Finance
Research Project Part 2
Bond and Stock Performance Analysis
OBJECTIVE
In this part of the project you are to assume to have been hired to join a team serving as an internal financial analyst to Flowserve Corp FLS. Your client plans to invest in bonds and (or) stocks issued by Flowserve Corp FLS. In part 6 of the assignment you are asked to provide some recommendations to THE COMPANY’S management.
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.
http://finra-markets.morningstar.com/BondCenter/Default.jsp - To find the information on bonds, click on Search in the middle of the screen (under Market Center Bond Guide), under Quick Search type the Issuer Name and the Symbol, and click SHOW RESULTS.
https://markets.businessinsider.com/bonds. To find the information on bonds, scroll down the page, type the name of the company in the window under Bond Finder, and click SEARCH.
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 you will develop evaluation of bond and stock performance for Flowserve Corp FLS. (The evaluation portion will total 85% of the assignment grade)
-1—Background and Industry (one short paragraph).
-2- The financial leverage ratios (10% of the project grade)
a) Find the financial leverage ratios for Flowserve Corp FLS for the last 3-5 years in the Internet. Present these ratios as the table(s) in your project.
· Debt-to-assets ratio (Debt ratio)
· Debt-to Equity ratio
· Interest Coverage ratio (the Times Interest Earned)
b) Write (about) 1 page of the analysis of the ratio results. In your analysis you should answer the following questions. Please explain your answer to each question.
How is THE COMPANY financing its assets? Discuss how much risk is associated with the bonds issued by the company? How can this risk be measured? Please explain.
-3- Collect and evaluate the data about bond performance of Flowserve Corp FLS. (15% of the project grade).
The information on bonds can be found on the website http://finra-markets.morningstar.com/BondCenter/Default.jsp. To find the information on bonds, click on Search in the middle of the screen (under Market Center Bond Guide), under Quick Search type the Issuer Name and the Symbol, and click SHOW RESULTS.
Another useful website on bond information is https://markets.businessinsider.com/bonds. To find the information on bonds, scroll down the page, type the name of the company in the window under Bond Finder, and click SEARCH.
Copy the quotations of two bonds issued by Flowserve Corp FLS that contain the Price. Present these quotations in your project.
1. Assume that par value of the bond is $1,000. What were the last prices of the bonds in $$$ (listed in the Price column)? Show your work in your project.
2. Assume that par value of the bond is $1,000. Calculate the annual coupon interest payments. Show your work in your project.
3. Assume that par value of the bond is $1,000. Calculate the current yield of the bonds. Show your work in your project.
4. Write a 1-2 page of the analysis of the bonds. In your analysis you should answer the following questions. Please explain your answer to each question.
a. How much is the YTM listed in quotations is for the bonds? Explain the meaning of YTM?
b. If you are going to buy a bond issued by THE COMPANY, which bond would you choose? Why?
c. Are these bonds callable? If the bonds that you chose are callable (non-callable), will it change your decision to buy them?
d. If you are an investor who is looking for a bond to invest in, are you going to buy a bond that you chose? Take a look at the balance sheet and income statement of the company. What data or ratios support your decision to buy this bond or not? You may want to incorporate the results of the Research Project Part 1, as well as the results of the financial leverage ratios to answer this question. You should develop a specific recommendation, with supporting rationale to explain your answer.
-4- Collect and evaluate the data about stock performance of the assigned company for the last one year. (totally 35% 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. (10% of the project grade)
a. Present the market ratios as the table(s) in your project.
b. Write about 1 page of analysis of the market ratio results that you found. Compare the market ratio results against the industry or main competitor. In your report please answer the question: Are the common stockholders receiving an adequate return on their investment?
c. Compare the P/E ratio of your company with the industry average or 5-year average. Is the stock overvalued, undervalued, or properly valued? Why? In accordance with your findings, is it reasonable to buy the stock? Please explain your answers.
-2) Analysis of the historical stock prices trend for the last year. (10% of the project grade)
a. Collect and evaluate the data about stock prices of the assigned company for the last one year for the company and its major competitor.
b. Create the chart(s) using the stock price chart tools on the websites or Excel. Present the chart(s) in your project.
c. Write about 0.5 page of analysis the historic 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. (15% of the project grade)
1. Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate the required return on stock. Note that you will need the risk-free rate, beta, and the market return.
a) To get the current yield on 10-year Treasury securities go to www.finance.yahoo.com -click on Markets - U.S. Treasury Bonds Rates. You will use the current yield on 10-year Treasury securities as the risk-free rate to estimate the required rate of return on stocks. Discuss how appropriate this rate is as a measure of risk.
b) Between 1926 and 2017, the compound annual rate of return of S&P 500 is estimated a 10%. We will use this number as the market return. Discuss how appropriate this rate is as a measure of return.
c) Beta is listed in www.finance.yahoo.com under Trading Information – Stock Price History, as well as on the company's front page. What is the beta listed for the company? What does it mean?
d) Calculate the required return on the stock using the Capital Asset Pricing Model (CAPM) Security Market Line. Please show your work.
2. There are several methods how to calculate the growth rate. One of the possible ways is to calculate the sustainable growth rate as g = ROE *(1- Dividend payout ratio). You can find ROE and the dividend Payout Ratio on www.finance.yahoo.com under Statistics.
Calculate the company’s sustainable growth rate. Please show your work.
3. Apply the Gordon model (constant growth rate model) to calculate the intrinsic (economic) value of the stock. Please show your work.
Please note that for some companies it is not possible to use the 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?
4. Compare the result of your calculations with the current stock price. Is the stock overvalued, undervalued, or properly valued? Why? In accordance with your findings, is it reasonable to buy the stock? Why? Please explain your answer.
-6- Develop a specific recommendation, with supporting rationale for the COMPANY’S management - Think about the financial strategy of the company, how to best balance THE COMPANY’S financial leverage to optimize shareholder wealth going forward taking into consideration the company's current market position, credit rating, dividend policy, etc. (10% of the project grade).
-7- Reflection - the students should write a paragraph in their own words reflecting on what they learned from the assignment and how they think they could apply what they learned in the workplace. (5% of the project grade).
PRESENTATION OF PAPER AND WRITING (15%) of the project grade):
-Organization, Format and Presentation of Paper including the Title page, Introduction, Body, and Summary. Each section of the paper must begin with a sub-heading. Please use the sub-headings included in the assignment (4% of the project grade)
Use of Tables, Figures and Other Graphics to Summarize and Support Analysis Presented in the Paper (3% of the project grade)
Logical and Smooth Flowing Transitions and Relationships among Sections of the Written Report (3% of the project grade)
Research Sources and Significance of Research Information and Data, Use of APA Citation Methodology (5% of the project grade).
This Research Project report should be about 8-10 pages or more double-spaced typewritten pages (without tables and graphs). The assignments for both parts include suitable comparative, quantitative and qualitative analyses and conclude with a specific and supported recommendation and reflection.
Please note that Use of APA Citation Methodology is required for the assignment.
All works must be Word processed. Handwritten and scanned work will not be accepted and graded.
In accordance with the Academic Policy, notes taken for papers and research projects should accurately record sources of material to be cited, appropriately quoted, paraphrased or summarized, and papers and research projects should acknowledge these sources in the appropriate places in the text of the paper as well as in a reference list at the end of the paper, in accordance with accepted citation practices. No more than 20% of the text of the project should be made up of quotes.
The resubmission of research projects from previous classes (whether or not taken at this institution), partially or in its entirety, is unacceptable, and will result in a grade of zero for the graded exercise.
Written projects must be:
1. typed, double-spaced, in 12-point Times New Roman or Arial font, with margins no wider than one inch
2. have footnotes or endnotes, with correct citations
3. have a bibliography of sources used
4. include, for each entry, the author, title, city and state of publisher, publisher's name, year, and page numbers
5. prepared using word processing software (Microsoft Word preferred), in a manner similar to the preparation of a written assignment for classroom submission
PRESENTATION OF PAPER AND WRITING (15%) of the project grade):
-Organization, Format and Presentation of Paper including the Title page, Introduction, Body, and Summary (4% of the project grade)
Use of Tables, Figures and Other Graphics to Summarize and Support Analysis Presented in the Paper (3% of the project grade)
Logical and Smooth Flowing Transitions and Relationships among Sections of the Written Report (3% of the project grade)
Research Sources and Significance of Research Information and Data, Use of APA Citation Methodology (5% of the project grade)
Essential research data, financial calculations and other documentation as necessary to support your recommendation should be referred to in summary form in your report and attached in detail as enclosures. All major sources should be referenced. There is no set limit to the size of the enclosures, but it is recommended that only essential enclosures be attached. You should use references and bibliography to identify any remaining supporting documents you wish to include.
Rubric Name: Part 2 Project
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Criteria |
Excellent (90 and Above)
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Good (80 and Above)
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Financial leverage ratios analysis of the assigned company. (Prepare, analyze and interpret financial information) (10% of the project grade)
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10 points Excellent and successful effort to implement financial leverage ratio analysis of the assigned company; very clear linkages between financial ratio results and investment decisions and recommendations.
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8 points A good effort to develop financial leverage ratio analysis of the assigned company, the result are well explained and analyzed
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Collect and evaluate the data about bond performance of the assigned company. (Apply Financial Theories to Solve Financial Problems) (15% of the project grade)
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15 points Outstanding and very thorough development and articulation of bond performance analysis of the assigned company |
12 points A good effort is made to develop bond performance analysis of the assigned company.
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Market ratio analysis of the assigned company. (Apply Financial Theories to Solve Financial Problems) (10% of the project grade)
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10 points Excellent and successful effort to implement market ratios analysis of the assigned company very clear linkages between market ratios analysis and investment decisions and recommendations |
8 points A good effort to develop market ratios analysis of the assigned company, the result are well explained and analyzed
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Historical stock prices trend analysis (Apply Financial Theories to Solve Financial Problems) (10% of the project grade) |
10 points Outstanding effort to develop historical stock prices trend analysis.
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8 points A good effort to develop historical stock prices trend analysis
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The evaluation of the required rate of return assigned company' using the Capital Asset Pricing Model (CAPM) Security Market Line. (Apply Financial Theories to Solve Financial Problems) (15% of the paper grade) |
15 points Excellent and accurate evaluation of the assigned company's the evaluation of the required rate of return using CAPM; very clear linkages between stock performance results and investment
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12 points A good effort made to develop the evaluation of the required rate of return using CAPM, the result are well explained and analyzed.
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Develop a specific recommendation, with supporting rationale for your client. (Apply Financial Theories to Solve Financial Problems) (10% of the project grade)
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10 points Outstanding effort to develop a specific recommendation, with supporting rationale for your client, as to whether the assigned company's recent trend in financial and stock performance is of sufficient financial strength to warrant entering a long-term investment in bonds and/or stocks of the company. The results are well explained and analyzed.
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8 points Good effort to develop a specific recommendation, with supporting rationale for your client, as to whether the assigned company's recent trend in financial and stock performance is of sufficient financial strength to warrant entering a long-term investment in bonds and/or stocks of the company.
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Reflection - the students should write a paragraph in their own words reflecting on what they learned from the assignment and how they think they could apply what they learned in the workplace. (5% of the project grade)
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5 points outstanding effort towrite a paragraph in their own words reflecting on what they learned from the assignment and how they think they could apply what they learned in the workplace.
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4 points Good effort write a paragraph in their own words reflecting on what they learned from the assignment and how they think they could apply what they learned in the workplace.
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Organization, Format, and Presentation of paper including introduction, body, and summary. Each section has sub-headings (Communicate, collaborate, lead and influence across the organization to achieve organizational goals) (4% of the project grade)
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4 points Paper is organized and very easily followed. The paper follows APA format and contains no or very few errors.
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3.2 points Paper is neatly presented without major blemishes and is generally well-organized
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Use of Tables, figures, and other graphics to summarize and support analysis presented in paper (Research, collect, synthesize and interpret data by applying appropriate technology tools to solve business problems) (3% of the project grade)
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3 points Tables, figures and other graphics are very descriptive and provide exceptionally strong support for the paper; there are no errors in labels or in the numbering sequence
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2.4 points Tables, figures and other graphics are descriptive and provide a sufficient support for the paper; they are properly labeled and numbered
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Logical and smooth flowing transitions and relationships among sections of the written report (Communicate, collaborate, lead and influence across the organization to achieve organizational goals) (3% of the project grade)
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3 points Transitions are used throughout the written analysis and provides a logical transition from topic to topic.
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2.4 points Good transitions used in most sections
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Research sources and significance of information and data applying appropirate technology tools to solve business problems, APA citations, double-spaced, 12-point font Times New Roman (5% of the project grade)
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5 points Successful identification and use of appropriate and professional research sources including Library Search Engines, Websites, S&P, SEC, stock exchanges, Morningstar, NYSE, Competitors, 10K Report, analyst reports, news releases, articles, etc.; appropriate and accurate documentation, APA citations are accurate and of the highest level.
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4 points A good effort to identify and use appropriate and professional and supporting research sources; appropriate and professional use of APA documentation, use of double spaced, with one-inch margins, and use 12-point Times New Roman font.
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Format of the Research Project (As it is stated in the Syllabus):