final assignments

FI305 GROUP PROJECT

Students will work in randomly assigned groups and group information can be found on Blackboard.

This project is designed to;

a) familiarize students with various types of data available to investors for analyzing companies, b) provide an opportunity to get some hands-on experience applying corporate finance theory and models to real firms. In the process, students will:

· examine the history of a firm and perform a ratio and industry analysis

· forecast cash flows for the firm

· perform a simple valuation of the firm

Part I: History and Financial Ratio Analysis (Due week 6 (Oct 07))

A. Provide a brief history of the firm and a discussion of the industry in which the firm operates. Points of interest for this analysis include: the bargaining power of suppliers and customers, the threat of new entrants and the threat of substitute products. All sources of information should be footnoted in the document.

B. Analyze the financial performance of your firm using historical financial statements for the last 5 years. Examine any relevant trends within your company over the past five years. For this you have to conduct a ratio analysis and a DuPont analysis. Since the definitions of ratios may vary by source, you need to calculate these ratios yourself. Consequently, while the above analysis should be discussed in a text document, you should also turn in ONE Excel spreadsheet that includes:

· A copy of the balance sheets and income statements for your company for the past 5 years. Ratios should be calculated directly within this spreadsheet, using cell formulas linked to the financial statement data, so that we can see exactly how each ratio is being calculated.

· Include ratio analysis and DuPont analysis for your firm. Remember analysis is more important than calculation of ratios.

Important: The project will be graded based on correct data collection, completeness and correctness of relevant ratios and quality of your analysis (detailed analysis that helps reader understand the financial health).Your write-up should include detailed history of firm, industry analysis, discussion of trends in various ratios. What do these changes tell us about firms’ performance? Combine the information that you get by analyzing different ratios to create a comprehensive report.

Possible sources: Company Annual Reports (edgar.sec.gov), industry trade magazines, Value Line Investment Survey industry analysis, Morningstar

Part II: Cash flow forecasts and Valuation (Due week 11 (Nov 11))

A. DCF Analysis: Calculate your firm’s value using a DCF model with a 10-year forecast period, followed by constant terminal growth thereafter. Use analyst estimates from finance.yahoo.com, Bloomberg and your own assessments to forecast future growth rates. Based on these estimates, what is the value of the firm’s stock? How does your answer compare to the firm’s current stock price (in percentage terms)? Why might the two differ?

· What is your recommendation with regard to the stock of this company? Is it a buy, sell, or hold? Be sure to justify your answer.

B. Multiples analysis: Examine your firm’s P/E ratios. How do they compare to the firm’s closest competitors and to the industry in general? Based on your competitors’ average P/E ratio, what should be the value of your company’s equity? If there are industry specific multiples ratios you discover in your research, feel free to use these as well. Be sure to document your sources.

C. DCF and multiple analysis may (will) give you different values for your firm. Find a way to reconcile the two.

· Hint: check whether growth rate/capex assumptions in the DCF are consistent with the PE multiple assumed.

Important: You need to make many assumptions to create pro-forma statements. Discuss the rationale behind those assumptions in details. For every recommendation/conclusion, discuss the rationale.