Guideline: This Project Is Independent Work Instead Of Team

Guideline This Project Is Anindependent Workinstead Of Team Work I

This project is an independent work instead of team work. I understand that it could be challenging to meet or find a time to virtually meet during the Covid-19 pandemic. Accordingly, I have adjusted the project workload for individual students only. This project covers 20% of your final grade, with a chance of extra credit. The project is due on November 17, 2020, at 11:59 pm. Your final submission consists of two files: (1) Calculations in an Excel document showing all calculations and processes, and (2) an Analysis Report in a Word document including thorough analysis based on calculations, graphs, or figures explaining statistical summaries, or any supporting documentation that addresses the questions.

You are required to select a public company, excluding those listed below, ensuring no overlap with companies studied in class. Once you select your company, post its name and stock ticker on Brightspace—first come, first served. Companies you cannot choose include: American Tower Corp. (AMT), AbbVie Inc. (ABBV), Costco Wholesale Corp. (COST), The Walt Disney Co. (DIS), Intuitive Surgical, Inc. (ISRG), Merck & Co., Inc. (MRK), Uber Technologies, Inc. (UBER), PayPal Holdings, Inc. (PYPL), Exxon Mobil Corp. (XOM). Data resources include recent three-year financial statements (balance sheet, income statement, cash flow) from Yahoo Finance or similar sources. For risk-free rates, U.S. Treasuries are recommended; for beta estimates, sources include Value Line and S&P’s NetAdvantage.

Your assignment involves providing an introductory paragraph about your chosen company, including its products, customer base, key suppliers, significant recent events (mergers, divestitures, leadership changes, credit rating shifts, new product releases), and strategic orientation over the past three years.

Section 1: Financial Statement Analysis Calculations

Calculate the company's financial ratios over the past three years across six categories: liquidity, efficiency, leverage, profitability, market multiples, and DuPont ratio. For each ratio, compare your company's figures with those of a competitor (also calculated for the same period). The specific ratios are:

  • Liquidity: Current Ratio and Quick Ratio
  • Efficiency: Total Asset Turnover and Days Sales Outstanding
  • Leverage: Total Liabilities to Total Assets and Times Interest Earned (TIE)
  • Profitability: Profit Margins (percentage of revenue) and Return on Assets (ROA)
  • Market multiples: Price Earnings (P/E) ratio and Earnings Per Share (EPS)
  • DuPont Ratio: Decompose into profit margin, asset turnover, and financial leverage, and interpret each component.

Display all calculations in Excel, with clear processes shown, and then interpret these ratios to assess participant’s company's financial health.

Analysis Report

Write a detailed analysis discussing each of the six perspectives based on your ratios. Each paragraph should evaluate the company's financial health in that dimension, supported by your ratio data. For example, discuss liquidity in terms of current and quick ratios, efficiency with turnover ratios, leverage with liabilities ratios, profitability with margins and ROA, market valuation using P/E and EPS, and financial efficiency via DuPont analysis.

Section 2: Stock Valuation & WACC Calculations

Estimate the intrinsic stock value using Dividend Discount Model (DDM). If dividends are not issued, use a price multiple approach. Calculate the company's weighted average cost of capital (WACC).

Include a thorough analysis of your valuation and WACC findings:

  • Assess whether the stock appears undervalued or overvalued based on your calculations.
  • Evaluate if the company's WACC is high or low compared to industry benchmarks.

Make a reasoned investment recommendation: whether to buy or sell the stock, especially considering the potential impact of Covid-19 on the company's stock performance. Justify your decision based on your analysis, considering your investment horizon. For instance, a 'buy' recommendation may be valid if you believe the stock, currently undervalued, will rebound post-pandemic.

References

  • Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. John Wiley & Sons.
  • Brealey, R. A., Myers, S. C., & Allen, F. (2019). Principles of Corporate Finance (13th Ed.). McGraw-Hill Education.
  • Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013). Corporate Finance (10th Ed.). McGraw-Hill.
  • Higgins, R. C. (2012). Analysis for Financial Management (10th Ed.). McGraw-Hill Education.
  • Weston, J. F., Mitchell, M. L., & Mulherin, J. H. (2010). Takeovers, Restructuring, and Corporate Governance. Pearson Education.
  • Stephens, J., & Parmar, S. (2014). Financial Statement Analysis. John Wiley & Sons.
  • Standard & Poor’s. (2020). S&P Capital IQ Platform. S&P Global.
  • Yahoo Finance. (2020). Financial Data for Public Companies. https://finance.yahoo.com/
  • Value Line. (2020). Stock Research and Data. https://www.valueline.com/
  • Fama, E., & French, K. (1993). Common Risk Factors in the Returns on Stocks and Bonds. Journal of Financial Economics, 33(1), 3-56.

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