1

SURNAME:
FIRST NAME:
STUDENT ID:
SIGNATURE:

THE UNIVERSITY OF NEW SOUTH WALES
UNSW BUSINESS SCHOOL
School of Accounting
ACCT3610 – Business Analysis and Valuation
Session 1, 2018
Final Examination

Time Allowed: 2 Hours
Reading Time: 10 minutes
Number of Questions 4
Total Number of Pages 5, plus case materials
Total Marks Available 100

1. Print your name and student ID on top right hand corner of this page and sign.
2. Answer ALL questions.
3. Questions have UNEQUAL marks.
4. Write ALL your answers in the answer booklet.
5. Start your answer to each question on a new page.
6. All answers must be written in ink. DO NOT use pencil.
7. Students may bring one A4 sheet of paper with writing on both sides.
8. Students may bring a UNSW Approved calculator.
9. This paper may NOT to be retained by the candidate.

DO NOT OPEN THIS PAPER UNTIL INSTRUCTED BY THE
EXAM SUPERVISOR


2

Question 1: Business Strategy Analysis [25 marks]
Using the accompanying case, evaluate the corporate strategy of Spotify and its likely ability to
grow revenue and to generate profits over the long run.

As a starting point, consider the five forces of competition (but you can also use alternative
industry analysis tools):
? Competition from substitutes;
? Rivalry between established competitors;
? Threat of new entrants;
? Bargaining power of customers; and
? Bargaining power of suppliers.

You may also wish to consider the structure of the industry or industries that Spotify is involved
in. Also consider Spotify’s competitive positioning within these industry or industries.



3

Question 2: Accounting Analysis [20 marks]

a. Identify at least two of Spotify’s critical accounting policies. Explain why these are important
accounting issues when analysing Spotify’s financial statements. Briefly comment on
whether (and why) you think that these accounting policies fairly represent Spotify’s
financial performance or position. (8 marks)
b. What are the main incentives that Spotify faces in relation to achieving particular financial
statement (i.e., accounting) outcomes? (6 marks)
c. What mechanisms or factors would restrict the extent to which Spotify would be able to
manage their earnings (assuming that Spotify wished to do so)? Explain why these
mechanisms would restrict the extent of any earnings management. (6 marks)


4

Question 3: Financial Analysis [25 marks]
a. Calculate the following ratios for Spotify for 2016 and 2017. Use average balance sheet
amounts where balance sheet items are required. Copy this table into your answer booklet
and then complete the ratios. You may show your workings below the table in your answer
booklet.
2016 2017
Sales (revenue) growth
Gross profit margin
Operating profit margin
Return on Assets
Return on Equity

b. Discuss how each of these ratios do, or do not, reflect Spotify’s business strategy.
(10 marks)
c. What do you believe are the key financial statement ratios that capture the extent of the
business success of Spotify. Explain why these ratios are important in analysing Spotify.
(5 marks)


5

Question 4: Forecasting [30 marks]
a. i. Based on the firm’s strategy and your ratio analysis above, provide a set of forecasts for
the following items. Set out your answer in your answer book (not this question paper)
using the following table format – that is, copy the table below and then complete the
forecasts. If necessary, assume a corporate tax rate of 20% (10 marks)

2018 2019 2020
Sales growth
Gross profit margin
Operating profit margin
Return on Assets
Return on Equity

ii. Provide a justification for your forecasts above. (10 marks)

b. Describe the factors that makes Spotify difficult to forecast. Explain how you would
address these factors if you were required to provide a valuation of the equity in Spotify.
(10 marks)


END OF EXAM PAPER