The specific objective of this graded written research exercise is to prepare an “executive level financial report” to the Chief Financial Officer (CFO) of a mythical company in which you are employed as a financial analyst. This report will pertain to the financial evaluation of a real, publicly-traded, company. It will require independent research (web-based or library), careful financial analysis, and the proper application of key financial theories and formulas.
· identification of the company by ticker symbol and name
· a reasonable and appropriate explanation of why you want to examine the alternative company
· the source of the analyst’s report that will be used in the analysis (which must be submitted to me)
· acknowledgement by you that all of the specific elements of the assignment (see below) will be prepared by you and included in the final research project report
You are a financial analyst with the mythical High Technology Corporation (“HTC”). HTC is an established manufacturer of a line of electronic components, which services an international market. HTC is currently a new fully-integrated wireless communication service for world-wide use. A competitive technical and economic product evaluation has determined that THE COMPANY THAT IS TO BE ANALYZED FOR THIS PROJECT) (a real publicly-traded company) is the best potential candidate for a long-term commitment.
THE COMPANY is offering a competitively favorable deal. However, based on some serious general concerns about the fallout of companies in the industry in general, the CEO has asked your CFO to conduct a financial analysis of THE COMPANY to determine if it is prudent to commit to this company’s communication system. The cost of cutting over to the new communications system is significant and any interruption in support during the next few years would adversely affect HTC’s performance and profit.
Specifically, the primary question is: will THE COMPANY be financially viable over the next two to three years?
YOUR SPECIFIC ASSIGNMENT
Your specific assignment is to research, analyze, and prepare a report for the CFO on the actual financial performance of THE COMPANY THAT IS TO BE ANALYZED FOR THIS PROJECT. In addition to reviewing the traditional financial performance indicators, you are also to review THE COMPANY’S past and current stock performance. Your report includes three parts:
(1) An evaluation of THE COMPANY’S financial performance for the last three years. (See detailed description below)
(2) An evaluation of THE COMPANY’S stock performance for the last one year. (See detailed description below)
(3) Finally, a specific recommendation, with supporting rationale, as to whether or not THE COMPANY’S recent trend in financial and stock performance is of sufficient financial strength to warrant entering into a long-term commitment.
To assist you in your task, the CFO has provided the following general guidance. Since it is recognized that the industry is undergoing a major contraction, it is very important to comparatively evaluate THE COMPANY’S financial and stock performance trends against its Industry or major competitor.
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.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.
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.
YOUR SPECIFIC ASSIGNMENT
Using the information from the websites the students have to develop evaluation of the financial and stock performance for THE COMPANY. (Totally 85% of the assignment grade)
-1—Background and Industry (one short paragraph).
-2—Analysis of the most significant financial performance results. (15% of the project grade)
a. Select of most significant financial performance results for the company. Create a table that contains the THE COMPANY’S financial performance results for the last three years and for the major competitor or industry for the last year: Revenue, net income, working capital, and other financial performance results of your choice. Present the table with this information in your report.
b. Write about 1 page of the trend analysis of these financial performance results.
-3— Financial ratio analysis. (15% of the project grade)
Find financial ratios for the company for the last 1-3 years and its major competitor for the last year in the Internet.
a. Present the ratios as the table(s) in your project.
b. Write about 2 pages of analysis of the ratio results that you found. Compare the ratio results against the industry or main competitor. In your analysis you should answer the following questions:
· How liquid is the company?
· How is the company financing its assets?
· Is management generating a substantial profit on the company’s assets?
-4- Evaluate Return on Equity for the company for the last three years using the DuPont analysis. (10% of the project grade)
a. Taking the information from the Income statements and the Balance sheets, calculate the company’s net profit margin, total assets turnover equity multiplier, and return on equity using the DuPont formula for the company for three years. Show your calculation!
ROE = Net profit margin x Total assets turnover x Equity multiplier
= Net income/Sales x Sales/Total assets x Total assets/Common equity
You can use Revenue instead of Sales.
b. Compare the results to main competitor. For the major competitor you can use ratios from the Internet or calculate them for the last year.
Write about 1 page of analysis of the results that you received. In your report please answer the question: If the management of the company would like to improve their return on equity, what should the management of these companies do?
-5- Evaluate other areas of financial analysis: capital spending, Beta values, credit rating service valuations (if possible), bond rating valuations (if possible), etc. (10% of the project grade)
1) Find the data for capital spending. How much did THE COMPANY spend on research, development, and engineering in the most recent year? How did this compare with the previous year?
2) Find the current beta for the company and its major competitor in the Internet.
a. Present beta results as the table in your project.
b. Write about 0.5 page of analysis of beta values that you found. Compare the beta values against the main competitor. In your report please answer the question: How risky the company is?
-6- Collect and evaluate the data about stock performance of the assigned company’s for the last one year. (20% 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.
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?
-2) Analysis of the historical stock prices trend for the last year.
a. Collect and evaluate the data about stock prices of the assigned company’s 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.
a. To get the current yield on 10-year Treasury securities go to Finance!Yahoo’s at www.finance.yahoo.com -click on Market Data – Bonds. 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. Show this information in your project.
b. To get the market return go to money.cnn.com , Click on Market, then click on S&P 500.You will use 52-weeks change for S&P500 listed as “Year-to-Date” percentage change. Show this information in your project.
c. Calculate the required return on THE COMPANY stock using the Capital Asset Pricing Model (CAPM) Security Market Line. Please show your work.
d. Find on the Internet the 52-weeks change of the stock price. Compare the required return on the stock calculated using CAPM against it’s historical return over the last 52 weeks, found on the Internet. Is there a difference between these returns? Is THE COMPANY’S stock overvalued, undervalued, or properly valued? Why? Explain your answer.
–7- Develop a specific recommendation, with supporting rationale, as to whether or not the assigned company’s recent trend in financial and stock performance is of sufficient financial strength to warrant entering into a long-term commitment (about 1 page) (15% of the project grade).
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