The
research paper assignment is worth 220 points or 22% of the course grade. A grade of C or better is required as
per MBA policy as this is the Final Assessment for the course.
The objectives/purpose of the research paper
project are to enable you to do a comprehensive financial analysis of a
publicly traded corporation; and provide you with substantial information for
you to make recommendations regarding investing in this corporation.
Your financial analysis
report will be driven by a rigorous ratio analysis, and aggressively supplemented
with your written analysis, interpretation, and evaluation of the data.
Your research should be
strategically driven by two probing questions:
-Would you invest your financial capital in the selected firm as a
shareholder?
-Would you invest your human and intellectual capital in the firm as an
employee?
Steps in preparation of
financial analysis report:
1.)
Select a publicly held company
2.)
Select a benchmark firm to compare your company
against. The benchmark firm is typically the largest competitor.
3.)
Obtain the firm’s balance sheet, income statement,
and statement of cash flows for
the past
5 years. Download or read the firm’s annual report.
4.) Go
to: http://www.sec.gov/edgar/searchedgar/webusers.htm
Research EDGAR’s database
for additional SEC report filings: 8-k, 10-Q.
4.)
The following table is the type of Excel or Word table that should be
used to gather and report your
ratio and financial performance data. Note the 5 financial diagnostic
categories that should be used in your analysis.
|
Financial diagnostic |
Chosen company |
Benchmark |
|
1.) |
-Current ratio -Cash ratio -Quick ratio |
-Current ratio -Cash ratio -Quick ratio |
|
2.) |
-Debt ratio -Debt-equity ratio -Times interest earned |
-Debt ratio -Debt-equity ratio -Times interest earned |
|
3.) |
||
|
-Net income/sales -Net income/assets (ROA) -Net income/shareholder |
-Net income/sales -Net income/assets (ROA) -Net income/shareholder |
|
|
4.) Asset |
-Total asset turnover -Inventory -Accounts receivable |
-Total asset turnover -Inventory -Accounts receivable |
|
5.) Market |
-Price/earnings ratio -Earnings per common -Dividend payout |
-Price/earnings ratio -Earnings per common -Dividend payout |
Use 2-3 ratios per
diagnostic category. Place your ratio calculations in the table for your
selected companies—primary company and benchmark competitor. Using 5 diagnostic
categories, and 3 ratios to assess each category, results in 15 ratio measures
per company that will be compared side by side.
6.) To
validate your research, 5 years of data should be analyzed.
7.) The financial analysis report must be written
properly. They must include a title page, a table of contents, and a reference
page. For both midterm and final report, information sources from the web, etc.
must be cited properly, using APA style.
This means that every table that you cut and pasted
or typed from the web must have a source at the bottom of the table AND that
citing must also be included in a reference page at the end of the report.
The parts of the research paper are discussed
below. The completed report (parts a through h) is due day 7 of week 6. Your
project should include:
a.
An overview of the corporation.
i. Provide
general information regarding the type of business, products and/or services,
location of headquarters, name of CEO, number of employees, and countries of
operation, etc.
b.
The latest financial statements
i. Get
the income statement, balance sheet, cash flow statement, and the statement of
owners’ equity for the past fiscal year. Create Turnitin-friendly versions of
the financial statements; do not just ‘cut and paste’ them in your report. Do
not forget to cite the source under each statement.
ii. If
you cannot cut and paste them, you may have to type in the information in a
table in your report.
c.
A summary of each financial
statement
i. Take
each statement and state the key parts in words. Tell a story from each of the financial statements. For example, for the income statement,
the story starts like, “Total Revenues in 2010 were $10 billion, while Cost of
Goods Sold were $8 billion, leaving a gross profit margin of $2 billion, or 20
percent of total revenues….After taking out interest and taxes from EBIT, the
net income was $0.5 billion, or 5 percent of total revenues.”
d.
Ratio calculation (include 5
major types of ratios. Refer to chapter 3, Analysis of Financial Statements)
i. Organization
of this section is based on the FIVE types of ratios listed in the text
book. Calculate the ratios from
the financial statements in part c above using Excel or your calculator and
present them in a table.
ii. Find
industry financial ratios online (eg. Yahoo.com) and compare your corporation’s
ratios to these industry ratios.
iii. Present
your results following the five types of ratios discussed in part d.
iv. A
table with both corporation and industry ratios is required;
v.
e.
Discussion of key statistics
provided by sources like Yahoo finance.
i. There
are many different other statistics available for your corporation. These
include market value, beta, and diluted EPS, etc. Discuss some of the key
statistics that you think can assist you to determine if this corporation is a
good buy or sell.
f.
For you to decide if a
corporation’s stock is a good buy or sell, you must forecast several key
variables, including the stock price.
i. Use
historical prices (5 years of monthly data recommended) and forecast the stock
price for the next year. Use regression analysis, and/or moving average, etc.
to create your forecast.
ii. Create
a graph from the historical data and show your forecast on the same graph. You
can add a trend line to the graph to help you with a forecast. Include the graph in your report.
iii. You
need to say specifically what the forecasted value of the stock price is.
iv. You
must address the question, “Is this forecast reasonable?” Must you amend your analysis to get a
more reasonable forecast?
g.
Other information pertinent to
the corporation that could affect its future performance and stock price.
i. This
could include dividend policy, capital structure, bond ratings, expert opinions
on TV, new projects, litigation, regulation, etc. Search for information on the
web regarding this corporation. Look at company complaint blogs, etc.
h.
Recommendation regarding the
future of this corporation.
i. Is
the stock a good buy, average buy, or a poor buy (implying a good sell)?
ii. Include
a justification of your recommendation based on your analysis and
research.
