ACCT90002 Financial Statement Analysis
Semester 1, 2024
Group Assignment
Business Valuation
Background to this assignment
Business valuations can be performed using financial statement information and by
developing an understanding of the factors affecting the company and the industry within
which it operates. Using this information, it is possible to perform either a relative value
analysis or a fundamental (or intrinsic) value analysis.
Relative valuation is the process of valuing a company or its equity by comparing the
performance indicators (value drivers) of similar companies (peers) relative to market
perception. This approach is based on “value drivers,” or valuation multiples which are
companies’ specific financial performance measures (e.g., sales, earnings, book value of
equity, cash flows, etc.) and market perception measures (market value). Peer benchmarks
are then derived from multiples for comparing the target company to the peer group.
In contrast, fundamental (or intrinsic) value is the process of valuing a company or equity
from discounting future cash flows. The philosophical basis of this approach is that the main
determinants of value are cash flows, growth, and risk. While growth is used to forecast cash
flows, risk is incorporated in the discount rate (cost of capital). Therefore, this valuation
process includes projections of future cash flows, the estimated lifetime of the investment,
and the appropriate discount rate. There are two primary approaches to fundamental (or
intrinsic) value analysis: “income capitalization” and “cash flow discounting.” The income
capitalization approach is applied to estimate the asset value based on “actual” cash flows
generated by those assets. The major assumption is that the past is a good representation
of the future. The applicable discount rate on this approach is known as the capitalization
rate, which is usually a market rate of return. The cash flow discount approach uses
“expected” cash flows, considering their past, current, and future positions.
A business valuation performed for a third party is a document containing an opinion on the
value of a business that is obtained through an independent, complex and structured
valuation process. Analysts typically rely on the information gathered and on their personal
experience, to carry out a comprehensive valuation. If the valuation is commissioned by a
seller, it is a sell-side valuation; if it is commissioned by a buyer, it is a buy-side valuation.
Select your Company for the Group Assignment
All ACCT90002 Groups must select one of the following Australian Stock Exchange (ASX)
listed companies:
ASX Code ASX Listed Company Name
TLS Telstra Group Limited
IEL IDP Education Limited
JBH JB Hi-Fi Limited
TCL Transurban Group
BXB Brambles Limited
REH Reece Limited
WOR Worley Limited
IFT Infratil Limited
AZJ Aurizon Holdings Limited
AMC Amcor Limited
BLD Boral Limited
Your selected company must be used for your Group Assignment. No other companies will be
accepted or graded.
Work to be performed for the Group Assignment
Assume that you are a financial analyst working at a consulting company who has been asked
to prepare a buy-side valuation report for a client regarding both a relative valuation and a
fundamental (intrinsic) value of your allocated company.
Your buy-side client requires you to use publicly available information about the company
and the industry within which it operates and to apply the Financial Statement Analysis
Framework as shown below you are required to perform:
• an analysis of the selected company’s business strategy and its financial statements.
• a relative valuation of your company’s value.
• a fundamental (or intrinsic) valuation of your selected company using both an “income
capitalization” and a “cash flow discounting” approach.
• Reconcile and provide a rationale for any significant differences found in the valuation
techniques applied.
Source: Palepu, K., P. Healy, S. Wright, M. Bradbury, and J. Coulton. 2021 Business Analysis
and Valuation: Using Financial Statements. [Third Asia-Pacific Edition]. Cengage Learning.
You are required to follow and detail the following steps for conducting the analysis:
1. Introduce the company and perform a segment analysis of the company. (Be sure to
clearly identify the level of analysis to be performed (i.e., whole-of-business, single
subsidiary, business segment or a single facility)).
2. Assess the company business strategy via industry analysis and competitive strategy
analysis and identify any factors that will affect the company valuation.
3. Evaluate the quality of the financial information provided in the selected company
financial statements and identify any factors likely to distort or impact the valuation
process. Be sure to discuss how these factors may impact the valuation and explain
any adjustments that may be required.
4. Perform a financial analysis of the company considering any factors identified in steps
2 and 3 above.
5. Perform a relative analysis of the company.
6. Perform a fundamental analysis of the company using both an “income capitalization”
and a “cash flow discounting” approach.
7. Clearly state the outcomes from the valuations performed and reconcile any observed
differences in the valuations.
8. Clearly state your opinion of the valuation of the selected company including a clear
statement of the rationale supporting your opinion.
It should be noted that the analysis can be performed using either a whole of company
approach, by subsidiary, by business segment, or by business facility. Your analysis should
note the following:
• Your analysis must be consistent with the approach and should make use of processes
and procedures consistent with the financial statement analysis framework shown
above.
• Subject to the valuation approach used, you will need to clearly discuss the
approaches applied, and clearly state all major assumptions made in your analysis.
• You will need to think innovatively in performing your analysis and make justifiable
assumptions where necessary to overcome the hurdles you may confront. These
hurdles may include any deficiencies in data availability about the company and its
industry.
• You must not rely upon broker reports or other company valuation sources.
• You must not provide buy, hold or sell recommendations regarding the selected
company.
• Do not contact the selected company.
Deliverables for this Assignment
Details for the Group Assignment are shown below:
Group assignment written report: 2000 words, to a maximum of 2500 words (with the
usual +/- 10% allowance).
Due: before 5.00 pm Friday 17 May 2024
You are required to complete a professional-standard report that must address each of the
areas described in steps 1-8 above, including all supporting arguments. The report’s content
in Sections 1 to 6 should include the relevant analysis leading to and supporting your findings.
You may wish to provide detailed support in appendices.
Please note that the written report must include the following components:
• A Title Cover Sheet for the report; this should include all group members’ names and
student IDs.
• An Executive Summary which highlights the scope of the report, provides a summary
of the work performed, identifies significant findings from the research and analysis
and report your opinion on the valuation. This should be a stand-alone document
about the content of the report (typically 1-2 pages).
• A Table of Contents.
• An appropriate report Introduction that discusses the purpose of the report, the
report structure (which should reflect the scope of work performed) and any report
limitations.
• The body of the report should include the outcomes of the research and analysis in
Sections 1 to 6.
• All findings in Section 7 and 8 should be clearly stated and supported by the research
and analysis performed and reported in sections 1 to 6.
• Appendices should be used as required.
• A Bibliography should be included.
Your assignment must be submitted via the LMS by the due date and time. Only the final
document submitted will be graded.
Your submission should include any spreadsheets used in the performance of the analysis.
However, these spreadsheets should NOT be referred to as part of the report and will not
be assessed as part of your assignment submission.
Group Assignment
This is a group assignment. Each student must allocate themselves to a group which can have
a minimum of 3 and a maximum of 5 members. All students within each group will be given
the same mark for the assignment submitted by that group.
It is your responsibility to select your own group. It is the responsibility of group members
to:
• identify major tasks to be completed.
• establish realistic time frames for completing each major task, allowing time for
unforeseeable or uncontrollable events, such as illness, computer failure etc. and
• identify desired outcomes for the group as a whole.
It is recommended that each group keep notes of meetings held and meet regularly to
discuss tasks to be completed for the assignment and to monitor progress with the Group
Assignment. Any issues related to group participation and completion of the assignment
need to be managed by the group.
Non-cooperative individuals or lack of contribution will need to be highlighted by the
majority of the group no later than one week in advance of submission of this assignment.
Resolution of disputes will be expected to be resolved by the group members in the first
instance. If unresolvable, then notification of the issue needs to be highlighted to the course
coordinator as soon as possible.