OBJECTIVE
The specific objective of this graded written research exercise is to prepare an “executive level financial report” to the Chief Financial Officer (CFO) of a mythical company in which you are employed as a financial analyst. This report will pertain to the financial evaluation of a real, publicly-traded, company. It will require independent research (web-based or library), careful financial analysis, and the proper application of key financial theories and formulas.
THE COMPANY that is to be analyzed for this project is to be a company selected by instructor.
Alternatively, you can request approval of another publicly traded company. This request must be submitted before the end of the first week of the course. The request must include
Specifically, the primary question is: will THE COMPANY be financially viable over the next two to three years?
To assist you in your task, the CFO has provided the following general guidance. Since it is recognized that the industry is undergoing a major contraction, it is very important to comparatively evaluate THE COMPANY’S financial and stock performance trends against its Industry or major competitor.
SUGGESTED WEBSITES
www.morningstar.com – To find the information for your company you need to type the stock symbol in the Quotes window to get into the company’s page.
www.marketwatch.com -To find the information for your company you need to type the stock symbol in the Search window to get into the company’s page.
www.money.cnn.com -To find the information for your company you need to type the stock symbol in the Search window to get into the company’s page.
www.finance.yahoo.com – To find the information for your company you need to type the stock symbol in the Search window to get into the company’s page.
www.nyse.com – Click on Data, then click on Stocks (under Quotes), and type the name of the company or the stock symbol in the window “Keyword or symbol” to get into the company’s page.
www.nasdaq.com – To find the information for your company you need to type the stock symbol in the Search window to get into the company’s page.
Company’s websites
YOUR SPECIFIC ASSIGNMENT
Using the information from the websites the students have to develop evaluation of the financial and stock performance for THE COMPANY (SELECTED BY INSTRUCTOR). (Totally 85% of the assignment grade)
-1—Background and Industry (one short paragraph).
-2—Analysis of the most significant financial performance results. (15% of the project grade)
-3— Financial ratio analysis. (15% of the project grade)
Find financial ratios for the company for the last 1-3 years and its major competitor for the last year in the Internet.
-4- Evaluate Return on Equity for the company for the last three years using the DuPont analysis. (10% of the project grade)
ROE = Net profit margin x Total assets turnover x Equity multiplier
= Net income/Sales x Sales/Total assets x Total assets/Common equity
You can use Revenue instead of Sales.
Write about 1 page of analysis of the results that you received. In your report please answer the question: If the management of the company would like to improve their return on equity, what should the management of these companies do?
-5- Evaluate other areas of financial analysis: capital spending, Beta values, credit rating service valuations (if possible), bond rating valuations (if possible), etc. (10% of the project grade)
1) Find the data for capital spending. How much did THE COMPANY spend on research, development, and engineering in the most recent year? How did this compare with the previous year?
2) Find the current beta for the company and its major competitor in the Internet. Find credit rating service valuations (if possible), bond rating valuations (if possible).
Write about 0.5 page of analysis of beta values that you found. Compare the beta values against the main competitor. In your report please answer the question: How risky the company is?
-6- Collect and evaluate the data about stock performance of the assigned company’s for the last one year. (20% of the project grade).
1) Find the market ratios for the company for the last 1-3 years and its major competitor for the last year in the Internet.
-2) Analysis of the historical stock prices trend for the last year.
3) Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate the required return on THE COMPANY stock. Note that you will need the risk-free rate and the market return. Show this information in your project.
Calculate the company’s sustainable growth rate. Please show your work.
Please note that for some companies it is not possible to use Gordon model. If that is the case, please explain why it is not possible to use this model for your company. What other models is it possible to use?
–7- Develop a specific recommendation, with supporting rationale, as to whether or not the assigned company’s recent trend in financial and stock performance is of sufficient financial strength to warrant entering into a long-term commitment (about 1 page) (15% of the project grade).