Assignment: Principles of Financial Management
Your Project document (PowerPoint) should include:
1. Introduction (2 slides)
This part should be a short description of the company you are going to analyze. You can mention the objective of the company, the industry, latest news and a brief history. The introduction should be no longer than two slides.
2. Common size financial statements (2-3 slides)
Write a short summary of the three main financial statements: Balance sheet, Income Statement and Cash Flow Statement for the last two years. You should include common size balance sheet and income statement. Focus on performance of net income, dividend payments, asset size, shares outstanding and the market price of the share.
3. Ratio (Trend) Analysis (5 slides)
This ratio analysis should include just a Trend analysis. It requires calculating the ratios mentioned below for your company and compare the most current annual statements with the ones of one and two years ago (trend analysis). For this analysis, you should define (briefly) and calculate the following ratios:
• Liquidity Ratios: Explain liquidity ratios, why they are important and what they mean. Calculate and compare the Current Ratio and the Quick Ratio and discuss implications for your company.
• Efficiency Ratios: Explain asset management ratios, why they are important and what they mean. Calculate and compare the Inventory Turnover, the Day Sales Outstanding and the Total Asset Turnover Ratio and discuss implications for your company in comparison to itself.
• Leverage Ratios: Explain debt management ratios, why they are important and what they mean. Calculate and compare the Total Debt to Total Assets Ratio and the EBITDA Coverage Ratio and discuss implications for your company in comparison to itself.
• Profitability Ratios: Explain profitability ratios, why they are important and what they mean. Calculate and compare the Profit Margin on Sales, Return on Total Assets and the Return on Equity and discuss implications for your company in comparison to itself.
• Market Value Ratios: Explain market value ratios, why they are important and what they mean. Calculate and compare the Price/Earnings Ratio and the Market/Book Ratio and discuss implications for your company in comparison to itself.
4. Valuation (3-4 slides)
In this section, you should include: the current stock price of your company, how has the stock performed relative to the market over the past six months? Use a chart to explain.
Also, you have to calculate the value by two methodologies:
1. DGM: Let's assume at first that the firm's dividend is expected to grow at the same rate as the last 5 years over time. If so, intrinsic value can be calculated using the Dividend Constant growth model. Estimate the Price of the stock based on this model and say if the current price is undervalued or overvalued in comparison to your calculation.
2. CAPM: Calculate the required rate of return of the company using the CAPM. (You will require current beta of the company, risk free rate (t-bill 90 days) and the expected return of the market (S&P500 average return in last five years).
5. Conclusion (one slide)
General conclusions about the company. Do you think it is performing at optimum? Does this company improve their situation during last two years? Is it ahead of its competitor/industry? What changes would you recommend?
6. Appendix and Bibliography (3-4 slides)
The appendix should be a copy of the financial statements of your company: the income statements, the balance sheets and the cash flow statements for the two most recent years. Bibliography should have a standardized format (You should include all other sources that you use in addition to your textbook. It is strongly recommended to have at least three sources to complement).
Notes:
• I would recommend referring material outside of your textbook (library, Internet, etc.) in order to explain your conclusions.
• Number all your pages from the introduction onward.
• You have to get your Financial Statements from the Database "MERGENT Online". (You can find it on the UIW Library website).
• For your presentation you have to consider among 12-15 minutes. No less, no more. It is very important to talk more about group's conclusion and less about history of the company.
• For your presentation, I strongly recommend to practice before and double check every slide.