Question 1

Prior to the introduction of the MiFID II regulation in January 2018, numerous market commentators were voicing concerns, and predicting, that this regulation would have several unintended, negative consequences for the sell-side, the buy-side and their

covered/investee companies. Four years have passed since the implementation of MiFID II and, as the impact of MiFID II has already been investigated in several recent academic     studies, it would seem that by now we should know what the actual impact of MiFID II has  been. But do we?

Required:

Critically discuss the findings and arguments of relevant studies about the impact of MiFID II on sell-side analysts, their buy-side clients and the covered/investee companies.

Your answer should demonstrate your familiarity with the sources listed in the reading list for Unit 1 of the course, and you are expected to cite at least three sources in your answer.

Maximum word count: 1000 (Total: 33.3%)

Question 2

Analysts’ earnings forecasts and investment recommendations are considered as one of the most important outputs that they generate for their buy-side clients. The academic literature has identified numerous factors that can influence the accuracy and objectivity of analysts’  forecasts and recommendations.

Required:

Critically discuss factors that have been often argued, or found, to create conflicts of interest and incentives for sell-side analysts to issue biased forecasts and recommendations.

Your answer should demonstrate your familiarity with relevant papers listed in the reading list for Unit 1 of the course, and you are expected to cite at least three papers in your        answer.

Maximum word count: 1000 (Total: 33.3%)

Question 3

Star Plc and Moon Ltd are two companies operating in the retail industry that specialises in fast fashion, and their products include clothing, accessories and shoes.

In recent years, Star plc has focused on a strategy of developing the online fashion market, and has been generating most of its revenues from online sales.  In contrast, Moon has continued with its traditional strategy of expanding by buying shops on high streets of major

cities, focusing on giving customers in-person shopping experience.

Below are extracted financial statements of Star Plc and Moon Ltd:

Statement of Comprehensive Income for the year to 31 December 2021

£Revenue

Profit before profit interest and tax (EBIT)

Net interest expense

Tax

Net Income

Star

£’000

1,500.80

319.10

(3.50)

(49.00)

266.60

Moon

£’000

1,507.80

121.20

(32.50)

(11.60)

77.10

Statement of Financial Position as at 31 December 2021

Total Assets

Total Liabilities

Equity

4,992.00

675.40

4,316.60

3,392.40

1,957.20

1,435.20

Required:

I.      For both companies, calculate the return on equity (ROE) ratio and perform DuPont decomposition of ROE into its five constituent ratios (i.e., profit margin, asset           turnover, financial leverage, tax burden and interest coverage ratios). Show your     workings.

II.      Based on your findings in part 1, discuss how the observed differences between the ratios of these companies might be reflective of the differences in financing and       business operating strategies of these companies. Suggest additional ratios that      would be useful to analyse in order to gain further insights into the differences in      strategies between the two companies, and explain why you have chosen these      ratios.

Maximum word count: 300

III.      Critically discuss caveats and limitations of ratio analysis in light of such issues as timeliness, reliability, objectivity and comparability of accounting numbers, or other relevant factors.

Maximum word count: 400

(Total: 33.3%)