Calculate Valuation Ratios from the given financial

Assessment Task 1:

Assessment Task - Analyse Financial Reports

Description:

A partially owned subsidiary is a wholly or partially owned company that is part of a large corporation. A subsidiary's financial results are carried on the parent company's books. A company that is publicly-traded but has more than half its stock owned by another company, is known as the parent company (Financial dictionary, 2012).

A controlled entity is one that satisfies the test of control in section SOAA of the Corporations Act 2001 and includes:

- An entity which the parent company wholly owns ("wholly owned subsidiary"); or An entity in which the parent company holds an interest of any kind (including a shareholding interest or membership interest) and the parent company has control of the entity

In this assessment task, you will be a consolidated financial report of an ASX listed public company with wholly or partially owned subsidiaries. Analyse the financial reports with the following consideration;

1. Research the company and briefly explain the business/company structure including its subsidiaries

2. A summary of accounting principles, standards and legal framework used in the reports (with references); especially in notes to the financial statement

3. Comparison of financial performance of the subsidiaries/segments; or the subsidiary and the parent company

4. Calculate Liquidity Analysis, Asset Turnover, Leverage, and Operating Performance/Profitability ratios for each of the subsidiary

5. Identify any performance issue from the analysis

6. Outline how you would report these issues if you were part of the accounting team at the company Sample: A sample Suncorp Annual report containing consolidated financial statements for 2011 is provided as a reference. This report can be used for this task. Alternatively, similar other reports can be used as set out by the trainer/assessor.

Suncorp Group includes leading general insurance, banking, life insurance, superannuation and investment brands in Australia and New Zealand. The Group has around 16,000 employees and relationships with nine million customers. It is a Top 25 ASX listed company with over $95 billion in assets. Suncorp has five core businesses: Personal Insurance; Commercial Insurance; Vero New Zealand; Suncorp Bank and Suncorp Life.

Assessment Task 2:

Assessment Task - Analyse a Target Company for Acquisition

Description:

Acquisition is a corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own (Investopedia, 2012).

In this assessment task, you will assume the role of an M&A project team given the responsibility to prepare for acquisition of a rival firm in the market. The acquisition is friendly and the target firm has expresses its agreement to be acquired. Both the companies are ASX listed. The target firm has provided a copy of their financial statements for consideration. You company has agreed to set a share price for acquisition based on valuation.

Your Company: Austin Engineering

Austin Engineering Limited (ASX: ANG) is a publicly-listed engineering company with its core business in the mining and resources sector. The company has Australian manufacturing facilities in Brisbane, Perth, Mackay and Muswellbrook, and various locations overseas (austineng.com.au). Austin is planning to acquire Hastie

Group to enhance its presence in the market. Target Company: Hastie Group

Hastie Group Limited is the leading international designer, installer and maintainer of technical services to the building and infrastructure sectors - mechanical, electrical, hydraulics and refrigeration, with well-established operations in Australasia, the UK and the Middle East. It has over 7000 employees based at over 110 locations (hastiegroup.corn.au). Your task is to;

1. Research and compile business and market information on the target company

2. Research and download the target company's historic share prices (last 12 months)

3. Calculate Valuation Ratios from the given financial statements

4. Conduct an Altman Z-Score analysis and predict health status

5. Calculate Sustainable Growth Rate (SGR) analysis

6. Suggest an appropriate valuation method that your company can use in determining market value of the target company

7. Identify and articulate any performance issue or concerns from the analysis

8. List and articulate applicable laws, standards, regulations and responsibilities of both the parties

9. Develop a "Controlled Entities Policy" (or similar) that outlines governance principles, role and composition of the board, accountability, and approval and review of controlled entities

Assessment Criteria

The following assessment criteria will be used for marking this assessment task. Ensure that you have addressed all of the criteria in your work.

- Selected and used appropriate ASX listed companies and their financial statements for the task
- Researched company information and provided an overview of business activities and divisions

- Researched company's share prices over a designated period and provided an analysis of major price shift
- Valuation ratios are calculated to determine true value of the companies in relation to its share prices
- Researched and suggested an appropriate company valuation method (e.g. Asset Valuation Method, Market Valuation Method, Price Earnings Multiple Valuation)

- Suggested valuation methods are appropriate for the proposed acquisition
- Appropriate references are provided to support the suggested valuation methods
- Used appropriate financial data for the analysis
- Calculated and prepared variables required to conduct Altman Z score analysis
- Calculated Altman Z score using the given worksheet and explained the current health of the company based on the outcome
- Calculated and prepared variables required to conduct the Sustainable Growth Report
- Calculated profit margin on sales after taxes
- Calculated percent of profit returned to owners
- Calculated debt to equity ratio
- Calculated asset to sales ratio
- Computed sustainable growth rate and explained the growth potential of the company based on the outcome
- Evaluated business's financial performance in respective areas based on Z score and SGR analyses
- Provided own recommendations for acquisition based on the analyses
- Financial analysis is conducted in a formal manner with report presented in line with common practices (sample reports)
- References to AASB standards are identified, reviewed and summarised
- Relevant legislative references are noted and summarised

Assessment Task 3:

Project: Prepare Consolidated Financial Reports

Description:

In this summative task, you will be required to prepare consolidated financial statements of two merging companies used in Assessment Task2.

Continuing in your role of an M&A project team given the responsibility to prepare for acquisition of a rival firm in the market, prepare sample consolidated financial statements for your company consolidating company's current financial position and target company's current year financial figures from the annual reports provided.

Analyse each annual report and write brief summaries

- Summarise all references to AASB standards in the notes
- List applicable organisational requirements (in your view), policy reference and legal requirements for acquisition
- For sample purpose (what the data might look like after the acquisition), merge 2011 financial statements of both the companies and prepare key consolidated statements: Balance sheet, and Income statement

- Prepare notes to the financial statement as per the AASB requirements and standards
- Research and identify possible taxation implications of acquisition for your company (based on the consolidated statement)
- Create graphs to show your company's key financial positions before and after consolidation

You may obtain additional information from ASX and company's respective websites.

Assessment Criteria
The following assessment criteria will be used for marking this assessment task. Ensure that you have addressed all of the criteria in your work.
- Obtained and used the given parent and target company annual reports and/or financial statements for the task
- Summarised the respective financial positions (based on the annual report) in own words and understanding
- Report summary highlights key performance and growth areas; and any areas of concerns of the respective companies

Referred to the policy instrument (Assessment Task2) and commented on applicable areas of respective entities


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