Financial Performance and Sustainability Assignments

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Assignment Details:

Words: 3500

Case A:

Performance and Sustainability

Freshly armed with your new Warwick MBA, you have recently joined an executive recruitment firm that specialises in advising and placing senior managers in the retail industry. One of your clients is currently considering an offer of a senior post at Next Plc when a similar post comes up at Asos Plc.

Your client has some time to respond to Next Plc so is interested to learn more about both companies. She has commissioned you to write a report advising her on the past and future financial performance and financial strength of Asos Plc in comparison to Next Plc. As both posts also include a similar stock options element in the overall package, she is also interested in the view the stock market has of both companies.

Required

Write the requested report comparing the financial performance and position of both companies as well as commenting on their future sustainability and the potential of the stock options. Ensure that you make clear conclusions and recommendations.

Note that your client is a busy executive with a strong marketing background but has limited experience of accounting. Although she is experienced in the retail sector she has relatively little knowledge of the two companies beyond a general awareness. She will expect a clear and concise report. Some general guidance on acceptable report style follows:

Notes on Case A general report style.

Use the most recent full year accounts of Next plc and Asos plc.

Give your report a title & provide an Executive Summary.

Provide useful contextual background to the companies.

Within the report don’t just show lots of calculations, explain what you infer from the numbers and ratios and how they support your conclusions and recommendations.

Make use of the appendices to show details eg calculations.

Cite sources, state assumptions made, mention other information that might be useful or further investigations you would have liked to conduct. Fully consider both financial and non-financial factors.

Reach a conclusion and give any appropriate advice clearly. Make your report “as concise as is consistent with clarity”.

Make use of supportive diagrams – especially those that emphasise the comparisons between companies.

Case B –

Risk and return on equity of Next plc and Asos plc

Intrigued by the analysis you have done for your client in Case A, you are interested in comparing the two companies in terms of equity risk and return. Using monthly prices between 1 March 2017 and 1 March 2022, you compute the historical return and volatility of the two stocks. In order to round up your analysis, you also estimate the two stock’s betas based on their correlation with the FTSE All Share index.

Required

Write a separate report that summarizes the results of your calculations and your thoughts on how to interpret them against the background of the risk-return trade-off in financial markets. Consider the following issues:

(a) What are each company’s return volatility and beta over the sample period? Pay attention to differences between volatility and betas when considering the risk return trade-off. Describe what type of risk they measure.

(b) Can you provide interpretation for the estimated betas given the two firms operate in the same sector? Why could the two betas differ?

(c) Compute the rate of return you would require for investing in these two stocks. Please use the Capital Asset Pricing Model (CAPM). As ‘ingredients’ for computing the required rate of return, use the risk-free rate of 1.4%. Which stock has higher required rate of return and why? How is the required rate of return related to the average return computed based on the historical monthly returns?

(d) Are historical data suitable for judging future performance for these two stocks?

Your clear and concise report should consider the overall assignment word limit. Notes on the data, your analysis and your submission.

• Use adjusted monthly closing prices from Yahoo Finance or similar. ASC.L for Asos Plc and NXT.L for Next Plc.

• You can find the FTSE All Share index data on various websites, for example on marketwatch.com or investing.com. Make sure that the day of the month is the same for both stocks and the index, and you are using the closing index value.

• Please do not forget to calculate monthly returns from the prices before running further analysis.

• You can use functions built into Microsoft Excel (such as ‘average’, ‘stdev.p’, and ‘covariance.p’). Before using them, make sure that you understand what these functions do. It is perfectly fine not to rely on these or other functions but to base your analysis on your own calculations in Excel instead.

• Your essay should briefly describe what calculations you perform in the spreadsheet, what inputs you use and why and justify any assumptions you have to make. Make use of the appendices to show details e.g. calculations.

• Make use of supportive tables/diagrams when you feel needed.

NOTE

Your reports should be submitted in one pdf document but the two reports (Case A and Case B) are separate and both should be self-contained with their own appendices, references etc.. There is also the facility to upload your case B spreadsheet separately to the pdf. Note however that this facility is for Case B only and any spreadsheet work for case A eg tables , diagrams, calculations etc should be copied and pasted into the case A report or Case A appendices.

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