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BUS5IAF Introduction to Accounts and Finance

   

Added on  2020-05-08

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INTRODUCTION TOACCOUNTS ANDFINANCE

TABLE OF CONTENTSASSIGNMENT 2.......................................................................................................................1PART B......................................................................................................................................1DEBT VALUATION.................................................................................................................1Short term and long term debts used by the firm...................................................................1Checking debt structure consistency of the firm within the industry.....................................1How does industry influences the proportion of long term and short term debt used by the firm.........................................................................................................................................2What is company’s cost of debt..............................................................................................2SHARE VALUATION..............................................................................................................3What is cost of equity of an entity?........................................................................................3Evaluate and discuss firm’s revenue, earnings, and EPS, dividend and growth expectations................................................................................................................................................7Valuing company’s stock using comparable approach and dividend growth model and also state some factors influencing stock price along with the reasons.........................................9State additional information required in valuing the stock of firm with reasons.................11COST OF CAPITAL................................................................................................................11Calculate WACC..................................................................................................................11Explain importance of tax rate in the calculation of WACC................................................12Explain the difference between cost of equity and cost of debt...........................................12Inclusion of current liabilities in the cost of capital calculation and its advantages and disadvantages........................................................................................................................13What is the role of WACC in an entity and its application decision making while evaluating various investments.............................................................................................13Provide examples about the application of WACC in analyzing two investments..............13Define capital structure and explain its consistency with the industry................................13Discuss optimal capital structure and state economic circumstances in changing the capitalsstructure of the firm..............................................................................................................14MARKET ANALYSIS............................................................................................................14Comment on the financial performance of the firm with the industry.................................14Summarize the results of financial analysis of the firm.......................................................14Comment on important items covered in the annual report of an entity..............................14REFERENCES.........................................................................................................................16

ASSIGNMENT 2PART BDEBT VALUATIONShort term and long term debts used by the firmDebt structure used by an entity shows its capability by compensating higher loweramount of debt with the available income sources incurred in an enterprise. Debt structure ofan entity comprises of two important elements such as short term and long term debt includedin the capital structure of the business concern. Short term debt is held with the firm for totalperiod of 1 year and on another hand long term debt held for more than one year to meet allthe requirements of an entity in a particular financial year. Current liabilities used by Sydneyairport corporations Ltd as a shot term debt with various factors such as distribution payable,payables and deferred income, derivative financial instructions and provisions for employeebenefits (Amiraslani, Lins, Servaes & Tamayo, 2017). Short term debt of the company hascategorized into two groups such a Sal and SAT1 group. The current liabilities cum shortterm debt of these two groups is increasing room one period to another from 2016-2017. Onthe contrary to the short term debt used by the firm, long term debt has slightly differentcomponents that include interest bearing liabilities, derivative financial instruments, deferredtax liabilities and provisions for employee benefits that make up the total amount of longterm debt held by the firm. Out of the two groups of Sydney airport corporation, SAL grouphas long term debt and it’s another group does not have long term debt as they emphasisesmostly on short term debt and equity to form its overall capital structure (Blaylock, Gaertner& Shevlin, 2017). Long term debt of Sal group in 2016 is 10571.2 and in 2017 is 10532.9that is long term debt has decreases from 2016 to2017 shows the capability of firm todecrease its overall obligations within a given span of time.Checking debt structure consistency of the firm within the industryDebt capital held by the Sydney airport corporations Ltd and its two different groupshelps in evaluating its consistency with the external business environment. One of the groupsof the company, SAL hold security on which interest expenses incurred from various thirdparty debt obligations. Different debt obligations of the firm includes bank debt, mediumterm notes, capital indexed bonds and internal loan from SAT1 (Lu, Lai & Ma, 2017). Marketcapitalization of the firm is around $8.9 billion which is enough to ensure the longer survivalof the firm as compared with all the rivals exists in the similar market. A higher interests cost1

incurred by this firm increases its obligations that shows its fluctuating position in front of itsexternal environment.How does industry influences the proportion of long term and short term debt used by the firmIndustry results affect an entity both in positive as well as in negative manner as ithelps in evaluating the overall capital structure of the firm. A capital structure is a weaponused to test the ability of the business concern as the capital structure includes both thecomponents of debt as well as equity to create an adequate and balanced structure to fulfil allthe requirements of the firm in lesser period of time. Debt structure of an entity focuses ontwo kinds of debt used by an enterprise owner in an entity such as short term as well as longterm debt by an individual (Boubakri & Mishra, 2017). An industry can influence an entity inincreasing or decreasing the overall portion of debt used in the capital structure. Higherinterest incurred by the firm can amend its current capital structure.What is company’s cost of debtThe cost of debt incurred by Sydney corporations Ltd can be ascertained by dividinginterest expenses of the previous fiscal with the total debt held by the firm to determine thecosts of debt incurred by the firm. In this approach two factors are considered by the firmsuch as interest expense and debt which both are complimentary with each other. Interestcharged on the debt when the firm raise money through short term and long term debt to meetall the desired aims and the objectives within a given span of time (Gruber, Kavan &Stockert, 2017). Cost of debt of the Sydney corporations Ltd has categorized into two groupsSAL and SAT1 by considering booth kinds of debts taken by the firm that is both short termas well as long term debt consider by the firm in the total debt used in the business infulfilling all the desired needs and objectives of an entity.Particulars20162017SALSAT1SALSAT1Interest expense213.40129.60Short term debt698.1124.6706.2126.8Long term debt10571.2010532.90Total debt11269.3124.611239.1126.8Two years average debt20162017Short term debt698.1+124.6706.2+126.8Long term debt10571.2+010532.9+0Total debt11393.911365.9Average debt11393.9+11365.92

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