Question one 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 working capital management, should be submitted. (2,500 of the word count)

Question two of the individual assignment is to prepare a report for the investment board of ASOS Plc that recommends the appropriate funding choice for an investment project that will be evaluated based on the information provided below for question two. (1,000 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.asosplc.com/investors/latest-results, download ASOS Plc's annual reports for the past three (most recent) years and 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:

a) Write a brief introduction of the company and the current mid-term (3-5 years) outlook. Maximum of 300 words.

b) ASOS Plc's key financial ratios (for all 3 years) need to be calculated and included in the report in table or chart format. Key ratios for a key competitor or the industry should also be included in the analysis.

c) Interpret and assess ASOS Plc's performance in the most recent year (the newest annual report) in comparison to the previous two years, justifying the significant differences.

d) Critically assess the company's approach to working capital management.

Notes: Be sure to include an analysis of the company's share price from 2016 to the present, together with synthesising any of the movements with market factors, and issues identified in parts a) - d). The accompanying analysis should be detailed and provide reasons for any changes. 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.

Question 2 - 50%

ASOS Plc is currently evaluating a new project that will expand their current 'living and gifts' line to include not only home accessories but also to produce and sell modern home furniture. The project will require an initial outlay of 6,000,000 on production machinery and other costs. The project is expected to have a three-year life span, and the estimated cash flows associated with the project are presented in the below table:

Table 1: ASOS Plc potential project's cash flow information All figures in '000 2020 2021 2022 Sales 8,200.00 8,900.00 9,300.00 COGS (4,130.00) (4,590.00) (5,100.00) Gross Profit 4,070.00 4,310.00 4,200.00 Operating Expenses (720.00) (805.00) (810.00) EBITDAa 3,350.00 3,505.00 3,390.00 Depreciation (15.00) (15.00) (15.00) EBITa 3,335.00 3,490.00 3,375.00 Tax Expense (600.30) (628.20) (607.50) EBIATa 2,734.70 2,861.80 2,767.50 CAPEXb 12.00 12.00 12.00 Investment in Working Capital 0.00 0.00 (5.00) aEBITDA: Earnings Before Interest, Taxes, Depreciation and Amortisation. EBIT: Earnings before Interest and Taxes. EBIAT: Earnings Before Interest and After Taxes. For simplicity, taxes are calculated assuming no interest expense. bAnnual 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 30% of the cost of the project, with an annual interest charge of 8%. The company currently has 3,000,000 of retained earnings available for this project, and the remainder would be potentially financed with 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 8.00% UK Market Premium 7.28% UK Marginal Corporate Tax Rate 18.00% ASOS Plc Equity Beta () ?

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 them from competitors. However, they would like you to evaluate the project using different methods and recommend a proposal to the investment committee in order for them to approve it:

a) ASOS Plc is considering financing the project with 30% debt. Using the Adjusted Present Value (APV), value the project. (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 valuations.)

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

b) How would your evaluation change if the machinery manufacturer offered you purchase of the production machine with a three-year, 4,000,000, 8% loan (subject to 1% issue costs)? Assume the remainder of the initial outlay is equity. Discuss the benefits and disadvantages of the APV method.

Hint: use APV again, but this time do not forget to take into account the benefits but also the additional costs of this option.

c) Using NPV, evaluate the project using the Weighted Average Cost of Capital (WACC), assuming a 50% debt.

Hint: assume the Beta obtained is Equity Beta

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