Finance Company analysis project

Ratios

Firm Name:
Firm Ticker:
Information needed for calculating ratios
For the Fiscal Period Ending	Year 1	Year 2	Year 3
Sales or Total Revenue
EBIT ==> Earnings before interest and taxes (Operating Income)
Interest Expense
Net Income to Company
Effective Tax Rate %
After Tax operating income = EBIT *(1-Tax rate)
Accounts Receivable
Inventory
Total Current Assets
Total Current Liabilities
Fixed Assets = Net Property, Plant & Equipment
Total Assets
Short-term Borrowings (Other Current Liabilities)
Long-Term Debt
Total Debt = Short-term Borrowings + Long-Term Debt
Total Equity
Ratios
For the Fiscal Period Ending	Year 1	Year 2	Year 3
Liquidity Ratios
Current Ratio = Current assets / Current liabilities
Quick Ratio = (Current assets - Inventory) / Current liabilities
Asset Management
Total Asset Turnover = Sales / Total assets
Fixed Asset Turnover = Sales / Net Fixed assets
Debt Management Ratios
Debt to Asset Ratio = Total Debt / Total assets
Times Interest Earned = EBIT / Interest expense
Profitability
Operating Margin = EBIT / Sales
Profit Margin = Net income / Sales
Basic Earning Power = EBIT / Total assets
Return on Assets = Net income / Total assets
Return on Equity = Net income / Total equity
Here we will calculate the market value ratios for the firm
	Current year
Stock price
Number of shares oustanding (Common Shares Outstg. (M))
Market Capitalization = Stock price * Number of shares oustanding
Most recent Net Income (Net Income as of the most recent income statement)
Most recent earnings per share (EPS) = Net income / Shares outstanding
Price to Earnings (P/E) Ratio = Price / EPS
Most recent Book Value (Total Equity as of the most recent Balance Sheet)
Book Value per share = Total equity / Shares outstanding
Market to Book (M/B) Ratio = Price / Book value to share

Risk & Return

	Hypothetical example to explain how to calculate monthly returns:
	Date	Firm Stock Prices	Firm's Monthly Stock Returns
	Mar 2022	148	2.07%
	Feb 2022	145	7.41%
	Jan 2022	135
#	Date	Firm Stock Prices	Firm's Monthly Stock Returns	S&P 500 ETF (MARKET)	S&P 500 ETF Monthly Returns (MARKET)		Note: Ticker Symbol in Yahoo Finance for SPDR S&P 500 ETF Trust - (SPY)
1
2
3							A.	Firm	S&P 500
4							Monthly Expected Return
5							Annual Expected Return
6							Standard Deviation
7
8							B. Capital Asset Pricing Model (CAPM)
9
10							Risk-Free Rate (Use the Interest rate on 10-year Treasury Bonds)		Source: https://finance.yahoo.com/quote/%5ETNX/
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14							Return on Market Portfolio (Use the annualized return on the S&P 500 Index )
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19							*Beta of Firm ==> Regress the Firm stock returns on the returns of the S&P500 Index (market portfolio). The slope of the regression line will give you beta of the Firm.		* To find the Beta of the stock you have to create the scatter plot of Stock Returns on Market Returns and then insert the trendline. You can also insert the equation of the trendline. The slope of the line will give you Beta. To recap the concept of Beta calculation you can watch the video on - Risk , and Return, Segment - Beta Calculation
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27							C. Required Return for Firm (Use the CAPM Model: Required return of the stock = Risk free rate + Beta * (Return on the market – Risk free rate)
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30							Risk Free Rate
31							Return on the Market
32							Beta
33							Required Return of the Stock
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https://finance.yahoo.com/quote/%5ETNX/

WACC

The Weighted Average Cost of Capital
The cost of capital is the weighted average cost of the debt, and common equity that the firm uses to finance its assets.
Definitions
WACC	Weighted average cost of capital
=	wd * rd * (1 – T) + ws * rs
rd =	Cost of debt
rs =	Cost of stock (common equity)
wd =	Percent of target capital structure financed with debt
ws =	Percent of target capital structure financed with stock (common equity)
T =	Tax rate
Note: In most cases you will not have preferred stock so the cost and weight of preferred stock will be 0.
	Other Data (Millions, except per share data):
	Number of common shares outstanding =	?
	Price per share of common stock =	?
	Choosing Weights for the Weighted Average Cost of Capital
			Value	Percent of Total
	DEBT ==> Use long term debt from Balance sheet				==> Weight of Debt = wd
	Total common equity = Stock price * Number of shares outstanding				==> Weight of Common Equity = ws
	Total		$0
	Cost of Debt: rd
	Use the following link to find the list of traded bonds and bond-rating for your company: https://finra-markets.morningstar.com/BondCenter/Default.jsp?part=3
	The yield to maturity of the bonds is the cost of debt.
	Pick a bond that has 10 - 15 years to matrurity Use the YTM of this bond as the cost of debt	???
Using the CAPM to Estimate the Cost of Common Stock, rs
	rs ==> Cost of Equity ==> Required Return on the stock
CAPM ==>	Required Return = risk-free rate + (Return on market - Risk free rate) * (Beta)
	The Risk-Free Rate
	Use the Yield on 10-year T-bond as the risk-free rate	???	Source: https://finance.yahoo.com/quote/%5ETNX/
	Return on The Market
	This can be taken from the Risk and Return sheet
	Use annual return on the S&P 500 index =	???
	Estimating Beta
	This can be taken from the Risk and Return sheet
	Beta for Stock = b =	???
	Cost of Equity = Required Return = risk-free rate + (Return on the market - Risk free rate) * (Beta)	???
The Weighted Average Cost of Capital (WACC)
The weighted average cost of capital (WACC) is calculated using the firm's target capital structure together with its after-tax cost of long-term debt, after-tax cost of short-term debt, cost of preferred stock, and cost of common equity.
WACC =	Weighted average cost of capital
=	wd * rd * (1 – T) + ws * rs
T ==> Tax rate =	???
wd =	???
ws =	???
rd =	???
rs =	???
WACC =	???

https://finra-markets.morningstar.com/BondCenter/Default.jsp?part=3 https://finance.yahoo.com/quote/%5ETNX/