INVESTMENTS & FINANCING 3.INTRO ASSIGNMENT FOR GRADING
3.INTRODUCTION ASSIGNMENT. Deadline: February 18, 2021, 23:59 PM.
ANSWER ALL QUESTIONS! ANSWERS SHALL BE UPLOADED AS pdf or docx file!
For finding answers you need to start with financial analysis and ratio calculations.
3. Introduction Assignment “Best Company”
Best Co is planning to raise 15 million € of money for financing the major expansion of existing
business and is considering a rights issue, a placing or an issue of bonds. The corporate objectives of
Best Co, as stated in its Annual Report, are to maximise the wealth of its shareholders and to achieve
continues growth in earnings per share.
Here is recent financial information on Best Co is as follows:
2020 2019 2018 2017
Revenue, m € 28,0 24,0 19,1 16,8
Profit before interest and tax, m € 9,8 8,5 7,5 6,8
Earnings, m € 5,5 4,7 4,1 3,6
Dividends, m € 2,2 1,9 1,6 1,6
Ordinary shares, m 5,5 5,5 5,5 5,5
Reserves, m € 13,7 10,4 7,6 5,1
8% Bonds, redeemable 2027, m € 20,0 20,0 20,0 20,0
Share price, € 8,64 5,74 3,35 2,67
Table 1. Best Company: Recent financial information 2017 – 2020; €
The par value of the shares of Best Co is 1,00 € per share. The general level of inflation has averaged
4% per year in the period under consideration. The bonds of Best Co are currently trading at their par
value of 100 €. The following values for the business sector of Best Co are available (you need these
values in order to compare with Best Co results):
| Average return on capital employed Average return on shareholders’ funds Average interest coverage ratio Average debt/equity ratio (market value basis) |
25% 20% 20 times 50% |
Return predicted by the capital asset pricing model 14%
(! After reading this case it’s recommended to review your knowledge of financial analysis and
securities issue for financing!)
You are required:
1. Evaluate the financial performance of Best Co, and analyse and discuss in your analytical text the
extent to which the company has achieved its stated corporate objectives of:
1.1.Maximising the wealth of its shareholders.
1.2.Achieving continuous growth in earnings per share. (NB! You need to start with financial analysis
and calculation of ratios. Some sort of financial statements and ratio analysis shall be provided!)
2. Analyse and describe the relative impact of a rights issue, a placing and an issue of bonds as ways of
raising the finance for expansion!