Managerial Finance

Assume that you are a CFA charter holder, recently employed by an investment house. You are given an important task to analyse Walmart and Tesco and develop recommendation about these two retail giants. The file attached contains the annual reports of both companies profit statements and balance sheets for the past few years, together with additional information and performance indicators for their business sector as a whole for the period under review.

Part A (20 marks)

As an expert in this field, you are required to produce following:

Briefly describe overview retail industry as a whole and their performance during Covid-19 and prior to the COVID-19.

In your role as the analyst, you are to prepare an analysis of the company's figures over the three-year period using the performance criteria listed in the table below.

$m

$m

$m

$m

2018

2019

2020

2021

Sales turnover

Operating costs

Operating profit before tax (EBIT)

Taxation

Profit after tax

Dividends

Retained profit

Balance Sheet Summary

2018

2019

2020

2021(if available

Inventory

Account Receivable

Cash and cash equivalent

Total Current Asset

Total Fixed Asset

Total asset

Account Payable

Total current Liability

Total Long-term debt

Total debt

Total equity

Required:

Part B (40 marks)

Financial Ratio Analysis

Based on summary report prepare following ratios:

Net profit margin, Asset Turnover, Return on Asset, return on equity, return on investment capital, interest coverage ratios, P/E ratio, payout ratio, dividend per share and Earning Per share. Make appropriate comments on each ratio.

You can use following ratio as a guide only. You are free to add more ratios as you feel important for the analysis.

Show financial health of the company based on Its own past and present performance about firms liquidity management, asset utilization, debt management, profitability and market performance.

Compare performance of Walmart and Tesco and comments appropriately.

Part C (20 marks)

Calculate dividend per share for both Walmart and Tesco for 2021 if available or 2020. Based on dividend and earning history, find the dividend growth.

Find the required rate of return using CAPM model for both Walmart and Tesco.

Assume that beta(s) for Walmart and Tesco are 0.98 and 0.5 respectively.

Market risk premium for US (Rm-Rf) = 5.5%

Market risk premium for UK (Rm-Rf) = 5.6%

Risk free rate =.30%

Calculate intrinsic value of the stock using Gordon Growth Dividend Discount Model and compare with the market price. Do the recommendation about buying and selling decision about these two companies.