Question 1: Business Strategy Analysis (2 PAGES)
1 Identify the industry in which ALS Global (ALQ) operates in, and using the
Porter’s five-forces model discuss the competitive environment within this
industry.
Describe and evaluate the corporate strategy of ALS and its likely ability to
grow revenue and to generate profits over the long run.
2 Summaries ALS Global (ALQ) business strategy and identify the key success
factors associated
with this strategy. In this, discuss the importance of the general state of the
economy to
the business model of ALS Global (ALQ).
3 Identify the key risks associated with ALS Global’s business strategy, and
discuss how the
potential for disruptions to ALS Global’s supply chain would affect the
competitive advantages that they currently enjoy.
Question 2:Accounting Analysis and Financial Analysis (3 PAGES)
1 Identify at least two of ALQ’s critical accounting policies Explain why these
are important accounting issues when analyzing ALQ’s financial statements.
Briefly comment on whether (and why) you think that these accounting policies
fairly represent ALS’s financial performance or position.
2 What are the main incentives that ALQ faces in relation to achieving
particular financial statement (i.e., accounting) outcomes?
3 Compute ALQ’s return on common shareholders equity (ROE) for the 2020
fiscal year using average common equity in the denominator.
4 Use the ‘traditional’ DuPont model to decompose ALQ’s ROE into profit
margin, asset turnover, and leverage.
5 Discuss whether or not the ratios you calculated above do a good job of
reflecting the key success factors and key risks of ALQ.
6 What do you believe are other key financial statement ratios that capture the
extent of the business success of ALQ ? Explain why these ratios are important
in assessing the performance of ALQ
7 Using the table of historical ratios, discuss how the financial ratios over time
reflect the performance of ALQ
Question 3: Forecasting (3 PAGES)
1 Based on the firm’s strategy and your ratio analysis above, provide forecasts,
with assumptions and justifications, for ASQ in 2020-2025 of the following
items: (i)Sales Growth; (ii) Profit Margin; (iii) Asset Turnover (iv) Return on
Assets. (v）return on equity and (vi)Operating profit margin.
2 Describe the factors that makes it difficult to provide forecasts of these key
profit drivers for ASQ in 2020-2025. Explain how you would address these
factors if you were required to provide a valuation of the equity in ASQ
Question 4: Valuation (3 PAGES)
1 Assume that ASQ’s sales growth rate trends linearly between 2020 and 2025,
using your forecasts from Question 3 to a terminal growth rate of 3%. Further
assume that ALQ margin, turnover and leverage ratios remain constant at their
2020 levels indefinitely. Forecast ALQ’s residual income through 2025, stating
any additional assumptions that you make.
2 Using your forecasts from Question 4 and a cost of equity capital of 8%,
compute the value per share of ASQ stock using the residual income model.
3 Calculate ALQ’s Free Cash Flow to Equity holders for 2021, 2022 and 2023
4 Use the Free Cash Flow to Equity method to value the equity in ALQ. State
any additional assumptions you feel you need to make.