Your case company is Next PLC listed on the London Stock Exchange. You are assessed based partly on your technical skills, but more importantly the extent to which you understand the materials covered in the module.
2025-01-10 16:19:11
FINANCIAL REPORTING AND FINANCIAL STATEMENT ANALYSIS
Resit Individual Assignment 2021-2022
This is a structured individual assignment and involves all aspects of valuation techniques. Your case company is Next PLC (https://www.nextplc.co.uk/investors/reports-and-presentations) listed on the London Stock Exchange. You are assessed based partly on your technical skills, but more importantly the extent to which you understand the materials covered in the module.
Good discussion should include relevant readings and examples, as well as refer tightly to your own analysis to support your arguments. The overall word count is 2500 words. You are required to provide full disclosures of necessary valuation techniques in appendices, including full reformulation, value-relevant ratio analysis, and valuation templates. Word limit for each section provides guidance only.
Task 1: Reformulate Next’s financial statements for the fiscal years between 2017 to 2021. (300 words; 15%)
a) Briefly describe the case firm’s business model and strategy.
b) Clearly demonstrate net operating assets (NOA), net debt, net operating profit after tax (NOPAT), adjusted NOPAT (if any), and free cash flow (FCF). It is essential to present the required figures in well-tabulated tables and show the full reformulation in appendix. No Excel submission is accepted.
c) Briefly discuss key reformulated decisions, i.e. operating/financing classification decisions. Support your arguments with relevant literature.
Task 2: Critically analyse Next’s on value generating abilities via the advanced DuPont model. The discussion should reflect the case firm’s strategic choice, identifying operating strengths and weaknesses. All ratios involving balance sheet items should be based on the average balance sheet amounts. (900 words; 35%)
Your discussion must also include the impacts of IFRS 16 and IFRS 15 on balance sheets and income statements. This task discussion needs to be supported by well-tabulated data and external sources of data/information. The full and detailed DuPont model needs to be fully presented in Appendix
Your analysis must at least include:
a) Next’s past 5 years segment sales performance and margins as part of the
case firm’s pricing strategy and cost management.
b) Next’s growth (investment) strategy assessment via investments in operating assets based on common-size balance sheets and detailed asset utilisation indicators.
c) Next’s financial risk and liquidity position
d) Support your discussion with relevant academic literature and external sources of data/information, news articles, and market reports.
Task 3: Critically analyse Next’s growth potential. (550 words; 20%) Your analysis must include:
a) The estimated cost of capital, taking care to justify cost of debt and cost of equity components.
b) Calculate abnormal operating profit (AOP) and abnormal operating profit growth (AOPG), assuming that the chosen cost of capital is constant over the analysed period
c) Has Next been a growth company? Is there any indication that growth is slowing or accelerating? Support your discussion with relevant academic literature and external sources of data/information, news articles, and market reports.
Task 4: Based on your analysis above, forecast Next’s sales growth rates, operating profit margin, and operating assets turnover (also known as forecast assumptions). Carefully refer to additional relevant academic readings, legitimate external sources of information/reports, and your previous analyses. (750 words; 30%)
Your analysis must also include:
a) Full valuation template based on AOP valuation model and Discounted Cash Flow valuation model (DCF) in Appendix
b) Justification of forecast periods and identify the start of the terminal year.
c) Justification of forecast assumptions in forecast periods and terminal stage.
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