CORPORATE FINANCE PROJECT AND REPORT:
Each student is required to perform a research on a Corporate Finance project that involves writing a report (25-30 pages) on a publicly traded company based on its available current financial data. The project involves four parts, namely,
1) The Background Analysis of a company and its Benchmark Competitor
2) The Comprehensive Financial Analysis of the same company against its competitor
3) The Computation of Cost of Capital of the same company, and
4) The Historical analysis of the Company Stock Price
ALL CALCULATIONS FOR THE PROJECT SHOULD BE DONE IN EXCEL AND ALL EXCEL OUTPUTS HAVE TO BE SUBMITTED ALONG WITH THE PROJECT FOR EVALUATION
1) The Background Analysis of a Company and its Benchmark Competitor:
The first part of the project involves the analysis of the company background as well the background information of its major competitor. The following information must be analyzed:
a) A brief discussion on company products and the marketing strategies used (from company quarterly and annual publications and company websites).
b) The Board of directors and Management of both companies (can be obtained from the annual reports and proxy statements).
c) Top management compensation analysis of both companies (can be obtained from the company annual reports and proxy statements).
2) Comprehensive Financial Analysis of a company:
The second part of the project (using the tools and techniques given in Chapter 4 of the textbook) and its subsequent report is based on the Financial Ratio Analysis (Du Pont Chart Analysis) of a company and its available current financial data. The students are required to evaluate the company based on the trends in its financial ratios over time and evaluate them against the industry standard (a major competitor).
Details, including the selection of the company (for time-series evaluation) and its competitor (for cross-section evaluation), will be discussed throughout the semester. In general, the ratio analysis is done in the following steps:
a) In writing, submit the name of the company (publicly traded) and the name of its major competitor company within the first two weeks of classes for approval.
o Select the company and its competitor you want to use for your Financial Management Project and submit the company names to me ASAP. I will make sure that no two students select the same companies. Therefore, sooner you provide the company names to me, more would be the chances that I will allow you to keep the companies (i.e., nobody else has already selected the company). By the beginning of second week of the class, everybody will be required to select the company and its competitor for analysis. The student will not be allowed to complete the project in the course, if the submissions with publicly-traded company names are not received by the instructor by the deadline.
i) Evaluate the company using the following ratios: Current, Quick, Average Collection Period, Accounts Receivable Turnover, Inventory Turnover, Average Age of Inventory, Inventory to Net Working Capital, Total Asset Turnover, Fixed Asset Turnover, Fixed Charge Coverage, Basic Earning Power, Debt Ratio, Debt to Equity, Long-term Debt to Equity, Times Interest Earned, Total Profit Margin, Operating Profit Margin, Net Profit Margin, Return on Investment, Return on Asset, Return on Equity, Price-Earnings, Market-Value to Book-Value, Cash Flow per Share, Dividend Payout, and Dividend Yield ratios.
ii) Evaluate the company using the following accounting measures: Total Net Operating Capital, Net Operating Working Capital, Gross Investment in Operating Capital, Net Operating Profit after Taxes, Free Cash Flow, Operating Cash flow, Return on Invested Capital, Market Value Added and Economic Value Added.
iii) Use the ratio values and accounting measures to show performance trends (time-series analysis) of the company (at least for five years).
iv) Find industry quartiles for each of the ratio and accounting measures and evaluate the company ratios and accounting measures against the industry norm (a major competitor company) (cross-section analysis).
v) Write the analysis of the company on each of the ratio and accounting measurement areas (both time-series and cross-sectional analyses).
vi) Use the web resources available to obtain information on both time-series and cross- section ratios and accounting measures. A series of web addresses that also provide company financial and economic information are given below.
- www.MergentOnline.com
- Remote access to https://www.mergentonline.com
Username: finacct
Password: rtlibrary
https://finance.yahoo.com
https://www.reuters.com/finance
www.sec.gov/cgi-bin/srch- edgar/
https://www.sec.gov
https://www.moneycentral.com
https://www.frb.org
https://www.bloomberg.com
https://www.census.gov/econ/
https://www.stat-usa.gov/
https://ciber.bus.msu.edu/busres.htm
https://www.sba.gov
https://www.aflcio.org/corporateamerica
https://www.startupjournal.com
https://www.careers-in- business.com
https://www.fma.org
https://www.irs.gov
https://www.corpgov.net
https://www.nysedata.com
https://www.nasdaq.com
https://www.federalreserve.gov
https://stats.bls.gov
https://www.investor.reuters.com
https://www.moneyadvisor.com/calc
https://www.kiplinger.com/calc/calchome.html
https://www.standardandpoors.com
https://www.bigchart.com
https://www.dinkytown.net
https://www.ibbotson.com
https://www.financeadvisor.com/coc.htm
https://www.tmpages.com
https://www.sternstewart.com
Make sure to attach all the relevant printouts such as ratios and financial statements (submit them as attachments through the Assignment facility in the Black Board) you have obtained from various web sources with your final write-up.
3) Computation of Cost of Capital of the Company: In the third part, the cost of capital should be computed using the tools and techniques given in Chapter 10 and utilizing the most recent data (different web-based resources should be used to find necessary financial data such as common and preferred stocks, bond prices, and beta coefficient for the company). It should be done in the following
steps:
- Compute the after-tax cost of debt of the company.
- Compute the cost of preferred stock of the company.
- Compute the cost of internal equity capital using both Dividend Valuation Model and CAPM approach.
- Compute the cost of external equity capital.
- Compute the current capital structure (using the current financial statements of the company) to determine appropriate weights for different sources of capital.
- Compute the Weighted Average Cost of Capital the company should use to evaluate new projects.
- Use the web resources available to obtain information on both corporate growth rate,company beta, and calculation of cost of equity. A series of web addresses that also provide company financial and economic information are given below.
https://www.MergentOnline.com
www.sec.gov/cgi-bin/srch- edgar/
https://www.valueline.com/
https://finance.yahoo.com
https://www.reuters.com/finance
https://www.cnnfn.com
https://ciber.bus.msu.edu/busres.htm
https://www.ibbotson.com
https://www.moneycentral.com
https://www.ibes.com
https://www.zacks.com
https://www.firstcall.com/index.shtml
https://www.finplan.com/invest/divgrowmod.htm
https://www.altavista.digital.com/
https://www.bearval.com/
Make sure to attach all of the cost of capital printouts (submit them as attachments through the Assignment facility in the Black Board) you have obtained from various web sources with your final write-up.
4) The Historical analysis of the Company Stock Price:
In the fourth part, the stock analysis can be performed using the tools and techniques learned in chapter 6. The most recent stock price data must be used from different web-based resources. The historical analysis of the stock prices of the company involves the following:
- Perform the Graphical Analysis of the historical stock prices (daily stock prices for at least two years)
- Stock Price Trend analysis (using EXCEL Spreadsheet to Perform Regression)
- Comparison of regression coefficients and available market risk-free rate and company beta
- Compare the company stock price performance against the benchmark index (S&P,NYSE, NASDAQ etc.)
- Accessing Mergent Online Financial Data
- To access Mergent Online financial data,
1. First log on to https://www.mergentonline.com
2. At the Welcome screen, click enter mergent online
3. At the Basic Search screen, select Company Name or Ticker Symbol for identifier and type in company name or ticker symbol in the search box below
4. At the Search Results screen, click on your company
5. At the Company Details screen, click on the appropriate tab to obtain financial data
a. For example, if you are using data directly out of the financial statements, click on company Financials to access Balance Sheet and Income Statement
b. For example, if you want competitors data, click on Competitors
c. For example, if you need data on selected ratios, click on Company Financial and then on Ratios
Note: YOU NEED TO PLAN FIRST (MUST HAVE A STRATEGY) BEFORE COLLECTING DATA. To access industry (peer average) for your company
1. At the Company Details screen,
a. Click Create Reports
b. Click Comparison Reports
c. Click Compare Against Industry (you want to compare against industry)
2. At the Comparison Reporting Selection Screen
a. Select SIC (standard industrial classification – this is industry code for your firm)
b. Select Target country (USA) (you want US companies only)
c. Select all companies (you want to compare against all companies in the industry)
d. Check Use extended report items – a drop down selection menu will appear
e. Select Ratios for Category and your ratio(s) for Sub-category.
f. Click on Add Report Item to put your ratio(s) in the criteria box
g. Check Include average in heading below the criteria box
h. Select which year(s)
i. Finally, CLICK on Create Report Industry average and ratio values for your firm and all firms in the same SIC industry will appear on the screen. You may download these data to Excel.