The Business Environment
This task will be assessed against the following criteria:
Suitability of the choice of ratios;
Accuracy of the calculations,
Ability to correctly apply analysis techniques,
Understanding of the information provided by the techniques,
Communication of the required assignment outputs such that they would be useful to managers in exercising their duties,
English expression—how well you express yourselves, concise style, no colloquialisms, absence of grammatical errors etc
Presentation—for example, ease of reading for the reader, structure of the assignment, absence of spelling errors.
Select a company listed on the Australian Stock Exchange and obtain its last two published annual reports (note that this will provide financial data for a three year period).
Analyse the financial statements in these annual reports, using the principal ratios that are discussed in your textbook. You do not need to calculate all of the ratios listed. Part of the task is to select relevant ratios. Some ratios may be discussed in the context of explaining trends that are identified by other ratios.
Note that there are very few marks for calculating ratios! The majority of marks are awarded for the interpretation of the ratios—what are they telling you? Avoid wasting words on describing the ratios. For example, ‘The decline of the current ratio from 2.2 to 1.5 (Appendix A item 5) can be explained by reference to … This suggests that tighter management of … is required’ will earn far more marks than ‘The current ratio is calculated by dividing current assets by current liabilities. It has gone from 2.2 to 1.5. Another solvency ratio is …’
You should present this assignment as a report with at least one Appendix. A report format means that it should have headings, and possibly also subheadings. Start the report with a 40-word summary of the findings of the analysis. The ratios should be presented in a user-friendly format (i.e. easy to read) in an appendix. In the report make it clear where the reader can find the ratios. Close the report with conclusions and recommendations. Recommendations to an internal client will highlight issues for attention and action; recommendations to an external client should succinctly address the competitiveness of the company, the strengths and weaknesses of its management and its attraction for investment.
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