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FM Assignment - June 2023

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FM Assignment - June 2023

Uploaded by

facescrubs.lk
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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FINANCIAL MANAGEMENT

GROUP ASSIGNMENT
Objective
The objective of this assignment is to assess the application of theory and
knowledge gained in the above subject.

Date of issue
07th Oct 2023

Group Members

The maximum number of members for a group is three (03).


Number of members cannot exceed three under any circumstances.
Formation of the group is the sole responsibility of students. Each student in
the team is expected to contribute equally to the assignment .

Date of Submission

07th Nov 2023

Assignment should be submitted to Academy of Finance within the assignment


submission period. Assignment will not be accepted after the indicated date
under any circumstances.

Assignment

You are an analyst working for a Fund Management Company in Sri Lanka
and now looking at the prospect of investing in a Company. You are required
to select a listed company with a regular dividend payment history and
decide whether the selected company is a good buy.

Write a critical report to the Investment Committee outlining key points


mentioned below in the share along with a justified recommendation. Sound
rationale and justification on how you have arrived at estimates, valuations
and recommendations is critical.
1. Analyse the financial statements of the selected company, estimating net
profits for the next three years (2024, 2025 and 2026).

2. Analyse the historical annual dividends and estimate likely dividends for
the next three years, stating clearly the rational of your choice to estimate
dividends.

3. Identify possible reasons for the company to maintain such a dividend


policy.

4. Identify systematic and unsystematic risk factors relating to the selected


company’s share with examples.

5. Estimate the cost of equity of the selected company based on the Capital
Assets Pricing Model (CAPM)

you may use the 12-month Treasury-bill rate at the end of


September 2022 as the risk free rate.
The compounded annual growth rate of All Share Price Index or
the market for the past 5-10 years may be used as the required
return on the Market
Clearly indicate sources where you gathered data.

6. What is implied by the beta factor of the selected company with All Share
Index?

7. Estimate the stock price (fair value) you expect to prevail for the selected
company using a suitable dividend valuation method and/or other valuation
techniques and determine whether it is properly valued with the correct
buy/sell recommendation.

Marking Scheme

The following points should be discussed under the respective assessment


criteria.

1. Analyse the financial statements of the selected company.


i. Enter and analyze historical accounts for past three to five years.
The analysis of past data is an important first step to in estimating
trends of the Company and to arrive at estimated profits. (5%)
ii. Project the Income Statement for the next three years. Refer interim
financial results when arriving at 2022 figures. (10%)
• Sound rational justifications must be used and presented in
projecting income statement.

iii. Answer to this part needs to be an income statement with notes


which explains the rationale for the projection. (5%)

2. Analyse the historical dividend payment pattern and the dividend


growth rate (if any) and estimate the dividends for the next three years.
(15%)

3. Explain the importance of dividend policy to a company to achieve the


objectives of financial management. (10%)

4. Explain the meaning of systematic and unsystematic risk and identify


the relevant risk factors for each category for the selected company.
(15%)

5. Identify the factors that should be taken into account in constructing the
Capital Asset Pricing Model (CAPM). Calculate the cost of equity of the
selected company using CAPM model. (15%)

6. Explain the meaning of beta factor and interpret it with respect to the
selected company. (10%)

7. Use a suitable dividend valuation model to estimate the share price of


the selected company and determine whether it’s currently properly
valued. (15%)

8. Word count should be 3,000 words.

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