ACFI3310 Assignment 1 (Bankruptcy) Frequently Asked Questions Beaver/Altman Should I calculate a cut-off point

ACFI3310 Assignment 1 (Bankruptcy) Frequently Asked Questions

Beaver/Altman

Should I calculate a cut-off point for Beaver?

It would take a large piece of analysis to do this and it’s certainly not required. Whilst it would impress, it might not be the best use of your time.

Do I need to include industry averages for Beaver?

It’s up to you but it’s not required. You can simply make comparisons using a competitor company. You would have to find or calculate the industry averages yourself if this is approach you take.

Can I use X as a comparison company?

You would not be penalised for any sensible choice of comparison company. You can critically comment on any limitations with your choice of company as part of your analysis.

How can I access financial and market data for other companies?

You can access the FAME database for UK companies through the Library website:
https://library.dmu.ac.uk/business/financialdata.

Which of share prices should I use to calculate the MV of equity?

The data we provided contains 4 daily prices: Open, High, Low and Close. High and Low refer to the maximum and minimum prices for the given day. Open and Close are the prices at which a stock began and ended trading for the given day. From these figures you’ll need to determine which are the most appropriate to use in your calculations.

How should I calculate total debt?

For your assignment you should use total liabilities to represent total debt. This is the approach we followed in the seminars (Beaver also followed a similar approach).

For the Beaver analysis, how many ratios should I use?

We have provided guidance on this in the lectures.

Which figure do I use for cash flow?

Cash inflow from operating activities would be most appropriate here, as this indicates the amount of money a company brings in from its ongoing, regular business activities.

Should I net off the other operating income from the expenses when doing the Cash Interval calculation?

No.

Should I net off the Overdraft from the Cash balance?

No.

Should I use Administration expenses as the Operating expenses

Yes, you should use administration expenses to represent operating expenses. You should not include the exceptional items in your calculations.

Any other questions about which numbers to use from the spreadsheet (e.g. EBIT, retained earnings, cash flow, expenditure to fund operations etc.)

No further guidance will be provided here, and you’ll need to determine which figures to use. If in doubt, you should clearly state your assumption(s) and proceed with your analysis. We appreciate it was easier to identify the numbers in the seminar, however, for your assignment are required to apply your understanding to a scenario with real-world data.

How many years should I calculate for?

All three years.

I have found more recent data. Can I include this?

You should only use the provided data when calculating financial ratios for the provided company for the Beaver/Altman analysis. The provided data was up to date when the assignment was released.

What do I do about the negative figures on the spreadsheet?

The expenses on the income statement are shown as negatives and so are the liabilities on the statement on financial position. The figures have been taken from the FAME database and this is the nature of working real-world data. Where you want these items to show as positive in Excel, all you need to do is include a minus sign immediately before referencing it.

Should my ratio be positive of negative?

You should follow the approach covered in the learning materials. No further guidance will be here are required to apply your understanding to real-world data.

Do I need to show workings for my calculations?

Yes, this is stipulated on the brief. Look at the answers for the week 9 seminar or the example submissions provided on Blackboard.

Argenti

Which years do I need to consider for the 
Argenti analysis?

You can consider any information available before the date on your memorandum. You date your memorandum as you choose between Nov 23 and Feb 24 (inclusive). You only need to perform the Argenti analysis once, and you do not need to repeat the analysis for multiple years.

Do I need to provide evidence for my scoring for the Argenti analysis?

Absolutely – this is one of the most important parts of the analysis. The marker needs to be able to see exactly why you have scored it the way you have.

How do I present the Argenti analysis?

The assignment document states “The Argenti analysis should be in the appendix with the main points summarised in the memorandum.” The approach we are suggesting is to use a three-column table with the item, the score and the support in the three columns. You can also look at the example submissions provided on Blackboard.

Other queries

How do I present a memorandum?

Other than the guidance in the lecture, it’s up to you but using headings for Subject, Date etc. is a good start. There are 10 marks available for “structure, style and overall professionalism”. As you are being assessed on presentation we are not stipulating how it must be done.

What is included in the word-count?

The appendix doesn’t count. You can also exclude the in-text citations when in brackets and also the Memo format “To/From etc…”.

What about rounding?

Sensible rounding will make the figures easy to read without a significant loss of information or accuracy. There is no single rule about rounding that would be appropriate for every circumstance, but presenting financial ratios to say 2 or 3 significant figures or decimal places is often sufficient. No further guidance will be provided on rounding.

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