FNCE90046
Treasury Management
Group Assignment
Semester 1, 2024
Department of Finance
Introduction
All groups are allocated one company listed on a stock exchange in the USA for analysis. If your group number is even, your company is Delta Air Lines Inc. Odd number groups are allocated Southwest Airlines Co.
DUE DATE
The assignment must be submitted on or before 6.00 pm, Friday 3rd May. Please note that penalties will apply to late submissions. Assignments submitted after the submission date and time without an approved extension will incur a penalty of 10% of the total mark allocated to this assessment task which will be deducted for each day, or part thereof, that it is late.
WORD LIMIT
The word limit for this assignment is 2,500 words. However, the report cover page, Table of Contents, any appendix showing calculations in relation to sections 2 and 3, and the Bibliography, are excluded from the 2,500-word limit. All other items are included in the 2,500-word limit.
GROUP ASSIGNMENT
Assignment groups have now been finalised on the subject’s Canvas LMS site.
The assignment will count toward 20% of the total marks for this Unit. All students in each group will be given the same mark for the assignment submitted by that group. The criteria used for assessment are provided separately.
It is the responsibility of group members to follow instructions relating to the tasks to be completed. Each group should establish realistic and agreed timeframes for completing each major task, allowing time for unforeseeable or uncontrollable events, such as illness, computer failure, etc.
It is recommended that each group makes use of its own Group page on the LMS. This page provides contact details and enables members to hold group discussions, share files, etc. Groups should also consider using Zoom for group conference calls.
Any issues related to group participation and completion of the assignment need to be managed by the group. In particular, a lack of adequate contribution by any group member will need to be reported by the majority of the group no later than one week in advance of submission date. If disputes arise, they are expected to be resolved among the group members in the first instance. If unresolvable, the course coordinator must be notified of the issue as soon as possible.
Work submitted for assessment must be accompanied by a completed assignment coversheet that clearly identifies the name and student number of each Group member. Assignment submission is to be made via the LMS Assignment Submission link.
The assignment will require the presentation of a professional standard report, consistent with the instructions below.
FNCE90046 Treasury Management
GROUP ASSIGNMENT
In this assignment,assume that your Group is a team of treasury consultants who work for an advisory firm, Treasury Consulting Services (TCS), which specialises in the analysis of the treasury risk management practices of US-listed companies.
The company that you have been allocated is currently reviewing its profitability and financial risk exposures and is considering a proposal to introduce new Risk Control Analytic approaches. It requests the services of TCS to assist with its review. TCS is required to perform analysis as specified and to make recommendations to your client company’s Corporate Treasurer regarding the company’s profitability, financial risks, and the proposed use of the new Risk Control Analytic measures.
Your team has held a preliminary meeting with the Corporate Treasurer, during which you were instructed that TCS’s engagement requires it to perform. each of the following:
• Complete all tasks 1 to 4 detailed under Scope of Work below.
• Access corporate web pages for your allocated company, comparator companies and any relevant industry associations.
• Use and analyse data from the EDGAR web site, which is run by the US Securities & Exchange Commission (SEC). To access the database, use the following instructions:
Go tohttps://www.sec.gov/edgar/searchedgar/companysearch.html
Type in the company name and then filter results under Filings for 10-K, 10-Q, or any other significant results.
• Research and analyse relevant information from other internet sources and databases (e.g. Company Annual report data from company web sites, Reuters, Bloomberg, and Yahoo Finance internet sites). The following relevant electronic databases are also available via the Giblin Library:
o Hoover’s
o IBIS World
o MarketLine
o FACTIVA databases
• When performing your analysis in Sections 1 to 3, state all assumptions (and sources of data, which may include secondary sources) and present a short discussion on how you have reached your conclusions and recommendations
• Think innovatively in performing your analysis and make justifiable assumptions, where necessary, to overcome any hurdles you may confront. These hurdles may include any deficiencies in data availability relating to the company and its industry
• You must not rely upon broker reports, or perform. company valuations, i.e. you are not required to provide a buy, hold, or sell recommendation regarding the allocated company
• Do not contact the allocated company.
Report format
The engagement requires TCS to prepare a professional written report, which must include the following components:
(a) a Cover page with report title, group number, group members and the date of the report
(b) an Executive Summary that highlights the scope of the report, states significant findings from the research and analysis, and specifies the primary recommendations (this should be short – less than one page – and included at the start of the report)
(c) a Table of Contents
(d) an appropriate Introduction detailing the purpose of the report, the structure of the report and any report limitations
(e) the body of the report should include the outcomes of the research and analysis in Sections 1 to 3
(f) all recommendations in Section 4 should be clearly stated and supported by the research and analysis performed and reported in sections 1 to 3
(g) ALL calculations and mathematical workings should appear as appendices
(h) a bibliography should be included.
The Corporate Treasurer stresses the need for a concise professional report and reminds TCS of the 2,500-word limit for this report.
Scope of Work - Research and Analysis to be performed
The allocated company must be used in your Group Assignment. For each of tasks 1 to 4 below, your report must clearly show and discuss how youreach your conclusions regarding your analysis. You must state your assumptions (and sources of data, which may be secondary sources) and present a short discussion explaining your conclusions.
1. Overview of the Company
Perform an analysis of your allocated company’s business, the industry in which it operates and its financial performance between 1 January 2020 and 31 December 2023, i.e. four years.
You must address the following as part of your analysis:
• What is the main business of the allocated company?
• Identify the key business and/or geographic segments and discuss how have they contributed to profitability during the chosen four-year period.
• Using financial ratios, perform an analysis of the firm’s liquidity, leverage, and profitability.
2. Free Cash Flow and the financial risks of the Company
Perform. an analysis of the company’s Free Cash Flow over the past four years and discuss the impact of the firm’s financial risks. You must address the following as part of your analysis:
• Calculate the company’s annual Free Cash Flow over the four-year period.
• Perform. an analysis of the company’s Free Cash Flow over the four-year period to identify:
a) any significant changes
b) the root cause of the significant changes observed (i.e. did they arise from strategic, risk exposure or other changes?)
• Perform a sensitivity analysis of your Free Cash Flow and discuss the impact of an increase in in three of the most important variables relating to the business, which may include (but are not limited to):
o fuel pricing
o ticket pricing
o the level of accounts receivable from sales
o foreign exchange rates
o increasing volume of flights as the world re-opens to travel following Covid-19
o interest rates.
3. Earnings at Risk, Economic Capital and Expected Shortfall
As part of its review, the company is considering a modification to its current risk framework. Specifically, the company is considering the implementation of a “top down” approach to measuring:
• Earnings at Risk (EaR) – specifically, analyse its Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) at risk; and
• Economic Capital.
You are required to assess and evaluate the suitability of these measures for implementation in the company. You must address the following as part of your analysis:
• Explain the concept of Earnings at Risk and identify the type of risks that it is trying to measure, including how it differs from value at risk
• Obtain the EBITDA (or variation) from the company’s 10-Q quarterly reports from 2014 to 2023 obtained and use them to discuss any trends in this data. If data are unavailable for any quarter, this will need to be treated as missing data and excluded from your analysis
• Explain and apply an approach using this data to estimate the Earnings at Risk with 95 percent confidence
• Explain the concept of Economic Capital and identify the type of risks that it seeks to measure
• Estimate your company’s Economic Capital using an Earnings at Risk based top-down measure
• Perform. a sensitivity analysis of the results obtained above and discuss the impact of a change in the most important variables relating to the business.
• Explain the concept of Expected Shortfall and identify how it might provide extra information in this type of analysis (note – there is no requirement to estimate / quantify an Expected Shortfall).
Note: Information relating to EBITDA needs to be extracted or calculated from your allocated company and comparator’s quarterly financial statements. For consistency, these MUST be taken from EDGAR 10-Qreports.
4. Recommendations
Based on your analysis in Sections 1 to 3, and given the company’s current strategic focus, make recommendations to the Corporate Treasurer regarding the company’s profitability and financial risks and the proposed Risk Control Analytics approaches.
All recommendations should be supported by your analysis leading to and supporting these recommendations performed in Sections 1 to 3.