Financial Management research
project
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 categories
Chosen company
vs.
Benchmark competitor
1.) Liquidity of
short-term assets
-Current ratio
-Cash ratio
-Quick ratio
-Current ratio
-Cash ratio
-Quick ratio
2.) Long-term
debt-paying ability
-Debt ratio
-Debt-equity ratio
-Times interest earned
-Debt ratio
-Debt-equity ratio
-Times interest earned
3.) Profitability
-Net income/sales (profit margin)
-Net income/assets (ROA)
-Net income/shareholder equity
(ROE)
-Net income/sales (profit margin)
-Net income/assets (ROA)
-Net income/shareholder equity
(ROE)
4.) Asset utilization/
management efficiency
-Total asset turnover
-Inventory turnover
measures
-Accounts receivable turnover
-Total asset turnover
-Inventory turnover
measures
-Accounts receivable turnover
5.) Market measures
-Price/earnings ratio
-Earnings per common share
-Dividend payout
-Price/earnings ratio
-Earnings per common share
-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.
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