Summarise key principles trends and tools in accounting and corporate finance.2. Demonstrate effective approaches to the analysis of corporate finance structure

Support the above analysis with vertical analysis of JD Sports Fashion Plc’s consolidated balance sheet and then critically assess the company’s approach to capital structure. What is the largest figure for JD Sports Fashion Plc’s liabilities in 2020? Why? Comment on your finding.

 

LSBF
Module

Accounting and Managerial Finance

Assignment
Title
AMF Written Coursework Assignment
Assignment Type Individual Assignment
Word Limit 3500 – 4000
Weighting 100%

++Plagiarism When submitting work for assessment students should be aware of the InterActive guidance and regulations concerning plagiarism. All submissions should be your own original work.

You must submit an electronic copy of your work. Your submission will be electronically checked.

Harvard Referencing & Special Instructions

The Harvard Referencing System must be used. The Wikipedia website must not be referenced in your work.

You are allowed to upload only ONE attachment (e.g. an Excel sheet) in addition to your original assignment unless there is a requirement for more than one document in the assignment brief.

You must upload your assignment in PDF or Word document format.
Your paper will not be graded if it is submitted in any other format.

If you submit your assignment as a PDF version please include the exact word count of the assignment on the title page.

Learning Outcomes

On successful completion of this assignment you will be able to:

  1. Summarise key principles trends and tools in accounting and corporate finance.
  2. Demonstrate effective approaches to the analysis of corporate finance structure and analysis of corporate financial statements.
  3. Assess the value of practical value of models and theories on making decisions on corporate financing in context.
  4. Critically evaluate the benefits of various types of financing for different kinds of organisations.
  5. Utilize internal and external financial information to appraise business performance.

Grading Criteria Postgraduate Grading Criteria for this assignment is available at the end of this document.

Your Task

Question 1 of the individual assignment is to perform a detailed financial analysis of a listed company using key financial ratios and analysis of company financial statements. Critical evaluation of the financial health of the company including the company’s approach to capital structure should be submitted. (2500 of the word count.)

Question 2 of the individual assignment is to prepare a report to the investment board of JD Sports Fashion Plc that recommends the appropriate funding choice for an investment project that will be evaluated based on the information provided below for question 2. (1000 of the word count.)

Important: The two components of this assessment are independent of each other.

Question 1 – 50%

Using the following link: https://www.jdplc.com/reports-presentations download JD Sports Fashion Plc’s annual reports for the past 3 (most recent) years to provide a critical analysis of the financial health of the company. The annual reports are in a consolidated format and relevant financial statements can be found under the latest results (results archive) section. Do not forget to review the notes to the financial statements.

Required:

  1. a) Brief introduction of the company and the current mid-term (5 years) outlook. Maximum of 300 words. Be sure to include an analysis of the company’s share price to the present.

[5 marks]

  1. b) JD Sports Fashion Plc’s key financial ratios (for at least 3 years) need to be calculated and included in the report in table or chart format. Key ratios must cover all categories: profitability liquidity efficiency investment and gearing(leverage) ratios.

[15 marks]

  1. c) Interpret and assess the trend of the financial performance of JD Sports Fashion Plc in the most recent year (thenewest annual report) in comparison to the previous years and to its competitors/industry. Make sure to justify any significant differences (trends) you observe here.

[20 marks]

  1. d) Support the above analysis with vertical analysis of JD Sports Fashion Plc’s consolidated balance sheet and then critically assess the company’s approach to capital structure. What is the largest figure for JD Sports Fashion Plc’s liabilities in 2020? Why? Comment on your finding.

 

[10 marks]

Notes: The accompanying analysis should be detailed and provide reasons for any changes. Use both internal and external (financial and non-financial) information to support your analysis. Simply stating that a certain ratio has changed and by how much is not sufficient for analysis at this level. All equations and findings must be included in the report.

[Total Q1: 50 marks]

Question 2 – 50%

JD Sports Fashion Plc is currently evaluating a new project that will expand its lines to include a designated golf line that will offer not only clothing but also golf equipment and accessories. The project will require an initial outlay of £20m on production machinery and other costs. The project is expected to have a three-year life span and the cash flows associated with the projected are projected in the below
table:

Table 1: JD Sports Fashion Plc potential project’s cash flow information
All figures in £’m     2021                        2022          2023
Sales                          45.0                        52.0            58.0
COGS                       (24.8)                       (28.6 )            (31.9)
Gross Profit              20.3                         23.4              26.1

Operating Expenses (2.0)                       (2.5)              (3.0)
EBITDAa                      18.3                      20.9                23.1

Depreciation               (1.0)                   (1.0)                (1.0)
EBITa                           17.3                    19.9               22.1

Tax Expense                (3.3)                     (3.8)               (4.2)
EBIATa                         14.0                    16.1                 17.9

CAPEXb                          4                      2                        2

Investment in Working Capital 0         0                       3

aEBITDA: Earnings Before Interest Taxes Depreciation and Amortisation.

EBIT: Earnings before Interest and Taxes.

EBIAT: Earnings Before Interest and After Taxes.

For simplicity taxes calculated assuming no interest expense.

b Annual capital expenditures in addition to the initial outlay and assumed to cease at the end of the project.

The project has a debt capacity of 60% of the cost of the project with an annual interest charge of 5%. The company currently has £3m of retained earnings available for this project and the remainder would potentially be financed with a rights issue. The rights issue incurs additional costs of 2% of the amount raised and the debt issuance is a bit cheaper costing 1% where both issue costs are tax deductible.

Table 2: Additional information

Key Rates and Figures
Risk-free Rate (irf) ?
Project Cost of Debt (id) pre-tax 5.00%
Market premium ?
Marginal Corporate Tax Rate 19.00%
JD Sports Fashion Plc’s unlevered Beta (β) 1.77

You will need to research the other values needed to complete Table 2 above.

Required:

The company believes it will be a successful project and will help to distinguish it from its competitors. However the company would like you to evaluate the project using different methods and present a proposal to the investment committee in order for them to approve it.

  1. a) JD Sports Fashion Plc is considering financing the project with 60% debt. Using the Internal Rate of Return (IRR) and Net Present Value (NPV) appraise the project.

Hint: calculate the free cash flow of the project and use CAPM to compute the discount rate.

[12 marks]

  1. b) Evaluate the project using Adjusted Present Value (APV).
    [12 marks]
  2. c) Assuming the market risk of the project is similar to the overall market risk of the firm revise the project’s NPV using the Weighted Average Cost of Capital (WACC). Compare the answer to part a).

[12 marks]

Note: Assume the same level of debt is held until the end of the project. Do not consider the repayment of the debt principal in any of the above valuations in parts a) to c).

  1. d) Compare the methods used and give a final recommendation to the investment committee. Make sure you critically evaluate all methods and discuss other risk factors that were not included in the analysis.

[14 marks]
[Total Q2: 50 marks]

Suggested Structure:

The structure of the report is open to your own interpretation of the project but should include the following items as a minimum:

1) Executive summary (objectives and content)
2) Rationale for the project (describe the current situation)
3) Ratio analysis (financial and non-financial)
4) Project financials (investment valuation methods)
5) Project risks (minimum one each of financial and non-financial)
6) Critical discussion of the methods (if the company did not invest in the project)
7) Final recommendation to the investment committee for the chosen funding method and supporting reasons for the choice

Guidelines Read all questions and information provided carefully. Answers should be an appropriate length keeping in mind the question requirements and total word count allowance.

In addition your assignment should demonstrate the following qualities:

A critical appreciation of relevant literature and its use to support your argument substantiate calculations and address other aspects of the assignment.

Taking ownership of the content being prepared to debate and argue a personal position and providing evidence of evaluative skills. A submission made up of extracts from published sources which is descriptive or simply theoretical regurgitation is not acceptable. Your submission must have interpretation and consideration of the challenges and issues of applying theory to practice.

Logical flow of ideas and treatment; appropriate selection of real-world factors related to the companies under scrutiny.

Evidence of additional personal research and the ability to analyse material from a variety of appropriate relevant perspectives.

Presentation structure appropriateness of methodology breaking into section headings/subheadings tidiness.

Marks will be awarded for proper referencing and originality of work. Also note that plagiarism is a serious offence and your submission will be electronically checked.

Your report must be handed in electronically no later than the given date of submission.

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