This document provides instructions for a group assignment on financial ratio analysis. Students must form groups of up to 3 members, select a publicly traded company, analyze the company's financial ratios over the past 2 years, and make an investment recommendation. The report is limited to 1500 words excluding references and appendices. It will be assessed based on the background provided on the company, accurate calculation of ratios, interpretation of ratios, and justification for the investment recommendation. Additional guidelines and assessment criteria are provided.

1. SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN
Centre for Modern Architecture Studies in Southeast Asia
Foundation of Natural and Built Environments (FNBE)
Basic Accounting [ACC30205/FNBE0145]
Prerequisite: None
Lecturer: Chang Jau Ho
Assignment: Financial Ratio Analysis
30% Group Work
Submission: by 12pm, Friday, 4th
June 2015 (Week 16)
Introduction
The assignment will assist students in developing a better appreciation in ratio analysis and
interpretation as a tool for evaluating real-world companies. By reading and analysing the
annual reports of publicly-traded companies, students can acquire valuable skills such as
deciphering the various details contained in an accounting report, give informed opinions about
the company’s business operations and make recommendations regarding the worthiness of
the business’ common shares as an investment medium.
Objectives of Project
The objectives of this project:
• To understand the basic purposes of ratio analysis and interpretation.
• To understand the techniques of applying the ratios.
Learning Outcomes of Project
On successful completion of this project, students will be able to demonstrate the following:
• Assess the performance of a business (in terms of profitability and financial stability) by
applying financial ratio analysis.
• Make appropriate business decisions with reference to various accounting information
and tools.
Tasks - Methodology
Your tasks are as follows:
a) Form a group with a maximum of 3 members.
b) Select a public company (domestic or international) as your research subject. Ensure
that the chosen company is engaged in trading physical goods, not services.
c) Provide a brief background history of the company and its recent development.
d) Conduct ratio analysis on the business annual reports for the last 2 years (e.g. 2012 &
2013) and interpret the results.
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2. e) Together with the P/E ratio (see appendix for more information), provide justifications
on whether the company’s shares are worthy of investment.
f) Submit your findings in a report with a maximum word limit of 1500 words, excluding
references and appendices. The report must be submitted in a softcopy form.
g) Note: ensure that you have at least 5 different sources of information in the appendix.
h) Note 2: Include the company’s Income (or P&L) statements and Balance Sheets for the
relevant years in your report’s appendix section.
i) Important: Ensure that you quote your sources and refrain from copying. I
conduct plagiarism checks on all assignments submitted. Students caught with
the said offence will face disciplinary action. Ignore this warning at your own
risk.
Submission Requirement
- A 1500-word written report (excluding cover page and references) submitted in softcopy
form to jauho.chang@taylors.edu.my.
Assessment criteria
The assessment for this assignment will be based on:
TGC
Acquired
Assessment Criteria Marks %
Group Component
Company Background 5%
Ratio Calculation 10%
Ratio Interpretation 10%
Investment Recommendation 5%
TOTAL 30%
Marking criteria
Please refer to Assessment Rubric on page 3.
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3. Assessment Rubric for Basic Accounting Assignment (ACC30205)
Assessment
Criteria (with TGC)
30% Excellent (10-9) Good (8-7) Satisfactory (6-5) Poor (4-3) Fail (2– 0)
Company
Background
5%
Provides a very
well-organized
and easy-to-
understand
background
history of the
firm.
Provides a well-
organized and
easy-to-
understand
background
history of the
firm.
Provides a
somewhat
organized and
understandable
background
history of the
firm.
Provides a
disorganized and
somewhat hard-
to-understand
background
history of the
firm.
Background
history of the firm
is presented in a
very disorganized
and difficult-to-
comprehend
manner.
Ratio Calculation 10%
All the
calculations
performed are
correct with
reference to the
formulas and
accounting report
data.
There are 1-2
calculation
mistakes in terms
of misapplication
of formula or
using the wrong
data.
There are 3-4
calculation
mistakes in terms
of misapplication
of formula or
using the wrong
data.
There are 5-6
calculation
mistakes in terms
of misapplication
of formula or
using the wrong
data.
There are 7 or
more calculation
mistakes in terms
of misapplication
of formula or
using the wrong
data.
Ratio
Interpretation
10%
The student
demonstrated
excellent
understanding of
the ratios i.e.
interpreted all the
calculation results
correctly.
The student
demonstrated
good
understanding of
the ratios i.e.
interpreted most
of the calculation
results correctly.
The student
demonstrated
adequate
understanding of
the ratios i.e.
interpreted at
least half of
calculation results
correctly.
The student
demonstrated
poor
understanding of
the ratios and
interpreted a
majority of the
calculation results
incorrectly..
The student
demonstrated
very poor
understanding of
the ratios and
interpreted almost
all of the
calculation results
incorrectly.
Investment
Recommendations
5%
The student
provided her
investment
recommendations
based on
excellent
justifications.
The student
provided her
investment
recommendations
based on good
justifications.
The student
provided her
investment
recommendations
based on
mediocre
justifications.
The student
provided her
investment
recommendations
based on poor
justifications.
The student
provided her
investment
recommendations
based on very
poor justifications.
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4. Appendix 1: P/E Ratio
Price/Earning or P/E Ratio
= Current share price
Earnings per share (in number of times)
For example: Company B’s current share price is $5.00 per share. It’s earning’s per share
(based on the latest year) is $0.50. This means the company’s price/earning ratio is 10
($5.00/$0.50).
How to interpret: This ratio measures how expensive a share is. The higher the P/E ratio, the
more expensive a share is. In the example above, a P/E of 10 means that an investor will need
to wait for 10 years to recoup his investment. A higher P/E, say 20, means the investor will
have to wait even longer – 20 years - to claim back his original principal. A conservative
investor will normally pay no more than P/E of 15 for a share that he likes.
Appendix 2: Investment Recommendation
When determining whether the company that you are analysing is worth investing in, you have
to take into account 3 factors:
a) Profitability
b) Stability
c) Share price
In other words, the company must have demonstrated good profitability, strong financial
stability and its shares are available at a cheap price (i.e. P/E of 15 or lower) to warrant an
investment. To determine good profitability and strong financial stability, refer back to the
profitability and stability ratios that you have calculated and look at the overall picture of these 2
groups of ratios. There are no hard and fast rule about what really qualifies as good profitability
and strong financial stability so there is some subjectivity regarding that. However, it is useful to
ask yourself (honestly) whether you think the company is profitable and stable. If the answer is
not a resounding yes, then it would be wise to not invest in the company.
If you think that the company has good profitability and stability, and it is also currently
available at a cheap price (i.e. P/E below 15), then you can recommend the company’s shares
as suitable for investment.
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5. Appendix 3: Other Frequently Asked Questions (OFAQs)
1. Which profit figure should I use to calculate ratios like Profit Margin, Return on Equity,
etc.?
You can use either the profit figure before deducted by the tax expense (commonly known as
operating profit) or the profit figure after deducted by tax (also commonly known as
consolidated net profit). Just make sure to use the same figure to calculate all the ratios that
require this figure.
2. I can’t calculate the Selling Expense Ratio and the General Expense Ratio because the
selling expenses and the general (or administrative) expenses have been added up
together and shown as one single amount in the P&L statement. What should I do?
You can go through the Notes Section of the Annual Report and see if the company provides a
breakdown of that lump sum figure. Failing that, you may divide the lump sum figure by 2 and
‘pretend’ that half of the lump sum figure is the total selling expenses and the other half is the
total general expenses.
3. Where can I find the share price of the company I’m researching?
If the company is Malaysian, you can find it in the Business section of the Star Newspaper. If
the company is foreign, you can look up Yahoo Finance or CNBC.com. And oh, to calculate the
P/E ratio, please use the latest share price, as in no more than 5 days before the submission
date.
4. Which Earnings per Share (EPS) figure should I use? Diluted or Basic?
If both figures are not very different, then it doesn’t matter. Otherwise, please use the Basic
figure.
5. I can’t find the [insert name] figure/Everything looks so different from the accounting
reports I’ve learned/Oh my god what the %^$&#@ am I looking at? HELP!!!!
First take a deep breath… Now, try to realize that although the items’ names and format used
in Annual Report may be different from what you have learned so far, both of them still retained
the same basic “look”. So the key is to observe closely and guess intelligently what you think
an item reported in the Annual Report really is. For example, if you can’t find the “Cost of
Goods Sold” item in the Annual Report, try and think where it is normally located in the P&L
statement. Chances are it is still at the same usual “place” but has been given a different name.
Get it?
6. Can I ask/email you for help? I’m kinda stuck with this assignment.
Of course. However, please be advised that most of the time I will only give you hints, not
straight answers to your queries
5

6. Appendix 3: Other Frequently Asked Questions (OFAQs)
1. Which profit figure should I use to calculate ratios like Profit Margin, Return on Equity,
etc.?
You can use either the profit figure before deducted by the tax expense (commonly known as
operating profit) or the profit figure after deducted by tax (also commonly known as
consolidated net profit). Just make sure to use the same figure to calculate all the ratios that
require this figure.
2. I can’t calculate the Selling Expense Ratio and the General Expense Ratio because the
selling expenses and the general (or administrative) expenses have been added up
together and shown as one single amount in the P&L statement. What should I do?
You can go through the Notes Section of the Annual Report and see if the company provides a
breakdown of that lump sum figure. Failing that, you may divide the lump sum figure by 2 and
‘pretend’ that half of the lump sum figure is the total selling expenses and the other half is the
total general expenses.
3. Where can I find the share price of the company I’m researching?
If the company is Malaysian, you can find it in the Business section of the Star Newspaper. If
the company is foreign, you can look up Yahoo Finance or CNBC.com. And oh, to calculate the
P/E ratio, please use the latest share price, as in no more than 5 days before the submission
date.
4. Which Earnings per Share (EPS) figure should I use? Diluted or Basic?
If both figures are not very different, then it doesn’t matter. Otherwise, please use the Basic
figure.
5. I can’t find the [insert name] figure/Everything looks so different from the accounting
reports I’ve learned/Oh my god what the %^$&#@ am I looking at? HELP!!!!
First take a deep breath… Now, try to realize that although the items’ names and format used
in Annual Report may be different from what you have learned so far, both of them still retained
the same basic “look”. So the key is to observe closely and guess intelligently what you think
an item reported in the Annual Report really is. For example, if you can’t find the “Cost of
Goods Sold” item in the Annual Report, try and think where it is normally located in the P&L
statement. Chances are it is still at the same usual “place” but has been given a different name.
Get it?
6. Can I ask/email you for help? I’m kinda stuck with this assignment.
Of course. However, please be advised that most of the time I will only give you hints, not
straight answers to your queries
5