Corporate Finance and Business Valuation Assignment

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.