Company: IOI Corporation BHD
Major Assignment: Company Valuation
This project provides an excellent opportunity to gain hands-on experience in applying corporate finance theories and models to real-world companies. The key objectives of this assignment are:
- Evaluate the risk profile of a firm and identify the sources of risk.
- Analyze its capital structure to determine whether the firm is under or over-leveraged.
- Examine its dividend policy and decide whether more or less should be paid in dividends.
Part 1: Steps to Complete the Project
Step 1: Choosing a Company
When selecting a company, keep the following in mind:
- Pick a company operational for at least one year (preferably two) to access comparative annual reports.
- The company can be listed anywhere globally.
- Ensure your selected companies belong to the same sector or industry (refer to Bursa Malaysia for sector classifications).
- Avoid companies classified as PN17 (money-losing firms) or financial service firms such as banks or unit trust companies.
Step 2: Gathering Data
Use the following sources to gather essential data:
- Datastream or Thomson Eikon Reuters for share prices and key ratios (available at Sultanah Bahiyah library or COLGIS Trading Room).
- Annual reports from the Bursa Malaysia website.
Analyzing the Board
Evaluate the board of directors for independence, competence, and potential conflicts between inside and outside shareholders. Use the following resources:
- Corporate Governance Net
- European Corporate Governance Institute
- Yahoo! Finance Reports
Part 2: Capital Structure and Dividend Policy
A. Capital Structure Choices
Analyze the company’s financial mix by considering the benefits and costs of debt:
| Criteria | Description |
|---|---|
| Benefits of Debt | Tax advantages, high free cash flows, and effective management accountability mechanisms. |
| Costs of Debt | Cash flow stability, asset tangibility, and potential bondholder monitoring costs. |
B. Dividend Policy
Assess the company’s historical dividend policies, stock buybacks, and flexibility in signaling to the market. Compare its practices to industry standards to determine if adjustments are necessary.
Framework for Analysis
- Examine free cash flows to equity versus actual dividends paid.
- Review management’s historical and potential investment decision quality.
Supporting Documents
Include relevant financial statements within your submission to substantiate findings. Submit supporting Excel spreadsheets separately for detailed calculations.
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