Adairs Limited (ADH), as if you were investment analysts making a recommendation

Adairs
Limited (ADH), as if you were investment analysts making a recommendation on whether your
clients should invest in it.
6. Prospective Analysis, including:
Forecasting income statement
• Forecast key elements of income statements for the company for the next THREE
financial years.
• Present the key ratios (in a table format) used to forecast key income statement items in
the report.
• Present these income statements (key elements only, in a table format) in the report.
• Provide justifications of forecast assumptions for each key forecast item. The
justifications should be the company’s environment, business operation and strategy
discussed in your group report.
Forecasting balance sheet
• Forecast key elements of balance sheets for the company for the next THREE financial
years.
• Present the key ratios (in a table format) used to forecast key balance sheet items in the
report.
• Present these balance sheets (key elements only, in a table format) in the report.
• Provide justifications of forecast assumptions for each key forecast item. The
justifications should be the company’s environment, business operation and strategy
discussed in your group report.
Valuations
• Value the company using two different methods. The discounted cash flow model must
be used together with an alternative valuation model of your choice.
• Discuss how to estimate the parameters used in the valuation models. For example, justify
your choice of terminal growth rate. Why is the rate appropriate for the company?
• Present sensitivity analysis for different economic scenarios. Discuss these economic
scenarios in which a downside or upside growth rate is applied.
• Calculate estimated value per share.
7. Recommendation for the clients, drawing on the whole analysis of the company included in
the group and individual reports, and including:
• Compare the estimated value per share with the market value and make an investment
recommendation based on this.
• Justify the investment recommendation by providing supportive arguments from
environment, strategy, accounting, or financial analyses of the group report.
The individual report should be word-processed and professionally presented. It is to be
approximately 5 – 10 pages (with 1.5-lines spacing and 12 font size), excluding references and