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1、Woolworths Ltd: A Financial AnalysisSubmitted by8 October 2010Table of Contents1.0 Executive Summary32.0 Introduction33.0 Key Objectives44.0 Theoretical background45.0 Research methodology46.0 Research findings56.1 Geographical comparison56.1.1 European Union56.1.2 The United States56.1.3 Canada66.1
2、.4 Korea66.2 Comparison of adopting IFRS before and after the crisis66.2.1 Adoption of IFRS the cases of the United States66.2.2. Korea77.0 Research Limitations88.0 Conclusion and Recommendations89.0 References910.0 Report reflection101.0 Executive SummaryThis report studies the financial statement
3、of Woolworths and provides a valuation for the company, applying the approach suggested in the corporate finance literature, for instance, Bredley and Myers (2003). Empirical analysis showed that Woolworths is a defensive stock by applying regression analysis to the market returns. Based on the mark
4、et data, the fair valuation of the firm is A$xx. Compared to the current market price, it is xx% above/below the fair valuation based on assumptions drawn from historical market data and financial reports. The firm is therefore undervalued/overvalued. 2.0 IntroductionThis submission serves for sever
5、al purposes. Historical price data of the company and the board market index are drawn from Yahoo! Finance to classify whether the stock is defensive or risky from their historical returns, based on the capital asset pricing model proposed by Sharpe (1963). Based on the slope obtained from the regre
6、ssion analysis, the cost of equity is determined in the preceding section. 3.0 Determine the cost of equity for the firm To determine the cost of equity of the firm, a typical approach is to consider the use of capital asset pricing model 4.0 Cash Flow Forecasts To determine the value of the firm, a
7、 necessary step is to forecast the future cash flow. Based on the pro-forma financial statements rebuilt in the previous section, the free cash flow analysis will follow the approach suggested by Damodaran (2007) and xx (2003). 5.0 Research methodologyThis session outlines the research methodologies
8、 used in this submission. First of all, a set of regions will be studied in this report to give an outlook on the pace of implementation of IFRS around the globe. Next, this submission studies whether there has been changed in adopting IFRS by investigating the corporations, regulatory bodies and in
9、vestors. Developing regions and developed economies will be compared in adopting IFRS so as to compare the factors affecting the pace of adopting IFRS. 6.0 Research findings6.1 Geographical comparison6.1.1 European UnionEuropean Union has moved the ahead in adopting IFRS compared to other countries.
10、 In June 2000, the European Commission published the document, EU Financial Reporting Strategy: The Way Forward, which suggested that all publicly listed companies prepare their consolidated accounts in accordance with IAS by 2005. Given the scale of the pledge, more than 9,000 listed companies are
11、now using IFRS when generating their consolidated financial statements, according to statistics compiled in the Danskes (2006) research. In addition, member states of the European Union (EU) allow companies to use IFRS for corporate income tax statements. Today, most EU countries require companies t
12、o generate reports that are in compliance with local Generally Accepted Accounting Principles (GAAP) for tax purposes, but those reports dont have to be in compliance with IFRS. In practice, companies may be implementing IFRS, as local GAAP guidelines increasingly converge with IFRS.6.1.2 The United
13、 StatesThe Securities and Exchange Commission (SEC) was a supporter towards a uniform accounting standard in the world. They suggested officially that US corporations should adopt IFRS by the end of 2014. However, they have turned their view to the opposite side after the financial crisis. The ambig
14、uous treatment methods on special propose vehicle and credit instruments remained the concern of SEC officials on adopting IFRS for US corporations. Moreover, they suggested that it incurred a huge cost for companies to change the accounting method. 6.1.3 Canada The Canadian Accounting Standards Boa
15、rd made a major change in 2005. They decided to adopt IFRS rather than the U.S. GAAP. The board has announced a fixed deadline of 2011 for companies to adopt IFRS in 2007. IFRS will be required for interim reports for public listed companies. 6.1.4 KoreaA domestic version of the Generally Accepted A
16、ccounting Principles (GAAP) has been adopted by Korean companies before the Asian Financial Crisis at the dawn of the last decade. However, the International Monetary Fund (IMF) advised Korean companies to improve transparency in accounting. Ever since the suggestion by the IMF, Korean companies hav
17、e investigated to integrate their financial statements to international standard. They started planning and came to adopt IFRS gradually. 6.2 Comparison of adopting IFRS before and after the crisis6.2.1 Adoption of IFRS the cases of the United StatesWith the green light from the SEC, U.S. corporatio
18、ns were welcome to the new accounting standards instead of U.S. GAAP. With the intensification of the globalization, more and more U.S. corporations seek business from overseas. Overseas investments account for an increasing portion of top line and bottom line of the financial statements for US corp
19、orations. According to a survey done by the U.S Treasury, overseas equity investment showed a big jump in this decade. Equity investment in Europe doubled in 3 years time between 2003 and 2006. Therefore, there was an urgent need for them to adopt IFRS to give investors more transparency on their fi
20、nancial positions. Before the financial crisis, the SEC took an aggressive position on the harmonization of IFRS. It offered a road map to migrate GAAP to IFRS that would lead to all public companies reporting under IFRS by 2014. Multinational companies were given permission to adopt IFRS before the
21、 purposed deadline. However, in a recent speech by SEC Director of Corporate Finance, White, he claimed that the IFRS should not be considered as the universal accounting standard. In his speech, White (2008) commented that He also commented that the SEC cannot see a single rationale for why the Com
22、mission should be looking at IFRS for U.S. companies. This indicated that without a strong support from the regulatory body, US corporations stepped backward to a further integration of accounting standards after the crisis. Raising concerns from the corporate side have been spotted on the plan from
23、 the corporate side. According to a survey conducted in 2008 to financial professionals, close to half of respondents questioned about the current time line of implementing IFRS. Additional costs incurred in the preparation of financial statements, together with economic slowdown, made companies bur
24、den heavier. There has been heated debate among accounting professionals and other stakeholders about the financial reporting quality and the additional costs incurred by corporations in adopting IFRS. Fuelled by the financial crisis, extra costs in adopting IFRS becomes the major concern in budget
25、planning in the U.S. corporations. 6.2.2. KoreaKorea sets an example of how integration of international accounting standard pick up its pace in speed after the global financial crisis. According to the Association of Korea Listed Companies, almost two-third of public listed companies has completed
26、their internal investigation to the implementation of IFRS. By 2011, financial companies, such as banks, insurance companies and brokerage firms have obliged to publish their financial statements in compliant with IFRS.7.0 Research LimitationsThis submission compares the pace of adopting IFRS in var
27、ious regions in the world. Our analysis is limited to studying the implementations of IFRS in a selected sample set of countries only. As mentioned in Sletten and Ramanna (2010), accounting standards represent equilibrium, and they co-develop with economic, political, and cultural institutions. (Hai
28、l, Leuz, and Wysocki, 2009). Cultural factors and shareholding structures should also be taken into consideration when this topic is studied. 8.0 Conclusion and RecommendationsFew will disagree that the consensus of reaching some form of uniform accounting standard is essential for the healthy devel
29、opment of business community. Exactly how much is a long-unresolved issue. And few would dispute that widening globalization of markets and politics implies some narrowing of rule differences among nations, though here too the optimal degree of uniformity is far from clear. The degree of harmonizati
30、on, however, depends on the tangible economic benefits of corporations by adopting uniform accounting standards in the region. 9.0 ReferencesChoi, F., Frost D.S., and Meek, G. K, (1999) International Accounting, New York: Prentice Hall, Upper Saddle River. Clarkson, P., J. Guedes and R. Thompson (19
31、96), On the Diversification, Observability, and Measurement of Estimation Risk, Journal of Financial and Quantitative Analysis, March, pp. 69-84.Daske, H. (2006) Economic Benefits of Adopting IFRS or US-GAAP Have the Expected Cost of Equity Capital Really Decreased? Journal of Business Finance & Acc
32、ounting, 33(3) & (4), pp. 329373Diamond, D. W. and R. E. Verrecchia (1991), Disclosure, Liquidity, and the Cost of Capital, Journal of Finance, Vol. 46, No. 4, pp. 1325-1359.Hail, L., C. Leuz, and P. Wysocki. (2009). Global accounting convergence and the potential adoption of IFRS by the United Stat
33、es: An analysis of economic and policy factors. Working Paper, available on SSRN.Lawrence, S. (1996), International Accounting. London: International Thomson Business Press.Ramanna, K., and Sletten, E. (2010) Network Effects in Countries Adoption of IFRS. Retrieved on 30th September 2010 from Samir,
34、 S.M., and Sletten, E. (2003) Harmonization of Accounting Standards. Retrieved on 30th September 2010 fromhttp:/www.icai.org/resource_file/11430p681-684.pdfWhite, J. (2008) IFRS and U.S. Companies: A Look Ahead, Retrieved on 30th September 2010 from www.sec.gov/news/speech/2008/spch060508jww.htm 10.
35、0 Report reflectionI have learned about the implementation of international accounting standards through the Advance Financial Accounting class. Through this assignment, I have grasped additional knowledge on international accounting standards as never before. Prior to this assignment, my expectatio
36、n on financial accounting is that it is uniform and standardized across the globe. After the research, I found that accounting standards differ in countries and the rationale behind local Generally Accepted Accounting Principles is linked to various factors, such as cultural factors and shareholding
37、 structure of the company. The most successful part in this submission is that I manage to summarize, analyze from a pile of previous research projects on this subject matter. Moreover, I am capable of developing a deeper understanding to the IFRS and the major controversies in adopting IFRS. Howeve
38、r, several areas can be improved in this assignment. The least satisfactory part of the assignment is the breath of countries studied. Only 3 developed regions and 1 developing regions were studied in this submission. Increasing quantity of regions studied in this submission could certainly improve the understanding of the whole picture.
