Question: You have just been employed by a financial services company. Your new manager wishes to test your skills so she sets an initial assignment for you. You should prepare a financial report about a UK listed firm. In your report, you should:
- Present and discuss the profile of the firm (including Main Shareholders, Market Capitalization, Stock Price, Stockholders’ Equity (Common Stock and Preferred Stock), Retained Earnings, Total Debt, Gearing Ratio, Credit Risk, Dividends, Payout Ratio, social and environmental metrics. Discuss also some recent financial and sustainability news related to the firm that could be interesting to the shareholders) and its evolution in the last five years. You may find information about the profile of the firm, its capital structure and main competitors from Yahoo! Finance within the “Key Statistics” (also view Financials – Balance Sheet – Annual Data) and “Competitors” sections. You may find information about the profile of the firm, its capital structure and main competitors from the FAME database.
- Look at the data on corporate financing choices of the firm (Retained Earnings, Debt and Equity) and discuss which theory (Trade-off Theory versus Pecking Order Theory) and dimensions (Taxes, Risk, Asset Type and Financial Slack) best explain what you see in the data in the past five years.
- Compute and report the followings two performance measures for the last five years: Market Value Added and Market to Book Ratio. Discuss the relationship between the Market Value of Equity and the Market to Book Ratio. You may find the information necessary to compute those measures in Yahoo! Finance within the Key Statistics and in the FAME database.
- Compute and report the cost of equity of the firm (i.e. rate of return required by the shareholders) using the Capital Asset Pricing Model (CAPM). You may assume that the rates of return on the market and on the risk-free rate are 8% and 2%, respectively. The beta of the firm can be found in Yahoo! Finance within the Key Statistics section and in the FAME database. Discuss the relation between the market risk of the firm and the cost of equity.
- Present the firm’s board remuneration (compensation) and report details on directors’ pay (as disclosed in the last annual report of the firm) detailing the weaknesses you have identified with respect to the main Uk corporate governance code’s recommendations on board remuneration and discuss their potential impact on the shareholders and other stakeholders. Provide a balanced view by also discussing positive aspects of its board remuneration (assuming there are some!). You may find information about the board’s remuneration (compensation) from the last company’s annual report.
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