Stategy Key Point Essay

Words: 2314
Pages: 10

AYN 505 – Sem. 1/2011

A. Discussion Question

1. In financial analysis, explain why each of the four financial analysis steps (strategy, accounting, financial, and prospective analysis) is critical, and explain how they relate to one another. (PHBWBL p10, Q4 adapted)

2. Your brother, who works in a bank, has recommended to you that you purchase shares in an organisation, on the basis of the following information, which he has heard discussed around the office:

• Total assets have increased by 33%
• Revenue has increased by 12%
• Net profit has decreased by 4%.
• The dividend per share is 23c.
• The current share price is $8.50; 12 months
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This is supported by the fact that the share price has increased compared to last year.

• Information that may lead to hesitate: is the decrease in profit, and the low dividend (the yield, or dividend as a percentage of share price, is 2.7%).

Additional questions that you might ask are to obtain more information:

• How reliable is the information provided by your brother? You might seek to verify information that has been ‘passed around the office’.
• Why have the organisation’s expenses increased at a faster rate than revenues, which must be the case if the profit has fallen but revenues have increased?
• How was the increase in assets financed?
• What was the previous dividend? Its change from the previous level indicates management’s confidence in the future of the organisation. What are the dividends of comparable firms?
• What has been the general movement in share prices in the economy and in the industry? What industry does this organisation belong to?
• What has been the performance of comparable organisations?

Information sources:
The annual report, the stock exchange on which the organisation is listed, the organisation’s website, and commercial providers of financial information.

A3. Rate and compare the leisure & hospitality industry and the mining industry as high, medium, or low on the Porter’s