ACCOUNTING REPORT
steve912
2.pptxFinancial Statement Analysis Project
Business, Moat, Risk, and Management
Requirements for the Project
You have now been assigned to a group to research a company of your choice, and you may work with group members you never met before.
At the end of the semester, each group is required to submit a research report and give a presentation.
Each student is required to present. While the report will be graded as a group, presentation will be graded individually. Therefore, each group member may receive a different grade for the project.
Responsibility for Team Work
Each group member is expected to contribute equally to the project.
Free ride is ABSOLUTELY unacceptable
You should have a positive attitude toward the team work, and collaborate with the group to get job done.
Meet on-line and use cloud services to share files if you can’t meet in person
Failing to contribute to the project or distracting the team work may result in grade deduction, or even being removed from the group and receiving a zero for the project
At the conclusion of the project, you are required to evaluate the contribution of group members and yourself.
Receiving a low evaluation score may result in grade deduction, up to 20% of the group grade.
Two Requirements before We Invest
From Warren Buffett
It must be a “Wonderful Business”
A company we would like to own for the next 10 years
A company that we can understand
A company that has durable competitive advantage (moat)
A company that is run by honest, passionate people (management)
It must have attractive price
We must know the fair price of the company – how much it is worth today for the profits it will produce in the future
Wait for an event that puts the company on sale
Business
Read through Item 1 of 10-K
Understand the company’s business (is it too hard?)
Where does the company stand in the industry?
What is company’s competitive advantage? Is it going to be durable for the next 10 years?
What is the company’s competition?
Moat
According to Warren Buffet and his long-time partner Charlie Munger, moat is the durable competitive advantage of the company
There are five types of moats:
Brand: Toyota, Apple, Coca-Cola
Switching: Apple, Microsoft
Secret: Pfizer, Coca-Cola, 3M
Toll Bridge: Burlington Northern Santa Fe Railway (BNSF)
Price: Walmart, Costco
What is the moat (or moats) of your company? How strong is the moat?
Sign of a Moat
The following growth rates can indicate the strength of the company’s moats
(Book value + Dividend) per share growth rate
Earnings per share growth rate
Cash flow from operation per share growth rate
Sales per share growth rate
Risk
Read through Item 1A of 10-K:
What are the main risk factors the company is facing?
Are these risk factors going to harm the company’s moat in the next 10 years?
Management
Passion: The CEO wants to change the world!
Shareholder oriented: Management knows who they work for and why
Honesty: CEO is willing to tell us bad news along with good news
Research Management
CEO Letter to the Shareholders
Interviews and speeches (from youtube or other online sources)
Does the CEO have a good track record? Is he/she new to the job (< 2 years)?
Are they selling a big chunk of shares (say, <30%) in their company?
Is the CEO more interested in building an empire or growing business?
Sign of Good Management
The following indicators can tell me how well the management team runs the company:
ROE
ROA
LT Debt to Earnings ratio (< 2 year)
Submission of Your Work
Submit to Canvas a one-page typed write-up of the company’s business, moat, risk, and management by February 20th for comment
The write-up will not be graded, but it gives me an opportunity to provide feedback, so you can revise it in the final report
Write the report in your own words and do not plagiarize 10-K and any other sources. The app in Canvas will check for plagiarism. Plagiarism is considered cheating.
While you will not lose credit for not submitting the write-up, I will not give feedback if it is late.
