Financial Analysis part 3

FIN3120 – Business Finance

Individual Assignment – Part 3

Title: Comparative Analysis of Two Companies’ Performance

Grade: this part of the assignment represents 30% of your final grade (10% for each requirement) and you will be given a mark out of 30

Submission Date and Time: 12th of April 2024, 17:00

Submission format: via link on module moodle site

This is the third part of your individual assignment for the module and the objectives we are aiming to achieve with it are:

· Ensure you are able to understand a company’s business model and, in so doing, identify who their main competitors are

· Conduct a comparative analysis on the performance of companies operating in the same sector and adopting similar business models

· Be able to draw conclusions about which companies are performance better and which are the relative strengths and weaknesses of the different competitors

· Be able to provide recommendations to investors on which course of action they should be taking when considering an investment in a certain company

For this part of the assignment, the analysis will be comparative and a clear recommendation is expected at the end of it.

In part 2 (Requirement 4, question 7) you identified who your chosen company’s main competitors were. If you have chosen a single main competitor, that is the one company you should use in this part of the assignment, but if you included more than one competitor, for this part of the assignment, you should choose the one company you believe to be the main competitor.

This final part of the assignment incorporates three components to help you develop your knowledge of business finance, the first two of which are consolidating prior knowledge, i.e. activities you’ve already done, while the third is a new requirement:

· Collect data on a company (in this instance, your chosen company’s main competitor)

· Conduct calculations (using techniques discussed during the module)

· Compare the performance of two companies, understanding which one is performing better, and provide recommendations to investors.

As previously, I will not review drafts of your submission, but I will be available to answer any questions/doubts that you might have regarding the correct approach to address the assignment requirements. I can be contacted before/after classes, in my office hours or by e-mail

Requirement:

You are required to submit ONE word or pdf file answering the requirements of the three parts detailed below.

Requirement 7 – Introduction to Competitor

Required:

Prepare a one-page report covering the following contents:

· Presentation of the competitor (who they are, what they do, etc.)

· Explanation of why this is your chosen company’s main competitor including:

· Main similarities between the companies

· Main differences between the companies

· Discussion of whether from a “qualitative” perspective (without any calculations of ratios, returns, share prices, etc.) one company appears to be performing better than the other

You’ve now had the benefit of having prepared parts 2 and 2a of the assignment and received feedback on them (feedback on part 2 will be provided no later than March, 15th and feedback on the presentations no later than one week after the final presentations on March, 20th) so you should be able to judge by yourself what you should include in order to successfully meet the requirement.

As such, I’ll still be answering any questions you have, but will probably in a lot of instances direct you to your prior work and respective feedback.

Requirement 8 – Company Cost of Capital

Required:

1. Calculate the Weighted Average Cost of Capital for the main competitor of your chosen company by using publicly available information.

2. Briefly discuss what you believe to be the potential reasons for the difference (or not) in the WACC of your chosen company and its main competitor

As previously, in order to achieve full marks for this part of the assignment, you will to do following two elements correctly:

1. Use the correct formulas and present a reasonable WACC for your company’s main competitor, including all the prior calculations required to arrive at the WACC

2. Fully reference all sources of reference for the information collected in order to calculate the WACC

Requirement 9 – Quantitative Analysis and Recommendations

Required:

Prepare a one-page report covering the following contents:

· Quantitative comparison of your chosen company and its main competitor (*)

· Assuming an investor had invested £1,000 in each of your chosen company and its main competitor on January 1st, 2019, indicate:

· How much each investment would be worth today

· What has the total return and annual return be on each of the investments

· Whether any or either of the investment performed better than an investment in a portfolio replicate the FTSE100

· Provide a recommendation, with justification, regarding whether you believe both, one or neither of the companies are worth investing in at the moment.

(*) In the previous requirement, you were asked to calculate the competitors’ cost of capital, so you can include that in here, but not discuss it again. Additionally, you can include any other calculations you find relevant relating to any topics we’ve covered during the module.

You can include any tables/charts/other as appendices, outside of the one-page count. Please note that any contents included in appendices needs to be referred to in the report, so that the reader knows what in the appendices to look at when.