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FIN5DBS – DEBT SECURITIES ASSIGNMENT Instructions: 1

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FIN5DBS – DEBT SECURITIES ASSIGNMENT

Instructions:

1. In this assignment, you are required to conduct a capacity analysis and the

Altman Z score analysis for the company's overall creditworthiness.

You capacity analysis should include the following three parts:

a) Industry structure analysis

b) Industry fundamental analysis

c) Ratio analysis

2. In the part of ratio analysis, you are required to compute the eight historical financial ratios, as shown in the table below. You should also forecast these ratios for the next year, compare your forecasted ratios to the ratios shown below in the table, and recommend an appropriate credit rating accordingly. I recommend that you should use as least past three year’s financial data for your analayis.

3. You should make your forecast that is based on both the company's fundamental information and the industry report obtained from the databases such as DatAnalysis Premium and IBISWorld.

4. You need to choose an appropriate Z score model to compute the current Z score and forecast the Z score for the next year. You should also indicate the financial status of the company based on your forecasted Z score.

EXHIBIT 9 Industrial Comparative Ratio Analysis

Credit Rating	EBITDA Margin (%)	Return on Capital (%)	EBIT Interest Coverage (x)	EBITDA Interest Coverage (x)	FFO/ Debt (%)	Free Operations Cash Flow/ Debt (%)	Debt EBITDA (x)	Debt/Debt Plus Equity (%)
Aaa US	66.4	6.5	4.2	21.3	51.9	43.5	-0.2	43.3
Aa US	21.9	10.8	15.4	45.0	109.9	58.1	1.2	50.6
A US	26.0	13.5	13.3	18.9	49.1	31.8	1.8	51.2
Baa US	23.9	11.5	7.2	NA	40.7	20.3	3.9	49.4
Ba US	21.7	3.5	4.6	NA	27.7	11.0	4.1	64.0
B US	21.2	3.7	2.5	NA	20.3	1.8	5.2	69.3
Caa US	16.0	0.2	-0.6	1.3	10.0	-6.6	9.3	95.3

 

Note: To make your result comparable to the debt ratios shown in the last two columns, please use net debt for your calculation. Net debt is equal to the difference between a company's interest-bearing liabilities minus cash or cash equivalents.

Reference Materials:

The lecture slides (Lecture 6).

? Databases (see the resources uploaded in LMS), such as DatAnalysis Premium and IBISWorld.

? Financial statements and other information provided by the company.

? Other Internet resources – e.g. ratings agencies, stock market analysts.

? Newspaper reports.

? Any other publicly available and reliable information.

Format:

Typed in 12-point font using Times or Times New Roman at 1.5 or double spacing. Left and right margins should be set to 3.5 cm or 1.5 inches. Pages should be numbered consecutively. Figures and tables should be presented in a professional way. You should cite all the references (i.e. the sources of the information) correctly in your text and list all the references at the end of your report.

Word Limit:

2000 words. This is a guide. There will not be an explicit penalty for exceeding this word limit. Assignments with insufficient information (i.e. well under 2000 words) and assignments that are unnecessarily long will receive fewer marks within the marking scheme.

Marking scheme

Introduction	5%
Industry structure analysis	10%
Industry fundamental analaysis	10%
Ratio analysis	40%
Altman Z score	20%
Overall presentation	15%

 

Marks:

The assignment will be marked out of 100 and will comprise 30% of your final grade.

Submission:

Students must submit the assignment via Turnitin in the LMS. Email submissions will not be accepted. Please write your name and ID in the front page of your assignment.

Penalties for late submission:

Please refer to the subject learning guide.

Plagiarism

Plagiarism will be treated very seriously. If you are found guilty of plagiarism, you will get zero for the assignment, and you will be charged with Academic Misconduct, which has serious penalties. If you plagiarise, you will be caught.