MBA 403 T3, 2018 Assessment 3 – Guidance.
Moving forward into your next assessment we have highlighted a number of points from the
assignment document that you must remember:
This assessment requires you to prepare a wealth report for a prospective shareholder that interprets
the annual report of an Australian company and makes appropriate recommendations about the
company’s suitability for investment.
You will be assessed on the thoroughness of your interpretation, including the conclusions you draw,
the recommendations you make, and the way in which these have been justified by the evidence you
include in your report. Importantly, it needs to be focused** on the needs and priorities of a
prospective shareholder.
**You will be penalised if you engage in ‘data dumping’ without accompanying interpretation
and analysis.
Please take note of the asterisked point.
What is ‘data-dumping’?
To clarify what is meant by a “Theoretical Data Dump” vs “Applied” as discussed in the Assignment,
here are two examples that demonstrate what a “Data-dump” looks like and an “Applied/interpreted”
looks like.
Example 1:
• Theoretical data dump:
Dividend yield is represented as a percentage and can be calculated by dividing the dollar value of
dividends paid in a given year per share of stock held by the dollar value of one share of stock. The
formula for calculating dividend yield may be represented as follows:
Dividend yield at Davison Group Ltd (DGL) is a way to measure how much cash you are getting for
each dollar invested. In other words, it measures how much “bang for your buck” you will be getting
from dividends. In the absence of capital gains the dividend yield is effectively the return on
investment for a share.
This is a theoretical data dump for a number of reasons
- The reader learns NOTHING about the company you are discussing.
- The report is not an educative piece about the measurement tool.
- A reader can be forgiven for asking “so what?” or “That’s great – but how does it affect me in terms
of whether I should invest?’
Ultimately, showing that you can tell the reader about the mechanics of calculating Dividend yield (in
100 words) does not provide the reader with any real insight into the dividend yield of the company
and how it impacts the share purchase decision – and will be awarded no marks.
• Applied:
Dividend yield at DGL increased from 4.26% to 5.93% as a result of both D.P.S (dividends per share)
and share price rising, but D.P.S by proportionally more. DGL’’s share price rose by 4.65% from $1.29
to $1.35 per share.
Although the share price is considerably lower than in 2016 when it was $1.70, it continues to
increase (the shares issued in May 2019 had a market price of $1.38) meaning it is a good time to
buy and shareholders can expect capital gains when they sell them in the future.
By comparing the yield to bank interest rates to see if DGL the dividend yield of 5.93% (and the trend
from 2018) is higher than what the investor would find at an Australian bank.
It is unlikely that banks will improve this to their customers any time soon, but banks don’t pose
investment risk, so the investment returns from DGL are (and should be) higher.
The focus of the yield is applied consistently to the company in question and the reader is given clarity
in why they should care about this company’s dividend yield (and dividend yields overall) in terms of
their specific investment decision. High level marks would be awarded in this case.
Example 2:
• Theoretical data dump:
Current ratio (also known as working capital ratio) is a popular tool to evaluate short-term solvency
position of a business. Short-term solvency refers to the ability of a business to pay its short-term
obligations when they become due. Short term obligations (also known as current liabilities) are the
liabilities payable within a short period of time, usually one year. The Current ratio is calculated by
dividing total current assets by total current liabilities of the business and is found in the balance
sheet. We can also use a Quick Ratio to analyse the company, and that deducts inventory.
The Davison Group Ltd (DGL) current ratio has increased from 1.07 in 2018 to 1.60 in 2019. A higher
current ratio indicates strong solvency position and is considered better, because of the comments
above.
The first paragraph tells the reader about the current ratio theory and provides no specific
interpretation. No credit awarded for any of this paragraph (so it’s not worth having these 83
words in your report).
The second paragraph is a little better as it describes the trend and coupled with the line, “A higher
current ratio indicates strong solvency position and is therefore considered better” only infers that the
results are better.
There are no reasons provided as to what the business did to increase the Current Ratio for DGL
and how it may affect the investor. There is identification and description evident. Minimal marks
would be awarded for the second paragraph (MAX 20%).
• Applied:
The Davison Group Ltd (DGL) current ratio has increased from 1.07 in 2018 to 1.60 in 2019.
Throughout the year both current assets rose and current liabilities fell.
A short-term overdraft in 2018 (Current Liability) was converted into a long-term loan (non-current) in
2019 (DGL, 2019, p. 12). Senior managers have been able to restructure this with the bank, due to
the “strong inventory, supply change management and cash management” as discussed in the CEO’s
report (DGL 2019, p. 12).
DGL’s bank balance was also $42M higher in 2019 (DGL 2019) due to better accounts receivable
management (down 15%).
Having a stronger cash position provides flexibility for DGL moving forward where they can increase
expansion or increase dividends.
This section clearly shows the trend of the Current Ratio and the reasons for the trend at DGL. It
focuses upon the needs of the investor.
High level of interpretation evident (in less words that the Data dump!)
Word Count:
FYI, I have been asked by a number of students across the country about how to address the
difficulties they have encountered in terms of managing the 1000 word-count (+/- 10%).
I have stated the following:
“The best course of action when addressing the point of the report is to start big and then remove all
the theory stuff that is not relevant in subsequent drafts.
This is a wealth/investment report – and it’s best to keep them ‘on point’ in relation to the suitability of
investment in the company.
Placing relevant ratios/percentages/ share price changes etc in tables and graphs which you then
need to interpret based on the needs of investors aids the story-telling because (as they say) a
picture tells a thousand words.”
It is vital you keep on topic and that the reader can be persuaded with your opinion on whether this
company’s shares are worth investing in, or not.
Sample Solution
