Homework: Investment Analysis & Forecasting
Length: 3 to 6 pages.
Competencies Measured
By successfully completing this homework, you will demonstrate your proficiency in the course competencies through the following criteria:
I. Competency I: Evaluate the financial health of the firm
i. Construct a ratio analysis for a company.
ii. Describe how to forecast revenue, profitability, and asset management.
iii. Evaluate techniques for forecasting financial statements.
iv. Choose ratios to include in the forecasting analysis.
v. Choose non-financial factors to include in the forecasting analysis.
II. Competency II: Apply evaluation principles of various financial instruments.
i. Articulate qualitative factors to consider when selecting an investment.
ii. Determine financial ratios to consider when selecting an investment.
iii. Determine non-financial factors to consider when selecting an investment.
In 3 to 6 pages, complete a ratio analysis using a provided balance sheet and income statement, specify how you would analyze a potential investment, and describe how you would forecast a company's potential success.
Introduction
An investment analysis has two fundamental components: (i) A financial analysis, such as reviewing current financial ratios within the company, and (ii) a non-financial analysis, which is reviewing a company's strategic vision, employee satisfaction, et cetera. The first two parts of your homework provide an opportunity for you to demonstrate both of these types of analyses.
The goal of forecasting the performance of a company is to estimate the financial performance of a company over a selected period of years. When forecasting a company's performance, similar to an investment analysis, you look at both financial and non-financial factors. This is the focus of the last part of your homework.
Instructions
Part I: Ratio Analysis (1-2 pages)
Using the XYZ Balance Sheet and Income Statement and the table provided below, complete the following for XYZ Inc.:
o Calculate the indicated ratios for XYZ.
o Construct the DuPont equation for both XYZ and the industry.
o Use your analysis to outline XYZ's strengths and weaknesses.
o Say XYZ had doubled its sales as well as its inventories and common equity during 2013. Do you think this would this affect the validity of your ratio analysis? No calculations are necessary.
RatioXYZ Inc.Industry AverageCurrent 2.0xQuick 1.3xDays sales outstanding 35 daysInventory turnover 6.7xTotal assets turnover 3.0xProfit margin 1.2%ROA 3.6%ROE 9.0%
Part II: Investment Analysis (1-2 pages)
For this part of the homework, imagine that you are looking into investing in a manufacturing company, such as a car company or a steel company. Your goal is to create a plan for determining the potential strength of an investment in the company (investment analysis) and determining how the company might perform over a selected period of years (forecast).
After considering a potential investment in this manufacturing company, address the following:
o What are some of the qualitative factors that must be considered when selecting a company in which to invest?
o What financial ratios would you examine, and why?
o What non-financial factors would you examine, and why?
Use research from at least two references to support your ideas.
Part III: Forecast (1-2 pages)
Using the same hypothetical manufacturing company described above, address the following questions related to forecasting the performance of the company:
o How would you forecast revenue, profitability, and asset management, such as inventory control and accounts receivable, for a hypothetical manufacturing company?
o What ratios would you analyze?
o What techniques would you use? Why?
o What non-financial factors would be important in your analysis?
Format your homework according to the following formatting requirements:
o The answer should be typed, using Times New Roman font (size 12), double spaced, with one-inch margins on all sides.
o The response also includes a cover page containing the title of the homework, the student's name, the course title, and the date. The cover page is not included in the required page length.
o Also include a reference page. The Citations and references must follow APA format. The reference page is not included in the required page length.