COMM1140 Financial Management - Term 1, 2025

Group Assignment

Instructions:

The group assignment is worth 25% of the total assessment for this course. In your week 4 tutorials, your tutor will randomly divide you into groups. Each group will be allocated one of the below companies, which you must use to complete the task below (hereafter, ‘assigned company’). The 2024 annual report of your assigned company must be used to complete this assessment. For comparative purposes, you may also use other relevant annual reports or public information.

1.  Nine Entertainment

2.  Seven Network (Seven West Media)

3.  The Reject Shop

4.  Kogan

5.  Temple and Webster Group

Assignment:

All Australian businesses are currently facing uncertain trading conditions. High inflation and labour shortages have created sudden cost pressures and forced businesses to pass on cost increases to their customers. Additionally, rising interest rates pose a growing risk to businesses that have accumulated high levels of debt and increase the likelihood of a global recession occurring in the next 12 months.

You are a UNSW Commerce graduate in 2022 who quickly found employment in Felicity Trust, a financial services company that specialises in providing loans to large Australian businesses. Your manager has asked you to prepare a presentation to help Felicity Trust decide whether it should continue lending money to your assigned company. This is the first task your manager has asked you to complete independently, and you want to ensure that you impress! Luckily, you took notes when the task was assigned to you, which should be strictly followed to complete this task. NOTE: Please also carefully read the marking criteria (rubric) for this assignment (provided in a separate document) which provides you with further details about what is expected.

The notes are as follows:

Question 1: Present a description of the business and the nature of its operations. This should focus on providing a short explanation of the business’s history, how it generates revenue, and who forms its customer base (5 Marks);

Question 2: Present a financial statement analysis of the financial performance and financial position of the company (35 Marks);

Question 3: Identify one risk from reading the reports prepared by key management personnel (i.e., Board Chair and/or CEO) in the 2024 annual report that may impact the company’s future financial performance and/or financial position. You should explain clearly how the risk you identify could affect the ratios discussed in Question 2 above (10 Marks);

Question 4: Using two Firm Multiples and two Equity Multiples of three similar companies to your assigned company (30 Marks):

a)  Compare your allocated company with three similar companies and determine which one is the most similar. For the company that is most similar, provide supporting evidence and references of the comparison and state any assumptions (if any) you are making for this comparison. (10 marks)

b)  Calculate  a  range  and  mid-point  (average)  valuation  of  your  allocated  company’s outstanding equity (both the market capitalisation value and market share price) based on the 3 similar companies. Provide evidence of data collected with proper referencing and calculations to substantiate your valuation. (10 marks)

c)  Based on the comparison in part (a), explain from part (b) the reasons for the width of the range in valuation and why you think the mid-point valuation is accurate or not. Provide evidence and the sources of the evidence that support your explanation. Based on this explanation, give a simple but educated guess about the percentage you would adjust up or down the mid-point valuation to something more reasonable. What would that new mid- point valuation be? (10 marks)

Question 5: Present a short description of whether you would recommend Felicity Trust to continue providing loans to your assigned company in the short term. You should clearly describe how and why you came to this decision. (5 marks)

Submission Requirements

Three separate submissions are required as part of this assignment, as outlined below.

1. Group Contract

All groups must complete a group contract that sets expectations as to how the assignment will be completed.

The total maximum grade for the group contract is 2 marks.

Submission Requirements:

One member of each group should email a completed group contract to your tutor by 5pm on Monday, March 24th (Week 6). All group members should be cc’d on the email. Late submissions will be subject to the penalties outlined below.

2. Video Submission

To answer Questions 1-4, you should prepare a 15 minute pre-recorded video presentation, clearly following the submission requirements set out below. An additional 5 marks are available for the following:

a.  Structure of the presentation, professionalism and timing. (2.5 Marks)

b.  Use of Visual Aids. (2.5 Marks)

The total maximum grade for the video submission is 85 marks.

Submission Requirements:

One  member  of  each  group  will  be  required  to  submit  your  pre-recorded   15  minute  video presentation via the dedicated submission link on Moodle by 5pm on Wednesday, April 16th (Week 9).  Late submissions will be subject to the penalties outlined below.

3. Tutorial Presentation

To answer Question 5, you must prepare and present a 3 minute presentation in your Week 10 tutorial, clearly following the submission requirements set out below. An additional 8 marks are available for the following:

a.  Structure of the presentation, professionalism and timing (2 Marks)

b.  Quality of responses during your presentation and your questions when critiquing an allocated peer group (6 marks)

The total maximum grade for the tutorial presentation is 13 marks.

Submission Requirements:

Each group is required to designate one group member who will be responsible for emailing your presentation to your tutor before your tutorial in week 10. You must include a cover sheet with this submission, which lists the names and Z-ids of all members of the group. This cover sheet can be found on the COMM1140 Moodle site. The designated group member must submit this file on behalf of the entire group.

Late Submission Policy

Late submission will incur a penalty of 5% per day or part thereof (including weekends) from the due date and time. An assessment will not be accepted after 5 days (120 hours) of the original deadline unless special consideration has been approved.

Submission Expectations - Video Presentation

1.  To answer Questions 2, 3 and 4, you may only use the ratios provided in the “COMM1140 Ratio List” document (available in the “Group Assignment” Section on Moodle).

2.  You must show a copy of the ratios you use to analyse the financial position and financial performance of the company allocated to your group for Question 2. Tables should be embedded in your presentation that show all ratios used to interpret the financial performance and financial position of your assigned company and its peers over the timeframe selected for your analysis (i.e., 2 years or more). We recommend that ratios be presented in table format using the categories discussed in the lecture (profitability, efficiency, liquidity, financial structure). Past students have found the IBISWorld database a useful source of industry averages (as used in your tutorial homework for week 4).

3. Question 4 is about multiples valuation. Start with a brief overview of the method applied, then walk your audience through how you used that method to value the firm. Be sure to explain any assumptions you made and how they might impact your valuation. You need to explain the rationale for choosing your comparable firms. Gather data on the firm you are valuing as well as the firm's competitors. There are several sub-methods for multiples valuation within firm multiples and equity multiples. Choose 4 sub-methods (2 from each valuation method) that are most appropriate for your analysis. Discuss if there are any discrepancies between the valuations.

4.  You must also show a copy of the calculations you conducted to answer Question 4 during your presentation.

5.  We recommend that groups use data visualisations to support your answer to question two and question four (or any other question you feel appropriate). A video on data visualisation has been provided on Moodle to help you in designing your presentation slides. See the “Support” section of the “Group Assignment” Section on Moodle.

6.  We recommend splitting your 15 minutes based on the overall weight of each question. For instance, question two is worth 35/85 marks (approximately 41% of the total marks). This means you should spend about 41% of the 15 minutes on this question, or approximately 6 minutes (6/15 = 0.4).

7.  You do not need to include a response to Question 5 in your video submission. This question will be answered in your in class presentation in you Week 10 tutorial.

Submission Expectations - In Tutorial Presentation (in your Week 10 tutorial)

1.  Your in-tutorial presentation should focus on responding to Question 5. Question 5 asks you to provide a recommendation to your manager and reference evidence for your decision based on information contained in earlier sections of your presentation. There is no ‘correct’ answer here – students can provide valid arguments of “yes, extend the loan” or “No, do not extend the loan” for each company. We are interested in the rationale used to support your decision. You should be clear in your 3 minute pitch to your manager why you came to this decision. We recommend that you provide 3 to 4 reasons to support your recommendation.

2.  Following your presentation, a 5 minute Q&A will take place where you will respond to questions from your tutor/peers on your assignment and how you came to your final decision. Each group will be allocated a peer group to which they must pose questions during the Q&A component of that group’s presentation. Peer groups will be allocated in your week 9 tutorial. The questions should focus on extracting the information from the group you need as the manager to understand whether or not the loan facility should be extended.

Other guidance:

1.  The assignment primarily covers content discussed in the lectures in weeks 4 and 5. You should be able to begin answering questions 1-3 after the week 4 lecture/tutorial and question 4 after the week 5 lecture/tutorial.

2.  A  marking  rubric  is provided on Moodle. You could be asked to complete this task in a graduate role in business. Often, for these tasks in the real world, you do not have a sample to work off; your manager simply gives you the task, and you must respond! The idea of this task is to prepare you for such a scenario that you will encounter in the future. If you have questions, please post them in the Q&A forum on Moodle.

3.  We encourage groups to spend time preparing their presentation slides – both for your 15- minute video presentation and in-tutorial presentation. Try not to overload your slides with information – this is a common mistake we see each term. Please do ensure, however, that the information you include in your slides communicates the key messages you want to highlight in response to each question.

4.  Working in a group can be a challenging process. We encourage groups to work through any challenges that they encounter as a team. The COMM1140 teaching team should only be contacted as a last resort to resolve group conflict.

5.  To ensure that you reflect on your contribution and the contribution of your group members, we will ask you to respond to a short Peer Evaluation Survey on Moodle in week 10. If you feel member(s) of your group have not contributed to the assignment, you can express your concerns in the survey. The COMM1140 teaching team will review the student responses, and students found not to contribute to the group assignment may receive a reduced grade.

COMM1140 Group Assignment - FAQs

FAQs about formatting and general questions regarding the video submission

1.   What is the preferred formatting for the pre-recorded video submission?

•    We recommend that you use Zoom to record your presentation. All group members could be on the call, and we do recommend that the group member speaking at any one time is shown on camera. Others can be off-camera when they are not speaking if they wish. This would be expected in a professional environment.

•    Alternatively, you can also record your presentation using PowerPoint.

2.   What sort of referencing is expected of us?

•    As it’s a presentation, we don't have specific referencing requirements. You can include a reference list at the end of your slide deck if you wish.

3.   Do we show our faces? (i.e. is it a video presentation?)

•    We recommend that the speaker show their face during the video presentation while they are speaking - similar to how we record the Zoom lectures.

4.   Which site should we use the data from for consistency?

•    You are free to source data from any reliable database. However, using Yahoo Finance for Q4 & IBISWorld for industry averages in Q2 might be more convenient as comprehensive instructions  are provided in the tutorial.

5.   Is there any leeway on the duration of the recording? For example, +_ 10% length or is 15 minutes

just a rough guideline? What is the maximum duration I am allowed to record our presentation?

•    +/- 30 seconds is considered acceptable. Anything outside of this range will be penalized 1 mark, and excess content will not be graded (beyond 15 minutes 30 seconds).

6.   Can a 15-minute video be recorded by one team member? Will other team members who did not participate in the recording be penalised for this?

•    We recommend all group members be involved in the recording of the video. It's okay if one group member has recorded the video once all group members were involved in the assignment.

7.   Does our video recording have to be in one take or can each group member film their part individually and we cut it together?

•    You can record it individually and make necessary edits afterwards.

8.   Does talking speed matter in the video?

•    Generally, students should seek to speak at a similar pace. There are marks for professionalism, and this would fall into this category.

9.   Does the cover sheet have to feature in the video, or can it just be the first slide in the slide deck submission?

•    Please submit the cover sheet as the first page of the PDF containing your presentation slides for your 15-minute video. The cover sheet does not need to be featured in the video.

FAQs about Question 2 of the Group Assignment

1.   Should we use Yahoo Finance or the company's annual report to find data to use in ratio calculations?

•    We recommend the annual report. You should only use data from Yahoo Finance if you can

confirm the same formula was used in calculating the ratio. For instance, do Yahoo Finance use NOPAT or PAT for ROE?

2.   In the marking rubric for question 2 it is mentioned that we are expected to use the historical data of a  peer firm for 3 years or more, or we can alternatively use the industry averages. However, the industry average is only available for the financial year of 2024. If we decide to use the industry average approach, are we expected to show the data for one year?

•    If you can't find the industry average for a 3-year period, it’s a better approach to compare your company's performance to a peer. In general, it is always good to do both cross-sectional

analysis (i.e. compare with the industry average in 2024) and time series analysis (3–5-year trend).

3.   We couldn't find the item 'credit sales' from the annual report, would you be able to advise us on what we should do?

•    Credit sales information is typically internal and unlikely to be found in the annual report. That's why databases commonly use total revenue instead of credit sales revenue to calculate the receivable turnover ratio. We recommend you do the same for your assignment. If receivables are not significant for the company, you might want to consider other ratios. It's not necessary to calculate every single ratio covered in the course. Focus on selecting the most relevant and important ratios for the company you're analysing.

4.   Can all the profitability, activity (turnover), liquidity, and solvency ratios be used to examine financial performance AND position?

•    You should follow the guidance in the grading criteria which suggests you select three or more profitability ratios and relevant activity ratios. For some companies, you won't be able to calculate activity ratios as the information is not disclosed in the annual report.

•    Overall, you need to identify ratios relevant to your company in each category.

5.   Is it mandatory to complete an analysis of DuPont?

•    It's not mandatory to do DuPont.

6.   For calculating things such as the cash ratio and A/P turnover, would I include cash equivalents and other payables respectively as well in the calculation or only use the value for cash and accounts

payable itself?

•    The cash ratio is not super helpful so we would suggest it could be excluded from your analysis. Focus on the current ratio and quick ratio instead. You should just include accounts payable listed as a current liability for the accounts payable turnover calculation.

7.   According to IBIS World my group’s assigned company does not have account receivables yet the company’s financial statement has the value for ‘trade and other receivables’. In terms of calculating receivable turnover, is using ‘trade and other receivables’ value applicable?

•    Trade receivable is accounts receivable. Use the financial statement information to calculate ratios. IBISWorld is for industry averages only.

8.   One of the marking criteria guidelines states we need tables to show the working out of the profitability  ratios for 4/5 marks. Do we need to show this working out for our company as well as our competitors or is it just for our company?

•    You don't need to show workings, but we recommend you include a cell that shows the formula you used. The other cells can include the outcome of your calculations per year (i.e., 5%, 6%,    7% etc). You also need to complete and show these calculations for a competitor or find the market average. One company is sufficient as a comparison for the assignment.

FAQS about Question 4 of the Group Assignment

1.   For question 4a) is it possible to compare businesses that are similar but are in somewhat different industries? Like The Reject Shop as a retail discount store in comparison to a business operating as a retail department store?

•    Yes, this is ok once you provide a brief justification for your comparison.

2.   Is it possible that the most similar company be an international company?

•    Of course you can use international companies. Comparable firms do not have to come from the same country. If you use ratios/multiples, then currencies don't matter.

3.   Our group is doing 'The Reject Shop' and found the 3 companies we are going to compare with.

However, those companies are under a bigger group like Kmart is under Wesfarmers, but when calculating Market cap, total assets, etc is there a way to get information just for Kmart or do we just do it under the Wesfarmers company (but this will include the total for every other shop under this group like Coles, Bunnings etc).

•    Selecting Kmart, which is a subsidiary of Wesfarmers, presents a challenge in isolating its

financial data. We recommend checking the "Segment Reporting" section in the notes to the financial statements within the annual report.

•    If Kmart is a significant division of Wesfarmers, you should find the necessary details there.

However, if this information is not available, your group might need to consider another comparable firm. Keep in mind that comparable firms are not restricted to the same country, but please focus on public companies, as information on private firms is harder to obtain.

•    You should discuss with your group to determine which companies are comparable.

•    Finding truly comparable firms is challenging, so try to match as many business and financial characteristics as you can. If no other comparable firms are similar in size and you're confident about your selection, proceed with the valuation. But be prepared to adjust the final valuation result to reflect any size discrepancies.

4.   Regarding the market cap, do we have to show how we have acquired the data, or can we just use the data straight for the market cap and EV provided on Yahoo?

•    For the market cap of the assigned company, you need to derive it. Once you get the share price, multiply it by the number of shares outstanding.

•    For comparable firms, you can obtain the market cap from Yahoo Finance.

5.   Once you find the company your selected company is the most similar to. Do you eliminate the

valuation range values of the other 2 companies. Or is it possible to only eliminate the value of one of the companies. For example, company 3 is the most similar to your selected company but company 2 is the most similar according to size hence we chose to keep the range between those 2. And get rid of the other one completely.

•    You should keep all comparable companies so you can derive the valuation range. If you use only one company, then you won't be able to get a "range".

•    In part c, you can refine your valuation. For example, if only 2 out of 3 companies are truly similar, then you can redo the analysis with those 2 firms to get a more reasonable range.

6.   We calculated a negative implied share price for Q4b) and we are not sure if we should include this in our range or ignore it and just talk about the negative share price theoretically.

•    You may want to double-check the numbers and calculations.

•    If you are 100% sure it's negative, check the quality of your comparables and multiples.

•    A negative share price doesn't make sense.

7.   My group was planning on calculating the firm and equity multiples for the past 3 years. Given that

Yahoo Finance doesn't provide historical statistics for many of these key values, should we be looking solely at the ratios for the most recent financial year instead of the past 3?

•    You are not required to calculate firm & equity multiples for the past 3 years. The valuation of the target company is current and hence information should be current or forward, not backward. You should follow the tutorial activity in week 5.

8.   The instructions say to 'give a simple but educated guess about the percentage you would adjust up or down the mid-point valuation to something more reasonable'. How would we adjust the mid-point valuation, and how would we know what a more reasonable number looks like?

•    You can examine the stock performance over the past 52 weeks to assess the volatility and evaluate the reasonableness of your valuation range.

•    Additionally, consider the percentage of revenue generated by your target company in comparison with peer firms.

•    For example, if 100% of the target company's revenue comes from Business A, whereas only    80% of the peer firms' revenue is derived from this business, you might consider adjusting your valuation by a corresponding percentage (e.g. 20%).

•    Remember, this is just an illustrative scenario. Apply creativity and logical reasoning to your adjustments.

•    If you believe the range in 4b is already reasonable and no need to adjust further, then you

provide reasons why you believe so. In this case, there is no need to provide a new range/mid- point.