative works of another. These include published and unpublished documents, designs, music, sounds, images, photographs, computer codes and ideas gained through working in a group. These ideas, interpretations, words or works may be found in print and/or electronic media.

Students are encouraged to read the UQ Student Integrity and Misconduct policy (http://ppl.app.uq.edu.au/content/3.60.04-student-integrity-and-misconduct) which makes a comprehensive statement about the University's approach to plagiarism, including the approved use of plagiarism detection software, the consequences of plagiarism and the principles associated with preventing plagiarism. ACCT7101 (Accounting)

Assignment overview

You have been randomly assigned two ASX listed companies that operate in the same industry (Company A and Company B). See the file “Allocation of companies to students” in the assignment folder on Blackboard to find your companies.

Obtain each of your company’s annual reports for the 2024, 2023, and 2022 financial years from the company’s website or www.asx.com.au. The annual reports contain the chairperson’s report, directors’ report and financial statements (Statement of Financial Position, Statement of Profit or Loss, Statement of Changes in Equity, Statement of Cash Flows and Notes to the Financial Statements). The financial statements include comparative figures from the prior year, therefore, you will have data for four financial years: 2024, 2023, 2022 and 2021.

Research all available sources of information to familiarise yourself with the industry in which your allocated companies operate and with company specific factors that may have or will affect either company’s performance.

Two business scenarios are described below. Scenario 1 relates to Company A only and Scenario 2 involves Company A and Company B. Knowledge of the industry, company specific context and their financial data will be important inputs that inform the decision that you recommend in relation to each scenario.

Scenario 1

Company A has submitted an application to the Bank of St Lucia for a loan. The amount of the loan is equal to 40% of total shareholders’ equity at the end of the financial year 2024. The purpose of the loan is to fund expansion of Company A’s operating capacity. The loan term sought is 10 years and the loan would be secured against company’s property.

Assume you are a branch lending officer of the Bank of St Lucia who assesses loan applications. The lending officer must make a recommendation to the head office lending manager advising whether the loan application from Company A should be accepted or rejected.

Scenario 2

Both Company A and Company B have offered Superb Investments Limited, a listedinvestment company (LIC), a private placement of ordinary shares. The amount of share offer is equal to 30% of total shareholders’ equity of each company at the end of the 2024 financial year. Superb Investments Ltd can afford either of the two private placements. The purpose of an increase in equity for each company is to raise funds to finance an expansion of operating capacity.

Assume you are an investment manager at Superb Investments Ltd who evaluates private equity placements. Superb Investments Ltd has limited funds available for investing decisions. The manager must make a recommendation to the board of directors advising whether to accept Company A’s offer to sell to Superb Investments a new issue of ordinary shares and reject Company B’s offer, or accept Company B’s offer to sell to Superb Investments a new issue of ordinary shares and reject Company A’s offer, or alternatively reject both offers.ACCT7101 (Accounting)

Assignment tasks

Before commencing work on the tasks below, refer to the marking rubric (on pages 6-7 of this document) for the criteria that will be applied in the assessment of your assignment.
Q1. Company background research (8 marks)

Review Company A’s and Company B’s annual reports, and other sources of information. Write a short response to each item below to build background knowledge of each company and their industry.

(a) Describe the operating activities of each company noting similarities and differences between Company A and Company B.
(b) Identify two common economy-wide factors and two common industry factors that could impact on the financial performance and position of the two companies. Also identify one specific factor which could impact the financial performance and position of company A and B, respectively. (In total, you should identify and analyse, at least, six factors.)

Q2. Financial ratio analysis (8 marks)

Calculate financial statement ratios for the 2024, 2023 and 2022 years for Company A and Company B respectively. Use the Excel template provided on Blackboard in the assignment folder to present and calculate the ratios in a table. Obtain data for the ratios from the financial statements and notes to the financial statements. You may add to this template (calculate additional ratios). See further instruction in the Excel template.

Additionally, use horizontal analysis to present the trend in sales revenue and net profit for Company A and B respectively, assuming 2022 as the base year.

Q3. Lending decision (10 marks)

Write a business memorandum to the Bank of St Lucia head office loan manager in Scenario 1. The memorandum must address the following points as listed below:

(a) Evaluate and discuss your assessment of the ability of Company A to repay the loan and interest. Make a recommendation to accept or reject the 10-years term loan application from Company A and justify your recommendation. Use the knowledge that you have acquired from Q1 and refer to relevant ratios calculated in Q2.

(b) Briefly discuss Company A’s net cash flows from operating, investing and financing activities and the trends evident over the three years. Explain how this analysis is consistent with your accept or reject recommendation.

(c) The use of estimates, cost, alternative accounting methods, the presence of atypical data, and diversification of firms have been cited as factors that limit the usefulness of financial statement analysis. In your recommendation, please discuss the limitation of your financial  statement analysis. Identify a ratio and explain how one or more of the limiting factors can affect the usefulness of that ratio. Briefly discuss its effect on the decision to accept/reject the 10-years term loan to Company A.

Q4. Investment decision (12 marks)

Write a business memorandum to Superb Investments Ltd’s board of directors in Scenario 2. The memorandum must address the points below:

(a) Use the most relevant financial ratios to analyse and compare trends in profitability and risk of Company A and Company B for in the three years. Discuss your assessment of relative profitability and risk of both companies.

(b) Recommend whether Superb Investments Ltd should invest in Company A or Company B or alternatively reject both offers. Justify the recommendation based on the evaluation of risk and profitability of each company and other relevant background information obtained from the annual reports and other sources. Use knowledge that you have acquired in your company research from Q1 and refer to the relevant ratios calculated in Q2.

(c) Explain the meaning of the Price-Earnings (P/E) ratio and Earnings per Share (EPS) ratio.

Describe three-year trends in these ratios for Company A and B and discuss their relevance to your investment decision.

Assignment administration

Format and Submission requirements (2 marks)

Format:

Submit your work as a single PDF document. Include your student number and name as a header to the document.

Your written responses to Assignment tasks Q1, Q3 & Q4 are limited to a maximum of 5 pages.

Specific formatting: Times New Roman 12 point, 1.5 line spacing and minimum 2 cm on each margin. Any submitted text exceeding this limit will NOT be assessed by the markers.

Attach the Excel table of financial ratios for Assignment Task Q2 after page 5 (i.e., attach the tables on the 6th - 8th pages of your PDF document, which will be excluded from the page limit).

Attach a Reference List as the last page (9th page) of your PDF document. All sources used must be referenced using a consistent academic reference style (e.g. APA 7th edition). See the UQ referencing style guide in the library https://guides.library.uq.edu.au/referencing. To reference from an annual report, use the Code of the company, year of the annual report and page number, e.g. ACC, 2024, p. 30).

Submission:
Submit your assignment before or on the due date. Follow the instructions below.

(a) Submit the assignment electronically as a PDF to the Turn-it-in link in the course Blackboard, in the assignment folder. The title of your assignment in the Turn-it-in Submission Page must be the “Code of your assigned Company A _ Your student ID”. Do not add anything else in the title.

(b) When submitting the assignment, you can test it for text matching by submitting it and reviewing the report. Up to the due date, you can resubmit your assignment at any time (if you make changes to it). The system simply deletes your earlier version and replaces it with the resubmitted version.

Late submission

An assignment submitted after the due date and time for which no extension has been granted prior to the due date will incur a late submission penalty. The penalty is applied at the rate of 10% of the total available marks for the assignment for every 24 hours from time submission is due, for up to 7 days. After 7 days, you will receive a mark of 0.

Extension of due date

Requests for granting an extension to the due dates must be made at least 24 hours prior to the submission date. The request must contain documentation satisfactorily supporting the request. Please refer to the Course Profile, Section “Assessment - Assessment details -

Financial Report Analysis and Decision Making - Deferral or extension” to understand the procedure for requesting an extension.

Assessment criteria

The criteria and standards that will be applied in the assessment of this assignment are listed in the rubric below. Before you commence work, ensure you understand the requirements in each part of this document and how they will be assessed.

Feedback on the assessment of your assignment will be available via Turn-it-in.

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