“You work for Pendragon Plc. in its acquisitions department. Pendragon is continually assessing the possible takeover of other automotive dealers and is currently considering a major acquisition.
Write a report advising your director on the suitability of acquiring Lookers. You should focus on the market position and financial strength of Lookers, some of your colleagues are already focusing on potential synergies, the possible deal structure and the potential bidding price. You should use the CORE Strategic Financial Analysis approach and compare Lookers’ financial performance with that of Pendragon itself. Recommend whether you think such an acquisition would be a good move for Pendragon.”
Breakdown of the word count:
-Executive Summary 250 words (Enter this at the beginning of the report, clear description of what the report is about and method of analysis. Also, key conclusion and recommendations.
Report 2,000 words total (breakdown below) CORE ANALYSIS
-Context- (Internal and external) 20% of the paper
– focus on the competitive intensity in the market sector (any changes?). What is the strategy to deal with this? Any key events relevant to the companies themselves? Highlight issues that will help you interpret the financials – so strategy, investment and exceptional expenditure worth some discussion. Any acquisitions or disposals? What changes in number of dealerships?
-Overview10% of the paper
-Table “key figures” and trends, but needs a narrative! Would graphs make important trends more clear? Does the overview raise any questions to be answered by subsequent ratio analysis?
-Ratios- Calculation30% of the paper
– When interpreting ratios, look for links and trade-offs between ratio trends. E.g. for profitability – consider change in ROCE first and then explain movement in that by drilling down into secondary ratios.
-Ratios- Discussion30% of the paper
Enough ratios to explain the performance fully – but not “every ratio. Comment on their absolute level, as well as trends and comparison to benchmarks (for some key ratios with other companies in the same sector). EXPLAIN ANY LIMITATIONS
-Evaluation/Conclusion- 10% of the paper
– Conclude from ratio analysis with a clear emphasis on the purpose of report. Include information regarding final decision.
Additional Information regarding CORE Analysis:
-For ratio analysis you can use profitability rations, liquidity rations, capital structure ratios, investment ratios, and other ratios useful for the analysis (examples, CORE, EBIT, ROE,INVENTORY, ACCOUNT RECIABLES, CAPEX, NUMBER OF DEALERS, GEARING, CASH FLOW)
-make sure you state if you are using adjusted or non-adjusted figures for the ratios and please include ratio calculations in the appendix.
-For historical performance: mainly compare 2018 with 2017 for Lookers and benchmark key ratios against Pendragon. You can use graphs, tables and figures relating to the ratios.
-Be careful how you treat Directors suggestions of “underlying profits” – are they justified? What do you think?
-For comparison with market and sector ratios you can use the one’s provided from the FT or other sources.
-When assessing “historical performance” ensure you only use economic/market “context” that is relevant to 2017 and 2018 operations.
-Are “investment ratios” relevant for all users of accounts?
– Overall neatly presented report that is appropriate for the recipient. Includes appropriate graphs, diagrams and tables (small ones in the report, large ones in appendices). Good referencing (HARVARD STYLE)
– Make enough links back to the overview and context to help explain changes in financial terms and then in terms of actual operations and commercial environment (e.g. strategy changes, re-organisations, cost savings, acquisitions).