ACCT6003 Fundamental Analysis for Equity Investment
Final Take-Home Project

The Final Take-Home Project is worth 40 marks.
The final take-home project is released in Week 7, thus giving you ample time (nine weeks) to
complete this assessment.

Deadline
The deadline for submissions is 12:00pm, Friday 18 November 2022. Every day that passes from
the due date will attract a penalty as per standard University policy, as follows:
• Deduction of 5% of the maximum mark for each calendar day after the due date. This is
equivalent to a penalty of 2 marks per day.
• After ten calendar days late, a mark of zero will be awarded.

Project overview
You have been assigned a company that is currently listed on the ASX, and you are asked to act as a
sell-side analyst who applies fundamental analysis for equity investment to estimate the intrinsic
value of this company as at 30th of June 2022. This is a historical type of analysis that is meant to
help you understand how the information that is currently available right now can be used to
understand the price that was traded on the 30th of June 2022. You are also required to discuss the
price movement from June 2022 to November 2022, and then form expectations on how the price of
this company could evolve in the future given the available information. Finally, you are required to
make an investment recommendation on the 18th of November 2022 (or whenever you plan to
submit the assessment) on whether one should Buy or Sell the stock of this company. Your
investment recommendation must also include a discussion on the investment horizon, for how long
one should buy-and-hold before the price is corrected upwards, or how long one should short-sell
this stock before the price starts falling.
You are required to go through everything that you have learned in ACCT6003 and identify the
most appropriate types of analyses and approaches that would help you appraise the value of the
company that you have been assigned. Different companies may require different types of analyses
and different types of information.
2

Assigned company
The list of assigned companies is provided on Canvas in the page ‘Final take-home project’ and the
file name acct6003_company_list.csv. Each company is assigned using an SID number. Search by
SID number to find out your assigned company. All companies have been randomly assigned.
The companies have been selected based on the following criteria:
• It is a publicly traded company that is currently listed on the Australian Stock Exchange.
• It is not in the ASX100 index (see www.asx100.com), as determined as at 9 September 2022.
• It is not a company that is discussed in case studies or lecture slides (i.e. exclude Vista Group,
Fortescue Metals, Qantas, Woolworths, Humm Group).
• It is not a financial company (e.g. bank, credit institution, insurance).
• It is not a stapled security, a trust, a managed fund or investment group.
• It is not a holdings company (i.e. holding stock of many other companies).
• It is not a real estate company.
• It is not a regulated utility company (e.g. energy supplier, water company, public transport).
• It is not an energy, oil or gas exploration and extraction company.
• It is not a mining company.
• It is not a recently listed company with an unclassified industrial code.
• The company was listed on the ASX before June 30th, 2016.
• Its market capitalisation as at 9 September 2022 was greater than AU$50 million.
• Its stock is actively traded.
By applying the above filters, this leaves only small to medium sized companies that are not too
complex and have straightforward industrial operations.

Mergers and Takeover targets
An additional condition that is difficult to identify without close examination is that the assigned
company should not have merged with another company during the last 2 years, because then its
operational profile may have changed dramatically. Note that it is not a problem if your company
has acquired smaller companies, that is fine. A potential problem may arise from significant
mergers with another company that may have dissimilar operations.
You are required to closely examine the company that you have been assigned to learn whether
there have been any significant mergers in the last two years. If there is a merger, then please get in
3
touch with the Unit coordinator to discuss the issue and the potential allocation of another company.
You should also find out that your company has been the recent takeover target or is currently under
consideration of takeover from another larger company. This information would be posted on the
ASX noticeboard. If you find that your company is going through a process of selling the shares to
another larger company, then again get in touch with the Unit coordinator to discuss the issue and
the potential allocation of another company.
To find out about whether you company has recently merged with another company, or whether
your company is a recent or current takeover target, you must review all announcements posted by
your company during the last two years on the ASX, and then continue to regularly monitor all new
announcements from now to November 2022. Just go to https://www2.asx.com.au/ and search for
your company’s ticker, and then click on “See all announcements”.
DO NOT get in touch if your company has acquired other companies, this is not a problem at all.
Most companies have acquisitions, and these are a normal part of operational strategy. Treat
acquisitions as an important source of information for understanding prospective growth in
earnings.

Annual report 2022 and financial year-end
As explained above, you are asked to estimate the intrinsic value of this company as at 30th of June
2022, which is the financial year-end for most companies listed on the ASX.
Several companies would have already released their 2022 annual report, and others would be
releasing their annual reports in the coming weeks. You are required to find out whether you have
access to the 2022 report and if not then you are required to find out from the company’s
announcements when the company plans to release their report (they should give a date). If the
company plans to release their report after mid-October, then get in touch with the Unit Coordinator
as we may need to change your assigned company.
Also, note that some companies may apply a financial year-end that is different to 30 June. If you
have such a company, then please get in touch with the Unit Coordinator asap to discuss the
implications and how to approach the valuation of such company.

Excel template
You are provided with an Excel valuation spreadsheet guideline to help you develop the valuation
analysis using the Residual Operating Income (ReOI) model. Do not attempt any cash-based
4
valuation or the generic RIV valuation. Apply only the ReOI model. We will discuss the ReOI
model in week 9 onward.
The Excel template is just a guideline on how to approach the valuation exercise. It provides the
necessary types of analysis that must be completed as you prepare for the ReOI valuation.
Note that you can form expectations using information from any relevant source. The information
may be drawn from past annual reports, the annual reports of competitors, company
announcements, related financial news posted on ASX or other financial news outlets, historical
data analysis on past financial statements using data from databases, macroeconomic information
related to the company’s business environment and industry, socioeconomic information,
demographics, natural events and more. Make sure to reference all sources used.
You can choose any finite forecast horizon and any terminal year as you see appropriate, but you
are required to justify your choice using evidence.
You can choose any value for the terminal growth parameter, but again you must justify your
choice using evidence.
You are required to use the Weighted Average Cost of Capital (WACC) as the discount rate for the
ReOI valuation. The cost of equity component should be calculated using the Capital Asset Pricing
Model (CAPM). If the CAPM does not yield a reasonable estimate, then you must explain why this
is so and apply an alternative qualitative estimate as you judge to be right. As for the cost of debt,
you can use any reasonable approach as discussed in the lectures and the workshops.

Assessment criteria
There is not one correct answer, and you are not assessed on the accuracy of the valuation. No one
knows what the correct valuation of a company is. All valuations are intrinsic opinions. You will be
assessed on your ability to:
(i) Apply residual operating income valuation.
(ii) Identify and justify key factors that drive equity value within the context of the company
that you have been assigned.
(iii) Analyse informative quantitative and qualitative data, including financials, news, industry
and economy data, historical financial data, annual report information, macroeconomic
data and any other useful information.
(iv) Provide evidence-based convincing argumentation for justifying the forecasts, the WACC
calculations, and the valuation model.
5
(v) Explain the limitations of your analysis and the sensitivity of key assumptions.
(vi) Produce an investment recommendation with a recommended investment horizon.
(vii) Present a quality professional report with supporting documentation (e.g. tables, graphs,
references).

General advice
Do not fiddle around with the data. To run a valuation analysis, first perform fundamental analysis
and business analysis, then forecast and then decide on model parameters. Adjust the valuation only
if you have made a computational error or have discovered new information, but not because it did
not give you the answer that you thought it would.
Use the word limit wisely. Report only what is absolutely useful and is important for documenting
and explaining the analysis. Any general introductions, generic definitions or superfluous
explanations about theoretical concepts will attract negative marking. We know the theory already.
Go straight to the analysis. Assume that the reader is an expert financial manager who wants to read
a concise evidence-backed valuation analysis so that s/he can decide whether to buy or sell.

Submission
Your submission should take the form of a concisely presented professionally report of maximum
3,000 words. The word count excludes the reference list and any appendices.
You are required to submit both the Word file and the Excel valuation file in TurnitIn on Canvas.
The Excel file should contain all calculations used in the valuation report. You may want to create
multiple worktabs to hold different calculations.
You should not identify your names on the Word report or the Excel file. Marking will be
anonymous. You should only identify yourself through the selected company and your SID. Name
the files acct6003_final_project_SID.docx and acct6003_final_project_SID.xlsx, by substituting
SID with your personal student identifier.
Queries
Any queries about the final take-home project must be posted on Canvas so that all students will
benefit equally from the answers.

6
Report structure and marking criteria
The report should start by offering a very brief executive summary of only a couple of sentences.
The Executive summary should identify the company, the valuation date, the traded price on that
date, the intrinsic price that was calculated, the investment recommendation and the investment
horizon. Then, the report must contain seven sections enumerated using the exact headings as
described below.
Here is an example of a report structure. Under each section, we also describe what is expected to
be developed as part of the valuation report and how marks will be allocated.


Example Valuation report for ABC Ltd
Executive summary
As at 30 June 2022, ABC Ltd traded at $4.47 p/share on the ASX. This valuation report estimated
an intrinsic equity value of $7.23 p/share on that date. As at 9 September 2022, the market price has
increased to $5.21 and this report recommends to BUY the share of ABC today as the price is
estimated to continue rising during the next 24 months.
Section 1. Business Fundamentals
In this section, you are required to demonstrate solid understanding of business fundamentals, the
industry, and the relevant operational environment of the company. You are required to identify the
business model, business strategy, competitors, and key competitive threats. You must identify and
discuss how the company captures economic value and the key drivers of the company’s current
position and performance using judgment, evidence, and data analysis. The lessons learned from the
lecture of Week 1 and the Week 2 Assignment can help you complete this task. [9 marks]
Section 2. Accounting analysis and earnings quality
You are required to discuss the analysis of earnings quality, the identification of key reporting
targets for this company, and any suspicious events or red flags from financials that may be
alarming. You are encouraged to apply accounting adjustments where necessary. You must
demonstrate an in-depth understanding of the key accounting policies for this company, the
accounting flexibility and compare accounting judgment across direct competitors. The lessons
learned from the lecture of Week 2, the Week 3 Assignment, and the Week 4 Assignment can help
you complete this task. [6 marks]
Section 3. Reformulation of statements
7
You are required reformulate the income statements and balance sheet statements informing
financial ratio analysis, for at least 5 years if statements are available. You must provide an
appropriate and clear presentation in the Excel file to enable the examination of the reformulation,
including notes for documenting the sources of information and any assumptions made. In the Word
file, you are required to discuss the most important signals obtained that are a direct result of the
reformulation of the statements. The lessons learned from the Week 7 lecture, the Week 8 lecture,
and the Week 9 Assignment can help you complete this task [3 marks]
Section 4. Financial analysis
You are required to present convincing evidence-based arguments using data and theory and
involving detailed application of financial ratio analysis in order to inform prospective analysis of
performance, liquidity, solvency, efficiency, and all inputs relevant to equity valuation. Your focus
must be provided convincing arguments that justify your prospective analysis. The lessons learned
from the Week 9 lecture, the Week 10 lecture, the Week 10 Assignment and the Week 11
Assignment can help you complete this task. [9 marks]
Section 5. Credit analysis
You are required to analyse the credit risk, creditworthiness, liquidity and insolvency of our
company. You must provide a focused appraisal from a credit analyst perspective discussing capital
structure, leverage strategy, cost of debt, cash management, and anything else that would interest a
credit analyst. The lessons learned from the Week 11 lecture and the Week 12 Assignment can help
you complete this task. [4 marks]
Section 6. Cost of capital
You are required to estimate the cost of equity using CAPM, the cost of debt, and the cost of
operations using the WACC. You must estimate CAPM using raw market data and the cost of debt
using available information. All calculations must be reported in the Excel file In the Word report,
you are required to briefly discuss the underlying uncertainty and appropriateness of your calculated
cost of capital. The lessons learned from the Week 5 Assignment and the Week 6 Assignment can
help you complete this task. [4 marks]
Section 7. Limitations and sensitivity analysis
You are required to provide a critical discussion of the key limitations of your analysis and
assumptions (not of the theory or the model). You are required to carry reasonable sensitivity
analysis of the limitations and stress-testing the key assumptions that drive valuation. The
sensitivity analysis should stress-test those assumptions that are most uncertain. The lessons learned
8
from the Week 4 lecture, the Week 5 Assignment and the Week 6 Assignment can help you
complete this task. [3 marks]
Reference list
…here type-in the reference list.


N.B. The remaining [2 marks] are allocated to the presentation of a quality professional report,
including the effective use of tables and graphs, quality references and properly cited sources, easy-
to-read report, and professional use of language with non-superfluous or speculative arguments
lacking evidence. You are encouraged to use small tables and graphs to support your analysis in the
valuation report.