Assessment brief 010: case study
After several rounds of interview, you are successfully appointed as the CFO of the Company. The Company has enjoyed considerable success in recent years and the board of directors have decided to adopt a growth strategy by making further investment in their current production line and acquiring an existing company in their industry. As the newly appointed CFO of the Company, you are tasked to evaluate the performance of the Company and prepare a report to the board of directors with evaluation of the potential investment opportunities.
The first investment under consideration is to make further investment in their current product, which needs initial investment of £30,000,000 and has a life of 10 years. The finance department appraised some other similar investments before using different investment appraisal techniques. The discount rate is 15% for the Company (Ignore inflation and taxation).
At the same time, the Company plans to acquire another company in the same industry in the near future. However, the board of directors require more information for the potential target. You are tasked with the responsibility of identifying a potential target company and preparing a report to the board of directors justifying the choice of a target company and potential implications from mergers and acquisitions.
Suppose you are successfully appointed as the CFO for ONE of the listed companies below.
- Balfour Beatty
- Go-Ahead Group
- CLS Holdings
- Hikma Pharmaceuticals
- Morgan Advanced Materials
As the newly appointed CFO of your chosen company, you are required to write a report to the senior management team - fully referenced, and address the following:
- Evaluate financial performance: Choose TWO categories of financial ratios from the list below and assess the financial health of your chosen company using past 5-year financial information:
- Financial gearing
Note: Analyse your chosen financial ratios using information from financial statements. Critically evaluate past five years firm performance using your chosen ratios and discuss the problems and limitations of financial ratios as a tool of financial analysis before make recommendation to the board of directors. Use small tables, diagrams and charts in your analysis and present professionally.
- Investment appraisal: You plan to use NPV and IRR techniques to evaluate the project. Critically discuss NPV and IRR techniques and the implications of the investment on the Company. Risk and uncertainty in investment appraisal should be considered before you make recommendation.
Note: Please present NPV and IRR results using small tables. You need to make decision on which investment appraisal format that you will choose. The project will be based on your chosen company, therefore, you have the flexibility to decide the project using your ESTIMATE. The investment should be £30m, but how the money is invested would depend on the nature of the investment. Sensitivity analysis will be helpful to analyse different scenarios for the appraisal.
- Potential acquisition: After you identify a potential target company, you will address the following in your report to the senior management team:
- Rationale for choosing the target company
- The synergistic gain of the acquisition for the Company
- Proposed deal value and finance of the acquisition
- The potential implications of such acquisition on firm performance
- Challenges and risk assessment of the acquisition
Note: Based on analyses of your chosen company, you can identify a target company in the real business world. Hint: You can link potential implications with your chosen financial ratios.
Supporting information to help the senior management team make their final decision. Present your own tables and do NOT copy and paste annual report in your appendix.