170726 Week 2 – Workshop Questions PDF

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ACCT3302 Financial Statement Analysis Week 2 – Workshop Questions 1

Assigned readings

1.1

Textbook, Ch. 1.

1.2

Mitchell, S 2016, ‘Surfstitch wiped out by $155m loss’, Australian Financial Review, 30 August. Available from: http:// www.afr.com/. [19 July 2017].

2

Textbook questions

2.1

Qian, who has just completed his first finance course, is unsure whether he should take a course in business analysis and valuation using financial statements because he believes that financial analysis adds little value, given the efficiency of capital markets. Explain to Qian when financial analysis can add value, even if capital markets are efficient.

2.2

Four steps for business analysis are discussed in this chapter (strategy analysis, accounting analysis, financial analysis and prospective analysis). As a financial analyst, explain why each of these steps is a critical part of your job and how they relate to one another.

2.5

Explain voluntary disclosure of information in financial reports as a solution to the ‘lemons problem’ described in the chapter. Is it a full solution or a partial solution? Why?

2.6

What are the advantages and disadvantages of accounting standards for financial statement analysis?

3

Textbook case for discussion: would you invest in this company? You open the annual financial report to shareholders for a large and well-known company. The first page, in large bold font, proclaims the company’s achievements for the year: Asset growth of 79% in the past twelve months. Net profit up 14% on revenue increases of 4%. Dividend distribution has grown by 13%. You turn the pages. These achievements are also represented in upwardly sloping graphs, although the axes of the graphs are rather light coloured and difficult to read. There is a chart of share price growth, compared to the stock market average for the past five years. You turn to the section on the management team, and the board of directors. The photographs indicate to you that the management team is middle aged, and the board members are even older. Their smiles in the photographs are broad and friendly.

3.1

For each section of the report described, present the case for investing in this company, and if possible also give an alternative explanation for the presentation that does not encourage investment.

3.2

What else would you like to know about this company? Would you find this information in the annual financial report? If not, where might you find it?

4

What happened to Surfstitch?

1

Download the article ‘Surfstitch wiped out by $155m loss’ from LMS and read it. While reading, note down the issues raised that you think are relevant to financial statement analysis. Some things to consider, among others, are Surfstitch’s growth strategy, price paid for previous acquisitions and operating efficiency. Similarly to Workshop Question 3 above, would you invest in Surfstitch? 5

Textbook case study (Note: these will only be discussed if time permits.) Download the case study ‘Economic cycles and capital markets, and implications for regulation and governance’ from LMS and familiarise yourself with it (Textbook, pp14–25).

5.2

Discuss the intended roles of the institutions and intermediaries discussed in the case, such as central banks (e.g., the U.S. Federal Reserve), stock exchanges (e.g., ASX), individual banks and governments. Are their incentives aligned properly with their intended role? Whose incentives are most misaligned? At what stage of the economic cycle are the misalignments more pronounced?

5.3

Who if anyone was primarily responsible for the GFC?

1 You are expected to come to class with a range of ideas for discussion. There are no ‘right’ or ‘wrong’ answers for this exercise and therefore no model answer guide. You are encouraged to fully participate and generate ideas with your peers and tutor....