SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN

Centre for Modern Architecture Studies in Southeast Asia

Foundation of Natural and Built Environments (FNBE)
Basic Accounting [ACC30205]
Prerequisite: None
Lecturer: Tay Shir Men
Assignment: Financial Ratio Analysis (P/E Ratio, Profitability Ratio, etc.)
30% Group Work
Submission: by 2pm, Thursday, 4th February 2016 (Week 18)
Introduction

The assignment will assist students in developing a better appreciation in ratio analysis and
interpretation as a tool for evaluating real-world companies. By reading and analysing the
annual reports of publicly-traded companies, students can acquire valuable skills such as
deciphering the various details contained in an accounting report, give informed opinions about
the companys business operations and make recommendations regarding the worthiness of
the business common shares as an investment medium.
Objectives of Project

The objectives of this project:

To understand the basic purposes of ratio analysis and interpretation.
To understand the techniques of applying the ratios.
Learning Outcomes of Project

On successful completion of this project, students will be able to demonstrate the following:
Assess the performance of a business (in terms of profitability and financial stability) by
applying financial ratio analysis.
Make appropriate business decisions with reference to various accounting information
and tools.
Tasks - Methodology

Your tasks are as follows:

a) Form a group with a maximum of 4 members.
b) Select a public company (domestic or international) as your research subject. Ensure
that the chosen company is engaged in property or construction sector.
c) Provide a brief background history of the company and its recent development.
d) Conduct ratio analysis on the business annual reports for 2012 and 2013 and interpret
the results.
1

e) Together with the P/E ratio (see appendix for more information), provide justifications
on whether the companys shares are worthy of investment.
f) Submit your findings in a report with a maximum word limit of 1500 words, excluding
references and appendices. The report must be submitted in a softcopy form.
g) Note: ensure that you have at least 5 different sources of information in the appendix.
h) Note 2: Include the companys Income (or P&L) statements and Balance Sheets for the
relevant years in your reports appendix section.
i) Important: Ensure that you quote your sources and refrain from copying. I
conduct plagiarism checks on all assignments submitted. Students caught with
the said offence will face disciplinary action. Ignore this warning at your own
risk.
Submission Requirement

- A 1500-word written report (excluding cover page and references) submitted in softcopy
form to shirmen.tay@taylors.edu.my.
Assessment criteria

The assessment for this assignment will be based on:

TGC
Acquired

Assessment Criteria

Marks %

Group Component
Company Background

5%

Ratio Calculation

10%

Ratio Interpretation

10%

Investment Recommendation

5%

TOTAL
Marking criteria
Please refer to Assessment Rubric on page 3.

Assessment Rubric for Basic Accounting Assignment (ACC30205)

2

30%

Assessment
Criteria (with TGC)

30%

Company
Background
5%

Ratio Calculation

10%

Ratio
Interpretation

10%

Investment
Recommendations
5%

Excellent (10-9)

Good (8-7)

Satisfactory (6-5)

Poor (4-3)

Fail (2 0)

Provides a very
well-organized
and easy-tounderstand
background
history of the
firm.

Provides a wellorganized and

easy-tounderstand
background
history of the
firm.

Provides a
somewhat
organized and
understandable
background
history of the
firm.

Provides a
disorganized and
somewhat hardto-understand
background
history of the
firm.

Background
history of the firm
is presented in a
very disorganized
and difficult-tocomprehend
manner.

All the
calculations
performed are
correct with
reference to the
formulas and
accounting report
data.

There are 1-2

calculation
mistakes in terms
of misapplication
of formula or
using the wrong
data.

There are 3-4

calculation
mistakes in terms
of misapplication
of formula or
using the wrong
data.

There are 5-6

calculation
mistakes in terms
of misapplication
of formula or
using the wrong
data.

There are 7 or
more calculation
mistakes in terms
of misapplication
of formula or
using the wrong
data.

The student
demonstrated
excellent
understanding of
the ratios i.e.
interpreted all the
calculation results
correctly.

The student
demonstrated
good
understanding of
the ratios i.e.
interpreted most
of the calculation
results correctly.

The student
demonstrated
adequate
understanding of
the ratios i.e.
interpreted at
least half of
calculation results
correctly.

The student
demonstrated
poor
understanding of
the ratios and
interpreted a
majority of the
calculation results
incorrectly..

The student
demonstrated
very poor
understanding of
the ratios and
interpreted almost
all of the
calculation results
incorrectly.

The student
provided her
investment
recommendations
based on
excellent
justifications.

The student
provided her
investment
recommendations
based on good
justifications.

The student
provided her
investment
recommendations
based on
mediocre
justifications.

The student
provided her
investment
recommendations
based on poor
justifications.

The student
provided her
investment
recommendations
based on very
poor justifications.

Appendix 1: P/E Ratio

Price/Earning or P/E Ratio

= Current share price

Earnings per share (in number of times)
For example: Company Bs current share price is $5.00 per share. Its earnings per share
(based on the latest year) is $0.50. This means the companys price/earning ratio is 10
($5.00/$0.50).
How to interpret: This ratio measures how expensive a share is. The higher the P/E ratio, the
more expensive a share is. In the example above, a P/E of 10 means that an investor will need
to wait for 10 years to recoup his investment. A higher P/E, say 20, means the investor will
have to wait even longer 20 years - to claim back his original principal. A conservative
investor will normally pay no more than P/E of 15 for a share that he likes.
Appendix 2: Investment Recommendation
When determining whether the company that you are analysing is worth investing in, you have
to take into account 3 factors:
a) Profitability
b) Liquidity / Stability
c) Share price
In other words, the company must have demonstrated good profitability, strong financial
stability and its shares are available at a cheap price (i.e. P/E of 15 or lower) to warrant an
investment. To determine good profitability and strong financial stability, refer back to the
profitability and stability ratios that you have calculated and look at the overall picture of these 2
groups of ratios. There are no hard and fast rule about what really qualifies as good profitability
and strong financial stability so there is some subjectivity regarding that. However, it is useful to
ask yourself (honestly) whether you think the company is profitable and stable. If the answer is
not a resounding yes, then it would be wise to not invest in the company.
If you think that the company has good profitability and stability, and it is also currently available
at a cheap price (i.e. P/E below 15), then you can recommend the companys shares as
suitable for investment.