My Target Company is SCIENTEX BHD (4731)
Required to download annual report for the target company from Bursa Malaysia website : bursamalaysia.com and use the information to complete the assignment.
Instructions:
1 This is an individual assignment.
2 Your assignment should be typed using font-size 12, Times New Roman, and 1.5 spacing.
3 Your report should not exceed 2000 words in length. This excludes quotes, references.
4 It should contain complete references by using the APA referencing method for all citations made in the paper (including internet citations). An essay without citations would be considered as plagiarism and would be awarded a failed grade.
You will be given a selected public listed company that listed in Bursa Malaysia as your research target.
You are required to find all the necessary financial information from the companies’ Annual Reports, on the companies’ website, online searching etc, in order to perform the different tasks that required by this assignment as shown in the following sections.
You are required to write an analysis report on your selected company to present you findings. Your reports should start with an introduction to introduce the background of the company, and perform industry and competitive analysis to understand the intense of competitiveness in the market.
Section A
In the first section of your report, you are required to examine the short-term financial activities of your selected company.
Using the following assumptions together with the information you collect from the company’s annual report to perform the required task:
Assumption:
1. Assuming a constant rate for purchases, production, and sales throughout the year.
2. Assuming all sales are on credit.
3. Assume a 365-day year.
4. Assuming the credit period that currently offer by the company to their customers are close to the company’s average collection period, and they did not offer any cash discount.
Required:
1. Calculate the following ratios for your selected company (based on the latest annual report):
a. Average age of Inventory
b. Average collection period
c. Average payment period
2. what are your selected company’s operating cycle (OC), cash conversion cycle (CCC), and the resource needs to support its cash conversion cycle (based on the latest annual report)?
3. The company are contemplating to introduce a cash discount of 3 percent to those who pay the account within 10 days, while the others are still expect to pay according to the current credit period. The following assumption have been made:
i. The sales revenues are expected to increase by 3 percent.
ii. 40 percent of the customers are expected to take the 3 percent discount.
iii. The average collection periods are expected to reduce by 30%
iv. The bad debt expenses are expected to decrease from 1.5% of sales to 1% of sales.
v. The firm’s opportunity cost of tying up funds in account receivable is 12%
vi. All the costs of sales are variable cost and 50 percent of the other operational costs are variable cost.
vii. Other incomes remain unchanged.
You are required to calculate the following items:
a. Additional profit contribution from the increase in sales revenue
b. Cost/cost savings of marginal investment in account receivable
c. Cost/cost savings of marginal bad debts
d. Cost of cash discount
e. Net profit/loss from initiating of proposed cash discount
f. Use your findings from part (a) to part (e) to assess whether offering the cash discount can be justified financially.
4. Answer the following questions:
a. Why is working capital management one of the most important and time-consuming activities of the financial manager?
b. What is the relationship between the predictability of a firm’s cash inflows and its required level of net working capital? How are net working capital, liquidity, and risk of insolvency related?
c. What are the basic trade-offs in a tightening of credit standards?
Section B
In this second section, you are required to conduct an equity analysis on your selected company. Your report should include the following content:
1. You are required to perform the equity valuation on the selected company to find the intrinsic value by using an appropriate equity valuation model.
2. Explain your selected equity valuation model, and why you think your selected model is appropriate to use to value the selected company.
3. Explain how you estimate/obtain the inputs for your valuation model, and why you think the method you use to estimate the input is appropriate for your selected company.
4. You should use the Capital Asset Pricing Model (CAPM) to calculate the required return for the selected company. You may find the Beta of your selected company from www.investing.com.
5. For the market return, you should use the return on FBM KLCI index as a proxy for the market return. You should first find the average monthly changes for FBM KLCI over the past twenty years and then annualized it to find the annual capital gains. You should then add the average annual capital gains with the long-term average dividend yield of FBMKLCI to find the annual market return. The average dividend yield for FBMKLCI are assumed to be 3.5%.
6. You should use the yield of 10 years Malaysian Government Securities to represent the risk-free rate.
7. Based on this information, you can then calculate required rate of return for the common stock of your selected company.
8. Using all of this information from the previous steps, you are then required to find the intrinsic value for your selected company.
9. You will also need to find out what is the current price of your selected company.
10. Explain how the outbreak of the Covid-19 will affect your selected company.
11. Based on your analysis, would you recommend buying this stock at the current market price? Explain why you make that recommendation.
Assessment Criteria
For your guidance, your assignment report will be marked as follows:
Question Marks (%)
Introduction, Company Background and industry analysis 10
Section A Working Capital Management
Shows all calculations using appropriate formula/model. (Use Excel). 25
Theory and explanation 15
Section B Equity Valuation and Cost of Capital
Shows all calculations using appropriate formula/model. (Use Excel). 30
Explanation, discussion and analysis 15
Conclusion and recommendation
5
Total 100
The marks will then convert into the final weightage of 50%.