Alpha Analysts Group, have been asked to conduct the following evaluations for Crown Resort on the Australian Securities Exchange (ASX) for 2017 and 2018. 1) Profitability Breakdown 2) Growth Valuation 3) Forecast Financial Statements for a period of 3 years. (2019 to 2021) 4) Capital Structure Given the following reformulated Income Statement and Balance Sheet answer Questions 1 to 8. (The Annual report for 2017 and 2018 is provided.) Reformulated Income Statements 2017 2018 Operating Revenue Sales Other Revenue and Income $3,334,487 $3,462,900.00 $1,835,408 $172,500.00 $5,169,895 $3,635,400.00 Total Less Operating Expenses Expenses Total operating expenses Total operating income before tax Income tax Expense Operating Income after tax Finance Costs Interest Revenue Net Finance Expenses Share of profits of associates and Joint venture entities Profit for the year (Net income) $3,143,274.00 $2,851,800.00 $3,143,274.00 $2,851,800.00 $2,026,621.00 $783,600.00 -$106,815.00 $171,000.00 $1,919,806.00 $612,600.00 -$143,617.00 -$76,100.00 $9,648.00 $30,100.00 -$133,969.00 -$46,000.00 $39,132.00 $1,824,969.00 $6,600.00 $573,200.00 2017 2018 Net Financial Obligations $1,947,788.00 $1,494,800.00 Shareholder's Equity Contributed equity Treasury shares Reserves Retained earnings Non-controlling interest Common shareholders' equity -$53,233.00 $71,900.00 -$19,377.00 -$15,700.00 $60,792.00 -$60,500.00 $5,153,080.00 $5,306,000.00 $34,103.00 $5,175,365.00 $5,157,900.00 Net financing $5,175,365.00 $5,157,900.00 Question 1 Comment on the accuracy of the reformulations of the Income Statement and Balance sheet. 5 Marks Question 2 Calculate the Comprehensive Income for 2017 and 2018. 4 Marks Question 3 a. Provide first and second level breakdown of the company's return on common equity (ROCE) for 2017 and 2018. Use the closing balance sheet amounts (2018) in computing the return ratios. 8 Marks b. Comment on the sources of profitability and potential impacts (of your analysis) on valuation. 3 Marks Question 4 Provide a systematic analysis of growth for 2017 and 2018 a. Calculate the following: i. Revenue Growth 2 Marks ii. Growth in Common Shareholder's Equity (CSE) 2 Marks iii. Growth in Comprehensive Income 2 Marks iv. Residual Earnings (cost of equity of 11%) 5 Marks b. Calculate the components of the change in Return on Net Operating Assets (RNOA.) i. Change in core sales PM at previous asset turnover level 1 Mark ii. Change due to change in asset turnover 1 Mark iii. Change due to change in other core income 1 Mark iv. Change due to change in unusual items 1 Marks v. Discuss the drivers of change in RNOA 2 Marks c. Calculate the components of the change in Return on Common Equity (ROCE). i. Change in RNOA 1 Mark ii. Change due to change in spread at previous level of financial leverage 2 Mark iii. Change due to change in financial leverage 2 Marks iv. Discuss change in ROCE that is due to a change in spread and a change in financial leverage 2 Marks d. Calculate the components of the change in Common Shareholder's Equity (CSE) as follow: a. Change due to change in sales at previous level of asset turnover 1 Mark b. Change due to change in asset turnover 2 Marks c. Change in financial assets 2 Marks Question 5 Complete the following table for Crown Resorts. Assuming a risk-free rate of 3.6% and market risk premium of 7%. Answer the question below: 3.6% 1.13 7.0% Crown Resorts Risk-free rate (10-year Treasury rate) Beta Market risk premium (rm - r;) Cost of Capital for Equity Cost of Capital for Debt (Net Borrowing Cost (NBC) Number of shares Crown's close price on Dec 31, 2018 Market value of equity Net Financial Obligation Market value of the firm Cost of Operations 677.16M $11.86 $8031.11M $1.4948M $8029.62M Cost of Operations = Cost of Capital for Equity Value of Equity Value of the firm + Cost of Capital for Debt (Value of Debt (NFO) Value of the firm 5 Marks Question 6 Prepare Financial Statements Forecast for 2019 to 2023 using the table(s) below. (Note: 1. Make sure you show any additional information that you have used in the forecast To complete the forecast for 2019 to 2022, you need to calculate key ratios. Use the closing balance sheet amounts (2018), instead of averages in computing ratios. Complete Income and Balance sheet ratio table below. Add any additional ratios that is necessary to complete the Financial Forecast tables below. You may use the Historical Growth that is, for example Sales Growth from 2017 to 2018 as the growth rate for 2019, 2020 and 2012. Income and Balance sheet ratios 2018A 2019E 2020E 2021E Sales Growth Tax Rate Inventory Turnover (Operating Revenue / Inventory 2018) 3.85 3.85 3.85 3.85 30% 30% 30% 30% 210.14 210.14 210.14 210.14 Income statement 2018A 2019E 2020E 2021E Sales Total operating expenses Core operating income before tax axes Core operating income after tax Other income (expense) Operating income Note: If necessary, add items to the tables above. 10 Marks 2018A 2019E 2020E 2021E Balance sheet Inventory Property, plant and equipment Prepayments Other NOA Net operating assets (NOA) Note: If necessary, add items to the tables above. 10 Marks 2018A 2019E 2020E 2021E Operating income Change in NOA Free cash flow 5 Marks 2018 2019 2020 2021 RNOA Reol Growth in Re Ol Reol, = 014 - (- 1)N0A4-1 p = Cost of Operations (Calculated in Question) 5 Marks Question 7 . Calculate Value per Share as follow: Use Reol, calculated in Question 6 Use the Cost of Operations, calculated in Question 5. Use Growth in Reol, calculated in Question 6 to calculate the continuing value. O Cost of operations Total PV of Residual Operating Income (Reol) (use cost of operations to discount Reol) Continuing value (Growth rate = Growth in Re Ol 2021) PV of Continuing Value Net Operating Assets as of 2018 Value of operations (=Total PV of Reol + PV of Continuing value + NOA as of 2018) Net Financial Obligations as of 2018 Value of common equity Number of shares outstanding Value per share 677.16M ? 10 Marks Question 8 Analyse the Capital Structure for Crown Resort in 2018 as follow: a. Construct a common-size of the liabilities and equity 6 Marks ---THE END--- Alpha Analysts Group, have been asked to conduct the following evaluations for Crown Resort on the Australian Securities Exchange (ASX) for 2017 and 2018. 1) Profitability Breakdown 2) Growth Valuation 3) Forecast Financial Statements for a period of 3 years. (2019 to 2021) 4) Capital Structure Given the following reformulated Income Statement and Balance Sheet answer Questions 1 to 8. (The Annual report for 2017 and 2018 is provided.) Reformulated Income Statements 2017 2018 Operating Revenue Sales Other Revenue and Income $3,334,487 $3,462,900.00 $1,835,408 $172,500.00 $5,169,895 $3,635,400.00 Total Less Operating Expenses Expenses Total operating expenses Total operating income before tax Income tax Expense Operating Income after tax Finance Costs Interest Revenue Net Finance Expenses Share of profits of associates and Joint venture entities Profit for the year (Net income) $3,143,274.00 $2,851,800.00 $3,143,274.00 $2,851,800.00 $2,026,621.00 $783,600.00 -$106,815.00 $171,000.00 $1,919,806.00 $612,600.00 -$143,617.00 -$76,100.00 $9,648.00 $30,100.00 -$133,969.00 -$46,000.00 $39,132.00 $1,824,969.00 $6,600.00 $573,200.00 2017 2018 Net Financial Obligations $1,947,788.00 $1,494,800.00 Shareholder's Equity Contributed equity Treasury shares Reserves Retained earnings Non-controlling interest Common shareholders' equity -$53,233.00 $71,900.00 -$19,377.00 -$15,700.00 $60,792.00 -$60,500.00 $5,153,080.00 $5,306,000.00 $34,103.00 $5,175,365.00 $5,157,900.00 Net financing $5,175,365.00 $5,157,900.00 Question 1 Comment on the accuracy of the reformulations of the Income Statement and Balance sheet. 5 Marks Question 2 Calculate the Comprehensive Income for 2017 and 2018. 4 Marks Question 3 a. Provide first and second level breakdown of the company's return on common equity (ROCE) for 2017 and 2018. Use the closing balance sheet amounts (2018) in computing the return ratios. 8 Marks b. Comment on the sources of profitability and potential impacts (of your analysis) on valuation. 3 Marks Question 4 Provide a systematic analysis of growth for 2017 and 2018 a. Calculate the following: i. Revenue Growth 2 Marks ii. Growth in Common Shareholder's Equity (CSE) 2 Marks iii. Growth in Comprehensive Income 2 Marks iv. Residual Earnings (cost of equity of 11%) 5 Marks b. Calculate the components of the change in Return on Net Operating Assets (RNOA.) i. Change in core sales PM at previous asset turnover level 1 Mark ii. Change due to change in asset turnover 1 Mark iii. Change due to change in other core income 1 Mark iv. Change due to change in unusual items 1 Marks v. Discuss the drivers of change in RNOA 2 Marks c. Calculate the components of the change in Return on Common Equity (ROCE). i. Change in RNOA 1 Mark ii. Change due to change in spread at previous level of financial leverage 2 Mark iii. Change due to change in financial leverage 2 Marks iv. Discuss change in ROCE that is due to a change in spread and a change in financial leverage 2 Marks d. Calculate the components of the change in Common Shareholder's Equity (CSE) as follow: a. Change due to change in sales at previous level of asset turnover 1 Mark b. Change due to change in asset turnover 2 Marks c. Change in financial assets 2 Marks Question 5 Complete the following table for Crown Resorts. Assuming a risk-free rate of 3.6% and market risk premium of 7%. Answer the question below: 3.6% 1.13 7.0% Crown Resorts Risk-free rate (10-year Treasury rate) Beta Market risk premium (rm - r;) Cost of Capital for Equity Cost of Capital for Debt (Net Borrowing Cost (NBC) Number of shares Crown's close price on Dec 31, 2018 Market value of equity Net Financial Obligation Market value of the firm Cost of Operations 677.16M $11.86 $8031.11M $1.4948M $8029.62M Cost of Operations = Cost of Capital for Equity Value of Equity Value of the firm + Cost of Capital for Debt (Value of Debt (NFO) Value of the firm 5 Marks Question 6 Prepare Financial Statements Forecast for 2019 to 2023 using the table(s) below. (Note: 1. Make sure you show any additional information that you have used in the forecast To complete the forecast for 2019 to 2022, you need to calculate key ratios. Use the closing balance sheet amounts (2018), instead of averages in computing ratios. Complete Income and Balance sheet ratio table below. Add any additional ratios that is necessary to complete the Financial Forecast tables below. You may use the Historical Growth that is, for example Sales Growth from 2017 to 2018 as the growth rate for 2019, 2020 and 2012. Income and Balance sheet ratios 2018A 2019E 2020E 2021E Sales Growth Tax Rate Inventory Turnover (Operating Revenue / Inventory 2018) 3.85 3.85 3.85 3.85 30% 30% 30% 30% 210.14 210.14 210.14 210.14 Income statement 2018A 2019E 2020E 2021E Sales Total operating expenses Core operating income before tax axes Core operating income after tax Other income (expense) Operating income Note: If necessary, add items to the tables above. 10 Marks 2018A 2019E 2020E 2021E Balance sheet Inventory Property, plant and equipment Prepayments Other NOA Net operating assets (NOA) Note: If necessary, add items to the tables above. 10 Marks 2018A 2019E 2020E 2021E Operating income Change in NOA Free cash flow 5 Marks 2018 2019 2020 2021 RNOA Reol Growth in Re Ol Reol, = 014 - (- 1)N0A4-1 p = Cost of Operations (Calculated in Question) 5 Marks Question 7 . Calculate Value per Share as follow: Use Reol, calculated in Question 6 Use the Cost of Operations, calculated in Question 5. Use Growth in Reol, calculated in Question 6 to calculate the continuing value. O Cost of operations Total PV of Residual Operating Income (Reol) (use cost of operations to discount Reol) Continuing value (Growth rate = Growth in Re Ol 2021) PV of Continuing Value Net Operating Assets as of 2018 Value of operations (=Total PV of Reol + PV of Continuing value + NOA as of 2018) Net Financial Obligations as of 2018 Value of common equity Number of shares outstanding Value per share 677.16M ? 10 Marks Question 8 Analyse the Capital Structure for Crown Resort in 2018 as follow: a. Construct a common-size of the liabilities and equity 6 Marks ---THE END